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, 1995
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)
222 Caspian Drive, Sunnyvale CA 94089
(408) 747-6100
(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:
Name of each exchange on
Title of each class 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 September 30, 1995, the aggregate market value of voting stock held by
non-affiliates was $25,507,893.
.
As of September 30, 1995, the number of shares of common stock outstanding
was 3,139,433.
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 to be held
on February 13, 1996 are incorporated by reference into Part III hereof.
PART I
ITEM 1. Business
General
TCI International, Inc. (the Company) is a holding company which has two
operating subsidiaries, Technology for Communications International ("TCI"),
a company incorporated in California on March 13, 1968 and BR Communications
("BR"), a company incorporated in California on January 24, 1966.
The operating subsidiaries share resources, including facilities, management
and labor. Unless the context indicates otherwise, the terms "Company,"
"TCI," and "BR" shall include their consolidated subsidiaries.
On April 28, 1995, the Company incorporated an additional subsidiary in
California, TCI Wireless, Inc. ("TCIW"). TCIW was formed to
provide HF radio service using facilities and frequencies it intends to
purchase, lease, and otherwise share with existing HF service providers
in different parts of the world.
The Company currently 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. See "United
States Government Contracts and Regulations."
Prior to fiscal year 1994, the Company was organized into three separate
operating units. In response to the forecast changes to its order trend, the
Company relocated its operations and began a consolidation of its three
independent operating units into its present facilities. In fiscal year 1994,
the Company completed this physical consolidation and now operates under one
central management structure.
Products
The Company's signal collection systems cover the full spectrum of radio
frequencies, while the majority of the Company's antenna and frequency
management products are primarily designed for operation in the HF, or
"short-wave," portion of the electromagnetic spectrum (1.6 to 30 megahertz),
and to the medium frequency portion of this spectrum (0.5 to 1.6 megahertz).
High frequency radio signals have the special characteristic of being reflected
by the earth's ionosphere and, therefore, offer an effective medium for
radio communication over long distances.
Antenna Systems
High frequency antennas are typically complex wire-strung structures supported
by towers up to four hundred feet high. Their design involves complex
relationships between many electromagnetic and structural variables. Antennas
are an important part of communication systems because effective radio
communication depends upon signal strength relative to background noise. The
signal-to-noise ratio can be improved by increasing transmitter power and by
improving the performance of the transmitting and receiving antennas. In most
situations, the ability to increase transmitter power is limited by either
regulation or expense; accordingly, antenna design assumes a key role in the
practical solution to the problem of increasing signal quality.
The integrated application of the Company's proprietary electromagnetic and
structural design software, together with the technical experience of its
staff, has made it possible for the Company to produce antenna designs having
the optimal gain, bandwidth, and power-handling capability required for
specific applications and environments, with reductions in design time and
expense as well as product cost.
Communications antennas of the type designed and manufactured by the Company are
usually employed in large scale systems, such as civil shore-to-ship and
land-to-air systems, as well as their tactical military counterparts. Typical
from approximately $20,000 to $300,000.
Broadcast Systems
In many countries, short-wave radio broadcasting remains the preferred medium
for the governments' international news organizations and propaganda services to
reach foreign mass audiences. The U.S. Information Agency (Voice of America)
and the BBC World Service are examples of users of radio broadcasting products
of the Company. TCI markets high performance, high-power broadcast antennas
and antenna systems which operate continuously over a wide range and provide
for electronically-controlled broadcasting patterns. Typical system orders
range in price between $200,000 and $15,000,000.
Within a country's borders, essentially all broadcasting is done using AM, FM,
and TV. AM broadcasting uses frequencies in the medium frequency (MF) band in
the range 525 to 1705 kHz, which are received by car radios or pocket transistor
radios. FM and TV transmissions use frequencies above 30 MHz in the very high
and ultra-high (VHF and UHF) frequency range.
The Company manufactures antennas for MF broadcasting, which it sells either
directly to local broadcasting organizations or to transmitter manufacturers and
systems integrators who re-sell to broadcasters. TCI also offers complete MF
transmitting systems, including TCI antennas and transmitting and audio
equipment manufactured by others and integrated by the Company.
The Company has in the past year sold several complete FM and TV transmitting
systems comprised of both program input equipment, transmitters, transmission
lines, and FM/TV antennas. The company also has several bids outstanding for
additional FM and TV transmitting systems. Pay TV systems using cable
or wireless technologies have become increasingly popular outside the United
States, including a wireless pay TV system which utilizes microwave
transmissions to avoid the necessity of wiring to subscribers' homes with
coaxial cables. The Company is currently investigating ways to add value to
this growing marketplace by developing strategic relationships with current
suppliers and exploring product introduction avenues with its own products.
Signal Collection Systems
Signal collection systems are used to identify, locate, classify, and analyze
radio transmissions which may originate at great distances from the system.
These functions are performed rapidly, automatically, and without detection by
the subject. The systems are principally used by military organizations to
locate and track hostile forces.
A primary objective of signal collection systems is to locate the source of a
transmission as quickly and precisely as possible. The conventional solution to
this problem employs multiple "direction-finding" stations to locate a
transmitter by triangulation. The Company's proprietary software, however,
makes it possible to calculate the approximate distance, as well as the
direction, of a transmission source using only a single locating station.
Signal collection systems may also require the ability to recognize the presence
of new transmission sources rapidly, as well as to classify them by modulation,
frequency, and signal characteristics. The Company's signal collection software
performs these judgmental tasks automatically, thereby eliminating
the need for the large numbers of operating personnel traditionally required.
This software may be integrated with additional signal processing equipment and
specialized receiving antennas to form various configurations of a
computer-based signal collection system. The Company's collection systems can
also manage or integrate the output from other intelligence-gathering sources to
provide the system operators with integrated information from which useful
estimates regarding the disposition and intentions of potential adversaries can
be reached.
The sales prices of complete signal collection systems typically range from
approximately $100,000 to $15,000,000, depending on system configuration.
Certain components of a system may be useful to a client in special situations
and would be priced considerably less.
Radio Spectrum Management Systems
Consistent and reliable management of the electromagnetic spectrum and effective
enforcement of spectrum utilization regulations have become a world-wide
necessity, brought about by the rapid expansion in the number of users of
cellular telephones, pagers, and other personal communication
devices. The Spectrum Management System produced by the Company provides an
integrated solution to this regulatory problem. The principal users of these
systems are regulatory agencies whose interest is in identifying and tracking
in-country transmitters, and not external, hostile forces.
