WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period N/A
Commission file number: 0-10877
TCI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of other jurisdiction of incorporation or organization)
94-3026925
(I.R.S. Employer Identification Number)
222 Caspian Drive, Sunnyvale, California 94089-1014
(Address of principal executive offices) (Zip Code)
(408)747-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
As of March 31, 1998, 3,207,915 shares of Common Stock were outstanding.
TCI INTERNATIONAL, INC.
PART I FINANCIAL INFORMATION
Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements included herein
have been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes that the information included herein, when read in conjunction
with the financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended September 30, 1997, filed
with the Securities and Exchange Commission, is not misleading. Further,
the following financial statements reflect, in the opinion of management,
all adjustments necessary (consisting of normal recurring entries) to
present fairly the financial position and results of operations as of and
for the periods indicated.
The results of operations for the six months ended March 31, 1998, are not
necessarily indicative of results to be expected for the entire year
ending September 30, 1998.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenue $ 8,187 $ 9,472 $15,084 $20,140
Operating costs and expenses:
Cost of revenue 5,482 6,635 9,942 13,700
Marketing, general and administrative 2,895 2,969 5,440 6,455
8,377 9,604 15,382 20,155
Income (loss) from operations (190) (132) (298) (15)
Investment income, net 206 255 425 692
Income before provision
for income taxes 16 123 127 677
Provision for income taxes 0 39 38 217
Net income $ 16 $ 84 $ 89 $ 460
Basic earnings per share:
Net income, per share $ .00 $ .03 $ .03 $ .14
Shares used in per share
computations 3,204 3,196 3,203 3,188
Fully dilutive earnings per share:
Net income, per share $ .00 $ .02 $ .03 $ .14
Shares used in per share
computations 3,284 3,361 3,307 3,364
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
<TABLE>
March 31, September 30,
1998 1997
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 8,241 $ 10,439
(Includes restricted cash of $3,232 on March 31, 1998
$6,420 on Sept 30, 1997)
Short-term investments 4,375 4,089
Accounts receivable -
Billed 504 1,234
Unbilled 8,373 8,970
Inventories 1,399 2,118
Prepaid expenses 2,767 967
Total current assets 25,659 27,817
Property and equipment, net 1,692 1,623
Other assets 628 426
Total assets $ 27,979 $ 29,866
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,732 $ 3,560
Customer deposits and billings on uncompleted
contracts in excess of revenue recognized 1,665 1,019
Accrued liabilities 3,927 4,738
Total current liabilities 7,324 9,317
Stockholders' equity:
Common stock, par value $.01; authorized 5,000
shares; issued and outstanding 3,281 shares 11,780 11,780
Retained earnings 9,207 9,124
Valuation allowance-short -term investments (4) (4)
Treasury shares at cost; 73 and 79 shares at
Mar. 31, 1998 and Sept 30, 1997, respectively (328) (351)
Total stockholders' equity 20,655 20,549
Total liabilities and stockholders' equity $ 27,979 $ 29,866
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31,
(In thousands)
<TABLE>
1998 1997
<S> <C> <C>
Cash provided by (used in):
Operations:
Net income $ 89 $ 460
Reconciliation to cash provided by operations:
Depreciation 246 304
Changes in assets and liabilities:
Accounts receivable 1,327 (862)
Inventories 719 (532)
Prepaid expenses (1,800) 176
Other assets (202) 0
Accounts payable (1,828) (554)
Customer deposits/billing in excess of revenue 646 (1,646)
Accrued liabilities (811) 545
Cash used in operations (1,614) (2,109)
Investing activities:
Purchases of property and equipment (315) (228)
Purchases of short-term investments (3,345) (5,777)
Proceeds from sale of investments 3,059 8,290
Cash provided by (used in) investing activities (601) 2,285
Financing activities:
Stock options exercised 17 68
Cash provided by financing activities 17 68
Net increase (decrease) in cash and cash equivalents (2,198) 244
Cash and cash equivalents at beginning of period 10,439 7,249
Cash and cash equivalents at end of period $ 8,241 $ 7,493
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
TCI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Inventories consist of the following (in thousands):
March 31, September 30,
1998 1997
Material and component parts $1,143 $1,535
Work in process 256 583
$1,399 $2,118
Note 2
At March 31, 1998 there were outstanding standby letters of credit of
approximately $3,544,000 serving as performance and payment bonds. The
standby letters of credit expire at various dates through 2000; however,
certain performance bonds are automatically renewable until canceled by
the beneficiary. These outstanding standby letters of credit are fully
secured by the Company's cash or short term investment portfolio.
