-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PIIYZLw6lcIT9n2twnce7eyIOWEmjLz+i7Sw5Nhy/OBziKLvDZx1qoSkGurnwNM7 A0GWcFmSIlfaOQkV0F9TVA== 0001047469-99-031872.txt : 19990816 0001047469-99-031872.hdr.sgml : 19990816 ACCESSION NUMBER: 0001047469-99-031872 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCI INTERNATIONAL INC CENTRAL INDEX KEY: 0000357064 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 943026925 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10877 FILM NUMBER: 99688448 BUSINESS ADDRESS: STREET 1: 222 CASPIAN DR CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 4087476100 MAIL ADDRESS: STREET 1: 222 CASPIN DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089 FORMER COMPANY: FORMER CONFORMED NAME: TECHNOLOGY FOR COMMUNICATIONS INTERNATIONAL INC DATE OF NAME CHANGE: 19880606 10-Q 1 10-Q 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, 1999 ------------- 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, 1999, 3,205,109 shares of Common Stock were outstanding. 1 TCI INTERNATIONAL, INC. TABLE OF CONTENTS
PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Statements of Operations 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-17 Item 3. Market Rate Sensitive Instruments 11 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 18
2 TCI INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Three Months Ended Nine Months Ended June 30, June 30, -------- -------- 1999 1998 1999 1998 -------- -------- -------- -------- Revenue $ 6,507 $ 5,814 $ 17,825 $ 20,898 -------- -------- -------- -------- Operating costs and expenses: Cost of revenue 4,203 3,796 12,097 13,738 Marketing, general and administrative 2,405 2,886 7,549 8,325 -------- -------- -------- -------- 6,608 6,682 19,646 22,063 -------- -------- -------- -------- Loss from operations (101) (868) (1,821) (1,165) Investment income, net 109 166 411 591 -------- -------- -------- -------- Income (loss) before provision for income taxes 8 (702) (1,410) (574) Provision for income taxes 0 0 0 38 -------- -------- -------- -------- Net income (loss) $ 8 $ (702) $ (1,410) $ (612) -------- -------- -------- -------- -------- -------- -------- -------- Basic earning per share: Net income (loss), per share $ 0 $ (.22) $ (.44) $ (.19) -------- -------- -------- -------- -------- -------- -------- -------- Shares used in per share computation 3,205 3,209 3,210 3,205 -------- -------- -------- -------- -------- -------- -------- -------- Fully diluted earning per share: Net income (loss), per share $ 0 $ (.22) $ (.44) $ (.19) -------- -------- -------- -------- -------- -------- -------- -------- Shares used in per share computation 3,256 3,209 3,210 3,205 -------- -------- -------- -------- -------- -------- -------- --------
See accompanying Notes to Condensed Consolidated Financial Statements. 3 TCI INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands except per share amounts)
June 30, September 30, 1999 1998 -------- -------- ASSETS Current assets Cash and cash equivalents $ 7,090 $ 8,782 (Includes restricted cash of $4,085 at June 30, 1999, $3,558 at Sept 30, 1998) Short-term investments 1,271 4,754 Accounts receivable: Billed 1,523 225 Unbilled 7,192 5,599 Inventories 2,110 1,486 Prepaid taxes 2,283 2,311 Prepaid expenses 352 287 -------- -------- Total current assets 21,821 23,444 Property and equipment, net 2,255 1,473 Other assets 319 314 -------- -------- Total assets $ 24,395 $ 25,231 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,427 $ 1,620 Customer deposits and billings on uncompleted contracts in excess of revenue recognized 1,130 1,491 Accrued liabilities 5,428 5,287 -------- -------- Total current liabilities 8,985 8,398 -------- -------- Stockholders' equity: Common stock, par value $.01; authorized 5,000 shares; issued and outstanding 3,281 shares 11,780 11,780 Retained earnings 3,956 5,372 Accumulated other comprehensive loss 0 (8) Treasury shares at cost; 76 shares at June 30, 1999 and 70 shares at Sept 30, 1998 (326) (311) -------- -------- Total stockholders' equity 15,410 16,833 -------- -------- Total liabilities and stockholders' equity $ 24,395 $ 25,231 -------- -------- -------- --------
See accompanying Notes to Condensed Consolidated Financial Statements. 4 TCI INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JUNE 30, (In thousands)
1999 1998 -------- -------- Cash provided by (used in): Operations: Net loss $ (1,410) $ (612) Reconciliation to cash used in operations: Depreciation 377 368 Changes in assets and liabilities: Accounts receivable (2,891) 1,176 Inventories (624) 787 Prepaid taxes 28 0 Prepaid expenses and other assets (70) (1,941) Accounts payable 807 (2,645) Customer deposits/billing in excess of revenue (361) 355 Accrued liabilities 141 (846) -------- -------- Cash used in operations (4,003) (3,358) -------- -------- Investing activities: Purchases of property and equipment (1,159) (398) Purchases of short-term investments (7,344) (5,865) Proceeds from sale of short-term investments 10,835 4,107 -------- -------- Cash provided by (used in) investing activities 2,332 (2,156) -------- -------- Financing activities: Stock options exercised 5 25 Treasury stock purchases (26) 0 -------- -------- Cash provided by (used in) financing activities (21) 25 Net decrease in cash and cash equivalents (1,692) (5,489) Cash and cash equivalents at beginning of period 8,782 10,439 -------- -------- Cash and cash equivalents at end of period $ 7,090 $ 4,950 -------- -------- -------- --------
