<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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, 2000
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 94-3026925
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
47300 KATO ROAD, FREMONT, CA 94538
(510) 687-6100
(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:
Title of each class Name of each exchange on
------------------- which registered
----------------
None
---------------------------
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 December 6, 2000, the aggregate market value of voting stock held by
non-affiliates was $32,960,345.
As of December 6, 2000, the number of shares of common stock outstanding was
3,469,510.
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 are
incorporated by reference into Part III hereof.
--------------------------------------------------------------------------------
1
<PAGE>
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. is a holding company comprised of two product groups.
The broadcast group offers broad-bandwidth antenna and transmission feeder
solutions for the FM and TV broadcast markets, and high power short wave and MF
broadcasting applications. The signal processing group provides direction
finding, spectrum monitoring, and specialized communication receiver and
transmitter products to both commercial and defense-oriented customers.
PRODUCTS AND SERVICES
The Company manufactures specialized 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 equipment serves frequency ranges
of 0.5 to 3000 MHz and falls into two core product lines: Broadcasting Products,
and Signal Processing Products. The Company's products are sold primarily to
civilian and commercial entities as well as U.S. and foreign government
agencies.
The Company also installs the equipment it manufactures, often on a turnkey
basis. The Company's expert design and manufacturing capabilities, combined with
its ability to manage large projects and installation activities both in the
U.S. and in foreign countries, gives it a competitive advantage.
BROADCASTING PRODUCTS
The Company designs and manufactures antenna systems and accessory items that
cover the frequency range of 0.5 to 870 MHz. Most of the Company's products are
used for TV and AM broadcasting, although lower-power versions of its products
in the 2 to 30 MHz range are used for high frequency (HF) communications by
military and commercial organizations. The Company applies its proprietary
electromagnetic and structural software to produce antenna systems with optimal
radiation pattern shapes, bandwidth, power handling capability, and reduced
loads on support towers. The Company's structural design expertise provides a
competitive advantage in situations when antenna systems must be optimized or
customized to meet a customer's unique structural requirements.
Many of the Company's products must be installed and then integrated with other
parts of a system. The Company has successfully completed numerous installation
and integration projects in both domestic and foreign locations. The Company has
a unique combination of engineering, manufacturing, installation, integration,
and project management skills that can be used to its competitive advantage in
many bidding situations.
Digital television (DTV) broadcasting presents opportunities for the Company in
both the domestic and foreign markets. Within the United States, the transition
to DTV, mandated by the Federal Communications Commission in April 1997,
requires all of the approximately 1600 domestic TV stations to install digital
transmission facilities within the next two to six years. This represents a
large potential market for the Company's antenna and transmission line products,
particularly over the next several years as the pace of the DTV conversion
process accelerates. One of the major problems in the conversion to DTV is the
shortage of suitable tower space on which to install the new antennas. Many
existing towers are already at their maximum capacity and cannot accept new
antennas. New towers are difficult to build because of the lack of optimum
locations and/or stringent environmental rules that prohibit or severely limit
new construction.
To help solve these problems the Company invented and received a patent in
November 2000 for a DTV ultra-high-frequency (UHF) transmitting antenna. The
antenna is a broad-bandwidth slot antenna that can transmit on several channels
simultaneously but imposes a relatively small load on the tower. In many
situations, a broadcaster can replace an existing antenna with the Company's new
product without having to strengthen the tower and yet be able to broadcast both
analog and digital TV signals simultaneously. The Company's antenna also permits
broadcasters to combine transmissions onto the antenna thus freeing up space on
the tower that can be leased to other broadcasting or communication services.
The Company has made several significant sales of the product and expects to
make more such sales in the upcoming fiscal year.
2
<PAGE>
In addition to this new antenna product, the Company has invented and applied
for a patent for a broad-bandwidth coaxial transmission line that will permit
the Company to supply the major elements of a DTV transmitting antenna system.
The Company's ability to supply, install and integrate new DTV antenna systems
as well as provide complete turnkey solutions is proving to be attractive to
many customers. Modern TV stations operate with very few engineers who do not
have the time and/or specialized skills to perform the entire DTV conversion
process themselves. By undertaking many of the project management and
installation activities, TCI not only increases the size of each sale but also
provides valuable services to broadcasters. Typical sale prices of individual TV
antennas range between $25,000 to $250,000, with turnkey systems ranging between
$100,000 and $2,000,000.
Foreign markets also present significant opportunities for sales of TV antennas
and systems in countries that are privatizing their broadcasting sectors and/or
introducing digital television. Unlike the United States, most countries have
lacked a private broadcasting sector. Broadcasting has been a monopoly of
governmental or government-owned organizations. This situation is changing
rapidly with the world-wide trend to privatize national telecommunications
organizations. In numerous countries, private entrepreneurs are obtaining
licenses to establish broadcasting stations that operate for profit. This is a
potentially large market for the Company's products and systems engineering
expertise. These projects are usually much larger in scope and dollar value than
the sale of individual antenna systems.
The Company's medium frequency (MF) (0.5 to 1.7 MHz) or HF (2 to 30 MHz)
broadcasting antenna systems are typically large structures consisting of towers
up to several hundred feet high combined with complex arrangements of wire
cables. Antennas of this type operate at high power levels ranging from 1 kW up
to 8000 kW. The Company also manufactures RF switches, transmission lines, and
impedance transformers that are used in conjunction with its antennas.
MF and HF broadcasting antennas are sold either directly to broadcasters or to
transmitter manufacturers for integration into complete systems. Typical system
orders range in price between $100,000 and $10,000,000. Although the market for
HF and MF antenna systems has been declining since the end of the Cold War,
there are occasional bursts of activity as both civilian and military
organizations upgrade their high power transmission facilities.
The Company expects that with the advent of digital AM broadcasting in the
future it will see a steady business in HF and MF broadcasting antennas. Digital
broadcasting provides sound quality similar to that produced by compact discs,
which is a great improvement over the sound presently provided. This improvement
in quality is likely to result in increased construction of digital HF and MF
broadcasting facilities, which will provide excellent radio coverage of large
audience areas at relatively low cost. The Company is familiar with the advances
in digital broadcasting because it is a founding member of the Digital Radio
Mondiale (DRM) consortium that has developed and is promoting a world-wide
standard for HF and MF digital broadcasting.
HF communication antennas are usually employed in civil and military shore-ship
and land-air communications systems. HF communication has recently been applied
to create inexpensive systems that track trucks and provide remote messaging
over huge geographic areas without requiring access to cellular telephone or
satellite communications networks. The Company's HF antennas are being used as
the backbone of a major system that was launched in the United States and is
expected to be launched in other countries. HF communications antennas typically
sell in the $15,000 to $100,000 range, with large systems of such antennas often
selling for $1 to $3 million. This past fiscal year the Company won a contract
for a major HF communications antenna system in Australia and expects to win
several substantial orders in Europe and the Middle East in the upcoming fiscal
year.
SIGNAL PROCESSING PRODUCTS
The Company's signal processing products are comprised of spectrum management,
direction finding, signal collection, and specialized communications equipment
that are sold primarily to domestic and foreign military and governmental
customers. The Company's core products consist of receivers and transmitters,
DSP-based direction finding processors, and specialized application software.
