SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1923 for the quarterly period ended December 30, 1995 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period to
Commission File Number: 0-8588
TECHNICAL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2295040
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
100 Domino Drive, Concord, MA 01742-2892
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 508-287-5100
N/A
(Former name, former address and formal fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Number of shares of Common
Stock, $.10 par value, outstanding as of February 1, 1996: 1,254,426.
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INDEX
<CAPTION>
Page
PART I Financial Information
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
December 30, 1995 and September 30, 1995 1
Condensed Consolidated Statements of Operations,
three months ended December 30, 1995 and December
31, 1994 2
Condensed Consolidated Statements of Cash Flows,
three months ended December 30, 1995 and December
31, 1994 3
Notes to Condensed Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II Other Information 8
Signatures 9
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<TABLE>
PART I. Financial Information - Item 1. Financial Statements
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<CAPTION>
December 30, 1995 September 30, 1995
(Unaudited)
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Assets
Current Assets:
Cash and cash equivalents $ 5,468,735 $ 3,877,790
Accounts receivable - trade,
less allowance for doubtful
<S> <C> <S><C>
accounts of $35,844 at 12/30/95
and $48,692 at 9/30/95 2,120,855 5,011,966
Inventories (Note 2) 2,817,157 2,427,828
Refundable and prepaid income taxes 139,944 139,944
Other current assets 329,310 342,756
Total current assets $10,876,001 $11,800,284
Equipment and leasehold improvements 3,665,944 3,626,364
Less: accumulated depreciation
and amortization 2,121,178 1,984,631
1,544,766 1,641,733
Goodwill 1,569,620 1,569,620
Less: accumulated amortization 123,948 65,770
1,445,672 1,503,850
Other assets 404,365 402,568
$14,270,804 $15,348,435
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 373,889 $ 450,650
Long-term debt - current
portion (Note 3) 696,136 696,136
Accrued liabilities:
Compensation and related expenses 345,318 429,146
Other 1,036,813 1,553,140
Total current liabilities $ 2,452,156 $ 3,129,072
Long-term debt (Note 3) 2,171,140 2,345,175
Other long-term liabilities 205,437 205,437
Stockholders' Equity:
Common stock, par value $.10 per
share; authorized 3,500,000 shares;
issued and outstanding 1,254,426
shares at 12/30/95 and 1,254,426
shares at 9/30/95 125,443 125,443
Treasury stock at cost, 10,000 shares (80,000) (80,000)
Additional paid-in capital 1,388,927 1,388,927
ESOP deferred compensation (Note 3) (879,777) (941,311)
Retained earnings 8,887,478 9,175,692
Total stockholders' equity 9,442,071 9,668,751
$14,270,804 $15,348,435
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended
December 30, 1995 December 31, 1994
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Net sales $ 2,140,840 $ 1,134,076
Cost of sales 989,914 643,932
Gross profit 1,150,926 490,144
Operating Expenses:
Selling, general and
administrative expenses 1,060,610 718,679
Product development costs 465,816 290,723
1,526,426 1,009,402
Operating loss (375,500) (519,258)
Other income (expense)
Interest income 54,220 61,873
Interest expense (68,174) (25,581)
Other income 5,168 6,255
(8,786) 42,547
Loss before
income taxes (384,286) (476,711)
Income taxes (96,072) (118,807)
Net Loss $ (288,214) $ (357,904)
Loss per common share:
(Note 1) $ (.23) $ (.29)
Weighted average shares used
in computation 1,254,426 1,251,176
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<TABLE>
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
December 30, 1995 December 31, 1994
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Operating Activities:
Net loss $ (288,214) $ (357,904)
Adjustments to reconcile
net loss to net cash provided
(used) by operating activities:
Depreciation and amortization 194,725 73,417
Non-cash compensation associated
with ESOP 61,534 61,534
(31,955) (222,953)
Changes in assets and liabilities:
Decrease in accounts receivable 2,891,111 1,184,929
Increase in inventories (389,329) (441,188)
Decrease in prepaids and
refundable income taxes --- 46,065
Increase (decrease) in other
current assets 13,446 (18,866)
Decrease in accrued and deferred
income taxes (322,184) (133,008)
Increase in other assets (1,797) (3,741)
Decrease in accounts payable
and accrued liabilities (354,732) (487,476)
1,836,515 146,715
Net cash provided by operating
activities 1,804,560 (76,238)
Investing Activities:
Additions to equipment and
leasehold improvements (39,580) (17,012)
Net cash used by investing
activities (39,580) (17,012)
Financing Activities:
Payment of debt (174,035) (61,534)
Net cash used by financing
activities (174,035) (61,534)
Net increase (decrease) in cash
and cash equivalents 1,590,945 (154,784)
Cash and cash equivalents at
beginning of year 3,877,790 6,460,887
Cash and cash equivalents at the
end of the first quarter $ 5,468,735 $ 6,306,103
Supplemental disclosures:
Interest paid $ 68,174 $ 25,581
Income taxes paid (net of
refunds received) 168,598 (23,665)
The accompanying notes are an integral part of these condensed
consolidated financial statements
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TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF FAIR PRESENTATION
The financial information included herein is unaudited. In addition,
the financial information does not include all disclosures required
under generally-accepted accounting principles because certain note
information included in the Company's annual audited financial
statements in the annual report to shareholders has been omitted from
this report. The information herein should, therefore, be read in
conjunction with the prior year's annual report. However, the
financial information reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for the interim
period. The Company considers the disclosures adequate to make the
information presented not misleading.
