SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1999
Commission file number 1-8048
TII INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
State of incorporation: DELAWARE IRS Employer Identification No: 66-0328885
1385 AKRON STREET, COPIAGUE, NEW YORK 11726
(Address and zip code of principal executive office)
(516) 789-5000
(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
-- --
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of February 4, 2000 was 8,832,898.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31, June 25,
1999 1999
---------------- ----------------
ASSETS (unaudited)
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 3,243 $ 8,650
Accounts receivables, net 5,131 5,589
Inventories 16,111 13,151
Other 230 182
---------------- ----------------
Total current assets 24,715 27,572
---------------- ----------------
Property, Plant and Equipment, net 12,024 12,030
Other Assets 1,466 1,628
---------------- ----------------
TOTAL ASSETS $ 38,205 $ 41,230
================ ================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt and obligation under capital leases $ 541 $ 674
Accounts payable 5,201 6,628
Accrued liabilities 1,873 2,073
Accrued expenses - operations re-alignment 1,500 1,709
---------------- ----------------
Total current liabilities 9,115 11,084
---------------- ----------------
Long-term debt and obligations under capital leases 2,212 2,403
---------------- ----------------
Series C Convertible Redeemable Preferred Stock, 2,850 shares issued at
December 31, 1999 and June 25, 1999; liquidation preference of $1,150 per share 2,850 2,850
---------------- ----------------
Stockholders' Investment
Preferred Stock, par value $1.00 per share; 1,000,000 authorized;
Series C Convertible Redeemable, 5,000 shares authorized; 2,850 shares issued at
December 31, 1999 and June 25, 1999 - -
Series D Junior Participating, no shares issued - -
Common Stock, par value $.01 per share; 30,000,000 shares authorized; 8,850,535
shares issued at December 31, 1999 and June 25, 1999 89 89
Warrants outstanding 20 20
Capital in excess of par value 32,610 32,610
Accumulated deficit (8,410) (7,545)
---------------- ----------------
24,309 25,174
Less - Treasury stock, at cost; 17,637 common shares (281) (281)
---------------- ----------------
Total stockholders' investment 24,028 24,893
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 38,205 $ 41,230
================ ================
</TABLE>
See notes to consolidated financial statements
2
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<TABLE>
<CAPTION>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
December December
31, 1999 25, 1998 31, 1999 25, 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 13,189 $ 8,600 $ 26,162 $ 23,246
Cost of sales 10,920 7,055 21,820 19,200
------------ ------------ ------------- -------------
Gross profit 2,269 1,545 4,342 4,046
------------ ------------ ------------- -------------
Operating expenses
Selling, general and administrative 1,809 2,261 3,706 4,449
Research and development 753 832 1,566 1,721
------------ ------------ ------------- -------------
Total operating expenses 2,562 3,093 5,272 6,170
------------ ------------ ------------- -------------
Operating loss (293) (1,548) (930) (2,124)
Insurance proceeds, net of hurricane loss - 969 - 969
Interest expense (76) (107) (129) (220)
Interest income 74 1 180 2
Other income 17 37 14 49
------------ ------------ ------------- -------------
Net loss (278) (648) (865) (1,324)
Preferred stock embedded dividend - - - (262)
------------ ------------ ------------- -------------
Net loss applicable to common stockholders ($278) ($648) ($865) ($1,586)
============ ============ ============= =============
Basic and diluted net loss per share ($0.03) ($0.08) ($0.10) ($0.20)
============ ============ ============= =============
Basic and diluted weighted average shares outstanding 8,833 7,962 8,833 7,805
============ ============ ============= =============
</TABLE>
See notes to consolidated financial statements
3
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<TABLE>
<CAPTION>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
Capital
in excess
Common Warrants of par Accumulated Treasury
Stock Outstanding value Deficit Stock
----------- --------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, June 25, 1999 $ 89 $ 20 $ 32,610 $ (7,545) $ (281)
Net loss for the six months
ended December 31, 1999 - - - (865) -
----------- --------------- ----------- ---------------- -----------
BALANCE, December 31, 1999 $ 89 $ 20 $ 32,610 $ (8,410) $ (281)
=========== =============== =========== ================ ===========
</TABLE>
See notes to consolidated financial statements
4
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<TABLE>
<CAPTION>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 25, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (865) $ (1,324)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 637 1,100
Provision for inventory allowance, net 196 5,199
Amortization of other assets, net 120 98
