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 MARCH 31, 2000
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)
(631) 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 May 1, 2000 was 9,826,913.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, June 25,
2000 1999
---------------- ----------------
ASSETS (unaudited)
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 1,120 $ 8,650
Accounts receivables, net 6,243 5,589
Inventories 15,295 13,151
Other 361 182
---------------- ----------------
Total current assets 23,019 27,572
---------------- ----------------
Property, Plant and Equipment, net 12,015 12,030
Other Assets 1,408 1,628
---------------- ----------------
TOTAL ASSETS $ 36,442 $ 41,230
================ ================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt and obligation under capital leases $ 1,652 $ 674
Accounts payable 2,752 6,628
Accrued liabilities 1,938 2,073
Accrued expenses - operations re-alignment 1,032 1,709
---------------- ----------------
Total current liabilities 7,374 11,084
---------------- ----------------
Long-term debt and obligation under capital leases 2,128 2,403
---------------- ----------------
Series C Convertible Redeemable Preferred Stock, 2,154 and 2,850 shares outstanding at
March 31, 2000 and June 25, 1999; liquidation preference of $1,150 per share 2,154 2,850
---------------- ----------------
Stockholders' Investment
Preferred Stock, par value $1.00 per share; 1,000,000 authorized; Series C
Convertible Redeemable, 5,000 shares authorized; 2,154 and 2,850 shares
outstanding at March 31, 2000 and June 25, 1999 - -
Series D Junior Participating, no shares issued - -
Common Stock, par value $.01 per share; 30,000,000 shares authorized; 9,237,423 and
8,850,535 shares outstanding at March 31, 2000 and June 25, 1999 92 89
Warrants outstanding 20 20
Capital in excess of par value 33,333 32,610
Accumulated deficit (8,378) (7,545)
---------------- ----------------
25,067 25,174
Less - Treasury stock, at cost; 17,637 common shares (281) (281)
---------------- ----------------
Total stockholders' investment 24,786 24,893
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 36,442 $ 41,230
================ ================
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March March
31, 2000 26, 1999 31, 2000 26, 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 11,853 $ 12,589 $ 38,015 $ 35,835
Cost of sales 9,320 10,355 31,140 29,555
------------ ------------ ------------- -------------
Gross profit 2,533 2,234 6,875 6,280
------------ ------------ ------------- -------------
Operating expenses
Selling, general and administrative 1,700 2,091 5,406 6,540
Research and development 779 843 2,345 2,564
------------ ------------ ------------- -------------
Total operating expenses 2,479 2,934 7,751 9,104
------------ ------------ ------------- -------------
Operating income (loss) 54 (700) (876) (2,824)
Insurance proceeds, net of hurricane loss - 439 - 1,408
Interest expense (46) (105) (175) (325)
Interest income 8 0 188 2
Other income 16 1,970 30 2,019
------------ ------------ ------------- -------------
Net income (loss) 32 1,604 (833) 280
Preferred stock embedded dividend - - - (262)
------------ ------------ ------------- -------------
Net income (loss) applicable to common stockholders $32 $1,604 ($833) $18
============ ============ ============= =============
Net income (loss) per share - basic $0.00 $0.19 ($0.09) $0.00
============ ============ ============= =============
Weighted average shares outstanding - basic 8,990 8,283 8,885 7,964
============ ============ ============= =============
Net income (loss) per share - diluted $0.00 $0.15 ($0.09) $0.00
============ ============ ============= =============
Weighted average shares outstanding - diluted 10,730 10,773 8,885 10,265
============ ============ ============= =============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE NINE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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)
Exercise of stock options - - 30 - -
Conversion of Series C
Preferred Stock 3 - 693 - -
Net loss for the nine months
ended March 31, 2000 - - - (833) -
----------- --------------- ----------- ---------------- -----------
Balance March 31, 2000 $ 92 $ 20 $ 33,333 $ (8,378) $ (281)
=========== =============== =========== ================ ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended March
31, 2000 26, 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (833) $ 280
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 1,009 1,573
Provision for inventory allowance, net 294 9,329
Amortization of other assets, net 180 148
Reserve for impaired fixed assets - 750
Loss on disposition of property 14 -
Gain on sale of subsidiary assets - (2,168)
Changes in assets and liabilities
(Increase) decrease in receivables (654) 1,238
Increase in insurance claim receivable - (8,694)
Increase in inventories (2,438) (3,749)
(Decrease) increase in prepaid expenses and other assets (139) 237
(Decrease) increase in accounts payable and accrued liabilities (4,688) 3,656
