SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to _________
Commission file number 0-24746
TESSCO Technologies Incorporated
(Exact name of registrant as specified in its charter)
Delaware 52-0729657
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
34 Loveton Circle, Sparks, Maryland 21152-5100
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-472-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
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The aggregate market value of the Common Stock, $.01 par
value, held by non-affiliates of the registrant based on the closing sales price
of the Common Stock as quoted on the National Association of Securities Dealers,
Inc. National Market System as of May 17, 1996 was $107,295,006.
The number of shares of the registrant's Common Stock, $.01
par value, outstanding as of May 17, 1996 was 4,227,897.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders
for the fiscal year ended March 29, 1996 are incorporated by reference into
Parts II and IV.
Portions of the registrant's Proxy Statement for the 1996
Annual Meeting of Stockholders are incorporated by reference into Part III.
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Part I
Item 1 - Business
General
TESSCO Technologies Incorporated ("TESSCO" or the "Company") is a leading
national distributor of products to the wireless communications industry. The
Company currently serves more than 4,500 customers per month in the cellular
telephone, paging and mobile radio-dispatch markets, including a diversified mix
of dealers, cellular and paging carriers and self-maintained users. The Company
offers a wide product selection of more than 14,000 stock keeping units ("SKUs")
which are broadly classified as infrastructure, mobile and portable accessory
and test and maintenance. The Company has developed a proprietary information
technology system, which integrates all aspects of its operations, and which
TESSCO believes provides it with a competitive advantage.
Products
TESSCO's strategy is to identify, select, catalog, promote and sell those
products required by its existing and prospective customers. The Company
principally offers competitively priced, manufacturer brand name products.
Products offered by the Company range from sheet metal screws to sophisticated
spectrum analyzers, with prices ranging from less than $1.00 to over $30,000,
and gross profit margins ranging from less than 5% to over 60%. During fiscal
1996, the Company offered over 14,000 SKUs. The Company's products are broadly
classified as infrastructure, mobile and portable accessory, and test and
maintenance, which accounted for approximately 54%, 33% and 13% of product
revenues during fiscal 1996, respectively.
Infrastructure products are used to build, repair and upgrade wireless
communications base sites, and generally complement radio frequency transmitting
and switching equipment provided directly by original equipment manufacturers
("OEM"). Products include base station antennas, cable and transmission line,
filtering systems, small towers, lightning protection devices, connectors and
miscellaneous hardware.
Mobile and portable accessory products are those products used with mobile
and portable devices, such as cellular telephones, pagers and two-way radios.
Products include replacement batteries, cases, microphones, speakers, mobile
amplifiers, power supplies, headsets, mounts, car antennas and various wireless
data devices.
Test and maintenance products are used to install, tune, maintain and
repair wireless communications equipment. Products include sophisticated
analysis equipment and various voltage and power measuring devices, as well as
an assortment of tools, hardware and supplies required by service technicians.
While TESSCO principally provides manufacturer brand name products, a
variety of products, which are primarily mobile and portable accessory products,
are offered under its private labels "Celldyne," "PowerTel," "Plus" and
"Cascade." The Company acquired two of these private labels at the beginning of
fiscal 1993 as part of an effort to expand its product offerings to include a
greater percentage of private label products, which generally have higher gross
profit margins than the Company's other products. Private label sales have grown
from 1.7% of product revenues in fiscal 1992 to 5.1% in fiscal 1996.
As part of its commitment to customer service, the Company allows customers
to return a product for any reason for credit, within 30 days after the date of
purchase. Total returns and credits have been less than 4% of revenues in each
of the past three fiscal years.
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As of March 29, 1996 the Company was offering products purchased from
over 230 manufacturers. Although a substantial portion of the Company's
purchases are concentrated with a small number of vendors (approximately
54% of TESSCO's fiscal 1996 revenues were generated by the sale of products
purchased from its top ten vendors, with products purchased from Andrew
Corporation, consisting primarily of cable, generating approximately 29%),
the Company believes that alternative sources of supply are available for
virtually every product type it carries.
Customers
TESSCO's customer base consists of dealers, cellular and paging
carriers and self-maintained users. All of these customers share the
characteristic that they are service organizations designing, installing,
operating or repairing some type of wireless communications system. Dealers,
cellular and paging carriers and self-maintained users accounted for
approximately 38%, 46% and 16% of fiscal 1996 product revenues, respectively.
Dealers sell, install and service cellular telephone, paging and two-way
radio communications equipment primarily for the consumer and small business
markets. TESSCO's customers in this classification include local proprietorships
and retailers, as well as sales and installation centers operated by cellular
and paging carriers.
Cellular and paging carriers are responsible for building and
maintaining the infrastructure system and providing airtime service to
individual subscribers. TESSCO's customers in this classification include Bell
Atlantic Mobile Systems, McCaw Cellular Communications and AT&T.
Self-maintained users have significant internal communications
requirements and, as a result, own and operate their own two-way radio networks
and service their own equipment. TESSCO's customers in this classification
include commercial entities such as major utilities and transportation
companies, federal agencies and state and local governments, including public
safety organizations.
No one customer accounted for as much as 6% of TESSCO's revenues
during fiscal 1996. TESSCO's ten largest customers accounted for approximately
18% of its revenues during fiscal 1996. The Company does not have long-term
contracts with any of its customers, nor does it believe that the loss of
any single customer would have a material adverse effect on its operations.
Method of Operation
TESSCO believes that it has developed a highly integrated,
technologically advanced and efficient method of operation to better serve its
customers and to increase overall corporate productivity and quality. The major
factors that make up the Company's method of operation are discussed below.
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Information Technology System
Critical to the success of the Company's operations is its
information technology system. TESSCO has made substantial investments in the
development of this system, which integrates cataloging, marketing,
sales, fulfillment, inventory control and purchasing, financial control and
internal communications. The information technology system includes highly
developed customer and product data bases and is integrated with the Company's
centralized distribution center. The information contained in the system is
available on a real time basis to all TESSCO employees and is utilized in every
area of the Company's operations. The Company believes that its information
technology system, which is continually updated and refined, has significant
additional capacity to support increases in revenues without commensurate
increases in expenses.
Customer Relationships
The primary focus of TESSCO's operations is its commitment to make
it easier and more cost effective for customers to acquire products. The
customer relationships team, consisting of 54 representatives as of March 29,
1996, is responsible for initiating and building a long-term relationship with
customers as well as for responding to incoming inquiries and orders. Scheduled
calls are made to each regular purchasing customer for the purpose of
information dissemination, order generation, data base maintenance and
the overall enhancement of the business supply relationship. TESSCO also
continually monitors its customer service levels through report cards
included with each product shipment, customer surveys and regular interaction
with customers. By combining its broad product offerings with a commitment
to superior customer service, TESSCO seeks to reduce a customer's overall
procurement costs by enabling the customer to consolidate the number of
suppliers from which it obtains products while also reducing the customer's
need to maintain higher inventory levels.
The Company's information technology system provides detailed
account information on every customer, including recent inquiries, buying
and credit histories, separate buying locations within a customer and contact
diaries for key personnel, as well as access to technical, product availability
and pricing information. The information technology system increases sales
productivity by enabling any customer relationship representative to provide
any customer with personalized service, and also allows non-technical personnel
to provide a high level of technical product information and order assistance.
TESSCO believes that its commitment to developing a strong
customer relationship both at the time of sale as well as after the sale
enables it to maximize customer satisfaction and retention. The
percentage of customers purchasing products in two consecutive months has
increased from approximately 59% in fiscal 1992 to approximately 63% in
fiscal 1996, and the number of average customers per month has increased
during the same period from 2,646 to 4,591.
Marketing
TESSCO's proprietary customer data base contains detailed information
on over 30,000 existing and potential customers, including the names of
key personnel, past contacts, and inquiry, buying and credit histories.
This extensive customer data base enables the Company to identify and
target potential customers and to market specific products to these targeted
customers. Potential customers are identified through their response to direct
marketing materials, advertisements in trade journals and industry trade shows.
Customer relationship representatives follow-up on these customer inquiries
through distribution of the Company's information materials, tele-sales
and field visits. The information technology system tracks a potential
customer identification from the initial marketing effort, and through the
establishment and development of a purchasing relationship. Once a customer
relationship is established, the Company carefully analyzes purchasing
patterns and identifies opportunities to encourage customers to make more
frequent purchases of a broader array of products. TESSCO believes that it is
able to develop efficient and effective marketing programs to expand its
customer base and increase sales to its existing customers, while at the same
time limiting increases in sales and marketing expenses.