Changes in assets and liabilities
Decrease in receivables 458 2,698
Increase in insurance claim receivable - (6,675)
Increase in inventories (3,156) (1,899)
(Decrease) increase in prepaid expenses and other assets (6) 141
(Decrease) increase in accounts payable and accrued liabilities (1,836) 2,026
------------- -------------
Net cash (used in) provided by operating activities (4,452) 1,364
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (631) (1,039)
------------- -------------
Net cash used in investing activities (631) (1,039)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants - 172
Net payment of debt and obligations under capital leases (324) (383)
------------- -------------
Net cash used in financing activities (324) (211)
------------- -------------
Net (decrease) increase in cash and cash equivalents (5,407) 114
Cash and Cash Equivalents, at beginning of period 8,650 377
------------- -------------
Cash and Cash Equivalents, at end of period $ 3,243 $ 491
============= =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Embedded dividend on Series C Preferred Stock $ - $ 262
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH TRANSACTIONS:
Cash paid during the period for interest $ 129 $ 220
============= =============
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 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 the Company's financial
position at December 31, 1999 and results of operations for the three and six
month periods, and cash flows for the six month period, ended December 31, 1999
and December 25, 1998. 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 25, 1999. Results of operations for interim periods are not
necessarily indicative of the results that may be expected for the full fiscal
year.
NOTE 2 - FISCAL YEAR: The Company reports on a 52-53 week fiscal year ending on
the last Friday in June, with fiscal quarters ending on the last Friday of each
calendar quarter. The Company's fiscal year ending June 30, 2000 will contain 53
weeks. The three month period ended December 31, 1999 contained 14 weeks while
the three month period ended December 25, 1998 contained 13 weeks. The six month
period ended December 31, 1999 contained 27 weeks while the six month period
ended December 25, 1998 contained 26 weeks.
NOTE 3 - NET LOSS PER COMMON SHARE: Basic and diluted net loss per share are
based solely on the weighted average number of shares outstanding during the
periods due to the net losses for the periods reported. Incremental common stock
equivalent shares of 125,000 and 2.8 million were not used in the calculation of
diluted loss per common share in the quarters ended December 31, 1999 and
December 25, 1998, respectively, and 1.0 million and 2.2 million were not used
in the calculation of diluted loss per common share in the six month periods
ended December 31, 1999 and December 25, 1998, respectively, since their
inclusion would have been antidilutive. Stock options to purchase 3.1 million
and 1.5 million shares of common stock for the quarters ended December 31, 1999
and December 25, 1998, respectively, and 2.4 million and 1.9 million shares of
common stock for the six month periods ended December 31, 1999 and December 25,
1998, respectively, were outstanding but not included in the computation of
diluted loss per common share because, in addition to the net loss in the
periods, the option exercise prices were greater than the average market price
of the common shares and, therefore, the effect would be antidilutive.
6
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NOTE 4 - INVENTORIES: Inventories, net of allowances, consisted of the following
components:
December 31, June 25,
1999 1999
-------------------- -------------------
Raw material $4,691,000 $4,879,000
Work in process 5,914,000 3,191,000
Finished goods 5,506,000 5,081,000
-------------------- -------------------
$16,111,000 $13,151,000
==================== ===================
NOTE 5 - OPERATIONS RE-ALIGNMENT: During fiscal 1999, the Company initiated a
strategic operations re-alignment in an effort to enhance operating efficiencies
and reduce costs. The plan includes outsourcing a significant portion of the
Company's production, closing its Dominican Republic facility, divesting its
injection molding and metal stamping operations, workforce reductions and other
cost-saving measures throughout the Company. As a result, in the fourth quarter
of fiscal 1999, the Company recorded a charge of approximately $1.0 million for
severance and employee termination benefits for all of the employees in the
Dominican Republic facility, and for those of its metal stamping and plastic
injection molding facilities in Puerto Rico. Under this plan, the Company
reduced its workforce from approximately 1,165 employees as of April 1999 to
approximately 795 as of December 31, 1999, with the target of reducing its
workforce to approximately 250 by the end of fiscal 2000. Total severance paid
under this operations re-alignment through December 31, 1999 is approximately
$209,000.