See accompanying Notes to Condensed Consolidated Financial Statements. 5 TCI INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 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. 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, 1998, filed with the Securities and Exchange Commission, to be not misleading. Further, the accompanying 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, 1999, are not necessarily indicative of results to be expected for the entire year ending September 30, 1999. NOTE 2 Inventories consist of the following (in thousands):
June 30, September 30, 1999 1998 --------- ------------- Material and component parts $ 819 $ 974 Work in process 1,291 512 ------ ------ $2,110 $1,486 ------ ------ ------ ------
NOTE 3 At June 30, 1999 there were outstanding standby letters of credit of approximately $4,493,000 serving as performance and payment bonds. The standby letters of credit expire at various dates through 2001; 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. NOTE 4 Basic per share amounts are computed using the weighted average number of common shares outstanding during the period. Diluted per share amounts are computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of common stock issuable upon the exercise of stock options using the treasury stock method. 6 TCI INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following schedule reconciles, in thousands, the shares used in the Company's basic and diluted net income (loss) per share calculation.
Three Months Ended Nine Months Ended June 30, June 30, -------- -------- 1999 1998 1999 1998 ----- ----- ----- ----- Basic earnings per share weighted average shares outstanding 3,205 3,209 3,210 3,205 Effect of dilutive securities options outstanding 51 0 0 0 ----- ----- ----- ----- Denominator for diluted earnings per share - adjusted weighted average shares 3,256 3,209 3,210 3,205 ----- ----- ----- ----- ----- ----- ----- -----
As of June 30, 1999 and 1998, there were options outstanding to purchase 841,900 and 706,700, respectively, shares of the Company's common stock which could potentially dilute earnings per share in the future. NOTE 5 In June 1997, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, which establishes standards for reporting and disclosures of comprehensive income and its components (revenues, expenses, gains and losses) in financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and requires reclassification of financial statements for earlier periods to be provided for comparative purposes. The Company has not determined the manner in which it will present the information required by SFAS No. 130 in its annual financial statements for the year ended September 30, 1999. The Company's total comprehensive loss for all periods presented herein would not have differed from those amounts reported as net income (loss) in the statements of operations. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." The statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. This statement is effective for financial statements issued for fiscal years beginning after December 15, 1997. 7 TCI INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated and accounted for as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. This statement will be effective for all annual and interim periods beginning after June 15, 2000, as amended by SFAS No. 137. Management does not believe the adoption of SFAS No. 133 will have a material effect on the financial position of the Company. 8 TCI INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Third Fiscal Quarter and Nine Months ended June 30, 1999 Compared to Third Fiscal Quarter and Nine Months ended June 30, 1998 Except for historical information contained herein, the matters discussed in this report contain forward-looking statements that involve risks and uncertainties which could cause future results to differ materially. The results of operations for the first nine months of fiscal year 1999 are not necessarily indicative of future quarterly or annual performance expectations. Revenue for the third quarter was $6,507,000, an increase of 12%, compared to revenue of $5,814,000 for the same period in fiscal year 1998. This was due largely to the timing of receipt of fiscal year 1999 bookings and the execution of these contracts: almost half of the fiscal year 1999 year to date bookings were received in the first quarter. Revenue for the first nine months of fiscal year 1999, however, was $17,825,000, a decrease of approximately 15% from revenues of $20,898,000 for the same period a year ago. This decrease in revenue was due, primarily, to a lower backlog entering fiscal year 1999 and delays in receiving expected new orders. Fluctuations in revenue from one quarter to the next are inherent in the nature of the Company's business due to the