The primary objectives of spectrum management systems are the following:
(a) frequency assignments to users; (b) licensing, invoicing and administration;
(c) data base management; (d) spectrum monitoring, which includes signal
intercept, identification, location and measurement; and (e) preparation and
submission of reports. Traditionally, these functions have been performed
manually, using stand-alone receivers, measurement instruments, and numerous
forms filled out by hand. The Company provides turn-key systems which perform
all tasks in an automated, integrated, seamless operation, with a
minimum of operator intervention. These systems use Company products, as well
as other commercial, off the shelf equipment, integrated in a flexible
configuration. This modular architecture allows the use of
a common set of building blocks to tailor each system to the exact requirements
of the customer.
The spectrum management system configuration can vary in complexity from a
single site, single position station to a large scale multi-site network,
including 10 - 20 fixed sites, plus mobile measurement vans.
Typical systems range in price between $500,000 and $20,000,000.
Special Purpose Communications Systems
The Company has developed and sold special purpose communication systems
in response to specific user needs. These systems include communication
management systems, automated switching systems, antennas with special
survivability specifications, and emergency communication networks.
Frequency Management and Spread Spectrum Communication Systems
The variability of propagation conditions and the difficulty of locating optimum
propagation frequencies reduce the probability of establishing satisfactory HF
communications at any given moment. While less than a 100% reliability factor
is acceptable for many users of HF communications, historically certain
military and diplomatic communicators have demanded a very high level of
reliability. In order to achieve the dependability needed by these military and
diplomatic users, the Company has developed frequency management systems which
allow HF communicators to obtain real-time continuous measurements of
spectrum-wide propagation characteristics, interference levels, and channel
occupancy. By correlating these measurements, the HF operator can select the
optimum frequency over which to communicate. Although developed initially for
military users, these products are suitable for other applications, including HF
broadcast.
The technology and equipment developed for frequency management systems provides
highly reliable spread spectrum transmission and reception of short messages.
These messages of 40 characters or less can include emergency action commands.
Given the change in the world's political environment over the last three years,
the Company has observed that the U.S. Government's reliance upon HF
communications has decreased, with increasing reliance placed upon satellite
communications. There continues to be interest in HF communications by foreign
governments who can not access satellites or who place less reliance upon such
communications.
In addition, the Company is pursuing new commercial applications as well as
overseas opportunities. In fiscal 1992, the Company initiated and internally
funded two specific product commercialization programs designed to repackage
aspects of its frequency management technology for commercial
maritime and aviation applications. While marketable products are not expected
to be ready before fiscal 1996 or 1997 at the earliest, internal investment will
continue on these commercial efforts until either successful product
introduction is achieved or it is determined that a viable market does not exist
for these communications products.
The Company's frequency management systems are currently employed by the United
States Army, Navy, Air Force, and Marine Corps, as well as by the armed forces
of numerous foreign nations. The price of a minimum configuration is
approximately $50,000; however, the price of a typical system configuration is
considerably higher.
Marketing
The Company markets its equipment and systems to U.S. and foreign government
agencies by its direct marketing force, supplemented by, for most foreign sales,
local representatives who are paid a commission. Communications and broadcast
systems are also sold to national telephone and telegraph
carriers, information services, and religious organizations. Foreign sales of
signal collection systems, frequency management systems, spread spectrum
communication systems, and certain antennas having specialized military
applications must have the approval of the United States Department of State
which limits the sales of such products to foreign markets. Such sales are
subject to changes in United States policy concerning the export of military
technology.
Historically, more than 90% of the Company's overseas sales have been
denominated in United States dollars. The value of the United States dollar,
relative to foreign currencies, affects the competitive position of the
Company's products overseas.
See Note 7 of the Notes to Consolidated Financial Statements for information
concerning revenues attributable to export sales and individual customers.
Manufacturing
Antenna systems are generally manufactured to order from standard cable,
fittings, insulators, and fasteners. In the manufacturing process, fittings
are attached to antenna wires by machinery which also measures, forms, and cuts
the wires to close tolerances. Antennas are packaged in pre-assembled kits,
reducing installation time and cost, and increasing reliability.
Signal collection systems are assembled from standard computers, radio frequency
switches, receivers, and specialized instruments manufactured to the Company's
specifications. After the proprietary software is incorporated into the system,
it is tested in a simulated operating environment.
Frequency management products are generally assembled from standard components
and other items produced to the Company's specifications, such as printed
circuit boards, fabricated metal parts and crystal filters. 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.
Radio spectrum monitoring systems are assembled using readily available computer
equipment and specialized signal measurement equipment provided by qualified
subcontractors. To a significant extent, the heart of such systems lies in the
proprietary software that is incorporated into the system. These
systems are thoroughly tested in a simulated operating environment prior to
final delivery.
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 would 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 most of the Company's products are installed by the Company's
customers, the Company offers installation services including turn-key project
management.
United States Government Contracts and Regulations
Sales to the U.S. Government under prime and subcontracts accounted for 60%,
52%, and 69% of the Company's revenue in fiscal years 1995, 1994, and 1993,
respectively. The Company's U.S. Government business is performed under
cost-reimbursement-type contracts (cost-plus-fixed-fee, cost-plus-incentive-
fee, and cost-plus-award-fee) and under fixed-price-type contracts (firm
fixed-price and fixed-price incentive). During fiscal 1995, 59% of the Company's
total revenue came from U.S. Government fixed-priced-type contracts, and 1% from
U.S. Government cost-reimbursement-type contracts, compared to
50% and 2%, respectively, in fiscal 1994 and 62% and 7%, respectively, in fiscal
1993.
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.
Contracts with the United States Information Agency ("USIA") combined with
subcontracts to companies with prime contracts to the USIA accounted for 18% of
total revenues in fiscal year 1995 and 33% in fiscal year 1994. See further
discussion regarding a contract with the USIA in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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 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."
The Company believes that the United States intelligence community is adjusting
its focus from the ex-Soviet Union to a much wider and diverse population of
threats. Because of this shift in focus from Cold War driven planning, the
Company expects that large, long duration U.S. Government programs in
defense intelligence and broadcasting will not return and that revenues from
such contracts will continue to constitute a smaller percentage of total
revenues in future periods. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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 signal collection
systems, special purpose communications systems, and propaganda-oriented
broadcasting systems have decreased substantially. As a result, the Company is
focusing more on overseas and commercial opportunities, as are the Company's
competitors.
The principal competitive factors in the broadcast and communications markets
are reliability, performance, price, and breadth of product line. The Company's
principal competitors in the ground-based, high frequency (HF) communications
antenna market are Andrew Corporation, Antenna Products
Corporation, CSA, and Marconi Communications Systems, Limited. In the market
for HF (short-wave) and medium wave (MF) broadcast antennas, the principal
competitors are divisions of larger companies, including Thomcast, Marconi
Communications Systems, Limited, and Continental Electronics, all 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.
In signal collection systems, competitors include Lockheed-Martin, GTE Sylvania,
TRW, E-Systems, Loral Corporation, Harris Corporation, Andrew Corporation,
AEG Telefunken, Siemens Plessey & Co. Ltd., Racal Communications,
Rohde and Schwarz, Southwest Research Institute (SWRI), Thomson-CSF,
and Tadiran. Performance, the ability to design and produce a system for a
specialized application, and price are the principal competitive determinants.
