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 quarter ended September 29, 1995
[ ] 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 1-8048
-----------------------------
TII INDUSTRIES, INC.
---------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 66-0328885
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1385 Akron Street, Copiague, New York 11726
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 516-789-5000
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
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 1,
1995
Common Stock, par value $.01 7,029,884
- 1 -<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
Form 10-Q for the Quarter Ended September 29, 1995
INDEX
Part I - FINANCIAL INFORMATION
Item 1: Financial Statements: Page No.
Consolidated Balance Sheets -
September 29, 1995 and June 30, 1995 3-4
Consolidated Statements of
Operations - Three Months Ended
September 29, 1995 and September 30, 1994 5
Consolidated Statement of Stockholders'
Investment - Three Months Ended
September 29, 1995 6
Consolidated Condensed Statements of
Cash Flows - Three Months Ended
September 29, 1995 and September 30, 1994 7
Notes to Consolidated Condensed
Financial Statements 8-12
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12-15
Part II- OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 16
Signature 17
- 2 -<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 29, 1995 AND JUNE 30, 1995
(Dollars in thousands except share and per share data)
<TABLE>
<CAPTION>
Sept. 29, June 30,
1995 1995
ASSETS (Unaudited)
---------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 532 $1,152
Marketable securities 2,308 2,266
Trade receivables 5,181 5,655
Other receivables 376 478
Inventories 14,175 12,278
Prepaid expenses 754 645
------ ------
Total current assets 23,326 22,474
------ ------
PROPERTY AND EQUIPMENT, AT COST:
Machinery and equipment 16,449 16,228
Tools, dies and molds 6,186 6,027
Leasehold improvements 5,692 5,655
Office fixtures, equipment and other 2,708 2,606
------ ------
31,035 30,516
Less - Accumulated depreciation and
amortization 20,735 20,302
------ ------
10,300 10,214
------ ------
OTHER ASSETS 1,699 1,726
------ ------
$35,325 $34,414
======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
- 3 -<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 29, 1995 AND JUNE 30, 1995
continued
(Dollars in thousands except share and per share data)
<TABLE>
<CAPTION>
Sept. 29, June 30,
1995 1995
(Unaudited)
---------- ----------
LIABILITIES AND STOCKHOLDER'S
INVESTMENT
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 55 $ 63
Accounts payable 4,991 4,851
Accrued liabilities 869 1,613
----- -----
Total current liabilities 5,915 6,527
----- -----
LONG-TERM DEBT 895 2,704
----- -----
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Preferred Stock, par value $1.00 per share;
1,000,000 authorized and issuable in series:
Series A Cumulative Convertible Redeemable
Preferred Stock, 100,000 shares authorized;
no shares outstanding at Sept. 29, 1995 and
27,626 outstanding at June 30, 1995 (issued
and valued at liquidation value of $100.00
per share). -- 2,763
Series B Cumulative Redeemable Preferred
Stock, 20,000 shares authorized; no shares
outstanding at Sept. 29, 1995 and June 30,
1995. -- --
Common Stock, par value $.01 per share;
30,000,000 shares authorized (with one vote
per share); 7,038,395 and 5,496,229 shares
issued at Sept. 29, 1995 and June 30, 1995,
respectively. 70 55
Class B Stock, par value $.01 per share;
10,000,000 shares authorized (with each
share having ten votes and convertible
into one share of Common Stock); no
shares outstanding at Sept. 29, 1995 and
370,366 at June 30, 1995, respectively. -- 4
Class C Stock, par value $.01 per share;
100,000 shares authorized (non-voting);
no shares issued -- --
Warrants outstanding 120 120
Capital in excess of par value 27,049 21,394
Retained earnings 1,557 1,118
Unrealized gain on marketable securities -- 10
------ ------
28,796 25,464
Less - 17,637 common shares in treasury,
at cost 281 281
------- -------
28,515 25,183
------- -------
$35,325 $34,414
======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
- 6 -<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands except share and per share data)
Sept. 29, Sept. 30,
1995 1994
NET SALES $ 9,600 $ 10,456
--------- ----------
COSTS AND EXPENSES
Cost of sales 7,034 7,341
Selling, general and
administrative expenses 1,493 1,710
Research and development expenses 625 705
--------- ---------
Total costs and expenses 9,152 9,756
--------- ---------
Operating income 448 700
--------- ---------
OTHER INCOME (EXPENSE)
Interest expense (34) (160)
Other income, net 25 (4)
--------- ---------
Total other expense, net (9) (164)
--------- ---------
Net Profit $ 439 $ 536
========= =========
NET PROFIT PER SHARE - PRIMARY $ 0.06 $ 0.10
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 7,914,000 7,671,000
========= =========
NET PROFIT PER SHARE-FULLY
DILUTED $ 0.06 $ 0.10
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 7,914,000 8,121,000
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these statements
- 6 -<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Capital
In
Class B Excess Treasury
