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, 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 94-3026925
(State of other jurisdiction of (I.R.S.
Employer Identification Number)
incorporation or organization)
222 Caspian Drive, Sunnyvale, California 94089-1014
(Address of principal executive offices)
(Zip Code)
(408)747-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
As of December 31, 1998, 3,211,715 shares of Common Stock were
outstanding.
TCI INTERNATIONAL, INC.
Table of Contents
<TABLE>
Part I - Financial Information Page
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operation 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
</TABLE>
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
Three Months Ended
December 31
1998 1997
<S> <C> <C>
Revenues $ 4,775 $ 6,897
Operating costs and expenses:
Cost of revenues 3,243 4,460
Marketing, general and administrative 2,559 2,545
5,802 7,005
Income (loss) from operations (1,027) (108)
Interest income, net 169 219
Income (loss) before provision
for income taxes (858) 111
Provision for income taxes 0 38
Net income (loss) $ (858) $ 73
Basic earnings per share:
Net income (loss) per share $ (.27) $ .02
Shares used in per share
computations 3,212 3,203
Dilutive earnings per share:
Net income (loss) per share $ (.27) $ .02
Shares used in per share
computations 3,212 3,329
</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,
1998 1998
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 11,048 $ 8,782
(Includes restricted cash of
$3,038 on Dec. 31, 1998,
$3,558 on Sept 30, 1998)
Short-term investments 136 4,754
Accounts receivable
Billed 850 225
Unbilled 6,079 5,599
Inventories 1,530 1,486
Prepaid taxes 2,283 2,311
Prepaid expenses 577 287
Total current assets 22,503 23,444
Property and equipment, net 1,367 1,473
Other assets 314 314
Total assets $ 24,184 $ 25,231
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,968 $ 1,620
Customer deposits and billings
on uncompleted contracts in
excess of revenue recognized 1,036 1,491
Accrued liabilities 5,197 5,287
Total current liabilities 8,201 8,398
Stockholders' equity:
Common stock, par value $.01;
authorized 5,000 shares;
issued and outstanding 3,281 shares 11,780 11,780
Retained earnings 4,514 5,372
Accumulated other comprehensive loss 0 (8)
Treasury shares at cost; 70 shares at
Dec. 31, 1998 and Sept 30, 1998 (311) (311)
Total stockholders' equity 15,983 16,833
Total liabilities and
stockholders' equity $24,184 $25,231
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Three Months Ended December 31,
(In thousands)
1998 1997
<S> <C> <C>
Cash provided by (used in):
Operations:
Net income (loss) $ (858) $ 73
Reconciliation to cash provided
by operations:
Depreciation 134 115
Changes in assets and liabilities:
Accounts receivable (1,105) 3,089
Inventories (44) (96)
Prepaid taxes 28 (399)
Prepaid expenses (290) (441)
Accounts payable 348 (1,000)
Customer deposits/billing in
excess of revenue (455) 1,999
Accrued liabilities (90) (168)
Cash provided by (used in) operations (2,332) 3,172
Investing activities:
Purchases of property and equipment (28) (103)
Proceeds from sale of short-term
investments 4,626 60
Cash provided by (used in) investing
activities 4,598 (43)
Effect of exchange rate changes on cash 0 (11)
Net increase in cash and
cash equivalents 2,266 3,118
Cash and cash equivalents at
beginning of period 8,782 10,439
Cash and cash equivalents at
end of period $ 11,048 $ 13,557
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements
TCI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Basis of Presentation
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, 1998,
filed with the Securities and Exchange Commission, to be not
misleading. Further, the accompanying 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,
1998, are not necessarily indicative of results to be expected
for the entire year ending September 30, 1999.
Note 2
Inventories consist of the following (in thousands):
<TABLE>
December 31, September 30,
1998 1998
<S> <C> <C>
Material and component parts $1,221 $974
Work in process 309 512
$1,530 $1,486
</TABLE>
Note 3
At December 31, 1998 there were outstanding standby letters of
credit of approximately $3,038,000 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 4
Net Income Per Share
Basic per share amounts are computed using the weighted average
number of common shares outstanding during the period. Dilutive
per share amounts are computed using the weighted average number
of common and dilutive common equivalent shares outstanding
during the period. Dilutive common equivalent shares consist of
common stock issuable upon the exercise of stock options using
the treasury stock method.
TCI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following schedule reconciles, in thousands, the shares used
in the Company's basic and diluted net income (loss) per share
calculation.