-------- --------
Net cash (used in) provided by operating activities (7,255) 2,600
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,008) (1,147)
Net proceeds from sale of subsidiary assets - 4,757
-------- --------
Net cash (used in) provided by investing activities (1,008) 3,610
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 30 172
Net borrowing (payment) of debt and obligation under capital leases 703 (3,582)
-------- --------
Net cash provided by (used in) financing activities 733 (3,410)
-------- --------
Net (decrease) increase in cash and cash equivalents (7,530) 2,800
Cash and Cash Equivalents, at beginning of period 8,650 377
-------- --------
Cash and Cash Equivalents, at end of period $ 1,120 $ 3,177
====== =====
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Embedded dividend on Series C Preferred Stock $ - $ 262
====== =====
Conversion of Series C Preferred Stock $ 696 $ 1,350
====== =====
Abandonment of property due to operations re-alignment $ 71 $ -
====== =====
SUPPLEMENTAL DISCLOSURE OF CASH TRANSACTIONS:
Cash paid during the period for interest $ 175 $ 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 consolidated
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 consolidated 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 March 31, 2000 and results of operations for
the three and nine month periods, and cash flows for the nine month periods,
ended March 31, 2000 and March 26, 1999. The consolidated 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.
NOTE 3 - NET INCOME (LOSS) PER COMMON SHARE: Basic net income (loss) per common
share is computed using the weighted average number of shares outstanding during
the period. Diluted net income per common share is computed using the weighted
average number of shares outstanding adjusted for the dilutive incremental
shares attributed to outstanding options and warrants to purchase common stock
and preferred stock and note convertible into common stock. Diluted loss per
share is based only on the weighted average number of shares outstanding during
the period. Incremental common stock equivalent shares of 1.4 million were used
in the calculation of diluted net income per common share for the quarter ended
March 31, 2000 and incremental common stock equivalent shares of 2.5 million and
2.3 million were used in the calculation of diluted net income per common share
for the quarter and nine month period ended March 26, 1999, respectively.
Incremental common stock equivalent shares of 1.9 million were not used in the
calculation of diluted net loss per common share for the nine month period ended
March 31, 2000 as the net loss per share rendered them antidilutive. Stock
options to purchase 1.7 million shares and 1.5 million shares of common stock
for the quarters, and 2.2 million shares and 1.8 million shares of common stock
for the nine-month periods, ended March 31, 2000 and March 26, 1999,
respectively, were outstanding but not included in the computation of diluted
net income (loss) per common share because their option exercise prices were
greater than the average market price of the common shares, and therefore, the
effect of inclusion would be antidilutive.
NOTE 4 - INVENTORIES: Inventories, net of allowances, consisted of the following
components:
March 31, June 25,
2000 1999
-------------------- -------------------
Raw material $4,418,000 $4,879,000
Work in process 3,257,000 3,191,000
Finished goods 7,620,000 5,081,000
-------------------- -------------------
$15,295,000 $13,151,000
==================== ===================
6
<PAGE>
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 its
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 320 as of March 31, 2000, 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 March 31, 2000 was approximately
$641,000.
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, in the fourth quarter of fiscal 1999, the
Company recorded a charge of $699,000 for plant closure costs. As of March 31,
2000, the Company has ceased production in the Dominican Republic and is
managing the exit from that facility. Additionally, the Company has entered into
a contract to sell its metal stamping and injections molding assets and expects
to close the sale in the fourth quarter of fiscal 2000. The Company expects to
dispose of the remainder of the Equipment, which is available for sale, and pay
the plant closure costs in the fourth quarter of fiscal 2000. The carrying value
of the Equipment at March 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. Based upon the success the Company has
experienced to date in realigning its Dominican Republic and its plastic
injection molding and metal stamping operations, the Company has begun to
consider make-versus-buy, or in-house versus out-source, decisions for many of
its present processes. If and when the Company concludes out-sourcing a process
creates substantial economic benefit to the Company, it may implement further
restructuring projects that may or may not result in additional charges in one
or more future periods.
