SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
September 30, 1995 0-8588
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE TRANSITION PERIOD FROM
_______________TO_______________.
Technical Communications Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-2295040
(State or other jurisdiction of incorporation (I.R.S.
Employer Identification No.)
or organization)
100 Domino Drive, Concord, MA 01742
(Address of principal executive offices) (Zip code)
Registrants telephone number,
including area code (508) 287-5100
Securities registered pursuant to Section 12 (b) of the Act:
None None
(Title of each class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.10 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
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
the registrants 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.
YES X NO
Based on the closing price of the stock as of December
1, 1995, the aggregate market value of the registrants
Common Stock, par value $ .10 per share, held by non-
affiliates of the registrant as of December 1, 1995, was
approximately $11,000,000.
The number of shares of the registrants Common Stock,
par value $ .10 per share, outstanding as of December 1,
1995, was 1,254,426.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's proxy statement, which will be filed with
the Commission not later than December 31, 1995, is
incorporated herein by reference.
PART I
Item 1. BUSINESS
(a) General
Technical Communications Corporation (the Company)
was organized in 1961 as a Massachusetts corporation to
engage primarily in consulting activities. However, since
the late 1960s its business has consisted entirely of the
design, development, manufacture and sale of communications
security devices and systems.
(b) Information as to Industry Segments
The Company's business consists of only one industry
segment, which is the design, development, manufacture and
sale of communications security devices and systems.
(c) Description of Business
The Company's products consist of sophisticated
electronic devices which enable users to transmit information
in a scrambled format and permit receivers to reconstitute
the information in an unscrambled format. The Companys
products can be used to protect confidentiality in
communications between radios, telephones, facsimile machines
and data processing equipment over wires, fiber optic cables,
radio waves and microwave and satellite links. A customer
may order and receive equipment which is specially programmed
to scramble transmissions in accordance with a code to which
only the customer has access. The principal markets for the
Company's products are foreign and domestic governmental
agencies, law enforcement agencies, and multinational
companies.
The Company has several competitors, including foreign-
based companies, in the communications security devices
field. Many of these competitors are companies which may
have greater financial and other resources than the Company.
The Company competes based on its service, the operational
and technical features of its products, its sales expertise
and pricing. The Company sells directly to customers and
original equipment manufacturers, using its in-house sales
force as well as domestic and international representatives
and distributors.
In fiscal 1995, the Company had three customers,
including the U.S. Government as one customer, representing
57% (24%,20%, and 13%) of net sales. In fiscal 1994, the
Company had three customers, including the U.S. Government as
one customer, representing 52% (28%, 15% and 9%) of net
sales. In fiscal 1993, the Company had three customers,
including the U.S. Government, representing 52% (27%, 13% and
12%) of net sales.
The Company's backlog of firm orders as of September
30, 1995 was $2,868,787, compared to $1,777,872 as of
October 1, 1994. The Company expects to deliver substantially
all of its backlog in the current fiscal year.
The Company subcontracts a large portion of its
manufacturing operations. Many of the components used in the
Company's products are standard components available from
more than one supplier. The Company has, or believes that it
could develop without significant delay, alternative sources
for almost all materials and components used in the
manufacture of its products. The Company's internal
manufacturing process consists primarily of adding critical
components, final assembly, quality control, testing and burn-
in. Delivery time varies depending on the products and
options ordered.
The Company's technological expertise and experience,
including certain proprietary rights which it has developed
and maintains as trade secrets, are crucial to the conduct of
the Company's business. Management is of the opinion that,
while patent protection is desirable with respect to certain
of its products, none of the Company's patents are material
to the conduct of its business. Eight patents have been
issued to the Company. The Company has a number of
trademarks for various products, including TCC, KEYNET and
CIPHER X. The Company does not deem any of its trademarks to
be material to the conduct of its business.
Research and development is undertaken by the Company
on both its own initiative and specific customer request. In
order to develop the technology needed to compete
successfully, the Company
<PAGE>
must attract and retain qualified
personnel, improve existing products and develop new
products. During the twelve-month periods ended September
30, 1995, October 1, 1994, and October 2, 1993, the Company
spent $1,492,370, $1,221,713, and $1,856,785, respectively,
on product development costs. All product development costs
for Company-sponsored products were expensed.