Preferred Common Common Warrants of par Retained Stock
Stock Stock Stock Outstanding Value Earnings Amount
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
June 30, 1995 $2,763 $55 $4 $120 $21,394 $1,118 $281
Issuance of Common
Stock from exercise
of private placement
Warrants and Unit
Purchase Options net
of $128 expenses -- 11 -- -- 5,477 -- --
Conversion of Class
B Common Stock -- 4 (4) -- -- -- --
Redemption of
Preferred A
Stock (2,763) -- -- -- -- -- --
Exercise of stock
options -- -- -- -- 178 -- --
Net Income for
three months
ended September
29, 1995 -- -- -- -- -- 439 --
------- ------- -------- -------- --------- ------ -----
BALANCE,
Sept. 29, 1995 $ -- $ 70 $ -- $ 120 $27,049 $1,557 $281
======= ======= ======== ======== ========= ====== =====
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
- 6 -<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
September September
29, 1995 30, 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit $439 $536
---- ----
Adjustments to reconcile net profit to net cash
provided by (used in) operating activities
Depreciation and amortization 433 436
Provision for inventory obsolescence, net 100 10
Amortization of other assets, net 20 30
Changes in assets and liabilities
Decrease (increase) in trade receivables 536 (22)
Decrease (increase) in other receivables 39 (38)
(Increase) in inventories (1,995) (1,291)
(Increase) in prepaid expenses
and other assets (102) (209)
(Decrease) increase in accounts payable
and accrued liabilities (604) 366
------ ------
Total adjustments (1,573) (718)
------ ------
Net cash used in operating activities (1,134) (182)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (519) (396)
(Increase) Decrease in marketable
securities (52) 455
------ ------
Net cash provided by (used in)
investing activities (571) 59
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options, warrants and
unit purchase options 5,665 65
Payment of long-term debt (1,817) (1,041)
Redemption of Preferred Stock (2,763) --
------ ------
Net cash provided by (used in)
financing activities 1,085 (976)
------ ------
Net decrease in cash (620) (1,099)
Cash at beginning of period 1,152 1,099
------ ------
Cash at end of period $ 532 $ 0
====== ======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
- 7 -<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 29, 1995
(1) INTERIM FINANCIAL STATEMENTS:
The unaudited interim financial statements presented herein have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to Form 10-Q and
Regulation S-X pertaining to interim financial statements. Accordingly,
they do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. The
financial statements reflect all adjustments (consisting of normal recurring
adjustments and accruals) which, in the opinion of management, are
considered necessary for a fair presentation of financial position at
September 29, 1995 and results of operation for the three months ended
September 29, 1995 and September 30, 1994. The financial statements should
be read in conjunction with the summary of significant accounting policies
and notes to consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended June 30, 1995. The results of
operations for the three months ended September 29, 1995 are not necessarily
indicative of the results that may be expected for the full year ending June
28, 1996.
- 8 -<PAGE>
(2) NET PROFIT PER COMMON SHARE:
Net profit per common and common equivalent share is calculated using the
weighted average number of common shares outstanding and the net additional
number of shares which would be issuable upon the exercise of dilutive stock
options and warrants assuming that the Company used the proceeds received to
purchase additional shares (up to 20% of shares outstanding) at market
value, retire debt and invest any remaining proceeds in U.S. government
securities. The effect on net profit of these assumed transactions is
considered in the computation.
(3) STATEMENTS OF CASH FLOWS:
During the three months ended September 29, 1995 and September 30, 1994, the
Company made cash payments of $33,000 and $224,000 respectively, for
interest.
(4) MARKETABLE SECURITIES AVAILABLE FOR SALE:
Prior to fiscal 1995, the portfolio of marketable securities was valued at
the lower of cost or market. Effective for fiscal 1995 and thereafter, SFAS
115, Accounting for Certain Investments in Debt and Equity Securities,
requires the Company to categorize its investments as: held-to-maturity
securities, reported at cost; trading securities, reported at fair value; or
available-for-sale securities, reported at fair value. Changes in
the fair value of trading securities are included in earnings,
while changes in the unrealized gains and losses
- 9 -<PAGE>
of available-for-sale securities are reported as a separate component of
stockholders' investment. All of the Company's marketable securities are
classified as available-for-sale. At September 29, 1995, the portfolio was
valued at market of $2,308,000 and consisted of U.S. Treasury Bills and
Notes, other federal backed agency bonds and notes and other liquid
investment grade investments with the primary investment goal being near-
term liquidity and safety of principal.
