UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995 *
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period N/A
Commission file number: 0-10877
TCI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3026925
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
222 Caspian Drive, Sunnyvale, California 94089-1014
(Address of principal executive offices) (Zip Code)
(408)747-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
As of December 31, 1995, 3,142,132 shares of Common Stock were
outstanding.
TCI INTERNATIONAL, INC.
PART I FINANCIAL INFORMATION
Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the information included
herein, when read in conjunction with the financial statements and
related notes included in the Company's Annual Report on Form 10-K for
the year ended September 30, 1995, filed with the Securities and
Exchange Commission, to be not misleading. Further, the following
financial statements reflect, in the opinion of management, all
adjustments necessary (consisting of normal recurring nature) to present
fairly the financial position and results of operations as of and for
the periods indicated.
The results of operations for the three months ended December 31, 1995,
are not necessarily indicative of results to be expected for the entire
year ending September 30, 1996.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended
December 31
1995 1994
Revenues $ 5,926 $ 6,839
Operating costs and expenses:
Cost of revenues 3,236 3,923
Marketing, general and administrative 2,557 2,678
5,793 6,601
Income from operations 133 238
Interest income, net 338 188
Income before provision
for income taxes 471 426
Provision for income taxes 137 26
Net income $ 334 $ 400
Per share:
Net income $ .10 $ .12
Shares used in per share
computations 3,391 3,237
See accompanying Notes to Condensed Consolidated Financial Statements.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
December 31, September 30,
1995 1995
ASSETS
Current assets
Cash and cash equivalents $ 4,756 $ 3,598
(Includes restricted cash of $2,243 on Dec. 31, 1995, $2,474 on
Sept 30, 1995)
Short-term investments 13,715 15,068
Accounts receivable -
Billed 1,642 3,529
Unbilled 4,018 3,831
Inventories 4,603 4,282
Prepaid expenses 477 382
Total current assets 29,211 30,690
Property and equipment, net 1,567 1,592
Other assets 413 91
Total assets $31,191 $32,373
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,886 $ 1,900
Customer deposits and billings on uncompleted
contracts in excess of revenue recognized 946 1,754
Accrued liabilities 3,152 3,864
Total current liabilities 5,984 7,518
Stockholders' equity:
Common stock, par value $.01; authorized 5,000
shares; issued and outstanding 3,281 shares 11,780 11,780
Retained earnings 14,033 13,702
Valuation allowance-short -term investments 16 7
Treasury shares at cost; 139 and 142 shares at
Dec. 31, 1995 and Sept 30, 1995, respectively (622) (634)
Total stockholders' equity 25,207 24,855
Total liabilities and stockholders' equity $31,191 $32,373
See accompanying Notes to Condensed Consolidated Financial Statements.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
(In thousands)
1995 1994
Cash provided by (used in):
Operations:
Net income $ 334 $ 400
Reconciliation to cash provided by (used in) operations:
Depreciation 130 153
Changes in assets and liabilities:
Accounts receivable 1,700 877
Refundable income taxes 0 567
Inventories (321) 34
Prepaid expenses (417) (11)
Accounts payable (14) (133)
Customer deposits/billing in excess of revenue (808) (514)
Accrued liabilities (713) (606)
Cash provided by (used in) operations (109) 767
Investing activities:
Purchases of property and equipment (104) (69)
Purchases of short-term investments (3,220) (2,419)
Proceeds from sale of short-term investments 4,582 0
Cash provided by (used in) investing activities 1,258 (2,488)
Financing activities:
Repurchase of common stock for treasury stock 0 (278)
Stock options exercised 9 0
Cash provided by (used in) financing activities 9 (278)
Net increase (decrease)
in cash and cash equivalents 1,158 (1,999)
Cash and cash equivalents at
beginning of period 3,598 7,578
Cash and cash equivalents at end of period $ 4,756 $ 5,579
See accompanying Notes to Condensed Consolidated Financial Statements
TCI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Inventories consist of the following (in thousands):
December 31, September 30,
1995 1995
Material and component parts $3,590 $3,336
Work in process 913 946
$4,503 $4,282
Note 2
At December 31, 1995 there were outstanding standby letters of credit of
approximately $3,084,000 serving as performance and payment bonds. The
standby letters of credit expire at various dates through 1997; however,
certain performance bonds are automatically renewable until canceled by
the beneficiary. These outstanding standby letters of credit are fully
secured by the Company's cash or short term investment portfolio.
TCI INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Fiscal Quarter of 1996
Compared to First Fiscal Quarter of 1995
Revenues for the first quarter of fiscal year 1996 were $5,926,000, a
decrease of approximately 13% from revenues of $6,839,000 for the same
period a year ago. While period to period comparisons of revenues will
continue to fluctuate, the Company expects revenues to be higher than
those of the first quarter during each of the remaining quarters of
fiscal year 1996.
Gross profit as a percentage of revenue for the three month period
increased from 43% to 45%. The increase in gross profit as a percentage
of revenue is primarily due to the timing of completion of various
foreign and domestic contracts which have a range of gross profit
margins associated with them. Gross profit as a percentage of revenue
is expected to decline from current levels during the remaining three
quarters of the fiscal year due to competitive bidding pressures the
Company experienced during fiscal 1995 in its successful pursuit of its
broadcast business-area related contracts in addition to the recent
award of two large spectrum management system contracts which have
inherently lower gross margins associated with them.
