10Q Page 1
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 March 31, 1996 *
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 Identification
incorporation or organization) 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 March 31, 1996, 3,162,132 shares of Common Stock were
outstanding.
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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 entries) to
present fairly the financial position and results of operations as of
and for the periods indicated.
The results of operations for the six months ended March 31, 1996,
are not necessarily indicative of results to be expected for the
entire year ending September 30, 1996.
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TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31 March 31
1996 1995 1996 1995
Revenues $ 7,809 $ 6,881 $13,736 $13,720
Operating costs and expenses:
Cost of revenues 5,210 4,454 8,447 8,377
Marketing, general and administrative 2,559 2,421 5,116 5,098
7,769 6,875 13,563 13,475
Income from operations 40 6 173 245
Investment income, net 343 315 681 503
Income before provision
for income taxes 383 321 854 748
Provision for income taxes 23 19 160 45
Net income $ 360 $ 302 $ 694 $ 703
Net income, per share $ .11 $ .09 $ .21 $ 22
Shares used in per share
computations 3,366 3,262 3,379 3,250
See accompanying Notes to Condensed Consolidated Financial Statements.
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TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, September 30,
1996 1995
ASSETS
Current assets
Cash and cash equivalents $ 4,137 $ 3,598
(Includes restricted cash of $2,272 on Mar. 31, 1996,
$2,474 on Sept. 30, 1995)
Short-term investments 19,481 15,068
Accounts receivable -
Billed 3,952 3,529
Unbilled 4,337 3,831
Inventories 4,857 4,282
Prepaid expenses 629 382
Total current assets 37,393 30,690
Property and equipment, net 1,549 1,592
Other assets 412 91
Total assets $39,354 $32,373
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,030 $ 1,900
Customer deposits and billings on uncompleted
contracts in excess of revenue recognized 7,782 1,754
Accrued liabilities 2,965 3,864
Total current liabilities 13,777 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 14,372 13,702
Valuation allowance-short -term investments (42) 7
Treasury shares at cost; 119 and 142 shares at
Mar. 31, 1996 and Sept. 30, 1995, respectively (533) (634)
Total stockholders' equity 25,577 24,855
Total liabilities and stockholders' equity $39,354 $32,373
See accompanying Notes to Condensed Consolidated Financial Statements.
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TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31,
(In thousands)
1996 1995
Cash provided by (used in):
Operations:
Net income $ 694 $ 703
Reconciliation to cash provided by (used in) operations:
Depreciation 274 304
Changes in assets and liabilities:
Accounts receivable (929) 375
Refundable income taxes 0 567
Inventories (575) (428)
Prepaid expenses (568) 17
Accounts payable1,130 (648)
Customer deposits/billing in excess of revenue 6,028 (1,348)
Accrued liabilities (899) (396)
Cash provided by (used in) operations 5,155 (854)
Investing activities:
Purchases of property and equipment (232) (179)
Purchases of short-term investments (13,621) (3,449)
Proceeds from sale of short-term investments 9,159 0
Cash used in investing activities (4,694) (3,628)
Financing activities:
Repurchase of common stock for treasury stock 0 (681)
Stock options exercised 78 0
Cash provided by (used in) financing activities 78 (681)
Net increase (decrease) in cash and cash equivalents 539 (5,163)
Cash and cash equivalents at beginning of period 3,598 7,578
Cash and cash equivalents at end of period $ 4,137 $ 2,415
See accompanying Notes to Condensed Consolidated Financial Statements
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TCI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Inventories consist of the following (in thousands):
March 31, September 30,
1996 1995
Material and component parts $3,492 $3,336
Work in process 1,365 946
$4,857 $4,282
Note 2
At March 31, 1996 there were outstanding standby letters of credit of
approximately $2,832,000 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.
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TCI INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second Fiscal Quarter of 1996
Compared to Second Fiscal Quarter of 1995
Revenues for the first six months of fiscal year 1996 were $13,736,000,
compared to revenues of $13,720,000 for the same period a year ago. Revenues
for the second quarter increased 14% from $6,881,000 in fiscal year 1995 to
$7,809,000 in fiscal year 1996. While the general business activity for the
year has increased compared to that of a year ago, variances in material
flows and the timing of completion of some fixed priced, long-term contracts
continue to contribute to quarter to quarter fluctuations in revenues and
gross profit.
Gross profit expressed as a percentage of revenue for the fiscal 1996 six
month period remained flat compared to the same period from the prior year,
and decreased from 35% to 33% for the comparative second quarters. Gross
profit expressed as a percentage of revenue may decline further during the
remaining six months of the fiscal year due to competitive bidding pressures
the Company experienced during the last 18 months in its successful pursuit
of its broadcast and spectrum monitoring related contracts. Revenues from
these contracts are expected to constitute substantially all of the Company's
total of revenue during the remainder of the fiscal year, and as such, may
serve to suppress overall profitability.