(5) CAPITAL STOCK:
Stock Options- The following summarizes stock option activity for the
quarter ended September 29, 1995:
<TABLE>
<S> <C>
Granted 12,000
Exercise Price $6.75 - $7.38
Exercised 41,800
Exercise Price $2.50 - $6.09
Options Canceled/Expired/Terminated 36,000
Exercise Price $4.63 - $8.44
</TABLE>
Warrants - During the quarter ended September 29, 1995, 1,130,000 shares
were issued as a result of the exercise of Common Stock Purchase Warrants
and Unit Purchase Options associated with the Company's private placement
in August 1992 and the Company received net proceeds of approximately
$5,488,000 from such exercises.
-11-<PAGE>
(6) LONG TERM DEBT:
On September 29, 1995 the, Company's Long-Term Debt consisted of a note
payable in the amount of $750,000 with the Overseas Private Investment
Corporation (OPIC) and various notes totaling $200,000. On January 31,
1995, the Company entered into an $8,000,000 Revolving Credit Loan
Agreement with Chemical Bank, which, at September 29, 1995, entitled the
Company to have outstanding borrowings of up to $6,800,000, reducing by
$400,000 each calendar quarter thereafter. At September 29, 1995, there
were no outstanding borrowings under the revolving loan facility. Loans
bear interest equal to (a) the greater of 1% above the bank's prime
rate, 2% above a certificate of deposit rate or 1.5% in excess of a
federal funds rate or (b) 3% above the LIBOR rate for periods selected by
the Company. A commitment fee of 1/4 of 1% is payable on the unused
portion of the bank's commitment. The loan is secured primarily by the
Company's accounts receivable and the Company's continental United States
assets. The loan agreement requires the Company to maintain a minimum
net worth of $17,500,000 in fiscal 1996 and $20,000,000 thereafter,
current ratio of 1.25 through fiscal 1997 and 1.50 thereafter and debt
service ratio of 1.35 and maximum ratio of debt to equity of 1.0, all as
defined, limits capital expenditures generally to $3,500,000 per annum
and lease obligations to $400,000 per annum (excluding rentals for the
Company's Dominican Republic facilities and the Company's equipment
-11-<PAGE>
lease with PRC Leasing, Inc.) In addition, the Company may not incur a
consolidated net loss for any two fiscal quarters in any four consecutive
quarters and may not pay cash dividends or repurchase capital stock
without the consent of the bank.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
The following discussion and analysis should be read in conjunction with
the foregoing financial statements and notes thereto.
Results of Operations
Net sales for the first quarter of fiscal 1996 decreased 8.2% from the
year earlier period to $9,600,000 from $10,456,000. In August 1995, the
Company announced the signing of a long term strategic agreement with
Access Network Technologies ("ANT"), a joint venture between AT&T Network
Cable Systems and Raychem Corporation. Toward the close of fiscal 1995,
the Company introduced several new products, which will be jointly
manufactured with ANT. Two of the Company's current telephone operating
company customers have evaluated these new products and have indicated
that they will approve them for use. As a result, during the first
quarter of fiscal 1996, these customers slowed their purchase of other
TII products to minimize their inventory levels in anticipation of the
availability and delivery of the new products. While limited shipments
are in process, TII and ANT are addressing joint volume
-12-<PAGE>
production start-up delays. The Company believes that attainment of
volume production of the new products should begin at the Company's
facilities during the second quarter of fiscal 1996 and volume shipments
should commence soon after volume production begins.
The increase of cost of sales as a percent of revenue to 73.3% in the
first quarter of fiscal 1996 from 70.2% in the prior year's first quarter
was due to a lower sales volume which had an unfavorable impact on the
ability to absorb fixed expenses.
Selling, general and administrative expenses decreased in dollar amount
by $217,000 (12.7%) and as a percent of sales to 15.6% from 16.4%,
resulting from various factors including decreased accounting and
administrative expenses and lower commission and incentive compensation
as a result of the lower sales volume.
Research and development expenses declined to 6.5% of revenue in fiscal
1995 from 6.7% of revenue in the first quarter of 1994. The Company
continues to develop new products principally for the telecommunications
industry.
Interest expense decreased to $34,000 compared to $160,000 incurred in
the prior year's first quarter, the decrease resulting from the full
paydown in the quarter of the Company's revolving line of credit.