As of September 30, 1995, the Company employed
approximately 61 persons. The Company believes that its
relationship with its employees is good.
Once the Company sells communications security
devices to a customer, there is generally no need for the
customer to make additional purchases for some time.
However, additional sales for different products may result,
generally over a period of several years.
(d) Foreign Operations
The Company is dependent upon its foreign sales.
Foreign sales were more profitable than domestic sales during
the fiscal year ended October 1, 1994, because the mix of
products sold abroad included more products with higher
profit margins than the mix of products sold domestically.
Sales to foreign markets have been and will continue to be
affected by the stability of foreign governments and economic
conditions. The Company attempts to minimize the financial
risks normally associated with foreign sales by utilizing
letters of credit confirmed by U.S. banks in most cases and
using exporters insurance. Most foreign sales are in U.S.
dollars. Any foreign currency transactions are well hedged
against price changes to minimize financial risk.
Most of the Company's export sales are conducted
through its wholly-owned subsidiary, TCC Foreign Sales
Corporation, which is qualified as a Foreign Sales
Corporation (FSC) under the Internal Revenue Code.
Export licenses are required from the federal
government for the export of the Company's products to
foreign countries.
Information regarding the Company's revenue from
export sales for the past five years is set forth in Item 6,
SELECTED FINANCIAL DATA (Page 5).
Item 2. PROPERTIES
The Company leases its headquarters and a branch sales
office under operating leases.
On October 16, 1992, the Company signed a new lease on
its headquarters. The future minimum lease payments are
$146,160 per year for calendar years 1995 through 1997. The
lease expires on December 31, 1997, but can be renewed for
one or two additional two and 1/2 year terms ending June 30,
2000, and December 31, 2002. The Company also retains an
option to purchase the building at fair market value but not
to exceed $2,262,000, exercisable at each two and one-half
year interval during the initial term of the lease or any
renewals thereof.
Management believes the current facility is capable of
meeting the Company's anticipated needs for the foreseeable
future.
Item 3. LEGAL PROCEEDINGS
No material legal proceedings are pending to which the
Company is a party or of which any of its property is the
subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security
holders during the fourth quarter of the fiscal year covered
by this report.
<PAGE>
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock, $ .10 par value, is traded
on the over-the-counter market, on the NASDAQ National Market
System, under the symbol "TCCO". The following table presents
low and high bid information for the time periods specified.
The over-the-counter market quotations reflect inter-dealer
prices, without retail markup, markdown or commission and may
not necessarily represent actual transactions. The over-the-
counter market quotations have been furnished by The NASDAQ
Stock Market, Inc.
[CAPTION]
<TABLE>
PRICE
TITLE OF CLASS QUARTER ENDING LOW HIGH
Common Stock,
<C> <S> <C> <C> <C>
$.10 par value 01/01/94 $9.00 $13.75
04/02/94 7.75 14.25
07/02/94 6.13 9.50
10/01/94 7.25 8.50
12/31/94 7.00 9.25
04/01/95 6.75 8.50
07/01/95 6.25 8.25
09/30/95 6.25 11.00
</TABLE>
The Company has paid no cash dividends in the past and
has no plans to pay cash dividends in the foreseeable future.
As of December 1, 1995 there were approximately 1,300
record holders of Common Stock, $ .10 par value. As of
December 1, 1995, the low and high prices of the Common Stock
were $ 8.25 and $ 9.25.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA:
[CAPTION]
<TABLE>
FISCAL YEARS ENDED:
SEPTEMBER 30, OCTOBER 1, OCTOBER 2, SEPTEMBER 26, SEPTEMBER 28,
1995 1994 1993 1992 1991
Net Sales:
<S> <C> <C> <C> <C> <C>
Domestic $1,535,015 $ 707,735 $3,043,963 $3,010,859 $1,997,647
Foreign 8,692,550 8,357,980 6,679,220 11,515,348 10,522,752
Total net
sales 10,227,565 9,065,715 9,723,183 14,526,207 12,520,399
Gross profit 5,351,882 5,294,825 5,056,996 9,073,433 8,359,010
Net income 88,745 116,046 83,440 1,258,057 1,556,556
Net income per share of
common stock (Note A)
$ .07 $ .09 $ .07 $1.02 $1.27
</TABLE>
Weighted average
shares outstanding1,252,5671,245,4101,238,2111,236,3621,229,242
[CAPTION]
<TABLE>
AS OF:
SEPTEMBER 30, OCTOBER 1, OCTOBER 2, SEPTEMBER 26, SEPTEMBER 28,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Assets $15,348,435 $12,088,955 $12,019,465 $13,443,913 $12,579,211
Long-term obligations
$ 2,550,612 $1,132,748 $ 550,386 $ 1,638,589 $ 2,156,136
</TABLE>
Notes to Selected Financial Data
(A)For fiscal years 1995, 1994, 1993, and 1992 the dilutive
effect of shares assumed to have been issued on exercise
of stock options was not material.
