UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997 *
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period N/A
Commission file number: 0-10877
TCI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3026925
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 December 31, 1997, 3,202,815 shares of Common Stock were
outstanding.
TCI INTERNATIONAL, INC.
PART I FINANCIAL INFORMATION
Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes the information included herein,
when read in conjunction with the financial statements and related
notes included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1997, filed with the Securities and Exchange
Commission, to be not misleading. Further, the following financial
statements reflect, in the opinion of management, all adjustments
necessary (consisting of normal recurring entries) to present fairly
the financial position and results of operations as of and for the
periods indicated.
The results of operations for the three months ended December 31,
1997, 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
December 31
1997 1996
<S> <C> <C>
Revenues $ 6,897 $ 10,668
Operating costs and expenses:
Cost of revenues 4,460 7,065
Marketing, general and administrative 2,545 3,487
7,005 10,552
Income from operations (108) 116
Interest income, net 219 438
Income before provision
for income taxes 111 554
Provision for income taxes 38 177
Net income $ 73 $ 377
Basic earnings per share:
Net income per share $ .02 $ .12
Shares used in per share
computations 3,203 3,180
Dilutive earnings per share:
Net income per share $ .02 $ .11
Shares used in per share
computations 3,329 3,365
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
<TABLE>
December 31, September 30,
1997 1997
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $13,557 $10,439
(Includes restricted cash of
$3,891 on Dec. 31, 1997,
$6,420 on Sept. 30, 1997)
Short-term investments 4,032 4,089
Accounts receivable -
Billed 614 1,234
Unbilled 6,501 8,970
Inventories 2,214 2,118
Prepaid expenses 1,604 967
Total current assets 28,522 27,817
Property and equipment, net 1,611 1,623
Other assets 628 426
Total assets $30,761 $29,866
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,560 $ 3,560
Customer deposits and billings
on uncompleted contracts in
excess of revenue recognized 3,017 1,019
Accrued liabilities 4,570 4,738
Total current liabilities 10,147 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 9,197 9,124
Valuation allowance-short-term
investments (1) (4)
Adjustment for foreign currency
translation (11)
Treasury shares at cost; 79 shares
as of Dec. 31, 1997 and
Sept. 30, 1997, respectively (351) (351)
Total stockholders' equity 20,614 20,549
Total liabilities and
stockholders' equity $30,761 $29,866
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
(In thousands)
<TABLE>
1997 1996
<S> <C> <C>
Cash provided by (used in):
Operations:
Net income $ 73 $ 377
Reconciliation to cash provided
by operations:
Depreciation 115 168
Changes in assets and liabilities:
Accounts receivable 3,089 (4,125)
Inventories (96) (799)
Prepaid expenses (839) 5
Accounts payable (1,000) 782
Customer deposits/billing
in excess of revenue 1,998 (118)
Accrued liabilities (168) 644
Cash provided by (used in) operations 3,172 (3,066)
Investing activities:
Purchases of property and equipment (103) (174)
Purchases of short-term investments 0 (2,116)
Proceeds from sale of short-term
investments 60 4,620
Cash provided by (used in) investing
activities (43) 2,330
Financing activities:
Stock options exercised 0 5
Cash provided by (used in) financing
activities 0 5
Effect of exchange rate changes on cash (11) 0
Net increase (decrease) in cash and
cash equivalents 3,118 (731)
Cash and cash equivalents at
beginning of period 10,439 7,249
Cash and cash equivalents at
end of period $ 13,557 $ 6,518
</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):
December 31, September 30,
1997 1997
Material and component parts $1,578 $1,535
Work in process 636 583
$2,214 $2,118
Note 2
At December 31, 1997 there were outstanding standby letters of credit
of approximately $3,891,000 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
First Fiscal Quarter of 1998
Compared to First 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 quarter of fiscal year 1998 were $6,897,000,
reflecting a decrease of approximately 35% over revenues of
$10,668,000 for the same period a year ago. The decrease in revenues
reflects a lower level of business activity in general and is due in
part to the timing of completion of a variety of long term contracts.
The Company's ability to return to a position of generating
consistent growth in revenues remains contingent upon its ability to
secure adequate levels of new business from its core product
businesses and from business initiatives identified for new product
or market diversification. Because of continued delays in the
receipt of some anticipated new orders, the Company currently expects
that total revenue for fiscal year 1998 will be lower than that of
fiscal year 1997.
Gross margins expressed as a percentage of revenues remained
consistent with comparable figures from the prior year at 35%. Wide
variations in margins routinely exist across the Company's three
diverse product lines. When combined with the project-oriented
nature of the business, substantial fluctuations in both consolidated
revenues and associated margins can occur from one quarter to the
next. Because the backlog is currently comprised of a mix of business
with generally lower gross margins, the Company believes margins
generated from operations will not improve, and in fact may decline
below current levels until a more favorable mix of business is
achieved.