Note 3
Net Income Per Share
Basic net income per share is computed using the weighted average number
of common shares outstanding. Diluted net income per share is computed
using the weighted average number of common shares outstanding and
dilutive common share equivalents from the assumed exercise of options
outstanding during the period, if any, using the treasury stock method.
TCI INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second Fiscal Quarter of 1998
Compared to Second Fiscal Quarter of 1997
Except for historical information contain herein, the matters discussed
in this report contain forward-looking statements that involve risks and
uncertainties which could cause future results to differ materially.
Revenues for the first six months of fiscal year 1998 were $15,084,000, a
decrease of 25% over revenues of $20,140,000 for the same period a year
ago. Revenues for the second quarter were $8,187,000, compared to
$9,472,000 over the same period in fiscal year 1997, a decrease of 14%.
This decrease in revenues reflects a lower level of business activity in
general and is due to the timing of completion of several of long term
contracts. The Company's ability to generate consistent revenue growth
remains contingent upon its ability to secure adequate levels of new
business from its core products and new business initiatives. The Company
continues to experience delays in the receipt of some anticipated new
orders from both business areas. As a result, the Company currently
expects total revenue for fiscal year 1998 to be lower than fiscal year
1997 and revenue for the remaining periods of fiscal year 1998 to be lower
than the first half of the fiscal year.
Gross margins expressed as a percentage of revenue for the first six
months of fiscal year 1998 were 34%, compared to 32% for the same period
in fiscal year 1997. Gross margins could vary significantly among the
diverse product lines and, combined with the project-oriented nature of
the business, substantial fluctuations in both revenues and gross margins
could occur from one quarter to the next. The Company expects gross
margins expressed as a percentage of revenue to remain at the current
level for the remainder of this fiscal year. An improvement in gross
margins is not likely to occur until such time as the Company successfully
secures a more profitable mix of new business opportunities.
Marketing, general and administrative expenses decreased by $1,015,000 or
16%, for the first half of fiscal year 1998 compared to the first half of
fiscal year 1997. This decrease is due to a reduction in sales
representative commissions expensed during the current fiscal year. This
reduction represents 91% of the decrease in marketing, general and
administrative expenses in the current year. As a percentage of revenue,
marketing, general and administrative expenses increased from 32% last
year to 36% this year.
Investment income for the first six months of the current fiscal year
decreased $267,000 compared to the same period in fiscal year 1997 due to
a lower cash and short-term investments balance.
Net income for the second quarter was $16,000, compared to $84,000 for the
same period in fiscal year 1997. Net income for the first six months of
fiscal year 1998 was $89,000, compared to $460,000 for the same period in
fiscal year 1997. Net income as a percentage of revenue decreased from
2.3% to .6% for the first six months of the current fiscal year.
The Company's total backlog as of March 31, 1998, was $15 million compared
to $23 million on September 30, 1997. The total funded portion of the
Company's backlog on March 31, 1998, was $14 million compared to $20
million on September 30, 1997. The Company's funded backlog excludes
unfunded and unexercised options.
The results of operations for the first six months of fiscal year 1998 are
not necessarily indicative of future quarterly or annual performance
expectations.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company operates in a highly competitive environment that involves a
number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks.