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The Company utilizes its product data base to develop both broad based
as well as customized product information materials. These materials are
designed to encourage both existing and potential customers to view
TESSCO as an important source of their product requirements by providing
useful and timely product and service information. These customer information
services include Buyer's Guides distributed semiannually to over 16,000
current and prospective buyers, Your Total Source Bulletins, which are
designed to supplement the overall marketing impact of the Buyer's Guides, and
The Wireless Journal, which is designed to introduce the reader to
TESSCO's capabilities and product offerings and contains information on
significant industry trends and product reviews.
TESSCO presently provides complete product and pricing information
on computer diskette, and will offer its complete Buyer's Guide on CD-ROM.
In addition, the Company is planning to introduce a series of electronic
services designed to facilitate and encourage customer orders, such as
computerized order entry and fax on demand product specifications and
price and delivery quotations.
Product Management
The Company focuses on offering both a broad selection of products as
well as alternative selections for each of its products. TESSCO actively
monitors advances in technologies and industry trends, both through
research and continual customer interaction, and continues to add to its
product offerings as new wireless communications products and technologies are
developed.
The Company believes that effective purchasing and inventory control
are key elements ensuring that a broad range of products will be readily
available to fill customer orders. The Company uses its information technology
system to monitor and manage its inventory. Historical sales results, sales
projections and information regarding vendor lead times are all used
to determine appropriate inventory levels. The information technology system
also provides early warning reports regarding inventory levels. As a result of
its emphasis on inventory control and the consolidation of its distribution
functions, the Company has been able to maintain its order completion rate
and support its increasing sales levels without corresponding increases in
inventory levels. The Company improved its inventory turns to 6.5 during
fiscal 1996 from 4.8 during fiscal 1993. Generally, the Company has been
able to return slow-moving inventory to the vendor.
In addition to determining the fundamental product offering, the
Company's product management team provides the technical foundation for both
customers and TESSCO personnel. The product data base is continually updated to
add technical information in response to vendor specification changes and
customer inquiries. The data base contains detailed information on each SKU
offered, including full product descriptions, category classifications,
technical specifications, illustrations, product cost, pricing and shipping
information, alternative and associated products, and purchase and sales
histories. Most of the information is available on a real time basis to
all TESSCO personnel for product development, procurement, technical
support, cataloging and marketing.
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Order Entry and Fulfillment
Orders are received at the Company's centralized customer
relationship center. While entering orders, customer relationship
representatives have access to technical information, alternative and
complementary product selections, product availability and pricing
information, as well as customer purchasing and credit histories and recent
inquiry summaries. A radio-frequency directed materials handling system,
which is integrated with the information technology system, utilizes bar coded
labels which are applied to every product, allowing distribution center
personnel to utilize radio-frequency scanners to locate products, fill orders
and update inventory. The centralized distribution center also allows the
Company to improve inventory control, minimize multiple product shipments to
complete an order, limit inventory duplication and reduce the overhead
associated with its distribution functions. TESSCO believes that the
distribution center also has the capacity to service a significantly higher
level of sales without the necessity for commensurate increases in expenditures
or inventory levels.
Orders are shipped by a variety of freight lines and carriers.
Destination and handling charges are calculated on the basis of the weight of
the products shipped and not on the distance to the customer. The Company
believes that this pricing structure allows it to attract customers who might
otherwise order from local suppliers.
Employees
As of March 29, 1996, the Company had 178 full-time equivalent
employees. Of the Company's full-time equivalent employees, 98 were engaged in
customer and vendor service, marketing and product management, 58 were engaged
in warehouse and distribution operations, and 22 were engaged in
administration and technology systems services. No employees are covered by
collective bargaining agreements. The Company considers its employee relations
to be excellent.
Competition
The emerging wireless communications distribution industry is
fragmented and is comprised of several national distributors, such as Hutton
Communications and Communications Associates, and numerous regional
distributors. In addition, many manufacturers sell direct. Barriers to
entry for distributors are relatively low, particularly in the mobile and
portable telephone accessory market, and the risk of new competitors entering
the market is high. The Company believes, however, that its information
technology system, large customer base and purchasing relationships with more
than 230 manufacturers provide it with a significant competitive advantage
over new entrants to the market. Certain of the Company's current competitors,
particularly certain manufacturers, have substantially greater capital
resources, sales and distribution capabilities than the Company. In response
to competitive pressures from any of its current or future competitors, the
Company may be required to lower selling prices in order to maintain or
increase market share, and such measures could adversely affect the Company's
operating results.
The Company believes that the principal competitive factors in
supplying products to the wireless communications industry are the quality and
consistency of customer service, particularly timely delivery of complete
orders, breadth and quality of products offered, and procurement costs to
the customer. The Company believes that it competes favorably with
respect to each of these factors. In particular, the Company believes it
differentiates itself from its competitors due to the breadth of its product
offerings, its ability to quickly provide products in response to customer
demand and technological advances, the level of its customer service and the
reliability of its order fulfillment process.
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Trademarks and Trade Names
The Company maintains a number of registered trademarks and trade names
in connection with its business activities, including "TESSCO," "Your Total
Source" and "The Wireless Journal." The Company's general policy is to
file for trademark and trade name protection for each of its trademarks and
trade names, and to enforce its rights against any infringement.
Item 2 - Properties
The Company's corporate headquarters are located in approximately
16,000 square feet of leased office space located outside of Baltimore, in
Sparks, Maryland. The lease has an initial expiration date of December 31,
2000, and contains options for an additional term of up to three years and an
additional approximately 14,000 square feet of space. The Company also has a
right of first refusal to purchase the building containing its corporate
headquarters.
The Company's centralized distribution center is located in
an approximately 66,000 square foot leased facility located in Hunt
Valley, Maryland, located approximately three miles from the corporate
headquarters. The lease has an initial expiration date of December 31, 1999,
and contains an option for an additional term of up to eight years.
During fiscal 1996, the Company purchased a 156,000 square foot building
located near its existing distribution center in Hunt Valley, Maryland. The
purchase of this building provides the Company with the space it requires,
and will allow for consolidation of its three current facilities into one
location. This consolidation is expected to take place during fiscal 1997.
Item 3 - Legal Proceedings
On April 16, 1996, the Company received a 30-day Notice of Termination
under its Distributor Agreement maintained with Andrew Corporation, one of the
Company's major suppliers of cable. On April 18, 1996, TESSCO filed a lawsuit
with the Maryland Circuit Court in Baltimore County seeking a declaration that
Andrew had violated the Maryland Anti-Trust Act and the Maryland Fair
Distributorship Act in attempting to terminate the Distributorship Agreement.
The Court ruled on June 10, 1996 that these claims should be settled by
arbitration. In order to ensure a continued supply of Andrew product, the
Company requested, ex parte, interlocutory and permanent injunctive relief. The
Company has been granted an ex parte injunction which currently allows a
continued supply of Andrew product. The ex parte injunction was extended by
consent of Andrew and by court order until such time as the arbitration panel
considers whether to extend the injunction further. The date of the hearing for
consideration of the matter has not yet been set.
Sales of Andrew product as a percentage of total sales represented 29% and
23%, respectively, for fiscal 1996 and the fourth quarter of 1996. The Company
continues to offer competitive alternative product offerings and sources for
Andrew product items. Should the injunctive relief not be extended, or
alternative product acceptability be low or product availability become
unreliable, the impact on Company revenues and earnings could be material.
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Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 4A - Executive Officers of the Company
Executive officers are elected annually by the Board of Directors and serve
at the discretion of the Board of Directors. Information regarding the executive
officers of the Company who are not directors is as follows:
Name Age Position
Gerald T. Garland 45 Vice President
Rocco A. Baldasare 39 Vice President
Steven E. Lehukey 38 Vice President
Pierce B. Dunn 45 Vice President
Gerald T. Garland has served as Treasurer and Chief Financial Officer of
the Company since September 1993. From 1983 to August 1993, he held
various positions in commercial lending and corporate finance with Maryland
National Bank, including Senior Vice President of the Commercial Finance
Division. Mr. Garland was a financial manager and plant controller for
Black & Decker Corporation from 1976 to 1983.
Rocco A. Baldasare has held a variety of positions with the Company since
March 1990 and currently serves as Team Leader for Market Development, with
responsibility for developing marketing programs. From 1986 to March 1990, he
was the Director of Market Development with The Personal Marketing Company, a
publisher of personalized marketing products for business executives.
