SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 29, 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 November 1, 2000 was 11,682,284.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 29, June 30,
2000 2000
---------------- ---------
ASSETS (Unaudited)
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 2,042 $ 4,446
Accounts receivable, net 8,434 7,246
Inventories 12,196 12,825
Other 164 268
------ ------
Total current assets 22,836 24,785
------ ------
Property, plant and equipment, net 11,061 11,223
Other 1,266 1,308
------ ------
TOTAL ASSETS $ 35,163 $ 37,316
====== ======
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt and obligations under capital leases $ 264 $ 300
Accounts payable 2,638 3,685
Accrued liabilities 1,141 1,475
Accrued restructuring expenses - 202
------ ------
Total current liabilities 4,043 5,662
------ ------
Long-Term Debt and Obligations Under Capital Leases 679 1,267
------ ------
Series C Convertible Redeemable Preferred Stock, 1,626 shares
outstanding at September 29, 2000 and June 30, 2000, respectively;
liquidation preference of $1,150 per share 1,626 1,626
------ ------
Stockholders' Investment
Preferred Stock, par value $1.00 per share; 1,000,000 shares authorized;
Series C Convertible Redeemable, 1,626 outstanding
at September 29, 2000 and June 30, 2000, respectively; - -
Series D Junior Participating, no shares outstanding - -
Common Stock, par value $.01 per share; 30,000,000 shares authorized;
11,699,921 and 11,698,121 shares issued; 11,682,284 and 11,680,484
shares outstanding at September 29, 2000 and June 30, 2000,
respectively
117 117
Warrants and options outstanding 369 369
Capital in excess of par value 37,123 37,119
Accumulated deficit (8,513) (8,563)
------ ------
29,096 29,042
Less - Treasury stock, at cost; 17,637 common shares (281) (281)
------ ------
Total stockholders' investment 28,815 28,761
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 35,163 $ 37,316
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the three month period
September 29, September 24,
2000 1999
----------- -------------
(Unaudited)
<S> <C> <C>
Net sales $ 10,510 $ 12,973
Cost of sales 8,122 10,900
---------------- ---------------
Gross profit 2,388 2,073
---------------- ---------------
Operating expenses
Selling, general and administrative 1,640 1,897
Research and development 715 813
---------------- ---------------
Total operating expenses 2,355 2,710
---------------- ---------------
Operating income (loss) 33 (637)
Interest expense (28) (53)
Interest income 50 106
Other expense (5) (3)
---------------- ---------------
Net earnings (loss) $ 50 $ (587)
================ ===============
Net earnings (loss) per common share:
Basic $ - $ (0.07)
================ ===============
Diluted $ - $ (0.07)
================ ===============
Weighted average common shares outstanding:
Basic 11,681 8,833
Diluted 13,044 8,833
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Capital
in excess
Warrants of par Accumulated Treasury
Common Stock Outstanding value Deficit Stock
----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 2000 $ 117 $ 369 $37,119 $ (8,563) $ (281)
Exercise of stock options - - 4 - -
Net earnings for three month period
ended September 29, 2000 - - - 50 -
----------- ----------- --------- ---------- ---------
BALANCE, September 29, 2000 $ 117 $ 369 $ 37,123 $ (8,513) $ (281)
=========== =========== ========= ========== =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 29, September 24,
2000 1999
------------ -------------
(Unaudited)
Cash Flows from Operating Activities:
<S> <C> <C>
Net earnings (loss) $ 50 $ (587)
Adjustments to reconcile net earnings (loss) to net cash used in operating
activities:
Depreciation and amortization 384 337
Provision for inventory 99 99
Amortization of other assets 60 60
Changes in operating assets and liabilities:
(Increase) decrease in receivables (1,188) 512
Decrease (Increase) in inventories 530 (1,415)
Decrease (Increase) other assets 86 (49)
Decrease in accounts payable, accrued liabilities and accrued
restructuring expenses (1,583) (2,503)
------------ -------------
Net cash used in operating activities (1,562) (3,546)
------------ -------------
Cash Flows from Investing Activities
Capital expenditures, net of dispositions (222) (346)
------------ -------------
Net cash used in investing activities (222) (346)
------------ -------------
Cash Flows from Financing Activities:
Proceeds from exercise of options and warrants 4 -
Payments of debt and obligations under capital leases (624) (164)
------------ -------------
Net cash used in financing activities (620) (164)
------------ -------------
Net decrease in cash and cash equivalents (2,404) (4,056)
Cash and cash equivalents, at beginning of period 4,446 8,650
------------ -------------
Cash and cash equivalents, at end of period $ 2,042 $ 4,594
============ =============
Supplemental disclosure of cash transactions:
Cash paid during the period for interest $ 21 $ 53
</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 and results of operations and cash flows for
the interim periods presented. 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 fiscal year ended June 30, 2000. 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 29, 2001 will contain 52
weeks.