The Company manufactures products that cover the frequency range from 0.01 to
3000 MHz.
3
<PAGE>
Spectrum management systems are required by all countries in order to manage and
monitor their electromagnetic spectrum. The growth in this market has been
fueled by the rapid expansion in the number of users of cellular telephones,
pagers, and other personal communications devices, and sale of portions of the
spectrum to commercial telecommunications organizations. These products comprise
specialized application and database software and proprietary monitoring,
measurement and DF hardware that operate from 10 kHz to 3 GHz. Most of the
requirements for spectrum management systems are driven by the world-wide trend
towards privatization of telecommunications services. Since the privatized
spectrum has usually been purchased at great expense and is expected to generate
revenues, the private telecommunications companies expect their spectrum to be
protected from interference and unlicensed usage. The Company's spectrum
management systems give regulatory authorities the tools to maintain sufficient
order and discipline in the spectrum so that modern radio and wireless services
can function. In addition, spectrum management systems are used to a) issue
frequency assignments, b) administer the issuing of licenses and collection of
fines from users who violate the regulations, c) manage the databases of users,
licenses, and violations, d) monitor the spectrum, including identifying,
measuring, and locating signals, and e) prepare reports. Traditionally, these
functions have been performed manually using stand-alone receivers, measurement
equipment, and numerous forms filled out by hand. The Company provides turn-key
systems that perform all tasks in an automated, integrated, seamless operation
with a minimum of operator intervention. These systems use Company products and
other commercial off-the-shelf equipment that the Company integrates. The
Company's systems are based on modular architecture that allows special systems
to be constructed from a common set of building blocks.
Spectrum management systems can vary in complexity from a single site, single
position station to a large scale multi-site network including 2 to 15 fixed
sites plus a complementary set of mobile measurement vans. Typical systems range
in price from $300,000 to $10,000,000.
The Company's direction finding (DF) and signal collection products are used to
identify, locate, classify, and analyze radio transmissions using proprietary
hardware and software for DF and communication intelligence (COMINT)
applications. These systems are based on the same technology that is used in the
Company's civilian spectrum management systems, but with enhanced capabilities
to meet military and intelligence requirements. The DF and collection processes
are performed rapidly, automatically, and without detection by the subject. The
classification and analysis functions identify the modulation, frequency, and
characteristics of the signals. The Company's DF and signal collection software
performs these tasks automatically, thereby eliminating the need for the large
numbers of operators that have been needed to run older systems. The Company's
products can also be operated and monitored remotely, eliminating the need for
operators to be located at the same site as the DF and signal processing
equipment. The Company's signal processing systems can also integrate the output
from other intelligence-gathering sources. In military applications, the
integrated data provide system users with information they can use to estimate
the disposition and intentions of potential adversaries.
The Company has introduced a revolutionary, full-featured digital VHF/UHF DF and
COMINT hardware platform suitable for DF and specialized communications
intelligence applications. The system architecture uses a high-speed
analog-to-digital sampling technique to provide a high performance DF capability
from 10 kHz to 3000 MHz. The unit is compact and has been packaged for
portability. This product is especially useful for national security or
intelligence customers interested in monitoring wireless communications within
their own borders. The large instantaneous bandwidth of the system makes it
ideal for monitoring signals with modern modulation features, such as those used
in GSM and CDMA cellular telephone systems.
The sale prices of complete communications intelligence and DF systems range
from approximately $100,000 to $10,000,000. Certain components of a system are
often sold separately and are priced at considerably lower amounts.
Based on the technologies used in the SMS and DF systems, the Company has
developed a low-cost, high performance HF receiver. This past fiscal year, the
Company has sold a large quantity of these receivers to a company that provides
truck communications and tracking services using HF. The Company expects to make
additional sales of this product in the future.
4
<PAGE>
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
The financial results shown in the following tables are presented to comply with
current financial accounting standards relating to business segment reporting.
Information concerning the identifiable assets of the Company's business
segments is contained in the Note, Business Segments in the Notes to
Consolidated Financial Statements. In calculating operating profit, allocation
of certain expenses among the business segments involves the exercise of certain
business judgement.
The Company's product offerings are managed and directed by separate management
teams. The products offered by the Broadcast Products and Signal Processing
Products groups are distinct, as are the customers who routinely purchase these
products. While the two business segments currently share facilities and certain
manufacturing resources, most financial metrics used by management to direct the
overall business are organized consistent with the definition of the two
operating units. Please see ITEM 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of the items in
the table below.
Net Revenues and Operating Income (Loss) by Business Segment
In thousands
Net Revenues
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Broadcast Products $ 10,256 $ 8,860 $ 11,876
Signal Processing Products $ 20,328 $ 15,882 $ 13,350
Operating Income (Loss)
Broadcast Products $ (1,216) $ (157) $ (471)
Signal Processing Products $ 2,069 $ (1,626) $ (3,947)
</TABLE>
MARKETING
The Company markets its equipment and systems to commercial and governmental
organizations both in the United States and foreign countries primarily using
its direct marketing force. For foreign sales, the Company is often assisted by
its local representatives who are paid a commission on each sale. Foreign sales
of some antennas having specialized military applications and certain Signal
Processing products must have the approval of the United States Department of
State which limits the sales of such products to foreign nationals. Such sales
are subject to changes in United States policy concerning the export of military
technology.
Historically, more than 90% of the Company's foreign sales have been denominated
in United States dollars. The value of 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.
5
<PAGE>
MANUFACTURING
The Company manufactures many of the key components of its Broadcasting and
Signal Processing products, however it is implementing a systematic program to
increase the outsourcing of many manufacturing operations that can be done more
effectively, efficiently, and at lower cost by specialized manufacturing
organizations. 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 may
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 its customers install many of the Company's products, the Company
offers installation services including turn-key project management.
BROADCASTING PRODUCTS
Broadcast antenna systems are generally manufactured to order from standard
parts. MF and HF antennas are made from 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.
FM and TV antennas do not use wire members and are fabricated from machined or
extruded metal parts that are generally fabricated by specialized manufacturing
firms. The Company assembles the antennas from these parts and then adjusts,
tests, and ships the complete antennas.
SIGNAL PROCESSING PRODUCTS
Signal processing products are assembled from standard computers, radio
frequency switches, receivers, and specialized signal measuring instruments
manufactured to the Company's specifications either by the Company or by
qualified subcontractors.
To a significant extent, the heart of such systems lies in the proprietary
software that serves as the interface to the hardware provided by the Company.
The Company therefore employs a group of experienced software engineers who
design and code the key software on which the Company's signal processing
products are based. After the proprietary software is incorporated into the
system, it is thoroughly tested in a simulated operating environment prior to
final delivery.
The Company's receivers, DF processors, and HF ionospheric sounders are
generally assembled from standard components and other items produced to the
Company's specifications, such as printed circuit boards, fabricated metal parts
and special oscillator and filter assemblies. 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.
UNITED STATES GOVERNMENT CONTRACTS AND REGULATIONS
Sales to the U.S. Government under prime and subcontracts accounted for 13%,
18%, and 31% of the Company's revenue in fiscal years 2000, 1999, and 1998,
respectively. During the three year period ended September 30, 2000, all the
Company's U.S. Government business was performed under fixed-price-type
contracts (firm fixed-price and fixed-price incentive).
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.
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 United States Information Agency ("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."
6
<PAGE>
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 the Company's
broadcasting products have decreased substantially. As a result, the Company is
focusing more on overseas and commercial opportunities, as are the Company's
competitors.
BROADCASTING PRODUCTS
The principal competitive factors in the broadcast and communications markets
are reliability, performance, price, and breadth of product line.