<TABLE>
Quarter Ended
December 31, December 31,
1998 1997
<S> <C> <C>
Basic earnings per share weighted 3,212 3,203
average shares outstanding
Effect of dilutive securities options
outstanding 0 126
Denominator for diluted earnings
per share - adjusted weighted
average shares 3,212 3,329
</TABLE>
Common stock equivalent of 34,769 shares were excluded from the
net loss share calculation for the quarter ended December 31,
1998, due to their antidilutive effect.
Note 5
Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income, which
establishes standards for reporting and disclosures of
comprehensive income and its components (revenues, expenses,
gains and losses) in financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and
requires reclassification of financial statements for earlier
periods to be provided for comparative purposes. The Company has
not determined the manner in which it will present the
information required by SFAS No. 130 in its annual financial
statements for the year ended September 30, 1999. The Company's
total comprehensive loss for all periods presented herein would
not have differed from those amounts reported as a net income
(loss) in the statements of operations.
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.
TCI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It
requires that an entity recognizes all derivatives as either
assets or liabilities in the statement of financial position and
measures those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated and
accounted for as (a) a hedge of the exposure to changes in the
fair value
of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of
a forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or
a foreign-currency-denominated forecasted transaction. For a
derivative not designated as hedging instrument, changes in the
fair value of the derivative are recognized in earnings in the
period of change. This statement will be effective for all
annual and interim periods beginning after June 15, 1999, and
management does not believe the adoption of SFAS No. 133 will
have a material effect on the financial position of the Company.
TCI INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Fiscal Quarter of 1999
Compared to First Fiscal Quarter of 1998
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. The results of operations for the first
three months in fiscal year 1999 are not necessarily indicative
of future quarterly or annual performance expectations.
Revenues for the first quarter of fiscal year 1999 were
$4,775,000, a decrease of approximately 31% over revenues of
$6,897,000 for the same period a year ago. This decrease in
revenues reflects the Company's lower backlog entering into
fiscal 1999. However, a number of new orders, indicative of
future revenue, were received towards the end of the first fiscal
quarter. The Company believes that to increase revenue, it needs
to continue to secure adequate levels of new business from its
core product businesses and also to seek new business
opportunities through possible mergers and acquisitions. The
Company is currently actively pursuing both of these areas.
Gross margins expressed as a percentage of revenues decreased
from 35% to 32% when compared to the same period in fiscal 1998.
The Company is currently executing contracts with slightly lower
margins than it did a year ago. Substantial fluctuation in both
consolidated revenue and associated margins can occur from one
quarter to the next, given the project-oriented nature of the
business and the wide variations in margins across the Company's
three diverse product lines.
Marketing, general and administrative expenses remained
approximately constant with those of the first quarter of fiscal
1998. However, the composition of these expenses from period to
period changed significantly. In the first quarter of fiscal
1999, the Company invested $745,000 in its research and
development efforts, an increase of 76% over the first quarter in
fiscal 1998. This increase in internal research and development
activity was offset by lower marketing, general and
administrative expenses in almost every expense category compared
to the same period a year ago. The decrease in marketing,
general and administrative expenses for the current quarter was
partly due to lower labor expenses, associated fringe benefit
expenses, travel and other marketing expenses resulting from the
reorganization the Company implemented in September 1998.
Net loss for the first quarter was $858,000 or $ .27 per share,
compared to net income of $73,000 or $.02 per share for the same
period a year ago. This loss reflects the low revenue base for
the current quarter which affected the margin dollars available
to offset marketing, general and administrative expenses.
The Company's backlog at December 31, 1998 was $19 million
compared to $16 million at September 30, 1998 all of which is
fully funded. The Company's funded backlog excludes unfunded and
unexercised options.
TCI INTERNATIONAL, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVES AND FINANCIAL INSTRUMENTS
Foreign Currency Hedging Instruments
The Company transacts business in various foreign currencies.
Accordingly, the Company is subject to exposure from adverse
movements in foreign currency exchange rates. This exposure is
primarily related to pesos denominated payments in Colombia, a
contract denominated in British pounds sterling and local
currency denominated operating expenses in the U. K. where the
Company sells primarily in U. S. dollars. However, as of
December 31, 1998, the Company had no hedging contracts
outstanding.