NOTE 1. Earnings Per Share
For the quarters ended December 30, 1995 and December 31, 1994, net
earnings per common share were based on the weighted average number of
shares outstanding during the period, since the effect of assumed
conversion of dilutive employee stock options was not material.
NOTE 2. Inventories
Inventories consisted of the following:
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<CAPTION>
December 30, 1995 September 30, 1995
<S> <C> <C>
Raw Materials $ 1,671,289 $ 1,386,393
Work in Process 726,398 667,388
Finished Goods 419,470 374,047
$ 2,817,157 $ 2,427,828
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NOTE 3. Long-Term Debt
As of December 30, 1995, the Company had a $2,500,000 line of credit at
a rate of prime plus 1/2 of 1%. This line of credit is secured by a
pledge of substantially all the assets of the Company and matures on
May 1, 1996. Availability under the line of credit had been reduced by
$83,268 for outstanding standby letters of credit (as of December 30,
1995). Other than these standby letters of credit, the Company had no
borrowings under the line of credit at December 30, 1995.
On November 17, 1989, the Company established the Technical
Communications Corporation Employees' Stock Ownership Trust (the Trust)
for the benefit of its Employees. During 1990 and 1991, the Trust
borrowed $1,212,500 and $1,287,488, respectively, from two banks, 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 short-term and 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. Except for the possibility of
refinancing this balloon payment, the Company intends to make
contributions to the Trust sufficient to pay all principal and interest
on the loans when due. Because the payment of principal results in the
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
release of shares from collateral, which shares are then available for
allocation to employees, the principal portion of these payments is
recorded as compensation expense.
NOTE 4. Commitments and Contingencies
The Company is not currently party to any lawsuit, and is not aware of
any pending legal proceedings. See Part II, "Other Information," Item
1, "Legal Proceedings."
<PAGE>
PART I, Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The Company is in the business of designing, manufacturing and
marketing communications security equipment. The Company receives
orders for equipment from customers which may take several months or
longer to manufacture and ship. Because the Company recognizes income
on long-term contracts on a unit-of-delivery basis, revenues may vary
widely from quarter to quarter. Quarterly comparisons of revenue may
therefore not be indicative of any trend.
The Company's backlog of firm orders as of December 30, 1995 was
$4,615,007, representing a 61% increase from $2,868,787 as of September
30, 1995. This increase was primarily as a result of booking a large
order during the fiscal quarter. The Company expects to deliver the
majority of its backlog in the current fiscal year.
Net sales for the quarter ended December 30, 1995 were $2,140,840
compared to $1,134,076, for the same quarter last year. This
represents a 89% increase. Approximately $664,000 of the $1,006,764
increase was due to increased sales as a result of the increased sales
base created by the Datotek acquisition in fiscal year 1995. The
Company anticipates that the pattern of uneven quarterly revenue
generation will continue in fiscal year 1996.