Selection of a particular supplier's products for incorporation in a military
signal collection system frequently limits further competition by other vendors
during the program's life cycle.
Manufacturers of HF frequency management systems include, among others, Rockwell
International Corp., Harris Corporation, Andrew Corporation, and Racal
Communications. Since the competitors' products tend to be less expensive, the
Company must convince its customers that its equipment has sufficient
performance advantages.
Competition to provide radio spectrum monitoring and compliance systems comes
from, among others, Tadiran, Rohde and Schwarz, Thomson-C.S.F., Hewlett Packard
and Lucas-Zeta. Similar to the Company's position in supplying signal
collection systems, best value expressed as a function of
performance and price are the competitive determinants in most markets.
Additionally, since many of these systems are marketed in less developed
countries, the ability to offer attractive financing alternatives
also weighs strongly in the customer's decision making process. 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.
The Company's communication products are also subject to competition from
alternative methods of communications, particularly from satellites and
terrestrial microwave transmissions which presently are, and will continue to
be, the dominant carriers of long distance communications. However, because
these carriers are vulnerable in an armed conflict and require a large capital
investment or access to equipment not owned or controlled by the user, the
Company believes there is a continuing market for short-wave communication
systems.
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.
Employees
As of September 30, 1995, the Company had 149 full-time employees plus 13
temporary agencies' employees assigned to the Company. 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
Floor Area (sq. ft.) Lease
Company Expiration
Leased Date
Sunnyvale, CA (1 building) 95,000 2000
Sunnyvale, CA (1 building) 29,000 1998
Total 124,000
In addition, the Company leases office space in Alexandria and Norfolk, Virginia
and in Redhill, Surrey, United Kingdom (U.K.).
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.
Being named as a PRP could result in the Company becoming subject to a
subsequent final order from the Regional Water Board or a defendant in a civil
lawsuit in which others might seek to recover from the Company a portion of the
costs spent on investigating and cleaning up the contamination. Because there
is currently no proposal to impose a final binding regulatory order on the
Company, it is not possible to predict either the outcome of
the current regulatory proceedings or to estimate with any certainty whether the
Company will ultimately be judged to be liable for any portion of the
investigation and remediation costs associated with the subject site.
During 1990, the Company received a notice from an overseas customer stating
that the Company had not fulfilled certain requirements of a $6,000,000
contract. No legal proceedings have been initiated on this
claim. The Company believes, based upon a review of the customer's claim and
consultation with legal counsel, that the liability, if any, relating to this
claim would not have a material adverse effect on its results of operations or
its financial position.
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 1995.
Executive Officers of the Registrant Who Are Not Directors
In addition to the executive officers who are also directors of the Company,
there is the following executive officer who is not a director:
Name Age Position
John W. Ballard, III 37 Chief Financial Officer, Chief Operating
Officer, President of BR,
Vice President and General Manager of TCI
Mr. John W. Ballard, III joined TCI in 1988 serving in numerous capacities in
the Engineering and Administration Departments of the Information Systems
Division. In 1990, Mr. Ballard, III was appointed Deputy General Manager and
later was appointed Vice President and General Manager of the
Information Systems Division of TCI. In 1992, Mr. Ballard, III was appointed
as President of BR Communications. In 1993, Mr. Ballard, III was appointed
Chief Financial Officer, Chief Operating Officer, and Vice President and General
Manager of TCI. Mr. Ballard, III is the son of John W. Ballard,
President and CEO of the Company.
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 sales price as reported on the
Over-the-Counter National Market System.
Fiscal 1995 Fiscal 1994
Quarter Ended High Low High Low
December 31 $4.50 $4.00 $4.00 $2.25
March 31 5.88 4.13 4.75 3.38
June 30 7.38 5.13 4.38 3.75
September 30 9.88 6.25 4.38 3.75
As of September 30, 1995, there were 607 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 in 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.
Data for the Five Years Ended September 30, 1995
(In thousands, except per share amounts)
1995 1994 1993 1992 1991
Statement of Operations Data:
Revenues $29,354 $25,562 $28,258 $62,443 $57,392
Operating Costs and Expenses:
Cost of revenues 18,672 15,798 22,613 51,998 44,195
Marketing, general and administrative 10,348 9,555 10,110 12,060 13,029
Write-off of goodwill 0 0 5,462 0 0
Income (loss) from operations 334 209 (9,927) (1,615) 168
Investment income, net 1,072 691 338 1,781 450
Income (loss) before provision (credit)
for income taxes 1,406 900 (9,589) 166 618
Income (loss) before change in accounting
for income taxes and extraordinary item 1,311 756 (8,322) 237 538
Change in accounting for income taxes
(SFAS 109) 0 1,511 0 0 0
Extraordinary tax credit 0 0 0 360 0
Net income (loss) 1,311 2,267 (8,322) 597 538
Per Share:
Income (loss) before change in accounting
for income taxes and extraordinary item .39 .23 (2.44) .07 .17
Change in accounting for income taxes
(SFAS 109) 0 .45 0 0 0
Net income (loss) .39 .68 (2.44) .18 .17
Shares used in per share
computations 3,400 3,335 3,417 3,315 3,255
Balance Sheet Data:
Working Capital $23,172 $22,098 $19,355 $19,833 $19,141
Total Assets 32,373 33,241 33,895 47,728 50,872
Stockholders' Equity 24,855 24,072 22,620 30,840 29,797
Quarterly Financial Data for the Two Years Ended September 30, 1995 (Unaudited)
Since revenues are generally recognized on a percentage of completion basis,
which is based upon total direct and indirect costs incurred, there may be
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.
(In thousands, except per share amounts)
Fourth Third Second First
Quarter Quarter Quarter Quarter
Fiscal 1995
Revenues $7,270 $8,364 $6,881 $6,839
Gross profit 2,685 2,654 2,427 2,916
Net income 332 277 302 400
Net income per share .10 .08 .09 .12
Fiscal 1994
Revenues $5,263 $8,612 $5,705 $5,982
Gross profit 2,326 2,577 2,614 2,248
Net income 220 262 96 1,689
Net income per share .07 .08 .03 .49*
* Includes cumulative effect of adopting SFAS No. 109. The one time effect of
this adoption is an increase in income of $1,511,000 ($.44 per share) in the
first quarter of fiscal year 1994
ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operation
Overview
The Company's business has been effected by the end of the Cold War, which
diminished the worldwide market for high-power, short-wave and medium-wave
broadcasting facilities. The Company believes that the United States
intelligence community is adjusting its focus from the ex-Soviet Union to a
much wider and diverse population of threats. Because of this shift in focus
from Cold War driven planning, the Company expects that large, long duration
U.S. Government programs in defense intelligence and broadcasting will not
return and that revenues from such contracts will continue to constitute a
smaller percentage of total revenues in future periods. The Company believes
the long-term market for ultra-reliable HF communication systems will be
predominantly overseas. The Company intends to pursue smaller projects, largely
overseas, with a strong component of proprietary Company products and
software. The Company also intends to diversify into non-defense, commercial
sources of revenue.