Note 3 - Net earnings (loss) per common share: Basic net earnings (loss) per
common share is computed using the weighted average number of shares outstanding
during the period. Diluted net earnings per common share is computed using the
weighted average number of shares outstanding adjusted for the dilutive
incremental shares attributed to outstanding stock options to purchase common
stock and preferred stock convertible into common stock.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
For the three month period
September 29, September 24,
2000 1999
------------ -------------
( in thousands )
Numerator for diluted calculation:
<S> <C> <C>
Net earnings (loss) 50 (587)
====== =====
Denominator:
Weighted average common shares outstanding 11,681 8,833
Dilutive effect of stock options 570 -
Dilutive effect of conversion of Series C Convertible
Redeemable Preferred Stock 793 -
------ -----
Denominator for diluted calculation 13,044 8,833
====== =====
</TABLE>
Incremental common stock equivalent shares of 1.9 million, related to the
Series C Convertible Redeemable Preferred Stock, were not used in the
calculation of diluted net loss per common share for the three month period
ended September 24, 1999 since their inclusion would have been antidilutive. In
addition, stock options and warrants to purchase 2.9 and 1.8 million shares of
common stock for the three month periods ending September 29, 2000 and September
24, 1999, respectively, were outstanding but not included in the computation of
diluted net earnings (loss) per common
6
<PAGE>
share because their option exercise prices were greater than the average market
price of the common shares during the periods presented, and therefore, the
effect of inclusion would be antidilutive.
Note 4 - Inventories: Inventories consisted of the following major
classifications:
<TABLE>
<CAPTION>
September 29, June 30,
2000 2000
------------------- -------------------
<S> <C> <C>
Raw materials and subassemblies $ 9,252,000 $ 8,342,000
Work in process 3,781,000 4,387,000
Finished goods 2,226,000 3,059,000
------------------- ------------------
15,259,000 15,788,000
Less : allowance for inventory (3,063,000) (2,963,000)
------------------- ------------------
$12,196,000 $ 12,825,000
=================== ==================
</TABLE>
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. As a result, during the fourth quarter of fiscal 1999, the
Company recorded a charge of $6.0 million. This program included 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. The
Company completed this operations re-alignment during June 2000. The components
of the June 30, 2000 remaining balance of this charge, the corresponding cash
activity in the three month period ended September 29, 2000 and the remaining
reserve balances which are included in "Property, plant and equipment, net" and
in "Accrued restructuring expenses" in the accompanying consolidated balance
sheets, are as follows:
<TABLE>
<CAPTION>
Employee
Asset Termination Plant Closure
Write-downs Benefits Costs Total
--------------- -------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance June 30, 2000 $ 435,000 $ 177,000 $ 25,000 $ 637,000
Cash payments during fiscal 2001 - (136,000) (89,000) (225,000)
Transfers of reserve (23,000) (41,000) 64,000 -
--------------- -------------------- --------------- --------------
Balance September 29, 2000 $ 412,000 $ - $ - $ 412,000
=============== ==================== =============== ===============
</TABLE>
Note 6 - Income Taxes: The Company's policy is to provide for income taxes based
on reported income, adjusted for differences that are not expected to ever enter
into the computation of taxes under applicable tax laws. The Company has
exemptions until January 2009 for Puerto Rico income tax and Puerto Rico
property tax purposes. The level of exemption is 90% for all purposes. The
Company also has net operating loss carryforwards available through fiscal 2006
to offset any remaining Puerto Rico taxable income. There are no limitations on
the Company's ability to utilize such net operating loss carryforwards to reduce
its Puerto Rico income tax.
