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 September 27, 1996
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 its charter)
Delaware 52-0729657
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
34 Loveton Circle Sparks, Maryland 21152
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 472-7000
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 report(s)), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of October 31, 1996:
Class: Common Stock, $.01 par value Number of Shares: 4,306,158
Part I
Item 1. Financial Statements
TESSCO Technologies Incorporated
Balance Sheets
ASSETS
September 27, March 29,
1996 1996
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(unaudited) (audited)
CURRENT ASSETS:
Cash and marketable securities $ - $ 439,400
Trade accounts receivable, net 18,757,300 14,312,500
Product inventory 21,862,000 13,689,400
Deferred tax asset 303,800 280,600
Prepaid expenses and other current assets 1,246,000 566,700
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Total current assets 42,169,100 29,288,600
PROPERTY AND EQUIPMENT, net 10,186,000 6,602,700
DEFERRED TAX ASSET 95,100 87,900
OTHER ASSETS 4,382,600 548,700
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Total assets $56,832,800 $36,527,900
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 9,400 $ -
Current portion of capital lease obligations 123,200 126,400
Trade accounts payable 14,246,900 9,642,700
Accrued expenses and other current liabilities 2,226,800 2,129,700
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Total current liabilities 16,606,300 11,898,800
Borrowings under credit facility 6,632,300 -
Long-term debt 6,189,000 -
Capital lease obligations, net of current portion 23,600 85,000
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Total liabilities 29,451,200 11,983,800
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 45,000 44,600
Additional paid-in capital 18,534,400 18,232,900
Treasury stock, at cost (2,280,600) (2,126,400)
Retained earnings 11,082,800 8,393,000
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Total stockholders' equity 27,381,600 24,544,100
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Total liabilities and stockholders' equity $56,832,800 $36,527,900
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TESSCO Technologies Incorporated
Statements of Income
(unaudited)
Fiscal Quarters Ended Six Months Ended
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September 27, September 29, September 27, September 29,
1996 1995 1996 1995
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Revenues $38,158,000 $21,989,600 $74,825,900 $41,174,700
Cost of goods sold 28,563,400 16,709,200 56,265,700 31,308,700
----------- ----------- ----------- -----------
Gross profit 9,594,600 5,280,400 18,560,200 9,866,000
Selling, general and administrative expenses 7,093,000 3,818,000 13,749,200 7,177,200
----------- ----------- ---------- ---------
Income from operations 2,501,600 1,462,400 4,811,000 2,688,800
Interest income (expense), net (293,500) 63,600 (429,800) 133,900
----------- ---------- --------- ---------
Income before provision for income taxes 2,208,100 1,526,000 4,381,200 2,822,700
Provision for income taxes 852,400 540,800 1,691,400 1,018,700
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Net income $1,355,700 $ 985,200 $ 2,689,800 $1,804,000
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Fully diluted earnings per share $ 0.29 $ 0.21 $ 0.57 $ 0.40
========== =========== =========== ==========
Fully diluted weighted average shares outstanding 4,753,400 4,614,600 4,730,800 4,535,100
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TESSCO Technologies Incorporated
Statements of Cash Flows
(unaudited)
Six Months Ended
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September 27, September 29,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,689,800 $1,804,000
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of business acquired in fiscal 1997
Depreciation and amortization 593,800 346,800
Provision for bad debts 249,400 65,300
Deferred income taxes (30,400) (56,500)
Increase in trade accounts receivable (3,115,900) (2,557,200)
Increase in product inventory (6,255,500) (1,102,800)
Increase in prepaid expenses and other
current assets (679,300) (116,200)
Increase in trade accounts payable 3,649,200 1,778,700
Increase (decrease) in accrued expenses and other
current liabilities 97,100 (34,500)
Decrease in other long-term liabilities - (20,800)
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Net cash (used in) provided by operating activities (2,801,800) 106,800
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquired business (6,688,600) -
Acquisition of property and equipment (3,862,800) (215,400)
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Net cash used in investing activities (10,551,400) (215,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowings under credit facility 6,632,300 -
Net proceeds from long-term debt 6,198,400 -
Proceeds from exercise of stock options 147,700 215,400
Payment of capital lease obligations (64,600) (47,000)
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Net cash provided by financing activities 12,913,800 168,400
Net (decrease) increase in cash and marketable securities (439,400) 59,800
CASH AND MARKETABLE SECURITIES, beginning of period 439,400 8,453,100
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CASH AND MARKETABLE SECURITIES, end of period $ - $8,512,900
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TESSCO Technologies Incorporated
Notes to Unaudited Financial Statements
September 27, 1996
1. Description of Business and Basis of Presentation
TESSCO Technologies Incorporated is a leading distributor of products to the
wireless communications industry. The Company serves over 13,000 customers in
the cellular telephone, paging and mobile radio-dispatch markets, including a
diversified mix of dealers, cellular and paging carriers and self-maintained
users. The Company offers a wide product selection which is broadly classified
as infrastructure, mobile and portable accessory and test and maintenance.
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 at September 27, 1996 and September 29, 1995 and the results of its
operations and its cash flows for the periods then ended. 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.