With regard to its diversification efforts, the Company will continue to pursue
at least three areas of product and market development during the next two to
three years. The first two areas identified for diversification relate directly
to proprietary elements of frequency management technology for use in
commercial aviation and maritime communications applications. The third area of
diversification leverages the direction finding technology developed by TCI
principally for military applications into a world-wide market for similar radio
spectrum monitoring and surveillance equipment. These systems are
used by national regulatory agencies, similar to the Federal Communications
Commission ("FCC") to maintain order and discipline in the radio spectrum.
During fiscal 1995, teamed with the Hewlett Packard Company, the Company
achieved its first diversification success as it won a contract to supply radio
spectrum monitoring and surveillance equipment to a foreign customer due to be
delivered in early 1997.
During the last two years the Company has expended approximately $1,200,000 on
related research and development efforts for all three of its product and market
diversification efforts. All costs for such product development are presently
funded internally and are expensed as incurred. While the Company
has remained profitable during the period of this investment, the Company
expects that the future costs of these development efforts may be significant
enough to generate a loss from operations in both fiscal 1996
and 1997. While marketable products are not expected to be ready before fiscal
1996 or 1997, at the earliest, internal investment will continue on each of
these commercial efforts until either successful product introduction is
achieved or it is determined that a viable market does not exist for these
communications products.
The Company's funded backlog as of September 30, 1995 was approximately $26
million, compared to approximately $21 million as of September 30, 1994.
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):
As of September 30,
1995 1994 1993
Backlog $36,000 $28,000 $23,000
Of the total $36 million total backlog at 1995 fiscal year end, approximately
$25 million is expected to be recognized as revenue prior to September 30, 1996.
Most contracts are, by their nature, subject to termination for reasons of
cause or default, and on occasion, can be terminated for reasons beyond the
control of the Company.
The three-year trend of progressive increases to the total backlog is a
reflection of the Company's recent success in stabilizing its existing product
business base. Of the $36,000 total backlog reported at fiscal
1995 year end, approximately $5,000,000 is associated with the Company's first
diversification success in the form of a contract award for the supply of a
spectrum monitoring and compliance system for a certain
foreign customer. Future growth in revenues and backlog is largely contingent
on the ability of the Company to successfully execute its plans for product and
market diversification.
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.
Percentage of Revenues
Years Ended September 30,
1995 1994 1993
Revenues 100.0% 100.0% 100.0%
Operating Costs and Expenses:
Cost of revenues 63.6 61.8 80.0
Marketing, general and administrative 35.3 37.4 35.8
Write-off of goodwill 0 0 19.3
Income (loss) from operations 1.1 0.8 (35.1)
Investment income, net 3.7 2.7 1.2
Income (loss) before provision
(credit) for income taxes. 4.8 3.5 (33.9)
Provision (credit) for income taxes 0.3 0.6 (4.5)
Income (loss) before change in accounting
for income taxes and extraordinary item 4.5 3.0 (29.4)
Change in accounting for income taxes
(SFAS 109) 0 5.9 0
Net income (loss) 4.5% 8.9% (29.4)%
The approximate revenues attributable to contracts from both domestic and
overseas customers is shown below (in thousands):
1995 1994 1993
Domestic revenues $18,100 $13,800 $21,400
Overseas revenues 11,200 11,800 6,900
Total $29,300 $25,600 $28,300
For the first time in three years, revenues in fiscal 1995 increased from
revenue levels of the previous year. This growth in revenue levels is
attributable principally to increased activity in its existing product
business. While overseas revenues remained at approximately the same level as
fiscal 1994, due to an increase in activity within the Company's broadcast
antenna systems business area, domestic revenues increased 31% over prior year
levels. The Company anticipates that revenues may continue to grow
modestly, particularly in the international sector, but that they will not
return to the historical levels of years prior to fiscal 1993 without first
achieving success with its product and market diversification efforts.
The softening in gross margins experienced during fiscal 1995 reflects a trend
that is likely to continue in fiscal 1996 and one that was created by
significant competitive bidding pressures to be the low-priced
supplier. Absent a one-time, positive contribution to gross margins made
possible by better than expected performance against certain fixed-priced
contracts during the fourth quarter of fiscal 1995, the cost of
revenues would have increased from 63.1% to 67.9% for the fourth quarter and
from 63.6% to 64.8% for the fiscal year 1995. Fiscal year 1995 Marketing,
General and Administrative ("M,G&A") costs grew approximately 8% over fiscal
year 1994 levels, reflecting an increased emphasis placed on marketing
related activities as well as a general increase in personnel costs. The
Company anticipates quarter to quarter fluctuations in the amount of revenue
recognized based upon the timing of receipt of material on
its long-term contracts as well as the timing of award of foreign business, and
as a result, quarter-to-quarter comparisons of revenues and profitability are
not particularly meaningful.
Revenues in fiscal year 1994 declined 9.5% from fiscal 1993. Revenue from the
VOA modernization program, expressed as both a prime contract from the U. S.
Information Agency and a related subcontract, comprised 18%, 33% and 43% of
total revenue of the Company in fiscal years 1995, 1994 and 1993,
respectively. Cost of revenues decreased from 80% of revenues in fiscal year
1993 to 62% of revenues in fiscal year 1994 due to the reduction in revenue
recorded on the VOA contract which did not provide any
gross margin during either of the fiscal years. Fiscal year 1994 M,G&A costs
declined from the prior year due to continual consolidation efforts made since
fiscal year 1992. However, as a percentage of revenues, M,G&A costs increased
from 36% to 37% due to the lower revenue base. The one time effect of adopting
SFAS No. 109 in fiscal 1994 resulted in an increase in net income of $1,511,000,
or $.45 per share.
In fiscal 1987 the Company acquired BR Communications and recorded goodwill of
$7.6 million in connection with the transaction. Due to a reduction in new
orders from the Department of Defense and other U.S. customers, the Company's
frequency management equipment revenues had declined between
fiscal 1991 and fiscal 1993. During the same period, the Company downsized BR's
operations, which included reductions in its workforce and consolidating its
principal operating facilities. During fiscal year 1993, the Company continued
to monitor BR's operations and recoverability of the recorded investment.
