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 June 30, 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 Number)
incorporation or organization)
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 June 30, 1996, 3,179,431 shares of Common Stock were outstanding.
PAGE 2
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 nine months ended June 30, 1996, are not
necessarily indicative of results to be expected for the entire year ending
September 30, 1996.
PAGE 3
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30 June 30
1996 1995 1996 1995
Revenues $ 8,559 $ 8,364 $22,295 $22,084
Operating costs and expenses:
Cost of revenues 5,623 5,710 14,070 14,087
Marketing, general and administrative 2,932 2,627 8,049 7,725
8,555 8,337 22,119 21,812
Income from operations 4 27 176 272
Investment income, net 461 284 1,142 787
Income before provision
for income taxes 465 311 1,318 1,059
Provision for income taxes 180 34 339 79
Net income $ 285 $ 277 $ 979 $ 980
Net income, per share $ .08 $ .08 $ .29 $ .29
Shares used in per share
computations 3,363 3,316 3,373 3,366
See accompanying Notes to Condensed Consolidated Financial Statements.
PAGE 4
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
June 30, September 30,
1996 1995
ASSETS
Current assets
Cash and cash equivalents $ 5,617 $ 3,598
(Includes restricted cash of
$2,300 on June 30, 1996,
$2,474 on Sept. 30, 1995)
Short-term investments 20,848 15,068
Accounts receivable -
Billed 2,547 3,529
Unbilled 4,602 3,831
Inventories 5,608 4,282
Prepaid expenses 641 382
Total current assets 39,863 30,690
Property and equipment, net 1,602 1,592
Other assets 413 91
Total assets $41,878 $32,373
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,381 $ 1,900
Customer deposits and billings
on uncompleted contracts in excess
of revenue recognized 7,470 1,754
Accrued liabilities 3,101 3,864
Total current liabilities 15,952 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 14,646 13,702
Valuation allowance short-term
investments (45) 7
Treasury shares at cost; 102 and
142 shares at June 30, 1996 and
Sept. 30, 1995, respectively (455) (634)
Total stockholders' equity 25,926 24,855
Total liabilities and
stockholders' equity $41,878 $32,373
See accompanying Notes to Condensed Consolidated Financial Statements.
PAGE 5
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30,
(In thousands)
1996 1995
Cash provided by (used in):
Operations:
Net income $ 979 $ 980
Reconciliation to cash provided
by (used in) operations:
Depreciation 402 474
Changes in assets and liabilities:
Accounts receivable 211 (825)
Refundable income taxes 0 739
Inventories (1,326) (102)
Prepaid expenses (581) 79
Accounts payable 3,481 (262)
Customer deposits/billing in
excess of revenue 5,716 (469)
Accrued liabilities (763) (511)
Cash provided by (used in) operations 8,119 103
Investing activities:
Purchases of property and equipment (412) (251)
Purchases of short-term investments (20,758) (5,963)
Proceeds from sale of short-term
investments 14,926 1,360
Cash used in investing activities (6,244) (4,854)
Financing activities:
Repurchase of common stock for
treasury stock 0 (707)
Stock options exercised 144 0
Cash provided by (used in) financing
activities 144 (707)
Net increase (decrease) in cash and
cash equivalents 2,019 (5,458)
Cash and cash equivalents at beginning
of period 3,598 7,578
Cash and cash equivalents at end of
period $ 5,617 $ 2,120
See accompanying Notes to Condensed Consolidated Financial Statements
PAGE 6
TCI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Inventories consist of the following (in thousands):
June 30, September 30,
1996 1995
Material and component parts $4,143 $3,336
Work in process 1,465 946
$5,608 $4,282
Note 2
At June 30, 1996 there were outstanding standby letters of credit of
approximately $4,156,000 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.
PAGE 7
TCI INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Third Fiscal Quarter of 1996
Compared to Third Fiscal Quarter of 1995
Revenues for the frst nine months of fiscal year 1996 were $22,295,000,
compared to revenues of $22,084,000 for the same period a year ago.
Revenues for the third quarter increased 2% from $8,364,000 in fiscal year
1995 to $8,559,000 in fiscal year 1996.
Gross profit expressed as a percentage of revenue for the fiscal 1996 nine
month period remained flat compared to the same period from the prior year,
and increased from 32% to 34% for the comparative third quarters. Gross
profits were positively influenced by better than expected performance on
selected long term, fixed price contracts as well by a one time favorable
adjustment to revenues of approximately $450,000 without accompanying cost
of revenues made possible by the favorable settlement of long-standing
indirect rate proposals with the U.S. Government on selected cost plus
contracts. Without these favorable contract adjustments, gross profit
expressed as a percentage of revenue would have been 27% and 34% for the
quarter and year to date periods respectively. It is expected that gross
profit expressed as a percentage of revenue may decline further during the
balance of the fiscal year due to competitive bidding pressures the Company
experienced during the last 18 months in its 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 nine months of fiscal year 1996 was
$1,142,000, an increase of 45% over net interest income of $787,000 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 nine months of fiscal year 1996 was $979,000 or $0.29
per share, compared to net income of $980,000 or $0.29 per share for the same
period in fiscal year 1995.
The Company's total backlog at June 30, 1996 was $40 million compared to $36
million at September 30, 1995. The total funded portion of the Company's
backlog at June 30,1996 was $34 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 nine 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".
PAGE 8
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 during any quarter between now and at least the end of fiscal
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.
PAGE 9
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 area relates
directly to proprietary elements of frequency management technology for use
in commercial aviation and maritime communication applications. The second
area relies on the Company's ability to use its expertise and knowledge in
the Broadcast product area to conceive of, design, and implement propietary
products for use in the overseas wireless cable TV market. 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 or failure of such products to achieve
market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations.
Risks Associated with Conducting Business Overseas
A substantial part of the Company's revenues are derived from fixed priced
contracts with foreign governmental entities. With increasing frequency, the
Company finds a demand for its products in third world countries and
developing nations which have an inherently more volatile and uncertain
political and credit risk profile than the U.S. Government market with which
the Company is accustom to conducting its business. While the Company seeks
to minimize the collection risks on these contracts by normally securing
significant advanced payments with the balance secured by irrevocable letters
of credit, due to unforeseen credit and political risks, the Company cannot
always be assured of receiving full payment for work that it has performed.
Should such a default on payments owed the Company ever occur, a
significant effect on earnings, cash flows and cash balances may result.
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.
PAGE 10
TCI INTERNATIONAL, INC.
LIQUIDITY AND CAPITAL RESOURCES
June 30, 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 90% 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. Directly related to
the execution of this foreign contract is the growth the Company has
experienced in its accounts payable balances. These balances are associated
with certain subcontract costs having been accrued in advance of payment
being made to particular vendors.
Consolidated cash, cash equivalents and marketable securities totaled
$26,465,000 at June 30, 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 1997.
At June 30, 1996, the Company has standby letters of credit outstanding of
approximately $4,156,000. The standby letters of credit are collateralized by
the Company's cash or short-term investments.
PAGE 11
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: None
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)
__________________________________
John W. Ballard III
Vice President , Chief Financial Officer
(Duly authorized officer of the registrant and
principal financial officer of the registrant)
___________________________
Date