In the U.S. DTV antenna market, the Company's principal competitors are
Dielectric Communications and Andrew Corporation. In foreign TV and DTV markets
its principal competitors are Kathrein/SIRA, Rymsa, and RFS. These are all
well-established companies with broad product lines
The Company's principal competitors in the high frequency (HF) communications
antenna market are Andrew Corporation and Antenna Products Corporation. In HF
and MF broadcast antennas market, the principal competitors are divisions of
larger companies, including Thomcast and Continental Electronics, both 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.
SIGNAL PROCESSING PRODUCTS
The principal competitive factors are the performance of the equipment and
price. In military programs for signal collection and processing systems, the
selection of a particular supplier's products frequently limits further
competition by other vendors during the program's life cycle.
Competitors in signal processing products in the U.S. market include, CODEM
Systems, Inc., Raytheon, Harris Corporation, Rockwell International Corp.,
Southwest Research Institute (SWRI), Thomson-CSF, Tadiran, and TRW. In foreign
markets, in addition to these competitors are Rohde and Schwarz, Siemens Plessey
& Co., Ltd, and Thomson -CSF.
The Company's principal competitors for spectrum management systems are Rohde
and Schwarz, Tadiran, and Thomson-CSF. Since the competitors' products are often
less expensive, the Company must convince its customers that its equipment has
sufficient performance advantages to justify the higher price and therefore
represents a "best value" for the customer.
Additionally, since signal processing and spectrum management systems are
marketed in less developed countries, the ability to offer attractive financing
alternatives also weighs strongly in decision process of many customers. 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.
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.
7
<PAGE>
EMPLOYEES
As of September 30, 2000, the Company had 118 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
<TABLE>
<CAPTION>
Floor Area (sq.ft.) Lease
Company Expiration
Leased Date
------ ----
<S> <C> <C>
Fremont, Ca. 58,000 2004
</TABLE>
The Company believes that its office space for its corporate headquarters is
suitable and adequate and will meet its needs for the near term. However,
additional manufacturing facilities may be required to support the Company's
growth in the future. The Company reasonably expects to secure any additional
required manufacturing space under terms acceptable to the Company.
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 Company and
the other respondents objected to the convening of an arbitration panel.
On September 24, 1998, the Office of Environmental Health Hazard Assessment
("OEHHA") advised the parties that the legislative authority for the arbitration
panels had "sunsetted" and thus OEHHA would take no further action towards
ruling on the respondents' objections or convening a HSCAP arbitration panel
unless the legislature took action to reinstate the legislative authority for
these panels.
Subsequently, the legislative authority for the HSCAP arbitration panels was
reinstated and the Teledyne parties have advised OEHHA that they still wish to
arbitrate the matter. Should OEHHA now overrule TCI's and the other respondents'
objections to the convening of the panel, TCI may take legal action to dispute
the panel's jurisdiction and in all events will vigorously maintain that it is
not responsible for any of the groundwater contamination in the area and should
not share in any of the costs associated with the groundwater extraction system
being operated by Teledyne/Spectra Physics.
At present, there is no lawsuit, arbitration or other legal or administrative
proceeding pending against TCI regarding this Teledyne/Spectra Physics matter,
and it is possible that no further legal proceedings regarding this matter
involving TCI will occur. The Company cannot estimate the cost if any, that will
be required in the resolution of this matter.
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 2000.
8
<PAGE>
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 intraday sales price as reported on the Over-the-Counter National Market
System. These prices do not include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999
----------- -----------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
December 31 $ 9.75 $ 3.00 $ 3.25 $ 1.38
March 31 12.88 6.63 4.50 1.94
June 30 9.25 5.38 3.38 2.38
September 30 9.63 6.25 4.25 2.63
</TABLE>
As of September 30, 2000, there were 524 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>
<CAPTION>
Data for the Five Years Ended September 30,
(In thousands, except per share amounts)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $30,584 $24,742 $25,226 $34,101 $32,695
Operating costs and expenses:
Cost of revenue 19,744 16,502 18,172 28,650 21,856
Marketing, general and administrative 9,987 10,023 11,472 11,857 10,941
Income (loss) from operations 853 (1,783) (4,418) (6,406) (102)
Interest income 669 593 757 1,079 1,602
Income (loss) before provision (credit)
for income taxes 1,522 (1,190) (3,661) (5,327) 1,500
Net income (loss) 1,607 (1,190) (3,742) (5,582) 1,056
Basic earnings per share:
Net income (loss) per share .47 (0.37) (1.17) (1.75) .33
Shares used in per share
computations 3,402 3,208 3,207 3,194 3,158
Diluted earnings per share:
Net income (loss) per share .44 (0.37) (1.17) (1.75) .31
Shares used in per share
computations 3,647 3,208 3,207 3,194 3,366
BALANCE SHEET DATA:
Working capital $15,301 $13,268 $15,046 $18,500 $22,246
Total assets 29,641 26,729 25,231 29,866 39,192
Stockholders' equity 18,208 15,622 16,833 20,549 26,014
</TABLE>
9
<PAGE>
QUARTERLY FINANCIAL DATA FOR THE TWO YEARS ENDED SEPTEMBER 30, 2000
Since revenue is generally recognized on a percentage of completion basis, which
is based upon total direct and indirect costs incurred, there are often
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.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Fourth Third Second First
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal 2000
-----------
Revenue $8,890 $7,369 $7,208 $7,117
Gross profit 3,541 2,498 2,301 2,500
Net income (loss) 912 297 188 210
Net income (loss) per share .27 .09 .05 .06
Fiscal 1999
-----------
Revenue $6,917 $6,507 $6,543 $4,775
Gross profit 2,512 2,304 1,892 1,532
Net income (loss) 220 8 (560) (858)
Net income (loss) per share .07 0 (0.17) (0.27)
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information in this review, along with the Business Segment data shown on
page 5, reflects the Company's operations.
Except for the historical financial information contained herein, the following
discussion and analysis may contain "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements include
declarations regarding the intent, belief or current expectations of the Company
and its management. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties; actual results could differ materially from
those indicated by such forward-looking statements.
RESEARCH AND DEVELOPMENT
During the last three years the Company has expended approximately $5,300,000 on
internal research and development ("IR&D") efforts related to its product and
market diversification efforts. All costs for such product development are
presently funded internally and are expensed as incurred. In the past several
years, IR&D efforts had been largely focused on developing the Company's new
signal processing product line, which is the basis of the civilian and military
spectrum monitoring systems the Company is currently selling. The Company's IR&D
efforts not only produced equipment that operates at the leading edge, but also
can be manufactured at relatively low cost. The bulk of the signal processing
IR&D has now been completed, although the Company engages in ongoing sustaining
engineering to keep its products at the forefront of performance and
manufacturability. In order to support product development in the emerging and
growing digital TV market, in this past fiscal year the Company has focused its
IR&D efforts on its broadband DTV broadcasting product line. As a result of
these efforts, two of the Company's senior engineers were awarded U.S. Patent
No. 6,150,988 for a wideband DTV slot antenna, a product that solves many
difficult problems faced by broadcasters in the world-wide conversion to digital
TV. The Company's wideband DTV slot antennas are gaining wide acceptance in the
marketplace.