Net interest income for the first three months of fiscal year 1996 was
$338,000, an increase of 80% over net interest income of $188,000 for
the same period in fiscal year 1995. This increase is due to the
benefit of comparatively higher interest rates.
As a result of the factors detailed above, net income for the first
three months of fiscal year 1996 was $334,000 or $0.10 per share,
compared to net income of $400,000 or $0.12 per share for the same
period in fiscal year 1995.
The Company's total backlog at December 31, 1995 was $43 million
compared to $36 million at September 30, 1995. The total funded portion
of the Company's backlog at December 31, 1995 was $35 million compared
to $26 million at September 30, 1995. The Company's funded backlog
excludes unfunded and unexercised options which the Company believes are
likely to be exercised
The results of operations for the first three months in fiscal year 1996
are not necessarily indicative of future quarterly or annual performance
expectations.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company operates in a highly competitive environment that involves a
number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks.
Fluctuations in Operating Results
The Company's operating results may fluctuate from quarter to quarter
and year to year for a number of reasons. While there is no seasonality
to the Company's business, because of the Company's relative small size,
combined with the longer delivery cycles of much of its long-term
project-oriented business, revenues and accompanying gross margins are
inherently difficult to predict. Because the Company plans its
operating expenses, many of which are relatively fixed in the short
term, based on the assumption of stable performance, a relatively small
revenue shortfall may cause profitability from operations to suffer.
Historically, the Company has endured periods of volatility in its
revenue results due to a number of factors, including shortfalls in new
orders, delays in the availability of new products, delays in
subcontractor provided materials and services, and delays associated
with foreign construction activities. Gross margins are strongly
influenced by a mix of considerations, including pressures to be the low
price supplier in competitive bid solicitations, the mix of contract
material and non-recurring engineering services, and the mix of newly
developed and existing product sold to various customers. The Company
believes these historical challenges will continue to affect its future
business.
During fiscal year 1995, The Company formed a wholly-owned subsidiary,
TCI Wireless, Inc. ("TCIW") to provide wireless communication services
to the maritime and commercial aviation markets using proprietary
equipment developed by the Company and facilities and bandwidth provided
by various coast station operators around the world. The Company
expects that the future cost of this and other development efforts may
be significant enough to generate a loss from operations in both fiscal
year 1996 and 1997.
Managing of Changing Business
As detailed in the Company's most recent Annual Report, as part of its
diversification efforts the Company intends to pursue at least three
areas of product and market development. The Company is in the process
of adopting a business management plan that includes substantial
investments in its sales and marketing organizations, increased funding
of existing research and development programs, and certain investments
in corporate infrastructure that will be required to support the
Company's diversified objectives during the next three years.
Accompanying this process are a number of risks, including a higher
level of operating expenses, the difficulty of competing with companies
of larger size for talented technical personnel, and the complexities of
managing a changing business. There also exists the risk the Company
may inaccurately estimate the viability of any one or all of its
diversification efforts and as a result, may experience substantial
revenue shortfalls of a size so significant as to generate losses from
operations.
Risk Associated with Expansion into Additional Markets and Product
Development
The Company believes that its future success is substantially dependent
on its ability to successfully develop and commercialize new products
and penetrate new markets. The Company intends 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 communication applications. The
third area of diversification leverages the direction finding technology
developed by the Company principally for military applications into a
world-wide market for similar radio spectrum monitoring and surveillance
equipment. There can be no assurance that the Company can successfully
develop these or any other additional product, that any such products
will be capable of being produced in commercial quantities at reasonable
cost, or that any such products will achieve market acceptance. The
inability of the Company to successfully develop or commercialize new
products would have a material adverse effect on the Company's business,
financial condition and results of operations.
Competition
Most all of the Company's products are positioned in niche markets which
include strong elements of imbedded proprietary technology. In most of
these markets, the Company competes with companies of significantly
larger size, many of whom have substantially greater technical,
marketing, and financial resources compared to similar resources
available within the Company. This type of competition has resulted in
and is expected to continue to result in significant price competition.
TCI INTERNATIONAL, INC.
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1995 Compared to September 30, 1995
Consolidated cash, cash equivalents and marketable securities totaled
$18,471,000 at December 31, 1995, compared to $18,666,000 at September
30, 1995. The Company currently believes that its cash, cash
equivalents and short-term investments, together with expected revenues
from operations, will be sufficient to fund its operations through
fiscal 1996.
At December 31, 1995, the Company has standby letters of credit
outstanding of approximately $3,084,000. The standby letters of credit
are collateralized by the Company's cash or short-term investments.
TCI INTERNATIONAL, INC.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None
b. Reports on Form 8-K: Item no. 4: Changes in Registrant's
Certifying Accountant Report
dated January 17, 1996
No other applicable items.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TCI INTERNATIONAL, INC.
(Registrant)
/s/ John W. Ballard III
John W. Ballard III
Vice President,
Chief Financial Officer
(Duly authorized officer of
the registrant and principal
financial officer of the registrant)
Date: February 15, 1996