In the third quarter of fiscal 1993 there were a number of adverse developments
that effected the carrying value of goodwill. These developments included a
significant reduction in the scope of a U.S Government procurement, the
announcement of Lockheed-Martin and Motorola's production contract for the
IRIDIUM global satellite network, discontinued negotiations on the license of
BR's technology with an overseas customer and less than expected demand for BR's
new tactical communications equipment. Based upon the Company's projected
future cash flows to be received from frequency management equipment at such
time, including the net cost of product commercialization, the Company
determined that there had been an other than temporary decline in the recorded
value of goodwill associated with the BR acquisition and wrote off the remaining
$5.5 million in the third quarter of fiscal 1993.
U.S. Government contracts with anticipated low gross margins, along with
anticipated continued strong competition for new U.S. Government contracts and
competitive bidding pressure generally, is expected to continue to temper gross
margins in fiscal 1996. To offset the expected downturn in revenues from the
sale of signal collection systems, antenna systems, and special purpose
communication equipment to the U.S. Government, the Company will increasingly
focus on overseas sales. However, many overseas customers are also experiencing
reductions to their defense equipment budgets. The Company is in the
process of developing non-defense applications and repackaging its current
technology for sale in commercial markets. There can be no assurance that the
Company will be able to successfully develop and market non-defense applications
of its technology.
Expenditures for independent research and development ("IR&D") were
approximately $1,800,000, $1,500,000, and $1,200,000 in fiscal years 1995, 1994,
and 1993, respectively. In addition to IR&D, a significant portion of
engineering effort is customer-sponsored by both cost reimbursement and
fixed-price contracts. Such engineering effort relates to the design and
development of new products as well as improvements to existing products.
Expenditures for customer-sponsored research, development, and
engineering were approximately $3,500,000, $3,200,000, and $5,600,000 in fiscal
years 1995, 1994, and 1993, respectively. Additionally, a portion of new
product development work of a conceptual nature is charged to bid and proposal
costs when the development has an immediate, potential customer. IR&D and bid
and proposal costs are included in M,G&A expenses in the statements of
operations.
Liquidity and Capital Resources
As of September 30, 1995, the Company had approximately $19 million in cash and
short-term investments. At September 30, 1995, the Company had standby letters
of credit outstanding of approximately $5 million, of which $1.5 million are
associated with the Voice of America ("VOA") antenna upgrade program. The
standby letters of credit are collateralized by the Company's cash or
short-term investments. See further discussion in Note 9 of the Notes to
Consolidated Financial Statements. The Company currently believes that its cash
and expected revenue from operations will be sufficient to fund its operations
through fiscal year 1996.
A significant portion of the Company's sales is associated with long-term
contracts and programs in which there are significant inherent risks. These
risks include the uncertainty of economic conditions,
dependence on future appropriations and administrative allotments of funds,
changes in governmental policies, difficulty of forecasting costs and 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 revenues, net income, and the cash position
of the Company.
A portion of the Company's revenues are derived from governments in areas of
political instability. The Company generally attempts to reduce the risks
associated with such instability by requesting advance
payment if appropriate, as well as letters of credit or central government
guarantees. Most of the Company's overseas contracts provide for payments in
U.S. dollars. However, in certain instances the Company, for competitive
reasons, must accept payment in a foreign currency.
Management does not consider inflation to be a significant factor in its
operations.
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
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 Schedules and Reports on Form 8-K
A. Financial Statements and Schedules
1. Consolidated Financial Statements as identified in the Index on Page F-1
of this report.
2. Financial Statement Schedules.
In accordance with Regulation S-X, individual financial statements of the
Registrant and its subsidiaries and other financial statement schedules 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.
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.)
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.)
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.)
4.1 Rights Agreement between the Company and Bank of America, NT&SA, dated
December 15, 1989 (Incorporated by reference to Exhibit A to the Company's Form
8-K filed on January 5, 1990.)
4.2 Amendment 1 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 filed on October 7, 1991.)
10.1 Amended and Restated Credit agreement between the Company and Wells
Fargo Bank, National Associated. (Incorporated by reference to Exhibit 10.1 to
the Company's Form 10-Q for quarter ended June 30, 1994.)
10.2 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
filed on December 29, 1988.)
10.3 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 filed on December 29, 1988.)
10.4 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 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 filed on
December 27, 1993.)
10.6 Amendment No. 1 to the Company's Employee Stock Ownership Plan dated as
of October 1, 1992.
10.7 Plan Amendment to the Company's Employee Stock Ownership Plan dated as
of January 1, 1994.
10.9 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.)
10.11 Agreement and Plan of Reorganization dated August 17, 1987.
(Incorporated by reference to Exhibit 3 to Schedule 13D filed on August 27,
1987.)
10.12 Agreement of Merger dated August 17, 1987. (Incorporated by reference
to Exhibit 4 to Schedule 13D filed on August 27, 1987.)
10.15 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.)
10.16 First Amendment to Credit agreement between the Company and Wells Fargo
Bank, National Associated. (Incorporated by reference to Exhibit 10.6 to the
Company's Form 10-Q for quarter ended December 31, 1994)
10.17A Second Amendment dated April 14, 1995 to Credit agreement between the
Company and Wells Fargo Bank, National Associated.
10.17B Third Amendment and Addendum dated April 28, 1995 to Credit agreement
between the Company and Wells Fargo Bank, National Associated.
10.17C Fourth Amendment dated September 14, 1995 to Credit agreement between
the Company and Wells Fargo Bank, National Associated.
10.19 Purchase agreement dated September 17, 1993 between Technology for
Communications International and Morganti International. (Incorporated by
reference to Exhibit 10.19 to the Company's Form 10-K for fiscal year ended
September 30, 1993)
10.20 Purchase contract dated August 3, 1990 and exercised option dated
August 31, 1990 between Technology for Communications International and the
United States Information Agency. (Incorporated by reference to Exhibit 10.20
to the Company's Form 10-K for fiscal year ended September 30, 1990.)
10.21 Directors' Indemnification Agreements and Addendum's dated
November 29, 1990. (Incorporated by reference to Exhibit 10.21 to the Company's
Form 10-K for fiscal year ended September 30, 1990.)
10.23 Lease between Technology for Communications International and
Justin M. Jacobs, Jr. DBA Caspian Investments, dated May 1, 1992. (Incorporated
by reference to Exhibit 10.23 to the Company's Form 10-Q for the quarter ending
March 31, 1992.)
10.24 Lease between Technology for Communications International and RREEF USA
FUND-II Inc. dated May 1, 1992. (Incorporated by reference to Exhibit 10.24 to
the Company's Form 10-Q for the quarter ending March 31, 1992.)
22 List of subsidiaries of TCI International, Inc.
23 Independent Auditors' Consent
TCI INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Reference
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30,
1995 and 1994 F-3
Consolidated Statements of Operations for the Three Years
Ended September 30, 1995 F-4
Consolidated Statements of Stockholders' Equity for the
Three Years Ended September 30, 1995 F-5
Consolidated Statements of Cash Flows for the Three Years
Ended September 30, 1995 F-6
Notes to Consolidated Financial Statements F-7
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of TCI International, Inc.:
We have audited the accompanying consolidated financial statements of TCI
International, Inc. and its subsidiaries, listed in the accompanying Index to
Consolidated Financial Statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of TCI International, Inc. and its
subsidiaries at September 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1995 in conformity with generally accepted accounting
principles.