10
<PAGE>
BACKLOG
The Company's total backlog as of September 30, 2000, was approximately $26
million, compared to approximately $28 million as of September 30, 1999. 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):
<TABLE>
<CAPTION>
As of September 30,
-------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Total Backlog $26,000 $28,000 $16,000
======= ======= =======
</TABLE>
Of the $26 million backlog at 2000 fiscal year end, $17 million is expected to
be recognized as revenue prior to September 30, 2001.
The Company continues to secure significant orders in its new market areas.
These are digital TV products for the U.S. commercial broadcasting industry,
signal collection systems used by foreign military organizations for
intelligence or other national security operations, and test and measurement
products used by telecommunications organizations for regulatory operations or
system testing. All of these market segments are growing and present significant
sales opportunities for the Company's new products.
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.
<TABLE>
<CAPTION>
Percentage of Revenue
Years Ended September 30,
-------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of revenue 64.6% 66.7% 72.0%
Marketing, general and administrative 32.7% 40.5% 45.5%
Income (loss) from operations 2.8% (7.2)% (17.5)%
Interest income 2.2% 2.4% 3.0%
Income (loss) before provision
for income taxes 5.0% (4.8)% (14.5)%
Provision for income taxes (0.3)% 0.0% 0.3%
Net income (loss) 5.3% (4.8)% (14.8)%
</TABLE>
The approximate revenue attributable to contracts from both domestic and
overseas customers is shown below (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Domestic revenue $ 7,820 $7,803 $8,855
Overseas revenue 22,764 16,939 16,371
------ ------ ------
Total $30,584 $24,742 $25,226
======= ======= =======
</TABLE>
11
<PAGE>
FISCAL 2000 COMPARED TO FISCAL 1999
Revenues for fiscal 2000 increased by 24%, from $24.7 million to $30.6 million
when compared to fiscal 1999. Fiscal year 2000 benefited from the fact that a
significant number of orders were booked towards the end of fiscal 1999 and thus
were ready for execution in fiscal 2000. During the year the Company continued
to improve contract management and execution as evidenced by its increased
profitability. Fiscal 1999 revenues were negatively affected by an unplanned
delay in obtaining system acceptance from one major customer. The Company
obtained final system acceptance from the customer in January 2000 and received
final payment in March 2000.
Revenues for the Broadcast Products segment increased from $8.9 million in
fiscal 1999 to $10.3 million in fiscal 2000, an increase of 16%. This increase
in revenues was due primarily to the timely receipt of new orders during the
current fiscal year and a change in product mix favoring the introduction of the
Company's new DTV antenna products. The net loss for this segment in fiscal
2000, however, increased from $.2 million to $1.2 million when compared to
fiscal 1999. This was largely due to lower margins available from contracts
executed in fiscal 2000 coupled with increased spending on internal research and
development efforts associated with completion of the initial DTV products.
Revenues for the Signal Processing Products segment increased from $15.9
million in fiscal 1999 to $20.3 million in fiscal 2000, an increase of 28%.
This increase in profitability is a result of realizing specific production
and cost efficiencies that accompanied larger production quantities. In 1997,
instead of continuing to rely on purchasing major components of its system
from third parties, the Company decided to design and manufacture its own
proprietary test and measurement equipment. This enabled the Company to
manage costs more effectively and to exert more control over its delivery
schedules. This investment in product development had a favorable impact on
the operating income of the Signal Processing Products segment for fiscal
2000. Operating income for fiscal 2000 was $2.1 million compared to an
operating loss of $1.6 million in fiscal 1999.
The cost of revenues in fiscal 2000 was $19.7 million compared to $16.5 million
in fiscal 1999. Cost expressed as a percentage of revenue decreased from 67% in
fiscal 1999 to 65% in fiscal 2000. The reasons for this decrease include
favorable closure on one major contract and better overall contract execution in
the Signal Processing Products segment.
As in fiscal 1999, marketing, general and administrative expenses declined when
expressed as a percentage of revenue. These percentages decreased from 41% in
fiscal 1999 to 33% in fiscal 2000, an 8% decrease. The Company successfully
managed to maintain its marketing, general and administrative expenses at the
same level as in fiscal 1999 even though revenues increased by 24% in fiscal
2000 compared to fiscal 1999.
Interest income increased by 13% or $76,000 in fiscal 2000 compared to fiscal
1999. This was due to a relatively higher cash and short-term investment balance
in fiscal 2000 and higher interest rate earned on the Company's short-term
investments.
FISCAL 1999 COMPARED TO FISCAL 1998
Revenues for fiscal year 1999 were similar to fiscal 1998, showing a slight
decrease of 2%. The net loss for fiscal 1999, however, decreased by 68% compared
to fiscal 1998. This is attributable, in part, to an improved level of contract
execution as measured by better gross margins across most product sales. Both
fiscal 1998 and 1999 revenues and profitability were negatively influenced by an
unplanned delay in obtaining system acceptance of one contract for spectrum
management equipment. This performance delay caused the Company to record a
negative adjustment during the fourth quarter of fiscal 1998 in the contract
completion estimates reflecting management's best estimate of the costs to
ultimately complete the contract.
Revenues for the Signal Processing Products segment increased 19% from $13.4
million in fiscal 1998 to $15.9 million in fiscal 1999. The net loss decreased
by 59%, from $3.9 million in fiscal 1998 to $1.6 million in fiscal 1999. While
still lagging management expectations, this improvement in profitability was
made possible by a healthy mix of revenues coming from sales of its traditional
communications intelligence products and more consistent performance on
contracts for spectrum management equipment.
Revenues for the Broadcast Products segment decreased from $11.9 million in
fiscal 1998 to $8.9 million in fiscal 1999, a decrease of 25%. This decrease in
revenues was due to a delay in receiving some significant orders, most of which
are expected in fiscal year 2000. However, the net loss also decreased in fiscal
1999 compared to fiscal 1998, from $.5 million to $.2 million, a decrease of
67%. This decrease in net loss in fiscal 1999 was made possible by improved
contract execution and a lower allocation of common expenses.
12
<PAGE>
Cost of revenues in fiscal 1999 expressed as a percentage of revenue decreased
to 67% from 72% in the prior year. This decrease was due in part to higher
margins from contracts in fiscal 1999. Also, in fiscal 1998 the Company recorded
an adjustment to account for the additional cost due to the delay in obtaining
system acceptance of one significant contract in the Signal Processing Products
business segment, which significantly decreased signal processing margin in that
year.
Marketing, general and administrative expenses expressed as a percentage of
revenue decreased from 45% in fiscal 1998 to 41% in fiscal 1999. This decrease
was due to a lower level of expenditure in internal research and development,
due to completion of development of a major product line, and lower marketing
expenses.
Interest income decreased by 22% or $164,000 in fiscal 1999 compared to fiscal
1998. This is because the Company maintained a lower cash balance for most of
the fiscal year.
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 products sold to various customers. The Company believes
these historical challenges will continue to affect its future business.
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.
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 Broadcast, Signal Processing and Test and
Measurement, 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
development of proprietary broad band antenna systems for FM and TV broadcasting
and specialized receivers and processors to increase the usefulness and reduce
the cost of its signal processing and test and measurement systems. 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.
13
<PAGE>
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
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 provided by operations in fiscal 2000 was $1.5 million compared of $2.3
million in fiscal 1999. Cash used in operations was $.7 million in fiscal 1998.