project-oriented nature of the business. Based upon existing backlog and subject to unanticipated future delays, the Company expects revenue for fiscal year 1999 to be at approximately the same level as revenue for fiscal year 1998. Gross margin expressed as a percentage of revenue for the third quarter of fiscal year 1999 when compared to the same period in fiscal year 1998 were approximately the same, at 35%. Gross margin expressed as a percentage of revenue for the first nine months of fiscal year 1999 decreased from 34% to 32% when compared to the same period a year ago. This decrease in gross margin as a percentage of revenue in fiscal year 1999 was due to the mix of contracts the Company is executing. The Company expects gross margin expressed as a percentage of revenue to remain at approximately the current year to date level for the remainder of the fiscal year. Marketing, general and administrative expenses for the third quarter of fiscal year 1999 decreased by $481,000 from $2,886,000 to $2,405,000 when compared to the third quarter in fiscal year 1998. This decrease was primarily due to reduction in internal research and development expenses in the current quarter. Marketing, general and administrative expenses for the first nine months decreased by 9% compared to the same period in fiscal 1998. As a percentage of revenue, however, marketing, general and administrative expenses increased from 40% last year to 42% this year due to this year's lower revenue base. 9 TCI INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Third Fiscal Quarter and Nine Months ended June 30, 1999 Compared to Third Fiscal Quarter and Nine Months ended June 30, 1998 Net income for the third quarter of fiscal year 1999 was significantly better than in the same period a year ago. Third quarter fiscal year 1999 showed a net income of $8,000 compared to a net loss of $702,000 in the third quarter of fiscal year 1998. However, due to a lower total revenue base this fiscal year, net loss for the first nine months of fiscal year 1999 was $1,410,000 compared to a net loss of $612,000 in fiscal year 1998. The Company's total backlog at June 30, 1999 was $25 million compared to $16 million at September 30, 1998. The total funded portion of the Company's backlog at June 30, 1999, was $15 million compared to $16 million at September 30, 1998. The Company's funded backlog excludes unfunded contracts and unexercised options. The Company's total bookings for the first nine months of fiscal year 1999 was $15.8 million compared to $18.7 million in fiscal year 1998. 10 TCI INTERNATIONAL, INC. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DERIVATIVES AND FINANCIAL INSTRUMENTS FOREIGN CURRENCY HEDGING INSTRUMENTS The Company transacts business in various foreign currencies. Accordingly, the Company is subject to exposure from adverse movements in foreign currency exchange rates. This exposure is primarily related to payments denominated in Colombian pesos, a contract denominated in British pounds sterling, local operating expenses in U.K. denominated in the British pounds and occasional equipment purchases in other European currencies. As of June 30, 1999, the Company held $625,000 of aggregate foreign currency forward exchange hedge contracts to buy deutsche marks in 1999 at a weighted average rate of 1.72. As of June 30, 1999, there were no significant differences between the forward and spot rate on that date. The Company's U.K. operating expenses are in sterling, which mitigates a portion of the exposure related to the contract denominated in sterling. The Company currently does not use financial instruments to hedge local currency denominated operating expenses in the U.K. Instead, the Company believes that a natural hedge exists, in that local currency revenues will substantially offset the local currency denominated operating expenses. The Company assesses the need to utilize financial instruments to hedge currency exposures on an ongoing basis. The Company does not use derivative financial instruments for speculative trading purposes, nor does the Company hedge its foreign currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates. The Company regularly reviews its hedging program and may as part of this review determine at any time to change its hedging program. No sensitivity analysis was performed on the Company's hedging portfolio as of June 30, 1999. FIXED INCOME INVESTMENTS The Company's investments in U.S. corporate securities include commercial paper. Foreign securities include certificates of deposit with financial institutions, most of which are denominated in U.S. dollars. The Company's cash equivalents and short-term investments have generally been held until maturity. Gross unrealized gains and losses were negligible as of June 30, 1999. The Company's exposure to market risk for changes in interest rates relate primarily to the Company's investments. The Company places its investments with high credit quality issuers and, by policy, limits the amount of credit exposure to any one issuer. The Company's general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. All highly liquid investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents; investments with maturities between three and twelve months are considered to be short-term investments. The average interest rate on the investment portfolio is 4.9%. As of June 30, 1999, there are no investments with maturities greater than 12 months. The Company does not expect any material loss with respect to its investment portfolio. 