Readers of these statements should refer to the Company's annual financial
statements and notes thereto as of March 29, 1996 and for the year then ended.
The results of operations presented in the accompanying interim financial
statements are not necessarily representative of operations for an entire year.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Second Quarter of Fiscal 1997 Compared to Second Quarter of Fiscal 1996
Revenues increased by $16.2 million, or 73.5%, to $38.2 million for the
second quarter of fiscal 1997 compared to $22.0 million for the second quarter
of fiscal 1996. The overall increase was primarily a result of increased unit
volume and an expanded product offering, including fulfillment contracts and the
inclusion of Cartwright Communications Company's revenues for the second quarter
of fiscal 1997. Revenues increased in each of the Company's three major product
categories, with the largest percentage increase experienced in the sale of
mobile and portable accessory products. Infrastructure, mobile and portable
accessory and test and maintenance products accounted for approximately 50%,
38%, and 12%, respectively, of product revenues during the second quarter of
fiscal 1997. Revenues also increased in each of the three major customer
classifications, with the largest growth experienced in dealers. Dealers,
cellular and paging carriers, and self-maintained users accounted for
approximately 37%, 45%, and 18%, respectively, of product revenues during the
second quarter of fiscal 1997.
Gross profit increased by $4.3 million, or 81.7%, to $9.6 million for
the second quarter of fiscal 1997 compared to $5.3 million for the second
quarter of fiscal 1996, while the gross profit margin increased to 25.1% from
24.0%. The increase in gross profit margin primarily resulted from product and
service mix changes, pricing and purchasing programs, as well as the
continuation of fee-based fulfillment services.
Selling, general and administrative expenses increased by $3.3 million,
or 85.8%, to $7.1 million during the second quarter of fiscal 1997 compared to
$3.8 million for the second quarter of fiscal 1996. The increase in these
expenses was primarily attributable to the continued investment in personnel to
fuel future revenue and gross profit growth, freight charges associated with
increased sales activity, and Cartwright Communications Company's expenses being
included in the second quarter of fiscal 1997. As a percentage of revenues,
selling, general and administrative expenses increased to 18.6% for the second
quarter of fiscal 1997 from 17.4% for the second quarter of fiscal 1996.
Income from operations increased by $1.0 million, or 71.1%, to $2.5
million for the second quarter of fiscal 1997 compared to $1.5 million for the
second quarter of fiscal 1996, and as a percentage of revenues decreased to 6.6%
from 6.7%.
Net interest expense for the second quarter of fiscal 1997 was $294,000
compared to net interest income of $64,000 for the second quarter of fiscal
1996. This change is a direct result of interest on borrowings incurred in
connection with the Company's acquisition of Cartwright Communications Company,
the funding of the Company's newly opened global logistics center, and increased
working capital requirements during the second quarter of fiscal 1997. The
effective tax rate for the second quarter of fiscal 1997 was 38.6% compared to
35.4% in the corresponding prior year period. The increase in the effective tax
rate is primarily due to the Company's borrowing position in the second quarter
of fiscal 1997 compared to its investment in tax-exempt securities during the
second quarter of fiscal 1996.
First Six Months of Fiscal 1997 Compared to First Six Months of Fiscal 1996
Revenues increased by $33.6 million, or 81.7%, to $74.8 million for the
first six months of fiscal 1997 compared to $41.2 million for the first six
months of fiscal 1996. The overall increase was primarily a result of increased
unit volume and an expanded product offering, including fulfillment contracts
and the inclusion of Cartwright Communications Company's revenues for the months
of June through September. Revenues increased in each of the Company's three
major product categories, with the largest percentage increase experienced in
the sale of mobile and portable accessory products. Infrastructure, mobile and
portable accessory and test and maintenance products accounted for approximately
48%, 40%, and 12%, respectively, of product revenues during the first six months
of fiscal 1997. Revenues also increased in each of the three major customer
classifications, with the largest growth experienced in cellular and paging
carriers. Dealers, cellular and paging carriers, and self-maintained users
accounted for approximately 36%, 47%, and 17%, respectively, of product revenues
during the first six months of fiscal 1997.
Gross profit increased by $8.7 million, or 88.1%, to $18.6 million for
the first six months of fiscal 1997 compared to $9.9 million for the first six
months of fiscal 1996, while the gross profit margin increased to 24.8% from
24.0%. The increase in gross profit margin primarily resulted from product and
service mix changes, pricing and purchasing programs, as well as the
continuation of fee-based fulfillment services.
Selling, general and administrative expenses increased by $6.6 million,
or 91.6%, to $13.8 million during the first six months of fiscal 1997 compared
to $7.2 million for the first six months of fiscal 1996. The increase in these
expenses was primarily attributable to the continued investment in personnel to
fuel future revenue and gross profit growth, freight charges associated with
increased sales activity, and Cartwright Communications Company's expenses being
included in the period of June through September of fiscal 1997. As a percentage
of revenues, selling, general and administrative expenses increased to 18.4% for
the first six months of fiscal 1997 from 17.4% for the first six months of
fiscal 1996.
