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 27, 1997
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OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
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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
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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 report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of July 18, 1997:
Class: Common Stock, $.01 par value Number of Shares: 4,358,651
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Part I
Item 1. Financial Statements
TESSCO Technologies Incorporated
Balance Sheets
(unaudited)
June 27, March 28,
1997 1997
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(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash and marketable securities $ 263,800 $ --
Trade accounts receivable, net 16,771,600 16,907,100
Product inventory 16,238,800 16,942,400
Deferred tax asset 369,700 376,100
Prepaid expenses and other current assets 846,800 861,500
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Total current assets 34,490,700 35,087,100
PROPERTY AND EQUIPMENT, net 12,054,900 11,363,100
DEFERRED TAX ASSET 208,800 212,400
GOODWILL 4,170,800 4,252,700
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Total assets $50,925,200 $50,915,300
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 332,800 $ 331,900
Current portion of capital lease obligation 54,700 85,000
Trade accounts payable 10,134,600 10,771,700
Accrued expenses and other current liabilities 2,653,800 2,086,700
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Total current liabilities 13,175,900 13,275,300
Borrowings under credit facility -- 630,500
Long-term debt 7,611,500 7,637,900
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Total liabilities 20,787,400 21,543,700
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock -- --
Common stock 46,000 46,000
Additional paid-in capital 19,399,700 19,346,200
Treasury stock, at cost (2,591,500) (2,591,500)
Retained earnings 13,283,600 12,570,900
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Total shareholders' equity 30,137,800 29,371,600
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Total liabilities and shareholders' equity $50,925,200 $50,915,300
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TESSCO Technologies Incorporated
Statements of Income
(unaudited)
Fiscal Quarters Ended
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June 27, June 28,
1997 1996
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Revenues $ 34,123,400 $ 36,667,900
Cost of goods sold 25,369,500 27,702,300
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Gross profit 8,753,900 8,965,600
Selling, general and administrative expenses 7,396,500 6,656,200
Income from operations 1,357,400 2,309,400
Interest income (expense), net (201,200) (136,300)
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Income before provision for income taxes 1,156,200 2,173,100
Provision for income taxes 443,500 839,000
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Net income $ 712,700 $ 1,334,100
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Primary earnings per share $ 0.16 $ 0.28
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Fully diluted earnings per share $ 0.16 $ 0.28
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Primary weighted average shares outstanding 4,560,700 4,684,600
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Fully diluted weighted average shares outstanding 4,595,000 4,708,100
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TESSCO Technologies Incorporated
Statements of Cash Flows
(unaudited)
Fiscal Quarters Ending
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June 27, June 28,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 712,700 $ 1,334,100
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
of business acquired in fiscal 1997
Depreciation and amortization 476,700 241,600
Provision for bad debts 81,500 121,700
Deferred income taxes 10,000 (52,900)
Decrease (increase) in trade accounts receivable 54,000 (5,002,700)
Decrease (increase) in product inventory 703,600 (2,271,600)
Decrease (increase) in prepaid expenses and other
current assets 14,700 (186,100)
(Decrease) increase in trade accounts payable (637,100) 4,800,500
Increase in accrued expenses and other
current liabilities 567,100 694,700
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Net cash provided by (used in) operating activities 1,983,200 (320,700)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquired business -- (5,740,000)
Acquisition of property and equipment (1,086,600) (1,626,900)
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Net cash used in investing activities (1,086,600) (7,366,900)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in borrowings under credit facility (630,500) 7,138,400
Payments on long-term debt (25,500) --
Proceeds from exercise of stock options 53,500 141,700
Payment of capital lease obligations (30,300) (31,900)
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Net cash (used in) provided by financing activities (632,800) 7,248,200
Net increase (decrease) in cash and marketable securities 263,800 (439,400)
CASH AND MARKETABLE SECURITIES, beginning of period -- 439,400
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CASH AND MARKETABLE SECURITIES, end of period $ 263,800 $ --
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TESSCO Technologies Incorporated
Notes to Unaudited Financial Statements
June 27, 1997
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 6,500 customers per
month in the cellular telephone, personal communications services (PCS), 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 selection of nearly 17,500 SKUs which are 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 June 27, 1997 and June 28, 1996 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 28, 1997 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.
2. Earnings per Share
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." SFAS 128 simplifies the standards for computing earnings
per share previously found in APB No. 15, "Earnings per Share." It replaces the
presentation of primary EPS with a presentation of basic EPS and requires a
reconciliation of the numerator and denominator of the basic EPS calculation to
the numerator and denominator of the diluted EPS calculation. 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 similarly to fully diluted EPS pursuant to APB Opinion No. 15.