11 TCI INTERNATIONAL, INC. 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 relatively small size, combined with the extended delivery cycles of its long-term project-oriented business, revenue and accompanying gross margins are inherently difficult to predict. Since the Company records revenue on a percentage of completion basis, unexpected changes in project budgets during the course of execution can cause revenue and accompanying gross margins to vary from quarter to quarter. 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 several factors, 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. In order to address these challenges, the Company intends to pursue a product and market diversification strategy. By leveraging its expertise in RF technology applications, and its ability to conduct business in foreign countries, the Company will pursue outside technology and business acquisitions, which complement various characteristics of its existing core business. Combined with the operating pressures detailed above, the Company expects that the future cost of this product diversification strategy may be significant enough to generate a loss from operations during fiscal year 1999. MANAGING A CHANGING BUSINESS 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 internal 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. Inherent in 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. 12 TCI INTERNATIONAL, INC. FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS 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 acquire, develop and commercialize new products and penetrate new markets. In addition to the Company's ongoing efforts to diversify its product offerings within its core businesses such as the spectrum management system business, the Company intends to pursue a diverse, but focused product and market development initiative during the next three years. The Company believes that its general knowledge of RF technology and its related applications combined with its ability to conduct business in overseas markets can be exploited to return the Company to an aggressive growth posture. While not strictly limited to these product areas, the Company is currently pursuing certain product and turnkey project initiatives in the FM and digital TV transmission equipment markets which compliment the Company's antenna expertise. 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. Should the Company expend funds to acquire outside entities or technology, there can be no assurance that sufficient returns will be realized to offset these investments. 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 revenue is 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 accustomed 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, the Company cannot always be assured of receiving full payment for work that it has performed due to unforeseen credit and political risks. Should such default on payments owed the Company ever occur, a significant effect on earnings, cash flows and cash balances may result. COMPETITION Most 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. 13 TCI INTERNATIONAL, INC. LIQUIDITY AND CAPITAL RESOURCES June 30, 1999 Compared to September 30, 1998 Consolidated cash, cash equivalents and marketable securities totaled $8,361,000 at June 30, 1999, compared to $13,536,000 at September 30, 1998. 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 year 2000. Cash used in operations for the first nine months of fiscal year 1999 was $4.0 million compared to $3.4 million for the first nine months in fiscal year 1998. Cash used in the first nine months of fiscal year 1999 resulted primarily from the net loss of $1.4 million and an increase in accounts receivable of $2.9 million, an increase in inventories of $.6 million, offset by an increase in accounts payable of $.8 million. Cash provided in investing activities in the first nine months of fiscal year 1999 was $2.3 million. The Company's working capital at June 30, 1999 was $13 million compared to $15 million at September 30, 1998. The decrease in working capital in the current fiscal year was largely due to continued losses from operations. The Company does not currently have a bank credit line or other credit facility. At June 30, 1999, the Company has standby letters of credit outstanding of approximately $4,493,000. The standby letters of credit are collateralized by the Company's cash or short-term investments. The capital expenditure budget for the current fiscal year is approximately $1.4 million of which approximately $1.2 million was expended during the first nine months of the fiscal year. 14 TCI INTERNATIONAL, INC. YEAR 2000 ISSUE Many currently installed computer systems and software products are designed to accept only two-digit entries in the date