In fiscal 2000, cash provided by operation mainly resulted from a net income of
$1.6 million, a decrease in prepaid taxes of $1.5 million and an increase in
accounts payable of $.9 million. The decrease in prepaid taxes of $1.5 million
was attributable to the Company concluding one major overseas contract,
specifically the Company was able to bill and collect these taxes from the
customer. In fiscal 1999, cash provided by operations resulted primarily from an
increase in customer deposits and billings on uncompleted contracts in excess of
revenue recognized of $1.8 million, and an increase in accrued liabilities of
$.7 million. In fiscal 1998, cash used in operations resulted primarily from a
net loss of $3.7 million, a decrease in accounts payable of $1.9 million, and a
prepayment of $1.5 million in sales tax (VAT) for importation of equipment under
an overseas contract - offset by cash provided by a decrease in accounts
receivables of $4.4 million.
Cash of $3.1 million was used in investing activities in fiscal 2000 compared to
cash provided from investing activities of $.3 million in fiscal 1999. Cash used
in investing activities for fiscal 1998 was $1.0 million.
As of September 30, 2000, the Company had approximately $16.4 million in cash
and short-term investments an increase of $1.7 million from September 30. 1999.
As of September 30, 2000, the Company had standby letters of credit outstanding
totaling approximately $2.9 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 2001.
A significant portion of the Company's revenues 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.
14
<PAGE>
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 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.
RECENT ACCOUNTING PRONOUNCEMENTS
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. This
statement as amended will be effective for all interim periods of fiscal years
beginning after June 15, 2000, and management does not believe the adoption of
SFAS No. 133 will have a material effect on the financial position of the
Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. In March
2000, the SEC issued SAB No. 101A that delayed the implementation date of SAB
No. 101. In June 2000, the SEC issued SAB No. 101B that further delayed the
implementation date of SAB No. 101. The Company must adopt SAB No. 101 no later
than in the fourth quarter of fiscal 2001. The Company does not expect the
adoption of SAB No. 101 to have a material impact on its financial position or
results of operations.
ITEM 7A. 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 a number of contracts
denominated in British pound sterling, a contract in New Taiwan dollar and a
contract in Venezuelan bolivars. As of September 30, 2000, the Company had no
hedging contracts outstanding.
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.
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 September 30, 2000.
The Company's exposure to market risk for changes in interest rates relates
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 investments portfolio is 6.3%. As
of September 30, 2000, there are no investments with maturities greater than 12
months. The Company does not expect any material loss with respect to its
investment portfolio.
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
15
<PAGE>
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 SCHEDULE AND REPORTS ON FORM 8-K
A. FINANCIAL STATEMENTS AND SCHEDULE
1. Consolidated Financial Statements as identified in the Index on
Page F-1 of this report.
2. Financial Statement Schedule.
In accordance with Regulation S-X, individual financial statements of the
Registrant and its subsidiaries and other financial statement schedule 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.
16
<PAGE>
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 number 0-10877)
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
17
<PAGE>
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 Sublease between Technology for Communications International and
Fairchild Technologies, dated May 1, 2000 (Incorporated by reference to
Exhibit 10.11 to the Company's Form 10-K fiscal year ended September
30, 2000; commission file number 0-10877)
22 Schedule II - Valuation and Qualifying Accounts
23 List of Subsidiaries of TCI International, Inc.
24 Consent of KPMG LLP
27 Financial Data Schedule
18
<PAGE>
TCI INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
Report of KPMG LLP F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30,
2000 and 1999 F-3
Consolidated Statements of Operations and Comprehensive Loss
for the Three Years Ended September 30, 2000 F-4
Consolidated Statements of Stockholders' Equity for the
Three Years Ended September 30, 2000 F-5
Consolidated Statements of Cash Flows for the Three Years
Ended September 30, 2000 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
TCI International, Inc.:
We have audited the accompanying consolidated balance sheets of TCI
International, Inc. (the Company) and subsidiaries as of September 30, 2000 and
1999, and the related consolidated statements of operations and comprehensive
income (loss), stockholders' equity and cash flows for each of the years in the
three-year period ended September 30, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 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, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 2000 in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Mountain View, California
November 10, 2000
F-2
<PAGE>
TCI INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
In thousands, except per share amounts
September 30, 2000 1999
------------------------------------------------------------- ------------------ ----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $10,670 $11,310
(Includes restricted cash of $3,846 at September 30,
1999)
Short-term investments 5,687 3,360
Accounts receivable:
Billed, net of allowance of $183 and $209 at
September 30, 2000 and 1999, respectively 3,731 2,434
Unbilled 4,115 3,416
Inventories, net 1,924 1,704
Prepaid taxes 188 1,724
Prepaid expenses 419 427
------------------------------------------------------------- ------------------ ----------------------
Total current assets 26,734 24,375
------------------------------------------------------------- ------------------ ----------------------
Property and equipment, net 2,138 2,033
Other assets 769 321
------------------------------------------------------------- ------------------ ----------------------
Total assets $29,641 $26,729
------------------------------------------------------------- ------------------ ----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,722 $1,830
Customer deposits and billings
in excess of revenue recognized 3,380 3,310
Accrued liabilities 5,331 5,967
------------------------------------------------------------- ------------------ ----------------------
Total current liabilities 11,433 11,107
------------------------------------------------------------- ------------------ ----------------------
Commitments and contingencies
------------------------------------------------------------- ------------------ ----------------------
Stockholders' equity:
Common stock:
Authorized - 5,000 shares, $.01 par value
Issued - 3,471 and 3,281 as of September 30,
2000 and 1999, respectively 12,517 11,780
Shares held in treasury at cost - 10 and 76
shares as of September 30, 2000 and 1999, (41) (326)
respectively
Retained earnings 5,731 4,176
Accumulated other comprehensive income (loss) 1 (8)
------------------------------------------------------------- ------------------ ----------------------
Total stockholders' equity 18,208 15,622
------------------------------------------------------------- ------------------ ----------------------
Total liabilities and stockholders' equity $29,641 $26,729
------------------------------------------------------------- ------------------ ----------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
In thousands, except per share amounts
---------------------------------------------------------- ------------- ----------------- ----------------
Years ended September 30, 2000 1999 1998
---------------------------------------------------------- ------------- ----------------- ----------------
<S> <C> <C> <C>
Revenue $30,584 $24,742 $25,226
---------------------------------------------------------- ------------- ----------------- ----------------
Operating costs and expenses:
Cost of revenue 19,744 16,502 18,172
Marketing, general and administrative 9,987 10,023 11,472
---------------------------------------------------------- ------------- ----------------- ----------------
Total operating costs and expenses 29,731 26,525 29,644
---------------------------------------------------------- ------------- ----------------- ----------------
Income (loss) from operations 853 (1,783) (4,418)
Interest income 669 593 757
---------------------------------------------------------- ------------- ----------------- ----------------
Income (loss) before provision
for income taxes 1,522 (1,190) (3,661)
Income tax (expense)/benefit 85 -- (81)
---------------------------------------------------------- ------------- ----------------- ----------------
Net income (loss) $1,607 $(1,190) $(3,742)
---------------------------------------------------------- ------------- ----------------- ----------------
Other comprehensive income (loss):
Unrealized gain (loss) on investments 9 -- (4)
---------------------------------------------------------- ------------- ----------------- ----------------
Net comprehensive income (loss) $1,616 $(1,190) $(3,746)
---------------------------------------------------------- ------------- ----------------- ----------------
Basic earnings per share:
Net income (loss) per share $0.47 $(0.37) $(1.17)
Shares used in per share computations 3,402 3,208 3,207
Diluted earnings per share:
Net income (loss) per share $0.44 $(0.37) $(1.17)
Shares used in per share computations 3,647 3,208 3,207