[CAPTION]
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA:
For the years ended September 30, 1995, and October 1, 1994.
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
FISCAL 1995 DECEMBER 31, 1994 APRIL 1, 1995 JULY 1, 1995 SEPTEMBER 30, 1995
<S> <C> <C> <C> <C>
Net sales $1,134,076 $789,489 $2,900,841 $5,403,159
Gross profit 490,144 95,806 1,865,881 2,900,051
Net income (357,904) (629,994) 361,336 715,307
Net income per share $(.29) $ (.50) $ .29 $ .57
</TABLE>
[CAPTION]
<TABLE>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
FISCAL 1994 JANUARY 1, 1994 APRIL 2, 1994 JULY 2, 1994 OCTOBER 1, 1994
<S> <C> <C> <C> <C>
Net sales $1,146,789 $1,265,377 $2,669,048 $3,984,501
Gross profit 510,539 571,399 1,659,775 2,553,112
Net income (298,824) (643,570) 274,083 784,357
Net income per share
$ (.24) $ (.52) $ .22 $ .63
</TABLE>
<PAGE>
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash and cash equivalents decreased from $6,460,887 at
October 1, 1994, to $3,877,790 at September 30, 1995. This
decrease was primarily due to (i) an asset purchase of the
communications security business of Datotek, Inc., a
subsidiary of AT&T Corp., (ii) the acquisition of a minority
interest in Net2Net Corporation and the prepayment at a
discount for products from Net2Net Corporation and (iii) an
increase in accounts receivable due to increased fourth
quarter shipments from the prior year. The current ratio of
the Company, an indication of its working capital strength,
decreased from 6.9 to 1 in fiscal 1994 to 3.8 to 1 in fiscal
1995. The decrease was caused by an increase in current
liabilities due to the Datotek.
On May 31, 1995, the Company acquired substantially
all of the assets relating to the secure communications
business of Datotek, Inc., a subsidiary of AT&T Corp., for a
price of $3,788,000. Datotek was the largest domestic
competitor of the Company. This purchase was financed
partially by the cash reserves of the Company and by two bank
loans totaling $2,250,000. These loans are repayable in
equal principal payments over five years, plus interest at
the base rate of The First National Bank of Boston plus 1/2
percent. In connection with this acquisition, the Company
also entered into distribution agreements with AT&T Corp. for
the distribution of certain secure communications equipment
of AT&T Corp. On June 27,1995, the Company purchased a
minority interest in Net2Net Corporation for a price of
$250,800. The Company also prepaid at a discounted rate for
certain Net2Net products and entered into a distribution
agreement with Net2Net which provides the Company with
exclusive rights to distribute the Net2Net's products to
certain US government agencies. Net2Net is a start-up
manufacturer of test equipment used to monitor communications
traffic over asynchronous transfer mode (ATM) networks which
is a protocol used to transmit data over wide area networks
at very high speeds.
During the 1995 fiscal year, the Company and its bank
renewed its existing Revolving Line of Credit Agreement. The
$2,500,000 line of credit is available until May 1, 1996.
Borrowings under the line of credit bear interest at the
bank's prime rate plus 1/2% per annum. The line of credit is
secured by a lien on substantially all of the Company's
assets and will be used for working capital requirements and
to support letters of credit. While there have been no
borrowings under the line of credit, availability under the
line as of September 30, 1995, has been reduced by $70,833
for outstanding letters of credit.