field. Soon, beginning January 1, 2000, these date fields must accept four digit entries to distinguish twenty-first century dates from twentieth-century dates. If a computer system or software product is not Year 2000 compliant, it may not operate properly during the transition from December 31, 1999 to January 1, 2000, and may not recognize the year 2000 as a leap year. A non-compliant system or product may suddenly halt, continue operating but interpret or calculate data incorrectly, or otherwise operate improperly, causing disruption to the Company's operations or the operations of others. In order to minimize the disruption to business and government that may be caused by computer systems and software products that are not Y2K compliant, many companies and government agencies worldwide have established programs to evaluate and mitigate the risks and adverse effects of the Y2K problem. Accordingly, the Company has established a program to review and assess Y2K compliance of its internal business systems, manufacturing and design tools, current products, products sold in recent years, and the most critical systems, services and products supplied to the Company by third parties. The Company has assigned a program manager, accountable to executive management, to oversee, coordinate, and report on the Company's Y2K assessment and remediation efforts. A four-phase approach has been defined to determine the Year 2000 readiness of the Company's systems, software, equipment, and products. Such approach is expected to provide a detailed method for tracking the evaluation, repair, and testing of systems, software, equipment and products that may be affected by Y2K issues. Phase 1, Assessment, includes taking an inventory of all systems, software, equipment and products, and the identification of those with year 2000 issues which need remediation. Phase 1 also calls for the preparation of plans needed for remediation. Phase 2, Remediation, includes repairing, upgrading, and/or replacing any critically non-compliant equipment or systems identified in Phase 1. Phase 3, Testing, includes testing the Company's systems, software, and equipment for year 2000 readiness, or in certain cases, relying on test results or certifications provided to the Company by third parties. Phase 4, Implementation, involves placing compliant systems, software, and equipment into service. As part of the Phase 1 effort, the Company prepared an inventory of its important business systems and determined specific remediation procedures for those considered critically non-compliant. In doing so, the Company determined that it must replace the 15 year old software and hardware used in its internal business system. This system is used for many day-to-day operations, such as general and project planning and accounting, purchasing, inventory management, production planning and control, and quality assurance. A steering committee comprised of senior management in key functional areas, including accounting, engineering, marketing and manufacturing, was established to oversee the selection and implementation of a new business system. The Company selected a new system and began its implementation in January 1999, with a June 1999 target date for completion. At June 1, 1999, the new system was operational and in service. 15 TCI INTERNATIONAL, INC. YEAR 2000 ISSUE Also during Phase 1, an inventory was taken of all current Company products, as well as those which have been delivered to customers in recent years. This inventory was reviewed to identify those products for which the Y2K issue may be critical to the current users. Current products, and recently delivered products still under warranty, that have been found to be non-compliant are being corrected as necessary. Non-compliances have been minor and have been corrected at little cost to the Company. For the small number of older Company products that were determined to be non-compliant, the Company provided simple operational workaround solutions. Although most of the Company's antenna products do not include computers of any kind, some larger antenna systems rely on small- to mid-sized computers for automatic monitoring and control functions. Generally, these computers are not date sensitive and do not perform date-sensitive calculations. The Company's review of the antenna product line has not revealed any significant Y2K non-compliances. The Company has completed a review of the current products in its ionospheric sounder product line and has determined that all are Y2K compliant. It has also completed a review of sounder systems delivered in recent years. One such system was determined to be non-compliant, and its user was notified of the non-compliance and was offered a simple workaround solution at no charge. The company incurred no significant expense to remediate the non-compliance of this older system. The Company's spectrum management products incorporate Company-developed software and third-party computers and operating systems. Typically, these systems are tasked by external customer equipment to perform certain real time measurements and analyses, and to report the results to the customer's equipment. Although