Fluctuations in Operating Results
The Company's operating results may fluctuate from quarter to quarter and
year to year for a number of reasons. While there is no seasonality to
the Company's business, because of the Company's relative small size,
combined with the extended delivery cycles of its long-term project-
oriented business, revenue and accompanying gross margins are inherently
difficult to predict. Because the Company plans its operating expenses,
many of which are relatively fixed in the short term, based on the
assumption of stable performance, a relatively small revenue shortfall may
cause profitability from operations to suffer. Historically, the Company
has endured periods of volatility in its revenue results due to a number
of factors, including shortfalls in new orders, delays in the availability
of new products, delays in subcontractor provided materials and services,
and delays associated with foreign construction activities. Gross margins
are strongly influenced by a mix of considerations, including pressures to
be the low price supplier in competitive bid solicitations, the mix of
contract material and non-recurring engineering services, and the mix of
newly developed and existing product sold to various customers. The
Company believes these historical challenges will continue to affect its
future business.
The Company intends to effect its product and market diversification
strategy by leveraging its expertise in RF technology applications and its
ability to conduct business in foreign countries in the pursuit of outside
technology and business acquisitions which complement various
characteristics of its existing core business. Combined with the operating
pressures detailed above, the Company expects that the future cost of this
product diversification strategy may be significant enough to generate a
loss from operations during fiscal year 1998.
Managing of Changing Business
The Company is in the process of adopting a business management plan that
includes substantial investments in its sales and marketing organizations,
increased funding of existing internal research and development programs,
and certain investments in corporate infrastructure that will be required
to support the Company's diversification objectives during the next three
years. Accompanying this process are a number of risks, including a
higher level of operating expenses, the difficulty of competing with
companies of larger size for talented technical personnel, and the
complexities of managing a changing business. There also exists the risk
the Company may inaccurately estimate the viability of any one or all of
its diversification efforts and as a result, may experience substantial
revenue shortfalls of a size so significant as to generate losses from
operations.
Risk Associated with Expansion
into Additional Markets and
Product Development
The Company believes that its future success is substantially dependent on
its ability to successfully acquire, develop and commercialize new
products and penetrate new markets. In addition to the Company's ongoing
efforts to diversify its product offerings within its core businesses such
as the spectrum management system business, the Company intends to pursue
a diverse, but focused product and market development initiative during
the next three years. The Company believes that its general knowledge of
RF technology and its related applications combined with its proven
ability to conduct business in overseas markets can be exploited to return
the Company to an aggressive growth posture. While not strictly limited
to these product areas, the Company is currently pursuing various rural
communication and telephony applications using its proprietary technology,
certain transmitter product initiatives in the FM, TV and wireless cable
TV markets which compliment the Company's antenna expertise, and certain
RF technologies with potential application in the markets of tracking
various kinds of assets in indoor and outdoor settings. There can be no
assurance that the Company can successfully develop these or any other
additional products, that any such products will be capable of being
produced in commercial quantities at reasonable cost, or that any such
products will achieve market acceptance. Should the Company expend funds
to acquire outside entities or technology, there can be no assurance that
sufficient returns will be realized to offset these investments. The
inability of the Company to successfully develop or commercialize new
products or failure of such products to achieve market acceptance would
have a material adverse effect on the Company's business, financial
condition and results of operations.
Risks Associated with Conducting
Business Overseas
A substantial part of the Company's revenue are derived from fixed priced
contracts with foreign governmental entities. With increasing frequency,
the Company finds a demand for its products in third world countries and
developing nations which have an inherently more volatile and uncertain
political and credit risk profile than the U.S. Government market with
which the Company is accustomed to conducting its business. While the
Company seeks to minimize the collection risks on these contracts by
normally securing significant advanced payments with the balance secured
by irrevocable letters of credit, the Company cannot always be assured of
receiving full payment for work that it has performed due to unforeseen
credit and political risks . Should such a default on payments owed the
Company ever occur, a significant effect on earnings, cash flows and cash
balances may result.