On November 17, 1989, the Company established the
Technical Communications Corporation Employees Stock
Ownership Trust (the Trust) for the benefit of its Associates
(employees). During 1990 and 1991, the Trust borrowed
$1,212,500 and $1,287,488 from two banks, respectively, and
purchased 190,350 shares of the Company's common stock at
fair market value. The Company is acting as a guarantor on
the outstanding loans and, as a result, has recorded the
principal balance of such loans on its balance sheet as long-
term debt with an offsetting charge to "ESOP Deferred
Compensation" within the Stockholders' Equity section.
The 1990 loan to the Trust bears interest on the
principal amount outstanding at a rate equal to a) 7.25% to
March 31, 1996, and b) prime plus 1/2 of 1% as of April 1,
1996, to March 31, 1997. The 1991 loan was renewed in
August 1994 for a further three-year term, and now bears
interest at a rate of 8.77%. It requires a balloon payment
of approximately $490,000 in August 1997.
Management anticipates no unusual capital expenditures
and no anticipated increases in the Company's requirements
for capital resources for fiscal 1995. Management believes
the existing working capital will be sufficient to meet
contemplated operating and capital requirements in the
foreseeable future.
<PAGE>
Results of Operations
1995 COMPARED TO 1994
Consolidated net sales for the year ended September
30, 1995, were $10,227,565, compared with sales of $9,065,715
for the prior fiscal year. This increase of $1,161,850 was
attributed to domestic sales (71%) and foreign sales (29% )
from the previous year.
Because of the long lead-times associated with the
acquisition of orders, new products rarely contribute
significantly to sales in the year in which they are
introduced.
Domestic sales for fiscal 1995 amounted to
$1,535,015, compared with $707,735 for the previous fiscal
year. The increase was due to increased procurement from
U.S. government agencies. Foreign sales increased to
$8,692,550 in fiscal 1995, from a level of $8,357,980 in
fiscal 1994. A significant portion of this increase resulted
from sales of the Company's DSD72A-SP bulk encryption
equipment to protect missile control telemetry. The Company
does not anticipate significant sales in this area in fiscal
1996 but anticipates the Datotek acquisition will compensate
for such sales.
Gross profit for the fiscal year 1995 was $5,351,882,
compared to gross profit of $5,294,825 in fiscal year 1994.
Gross profit increased slightly due to increased sales.
Gross profit expressed as a percentage of sales was 52% in
fiscal 1995, compared to 58% in fiscal year 1994. The gross
profit as a percentage of sales was reduced primarily as a
result of increased warranty and inventory obsolescence costs
resulting from the Datotek acquisition. A portion of these
costs is expected to be non-recurring.
Engineering, design and product development costs in
fiscal year 1995 were $1,492,370, compared to $1,221,713 in
fiscal 1994. In fiscal 1995 a higher proportion of
development costs was for TCC's own products, resulting in a
lesser proportion of such cost being billed directly to
customers.
Selling, general and administrative expenses of
$3,826,778 in fiscal year 1995 decreased by $218,398, or 5%
less than such expenses in fiscal year 1994. This decrease
was accounted for primarily by decreases in administration
and engineering expenses. These decreases were primarily
the result of lower salary costs and reduction in material
usage in the engineering department. The reduction in
material usage in the engineering department resulted from
working on engineering development jobs that were more
software related.
Investment income earned during fiscal year 1995 was
$271,815, compared to $212,211 in fiscal year 1994. The
increase of $59,604 is primarily due to higher interest rates
on our investments. Interest expense of $158,570 in fiscal
year 1995 represented an increase of $44,455 from the fiscal
1994 level. This was due to the addition of a $2,250,000
loan incurred in connection with the Datotek acquisition.
The Company had net earnings of $88,745 or $.07 per
share in fiscal year 1995, compared to net earnings of
$116,046 or $.09 per share in fiscal year 1994. This
represents a decrease in net earnings of approximately 24%.
This decrease was the direct result of additional costs
incurred in connection with the Datotek acquisition.
Equipment and leasehold improvements as of September
30, 1995, increased by $1,369,680 gross and increased by
$934,600 net, to $3,626,364 and $1,641,733 respectively,
compared to the equivalent figures for the end of the
previous fiscal year. The gross and net increase was due
almost entirely to the Datotek acquisition.