---------------------------------------------------------- ------------- ----------------- ----------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
In thousands
----------------------------------------------------------------------------------------------------------------------
Accumulated Other
Comprehensive
Common Stock Treasury Stock Retained Income
Shares Amount Shares Amount Earnings (Loss) Total
----------------------------------------- --------- ---------- -------- ----------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1997 3,281 $11,780 (79) $(351) $9,124 $(4) $20,549
Stock options exercised -- -- 9 40 (10) -- 30
Other comprehensive loss -- -- -- -- -- (4) (4)
Net loss -- -- -- -- (3,742) -- (3,742)
----------------------------------------- --------- ---------- -------- ----------- ------------- -------- ----------
Balances at September 30, 1998 3,281 $11,780 (70) $(311) $5,372 $(8) $16,833
Stock options exercised -- -- 3 11 (6) -- 5
Purchase of common stock for treasury -- -- (9) (26) -- -- (26)
Net loss -- -- -- -- (1,190) -- (1,190)
----------------------------------------- --------- ---------- -------- ----------- ------------- -------- ----------
Balances at September 30, 1999 3,281 $11,780 (76) $(326) $4,176 $(8) $15,622
----------------------------------------- --------- ---------- -------- ----------- ------------- -------- ----------
Stock options exercised 190 737 66 285 (52) -- 970
Other comprehensive income -- -- -- -- -- 9 9
Net income -- -- -- -- 1,607 -- 1,607
----------------------------------------- --------- ---------- -------- ----------- ------------- -------- ----------
Balances at September 30, 2000 3,471 $12,517 (10) $(41) $5,731 $1 $18,208
----------------------------------------- --------- ---------- -------- ----------- ------------- -------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
In thousands
---------------------------------------------------------------------------------------------------------------
Year ended September 30, 2000 1999 1998
---------------------------------------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,607 $(1,190) $(3,742)
Reconciliation to cash provided by operations:
Depreciation and amortization 657 543 501
Changes in assets and liabilities:
Accounts receivable (1,996) (26) 4,380
Inventories (220) (218) 632
Prepaid taxes 1,536 587 (1,526)
Prepaid expenses and other assets (440) (147) 7
Accounts payable 892 210 (1,940)
Customer deposits and billings
in excess of revenue recognized 70 1,819 472
Accrued liabilities (636) 680 549
---------------------------------------------------------------- -------------- --------------- ---------------
Net cash provided by (used in) operations 1,470 2,258 (667)
---------------------------------------------------------------- -------------- --------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (762) (1,103) (351)
Purchases of short-term investments (20,227) (10,304) (7,675)
Proceeds from maturity of short-term investments 17,909 11,698 7,006
---------------------------------------------------------------- -------------- --------------- ---------------
Net cash provided by (used in) investing activities (3,080) 291 (1,020)
---------------------------------------------------------------- -------------- --------------- ---------------
Cash flows from financing activities:
Stock options exercised 970 5 30
Purchase of common stock for treasury -- (26) --
---------------------------------------------------------------- -------------- --------------- ---------------
Net cash provided by (used in) financing activities 970 (21) 30
---------------------------------------------------------------- -------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents (640) 2,528 (1,657)
Cash and cash equivalents at beginning of year 11,310 8,782 10,439
---------------------------------------------------------------- -------------- --------------- ---------------
Cash and cash equivalents at end of year $10,670 $11,310 $8,782
---------------------------------------------------------------- -------------- --------------- ---------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
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 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.
DESCRIPTION OF BUSINESS - 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.
FISCAL YEAR END - 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 2000, 1999, and 1998
ended on October 1, October 3, and October 4, respectively.
CASH EQUIVALENTS - Cash equivalents consist of money market investments,
government securities, and commercial paper purchased with maturity at the date
of acquisition of less than 3 months ($9,580,000 as of September 30, 2000 and
$7,281,000 as of September 30, 1999). The restricted cash represents the amount
held as collateral for stand-by letters of credit at the end of the fiscal year.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash, cash
equivalents, accounts receivable and accounts payable approximate fair value
because of the short maturities of such investments. The Company's short-term
investments are carried at fair value, based on quoted market prices for these
or similar investments.
FOREIGN CURRENCY HEDGING INSTRUMENTS - The Company enters into forward exchange
contracts to hedge foreign currency exposures on a continuing basis for periods
consistent with its committed exposures. These transactions generally do not
subject the Company to risk of accounting loss because gains and losses on these
contracts offset losses and gains on the assets and liabilities being hedged.
However, the Company is exposed to credit related losses in the event of
nonperformance by the counterparties in these contracts. These contracts
normally have maturities of less than three months, and the amounts of
unrealized gains and losses are immaterial.
REVENUE RECOGNITION - Revenue and costs under cost-reimbursable type contracts
are recognized as costs are incurred and include applicable fees. Revenues 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, 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.
RISK 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 plans to increase 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.
F-7
<PAGE>
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 $1,222,000 in fiscal 2000,
$1,717,000 in fiscal 1999, and $2,369,000 in fiscal 1998.
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:
<TABLE>
<CAPTION>
Years
----------------------------------- -----------------------------------------------
<S> <C>
Machinery and equipment 3 - 10
Leasehold improvements Shorter of estimated useful life or lease term
----------------------------------- -----------------------------------------------
</TABLE>
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.
IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS TO BE DISPOSED OF - The Company
reviews long-lived assets 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 exceeds 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. To date, no adjustments to the carrying value of the Company's
long-lived assets have been required.
STOCK OPTION PLAN - The Company accounts for its stock option plan in accordance
with the intrinsic method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based employee compensation plan. The Company has
elected to apply the intrinsic value based method of accounting and has adopted
the disclosure requirements of Statement of Financial Accounting Standards (SFAS
No. 123), Accounting for Stock Based Compensation.
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.
F-8
<PAGE>
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
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. This
statement as amended will be effective for all interim periods of fiscal years
beginning after June 15, 2000, and management does not believe the adoption of
SFAS No. 133 will have a material effect on the financial position of the
Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. In March
2000, the SEC issued SAB No. 101A that delayed the implementation date of SAB
No. 101. In June 2000, the SEC issued SAB No. 101B that further delayed the
implementation date of SAB No. 101. The Company must adopt SAB No. 101 no later
than in the fourth quarter of fiscal 2001. The Company does not expect the
adoption of SAB No. 101 to have a material impact on its financial position or
results of operations.
2. SHORT-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
other comprehensive income or loss until realized. Realized gains or losses on
available for-sale securities are determined on a specific identification basis.
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, 2000 and September 30, 1999, were as follows:
<TABLE>
<CAPTION>
In thousands
---------------------------------------------- --------------- --------------------- -----------------
Amortized Gross Unrealized Fair
Cost Holding Losses Value
---------------------------------------------- --------------- --------------------- -----------------
<S> <C> <C> <C>
September 30, 2000
Short-term investments:
Certificates of deposit $3,320 $-- $3,320
Corporate bonds 2,366 1 2,367
---------------------------------------------- --------------- --------------------- -----------------
$5,686 $1 $5,687
---------------------------------------------- --------------- --------------------- -----------------
September 30, 1999
Short-term investments:
Certificates of deposit $3,292 $ (8) $3,284
Corporate bonds 76 -- 76
---------------------------------------------- --------------- --------------------- -----------------
$3,368 $(8) $3,360
---------------------------------------------- --------------- --------------------- -----------------
</TABLE>
The short-term investments 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. Substantially all of the Company's
short-term investments have maturities of one year or less.