Competition
Most all of the Company's products are positioned in niche markets which
include strong elements of imbedded proprietary technology. In most of
these markets, the Company competes with companies of significantly
larger size, many of whom have substantially greater technical, marketing,
and financial resources compared to similar resources available within the
Company. This type of competition has resulted in and is expected to
continue to result in significant price competition.
TCI INTERNATIONAL, INC.
LIQUIDITY AND CAPITAL RESOURCES
March 31, 1998 Compared to September 30, 1997
Consolidated cash, cash equivalents and marketable securities totaled
$12,616,000 at March 31, 1998, compared to $14,528,000 at September 30,
1997. The Company currently believes that its cash, cash equivalents and
short-term investments, together with expected revenue from operations,
will be sufficient to fund its operations through fiscal year 1998.
A significant portion of the Company's sales is associated with long-term
contracts and programs in which there are significant inherent risks.
These risks include the uncertainty of economic conditions, dependence on
future appropriations and administrative allotments of funds, changes in
governmental policies, difficulty of forecasting costs and work schedules,
product obsolescence, and other factors characteristic of the industry.
Contracts with agencies of the U.S. Government or with prime contractors
working on U.S. Government contracts contain provisions permitting
termination at any time for the convenience of the Government. No
assurance can be given regarding future financial results as such results
are dependent upon many factors, including economic and competitive
conditions, incoming order levels, shipment volume, product margins and
foreign exchange rates.
The large size of certain of the Company's orders makes it possible that a
single contract termination, cancellation, delay, or failure to perform
could have a significant adverse effect on revenue, results of operations,
and the cash position of the Company.
A portion of the Company's revenue is derived from governments in areas of
political instability. The Company generally attempts to reduce the risks
associated with such instability by requesting advance payment if
appropriate, as well as letters of credit or central government
guarantees. Most of the Company's overseas contracts provide for payments
in U.S. dollars. However, in certain instances the Company, for
competitive reasons, must accept payment in a foreign currency.
At March 31, 1998, the Company has standby letters of credit outstanding
of approximately $3,544,000. The standby letters of credit are
collateralized by the Company's cash or short-term investments.
TCI INTERNATIONAL, INC.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
The following matters were acted upon at the Annual Meeting of
Stockholders of TCI International, Inc. on February 10, 1998.
a. Management's nominees for directors, as set forth in the TCI
International, Inc. proxy statement dated January 9, 1998 and
filed with the Commission, were all elected. Votes for the
directors were as follows:
John W. Ballard For 2,780,858
Against 189,962
Hamilton W. Budge For 2,781,581
Against 189,239
Directors whose term of office as a director continued after
the meeting were Asaph H. Hall, E. M. T. Jones, Slobodan
Tkalcevic, John W. Ballard III, Donald C. Cox and
C. Alan Peyser.
b. A proposal to ratify the selection of KPMG Peat Marwick LLP
as independent public accountants for the fiscal year ending
September 30, 1998 was approved. 2,954,004 votes were cast
in favor, 14,713 votes were cast against, and 2,103 abstained.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: Exhibit 27.1-Financial Data Schedule
b. Reports on Form 8-K: None
No other applicable items.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TCI INTERNATIONAL, INC.
(Registrant)
/s/ Mary Ann W. Alcon
Chief Financial Officer
(Duly authorized officer of the
registrant and principal financial
officer of the registrant)
Date: May 15, 1998
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<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 8,241
<SECURITIES> 4,375
<RECEIVABLES> 8,877
<ALLOWANCES> 0
<INVENTORY> 1,399
<CURRENT-ASSETS> 25,659
<PP&E> 8,336
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0
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<TOTAL-LIABILITY-AND-EQUITY> 27,979
<SALES> 15,084
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