SFAS No. 128 is effective for fiscal years ending after December 15, 1997,
and early adoption is not permitted. When adopted, it will require restatement
of prior years' EPS. When adopted for the year ended March 27, 1998, the Company
will report basic EPS instead of primary EPS. Basic EPS for the quarters ending
June 27, 1997 and June 28, 1996 is $0.16 and $0.32, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
First Quarter of Fiscal 1998 Compared to First Quarter of Fiscal 1997
Revenues decreased by $2.5 million, or 6.9%, to $34.1 million for the
first quarter of fiscal 1998 compared to $36.7 million for the first quarter of
fiscal 1997. Although there was an increase in unit volume, an expanded product
offering, and the inclusion of Cartwright Communications Company's revenues for
the entire quarter of fiscal 1998 compared to one month in the first quarter of
fiscal 1997, there was an overall decrease in revenues due to the renegotiation
of, and accounting for, one of the Company's fulfillment services contracts. In
February 1997, the Company successfully renegotiated an existing fulfillment
services contract resulting in the elimination of any future accounts receivable
exposure. Correspondingly, with this change, the Company now reports as revenues
the net fees realized from the contract, instead of reporting the gross selling
price of the products shipped as revenues and reporting the corresponding costs
of goods sold. Revenues increased in two of the Company's three major product
categories, with the larger percentage increase experienced in the sale of
infrastructure products. Revenues decreased in the mobile and portable accessory
product category primarily due to the renegotiation and accounting treatment for
one of the Company's fulfillment services contracts. Infrastructure, mobile and
portable accessory and test and maintenance products accounted for approximately
56%, 31%, and 13%, respectively, of product revenues during the first quarter of
fiscal 1998. Revenues decreased in each of the three major customer
classifications, with the largest decrease experienced in dealers. Cellular,
paging and PCS carriers, dealers and self-maintained users accounted for
approximately 47%, 36%, and 17%, respectively, of product revenues during the
first quarter of fiscal 1998.
Gross profit decreased by $212,000, or 2.4%, to $8.8 million for the
first quarter of fiscal 1998 compared to $9.0 million for the first quarter of
fiscal 1997, while the gross profit margin increased to 25.7% from 24.5%. The
gross profit decrease resulted primarily from reduced fees associated with
fulfillment services contracts. The increase in gross profit margin primarily
resulted from product and service mix changes, as well as the effect of the
renegotiation of one of the company's fulfillment services contracts and the
accounting treatment of that contract.
Selling, general and administrative expenses increased by $740,000, or
11.1%, to $7.4 million during the first quarter of fiscal 1998 compared to $6.7
million for the first quarter of fiscal 1997. The increase in these expenses was
primarily attributable to the continued investment in personnel to build and
support future revenue and gross profit growth, increased marketing costs
associated with the transition of customers to competitive infrastructure
products, and Cartwright Communications Company's expenses being included for
the entire quarter of fiscal 1998 compared to one month in the first quarter of
fiscal 1997. As a percentage of revenues, selling, general and administrative
expenses increased to 21.7% for the first quarter of fiscal 1998 compared to
18.2% for the first quarter of fiscal 1997.
Income from operations decreased by $952,000, or 41.2%, to $1.4 million
for the first quarter of fiscal 1998 compared to $2.3 million for the first
quarter of fiscal 1997. The operating income margin was 4.0% compared to the
corresponding prior year's 5.9% primarily as a result of the increased operating
expenses as a percentage of revenues.
Net interest expense for the first quarter of fiscal 1998 was $201,000
compared to $136,000 for the first quarter of fiscal 1997. This change is a
direct result of increased borrowings incurred in connection with the Company's
acquisition of Cartwright Communications Company, the funding of the Company's
global logistics center, and increased working capital requirements during the
first quarter of fiscal 1998.
Liquidity and Capital Resources
Net cash provided by operating activities was $2.0 million for the
first quarter of fiscal 1998, compared to net cash used in operating activities
of $321,000 for the first quarter of fiscal 1997. This change was primarily the
result of a decrease in net income offset by changes in operating assets and
liabilities, particularly changes in accounts receivable and inventory offset
partially by changes in accounts payable. Net cash used in investing activities
decreased to $1.1 million for the first quarter of fiscal 1998 compared to $7.4
million for the first quarter of fiscal 1997. This decrease was primarily due to
the Company's acquisition of Cartwright Communications Company during the first
quarter of fiscal 1997. Net cash used in financing activities was $633,000 in
the first quarter of fiscal 1998 compared to net cash provided by financing
activities of $7.2 million for the first quarter of fiscal 1997. This change is
primarily a result of the Company's borrowing under its credit facilities and
proceeds from long-term debt to finance the Cartwright acquisition and the
global logistics center in the first quarter of fiscal 1997.
Part II - Other Information
Item 1. Legal Proceedings
None
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 15, 1997. 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.
Election of Directors. At the meeting, the shareholders reelected
Martin L. Grass and Morton F. Zifferer, Jr. for three year terms expiring at the
Company's 2000 Annual Meeting of Shareholders. The votes cast for Mr. Grass and
Mr. Zifferer were as follows:
Martin L. Grass 3,696,291 For
2,390 Against or Withheld
0 Abstentions
653,561 Broker Non-Votes
Morton F. Zifferer, Jr. 3,696,456 For
2,225 Against or Withheld
0 Abstentions
653,561 Broker Non-Votes
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 27, 1998. The number
of votes for was 3,696,901, the number of votes against or withheld was 500, the
number of abstentions was 1,280, and the number of broker non-votes was 653,561.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibit 10.7.4 - Third Amendment to Financing Agreement date
June 1, 1997
Exhibit 11 - Earnings per share computation
Exhibit 27 - Financial Data Schedule
(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
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(Registrant)
Date: August 8, 1997
By: Gerald T. Garland
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Gerald T. Garland
Treasurer and Chief Financial Officer
(principal financial officer)
EXHIBIT INDEX
The following Exhibits are filed herewith:
10.7.4 Third Amendment to Financing Agreement date June 1, 1997
11. Earnings per share computation
27. Financial Data Schedule