Steven E. Lehukey has served as a Team Leader for Customer Transactions
since February 1994, with responsibility for enhancement of customer service and
management of accounts receivable and credit. From 1986 to February 1994, he
held various positions in commercial lending with Maryland National Bank,
including serving as a Vice President in the Commercial Finance Division.
Pierce B. Dunn has served as a Team Leader for European Operations
since July 1995. From 1991 to 1994, Mr. Dunn served as Chairman of CONNOR
Environment Services, a company that provides environmental and engineering
services throughout the United States. From 1980 to 1991, he served as President
of The Kirk Stieff Company, a manufacturer of prestige gift products. Mr. Dunn
also served as an attorney at Venable, Baejter & Howard from 1977 to 1980.
Part II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
The Market for the Company's Common Stock and Related Stockholder
Matters, appearing on page 24 of the Company's 1996 Annual Report, is
incorporated herein by reference.
Item 6 - Selected Financial Data
The financial information for the five years ended March 29, 1996,
appearing on page 12 of the Company's 1996 Annual Report, is incorporated herein
by reference.
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Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and
Results of Operations, appearing on pages 13 and 14 of the Company's 1996
Annual Report, is incorporated herein by reference.
Item 8 - Financial Statements and Supplementary Data
The Financial Statements, related notes and supplementary data set
forth on pages 12 through 22 of the Company's 1996 Annual Report, is
incorporated herein by reference.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Part III
Item 10 - Directors and Officers of the Registrant
For information with respect to executive officers of the Company who
are not directors, see "Item 4A - Executive Officers of the Company."
Information with respect to directors, contained under the caption "Proposal 1 -
Election of Directors" in the Company's Proxy Statement prepared in
connection with the Company's 1996 Annual Meeting of Shareholders, is
incorporated by reference herein.
Item 11 - Executive Compensation
Information with respect to this item, contained under the
caption "Executive Compensation and Other Information" in the Company's Proxy
Statement prepared in connection with the Company's 1996 Annual Meeting of
Shareholders, is incorporated herein by reference.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Information with respect to this item, contained under the
caption "Security Ownership of Management and Principal Shareholders" in the
Company's Proxy Statement prepared in connection with the Company's 1996 Annual
Meeting of Shareholders, is incorporated herein by reference.
Item 13 - Certain Relationships and Related Transactions
Information with respect to this item, contained under the caption
"Certain Transactions" in the Company's Proxy Statement prepared in connection
with the Company's Annual Meeting of Shareholders, is incorporated herein by
reference.
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Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. The following report and financial statements included in the 1996
Annual Report to Stockholders are incorporated herein by reference
under Item 8 of this Report:
Pages in
Annual Report
Report of Independent Public Accountants 23
Balance Sheets 16
Statements of Operations 17
Statements of Changes in Stockholders' Equity 18
Notes to Financial Statements 20 - 22
2. The following financial statement schedules are included herewith:
Schedule Description
Schedule II Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable.
3. Exhibits
2.1.1 Cartwright Communications Acquisition Agreement (incorporated by
reference to the Current Report on from Form 8-K dated June 3, 1996).
3.1.1. Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1.1. to the Company's
Registration Statement on Form S-1 (No. 33-81834)).
3.1.2 Certificate of Retirement of the Registrant (incorporated by reference
to Exhibit 3.1.2 to the Company's Registration Statement on Form S-1
(No. 33-81834)).
3.1.3 First Certificate of Amendment to Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1.3. to the
Company's Registration Statement on Form S-1 (No. 33-81834)).
3.2.1. Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.2.1. to the Company's Registration
Statement on Form S-1 (No. 33-81834)).
3.2.2. First Amendment to Amended and Restated By-laws of the Registrant
(incorporated by reference to Exhibit 3.2.2. to the Company's
Registration Statement on Form S-1 (No. 33-81834)).
10.1 Employment Agreement dated March 31, 1994 with Robert B. Barnhill, Jr.
(incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (No. 33-81834)).
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10.2 Stockholders' Agreement dated September 29, 1993 by and among the
Company, Robert B. Barnhill, Jr., Privest I N.V., Privest II N.V.,
Grotech Partners II, L.P., Grotech Partners III, L.P., Grotech III
Companion Fund, L.P., Grotech III Pennsylvania Fund, L.P. and
Centennial Business Development Fund, Ltd. (incorporated by reference
to Exhibit 10.2 to the Company's Registration Statement on Form S-1
(No. 33-81834)).
10.3 Stock Option by and between the Registrant and Robert B. Barnhill, Jr.
dated September 28, 1994 (incorporated by reference to Exhibit 10.3 to
the Company's 1995 Annual Report on Form 10-K).
10.4 1993 Non-Statutory Stock Option Agreement with the Trustees of the
TESSCO Technologies Incorporated Retirement Savings Plan
(incorporated by reference to Exhibit 10.20 to the Company's
Registration Statement on Form S-1 (No. 33-81834)).
10.5 Employee Incentive Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement on
Form S-1 (No. 33-81834)).
10.6 1994 Stock and Incentive Plan, as amended (incorporated by reference
to Exhibit 10.22 to the Company's Registration Statement on Form S-1
(No. 33-81834)).
10.7 Financing Agreement dated March 31, 1995 by and between the Company
and NationsBank, N.A. (incorporated by reference to Exhibit 10.7 to
the Company's 1995 Annual Report on Form 10-K).
10.8 Lease Agreement dated April 13, 1992 by and between the Registrant
and Loveton Center Limited Partnership, as amended (incorporated by
reference to Exhibit 10.24 to the Company's Registration
Statement on Form S-1 (No. 33-81834)).
10.9 Lease Agreement dated September 16, 1991 by and between the Registrant
and Valley Associates, as amended (incorporated by reference to
Exhibit 10.25 to the Company's Registration Statement on Form S-1 (No.
33-81834)).
10.10 Distribution Agreement dated October 1, 1993 by and between the
Registrant and Andrew Corporation (incorporated by reference to
Exhibit 10.27 to the Company's Registration Statement on Form S-1 (No.
33-81834)).
10.11 Stock Compensation Plan for Chief Executive Officer dated January 15,
1996.
11.1 Statement re: Computation of Per Share Earnings.
13.1 1996 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit
21.1 to the Company's Registration Statement on Form S-1 (No.
33-81834)).
23.1. Consent of Arthur Andersen LLP.
(b) The registrant did not file a report on Form 8-K for the quarter ended
March 29, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TESSCO TECHNOLOGIES INCORPORATED
By: /s/ Robert B. Barnhill, Jr., President
Robert B. Barnhill, Jr., President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ Robert B. Barnhill, Jr. Chairman of the Board, President and Chief June 27, 1996
Robert B. Barnhill, Jr. Executive Officer
(principal executive officer)
/s/ Gerald T. Garland Treasurer and Chief Financial Officer June 27, 1996
Gerald T. Garland (principal financial and accounting officer)
/s/ Jerome C. Eppler Director June 19, 1996
Jerome C. Eppler
/s/ Martin L. Grass Director June 27, 1996
Martin L. Grass
/s/ Benn R. Konsynski Director June 27, 1996
Benn R. Konsynski
/s/ Dennis J. Shaughnessy Director June 27, 1996
Dennis J. Shaughnessy
/s/ Morton F. Zifferer, Jr. Director June 27, 1996
Morton F. Zifferer, Jr.
</TABLE>
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders of
TESSCO Technologies Incorporated
We have audited in accordance with generally accepted auditing
standards, the financial statements included in TESSCO Technologies
Incorporated's annual report to shareholders incorporated by reference in this
Form 10-K and have issued our report thereon dated April 18, 1996. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the foregoing index is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
April 18, 1996
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Schedule II
TESSCO Technologies Incorporated
Valuation and Qualifying Accounts
For the Years Ended March 29, 1996, March 31, 1995, and April 1, 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C>
Allowance for doubtful accounts and sales returns:
Balance, beginning of year $474,000 $366,400 $396,300
Provisions 166,200 186,300 204,900
Writeoffs (208,500) ( 78,700) (234,800)
Balance, end of year $474,000 $474,000 $366,400
</TABLE>
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EXHIBIT INDEX
2.1.1 Cartwright Communications Acquisition Agreement (incorporated by
reference to the Current Report on Form 8-K dated June 3, 1996).
3.1.1. Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1.1. to the Company's
Registration Statement on Form S-1 (No. 33-81834)).