Net interest income for the first six months of fiscal year 1996 was
$681,000, an increase of 35% over net interest income of $503,000 for the
same period in fiscal year 1995. This increase is due to the benefit of a
comparatively higher cash and short-term investment balance.
Net income for the first six months of fiscal year 1996 was $694,000 or $0.21
per share, compared to net income of $703,000 or $0.22 per share for the same
period in fiscal year 1995.
The Company's total backlog at March 31, 1996 was $37 million compared to $36
million at September 30, 1995. The total funded portion of the Company's
backlog at March 31, 1996 was $32 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 six months in fiscal year 1996 are
not necessarily indicative of future quarterly or annual performance
expectations. This report contains forward looking statements regarding
future events and the future performance of the Company that involve risks
and uncertainties that could cause actual results to differ materially. We
refer you to the documents of the Company filed from time to time with the
Securities and Exchange Commission, such as the Company's Annual Report on
Form 10-K, Current Reports on Form 8-K and other Quarterly Reports on Form
10-Q, which contain descriptions of certain factors that could cause actual
results to differ from current expectations. See also "Factors That May
Affect Future Operating Results".
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FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company operates in a highly competitive environment that involves a
number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks.
Fluctuations in Operating Results
The Company's operating results may fluctuate from quarter to quarter and
year to year for a number of reasons. While there is no seasonality to the
Company's business, because of the Company's relative small size, combined
with the extended delivery cycles of its long-term project-oriented business,
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 any quarter during both fiscal year
1996 and 1997.
Managing a 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 diversification objectives
during the next three years. Accompanying this process are a number of
risks, including a higher level of operating expenses, the difficulty of
competing with companies of larger size for talented technical personnel, and
the complexities of managing a changing business. 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.
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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 three years. The first two
areas 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 products, that any such
products will be capable of being produced in commercial quantities at
reasonable cost, or that any such products will achieve market acceptance.
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.
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TCI INTERNATIONAL, INC.
LIQUIDITY AND CAPITAL RESOURCES
March 31, 1996 Compared to September 30, 1995
In the course of conducting its business, the Company normally requires
advanced payments from its foreign customers. These advanced payments are
typically secured by the Company's standby letter of credit or by a surety-
backed bond. Because customer deposits are routinely used to satisfy the
Company's working capital requirements, changes in customer deposit balances
will usually be reflected as corresponding changes in cash, cash equivalents
and short term investments.
In January 1996, the Company received an advance of $8,586,000 serving as a
customer deposit for a significantly-sized spectrum monitoring contract. At
quarter end, this advance had been reduced by revenue taken on the same
contract and represented approximately 85% of the total customer deposits.
As progress is made on this contract, the size of this advance will continue
to be reduced accordingly. The customer deposit is available for use as
working capital and is secured by the Company's surety-backed bonding
facility. The payment balance due on this contract will coincide with
scheduled deliveries in fiscal year 1997.
Consolidated cash, cash equivalents and marketable securities totaled
$23,618,000 at March 31, 1996, 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 March 31, 1996, the Company has standby letters of credit outstanding of
approximately $2,832,000. The standby letters of credit are collateralized
by the Company's cash or short-term investments.
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TCI INTERNATIONAL, INC.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
The following matters were acted upon at the Annual Meeting of
Stockholders of TCI International, Inc. on February 13, 1996.
a. Management's nominees for directors, as set forth in the TCI
International, Inc. proxy statement dated January 22, 1996
and filed with the Commission, were all elected. Votes for
the directors were as follows:
Donald C. Cox For 2,335,106
Against 164,563
Alan C. Peyser For 2,335,106
Against 164,563
Directors whose term of office as a director continued after
the meeting were John W. Ballard, Hamilton W. Budge,
Asaph H. Hall, and E.M.T. Jones.
b. Proposal to approve the implementation of the 1995
Non-Employee Director Stock Option Plan was approved.
1,277,791 votes were cast in favor, 352,189 votes were cast
against, 11,022 abstained and 858,667 were unvoted.
c. A proposal to ratify the selection of KPMG Peat Marwick LLP
as independent public accountants for the fiscal year ending
September 30, 1996 was approved. 2,479,882 votes were cast
in favor, 15,055 votes were cast against, and 4,732
abstained.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: Credit agreement between the Company and Comerica Bank -
California
b. Reports on Form 8-K: None
No other applicable items.
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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
Vice President, Chief Financial Officer
(Duly authorized officer of the registrant and principal financial officer of
the registrant)
May 14, 1996
(Date)