In addition, the Company, in its US subsidiaries, has net operating loss
carryforwards which expire periodically through 2020, and general business tax
credit carryforwards which expire periodically through 2012. Temporary
differences between income tax and financial reporting assets and liabilities
(primarily inventory valuation allowances, property and equipment and accrued
employee benefits) and net operating loss carryforwards give rise to deferred
tax assets for which a full (100%) offsetting valuation allowance has been
provided due to the uncertainty of realizing any benefit in the future.
7
<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 2001 first quarter were $10.5 million compared to $13.0
million for the first quarter of fiscal 2000, a reduction of approximately $2.5
million or 19.0%. The decrease in sales was primarily due to reduced orders from
a significant customer as a result of technical problems with its product,
unrelated to TII's components, and the initial transition of other customers to
the Company's new products has also impacted revenue levels.
Gross profit for the first quarter of fiscal 2001 was $2.4 million compared to
$2.1 million for the same prior year period, an increase of approximately
$300,000 or 15.2%. Gross profit margins for the first quarter of fiscal 2001
were 22.7% compared to 16.0% for the similar prior year period. The improved
returns are principally due to the recently completed operations re-alignment
and the introduction of advanced, higher margin versions of certain mature
products.
Selling, general and administrative expenses for the first quarter of fiscal
2001 were $1.6 million compared to $1.9 million for the similar prior year
period, a decrease of approximately $300,000 or 13.5%. The decrease resulted
primarily from reductions in personnel and related expenses as a result of the
operations re-alignment.
Research and development expenses for the first quarter of fiscal 2001 were
$715,000 compared to $813,000 for the similar prior year period, a decrease of
approximately $98,000 or 12.1%. The reduction occurred as the Company is
benefiting from collaborative engineering efforts with its contract
manufacturers.
Interest expense for the first quarter of fiscal 2001 was $28,000 compared to
$53,000 for the similar prior year period, a decrease of approximately $25,000
primarily due to decreased borrowings under the Company's credit facility.
Interest income for the first quarter of fiscal 2001 was $50,000 compared to
$106,000 for the similar prior year period, a decrease of approximately $56,000
due to lower average cash and cash equivalents balances.
Net earnings for the first quarter of fiscal 2001 was $50,000 compared to a loss
of $587,000 for the similar prior year period.
Liquidity and Capital Resources
The Company's cash and cash equivalents balance was $2.0 million at the end of
the first quarter of fiscal 2001 compared to $4.4 million at the end of fiscal
2000, a reduction of approximately $2.4 million. Working capital was $18.8
million compared to $19.1 million at fiscal year end.
8
<PAGE>
During the first quarter of fiscal 2001, $1.6 million of cash was used in
operations, primarily due to an increase in accounts receivable of $1.2 million
and a decrease in accounts payable and accrued liabilities of $1.6 million,
partially offset by depreciation and amortization of $444,000 and a reduction in
inventories of $530,000. Investing activities used $222,000 for capital
expenditures and financing activities used $620,000 due to $624,000 of debt
repayments, partially offset by $4,000 received from the exercise of stock
options.
The Company has a credit facility in an aggregate amount of $7.5 million
("Credit Facility"), consisting of a $6.0 million revolving credit facility and
a $1.5 million term loan. The revolving credit facility enables the Company to
have up to $6.0 million of revolving credit loans outstanding at any one time,
limited by a borrowing base equal to 85% of the eligible accounts receivable and
50% of the 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 through March 31, 2003,
subject to mandatory repayments from disposition proceeds and insurance proceeds
in certain circumstances. As of September 29 2000, $855,000 was outstanding
under the term loan and no balance was outstanding on the revolving credit
facility.
The Company has no commitments for capital expenditures, but expects to purchase
new equipment and incur leasehold improvements in the normal course of business,
subject to the maximum amounts permitted under its revolving credit facility.
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
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 may contain
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.
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 gas tube manufacturing facilities are 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;
loss or disruption of sales to major customers as a result of, among other
things, third party labor disputes and shipping disruptions from countries in
which the Company's contract manufacturers produce the Company's products;
Company's ability to market its existing, recently developed and new products;
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 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
9
<PAGE>
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
27. EDGAR financial data schedule.
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K dated July 31, 2000 (date
of earliest event reported) reporting under Item 5 - Other Events. No
financial statement was filed with the Report.
10
<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: November 13, 2000 /s/ Kenneth A. Paladino
-------------------------------
Kenneth A. Paladino
Vice President-Finance and Chief
Financial Officer
11
EXHIBIT 27
