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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 JULY 1, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-24746
TESSCO TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in charter)
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Delaware 52-0729657
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11126 McCormick Road, Hunt Valley, Maryland 21031
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (410) 229-1000
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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
filing requirements for the past 90 days.
Yes /X/ No / /
The number of shares of the registrant's Common Stock, $ .01 par value per
share, outstanding as of August 3, 2001 was 4,501,739.
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TESSCO TECHNOLOGIES INCORPORATED
INDEX TO FORM 10-Q
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PART I FINANCIAL INFORMATION
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Item 1 Financial Statements
Consolidated Balance Sheets as of July 1, 2001 and April 1, 2001 3
Consolidated Statements of Income for the periods ended July 1, 4
2001 and June 25, 2000
Consolidated Statements of Cash Flows for the periods ended 5
July 1, 2001 and June 25, 2000
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk 9
PART II OTHER INFORMATION
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Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
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Signature 11
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TESSCO TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
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July 1, April 1,
2001 2001
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(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 539,900 $ -
Trade accounts receivable, net 27,072,800 25,557,800
Product inventory 28,355,400 32,566,400
Deferred tax asset 1,531,600 1,531,600
Prepaid expenses and other current assets 2,042,300 2,689,600
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Total current assets 59,542,000 62,345,400
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PROPERTY AND EQUIPMENT, net 21,477,500 21,640,400
GOODWILL, net 2,920,200 3,002,400
OTHER LONG-TERM ASSETS 472,700 425,300
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Total assets $ 84,412,400 $ 87,413,500
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 18,398,100 $ 16,744,600
Accrued expenses and other current liabilities 4,443,700 4,409,200
Revolving line of credit 5,046,000 10,011,000
Current portion of long-term debt 361,000 354,500
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Total current liabilities 28,248,800 31,519,300
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DEFERRED TAX LIABILITY 2,274,900 2,274,900
LONG-TERM DEBT, net of current portion 6,320,900 6,441,200
OTHER LONG-TERM LIABILITIES 523,900 438,900
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Total liabilities 37,368,500 40,674,300
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock - -
Common stock 48,000 48,000
Additional paid-in capital 21,769,700 21,748,300
Treasury stock, at cost (3,792,600) (3,792,600)
Retained earnings 29,018,800 28,735,500
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Total shareholders' equity 47,043,900 46,739,200
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Total liabilities and shareholders' equity $ 84,412,400 $ 87,413,500
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See accompanying notes.
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TESSCO TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
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Fiscal Quarters Ended
July 1, June 25,
2001 2000
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(unaudited) (unaudited)
Revenues $ 59,894,200 $ 62,522,500
Cost of goods sold 43,711,700 45,699,100
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Gross profit 16,182,500 16,823,400
Selling, general and administrative expenses 15,268,300 13,770,200
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Income from operations 914,200 3,053,200
Interest and other expense, net 457,300 482,000
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Income before provision for income
taxes 456,900 2,571,200
Provision for income taxes 173,600 977,100
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Net income $ 283,300 $ 1,594,100
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Basic earnings per share $ 0.06 $ 0.36
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Diluted earnings per share $ 0.06 $ 0.34
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Basic weighted average shares outstanding 4,499,100 4,488,600
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Diluted weighted average shares outstanding 4,508,100 4,637,200
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</Table>
See accompanying notes.
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TESSCO TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Fiscal Quarters Ended
July 1, June 25,
2001 2000
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(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 283,300 $ 1,594,100
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,058,600 822,600
Provision for bad debts 233,800 158,100
Deferred income taxes and other 37,600 -
Increase in trade accounts receivable (1,748,800) (3,358,000)
Decrease in product inventory 4,211,000 94,300
Decrease in prepaid expenses and other current assets 647,300 301,400
Increase in trade accounts payable 1,653,500 432,200
Increase in accrued expenses and other current liabilities 34,500 870,900
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Net cash provided by operating activities 6,410,800 915,600
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (813,500) (1,268,800)
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Net cash used in investing activities (813,500) (1,268,800)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility (4,965,000) (457,000)
Payments on long-term debt (113,800) (106,900)
Proceeds from exercise of stock options 21,400 99,000
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Net cash used in financing activities (5,057,400) (464,900)
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Net increase (decrease) in cash and cash equivalents 539,900 (818,100)
CASH AND CASH EQUIVALENTS, beginning of period - 818,100
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CASH AND CASH EQUIVALENTS, end of period $ 539,900 $ -
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</Table>
See accompanying notes.