The accrued employee termination benefits and plant closure costs, payments made
through March 31, 2000 and the remaining reserve balances at March 31, 2000,
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> <C> <C>
Balance at June 25, 1999 $ 1,010,000 $ 699,000 $ 1,709,000
Payments (641,000) (36,000) (677,000)
-------------------- ------------------ --------------------
Balance at March 31, 2000 $ 369,000 $ 663,000 $ 1,032,000
==================== ================== ====================
</TABLE>
7
<PAGE>
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, the Company received actual 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 at December 25, 1998. 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 nine 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 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".
NOTE 7 - SALE OF FIBER OPTIC PRODUCT LINE: On March 1, 1999, the Company sold
substantially all of the assets of its fiber optic subsidiary, TII-Ditel, Inc.
for approximately $5.3 million. Sales of TII-Ditel, Inc. represented
approximately 8% of the Company's consolidated sales for the fiscal year ended
June 26, 1998. Gross proceeds of $5.3 million less the book value of the net
assets sold, the estimated post closing purchase price adjustments and the costs
associated with the sale was approximately $2.2 million, which is reflected as a
gain on sale of assets and included in other income on the Consolidated
Statement of Operations.
NOTE 8 - GEOGRAPHIC INFORMATION: The following table presents the Company's
assets and liabilities by geographic area as of March 31, 2000:
<TABLE>
<CAPTION>
U.S. and Dominican
Puerto Rico Republic Consolidated
-------------------- ------------------ --------------------
<S> <C> <C> <C>
Current assets $ 20,176,000 $ 2,843,000 $ 23,109,000
Property, plant & equipment 11,698,000 317,000 12,015,000
Other assets 1,345,000 63,000 1,408,000
-------------------- ------------------ --------------------
Total assets $ 33,219,000 $ 3,223,000 $ 36,442,000
==================== ================== ====================
Total liabilities $ 9,406,000 $ 96,000 $ 9,502,000
==================== ================== ====================
</TABLE>
8
<PAGE>
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 third quarter decreased $736,000 or 5.8% to $11.9
million from $12.6 million for the third quarter of fiscal 1999. The decrease in
sales was primarily due to the absence of sales of fiber optic products
following the Company's sale of this product line in March 1999. Net sales for
the nine months ended March 2000 increased $2.2 million or 6.1% to $38.0 million
from $35.8 million for the nine months ended March 1999. Comparative fiscal 1999
sales were adversely affected by Hurricane Georges, which 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. Comparative fiscal 2000 sales were adversely affected by
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 third quarter and first nine months of fiscal 2000
increased by $299,000 to $2.5 million and by $595,000 to $6.9 million,
respectively. Gross profit margins improved for the third quarter and first nine
months of fiscal 2000 to 21.4% and 18.1%, respectively, from 17.7% and 17.5% for
the third quarter and first nine months of fiscal 1999, respectively. The
improvement results from the progress made in reducing product costs due to the
Company's strategic operations re-alignment, which the Company initiated during
the fourth quarter of fiscal 1999. The re-alignment 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 the
Company's metal stamping and plastic injection molding operations.
Selling, general and administrative expenses for the third quarter of fiscal
2000 decreased by $391,000 or 18.7% to $1.7 million from $2.1 million for the
third quarter of fiscal 1999. Selling, general and administrative expenses for
the first nine months of fiscal 2000 decreased by $1.1 million or 17.3% to $5.4
million from $6.5 million for the first nine 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 and other cost reduction
measures undertaken by the Company.