Income from operations increased by $2.1 million, or 78.9%, to $4.8
million for the first six months of fiscal 1997 compared to $2.7 million for the
first six months of fiscal 1996, and as a percentage of revenues decreased to
6.4% from 6.5%.
Net interest expense for the first six months of fiscal 1997 was
$430,000 compared to net interest income of $134,000 for the first six months of
fiscal 1996. This change is a direct result of interest on borrowings incurred
in connection with the Company's acquisition of Cartwright Communications
Company, the funding of the Company's newly opened global logistics center, and
increased working capital requirements during the first six months of fiscal
1997. The effective tax rate for the first six months of fiscal 1997 was 38.6%
compared to 36.1% in the corresponding prior year period. The increase in the
effective tax rate is primarily due to the Company's borrowing position in the
first six months of fiscal 1997 compared to its investment in tax-exempt
securities during the first six months of fiscal 1996.
Liquidity and Capital Resources
Net cash used in operating activities was $2.8 million for the first
six months of fiscal 1997, compared to net cash provided by operating activities
of $107,000 for the first six months of fiscal 1996. This change was primarily
the result of an increase in net income offset by changes in operating assets
and liabilities, particularly an increase in accounts receivable and inventory
offset partially by an increase in accounts payable. Net cash used in investing
activities increased to $10.6 million for the first six months of fiscal 1997
compared to $215,000 for the first six months of fiscal 1996. This increase was
primarily due to the Company's acquisition of Cartwright Communications Company
during the first quarter of fiscal 1997 as well as the Company's expenditures
related to its newly opened global logistics center distribution facility. Net
cash provided by financing activities increased to $12.9 million in the first
six months of fiscal 1997 from $168,000 for the first six months of fiscal 1996.
This change is primarily a result of the Company's borrowing under its credit
facilities to finance the Cartwright acquisition and the expenditures related to
its global logistics center.
Part II - Other Information
Item 1. Legal Proceedings
On July 8, 1996, the Company announced that it had reached an agreement
to settle its lawsuit against the Andrew Corporation ("Andrew"). Under the terms
of the settlement, Andrew will continue to supply the Company with products
under the terms of its distributor agreement until December 31, 1996. The
parties also agreed to mutually dismiss all litigation and/or arbitration
proceedings and to cooperate in the orderly transition and termination of their
relationship. Sales of Andrew products represented 29% of the Company's revenues
during fiscal 1996 and 17% during the second quarter of fiscal 1997. The Company
will continue to offer competitive alternative product offerings during the
transition period. In the event that alternative product acceptability is low or
product availability becomes unreliable, the impact on the Company's revenues
and earnings could be material.
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 16, 1996. At the meeting, the shareholders were
asked to vote on the election of directors, the approval of an amendment to the
Company's 1994 Stock and Incentive Plan, the approval of an amendment to the
Company's Certificate of Incorporation and the ratification of the Company's
independent public accountants.
Election of Directors. At the meeting, the shareholders reelected
Robert B. Barnhill, Jr. and Benn R. Konsynski, Ph.D. for three year terms
expiring at the Company's 1999 Annual Meeting of Shareholders. The votes cast
for Mr. Barnhill and Dr. Konsynski were as follows:
Robert B. Barnhill, Jr. 2,832,701 For
56,315 Against or Withheld
0 Abstentions
0 Shares Not Voted
Benn R. Konsynski, Ph.D. 2,832,701 For
56,315 Against or Withheld
0 Abstentions
0 Shares Not Voted
The terms of office of each of Jerome C. Eppler, Dennis J. Shaughnessy, Martin L
Grass and Morton F. Zifferer continued after the meeting.
1994 Stock and Incentive Plan. At the meeting, the shareholders
approved an amendment to the Company's 1994 Stock and Incentive Plan to increase
the number of shares reserved for issuance under the plan by 239,500. The number
of votes cast for the was 2,747,874, the number of votes against or withheld was
135,342, the number of abstentions was 5,800 and the number of shares not voted
was 2,355,836.
Certificate of Incorporation. At the meeting, the shareholders approved
an amendment to the Company's Certificate of Incorporation to increase the
number of shares of authorized common stock, par value $.01 per share from
9,500,000 to 15,000,000 shares. The number of votes cast for the amendment was
2,795,426, the number of votes against or withheld was 90,990, the number of
abstentions was 2,600 and the number of shares not voted was 2,355,836.
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 28, 1997. The number
of votes cast for the appointment of Arthur Andersen LLP was 2,887,831, the
number of votes against or withheld was 885, the number of abstentions was 300
and the number of shares not voted was 2,355,836.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibit 11 - Earnings per share computation
(b) No reports on Form 8-K have been filed during the quarter covered
by this report.
SIGNATURES
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
(Registrant)
Date: November 12, 1996 By: Gerald T. Garland
Gerald T. Garland
Treasurer and Chief Financial Officer
(principal financial officer)
EXHIBIT INDEX
Exhibit Number Page
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11. Earnings per share computation 14
27. Financial Data Schedules 15