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 account 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.
F-9
<PAGE>
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
September 30, 2000 1999
---- ----
(In thousands)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Material and component parts $1,632 $1,326
Work in process 292 378
-----------------------------------------------------------------------------------------------
$1,924 $1,704
-----------------------------------------------------------------------------------------------
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
September 30, 2000 1999
---- ----
(In thousands)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $7,140 $8,321
Leasehold improvements 384 331
-----------------------------------------------------------------------------------------------
7,524 8,652
Accumulated depreciation and amortization (5,386) (6,619)
-----------------------------------------------------------------------------------------------
$2,138 $2,033
-----------------------------------------------------------------------------------------------
</TABLE>
6. EXPORT REVENUE AND REVENUE FROM MAJOR CUSTOMERS
Revenue was derived from sales to customers located in the following geographic
areas:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Year ended September 30, 2000 1999 1998
---- ---- ----
(In thousands)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 7,820 $ 7,803 $ 8,855
Europe 3,430 3,468 3,408
Middle East 1,313 1,532 1,860
Africa 3,909 921 1,027
Asia/Pacific Basin 3,421 9,556 6,954
South America 10,683 1,416 3,090
Other 8 46 32
-------------------------------------------------------------------------------------------------------
$30,584 $24,742 $25,226
-------------------------------------------------------------------------------------------------------
</TABLE>
Sales under U.S. Government prime and subcontracts accounted for 13%, 18%, and
31% of the Company's total revenue in 2000, 1999, and 1998, respectively, of
which the U.S. Government prime contracts accounted for 12%, 17%, and 29%,
respectively.
Two customers represented 27% and 13%, respectively, of total revenue for fiscal
2000 and 15% and 0% of total accounts receivable at September 30, 2000.
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
September 30, 2000 1999
---- ----
(In thousands)
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued contract costs $1,235 $2,261
Accrued commission 1,056 652
Compensation and employee benefit plans 1,538 1,365
Accrued vacation 801 781
Other 701 908
---------------------------------------------------------------------------------------------------------
$5,331 $5,967
---------------------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. BANK CREDIT AGREEMENTS
The Company has a bank credit agreement that provides a fully secured credit
facility for the issuance of stand-by letter of credits up to $7,000,000. This
credit facility is secured by the Company's cash or short-term investment
portfolio. As of September 30, 2000, $4,084,000 of this credit line was
available for issuance of stand-by letters of credit.
At September 30, 2000, there were outstanding stand-by letters of credit of
approximately $2,916,000 held as bid, performance and payment bonds. The
stand-by letters of credit expire at various dates through the year 2002;
however, certain performance bonds are automatically renewable until canceled by
the beneficiary.
Short term investments totaling $2,916,000 are held by banks as collateral for
outstanding stand-by letters of credit at September 30, 2000.
9. STOCKHOLDERS' EQUITY
a. NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per share has been computed using the
weighted-average number of common shares outstanding in each year. Diluted net
income (loss) per share reflects the potential dilution that could occur if
dilutive securities were exercised into common shares. There were options
outstanding to purchase 656,000, 827,400, and 681,200, shares of the Company's
common stock with a weighted-average exercise price of $4.83, $4.41, and $5.49,
as of September 30, 2000, 1999 and 1998, respectively, were excluded from
diluted earnings per share but which could potentially dilute basic earnings per
share in the future.
A reconciliation of the earnings and shares used in the computation for basic
and diluted earnings per share follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Year ended September 30, 2000 1999 1998
---- ---- ----
(In thousands, except per share amounts)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) used for basic
and diluted earnings per share $1,607 $(1,190) $(3,742)
-----------------------------------------------------------------------------------------------------------------
Number of shares:
Weighted average common shares
outstanding used for basic
earnings per share 3,402 3,208 3,207
Effect of dilutive stock options 245 - -
Weighted average common shares
outstanding used for diluted earnings
per share 3,647 3,208 3,207
-----------------------------------------------------------------------------------------------------------------
</TABLE>
b. EMPLOYEE BENEFIT PLANS
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. In fiscal 1998 and 1997, the Company
made matching contributions of up to 2% of participants' annual compensation; in
fiscal 1999 the Company increased its matching contributions to up to 5% of
eligible participants' annual compensation. The Company's contributions to the
Plan were approximately $320,000 for fiscal 2000, $360,000 for fiscal 1999, and
$140,000 for fiscal 1998.
Historically, the Company made contributions to the Employee Stock Ownership
Plans (ESOP) subject to the approval of the Board of Directors. In fiscal 1999,
the Company elected to freeze the Employee Stock Ownership Plan. Thus, the
Company does not plan to make any contributions to the plan in the future. As of
September 30, 2000, the ESOP owns 194,094 of the Company's outstanding shares.
F-11
<PAGE>
The Company also has a Profit Sharing Plan and has accrued a contribution to the
plan of approximately $170,000 for fiscal 2000.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c. STOCK OPTION PLAN
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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Number Weighted Average
of shares Exercise Price
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at Sept 30, 1997 713,600 $5.75
Granted 27,000 4.56
Exercised (8,900) 3.38
Canceled (50,500) 9.00
-----------------------------------------------------------------------------------------------------
Options outstanding at Sept 30, 1998 681,200 $5.49
-----------------------------------------------------------------------------------------------------
Granted 234,000 2.25
Exercised (2,500) 2.25
Canceled (85,300) 7.13
-----------------------------------------------------------------------------------------------------
Options outstanding at Sept 30, 1999 827,400 $4.41
-----------------------------------------------------------------------------------------------------
Granted 163,000 5.82
Exercised (256,901) 3.78
Canceled (77,499) 5.91
-----------------------------------------------------------------------------------------------------
Options outstanding at Sept 30, 2000 656,000 $4.83
-----------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 2000, there were 21,534 shares available for future grant under
the 1981 Plan. The per share weighted-average fair value of stock options
granted during fiscal 2000 and 1999 was $ 2.61and $.78, respectively, 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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------
<S> <C> <C>
Weighted-average risk free
Interest rate 5.34% 5.00%
Dividend yield 0% 0%
Volatility factor .493 .351
Weighted average expected
Life of an option 4 years 4 years
-------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company uses the intrinsic value method to account 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, the Company's net income
(loss) and net income (loss) per share would have increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss)
(in thousands)
As reported $1,607 $(1,190) $(3,742)
Pro forma 1,479 (1,318) (3,863)
Net income (loss) per share:
Basic net income (loss) per As reported $.47 $(0.37) $(1.17)
share Pro forma $.43 (0.41) (1.21)
Diluted net income (loss) As reported $.44 $(0.37) $(1.17)
per share Pro forma $.41 (0.41) (1.21)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 2000, the range of exercise price and weight-average remaining
contractual life of outstanding options was as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Option Outstanding Option Exercisable
----------------------------------------------------------------------------------------------------------------------
Range of Weighted Average Weighted
Exercise Number Remaining Weighted Average Average
Price Outstanding Contractual Life Exercise Price Number Exercise Price
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.13 185,000 5.38 years $2.13 60,007 $2.13
3.44 - 3.75 21,500 6.01 years 3.47 3,167 3.50
4.12 - 4.50 196,500 3.50 years 4.27 127,000 4.28
5.00 - 5.63 12,000 6.63 years 5.53 11,000 5.57
6.00 - 6.75 135,500 5.97 years 6.61 110,500 6.75
7.63 30,000 4.92 years 7.63 30,000 7.63
8.38 - 8.75 34,000 5.15 years 8.50 11,000 8.75
9.13 - 9.50 41,500 4.51 years 9.27 15,500 9.50
----------------------------------------------------------------------------------------------------------------------
656,000 4.89 years $4.83 368,174 $5.33
----------------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 2000 and 1999, the number of options exercisable was 368,174
and 546,400, respectively, and the weighted-average exercise price of those
options was $5.33 and $5.28, respectively.