-13-<PAGE>
As a result of the above, net profit of $439,000 or 4.6% of net sales,
decreased from the prior year's first quarter net profit of $536,000 or
5.1% of net sales.
Liquidity and Capital Resources
Key factors in the Company's financial position were:
<TABLE>
<CAPTION>
As Of
September 29, June 30,
1995 1995
(Dollars in Thousands)
<S> <C> <C>
Working capital $17,411 $15,947
Current ratio 3.94 3.44
Total debt to equity ratio .24 .37
</TABLE>
During the first three months of fiscal 1996, cash was provided
principally by the Company's net profit, $439,000; depreciation and
amortization, $433,000; a decrease in receivables, $536,000; and the
proceeds from Common Stock Purchase Warrants and Unit Purchase Options
exercised in the quarter (see below), $5,488,000. These sources and
existing cash were used to support the increase of inventories
($1,995,000), for capital expenditures ($519,000), the paydown of the
Company's revolving credit facility ($1,817,000) and the redemption of
all outstanding Series A Cumulative Convertible Redeemable Preferred
Stock at their liquidation value and redemption amount ($2,763,000).
-14-<PAGE>
During the prior fiscal year, ended June 30, 1995, Common Stock Purchase
Warrants and Unit Purchase Options issued in the 1992 private placement
were exercised for 1,582,000 shares of Common Stock. Net proceeds to the
Company from such exercises aggregated approximately $7,100,000. During
the quarter ended September 29, 1995, the remaining Common Stock Purchase
Warrants and Unit Purchase Options were exercised for 1,130,000 shares of
Common Stock and the Company received additional net proceeds of
approximately $5,488,000.
Funds anticipated to be generated from operations, together with
available cash and marketable securities and borrowings available under
the Company's Revolving Credit Agreement, are considered to be adequate
to finance the Company's operational and capital needs for the
foreseeable future.
-15-<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Statement Re: Computation of Per Share Earnings
(b) Reports on Form 8-K
The only Report on Form 8-K filed during the quarter ended September
29, 1995 was a Report dated (date of earliest reported event) August
4, 1995 reporting under Item 5. Other Events. No financial statements
were filed with that Report.
-16-<PAGE>
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.
TII INDUSTRIES, INC.
(Registrant)
November 13, 1995 /s/ John T. Hyland, Jr.
Date John T. Hyland, Jr.
Vice President, Treasurer and
Chief Financial Officer
-17-<PAGE>
EXHIBIT 11
TII INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 11
Three months
Ended
September 29, 1995
------------------
PRIMARY EARNINGS PER SHARE
Weighted Average of Common
Stock
Beginning of period (shares)
Common Stock outstanding 5,479,000
Class B Common Stock 370,000
----------
5,849,000
Issuance of common stock 796,000
----------
Common Stock Equivalents 6,645,000
Options and warrants 952,000
Preferred Stock
Preferred Stock, Series A
convertible at $6.25 317,000
----------
7,914,000
==========
Primary Earnings Per Share
Computation
Net profit $439,000
Adjusted Net income/weighted average of common stock $0.06
==========
Memo: Market price at end of period $8.38
period ==========
Average market price for the period $8.45
==========
FULLY DILUTED EARNING PER SHARE
Weighted average of Common Stock outstanding 6,645,000
Incremental shares from options and warrants 952,000
Preferred stock conversion 317,000
Contingent option 0
OPIC loan conversion 0
----------
7,914,000
==========
Fully Diluted Earnings per
Share Computation
Net profit (loss) $439,000
==========
Adjusted net income/weighted average of
common stock $0.06
==========
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000277928
<NAME> TII INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1996
<PERIOD-END> SEP-29-1995
<CASH> 532
<SECURITIES> 2,308
<RECEIVABLES> 5,557
<ALLOWANCES> 0
<INVENTORY> 14,175
<CURRENT-ASSETS> 23,326
<PP&E> 31,035
<DEPRECIATION> (20,735)
<TOTAL-ASSETS> 35,325
<CURRENT-LIABILITIES> 5,915
<BONDS> 0
<COMMON> 70
0
0
<OTHER-SE> 28,445
<TOTAL-LIABILITY-AND-EQUITY> 35,325
<SALES> 9,600
<TOTAL-REVENUES> 9,600
<CGS> 7,034
<TOTAL-COSTS> 2,118
<OTHER-EXPENSES> (25)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> 439
<INCOME-TAX> 0
<INCOME-CONTINUING> 439
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 439
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