Gross profit for the first quarter of fiscal year 1996 was $1,150,926,
as compared to gross profit of $490,144 in the first quarter of fiscal
year 1995. This represents a 135% increase. Gross profit expressed as
a percentage of sales was 54% in the first quarter of fiscal year 1996
as compared to 43% in the first quarter of fiscal year 1995. The
difference can be attributed to differences in the mix of product sold
in these periods and since a considerable portion of manufacturing
costs is relatively fixed, increases in net sales tend to result in
increases in margin percentage.
Operating expenses for the first quarter of fiscal 1996 were $1,526,426
compared to $1,009,402 in the same period of fiscal year 1995. This
increase of $517,024 or 51% was due to increased cost, in customer
service, marketing and product development, plus additional
depreciation and amortization as a result of the acquisition of the
assets of Datotek, Inc. in May 1995.
After-tax loss for the first quarter of fiscal year 1996 was $288,214
or $.23 per share, while after-tax loss for the first quarter of fiscal
year 1995 was $357,904 or $.29 per share. The decrease in quarterly
loss was a result of higher gross profit due to increased sales
compared to the same period last fiscal year.
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Management's Discussion and Analysis (continued)
Liquidity and Capital Resources
Cash and short-term investments as of December 30, 1995 increased
by $1,590,945 or 41% to $5,468,735 from a balance of $3,877,790 at
September 30, 1995. This increase was primarily as a result of
accounts receivable collections. The current ratio is 4.4:1, compared
to 3.8:1 as of September 30, 1995. This increase is due primarily to a
reduction in customer deposits.
As of December 30, 1995, the Company had a $2,500,000 line of credit at
a rate of prime plus 1/2 of 1%. This line of credit is secured by a
pledge of substantially all the assets of the Company and matures on
May 1, 1996. Availability under the line of credit has been reduced
by $83,268 for outstanding standby letters of credit (as of December
30, 1995). Other than these standby letters of credit, the Company had
no borrowings under the line of credit at December 30, 1995.
On November 17, 1989, the Company established the Technical
Communications Corporation Employees' Stock Ownership Trust (the Trust)
for the benefit of its Employees. During 1990 and 1991, the Trust
borrowed $1,212,500 and $1,287,488, respectively, from two banks, 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 short-term and long-term debt with an offsetting
charge to "ESOP Deferred Compensation" within the Stockholders'
Equity section.
On May 31, 1995, the Company completed an asset purchase of the secure
communications business of Datotek, Inc. This acquisition was funded
partly by the Company's own capital and partly through loans amounting
to $2,250,000 from two banks. These loans are payable in equal
installments of principal over a period of five years, plus interest at
The First National Bank of Boston's prime rate plus 1/2 of 1%.
Management currently anticipates no unusual capital expenditures and no
increases in the Company's requirements for capital above its present
resources for fiscal year 1996.
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PART II. Other Information
Item 1. 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 2. Changes in Securities:
Not applicable.
Item 3. Defaults Upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable.
Item 5. Exhibits and Reports on Form 8-K:
a. Exhibits - Statement regarding computation of per-share
earnings: reference is made to Note 1 of the Notes to the
Condensed Consolidated Financial Statements on page 4 of this
Quarterly Report on Form 10-Q.
b. Reports on From 8-K: none.
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SIGNATURES
Pursuant to the requirements 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
(Registrant)
Date: February 13, 1996 By: /s/ Roland S. Gerard
Roland S. Gerard, President
Date: February 13, 1996 By: /s/ Graham R. Briggs
Graham R. Briggs, Vice President
And Chief Accounting Officer
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consoidated Balance Sheets at December 30, 1995 (Unaudited) and the
Condensed Consolidated Statements of Operations and Cash Flows for the Three
Months Ended December 30, 1995 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 5,468
<SECURITIES> 0
<RECEIVABLES> 2,120
<ALLOWANCES> 35
<INVENTORY> 2,817
<CURRENT-ASSETS> 10,876
<PP&E> 3,665
<DEPRECIATION> 2,121
<TOTAL-ASSETS> 14,270
<CURRENT-LIABILITIES> 2,452
<BONDS> 0
0
0
<COMMON> 1,254
<OTHER-SE> 9,442
<TOTAL-LIABILITY-AND-EQUITY> 14,270
<SALES> 2,140
<TOTAL-REVENUES> 2,140
<CGS> 989
<TOTAL-COSTS> 1,526
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (68)
<INCOME-PRETAX> (384)
<INCOME-TAX> (288)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (288)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> 0
</TABLE>