F-13
<PAGE>
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 2005 and require the
following future minimum payments:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Year ending September 30, 2000
(in thousands) Amounts
------------------------------------------------------------------------------------------
<S> <C>
2001 $543
2002 $558
2003 $575
2004 $577
Beyond $97
</TABLE>
Rental expense was $544,000, $463,000, and $545,000 in fiscal 2000, 1999, and
1998, 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 Company and
the other respondents objected to the convening of an arbitration panel.
On September 24, 1998, the Office of Environmental Health Hazard Assessment
("OEHHA") advised the parties that the legislative authority for the arbitration
panels had "sunsetted" and thus OEHHA would take no further action towards
ruling on the respondents' objections or convening a HSCAP arbitration panel
unless the legislature took action to reinstate the legislative authority for
these panels.
Subsequently, the legislative authority for the HSCAP arbitration panels was
reinstated and the Teledyne parties have advised OEHHA that they still wish to
arbitrate the matter. Should OEHHA now overrule TCI's and the other respondents'
objections to the convening of the panel, TCI may take legal action to dispute
the panel's jurisdiction and in all events will vigorously maintain that it is
not responsible for any of the groundwater contamination in the area and should
not share in any of the costs associated with the groundwater extraction system
being operated by Teledyne/Spectra Physics.
At present, there is no lawsuit, arbitration or other legal or administrative
proceeding pending against TCI regarding this Teledyne/Spectra Physics matter,
and it is possible that no further legal proceedings regarding this matter
involving TCI will occur. The Company cannot estimate the costs, if any, that
will be required in the resolution of this matter.
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.
F-14
<PAGE>
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
The Company has net operating loss carryforwards for federal and state income
tax purposes of approximately $7,570,013, $2,628,952, respectively, which expire
through 2014 and 2004, respectively.
The provision for income taxes, all current, for the years ended September 30,
2000, 1999, and 1998, consist of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Years ended September 30, 2000 1999 1998
---- ---- ----
(In thousands)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal $89 $-- $--
State 5 -- 5
Foreign (179) 76
----------------------------------------------------------------------------------------------------
Total (85) -- 81
----------------------------------------------------------------------------------------------------
</TABLE>
The effective tax rate differed from the statutory federal income tax rate due
to the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Year ended September 30, 2000 1999 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal rate 35% (35%) (35%)
State taxes, net of federal benefit -- 1 --
Alternative minimum tax 1 -- --
Foreign tax expense (benefit) (12) -- 2
Changes in valuation allowance (43) 34 35
Foreign dividend 10 -- --
Other 3 -- --
----------------------------------------------------------------------------------------------------
Effective income tax rate (6%) 0% 2%
----------------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Year ended September 30, 2000 1999
(In thousands)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward 2,808 $2,681
Long-term contracts 570 737
Accruals not currently deductible 1,367 2,221
Difference in tax basis of property and
equipment -- 150
----------------------------------------------------------------------------------------------------
Gross deferred tax assets $4,745 $5,789
----------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Difference in tax basis of property (795) --
and equipment
State taxes (102) --
----------------------------------------------------------------------------------------------------
Gross deferred tax liabilities (897) --
----------------------------------------------------------------------------------------------------
Valuation allowance 3,848 $5,789
----------------------------------------------------------------------------------------------------
Net deferred taxes $0 $0
----------------------------------------------------------------------------------------------------
</TABLE>
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, 2000 and September 30,
1999 was decrease of $1,941,000 and an increase of $898,000, respectively.
Cash payments for income taxes were $55,744 in 2000 and $0 in 1999.
F-15
<PAGE>
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. OPERATING SEGMENTS
The Company is structured primarily around its product lines and the markets it
serves and operates in two business segments: Broadcast Products and Signal
Processing Products.
The Broadcast Products segment designs and manufactures antenna systems and
accessory items that cover the frequency range of 0.5 to 870 MHz. Most of the
Company's products are used for TV, FM, and AM broadcasting, although
lower-power versions of its products in the 2 to 30 MHz range are used for high
frequency (HF) communications by military and commercial organizations. These
systems are installed in both domestic and foreign locations for both government
and commercial organizations.
The Company's Signal Processing Products segment offers spectrum management,
direction finding, signal collection, and specialized communications equipment
that are sold primarily to domestic and foreign military and intelligence
markets. Typically, Signal Processing products consist of receivers and
transmitters, DSP-based direction finding processors, and specialized
application software.
Selected information by operating segments is summarized below (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net Revenues
Broadcast Products $10,256 $ 8,860 $11,876
Signal Processing Products 20,328 15,882 13,350
-------- -------- --------
$30,584 $ 24,742 $25,226
Operating Income (Loss)
Broadcast Products $(1,216) $ (157) $ (471)
Signal Processing Products 2,069 (1,626) (3,947)
-------- --------- --------
$ 853 $ (1,783) $(4,418)
Identifiable assets:
Broadcast Products $ 5,717 $ 3,981 $ 5,106
Signal Processing Products 6,392 3,781 2,672
Unallocated Assets 17,532 18,967 17,453
-------- --------- --------
$ 29,641 $ 26,729 $25,231
</TABLE>
F-16
<PAGE>
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 29, 2000 By: /s/ MARY ANN ALCON
---------------------------- --------------
MARY ANN ALCON
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John W. Ballard, III President and Director December 29, 2000
----------------------------- (Principal Executive Officer) ---------------------
(John W. Ballard)
/s/ E.M.T. Jones Director December 29, 2000
----------------------------- ---------------------
(E.M.T. Jones)
/s/ John L. Anderson Director December 29, 2000
----------------------------- ---------------------
(John L. Anderson)
/s/ Asaph H. Hall Director December 29, 2000
----------------------------- ---------------------
(Asaph H. Hall)
/s/ Alan C. Peyser Director December 29, 2000
----------------------------- ---------------------
(Alan C. Peyser)
/s/ Donald C. Cox Director December 29, 2000
----------------------------- ---------------------
(Donald C. Cox)
/s/ Slobodan Tkalcevic Director December 29, 2000
----------------------------- ---------------------
(Slobodan Tkalcevic)
</TABLE>
F-17
<PAGE>
TCI INTERNATIONAL, INC.
EXHIBIT INDEX
Number Exhibit
--------------------------------------------------------------------------------
10.11 Sublease between Technology for Communications International
and Fairchild Technologies, dated May 1, 2000
22 Schedule II - Valuation and Qualifying Accounts
23 List of Subsidiaries of TCI International, Inc.
24 Consent of KPMG LLP
27 Financial Data Schedule