In connection with this program, the Company assessed the future use and
recoverability of certain machinery, equipment and leasehold improvements in the
Dominican Republic and its injection molding and metal stamping facilities in
Puerto Rico ("Equipment"), and estimated the net realizable value of the
Equipment utilizing a recently completed fair market value appraisal, adjusted
for the estimated costs to sell the Equipment. As of June 25, 1999, the Company
recorded an allowance of approximately $4.3 million, which represented the
difference between the Equipment's book value and its estimated net realizable
value at such date. In addition, the Company recorded a charge of $699,000 for
plant closure costs. As of December 31, 1999, the Company had not yet disposed
of any Equipment or paid any such plant closure costs. The Company expects to
dispose of the Equipment, which is available for sale, and pay the plant closure
costs in the third and fourth quarters of fiscal 2000. The carrying value of the
Equipment at December 31, 1999 was approximately $1.3 million. The Company
presently does not anticipate any additional charges in relation to the
operational re-alignment discussed above.
7
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The accrued employee termination benefits and plant closure costs, payments made
through December 31, 1999 and the remaining reserve balances at December 31,
1999, which are included in "Accrued expenses - operations re-alignment" in the
accompanying consolidated balance sheets, are as follows:
<TABLE>
<CAPTION>
Employee Plant
Termination Closure
Benefits Costs Total
-------------------- ---------------- --------------------
<S> <C> <C> <C>
Balance at June 25, 1999 $ 1,010,000 $ 699,000 $ 1,709,000
Payments (209,000) (209,000)
-
-------------------- ---------------- --------------------
Balance at December 31, 1999 $ 801,000 $ 699,000 $ 1,500,000
==================== ================ ====================
</TABLE>
NOTE 6 - HURRICANE GEORGES: Insurance proceeds, net of hurricane loss arose from
damages sustained in September 1998 to the Company's principal operating
facilities in Toa Alta, Puerto Rico and San Pedro De Macoris, Dominican Republic
as a result of Hurricane Georges which caused significant inventory, equipment
and facility damages. In addition, as a result of the storm, the Company
experienced production stoppages throughout the second quarter of fiscal 1999.
Based on information available at December 25, 1998, the Company estimated that
it would receive insurance proceeds that would exceed inventory damages,
business interruption losses, fees payable to the Company's insurance advisors,
losses to plant and equipment and other expenses by approximately $969,000.
However, during the second, third and fourth quarters of fiscal 1999, the
Company received aggregate insurance payments that exceeded actual incurred
inventory damages, business interruption losses, fees payable to the Company's
insurance advisors, losses to plant and equipment and other expenses by
approximately $1.4 million. The $439,000 balance of the gain was recorded in the
third quarter of fiscal 1999. Based upon information available at December 25,
1998, the Company estimated inventory losses due to damage caused by the
hurricane to be approximately $5.0 million, and such amount was provided for as
an inventory allowance. The Company recorded an additional inventory allowance
of approximately $4.0 million during the third quarter of fiscal 1999 to cover
the finally determined inventory loss. As of June 25, 1999, the Company had
discarded approximately $7.2 million of the damaged inventory and, during the
first six months of fiscal year 2000, approximately $1.8 million of damaged
inventory was discarded. The inventory damaged included raw material, work in
process and finished goods for a wide variety of the Company's products. All
such charges and credits related to Hurricane Georges losses and insurance
recoveries are reflected in the accompanying Consolidated Statement of
Operations under the caption "Insurance proceeds, net of hurricane loss" and no
portion of the inventory losses are reflected under "cost of sales".
8
<PAGE>
NOTE 7 - GEOGRAPHIC INFORMATION: The following table presents the Company's
assets and liabilities by geographic area as of December 31, 1999:
<TABLE>
<CAPTION>
U.S. and Dominican
Puerto Rico Republic Consolidated
-------------------- ------------------ --------------------
<S> <C> <C> <C>
Current assets $ 19,713,000 $ 4,772,000 $ 24,715,000
Property, plant & equipment 11,556,000 468,000 12,024,000
Other assets 1,403,000 63,000 1,466,000
-------------------- ------------------ --------------------
Total assets $ 32,902,000 $ 5,303,000 $ 38,205,000
==================== ================== ====================
-------------------- ------------------ --------------------
Total liabilities $ 11,229,000 $ 95,000 $ 11,324,000
==================== ================== ====================
</TABLE>
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 consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
Net sales for the fiscal 2000 second quarter increased $4.5 million or 53.4% to
$13.2 million from $8.6 million for the second quarter of fiscal 1999 and net
sales for the six months ended December 1999 increased $2.9 million or 12.5% to
$26.2 million from $23.2 million for the six months ended December 1998.