The Company's U.K. operating expenses are in sterling, which
mitigates a portion of the exposure related to the contract
denominated in sterling. The Company currently does not use
financial instruments to hedge local currency denominated
operating expenses in the U.K. Instead, the Company believes
that a natural hedge exists, in that local currency revenues will
substantially offset the local currency denominated operating
expenses. The Company assesses the need to utilize financial
instruments to hedge currency exposures on an ongoing basis.
The Company does not use derivative financial instruments for
speculative trading purposes, nor does the Company hedge its
foreign currency exposure in a manner that entirely offsets the
effects of changes in foreign exchange rates. The Company
regularly reviews its hedging program and may as part of this
review determine at any time to change its hedging program.
No sensitivity analysis was performed on the Company's hedging
portfolio as of December 31, 1998 as there was no hedging
contracts outstanding as of December 31, 1998.
Fixed Income Investments
The Company's investments in U.S. corporate securities include
commercial paper. Foreign securities include certificates of
deposit with financial institutions, most of which are
denominated in U.S. dollars. The Company's cash equivalents and
short-term investments have generally been held until maturity.
Gross unrealized gains and losses were negligible as of December
31, 1998.
The Company's exposure to market risk for changes in interest
rates relate primarily to the Company's investments. The Company
places its investments with high credit quality issuers and, by
policy, limits the amount of credit exposure to any one issuer.
The Company's general policy is to limit the risk of principal
loss and ensure the safety of invested funds by limiting market
and credit risk. All highly liquid investments with a maturity
of three months or less at the date of purchase are considered to
be cash equivalents; investments with maturities between three
and twelve months are considered to be short-term investments.
The average interest rate on the investment portfolio is 5%. As
of December 31, 1998, there are no investments with maturities
greater than 12 months. The Company does not expect any material
loss with respect to its investment portfolio.
TCI INTERNATIONAL, INC.
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 relatively 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. Since the Company records revenue on a percentage of
completion basis, unexpected changes in project budgets during
the course of execution can cause revenue and accompanying gross
margins to vary from quarter to quarter. Because the Company
plans its operating expenses, many of which are relatively fixed
in the short term, based on the assumption of stable performance,
a relatively small revenue shortfall may cause profitability from
operations to suffer. Historically, the Company has endured
periods of volatility in its revenue results due to a number of
factors, including shortfalls in new orders, delays in the
availability of new products, delays in subcontractor provided
materials and services, and delays associated with foreign
construction activities. Gross margins are strongly influenced
by several factors, 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.
In order to address these challenges, the Company intends to
pursue a product and market diversification strategy. By
leveraging its expertise in RF technology applications, and its
ability to conduct business in foreign countries, the Company
will pursue 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 1999.
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.
Inherent in 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.
TCI INTERNATIONAL, INC.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Risk Associated with Expansion into Additional Markets and
Product Development
The Company believes that its future success is substantially
dependent on its ability to successfully acquire, develop and
commercialize new products and penetrate new markets. In
addition to the Company's ongoing efforts to diversify its
product offerings within its core businesses such as the spectrum
management system business, the Company intends to pursue a
diverse, but focused product and market development initiative
during the next three years. The Company believes that its
general knowledge of RF technology and its related applications
combined with its ability to conduct business in overseas markets
can be exploited to return the Company to an aggressive growth
posture. While not strictly limited to these product areas, the
Company is currently pursuing certain product and turnkey project
initiatives in the FM and digital TV transmission equipment
markets which compliment the Company's antenna expertise. 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 is 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
default on payments owed the Company ever occur, a significant
effect on earnings, cash flows and cash balances may result.
Competition
Most of the Company's products are positioned in niche markets,
which include strong elements of imbedded proprietary technology.
In most of these markets, the Company competes with companies of
significantly larger size, many of whom have substantially
greater technical, marketing, and financial resources compared to
similar resources available within the Company. This type of
competition has resulted in, and is expected to continue to
result in, significant price competition.
TCI INTERNATIONAL, INC.
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1998 Compared to September 30, 1998
Consolidated cash, cash equivalents and marketable securities
totaled $11,184,000 at December 31, 1998, compared to $13,536,000
at September 30, 1998. 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 1999.
Cash used in operations for the first quarter of fiscal 1999 was
$2.3 million compared to cash provided by operations of $3.2
million for the first quarter in fiscal 1998. Cash used in the
first quarter of fiscal 1999 resulted primarily from the net loss
of $ .9 million and an increase in accounts receivable of $1.1
million. Cash provided by operations in the first quarter of
fiscal 1998 was primarily due to a significant cash receipt from
a customer resulting in a decrease in accounts receivable of $3.1
million. Cash provided by investing activities in the first
quarter of fiscal 1999 was $4.6 million.