Accounts payable were $450,650 as of September 30,
1995, compared to $223,638 as of October 1, 1994. The
increase was due to differences in the timing of receipt of
materials between the two year-ends. The current portion of
long-term debt of $696,136 as of September 30, 1995,
increased compared to the October 1, 1994, balance of
$246,136 due to the addition of the $2,250,000 loan described
above. Accrued compensation and related expenses as of
September 30, 1995, were $429,146 at the end of fiscal year
1995 compared to $307,388 at the end of the previous year.
Sales made in September of 1995
<PAGE>were commissionable, on average, at a higher rate than those of
September 1994. Other accrued liabilities increased from $859,675 at October
1, 1994, to $1,553,140 as of September 30, 1995, due
primarily to increased reserves for product warranty and
higher accruals for post-sale support to customers. The
increase in warranty reserve is primarily due to the
Company's assumption of Datotek's warranty obligations
pursuant to the acquisition. The Company believes itself to
be adequately reserved.
The Datotek acquisition has increased the Company's
market share of the secure communications business in which
Datotek competed and will create more visibility in the world
market. Datotek's customer database and contacts will be a
valuable asset to the Company's long-range sales objectives.
The Company's distribution agreement with AT&T Corp. to sell
certain secure communications equipment will also positively
affect sales.
The effects of inflation and changing costs have not
had a significant impact on sales and earnings growth in
recent years. As of December 1, 1995, little of the
Company's monetary assets or liabilities were subject to
foreign exchange risk. Any foreign currency transactions are
well hedged against price changes to minimize financial risk.
The Company attempts to minimize the financial risks normally
associated with foreign sales by utilizing letters of credit
confirmed by U.S. banks in most cases and using exporters
insurance. The Company usually includes an inflation factor
into pricing when negotiating multi-year contracts with
customers.
1994 COMPARED TO 1993
Consolidated net sales for the year ended October 1,
1994, were $9,065,715, compared with sales of $9,723,183 for
the prior fiscal year. This decrease of $657,468 was caused
by a reduction in domestic sales from the previous year.
Because of the long lead-times associated with the
acquisition of orders, new products rarely contribute
significantly to sales in the year in which they are
introduced.
Domestic sales for fiscal 1994 amounted to $707,735,
compared with $3,043,963 for the previous fiscal year. Two
reasons contributed to this reduction. The first was the
General Services Administration's delay in deploying already
acquired TCC equipment on its FTS 2000 network. The second
reason stemmed from continuing uncertainty among our domestic
customers with regard to the "Clipper Chip" encryption
algorithm. Foreign sales increased 25% to $8,357,980 in
fiscal 1994, from a level of $6,679,220 in fiscal 1993. A
significant portion of this increase resulted from adopting
the Company's existing DSD72A-SP bulk encryption equipment to
protect missile control telemetry.
Gross profit for the fiscal year 1994 was $5,294,825,
compared to gross profit of $5,056,996 in fiscal year 1993.
Gross profit increased despite the decrease in sales. Gross
profit expressed as a percentage of sales was 58% in fiscal
1994, compared to 52% in fiscal year 1993. The gross profit
improved primarily as a result of a higher proportion of
foreign sales, as compared to domestic, in the product mix.
As a rule, the gross margins on foreign sales tend to be
higher than those on domestic sales.
Engineering, design and product development costs in
fiscal year 1994 were $1,221,713, compared to $1,856,785 in
fiscal 1993. This apparent drop in product development
expenditures is primarily the result of the Company's ability
to charge more of its development effort to its customers
than in the previous year. Total engineering, design and
development expenses in fiscal 1994 were $1,793,161, compared
to $2,084,970 in fiscal 1993. However, in fiscal 1994, the
Company transferred $571,448 of development expenses to
inventory or cost of sales, compared to $228,185 in the
previous fiscal year. The remaining $291,809 decrease in
total engineering costs from fiscal 1993 to fiscal 1994
resulted entirely from reductions in outside consulting
costs, project material expenses and facilities allocation.
Selling, general and administrative expenses of
$4,045,176 in fiscal year 1994 exceeded those of fiscal year
1993 by $863,434, or 27%. This increase was accounted for by
increases in sales, marketing
<PAGE>
and customer service expenses. Management believes these increases are
necessary in order to assure a secure and profitable future for the Company.