Hurricane Georges struck the Company's facilities in Puerto Rico and the
Dominican Republic in September 1998 and caused production stoppages and reduced
sales throughout the Company's fiscal 1999 second quarter. The Company utilizes
a 52-53 week fiscal year structure, with the quarter ended December 1999
containing 14 weeks. Accordingly, comparative fiscal year 2000 sales benefited
by an extra week of operations in fiscal 2000 versus the same periods in fiscal
1999. Partially offsetting these factors was the absence in fiscal 2000 of sales
of fiber optic products following the Company's sale of this product line in
March 1999.
Gross profit for the second quarter and first six months of fiscal 2000
increased by $724,000 to $2.3 million and by $296,000 to $4.3 million,
respectively, due to the higher level of sales. However, gross profit margins
decreased for the second quarter and first six months of fiscal 2000 to 17.2%
and 16.6% from 18.0% and 17.4% for the second quarter and first six months of
fiscal 1999, respectively. Gross profit margin in fiscal 2000 was adversely
affected by the absence of sales of the Company's fiber optic product line,
which had a higher gross profit margin. To help increase its gross margins, the
Company initiated an operations re-alignment during the fourth quarter of fiscal
1999. This includes outsourcing a significant amount of production to a contract
manufacturer in China, closing the Company's Dominican Republic manufacturing
facility and the sale of its metal stamping and plastic injection molding
operations. During this transition, the Company continues to incur manufacturing
overhead expenses, which are included in cost of sales and offset the gross
profit margin improvement from lower
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cost of product obtained from the contract manufacturer. Upon the closure of the
Dominican Republic facility and the reduction of in-house manufacturing
expenditures, the lower cost of product from the contract manufacturer is
expected to increase gross profit margins in future quarters.
Selling, general and administrative expenses for the second quarter of fiscal
2000 decreased by $452,000 or 20.0% to $1.8 million from $2.3 million for the
second quarter of fiscal 1999. Selling, general and administrative expenses for
the first six months of fiscal 2000 decreased by $743,000 or 16.7% to $3.7
million from $4.5 million for the first six months of fiscal 1999. The decreases
in both fiscal 2000 periods resulted primarily from the elimination of selling,
general and administrative expenses associated with the Company's fiber optic
product line, which was sold in March 1999.
Research and development expenses for the second quarter of fiscal 2000
decreased $79,000 or 9.5% to $753,000 from $832,000 for the second quarter of
fiscal 1999. Research and development expenses for the first six months of
fiscal 2000 decreased $155,000 or 9.0% to $1.6 million from $1.7 million for the
first six months of fiscal 1999. The decreases in both fiscal 2000 periods
related primarily to lower personnel and other costs associated with the sale of
the Company's fiber optic product line.
Insurance proceeds, net of hurricane loss arose from damages sustained in
September 1998 to the Company's principal operating facilities in Toa Alta,
Puerto Rico and San Pedro De Macoris, Dominican Republic as a result of
Hurricane Georges which caused significant inventory, equipment and facility
damages. In addition, as a result of the storm, the Company experienced
production stoppages throughout the second quarter of fiscal 1999. Based on
information available at December 25, 1998, the Company estimated that it would
receive insurance proceeds that would exceed inventory damages, business
interruption losses, fees payable to the Company's insurance advisors, losses to
plant and equipment and other expenses by approximately $969,000. However,
during the second, third and fourth quarters of fiscal 1999, the Company
received aggregate insurance payments that exceeded actual incurred inventory
damages, business interruption losses, fees payable to the Company's insurance
advisors, losses to plant and equipment and other expenses by approximately $1.4
million. The $439,000 balance of the gain was recorded in the third quarter of
fiscal 1999. Based upon information available at December 25, 1998, the Company
estimated inventory losses due to damage caused by the hurricane to be
approximately $5.0 million, and such amount was provided for as an inventory
allowance. The Company recorded an additional inventory allowance of
approximately $4.0 million during the third quarter of fiscal 1999 to cover the
finally determined inventory loss. As of June 25, 1999, the Company had
discarded approximately $7.2 million of the damaged inventory and, during the
first six months of fiscal year 2000, approximately $1.8 million of damaged
inventory was discarded. The inventory damaged included raw material, work in
process and finished goods for a wide variety of the Company's products. All
such charges and credits related to Hurricane Georges losses and insurance
recoveries are reflected in the accompanying Consolidated Statement of
Operations under the caption "Insurance proceeds, net of hurricane loss" and no
portion of the inventory losses are reflected under "cost of sales".