Marketing, general and administrative expenses decreased by 27% from
$3,487,000 in the first quarter of fiscal year 1997 to $2,545,000 in
the first quarter of fiscal year 1998. This decrease is attributable
in part to a 75% reduction in the amount of representative
commissions earned during the first quarter of fiscal year 1998. The
Company routinely accrues these expenses as a function of revenues
recognized on foreign sales contracts where representative
commissions are owed. This substantial reduction reflects a lower
dollar volume of commissionable foreign product sales currently being
executed compared to the same fiscal year period one year earlier.
Smaller reductions in R&D expenditures and general management costs
account for the balance of the reduction in overall operating
expenses experienced during the first quarter of fiscal year 1998
compared to the same prior year period. The company expects that
fiscal year 1998 marketing, general and administrative expenses will
be lower than comparable fiscal 1997 expenses.
Net income for the first quarter was $73,000 or $.02 per share,
compared to $377,000 or $0.11 per share, for the same period in
fiscal year 1997. Net income as a percentage of revenue decreased
from 3.5% to 1.0% due primarily to the decrease in revenue base and
available margin dollars.
The Company's total backlog at December 31, 1997 was $21 million
compared to $23 million at September 30, 1997. The total funded
portion of the Company's backlog at December 31, 1997 was $16 million
compared to $20 million at September 30, 1997. The Company's funded
backlog excludes unfunded and unexercised options.
The results of operations for the first three 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 businesses.
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
any quarter between now and at least the end of fiscal 1998.
Management of 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 communication and telecommunications applications
using its proprietary technology, certain transmitter and antenna
product initiatives in the FM, and digital TV markets which
compliment the Company's existing antenna expertise, and certain RF
technologies with potential application in the markets of tracking
various kinds of assets in indoor and outdoor settings. There can be
no assurance that the Company can successfully develop these or any
other additional products, that any such products will be capable of
being produced in commercial quantities at reasonable cost, or that
any such products will achieve market acceptance. Should the Company
expend funds to acquire outside entities or technology, there can be
no assurance that sufficient returns will be realized to offset these
investments. The inability of the Company to successfully develop or
commercialize new products or failure of such products to achieve
market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks Associated with Conducting Business Overseas
A substantial part of the Company's revenue are derived from fixed
priced contracts with foreign governmental entities. With increasing
frequency, the Company finds a demand for its products in third world
countries and developing nations which have an inherently more
volatile and uncertain political and credit risk profile than the
U.S. Government market with which the Company is accustom to
conducting its business. While the Company seeks to minimize the
collection risks on these contracts by normally securing significant
advanced payments with the balance secured by irrevocable letters of
credit, the Company cannot always be assured of receiving full
payment for work that it has performed due to unforeseen credit and
political risks . Should such a default on payments owed the Company
ever occur, a significant effect on earnings, cash flows and cash
balances may result.
Competition
Most all of the Company's products are positioned in niche markets
that include strong elements of imbedded proprietary technology. In
most of these markets, the Company competes with companies of
significantly larger size, many of whom have substantially greater
technical, marketing, and financial resources compared to similar
resources available within the Company. This type of competition has
resulted in and is expected to continue to result in significant
price competition.
TCI INTERNATIONAL, INC.
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1997 Compared to September 30, 1997
Due to the timely collection of a substantial receivable from a
certain foreign customer, the Company's combined cash, cash
equivalents and short-term investments balance improved by 21% from
$14,528,000 at September 30, 1997 to $17,589,000 at December 31,
1997. The Company currently believes that its cash, cash equivalents
and short-term investments, together with expected revenues from
operations, will be sufficient to fund its operations through fiscal
year 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 are derived from governments in
areas of political instability. The Company generally attempts to
reduce the risks associated with such instability by requesting
advance payment if appropriate, as well as letters of credit or
central government guarantees. Most of the Company's overseas
contracts provide for payments in U.S. dollars. However, in certain
instances the Company, for competitive reasons, must accept payment
in a foreign currency.
At December 31, 1997, the Company has standby letters of credit
outstanding of approximately $3,891,000. The standby letters of
credit are collateralized by the Company's cash or short-term
investments.
TCI INTERNATIONAL, INC.
PART II OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K
a.Exhibits: None
b.Reports on Form 8-K: None
No other applicable items.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TCI INTERNATIONAL, INC.
(Registrant)
/s/ John W. Ballard III
John W. Ballard III
Vice President , Chief Financial Officer
(Duly authorized officer of the registrant
and principal financial officer of the registrant)
Date: February 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,557
<SECURITIES> 4,032
<RECEIVABLES> 7,115
<ALLOWANCES> 0
<INVENTORY> 2,214
<CURRENT-ASSETS> 28,522
<PP&E> 8,297
<DEPRECIATION> 6,686
<TOTAL-ASSETS> 30,761
<CURRENT-LIABILITIES> 10,147
<BONDS> 0
0
0
<COMMON> 11,780
<OTHER-SE> 8,834
<TOTAL-LIABILITY-AND-EQUITY> 30,761
<SALES> 6,897
<TOTAL-REVENUES> 6,897
<CGS> 4,460
<TOTAL-COSTS> 4,460
<OTHER-EXPENSES> 2,545
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<INCOME-TAX> 38
<INCOME-CONTINUING> 73
<DISCONTINUED> 0
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<NET-INCOME> 73
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