Investment income earned during fiscal year 1994 was
$212,211, almost exactly equal to $211,168 in fiscal year
1993. Interest expense of $114,115 in fiscal year 1994
represented a decrease of $36,382 from the fiscal 1993 level.
This was due to a lower outstanding average balance on the
ESOP loan (see Note 5 on page AR10).
The Company had net earnings of $116,046 or $.09 per
share in fiscal year 1994, compared to net earnings of
$83,440 or $.07 per share in fiscal year 1993. This
represents an increase in net earnings of approximately 39%.
This increase was the direct result of the increased gross
margin, partially offset by higher operating expenses
referred to above.
Equipment and leasehold improvements as of October 1,
1994, increased by $185,284 (gross) but declined by $106,706
(net), to $2,256,684 and $707,133 respectively, compared to
the equivalent figures for the end of the previous fiscal
year. The net declined because the amount of depreciation
taken during fiscal year 1994 exceeded the cost of new
equipment and leasehold improvements added during the fiscal
year.
Accounts payable were $223,638 as of October 1, 1994,
compared to $416,235 as of October 2, 1993. The decrease was
due to differences in the timing of receipt of materials
between the two year-ends. The current portion of long-term
debt of $246,136 as of October 1, 1994, decreased compared to
the October 2, 1993, balance of $1,088,203 because the
Company refinanced a portion of its ESOP loan in August 1994.
Accrued compensation and related expenses as of October 1,
1994, were $307,388 at the end of fiscal year 1994 compared
to $382,862 at the end of the previous year. The decrease
resulted from lower commissions payable at year-end, due to
lower sales during September 1994 as compared to sales during
September of 1993. Other accrued liabilities increased from
$701,760 at October 2, 1993, to $859,675 as of October 1,
1994, primarily because of increased sales commissions
payable to distributors. Commission amounts due to
distributors are accrued at the time the sale is made, but
are generally not payable until payment is received by the
Company.
The effects of inflation and changing costs have not
had a significant impact on sales and earnings growth in
recent years. As of December 1, 1994, virtually none of the
Company's monetary assets or liabilities were subject to
foreign exchange risk. Accordingly, no techniques to hedge
such risk are considered necessary. The Company usually
includes an inflation factor into pricing when negotiating
multi-year contracts with customers.
1993 COMPARED TO 1992
At the end of fiscal year 1992, the Company was
pleased with the number of opportunities for sales in fiscal
year 1993. By the end of the first quarter of fiscal year
1993, the Company became concerned with delays in the receipt
and shipping of orders, many of which the Company had no
control over (such as U.S. and foreign government funding
programs, the receipt of export licenses, technical issues
and the like). Because of such delays, the Company shipped
approximately $5.1 million of products in the fourth fiscal
quarter, representing 52% of fiscal year 1993's total sales.
The Company's efforts to combat the delayed receipt of orders
and shipments were also helped by a fourteen-week final
quarter. (The Company recognizes revenue only when the
product is ready for shipment).
As the fiscal year progressed, it became increasingly
clear that, while there would be an increase in domestic
business, which consists primarily of lower-price, lower-
margin products, the delay in receiving and shipping orders
would dramatically decrease foreign sales, which consist
primarily of higher-price, higher-margin products. The
Company, however, remained confident that the opportunities
for foreign sales were excellent. The 29% increase in
backlog at the end of fiscal year 1993 as compared to fiscal
year 1992 was an indication of these delays in the receipt of
orders.
Because many of the Company's expenses are fixed
(administrative, sales, research and development, etc.), the
Company immediately examined all expenses with a view to
lowering its break-even
<PAGE>
point so that the year would still be profitable. The Company
successfully eliminated considerable expense without having to resort to
layoffs. Even though foreign sales decreased by approximately 42% from
fiscal year 1992, and total net sales decreased 33% from fiscal year
1992, by careful cost cutting, the Company still remained
profitable.
Because of the long lead-times associated with the
acquisition of orders, new products rarely contribute
significantly to sales in the year in which they are
introduced. However, sales of the CSD 3324E Secure Office
Center and the DSP 9000 Hand Set developed in fiscal 1993
contributed to fiscal 1993 sales.