Interest expense for the second quarter and first six months of fiscal 2000
decreased by $31,000 to $76,000 and by $91,000 to $129,000 from $107,000 and
$220,000 in the second quarter and first six months of fiscal 1999,
respectively. The declines were due to decreased borrowings under the Company's
credit facility.
10
<PAGE>
Interest income for the second quarter and first six months of fiscal 2000
increased by $73,000 to $74,000 and by $178,000 to $180,000 from $1,000 and
$2,000 in the second quarter and first six months of fiscal 1999, respectively,
due to increased average cash and cash equivalents balances.
Net loss applicable to common stockholders for the second quarter and first six
months of fiscal 2000 was $278,000 and $865,000 versus $648,000 and $1.6
million, respectively, in fiscal 1999. Of the six month reduction, $262,000
relates to the absence of the Preferred Stock embedded dividend, which
represented the amortization of the issuance costs and beneficial conversion
feature over the period to earliest conversion of the Series C Convertible
Preferred Stock sold in a January 1998 private placement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased $888,000 to $15.6 million at the end of
the second quarter of fiscal 2000, while its cash balance decreased by $5.4
million to $3.2 million.
During the first six months of fiscal 2000, $4.5 million of cash was used by
operations. While the Company had a net loss of $865,000 for the first six
months of fiscal 2000, $757,000 of the loss represented non-cash depreciation
and amortization expenses. The Company used $3.1 million of cash to increase
inventories to allow for a smooth transition to contract manufacturing and to
mitigate the risks associated with the year 2000 issue. During the remaining
quarters of fiscal 2000 the Company anticipates inventory levels will decline
gradually.
During the first six months of fiscal 2000, investing activities used $631,000
of cash for capital expenditures and financing activities used $324,000 for the
payment of long-term debt and obligations under capital leases.
The Company has a credit facility with GMAC Commercial Credit LLC, successor to
BNY Financial Corporation, in an aggregate principal amount of $7.6 million,
consisting of a $6.0 million revolving credit facility and a $1.6 million term
loan. At December 31, 1999, the Company had no outstanding borrowings under the
revolving credit facility. The revolving credit facility is limited by a
borrowing base equal to 85% of eligible accounts receivable and 50% of eligible
inventory, subject to certain reserves. Subject to extension in certain
instances, the scheduled maturity date of revolving credit loans is April 30,
2003, while the term loan is to be repaid $22,000 monthly through March 31,
2003, subject to mandatory repayments from disposition proceeds and insurance
proceeds in certain circumstances.
The Company will close its facility in the Dominican Republic and is seeking to
sell its metal stamping and plastic injection molding assets in Puerto Rico. The
Company is presently seeking the consent of the holder of its Convertible
Subordinated Debt for these transactions. If the Company is unable to obtain
that consent, it may be required to pre-pay the $750,000 principal amount of the
Convertible Subordinated Debt.
Funds anticipated to be generated from operations, together with available cash
and borrowings under the credit facility, are considered to be adequate to
finance the Company's operational and capital needs for the foreseeable future.
11
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YEAR 2000
In 1999, the Company implemented a program, with the objective of ensuring that
it would not be adversely affected by "Date Discontinuity" problems in
computers, software and embedded processors during the transition from 1999 to
2000 and as a result of 2000 being a leap year. Date discontinuity occurs when
time as expressed by a system or its software does not move forward successfully
in line with true time. The most commonly known manifestation of this occurs in
systems that recognize years as two digits and, when moving from '99' to '00',
recognize '00' as 1900 or fail altogether.
Work was divided into the following key stages: (1) inventory of hardware,
software and embedded systems, (2) analysis of compliance, (3) defining and
planning of solutions, (4) implementation and testing of solutions, (5)
confirmation of major suppliers' and customers' state of readiness and working
with our suppliers to minimize the possibility of such an event occurring and
(6) contingency planning. As part of the Company's program, the Company's
enterprise wide manufacturing and accounting system, operating systems, servers
and the majority of personal computers were brought into Year 2000 compliance.