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 revenues 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 December 31, 1998, the Company has standby letters of credit
outstanding of approximately $3,038,000. The standby letters of
credit are collateralized by the Company's cash or short-term
investments.
TCI INTERNATIONAL, INC.
YEAR 2000 ISSUE
Many currently installed computer systems and software products
are designed to accept only two-digit entries in the date field.
Soon, beginning January 1, 2000, these date fields must accept
four digit entries to distinguish twenty-first century dates from
twentieth-century dates. If a computer system or software
product is not "Year 2000 compliant," it may not operate properly
during the transition from December 31, 1999 to January 1, 2000,
and may not recognize the year 2000 as a leap year. A non-
compliant system or product may suddenly halt, continue operating
but interpret or calculate data incorrectly, or otherwise operate
improperly, causing disruption to the Company's operations or the
operations of others.
In order to minimize the disruption to business and government
that may be caused by computer systems and software products that
are not "Y2K compliant," many companies and government agencies
worldwide have established programs to evaluate and mitigate the
risks and adverse effects of the Y2K problem. Accordingly, the
Company has established a program to review and assess Y2K
compliance of its internal business systems, manufacturing and
design tools, current products, products sold in recent years,
and the most critical systems, services and products supplied to
the Company by third parties. The Company has assigned a program
manager, accountable to executive management, to oversee,
coordinate, and report on the Company's Y2K assessment and
remediation efforts.
A four-phase approach has been defined to determine the Year 2000
readiness of the Company's systems, software, equipment, and
products. Such approach is expected to provide a detailed method
for tracking the evaluation, repair, and testing of systems,
software, equipment and products that may be affected by Y2K
issues.
Phase 1, Assessment, includes taking an inventory of all systems,
software, equipment and products, and the identification of those
with year 2000 issues which need remediation. Phase 1 also calls
for the preparation of plans needed for remediation. Phase 2,
Remediation, includes repairing, upgrading, and/or replacing any
non-compliant equipment or systems identified in Phase 1. Phase
3, Testing, includes testing the Company's systems, software, and
equipment for year 2000 readiness, or in certain cases, relying
on test results or certifications provided to the Company by
third parties. Phase 4, Implementation, involves placing
compliant systems, software, and equipment into service.
As part of the Phase 1 effort, the Company has prepared an
inventory of its critically important systems and has determined
specific remediation procedures. In doing so, the Company has
determined that it must replace the 15 year old software and
hardware used in its internal business system. This system is
used for numerous day-to-day operations, such as planning and
accounting, purchasing, inventory management, production planning
and control, and quality assurance. A steering committee
comprised of senior management in key functional areas, including
accounting, engineering, marketing and manufacturing, has been
established to oversee the selection and implementation of a new
business system. A detailed assessment of the Company's
requirements for a new business system was completed. The
Company started the implementation process in January 1999 and
set June 1999 as a target date for completion. Should the
Company not
TCI INTERNATIONAL, INC.
YEAR 2000 ISSUE
complete the implementation by January 1, 2000, the Company has
the capability to operate manually until the implementation is
complete.
Also currently underway during Phase 1 is an inventory of all
current Company products, as well as those which have been
delivered to customers in recent years. This inventory is being
reviewed to identify those products for which the Y2K issue may
be critical. Current products, and recently delivered products
still under warranty, will be corrected as necessary. For older
Company products that are determined to be critically non-
compliant, the Company may offer moderate-cost software or
hardware upgrades, or may provide simple operational workaround
solutions. A small number of such older products have been
identified, and simple workaround solutions have been provided to
the current users. Ongoing reviews of the Company's three major
product lines suggest that few products will ultimately be
determined to be Y2K compliant.
Although most of the Company's antenna products do not include
computers of any kind, some larger antenna systems rely on small-
to mid-sized computers for automatic monitoring and control
functions. Generally, these computers are not date sensitive and
do not perform date-sensitive calculations. The Company believes
that the planned detailed review of the antenna product line will
not reveal any significant Y2K non-compliances in the antenna
product line.
The Company has conducted reviews of most of the products in its
sounder product line and has determined that nearly all are Y2K
compliant. Older ionospheric sounder systems did not incorporate
computers or other devices which were date sensitive, making them
inherently Y2K compliant. However, newer sounder systems,
designed and produced in the last few years, use integrated
computers for system control, data analysis, and data logging.