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TESSCO TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 1, 2001
(Unaudited)
Note 1. Description of Business and Basis of Presentation
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TESSCO Technologies Incorporated, a Delaware Corporation (the Company) is a
leading provider of the services, products and solutions required to build,
operate, maintain and use wireless voice, data, messaging, tracking and Internet
systems. The Company provides marketing and sales services, knowledge and supply
chain management, product-solution delivery, and control systems utilizing
extensive Internet and information technology. Approximately 95% of the
Company's sales are made to customers in the United States. Although the Company
conducts business selling various products to different customer groups, these
products and customers all fall within the telecommunications industry;
therefore, the Company reports operating results as one reportable segment.
In management's opinion, the accompanying interim financial statements of the
Company include all adjustments, consisting only of normal, recurring
adjustments, necessary for a fair presentation of the Company's financial
position for the interim periods presented. These statements are presented in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the Company's annual financial statements have been omitted from these
statements, as permitted under the applicable rules and regulations. The results
of operations presented in the accompanying interim financial statements are not
necessarily representative of operations for an entire year. The information
included in this Form 10-Q should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the fiscal
year ended April 1, 2001.
Note 2. Earnings Per Share
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In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share."
SFAS No. 128 simplifies the standards for computing earnings per share
previously found in Accounting Principles Board (APB) Opinion No. 15 "Earnings
per Share" by replacing the presentation of primary earnings per share (EPS)
with basic EPS and replacing fully diluted EPS with diluted EPS. Basic EPS
excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted EPS is computed by dividing income available to common
shareholders by the weighted average number of common shares and the dilutive
common equivalent shares outstanding for the period.
The dilutive effect of all options outstanding has been determined by using the
treasury stock method. The weighted average shares outstanding is calculated as
follows:
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Fiscal Quarters Ended
July 1, June 25,
2001 2000
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Basic weighted average
common shares
outstanding 4,499,100 4,488,600
Effect of dilutive common
equivalent shares 9,000 148,600
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Diluted weighted average
shares outstanding 4,508,100 4,637,200
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</Table>
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Options to purchase 936,495 shares of common stock at a weighted average
exercise price of $22.36 per share were outstanding as of July 1, 2001, but the
common equivalent shares were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common shares and, therefore, the effect of
including such shares would be antidilutive.
Note 3. Recent Accounting Pronouncements
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In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and
Other Intangible Assets" (effective for the Company on January 1, 2002). SFAS
No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142
specifies that goodwill and some intangible assets will no longer be amortized
but instead will be subject to periodic impairment testing. The Company is in
the process of evaluating the financial statement impact of adoption of SFAS No.
142.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This commentary should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition and Results of Operations from the Company's
Form 10-K for the fiscal year ended April 1, 2001.
First Quarter of Fiscal 2002 Compared to First Quarter of Fiscal 2001
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Revenues decreased by $2.6 million, or 4.2%, to $59.9 million for the first
quarter of fiscal 2002 compared to $62.5 million for the first quarter of
fiscal 2001. Revenues from test and maintenance equipment, as well as
subscriber accessory increased, but were offset by a decrease in base site
infrastructure products. Base site infrastructure, subscriber accessory, and
test and maintenance products and services accounted for approximately 45%,
33% and 22%, respectively, of revenues during the first quarter of fiscal
2002, as compared to 54%, 30% and 16%, respectively, of revenues during the
first quarter of fiscal 2001. The Company experienced revenue growth in its
reseller, international and consumer market categories, offset by a decrease
in its systems operators categories. System operators, resellers, consumer
services and international users accounted for approximately 52%, 36%, 7% and
5%, respectively, of revenues during the first quarter of fiscal 2002,
compared to 61%, 29%, 4% and 6%, respectively, of revenues during the first
quarter of fiscal 2001.
Gross profit decreased by $640,900, or 3.8%, to $16.2 million for the first
quarter of fiscal 2002 compared to $16.8 million for the first quarter of fiscal
2001 due to decreased revenues. The gross profit margin increased to 27.0% for
the first quarter of fiscal 2002 compared to 26.9% for the first quarter of
fiscal 2001. The increase in gross profit margin was principally attributable to
a change in product mix, partially offset by increases in inventory reserve
levels. The Company accounts for inventory at the lower of cost or market and as
a result, write-offs/reserves occur due to damage, deterioration, obsolescence,
changes in prices and other causes.
Total selling, general and administrative expenses increased by $1.5 million, or
10.9%, to $15.3 million for the first quarter of fiscal 2002 compared to $13.8
million for the first quarter of fiscal 2001. The increase in these expenses is
primarily attributable to continued investment in personnel as well as increased
depreciation and amortization related to information system enhancements. The
Company continually evaluates the credit worthiness of its existing customer
receivable portfolio and provides an appropriate reserve based on this
evaluation. Total selling, general and administrative expenses increased as a
percentage of revenues to 25.5% for the first quarter of fiscal 2002 from 22.0%
for the first quarter of fiscal 2001.