To date, the Company has encountered no Year 2000 problems with either its
hardware, software or embedded systems or in interfacing with its customers and
suppliers. The Company will continue to monitor these matters. The total cost of
achieving Year 2000 compliance was approximately $1,050,000.
The most reasonably likely worst case scenario of a Year 2000 compliance failure
by the Company or its suppliers is an event that would disrupt the procurement
process and impact production and product delivery to customers. If the Company
or its suppliers, distributors or others with whom it conducts business are
unable to identify and address the system issues related to the Year 2000 risk
on a timely basis, there could be a material adverse effect on the Company's
business, results of operations and financial condition.
FORWARD-LOOKING STATEMENTS
In order to keep the Company's stockholders and investors informed of the
Company's future plans, this Report contains (and, from time to time, other
reports and oral or written statements issued by the Company or on its behalf by
its officers) forward-looking statements concerning, among other things, the
Company's future plans and objectives that are or may be deemed to be
"forward-looking statements". The Company's ability to do this has been fostered
by the Private Securities Litigation Reform Act of 1995 which provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information so long as those statements are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement. The
Company believes that it is in the best interests of its stockholders and
potential investors to take advantage of the "safe harbor" provisions of that
Act. Such forward-looking statements are subject to a number of known and
unknown risks and uncertainties that could cause the Company's actual results,
performance or achievements to differ materially from those described or implied
in the forward-looking statements. These factors include, but are not limited
to, general economic and business conditions, including the regulatory
environment applicable to the communications industry; weather and similar
conditions (including the effects of hurricanes in the Caribbean where the
Company's principal manufacturing facilities are located); competition;
potential technological changes, including the Company's ability to timely
develop new
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products and adapt its existing products to technological changes; potential
changes in customer spending and purchasing policies and practices, as well as
the Company's ability to market its existing, recently developed and new
products; the risks inherent in new product introductions, such as start-up
delays and uncertainty of customer acceptance; dependence on third parties for
its products and product components; the Company's ability to attract and retain
technologically qualified personnel; the retention of the tax benefits provided
by its Puerto Rico operations; the Company's ability to fulfill its growth
strategies; the availability of financing on satisfactory terms to support the
Company's growth; and other factors discussed elsewhere in this Report and in
other Company reports hereafter filed with the Securities and Exchange
Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks, including changes in U.S. dollar
interest rates. The interest payable under the Company's credit agreement is
principally between 250 and 275 basis points above the London Interbank Offered
Rate ("LIBOR") and therefore affected by changes in market interest rates.
Historically, the effects of movements in the market interest rates have been
immaterial to the consolidated operating results of the Company.
The Company requires foreign sales to be paid for in U.S. currency, and
generally requires such payments to be made in advance, by letter of credit or
by U.S. affiliates of the customer.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on December 7, 1999, the
Company's stockholders:
(a) Elected the following to serve as Class II directors of the Company
until the Company's Annual Meeting of Stockholders to be held in the
year 2002 and until their respective successors are elected and
qualified, by the following votes:
For Withheld
--- --------
James R. Grover 7,622,995 697,378
George S. Katsarakes 7,681,539 638,834
Dorothy Roach 7,467,735 852,638
(b) Ratified the selection by the Board of Directors of Arthur Andersen
LLP as the Company's independent public accountants for the Company's
fiscal year ending June 30, 2000, by the following votes:
For Against Abstain
--- ------- -------
8,119,500 189,623 11,250
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
27. EDGAR financial data schedule.
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were filed during the quarter for which this Report
is filed.
14
<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.
Date: February 9, 2000 /s/ Paul G. Sebetic
---------------------------------
Paul G. Sebetic
Vice President-Finance and Chief
Financial Officer
15
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-26-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,243
<SECURITIES> 0
<RECEIVABLES> 5,131
<ALLOWANCES> 101
<INVENTORY> 16,111
<CURRENT-ASSETS> 24,715
<PP&E> 12,024
<DEPRECIATION> 637
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<CURRENT-LIABILITIES> 9,115
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 23,939
<TOTAL-LIABILITY-AND-EQUITY> 38,205
<SALES> 26,162
<TOTAL-REVENUES> 26,162
<CGS> 21,820
<TOTAL-COSTS> 5,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129
<INCOME-PRETAX> (865)
<INCOME-TAX> 0
<INCOME-CONTINUING> (865)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (865)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
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