Some of these computers, using Company-developed software, create
and store files which are identified by dates provided by third-
party operating system software. These systems do not perform
calculations or analyses using date information, but use dates
solely to identify stored records. Based on the nearly completed
reviews of both the older and newer sounder products, the Company
believes that few, if any, sounder products will be determined to
be non-compliant.
The Company's spectrum management products are heavily dependent
on Company developed software and third-party computers and
operating systems. These systems are typically tasked by
external customer equipment to perform certain real time
measurements and analyses, and report the results immediately to
the customer's equipment. Although the time of the measurement
and analysis is reported back to the customer's equipment, the
date is typically not included. Since the date is not used in
the measurements, analyses, or reports, the Company believes that
its past and current spectrum-management products are
substantially Y2K compliant. Some systems, however, may require
the users to perform simple, one-time procedures to allow the
system to continue functioning properly after the 1999 to 2000
transition. The Company expects to identify those systems,
develop the corrective procedures, and notify the users well
before the transition. The cost of this effort has been included
in the Company's estimate of the overall costs to achieve
company-wide Y2K compliance as stated below. The detailed review
of this product line, currently underway, is not expected to
reveal any additional, significant Y2K non-compliances.
TCI INTERNATIONAL, INC.
YEAR 2000 ISSUE
In addition to the reviews of its current and past products, the
Company plans to initiate communications with significant third-
party vendors and suppliers whose systems, services or products
are important to the Company's operations. This will help resolve
mutual Y2K issues before they become critical, and should
minimize possible disruptions to the Company's operations.
However, there can be no assurance that Y2K non-compliant systems
and products of other companies on which the Company relies, and
for which the Company has no direct compliance knowledge or
control, will not have an adverse effect on the Company's
operations. If the Company determines that critical suppliers
are not Y2K compliant, then contingency plans (such as the
purchase of additional inventory prior to December 31, 1999) may
be executed to mitigate the adverse effects.
The failure to correct material Year 2000 problems could result
in an interruption in, or a failure of, certain normal business
activities or operations. Such failures could negatively affect
the Company's business, and the general uncertainty inherent in
Y2K problems makes it impossible to determine at this time
whether the consequences of Y2K failures will have a material
adverse impact on the Company's business.
The Company believes that the greatest single, controllable risk
posed by Y2K non-compliance is its internal business system,
which if uncorrected could result in material business disruption
and the Company's inability to meet committed product delivery
dates. The Company has, therefore, focused the majority of its
current remedial effort on its internal business system. It
expects the timely replacement of the system will significantly
reduce the possibility of Y2K-related interruptions of its normal
operations. In addition to being Year 2000 complaint, the
acquisition of this new business system will provide more
visibility and increase efficiency in our business processes.
The total cost to address the Year 2000 problem and upgrade the
current business system is estimated to be less than $1,100,000.
The Company conducts a certain amount of its business overseas,
mostly in third-world countries. Normal business travel to these
countries could be delayed or interrupted because of Y2K issues
beyond its control. This could, in turn, have a significant
impact on the Company's ability to meet delivery and installation
schedules in those areas.
The Company believes it is diligently addressing the Year 2000
issues and that it will satisfactorily identify and resolve
critical and significant Y2K problems in its operations and
products. The assessment and remediation plan is expected to
significantly reduce the level of uncertainty about the Y2K
problem in the Company's internal systems, its products, and its
critical third-party suppliers. It believes it has assigned
adequate resources to its Y2K compliance plan to complete
substantially all phases during fiscal 1999, with major
completion milestones in the third and fourth quarters of fiscal
1999.
TCI INTERNATIONAL, INC.
PART II OTHER INFORMATION
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 Alcon
Mary Ann W. Alcon
Chief Financial Officer
(Duly authorized officer of
the registrant and principal
financial officer of the registrant)
Date
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000357064
<NAME> TCI INTERNATIONAL, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11048
<SECURITIES> 136
<RECEIVABLES> 6929
<ALLOWANCES> 0
<INVENTORY> 1530
<CURRENT-ASSETS> 22503
<PP&E> 7769
<DEPRECIATION> 6402
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 4775
<TOTAL-REVENUES> 4775
<CGS> 3243
<TOTAL-COSTS> 3243
<OTHER-EXPENSES> 2559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1027)
<INCOME-TAX> 0
<INCOME-CONTINUING> (858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (858)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