Domestic sales for the fiscal year 1993 were
$3,043,963, almost unchanged from the year-earlier figure of
$3,010,859. Foreign sales for the year ended October 2,
1993, were $6,679,220, down from $11,515,348 in the previous
fiscal year. The decline in foreign sales in fiscal year
1993 was due to the factors mentioned above.
Gross profit for fiscal year 1993, was $5,056,996 as
compared to gross profit of $9,073,433 in fiscal year 1992.
This represented a 44% decrease, which resulted from the
lower sales in fiscal year 1993 as compared to fiscal year
1992. Gross profit expressed as a percentage of sales was
52.0% in fiscal year 1993, as compared to 62.5% in fiscal
year 1992. The decrease in margin percentage resulted from a
higher proportion of lower-margin products sold by the
Company. In addition, since certain elements of the cost of
sales are relatively fixed, such costs were absorbed by a
lower volume of production in fiscal year 1993.
Engineering, design and product development costs in
fiscal year 1993 were $1,856,785 as compared to $1,796,996 in
fiscal 1992. The increase in these costs over the fiscal
1992 level was due to development work on new products and
enhancements to existing products. One significant new
product, the Cipher X 8000, was announced during fiscal year
1993, and enhancements to an existing product contributed to
the securing of an approximately $2.6 million order at the
end of the fiscal year.
Selling, general and administrative expenses of
$3,181,742 in fiscal year 1993 represented a decrease of
$2,559,059, or 45%, from those in fiscal 1992. Early in
fiscal year 1993, management responded to the slow rate of
orders received and shipped by reducing expenses. Wherever
possible, expenses that would not make a contribution to
fiscal year-end results were eliminated or reduced. These
cutbacks were accomplished without layoffs and, in
management's opinion, will have little, if any, negative
effect on the Company's long-term prospects. Certain of
these expenses, however, will increase if the Company's sales
revenues increase.
Investment income earned during fiscal year 1993 was
$211,168, down from $300,256 in fiscal year 1992 due to
decreases in interest rates during 1993 and lower cash
balances at times during the fiscal year. Interest expenses
of $150,497 in fiscal year 1993 represented a decrease of
$38,026 from the fiscal 1992 level due to a lower outstanding
average balance on the ESOP loan (see Note 5 on page AR10).
The Company had net earnings of $83,440 or $.07 per
share in fiscal 1993, compared to net earnings of $1,258,057
or $1.02 per share in fiscal year 1992. This represents a
decrease in net earnings of approximately 93%. This
reduction was the direct result of the lower sales and
reduced margins referred to above.
Equipment and leasehold improvements as of October 2,
1993, increased by $469,112 (gross) and $243,394 (net), to
$2,071,400 and $813,839 respectively, over the equivalent
figures for the end of the previous fiscal year. The
increase was due primarily to leasehold improvements in
connection with the new lease entered into by the Company
that increased the amount of space used by the Company.
Accounts payable were $416,235 as of October 2, 1993,
compared to $984,156 as of September 26, 1992. The decrease
was due to differences in the timing of receipt of materials
between the two year-ends. The current debt of $1,088,203 as
of October 2, 1993, increased compared to the September 26,
1992, balance of $327,089 due to a balloon payment due in
September of 1994 on the Company's ESOP loan. (The Company
renegotiated this loan in fiscal year 1994). Accrued
compensation and related expenses as of October 2, 1993, were
$382,862 at the end of fiscal 1993 compared to $963,715 at
the end of the previous year. The decrease was due to lower
commissions being payable on lower sales volume, and
<PAGE>
the fact that no employee bonuses were accrued at the end of fiscal
1993 due to the level of profitability of fiscal 1993. Other
accrued liabilities decreased from 1,169,514 at September 26,
1992, to $701,760 as of October 2, 1993, primarily as a
result of a reduction in warranty reserves due to lower sales
volume.
During fiscal 1993, the Company repurchased 10,000
shares of its own stock for its Treasury, at a price of $8.00
per share. These shares are being held in Treasury for
future general corporate purposes.