3.1.2 Certificate of Retirement of the Registrant (incorporated by reference
to Exhibit 3.1.2 to the Company's Registration Statement on Form S-1
(No. 33-81834)).
3.1.3 First Certificate of Amendment to Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1.3. to the
Company's Registration Statement on Form S-1 (No. 33-81834)).
3.2.1. Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.2.1. to the Company's Registration
Statement on Form S-1 (No. 33-81834)).
3.2.2. First Amendment to Amended and Restated By-laws of the Registrant
(incorporated by reference to Exhibit 3.2.2. to the Company's
Registration Statement on Form S-1 (No. 33-81834)).
10.1 Employment Agreement dated March 31, 1994 with Robert B. Barnhill, Jr.
(incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (No. 33-81834)).
10.2 Stockholders' Agreement dated September 29, 1993 by and among the
Registrant, Robert B. Barnhill, Jr., Privest I N.V., Privest II N.V.,
Grotech Partners II, L.P., Grotech Partners III, L.P., Grotech III
Companion Fund, L.P., Grotech III Pennsylvania Fund, L.P. and
Centennial Business Development Fund, Ltd. (incorporated by
reference to Exhibit 10.2 to the Company's Registration Statement
on Form S-1 (No. 33-81834)).
10.3 Stock Option by and between the Company and Robert B. Barnhill, Jr.
effective September 28, 1994 (incorporated by reference to Exhibit 10.3
to the Company's 1995 Annual Report on Form 10-K)
10.4 1993 Non-Statutory Stock Option Agreement with the Trustees of the
TESSCO Technologies Incorporated Retirement Savings Plan
(incorporated by reference to Exhibit 10.20 to the Company's
Registration Statement on Form S-1 (No. 33-81834)).
10.5 Employee Incentive Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement on
Form S-1 (No. 33-81834)).
10.6 1994 Stock and Incentive Plan, as amended (incorporated by reference to
Exhibit 10.22 to the Company's Registration Statement on Form S-1 (No.
33-81834)).
10.7 Financing Agreement dated March 31, 1995 by and between the Company and
NationsBank, N.A. (incorporated by reference to Exhibit 10.7 to the
Company's 1995 Annual Report on Form 10-K).
10.8 Lease Agreement dated April 13, 1992 by and between the Registrant and
Loveton Center Limited Partnership, as amended (incorporated by
reference to Exhibit 10.24 to the Company's Registration
Statement on Form S-1 (No. 33-81834)).
<PAGE>
10.9 Lease Agreement dated September 16, 1991 by and between the Registrant
and Valley Associates, as amended (incorporated by reference to Exhibit
10.25 to the Company's Registration Statement on Form S-1 (No.
33-81834)).
10.10 Distribution Agreement dated October 1, 1993 by and between the
Registrant and Andrew Corporation (incorporated by reference to Exhibit
10.27 to the Company's Registration Statement on Form S-1 (No.
33-81834)).
10.11 Stock Compensation Plan for Chief Executive Officer dated January 15,
1996.
11.1 Statement re: Computation of Per Share Earnings.
13.1 1996 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit
21.1 to the Company's Registration Statement on Form S-1 (No.
33-81834)).
23.1. Consent of Arthur Andersen LLP.
10.11
Stock Compensation Plan for CEO
<PAGE>
TESSCO TECHNOLOGIES INCORPORATED
STOCK COMPENSATION PLAN FOR CHIEF EXECUTIVE OFFICER
JANUARY 15, 1996
Purpose
The purpose of this Stock Compensation Plan for Robert B. Barnhill, Jr.
(this "Plan") is to provide Mr. Barnhill with a long-term incentive which is
consistent with the Company's strategic goals and the creation of stockholder
value and which continues to align Mr. Barnhill's interests with those of the
stockholders of the Company.
Option Grants
Effective as of the last business day of the second month of each
fiscal quarter, commencing on February 29, 1996, Mr. Barnhill will be granted an
option to purchase 10,000 shares of Common Stock of the Company, at an exercise
price equal to the Fair Market Value of the Common Stock (as defined in the
Company's 1994 Stock and Incentive Plan), plus, in the event the option is an
incentive stock option, 10%. To the extent possible, such options shall be
incentive stock options, and will contain such other terms and conditions as are
typically contained in options granted under the Company's 1994 Stock and
Incentive Plan.
Stockholder Approval
The Company will promptly seek approval from the stockholders of the
Company to an increase in the number of shares covered by the 1994 Stock and
Incentive Plan necessary to permit the grant of options to Mr. Barnhill
contemplated by this Plan, and will take such other actions as may be necessary
or appropriate to allow for the option grants contemplated by this Plan.
Term of this Plan
This Plan will continue in force and effect until terminated by either
the Company or Mr. Barnhill by written notice to the other, provided that the
Company shall be obligated to grant the options contemplated by this Plan for
any quarter during which this Plan is terminated.
Further Actions
Both the Company and Mr. Barnhill will take such actions as the other
reasonably requests to facilitate the purposes of this Plan.
11.1
Statement re: Computation of Per Share Earnings
<PAGE>
Statement re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Fiscal Years Ended
March 29, March 31, April 1,
1996 1995 1994
------------- -------------- --------------
<S> <C>
Weighted average common shares outstanding 4,159,300 3,447,700 2,791,700
Dilutive effect of common equivalent shares (a) 395,900 386,300 239,200
------------- -------------- --------------
Primary average shares outstanding 4,555,200 384,000 3,030,900
Effect of change in share price (b) 36,100 60,200 217,900
------------- -------------- --------------
Fully diluted weighted average shares outstanding 4,591,300 3,894,200 3,248,800
------------- -------------- --------------
Net income $4,041,000 $2,472,900 $1,027,800
------------- -------------- --------------
Primary earnings per share $0.89 $0.64 $0.34
------------- -------------- ==============
Fully diluted earnings per share $0.88 $0.64 $0.32
------------- -------------- ==============
</TABLE>
(a) Calculates the dilutive effect of outstanding stock options based upon the
"Treasury Stock Method".
(b) Represents the impact on the treasury stock method of the difference
between the average share price during the period and the ending share
price for the period.
13.1
1996 Annual Report to Stockholders
<PAGE>
TESSCO TECHNOLOGIES [logo]TM
The VITAL LINK
for the WIRELESS
COMMUNICATIONS
Industry
ANNUAL REPORT
YEAR ENDING MARCH 1996
<PAGE>
WELCOME TO TESSCO
TESSCO is a leading supplier to the wireless communications industry. Recognized
as Your Total Source(R), we provide our customers with express delivery of the
complete package of products needed to build, run or maintain virtually any type
of wireless system.
Our customers include cellular, paging and personal communications service (PCS)
carriers, wireless product dealers and installation centers, plus
self-maintained two-way radio end users. All benefit from a marketing and
distribution system that delivers improved procurement economics and an
easier way of doing business.
Our goal is to deliver long-term satisfaction to everyone associated with
our organization--customers, vendors, team members and shareholders--while
fostering a performance culture designed to ensure continuous improvement.
Our Mission...
Today, a leading supplier, providing express delivery of a "total source"
product and service offering to the mobile communications, cellular
telephone, PCS and paging industries.
Tomorrow, The Vital Link(TM), matching customer needs and manufacturing
capability in technologically driven markets, improving the way business is
done.
Our Fundamental Objective...
To deliver what our customers consider as having superior value at
ever-improving quantity, productivity, quality, profitability and timeliness.
[logo]
(C) TESSCO, Year Ending 3/96
<PAGE>
CORPORATE HIGHLIGHTS [logo]TM
Our fiscal year, ending March 1996, was another solid year for TESSCO. Financial
performance and business momentum improved as we leveraged our investment in
information technology, infrastructure and people. Here is a summary of our
highlights for the year:
(bullet) Record Sales
Sales momentum built throughout the year from a 5 percent increase in
revenue for the first quarter of fiscal 1996 to nearly 50 percent
in the fourth quarter. The result was a 24 percent increase for the
year, bringing total revenue to $92 million.
(bullet) Record Earnings
Net income grew more than twice as fast as sales, increasing 63
percent to over $4 million. Earnings per share increased 37 percent
to 88 cents despite an 18 percent increase in shares outstanding.
(bullet) Record Gross Profit Margin
Gross profit margin increased to 25 percent from 22 percent in the
previous year due to pricing and purchasing strategies and the
addition of fee-based income generated by new fulfillment service
offerings.