In fiscal 1994, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," and Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," as described in Note 12 and 2, respectively, of the
Consolidated Financial Statements.
DELOITTE & TOUCHE LLP
November 22, 1995
San Jose, California
TCI INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
In thousands, except per share amounts
September 30,
1995 1994
ASSETS
Current Assets:
Cash and cash equivalents $ 3,598 $ 8,586
(Includes restricted cash of $2,474 in 1995, $1,008 in 1994)
Short-term investments 15,068 10,930
Accounts receivable:
Billed 3,529 2,686
Unbilled 3,831 2,935
Refundable income taxes 0 739
Inventories 4,282 4,901
Prepaid expenses 382 490
Total Current Assets 30,690 31,267
Property and Equipment, net 1,592 1,889
Other Assets 91 85
Total Assets $32,373 $33,241
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,900 $ 2,168
Customer deposits and billings on uncompleted
contracts in excess of revenue recognized 1,754 2,478
Accrued liabilities 3,864 4,523
Total Current Liabilities 7,518 9,169
Commitments and Contingencies (Notes 9 and 11) 0 0
Stockholders' Equity:
Common stock:
Authorized - 5,000 shares, $.01 par value
Issued - 3,281 shares in 1995
3,341 shares in 1994 11,780 11,993
Shares held in treasury at cost - 142 shares in 1995;
78 shares in 1994 (634) (311)
Retained earnings 13,702 12,483
Net unrealized gain (loss)- short-term investments 7 (93)
Total Stockholders' Equity 24,855 24,072
Total Liabilities and Stockholders' Equity $32,373 $33,241
See accompanying Notes to Consolidated Financial Statements.
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share amounts
Years Ended September 30, 1995 1994 1993
Revenues $ 29,354 $ 25,562 $ 28,258
Operating Costs and Expenses:
Cost of revenues 18,672 15,798 22,613
Marketing, general and administrative 10,348 9,555 10,110
Write-off of goodwill 0 0 5,462
29,020 25,353 38,185
Income (loss) from operations 334 209 (9,927)
Investment income, net 1,072 691 338
Income (loss) before provision (credit)
for income taxes 1,406 900 (9,589)
Provision (credit) for income taxes 95 144 (1,267)
Income (loss) before change in accounting 1,311 756 (8,322)
for income taxes
Change in accounting for income taxes
(SFAS 109) 0 1,511 0
Net income (loss) $ 1,311 $ 2,267 $ (8,322)
Per Share:
Income (loss) before change in accounting
for income taxes $ .39 $ .23 $ (2.44)
Net income (loss) $ .39 $ .68 $ (2.44)
Shares used in per share computations 3,400 3,335 3,417
See accompanying Notes to Consolidated Financial Statements
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In thousands
Common Valuation
Stock in Allowance for
Common Stock Treasury Retained Short-term
Shares Amount Shares Amount Earnings Investments Total
Balances at October 1, 1992 3,407 $12,248 0 0 $18,592 0 $30,840
Issuance of common stock to ESOP 33 102 0 0 0 0 102
Net loss 0 0 0 0 (8,322) 0 (8,322)
Balances at September 30, 1993 3,440 12,350 0 0 10,270 0 22,620
Repurchase and retirement
of common stock (104) (374) 0 0 (54) 0 (428)
Repurchase of common stock for treasury
stock 0 0 (78) $ (311) 0 0 (311)
Stock options exercised 5 17 0 0 0 0 17
Valuation allowance for short-term
investments 0 0 0 0 0 $ (93) (93)
Net income 0 0 0 0 2,267 0 2,267
Balances at September 30, 1994 3,341 11,993 (78) (311) 12,483 (93) 24,072
Retirement of treasury stock (60) (213) 60 262 (49) 0 0
Repurchase of common stock for treasury
stock 0 0 (164) (764) 0 0 (764)
Stock options exercised 0 0 40 179 (43) 0 136
Valuation allowance for short-term
investments 0 0 0 0 0 100 100
Net income 0 0 0 0 1,311 0 1,311
Balances at September 30, 1995 3,281 $11,780 (142) $ (634) $13,702 $ 7 $24,855
See accompanying Notes to Consolidated Financial Statements.
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
Year Ended September 30, 1995 1994 1993
Cash provided by (used in):
Operations:
Net income (loss) $ 1,311 $ 2,267 $(8,322)
Reconciliation to cash provided by (used in) operations:
Depreciation and amortization 644 736 1,478
Amortization and write-off of goodwill 0 0 5,756
(Gain) loss on properties held for resale 0 (363) 316
Gain on sale of investments (32) (82) (125)
Effect of change in accounting for income taxes
(SFAS 109) 0 (1,511) 0
Deferred income taxes 0 0 (115)
Changes in assets and liabilities:
Accounts receivable (1,739) 7,324 (1,596)
Refundable income taxes 739 46 (785)
Inventories 619 715 1,225
Prepaid expenses and other assets 102 (18) 24
Accounts payable (268) 699 (4,357)
Customer deposits and billings on uncompleted
contracts in excess of revenue recognized (724) (1,274) 1,561
Accrued liabilities (659) (225) (2,600)
Cash provided by (used in) operations (7) 8,314 (7,540)
Investing activities:
Purchases of property and equipment (347) (275) (191)
Purchases of short-term investments (32,830) (9,874) (7,945)
Proceeds from sale of short-term investments 2,564 689 1,724
Proceeds from maturity of short-term investments 26,260 1,174 11,694
Proceeds from sale of buildings 0 1,725 0
Other 0 57 529
Cash provided by (used in) investing activities (4,353) (6,504) 5,811
Financing activities:
Repurchases of common stock (764) (739) 0
Stock options exercised 136 17 0
Cash used in financing activities (628) (722) 0
Net increase (decrease) in cash and cash (4,988) 1,088 (1,729)
equivalents
Cash and cash equivalents at beginning of year 8,586 7,498 9,227
Cash and cash equivalents at end of year $ 3,598 $ 8,586 $ 7,498
See accompanying Notes to Consolidated Financial Statements.
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"). TCI International, Inc. is a holding company engaged in the design
and supply of signal collection systems, high frequency antennas, and
specialized communication and frequency monitoring and management systems
through its 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.
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 years for 1995, 1994,
and 1993 ended on October 1, October 2, and October 3, respectively.
Cash Equivalents - Cash equivalents consist of money market investments,
government securities, and commercial paper purchased with an original maturity
of less than 90 days. The restricted cash represents amount collateralized at
the end of the fiscal year for stand-by letters of credit.