Income from operations decreased by $2.1 million, or 70.1%, to $914,200 for the
first quarter of fiscal 2002 compared to $3.1 million for the first quarter of
fiscal 2001. The operating income margin decreased to 1.5% for the first quarter
of fiscal 2002 compared to 4.9% for the first quarter of fiscal 2001.
Net interest and other expense decreased by $24,700, or 5.1%, to $457,300 for
the first quarter of fiscal 2002 compared to $482,000 for the first quarter of
fiscal 2001. This decrease is due to lower interest rates and a reduction in
borrowings on the Company's revolving credit facility.
Income before provision for income taxes decreased $2.1 million or 82.2%, to
$456,900 for the first quarter of fiscal 2002 compared to $2.6 million for the
first quarter of fiscal 2001. The effective tax rate for both quarters was 38%.
Net income and earnings per share (diluted) for the first quarter of fiscal 2002
decreased 82.2% and 82.4%, respectively, compared to the first quarter of fiscal
2001.
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Liquidity and Capital Resources
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Net cash provided by operating activities was $6.4 million for the first quarter
of fiscal 2002 compared to $915,600 for the first quarter of fiscal 2001. This
increase was primarily the result of an increase in accounts payable, a smaller
increase in accounts receivable compared to fiscal 2001, and a decrease in
inventory, partially offset by a decrease in net income. Net cash used in
investing activities decreased to $813,500 million for the first quarter of
fiscal 2002 compared to $1.3 million for the first quarter of fiscal 2001. Net
cash used by financing activities was $5.1 million for the first quarter of
fiscal 2002 compared to $464,900 for the first quarter of fiscal 2001. This
change is primarily the result of increased repayments of the Company's
revolving line of credit during the first three months of fiscal 2002 compared
to the first three months of fiscal 2001.
Forward-Looking Statements
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This report contains a number of forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, all of which are based
on current expectations. These forward-looking statements may generally be
identified by the use of the words "may," "will," "expects," "anticipates,"
"estimates," and similar expressions. The Company's future results of operations
and other forward-looking statements contained in this report involve a number
of risks and uncertainties. For a variety of reasons, actual results may differ
materially from those described in any such forward-looking statement. Such
factors include but are not limited to, the following: the Company's dependence
on a relatively small number of suppliers and vendors, which could hamper the
Company's ability to maintain appropriate inventory levels and meet customer
demand; the effect that the loss of certain customers or vendors could have on
the Company's net profits; the possibility that unforeseen events could impair
the Company's ability to service its customers promptly and efficiently, if at
all; the possibility that, for unforeseen reasons, the Company may be delayed in
entering into or performing, or may fail to enter into or perform, anticipated
contracts or may otherwise be delayed in realizing or fail to realize
anticipated revenues or anticipated savings; existing competition from national
and regional distributors and the absence of significant barriers to entry which
could result in pricing and other pressures on profitability and market share;
and continuing changes in the wireless communications industry, including risks
associated with conflicting technologies, changes in technologies, inventory
obsolescence and evolving Internet business models and the resulting
competition. Consequently, the reader is cautioned to consider all
forward-looking statements in light of the risk to which they are subject.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not used derivative financial instruments. Management of the
Company believes its exposure to market risks, including exchange rate risk,
interest rate risk and commodity price risk, is not material at the present
time.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material legal proceedings.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders at the Company's corporate
headquarters on July 19, 2001. At the meeting, the shareholders were asked to
vote on the election of directors and the ratification of the appointment of the
Company's independent public accountants. Each of these proposals was described
in the Company's Definitive Proxy Statement filed with the Commission on June
15, 2001.
ELECTION OF DIRECTORS. At the meeting, the shareholders reelected Jerome C.
Eppler and Dennis J. Shaughnessy, for a three-year term expiring at the
Company's 2004 Annual Meeting of Shareholders. The votes cast for Mr. Eppler and
Mr. Shaughnessy were as follows:
Jerome C. Eppler 4,039,307 For
11,816 Against or Withheld
Dennis J. Shaughnessy 4,040,800 For
10,323 Against or Withheld
INDEPENDENT AUDITORS. At the meeting, the shareholders ratified the appointment
of Arthur Andersen LLP to serve as the independent public accountants of the
Company for the fiscal year ending March 31, 2002. The number of votes for was
4,044,069, the number of votes against or withheld was 1,235, and the number of
abstentions was 5,819.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
11. Statement re: computation of per share earnings
(a) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter covered by this
report.
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SIGNATURE
Pursuant to the requirements 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.
TESSCO TECHNOLOGIES INCORPORATED
Date: August 14 , 2001 By: /s/ROBERT C. SINGER
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Robert C. Singer
Senior Vice President and
Chief Financial Officer
(principal financial and accounting
officer)
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