(bullet) Growth in Sales Teams
Account management teams expanded by 52 percent allowing customer
"presentations" to increase 41 percent. Training was also intensified.
(bullet) Increase in Customer Communications
The number, quality and distribution of our information tools made it
easier and more convenient to do business with TESSCO in fiscal 1996.
An increase in the circulation of our master and specialty Buyer's
Guides, a reader-friendly redesign of The Wireless Journal(R),
upgraded TESSCO Magic(TM) software with on-line order capability, a
TESSCO site on the World Wide Web, a custom trade show presence and
successful industry forums all helped raise market awareness and
provide existing customers with greater access and choice.
REVENUE AND GROSS PROFIT
In Millions $
[Graph appears here--bar values follow:]
Revenue Gross Profit
1993 49.799 11.904
1994 61.375 14.058
1995 74.516998 16.688
1996 92.290001 23.315001
GROSS PROFIT MARGIN AND
OPERATING MARGIN
In Percent
[Graph appears here--bar values follow:]
GP Margin Operating Margin
1993 23.9 3
1994 22.9 3.6
1995 22.4 5.6
1996 25.299999 6.7
EARNINGS PER SHARE
In Cents
[Graph appears here--bar values follow]
1993 0.22
1994 0.32
1995 0.64
1996 0.88
(C) TESSCO, Year Ending 3/96 1
<PAGE>
CORPORATE HIGHLIGHTS [logo]TM
(bullet) Record Number of Buyers
Monthly buyers grew nearly 13 percent in fiscal 1996, bringing our
monthly average to nearly 4,600 and driving a 17% increase in total
buyers to 12,600 for the year. Average monthly purchases per buyer
grew 9 percent to $1,683.
(bullet) Addition of New Service Offerings
Recognizing an opportunity to "partner" with our OEM, carrier and
dealer customers, we developed a new fulfillment service offering
which produced a combination of product sales and fee-based income.
Current contracts with new carrier pioneers put our "vital link"
strategy to work in the important emerging PCS and satellite
technologies.
In addition, we instituted "24/7" service hours with staffing to
handle customer inquiries via phone, fax, or electronically 24 hours
a day, 7 days a week.
(bullet) Addition of New Product Offerings
We enhanced our "total source" position in the past year with the
addition of several new manufacturers and products including an
exclusive licensing agreement with Baltimore Gas & Electric
Company to produce and market a unique antenna mounting bracket for
use on power transmission structures, and two important relationships
with European manufacturers.
(bullet) European Business Development Office
In September of 1995, we established a business development
office in Amsterdam, Netherlands. Based on our findings and several
important business alliances, we plan to open a sales and distribution
center in calendar 1996.
(bullet) Purchase of Maryland Facility
With assistance from the State of Maryland and Baltimore County, we
acquired a 156,000 square foot facility in Hunt Valley, Maryland.
This facility will become our "Global Logistics Center" and should
allow consolidation of our three current Maryland-based facilities
for greater efficiency. Occupancy should be complete by fall of 1996.
OPERATING INCOME
In Millions $
[Graph appears here--bar values follow:]
1993 1.495
1994 2.212
1995 4.188
1996 6.189
NUMBER OF ORDERS
In Thousands
[Graph appears here--bar values follow:]
1993 109.193001
1994 123.886002
1995 141.949997
1996 176.412003
DAYS IN INVENTORY AND
ACCOUNTS RECEIVABLE
[Graph appears here--bar values follow:]
Inventory A/R
1993 76 45
1994 65 42
1995 57 41
1996 56 42
2 (C) TESSCO, Year Ending 3/96
<PAGE>
LETTER TO OUR SHAREHOLDERS [logo]TM
June 4, 1996
DEAR FELLOW SHAREHOLDERS:
I am pleased to give you this review of our strong fiscal year. This report is
an update of last year's rather than an all new presentation. This should give
you an easy way to compare our progress and demonstrate consistency of focus,
while being cost effective. You will also find our annual and quarterly reports
and press releases on the Internet (http://www.tessco.com), which should allow
an efficient and timely way of communicating with you in the future.
This fiscal year came in like a lamb but went out like a lion. As the year
progressed, we raised our level of sales performance and achieved 50
percent revenue growth in the fourth quarter after a disappointing 5 percent
increase in the first three months. We increased the size of our sales team
by 52 percent and gave them innovative programs to present to existing and
potential customers. As a result of our investment in sales and marketing,
monthly buyers increased 13 percent and their purchases grew 16 percent in the
fourth quarter. For the entire year, we showed a 24 percent revenue growth with
a 63 percent increase in net income.
Customers are recognizing the value of TESSCO's ability to deliver the complete
package of what is needed, on time, every time. The point of delivery,
rather than the point of production, is becoming the major focus of many
customers as they search for ways to improve their logistics. By providing a
virtual inventory of a broad range of products and exceptional service, we
make the procurement process seamless and less costly. We did business last
year with nearly 13,000 different customers in 70 countries and monthly buyers
grew to over 4,600.
The deployment of a business unit organization this past year allowed us to
focus on individual market characteristics and build unique and effective
selling propositions in our three business units:
(bullet) Infrastructure Products--Integrating base site logistics. TESSCO
supplies antennas, cable and other equipment to the builders and
maintainers of wireless base station infrastructure. We offer fast,
site specific planning and delivery allowing building cycle time and
inventories to be reduced. Aggressive capital spending in this area
was delayed this year as the personal communications service (PCS)
auctions took place and carriers contemplated their network plans and
assessed competitive strategies. Our fourth quarter revenue growth
of 32 percent, up from 7 percent in the first quarter, leads us to
believe that construction will begin to accelerate in the coming
months.
(bullet) Mobile and Portable Accessories--Partnering for subscriber
satisfaction. Base station infrastructure systems "talk" to
subscribers on mobile and portable equipment. The accessory products
class, which includes antennas, replacement batteries, mobile data
enhancements and other support items, has been a strategic challenge
and required new thinking. We recognized the opportunity to "partner"
with carriers, subscriber equipment manufacturers and dealers and
assist them with providing their customers, the subscribers, with
rapid delivery of information and product. In addition to
supplying product, we developed a fulfillment service offering and
today are enjoying a combination of product sales and fee based
income from several major customers. Essentially we do what TESSCO
does best - manage the procurement and delivery economics and provide
"high touch" customer service - but for a fee in addition to product
sales. Our strategy
[Color inset text follows:]
This is an exciting time to be part of the wireless communications industry. The
past year was good and the TESSCO team is energized. We produced record results
while building on our strong business foundation. Revenues increased 24 percent,
net earnings were up 63 percent and operating income grew to over $6 million. We
continued to improve our customer service, enhance our marketing and operating
capabilities, and develop a uniquely talented team of people. We are
enthusiastic regarding our prospects in the wireless communications industry.
(C) TESSCO, Year Ending 3/96 3
<PAGE>
LETTER TO OUR SHAREHOLDERS
reversed a 4 percent decline in the first quarter to an 80 percent growth in
the fourth quarter. We expect this area to continue to expand as we help our
customers improve subscriber satisfaction.
(bullet) Test and Maintenance--Keeping technicians and engineers productive.
TESSCO supports technicians and engineers by selling tools, supplies
and advanced test equipment required for the installation,
repair and maintenance of infrastructure and mobile and portable
equipment. We are beginning to offer kits and packages that address
specific servicing and installation needs. This area began the year
with 22 percent growth and ended the fourth quarter with 54
percent growth, driven by the development of new programs.
A major wave of capital spending is just beginning as the new personal
communications service providers begin building their systems. Last year the
industry spent $4 billion on new capital investment. The coming months
should see a faster rate of new system construction as the two new licensees
in each market begin to compete with the existing two cellular licensees. The
focus will be on building national networks, and speed to market will be a key
ingredient for success. We feel our capability has been well designed to serve
the infrastructure needs of paging, cellular and the new PCS carriers in
the months to come.
Last year cellular subscribers grew 40 percent* and should grow faster as new
services and lower costs begin to challenge ordinary wired telephone service.
Subscribers will require assistance after their initial purchase of the mobile
or portable phone, fueling continued opportunity for TESSCO.
In the coming year we will build on our strong operating platform, customer,
manufacturer and people foundation to enhance our speed, flexibility and
profitability with these five general initiatives:
(bullet) Customer satisfaction. Our customer report cards consistently
recognize TESSCO as providing excellent service. We intend,
however, to raise the level of our already high standards. Training
and technology will help us develop new techniques to make all points
of customer interface faster, better and less costly.