As of October 2, 1993, virtually none of the Company's
monetary assets or liabilities were subject to foreign
exchange risk, and accordingly no techniques to hedge such
risk were considered necessary.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index to the Financial Statements and
Schedules on Page 11 hereof.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Part III
Items 10, 11 and 12 are incorporated by reference from
the proxy statement for the Annual Meeting of Shareholders to
be held on February 12, 1996, which will be filed with the
Commission not later than December 31, 1995.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1995, as more fully described under
"Liquidity and Capital Resources", the Company purchased a
minority interest in Net2Net Corporation, prepaid at a
discounted rate for certain products, and entered into a
distribution agreement with Net2Net Corporation. The
President of Net2Net is related to Arnold M. McCalmont, the
Chairman of the Board of Directors of the Company, and to
James McCalmont, one of the Company's directors. Arnold and
James McCalmont are also investors in Net2Net Corporation.
Lawrence A. Kletter, Esq., a Director of the Company,
is a member of the law firm of Posternak, Blankstein and
Lund, which provides legal services to the Company.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
The financial statements and schedules listed in the
accompanying index to Financial Statements and Schedules are
filed as part of this Annual Report on Consolidated Form 10-
K.
Index to Financial Statements and Schedules
Page No. in
Annual Report
("AR") or
(a) 1 Financial Statements Form 10-K
Consolidated Balance Sheets: AR 4
September 30, 1995 and
October 1, 1994
Consolidated Statements of Income: AR 5
Years Ended September 30, 1995,
October 1, 1994 and October 2, 1993
Consolidated Statements of Cash Flows: AR 6
Years Ended September 30, 1995,
October 1, 1994 and October 2, 1993
Consolidated Statements of Stockholders' Equity:
AR 7
Years Ended September 30, 1995,
October 1, 1994 and October 2, 1993
Note to Consolidated Financial Statements AR 8
Report of Independent Public Accountants AR 15
(a) 2 Financial Statement Schedules
Report of Independent Public Accountants on Supplemental Schedules
to the Consolidated Financial Statements and
Schedule II- Valuation and Qualifying Accounts 14
(a) 3 List of Exhibits
3.3 (a)Articles of Organization of the Company
By-laws of the Company
3.22 List of Subsidiaries of the Company
(b) Reports on Form 8-K
None.
(c) Exhibits
All exhibits required by this Item 14 (c) were previously filed with
the Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements of 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.
TECHNICAL COMMUNICATIONS CORPORATION
By: /s/ Roland S. Gerard
Roland S. Gerard
President
December 19, 1995
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.
/s/ Arnold M. McCalmont
Arnold M. Mccalmont
Chairman Of The Board, Director
December 19, 1995
/s/ James A. McCalmont
James A. Mccalmont
Director
December 19, 1995
/s/ Victor Sabella
Victor Sabella
Director
December 19, 1995
/s/ Philip A. Phalon
Philip A. Phalon
Director
December 19, 1995
/s/ Lawrence A. Kletter
Lawrence A. Kletter
Director
December 19, 1995
/s/ Herbert A. Lerner
Herbert A. Lerner
Treasurer, Director
December 19, 1995
/s/ Graham R. Briggs
Graham R. Briggs
Vice President - Finance And
Administration
December 19, 1995
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL
SCHEDULES TO THE CONSOLIDATED FINANCIAL STATEMENTS
To Technical Communications Corporation:
We have audited, in accordance with generally accepted
auditing standards, the consolidated financial statements
included in Technical Communications Corporation's 1995
annual report to shareholders incorporated by reference in
the Form 10-K, and have issued our report thereon dated
November 8, 1995. Our audit was made for the purpose of
forming an opinion on the basic consolidated financial
statements taken as a whole. The supplemental schedule to
the consolidated financial statements listed as Item 14 (a) 2
in the Form 10-K is the responsibility of the Company's
management and is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not
part of the basic consolidated financial statements. This
supplemental schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states, in
all material respects, the financial data required to be set
forth therein in relation to the basic consolidated financial
statements taken as a whole.
Boston, Massachusetts
November 8, 1995
[CAPTION]
<TABLE>
TECHNICAL COMMUNICATIONS CORPORATIONSCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO FROM END
OF YEAR EXPENSE RESERVES OF YEAR
Description
Allowance for doubtful accounts-
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended September 30, 1995 $15,000 $34,217 $ 525 $48,692
Year Ended October 1, 1994 15,000 -- -- 15,000
Year Ended October 2, 1993 15,000 -- -- 15,000
</TABLE>