Revenue Recognition - Revenues 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. Revenues 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, constructive 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.
Risks 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 revenues
from the sales of signal collection systems, antenna systems, and special
communications equipment to the U.S. Government, the Company will increasingly
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 (see Note 7).
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 $1,830,000 in fiscal 1995 $1,512,000
in fiscal 1994, and $1,175,000 in fiscal 1993.
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:
Years
Machinery and equipment 3 - 10
Leasehold improvements Life of lease
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Income (Loss) per Share - Net income per share is computed based on the
weighted average number of common shares outstanding and common equivalent
shares outstanding. Common equivalent shares consist of the dilutive effect
of stock options. Net loss per share excludes common stock equivalents as the
effect is anti-dilutive.
Reclassifications - Certain amounts in the 1994 balance sheet have been
reclassified to conform to the 1995 presentation.
2. Short-term Investments
Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for
Certain Investments in Debt and Equity Securities", was issued in May 1993.
The Company adopted SFAS 115 effective October 1, 1993. Accordingly, the
Company classifies its short-term 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 stockholders' equity and is unrealized
gain of $7,000 in fiscal 1995 and unrealized loss of $93,000 in fiscal 1994.
Short-term investments consist of the following:
September 30, 1995 1994
(In thousands)
Short-term investment portfolio $ 8,913 $ 5,034
Treasury bill mutual funds 2,921 4,456
Certificates of deposit 3,234 1,440
Carrying value $15,068 $10,930
Market value $15,068 $10,930
The short-term cash management portfolio is managed by a bank which invests
primarily in stocks and bonds based upon the Company's investment guidelines.
The securities are of investment quality to ensure safety of principal and are
selected by the bank, who has been given semi-discretionary authority to
manage assets in the portfolio. The certificates of deposits all mature within
one year.
Cash equivalents and short term investments totaling $4,820,000 are held by
banks as collateral for outstanding stand-by letters of credit.
Investment income consists of the following:
Year ended September 30, 1995 1994 1993
(In thousands)
Dividend income $ 0 $ 0 $ 2
Interest income and other 1,040 609 212
Realized gain on sale of securities 32 82 124
$1,072 $ 691 $ 338
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 accounts 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.
Accounts receivable are presented net of progress payments and customer deposits
of $6,800,000 and $12,800,000 as of September 30, 1995 and 1994, respectively.
Certain U.S. Government contracts contain a retainage provision, whereby a
portion of the contract value is not paid until completion and
acceptance by the customer. As of September 30, 1995 and 1994, accounts
receivable included $444,000 and $882,000 of contract retentions receivable.
As of September 30, 1995, approximately $61,000 of such
retainages are not expected to be collected within one year.
4. Inventories
Inventories consist of the following:
September 30, 1995 1994
(In thousands)
Material and component parts $ 5,171 $ 4,767
Work in process 1,570 2,676
Inventory reserves (2,459) (2,542)
$ 4,282 $ 4,901
There were no significant changes in the inventory reserves in fiscal years
1995, 1994 and 1993.
5. Property and Equipment
Property and equipment consist of the following:
September 30, 1995 1994
(In thousands)
Machinery and equipment $ 8,230 $ 9,512
Leasehold improvements 375 367
8,605 9,879
Accumulated depreciation and amortization (7,013) (7,990)
$ 1,592 $ 1,889
6. Goodwill
In 1987 the Company acquired BR Communications and recorded goodwill of $7.6
million in connection with the transaction. Due to a reduction in new orders
from the Department of Defense (DOD) and other U.S. customers, BR's revenues
declined significantly between fiscal 1991 and fiscal 1993. During the
same period, the Company continued to downsize BR's operations, which included
reductions in its workforce and consolidating its principal operating
facilities. During fiscal year 1993, the Company continued to monitor BR's
operations and recoverability of the recorded investment. In the third quarter
of fiscal 1993 the Company determined that there were a number of adverse
developments that effected the carrying value of goodwill. These developments
included a significant reduction in the scope of a U.S
Government procurement, the announcement of Lockheed-Martin and Motorola's
production contract for the IRIDIUM global satellite network, discontinued
negotiations on the license of BR's technology with an
overseas customer and less than expected demand for BR's new tactical
communications equipment.
Based upon the Company's projected future cash flows to be received from the
sales of BR equipment, including the net cost of product commercialization, the
Company determined that there had been an other than temporary decline in the
recorded value of goodwill associated with the BR acquisition and
wrote off the remaining $5.5 million in the third quarter of fiscal 1993.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Export Revenues and Revenues from Major Customers
Revenues were derived from sales to customers located in the following
geographic areas:
Year ended September 30, 1995 1994 1993
(In thousands)
United States $ 18,127 $ 13,782 $ 21,680
Europe 3,945 1,229 1,087
Middle East 1,296 1,012 606
Africa 1,915 4,263 165
Asia/Pacific Basin 3,746 3,677 3,396
Other 325 1,599 1,324
$ 29,354 $ 25,562 $ 28,258
Sales under U.S. Government prime contracts and subcontracts accounted for 60%,
52%, and 69% of the Company's total revenues in 1995, 1994, and 1993,
respectively of which the U.S. Government prime contracts accounted for 45%,
22%, and 64%, respectively. Revenues from contracts with the United
States Information Agency (prime contracts and subcontracts) represented 18%,
33% and 43% of the Company's total revenue for 1995, 1994, and 1993,
respectively.
8. Accrued Liabilities
Accrued liabilities consist of the following:
September 30, 1995 1994
(In thousands)
Accrued contract costs $1,642 $2,837
Compensation and employee benefit plans 1,077 662
Accrued vacation 756 649
Other 389 375
$3,864 $4,523
9. Bank Credit Agreements
The Company has a bank credit agreement which expires on October 3, 1997 that
provides a fully secured credit facility for the issuance of stand-by letters of
credits. The credit facility allows the issuance of stand-by letters of credit
up to $7,000,000 with expiration dates up to May 31, 1996 and a $3,000,000
sub-limit for stand-by letters of credit with expiration dates between
April 1, 1996 and October 3, 1997. This credit facility is secured by the
Company's cash or short-term investment portfolio.
The agreement contains certain financial covenants which, among other things,
requires that the Company maintain a ratio of total debt to tangible net worth
of not greater than 1.0 to 1.0 at any given time and net losses not to exceed an
aggregate of $5,000,000 in fiscal years ending September 30, 1994, 1995, and
1996. At September 30, 1995, the Company was in compliance with its covenants.
At September 30, 1995, there were outstanding stand-by letters of credit of
approximately $4,700,000 held as performance and payment bonds. The stand-by
letters of credit expire at various dates through 1997; however, certain
performance bonds are automatically renewable until canceled by the beneficiary.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Employee Benefit Plans
The Company's operating subsidiaries make contributions to their respective
Employee Stock Ownership Plans (ESOP) subject to the approval of the Board of
Directors. Accrued contributions were $200,000 for fiscal 1995, $100,000
for fiscal 1994, and $100,000 for fiscal 1993. As of September 30, 1995,
the ESOP owns 729,897 of the Company's outstanding shares.