We will improve our ability to personalize the complicated task of purchase
consolidation and logistics integration for a vast number of buyers, products
and transactions. Electronic commerce tools such as our computer based Buyer's
Guide and Internet access will move from test programs to major
initiatives. While emphasizing technology based services, we will continue to
answer the phone directly with a knowledgeable, friendly TESSCO representative,
24 hours a day, 7 days a week.
(bullet) International expansion. During this past year our office in
Amsterdam and our international sales team helped us better
understand the opportunities for the TESSCO concept outside the
United States. Primarily we learned 1) many of our current
customers are potential international customers, 2) our logistics
integration, "one stop shopping" role is possibly even more
important outside the U.S. and 3) worldwide product sourcing is
enhanced with international locations. As we push for global market
coverage, we will strive to be careful to prevent organizational
redundancies, and protect earnings from start up costs as much as
possible.
AVERAGE MONTHLY BUYERS
In Thousands
[Graph appears here--bar values follow:]
1993 3.308
1994 3.621
1995 4.034
1996 4.569
AVERAGE MONTHLY DOLLARS PER BUYER
In Thousands
[Graph appears here--bar values follow:]
1993 1.255
1994 1.412
1995 1.539
1996 1.683
NUMBER OF CUSTOMERS
In Thousands
[Graph appears here--bar values follow:]
1993 10.134
1994 10.211
1995 10.8
1996 12.6
4 (C) TESSCO, Year Ending 3/96 *Source CTIA
<PAGE>
[logo]TM
(bullet) Logistics and Distribution Centers. World-class facilities are
crucial to "delivering the expectations" of our customers. This
year we will open our new Global Logistics Center, in Hunt Valley,
Maryland which will consolidate our present three locations, and
a start-up distribution center in Amsterdam, Netherlands. From these
locations we will be able to provide express delivery throughout the
world except for Asia. These facilities will improve upon our
current "Vital-Link Switchyard" technology which assures speed of
complete delivery with high accuracy, and low inventory and costs.
(bullet) Marketing innovation. Last year we expanded on our philosophy of
developing and offering solutions rather than merely shipping
products. While we remain independent of specific platforms or
technologies, we must be able to quickly create innovative programs
and services to meet our customers' changing needs. This new year
will see an expansion of the products and choices we offer, packaged,
configured and delivered in a way that truly improves our customers'
operations.
(bullet) Contributors, leaders and quality. The progress we made this past
year was due to the commitment of a very knowledgeable and competent
group of people. Every team member has a stake in the company's
overall performance, creating a close alignment with investor
interest and individual contribution. Our performance culture
requires team members to emphasize improving their value
contribution to the organization rather than seeking movement
through a hierarchy. We stress individual contribution and
leadership development at all levels. In this new year we will
enhance this culture in every possible way as we recruit, develop and
reward our people. Building a globally thinking, virtual
organization and earning our ISO 9002 international quality
registration will be important objectives.
This is an exciting time to be a part of the wireless communications industry.
As we enter the new fiscal year we are prepared to continue our journey and
look forward to meeting the challenges of our plan to accelerate growth. Since
the beginning of our new fiscal year, two such challenges emerged: a vendor
dispute and an agreement to acquire a competitor.
On April 18, 1996, we announced that an important vendor of cable, Andrew
Corporation, attempted to terminate our distribution agreement. I feel
they are taking exception to TESSCO's growth and global strategy of offering
the market a "total source" choice of product alternatives. Presently we are
operating under an ex parte court injunction allowing a continued supply of
Andrew product while we attempt to find a long-term solution. Ultimately, we
believe this event will improve our overall strategic health.
On June 3, 1996, we announced the aquisition of Cartwright
Communications, a Cincinnati-based value-added distributor with annual
revenues of approximately $15 million. This purchase should allow us to
expand our total market coverage as a majority of their customers do not
currently do business with TESSCO. Cartwright will retain its independent
marketing identity and their sales should increase by offering TESSCO's
significantly broader product line. Most importantly, Cartwright shares TESSCO's
intense customer focus and results orientation which should enhance the value
provided to customers and vendors, and combined bottom line performance.
We are enthusiastic regarding our prospects in the wireless communications
industry. We are changing the way business is done by building a strong,
flexible, technology- and people-driven distribution network that will better
serve our markets, team members and shareholders in the months and years ahead.
Thank you for your continued support.
Sincerely,
/s/ Robert B. Barnhill, Jr.
ROBERT B. BARNHILL, JR.
[email protected]
(C) TESSCO, Year Ending 3/96 5
<PAGE>
WE MAKE IT EASIER AND LESS COSTLY FOR OUR CUSTOMERS TO DO BUSINESS...
[Four product photos appear here]
Our product offering spans three principal classes and includes nearly 14,000
items from simple electrical tape to sophisticated spectrum analyzers, from
tiny connectors to bulky cable. This "total source" selection offers
customers an opportunity to consolidate purchases and reduce procurement costs.
The Vital Link(TM)
TESSCO strives to be The Vital Link--the marketing and distribution machine
that matches customer needs with manufacturing capability. In what has been
described as a "gold rush" industry, TESSCO is strategically positioned as the
"general store."
More and more businesses and individuals are relying on
wireless communications as advancing technology continues to improve benefits
and lower the cost of service. The growth of the industry - illustrated by a 40
percent growth in cellular subscribers last year - as well as the influence of
new technologies, has created a robust marketplace and will fuel the demand for
the products we sell. Our customers are the service organizations that deliver
wireless products and services to this growing subscriber base. They need
literally thousands of products delivered quickly, reliably, and economically.
They need TESSCO's "total source" supply capability.
Your Total Source(R)
We catalog and stock nearly 14,000 products from over 230 manufacturers -
virtually everything needed to build, run or maintain a cellular, paging, pcS or
two-way system. These products range from simple electrical tape to
sophisticated spectrum analyzers, from tiny connectors to bulky cable, and are
manufactured by small companies to industry giants. The delivery of information
and technical support for these products is a very important part of our
offering as well.
INFRASTRUCTURE [Color inset text follows:]
PRODUCTS
Infrastructure
On top of buildings, on towers, and in shelters
you'll find the products we sell to the builders
[Pie chart appears here] of wireless base station infrastructure--antennas,
cable, filtering equipment, and more. Virtually
everything except the transceivers and switching
54% of Revenue gear is available from TESSCO. This product class
6,000 Different Items represents over 54 percent of our revenue.
MOBILE AND PORTABLE [Color inset text follows:]
ACCESSORIES
Mobile & Portable
Base station infrastructure systems "talk" to
wireless subscribers via mobile and portable
phones and radios. TESSCO focuses on supplying
[Pie chart appears here] support and accessory products. We offer
everything from antennas to replacement batteries,
microphones and speakers, cases and other
33% of Revenue accessories. This product class represents 33
6,000 Different Items percent of our revenue.
TEST AND MAINTENANCE [Color inset text follows:]
PRODUCTS
Test and
Maintenance
All of these base station infrastructure, mobile
[Pie chart appears here] and portable products must be installed, monitored
and repaired. We supply virtually everything a
service organization needs, from solder to tools to
13% of Revenue the most sophisticated test equipment. This product
2,000 Different Items class represents 13 percent of our revenue.
6 (C) TESSCO, Year Ending 3/96
<PAGE>
AND PROVIDE AN EFFECTIVE CHANNEL OF DISTRIBUTION TO MANUFACTURERS. [logo]TM
Our nearly 4,600 monthly buyers are diverse, ranging from proprietorships to
state and federal agencies, from small installation shops to major
corporations. All benefit from a marketing and distribution system that
delivers improved procurement economics and an easier way of doing business.
[Four procurement photos appear here]
Procurement Economics
Our broad selection provides one-stop shopping and improved procurement
economics for the organizations that keep wireless subscribers talking.
While most competitors focus simply on lowering invoice price and delivery
costs, we seek to offer our customers the lowest possible "total procurement
cost."
With services ranging from electronic order assistance to inventory
control programs, we help customers reduce the sum of product selection,
order entry, purchase price, delivery, accounting, inventory, and
obsolescence costs.
For our manufacturer partners, this same role makes us an attractive channel
of distribution. We provide broad exposure, with aggressive sales and
marketing, to a diverse and loyal customer base. We also seek to provide
the lowest possible "total distribution cost" by lowering our manufacturers'
combined production planning, order entry, order processing, inventory holding,
shipping, credit, collection, and warranty processing costs.