Research and development expenses for the third quarter of fiscal 2000 decreased
by $64,000 or 7.6% to $779,000 from $843,000 for the third quarter of fiscal
1999. Research and development expenses for the first nine months of fiscal 2000
decreased by $219,000 or 8.5% to $2.3 million from $2.6 million for the first
nine months of fiscal 1999. The decreases in both fiscal 2000 periods related
primarily to lower personnel and other costs associated with the Company's fiber
optic product line, which was sold in March 1999.
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
9
<PAGE>
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, the Company received actual 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 at December 25, 1998. 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 third quarter and first nine months of fiscal 2000
decreased by $59,000 to $46,000 and by $150,000 to $175,000, respectively. The
declines were due to decreased borrowings under the Company's credit facility.
Interest income for the third quarter and first nine months of fiscal 2000
increased by $8,000 to $8,000 and by $186,000 to $188,000, respectively, due to
increased average cash and cash equivalents balances.
The Company sold its fiber optic product line in March 1999 and recorded a gain
on the sale of approximately $2.2 million. As a result of the absence of this
gain in fiscal 2000, other income for each of the third quarter and first nine
months of fiscal 2000 decreased by $2.0 million from the same periods in the
prior year.
Net income (loss) applicable to common stockholders for the third quarter and
first nine months of fiscal 2000 was $32,000 and ($833,000) versus $1,604,000
and $18,000 respectively, in fiscal 1999. Included in net income for the nine
months ended March 26, 1999 was a $262,000 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. This
amount was deducted from net income in determining net income applicable to
common stockholders.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended March 31, 2000, the Company's working capital
decreased $843,000 to $15.7 million, while its cash balance decreased by $7.5
million to $1.1 million.
During the first nine months of fiscal 2000, $7.3 million of cash was used by
operations. While the Company had a net loss of $833,000 for the first nine
months of fiscal 2000, $1.2 million of the loss represented non-cash
depreciation and amortization expenses. However, a decrease in accounts payable
and accrued liabilities used $4.7 million of cash and $2.4 million of cash was
used to increase inventories to facilitate a smooth transition to contract
manufacturing.
10
<PAGE>
During the first nine months of fiscal 2000, investing activities used $1.0
million of cash for capital expenditures. Financing activities provided $733,000
of cash, resulting from $30,000 of proceeds received from the exercise of
options and a net $703,000 increase in borrowings of long-term debt and
obligations under capital leases.
The Company has a credit facility with GMAC Commercial Credit LLC, in an
aggregate principal amount of $7.5 million, consisting of a $6.0 million
revolving credit facility and a $1.5 million term loan. At March 31, 2000, the
Company had $1.1 million in 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 monthly through March 31, 2003, subject to mandatory repayments
from disposition proceeds and insurance proceeds in certain circumstances.
On April 28, 2000, the holder of the Company's $750,000 Convertible Note
converted that Note into 375,000 shares of Common Stock. To induce the holder to
convert the Note the Company reduced the conversion price from $2.50 to $2.00.
This transaction will result in a charge of approximately $206,000 on the
Statement of Operations in the fourth quarter of fiscal 2000.
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.
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 facility is located); competition; potential
technological changes, including the Company's ability to timely develop new
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
11
<PAGE>
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 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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2000, holders of 696 shares of the
Company's Series C Convertible Redeemable Preferred Stock converted such
Preferred Stock into 367,888 shares of the Company's Common Stock. The Company
believes that the exemption from registration afforded by Section 3(a)(9) of the
Securities Act of 1933, as amended (the "Securities Act"), is applicable to the
issuance of such shares, as such issuance involved a security exchanged by the
Company with existing security holders exclusively, where no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchanges.
Following the end of the quarter covered by this Report, on April 28, 2000, the
holder of the Company's $750,000 Convertible Note converted that Note into
375,000 shares of Common Stock. The Company believes that the exemption from
registration afforded by Section 3(a)(9) of the Securities Act is applicable to
the issuance of such shares, as such issuance involved a security exchanged by
the Company with existing security holders exclusively, where no commission or
other remuneration was paid or given directly or indirectly for soliciting such
exchanges.
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.
12
<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: May 3, 2000 /s/ Paul G.Sebetic
--------------------------------
Paul G. Sebetic
Vice President-Finance and Chief
Financial Officer
13
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