the time of the measurement and analysis is reported back to the customer's equipment, the date is usually not included. Since the date is not used in the measurements, analyses, or reports, the Company has determined that its past and current spectrum-management products are substantially Y2K compliant. Some systems, however, may require the users to perform simple, one-time procedures to allow the equipment to continue functioning properly after the 1999 to 2000 transition. The Company evaluated most of these systems and, when appropriate, developed corrective procedures and notified the users. The total cost of this effort has been included in the Company's estimate of the overall costs to achieve company-wide Y2K compliance as stated elsewhere. In addition to the reviews of its current and past products, the Company has initiated communications with significant third-party suppliers whose products and services are important to the Company's operations. This helps resolve mutual Y2K issues before they become critical, and should minimize possible disruptions to the Company's operations. However, there can be no assurance that Y2K non-compliant systems and products of other companies on which the Company relies, and for which the Company has no direct compliance knowledge or control, will not have an adverse effect on the Company's operations. If the Company determines that critical suppliers are not Y2K compliant, and that such non-compliances may affect the timely delivery of critical materials or services, then contingency plans (such as the purchase of additional inventory prior to 16 TCI INTERNATIONAL, INC. YEAR 2000 ISSUE December 31, 1999) may be executed to mitigate the adverse effects. The suppliers that the Company considers critical will change as it receives orders and completes deliveries throughout the remainder of 1999. Therefore, the review of its suppliers' Y2K readiness will be ongoing into the early part of 2000. To help determine supplier compliance, the Company conducted a mail survey of those suppliers which are likely to be delivering critical materials or services in late 1999. Respondents generally indicated a high degree of awareness of the problem and substantial efforts toward remediation. The failure to correct material Year 2000 problems could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could negatively affect the Company's business, and the general uncertainty inherent in Y2K problems makes it impossible to determine at this time whether the consequences of Y2K failures will have a material adverse impact on the Company's business. The Company believes that the greatest single, controllable risk posed by Y2K non-compliance is in its internal business system, which if uncorrected could have resulted in material business disruption and the Company's inability to meet committed product delivery dates. The Company has, therefore, focused the majority of its current remediation effort on its internal business system. It expects the replacement of the system has significantly reduced the possibility of Y2K-related interruptions of its normal operations. In addition to being Year-2000 complaint, the new business system is providing greater visibility of operating data, and will increase efficiency in the business processes. The total cost to address the Year 2000 problem and upgrade the current business system is estimated to be less than $1,100,000. To date the Company has expended approximately $1,000,000 in addressing this issue. The Company conducts a certain amount of its business overseas, mostly in third-world countries. Normal business travel to these countries could be delayed or interrupted because of Y2K issues beyond its control. This could, in turn, have a significant impact on the Company's ability to meet delivery and installation schedules in those areas. The Company believes it is diligently addressing the Year 2000 issues and that it will satisfactorily identify and resolve critical and significant Y2K problems in its operations and products. The assessment and remediation plan has significantly reduced the level of uncertainty about the Y2K problem in the Company's internal systems, its products, and its critical third-party suppliers. It believes it has assigned adequate resources to its Y2K compliance plan, and expects to complete substantially all phases during fiscal 1999, with major completion milestones in the third and fourth quarters of fiscal 1999. 17 TCI INTERNATIONAL, INC. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits: Exhibit 27.1-Financial Data Schedule 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) /s/ Mary Ann W. Alcon ---------------------------------- Mary Ann W. Alcon Chief Financial Officer (Duly authorized officer of the registrant and principal financial officer of the registrant) August 13, 1999 - --------------------------- Date 18 EX-27.1 2 EXHIBIT 27.1
5 1,000 9-MOS SEP-30-1998 OCT-01-1998 JUN-30-1999 7,090 1,271 8,715 0 2,110 21,821 8,732 6,477 24,395 8,985 0 0 0 11,780 3,630 24,395 17,825 17,825 12,097 12,097 7,549 0 0 (1,821) 0 1,410 0 0 0 (1,410) (.44) (.44)
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