[Clip art appears here]
Customers and manufacturers can now interact with TESSCO 24 hours a day, 7 days
a week, 365 days a year, allowing them to do business when most convenient for
them.
DEALERS AND CELLULAR, PCS AND SELF-MAINTAINED
INSTALLATION CENTERS PAGING CARRIERS USERS
[Pie chart appears here] [Pie chart appears here] [Pie chart appears here]
37% of Revenue 47% of Revenue 16% of Revenue
6,600 Buying Locations 2,300 Buying Locations 3,700 Buying Locations
Our monthly buyers fall into three primary categories:
(bullet) Dealers
When an electrician needs a dispatch system for his trucks or a business
person needs a cellular phone, they go to a communications dealer or
installation center. These independent cellular, paging and two-way dealers
represent 37 percent of our revenue.
(bullet) Carriers
The system operators for cellular, paging and the new personal communications
service (PCS) represent 47 percent of our revenue.
(bullet) Users
Corporate and government users such as utilities, transportation companies,
federal agencies, and public safety organizations who build and maintain
their own systems represent 16 percent of our revenue.
[Color inset text follows:]
Our Customer Promise
Our customers want the same as all customers--better products, better
service, faster delivery and lower cost. We intend to deliver on these needs by
focusing on the five elements of our Customer Promise:
(bullet) Your Total Source providing an effective and efficient supply of a
broad range of products, information and services of the highest
quality.
(bullet) Complete and On-Time Delivery assuring confirmed product and
information availability when and where needed.
(bullet) Outstanding Service achieving the ultimate in long-term
satisfaction and the greatest ease and simplicity of doing business by
anticipating and exceeding expectations.
(bullet) Risk-Free Purchases guaranteeing complete money-back delivery and
product satisfaction for 30 days after shipment, and then
extensive warranty assistance.
(bullet) Lowest Total Procurement Costs providing a system to reduce the sum of
product selection search, selection order entry, purchase price,
delivery, accounting, inventory and obsolescence costs.
(C) TESSCO, Year Ending 3/96 7
<PAGE>
We Utilize High-Tech Methods And Systems...
Our information technology system is the nerve center which integrates all
aspects of our business. It allows TESSCO to provide personal accommodation
on a vast and growing scale while driving corporate productivity and
profitability.
[Three Information Technology photos appear here]
Information Technology Integrates
All Aspects of Our Business
Our business depends on the ability to handle a multitude of products and
transactions with great precision while developing meaningful business
relationships with a growing number of customers and vendors. The solution is
a unique marriage of "high-tech" systems with "high-touch" personalized
service that is the foundation of TESSCO's business approach.
We have invested in creating and continually enhancing an information
technology system that is well beyond that typically found at similar companies.
Proprietary and constantly evolving, it is the nerve center around which all of
our business activities are centered, from sales and marketing to purchasing,
receiving, and inventory control. It gives TESSCO team members access to a
world of real-time information, allowing us to read and react to a broad
spectrum of business challenges. It also helps keep the complicated logistics
of our business flowing with minimal effort, while providing a controlled
environment that continually drives efficiency and productivity.
We now have major initiatives underway which will take our strong internal
information technology systems and move them external to provide our customers
and manufacturers with simpler, more powerful ways to interact and access
our products and services. TESSCO MagicTM software now offers on-line,
real-time inquiry and order entry capability. And a planned Internet "gateway"
will put our entire 14,000 item offering on the World Wide Web in an easy-to-use
format.
[Photo appears here]
Whether in the area of sales, marketing, accounting or on the
distribution center floor, our information technology system gives TESSCO people
the time to focus on building relationships, and the resources to think and
perform at higher levels.
8 (C) TESSCO, Year Ending 3/96
<PAGE>
WHILE MAINTAINING A HIGH-TOUCH FOCUS ON PEOPLE. [logo]TM
At the heart of our business is a superior team of people. We recruit, hire and
continually train individuals who fit our Striving To Be The Best(R)
philosophy. And despite our high-tech approach, we still answer the phone
directly with a knowledgeable, friendly TESSCO representative, 24 hours a day,
7 days a week.
[Three TESSCO Team photos appear here]
[TESSCO University photo appears here]
TESSCO University
Ongoing people development is a high priority and the impetus behind TESSCO
University, a formal, expanding program designed to promote the values,
principles, and skills needed to meet the daily challenges of our business.
Treating Every Customer Like Our Only Customer
Our focus on developing superior information technology has one clear goal: to
give our people the time and tools to build meaningful business relationships
and respond appropriately to what we call "the moments of truth." At TESSCO, all
team members are trained to treat every customer, every call, every visit as if
it were our only one. We make a point of providing up-front confirmation and
back-end follow up to let our customers know we appreciate their business. We
strive to deliver personal accommodation; our information technology system
allows us to do it on a vast and growing scale.
We stay close to our customers through a number of formal listening and learning
mechanisms. Our "Report Card" program has proven the most important. A TESSCO
Report Card is included in every product and literature shipment, and
customers are offered an incentive to return them. All TESSCO people see
comments and scores from these cards each day, and are responsible for taking
immediate action to solve problems or capitalize on opportunities.
The "Team Of Teams" is Our Greatest Strength
We recruit, hire and continually train individuals who fit our Striving To Be
The Best(R) philosophy. We then encourage innovation and performance with
a non-hierarchical organizational structure that challenges individuals to
effect changes that will better serve our customers and drive
productivity and profitability. Accordingly, all team members' compensation
has a "Value-Share" performance-based component. And all eligible team
members are shareholders through direct ownership and/or our 401(k) program.
For these reasons, TESSCO enjoys a sharply focused, company-wide commitment to
maximizing performance and improving the bottom line.
(C) TESSCO, Year Ending 3/96 9
<PAGE>
WE PRACTICE THE ART AND SCIENCE OF MARKETING...
Knowledge delivery--the communication of useful information to customers and
manufacturers--is an important part of our total offering. With our
information-rich product database, we create customized marketing and sales
support materials such as Your Total Source(R) Bulletins and The Wireless
Journal(R) quickly and easily. An increasing number of manufacturers are finding
these materials an effective way to market their products, generating additional
revenue for TESSCO.
[Three Marketing photos appear here]
Personal Accommodation On A Vast Scale
By combining "high-tech" with "high-touch", TESSCO takes marketing to a higher
level. At its best, marketing is an art form in many companies. But at TESSCO we
have developed what we refer to as an artful but scientific approach using
databases. We can easily select and price products, track them during their life
cycles, design promotions that target high-potential buyers and, of course,
measure the effectiveness of our marketing tools.
The TESSCO information technology system is an important tool in our efforts to
build customer relationships. It allows us to track tens of thousands of
potential and active customers, maintain detailed contact diaries plus mail and
purchase histories, and monitor buying patterns - all at the push of a button.
This system also improves our efficiency; as we move from account acquisition to
the important relationship phase, it helps us extract sales cost from the
process.
Cataloging
At TESSCO, cataloging is more than just putting ink on paper. We have created a
unique system for dealing with the multitude and diversity of the products we
supply - something akin to the Dewey Decimal System for the wireless industry.
Each individual product SKU is assigned a full description, illustration, cost,
pricing and technical data along with a TESSCO-created universal product code
(UPC) bar code when entered into the TESSCO product database. This
information-rich environment lets us create our industry-standard Buyer's Guide
in a matter of days, and lets us customize catalogs - by niche, customer,
product, and eventually by country and currency - just as easily. This same
database facilitates our "expert system," a series of informational screens that
lets non-technical people answer technical questions, while allowing fast, easy
electronic publishing of our full complement of business tools.
[TESSCO Magic(TM) photo appears here]
TESSCO Magic(TM)... Your
Procurement Wizard (v2.0)
The TESSCO database allows us to develop innovative presentation formats such as
TESSCO Magic(TM). This proprietary buyer's guide software lets customers find
and learn about any of our nearly 14,000 items, check pricing and availability,
even transmit their orders with point-and-click simplicity. A CD-ROM version
and Internet access are under development.
10 (C) TESSCO, Year Ending 3/96
<PAGE>
SUPPORTED BY A WORLD-CLASS OPERATING PLATFORM. [logo]TM
Our inventory management system lets us provide customers with a "virtual
inventory" of the complete package of products needed by anticipating not only
major requirements, but smaller, difficult-to-schedule needs as well.