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. The Company makes matching
contributions of up to 2% of participants' annual compensation. The
Company's contributions to the Plan were $126,000 for fiscal 1995, $64,000 for
fiscal 1994, and $124,000 for fiscal 1993.
Under the Company's Stock Option Plan, options may be granted to employees at
not less than fair market value at the grant date. Most options vest ratably
over an eight year period and expire ten years after the date of the grant.
Activity in the Company's option plan is as follows:
Shares Option Price
Options Outstanding at September 30, 1992 552,226 $7.50 - $11.14
Granted 314,500 2.25 - 3.38
Canceled (201,856) 8.41 - 9.50
Options Outstanding at September 30, 1993 664,870 2.25 - 11.14
Granted 10,000 4.125
Exercised (4,900) 3.375
Canceled (90,680) 3.375 - 11.14
Options Outstanding at September 30, 1994 579,290 2.25 - 11.00
Granted 303,000 4.25 - 8.75
Exercised (40,200) 3.375
Canceled (66,440) 3.375 - 11.00
Options Outstanding at September 30, 1995 775,650 $2.25 - $ 9.50
At September 30, 1995, options for 284,184 shares were exercisable at prices
ranging from $2.25 to $9.50 per share and 232,885 shares were available for
future grant.
Option grants for fiscal year 1995 include 60,000 shares granted to non-employee
members of the Company's Board of Directors which are subject to shareholder's
approval at the next annual shareholder's meeting.
11. Commitments and Contingencies
The Company leases certain of its facilities and equipment under operating
leases which expire at various dates through fiscal 2000 and require the
following minimum payments:
Year Ending September 30, Amounts
(in thousands)
1996 $ 593
1997 577
1998 540
1999 450
2000 315
$2,475
Rental expense was $601,000 in fiscal 1995, $568,000 in fiscal 1994,
and $664,000 in fiscal 1993.
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 fiscal 1995, the Regional Water Board ordered the current 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.
Being named as a PRP could result in the Company becoming subject to a
subsequent final order from the Regional Water Board or a defendant in a civil
lawsuit in which others might seek to recover from the Company a portion of the
costs spent on investigating and cleaning up the contamination. Because there
is currently no proposal to impose a final binding regulatory order on the
Company, it is not possible to predict either the outcome of the current
regulatory proceedings or to estimate with any certainty whether
the Company will ultimately be judged to be liable for any portion of the
investigation and remediation costs associated with the subject site.
During 1990, TCI received a notice from an overseas customer stating that the
Company had not fulfilled certain requirements of a $6,000,000 contract.
No legal proceedings have been initiated on this claim.
The Company believes, based upon a review of the customer's claim and
consultation with legal counsel, that the liability, if any, relating to this
claim would not have a material adverse effect on its results of
operations or its financial position.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Income Taxes
In fiscal year 1994 the Company adopted SFAS No. 109 "Accounting for
income taxes" which requires an asset and liability method of accounting for
deferred income taxes. The cumulative effect of the change was the reversal
of previously recorded deferred tax liabilities resulting in an increase in net
income of $1,511,000 or $.45 per share.
The Company has net operating loss carryforwards for federal and state income
tax purposes of approximately $66,000 and $309,000 respectively, which expire
through 2008. The Company also has capital loss carryforwards of approximately
$3,500,000 which expire in 1996 and which may be used to
reduce a future tax provision should the Company have future capital gains.
The provision for federal income taxes for the years ended September 30, 1995,
1994, and 1993, consist of the following:
Years ended September 30, 1995 1994 1993
(In thousands)
Current:
Federal 86 140 $ (1,151)
State 9 4 (5)
Foreign 0 0 4
95 144 (1,152)
Deferred:
Federal 0 0 (116)
State 0 0 1
0 0 (115)
Total 95 $ 144 $ (1,267)
The effective tax rate differed from the statutory federal income tax rate
due to the following:
Year ended September 30, 1995 1994 1993
Statutory federal rate 35% 35% (35%)
State taxes, net of federal benefit 6 6 0
Amortization and write off of
goodwill 0 0 21
Benefit of net operating loss
carryforward (36) (23) 0
Alternative minimum tax 2 3 0
Other 0 (5) 1
Effective income tax expense
(benefit) rate 7% 16% (13%)
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
September 30, 1995 September 30, 1994
(In thousands)
Deferred tax assets:
Net operating loss carryforward 35 533
Long-term contracts 347 940
Accruals not currently deductible 1,249 1,383
1,631 2,856
Deferred tax liabilities:
DISC earnings 0 143
Differences in tax basis of property, plant
and equipment 140 479
140 622
Valuation allowance 1,491 2,234
Net deferred taxes 0 0
Cash payments for income taxes were $25,000 in 1995. In 1993 and 1994 there
were net cash receipts from income tax refund of $70,000 and $73,000,
respectively.
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 22, 1995 By: /s/ John W. Ballard, III
John W. Ballard, III
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.
SIGNATURE TITLE DATE
/s/ John W. Ballard President and Director December 22, 1995
(John W. Ballard) (Principal Executive Officer)
/s/ E.M.T. Jones Director December 22,1995
(E.M.T. Jones
/s/ Hamilton W. Budge Director December 22, 1995
(Hamilton W. Budge)
/s/ Asaph H. Hall Director December 22, 1995
(Asaph H. Hall)
/s/ Arthur H. Hausman Director December 22, 1995
(Arthur H. Hausman)
/s/ Barry J. Shillito Director December 22, 1995
(Barry J. Shillito)
/s/ Alan C. Peyser Director December 22, 1995
(Alan C. Peyser)
/s/ Donald C. Cox Director December 22, 1995
(Donald C. Cox)
Ref: Form 10-K
1995
TCI INTERNATIONAL, INC.
EXHIBIT INDEX
c
Number Exhibit
22 List of Subsidiaries of TCI International, Inc.
23 Independent Auditors' Consent
EXHIBIT 22
LIST OF SUBSIDIARIES OF TCI INTERNATIONAL, INC.
Technology for Communications International, a California corporation (TCI)
BR Communications, a California corporation (BR)
TCI Wireless, a California corporation (TCIW)
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-73484, 33-26353, 33-11339, 2-98005 and 2-80875 of
TCI International, Inc. on Forms S-8 of our report dated November 22, 1995,
which includes an explanatory fourth paragraph including a change in
accounting for income taxes, appearing in this Annual Report on Form 10-K of
TCI International, Inc. for the year ended September 30, 1995.
DELOITTE & TOUCHE LLP
San Jose, California
December 18, 1995
F-