[Three Inventory Management photos appear here]
[Photo appears here]
Paperless, Wireless
Distribution Technology
Providing what our customers need, when and where they need it is what TESSCO is
all about. Our highly efficient distribution center helps us do that. On the
distribution center floor, totes are electronically guided to various picking
zones. Wireless data capture is facilitated by our proprietary bar coding. And
no paperwork is created until the shipping label and packing list are affixed at
the final station, allowing us the flexibility to perform customized
fulfillment.
Offering Economical "Virtual Inventory"
At TESSCO, we accept the responsibility of delivering, not just shipping. We
guarantee on-time delivery to insure that our customers' needs are met and their
businesses continue to operate smoothly. We have strong alliances with a number
of transportation carriers, and alternative delivery methods in place should a
particular carrier interrupt service.
In addition, we focus on eliminating backorders and delivering complete orders
rather than multiple partial shipments. Our inventory management system assures
availability of a multitude of items and lets us anticipate not only major
customer requirements, but also smaller, difficult-to-schedule needs. All of
this lets our customers maintain an economical "virtual inventory," certain they
will have the products they need, when they need them, without tying up vital
working capital.
Striving To Be The Best(R)
Our mission to become The Vital Link to the wireless industry requires constant
attention and continual improvement as the needs of the marketplace change and
evolve. We have the operating platform, the uniquely talented team of people,
the financial resources, and the customer loyalty necessary to meet the
challenge. Our future success will depend not so much on a few major gains, but
on hundreds of managed, incremental improvements to the way we do business. We
must build on the excellent platform we have in place today to be better and
more efficient tomorrow. At TESSCO, we are... Striving To Be The Best(R).
(C) TESSCO, Year Ending 3/96 11
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA TESSCO TECHNOLOGIES INCORPORATED [logo]TM
<TABLE>
<CAPTION>
Fiscal Years Ended
.................................................................................................................................
March 29, March 31, April 1, March 26, March 27,
1996 1995 1994 1993 1992
.................................................................................................................................
(in thousands, except per share and selected operating data)
<S> <C>
Statement of Income Data:
Revenues $ 92,290 $ 74,518 $ 61,375 $ 49,800 $40,329
Cost of goods sold 68,974 57,829 47,317 37,896 30,859
.................................................................................................................................
Gross profit 23,316 16,689 14,058 11,904 9,470
Selling, general and administrative expenses 17,127 12,500 11,099 10,409 8,121
Retroactive compensation adjustment 0 0 747 0 0
.................................................................................................................................
Income from operations 6,189 4,189 2,212 1,495 1,349
Interest income (expense), net 179 (157) (511) (450) (334)
.................................................................................................................................
Income before provision for income taxes 6,368 4,032 1,701 1,045 1,015
Provision for income taxes 2,327 1,559 673 370 58
.................................................................................................................................
Net income $ 4,041 $ 2,473 $ 1,028 $ 675 $ 957
.................................................................................................................................
Fully diluted earnings per share $ 0.88 $ 0.64 $ 0.32 $ 0.22 $ 0.31
Fully diluted weighted average
shares outstanding 4,591 3,894 3,249 3,058 3,068
.................................................................................................................................
Selected Operating Data:
Average customers per month 4,569 3,898 3,621 3,308 2,646
Orders shipped 176,412 141,950 123,886 109,193 84,220
Revenues per employee (in thousands) $ 576 $ 583 $ 531 $ 468 $ 455
Balance sheet data (at period end):
Working capital $ 17,390 $ 18,055 $ 10,296 $ 3,299 $ 3,922
Total assets 36,528 28,176 19,054 17,563 12,698
Short-term debt 126 121 1,445 5,638 4,138
Long-term debt 85 199 6,053 620 229
Mandatory redeemable convertible
preferred stock 0 0 0 3,951 3,910
Stockholders' equity 24,544 20,168 6,363 1,322 793
.................................................................................................................................
</TABLE>
12 (C) TESSCO, Year Ending 3/96
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF [logo]TM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
Revenues increased by $17.8 million, or 23.9% to $92.3 million in fiscal
1996 compared to $74.5 million in fiscal 1995. The overall increase was
primarily a result of increased unit volume and an expanded product offering.
Revenues increased in each of the Company's major product categories, with the
largest growth experienced in the sale of infrastructure products.
Infrastructure, mobile and portable accessory and test and maintenance products
accounted for approximately 54%, 33% and 13%, respectively, of fiscal 1996
product revenues. Revenues also increased in each of the major customer
classifications, with the largest growth experienced in sales to cellular and
paging carriers. Cellular and paging carriers, dealers and self-maintained users
accounted for approximately 47%, 37% and 16%, respectively, of fiscal 1996
product revenues.
Gross profit increased by $6.6 million, or 39.7%, to $23.3 million in
fiscal 1996 compared to $16.7 million in fiscal 1995, while gross profit margin
increased to 25.3% from 22.4%. The increase in gross profit margin resulted from
product and service mix changes, pricing and purchasing programs and the
implementation of fee-based fulfillment services.
Selling, general and administrative expenses increased by $4.6 million, or
37.0%, to $17.1 million in fiscal 1996 compared to $12.5 million in fiscal 1995.
The increase in these expenses was primarily attributable to the Company's
increased investment in additional sales and marketing resources and freight
expenses associated with the increased sales activity during fiscal 1996.
Selling, general and administrative expenses increased as a percentage of
revenues to 18.6% in fiscal 1996 from 16.8% in fiscal 1995.
Income from operations increased by $2.0 million, or 47.8%, to $6.2 million
in fiscal 1996 compared to $4.2 million in fiscal 1995, and as a percentage of
revenues increased to 6.7% from 5.6% in fiscal 1995.
The provision for income taxes increased by $768,000 to $2.3 million in
fiscal 1996 compared to $1.6 million in fiscal 1995. This increase was due
primarily to the increased level of income before taxes in fiscal 1996, offset
by a lower effective tax rate.
Fiscal 1995 Compared to Fiscal 1994
Revenues increased by $13.1 million, or 21.4% to $74.5 million in fiscal
1995 compared to $61.4 million in fiscal 1994. The overall increase was
primarily a result of increased unit volume. Revenues increased in each of the
Company's major product categories, with the largest growth experienced in the
sale of infrastructure products. Infrastructure, mobile and portable accessory
and test and maintenance products accounted for approximately 53%, 33% and 14%,
respectively, of fiscal 1995 product revenues. Revenues also increased in each
of the major customer classifications, with the largest growth experienced in
sales to cellular and paging carriers. Cellular and paging carriers, dealers and
self-maintained users accounted for approximately 43%, 41% and 16%,
respectively, of fiscal 1995 product revenues.
Gross profit increased by $2.6 million, or 18.7%, to $16.7 million in
fiscal 1995 compared to $14.1 million in fiscal 1994, while gross profit margin
decreased to 22.4% from 22.9%. The decrease in gross profit margin was primarily
the result of a shift in the relative percentage of revenues from the Company's
product categories, in particular the increase in revenues from infrastructure
products, which generally have a lower gross profit margin than the Company's
other product categories. In addition, the gross profit margin was affected by a
more competitive pricing environment for many of the Company's products.
Selling, general and administrative expenses increased by $1.4 million, or
12.6%, to $12.5 million in fiscal 1995 compared to $11.1 million in fiscal 1994.
The increase in these expenses was primarily attributable to increased salaries
and benefits resulting from the Company's incentive compensation program and
freight expenses associated with the increased sales activity during fiscal
1995. Selling, general and administrative expenses decreased as a percentage of
revenues to 16.8% in fiscal 1995 from 18.1% in fiscal 1994, reflecting the
continued effect of operational leverage and productivity enhancements.
Income from operations increased by $2.0 million, or 89.3%, to $4.2 million
in fiscal 1995 compared to $2.2 million in fiscal 1994, and as a percentage of
revenues increased to 5.6% from 3.6% (4.8% exclusive of the fiscal 1994
retroactive compensation adjustment). Exclusive of the retroactive compensation
adjustment, income from operations would have increased by $1.2 million or
41.5%. See Note 8 of the Notes to Financial Statements.
Interest expense decreased by $354,000 in fiscal 1995 to $157,000 compared
to $511,000 in fiscal 1994. The decrease in interest expense was primarily the
result of the Company's repayment of its revolving line of credit with a portion
of the net proceeds from the initial public offering. The Company invested the
remaining proceeds in various short-term marketable securities for the second
half of fiscal 1995. In addition, for the first six months of fiscal 1995, the
Company experienced a lower effective interest rate on borrowed funds resulting
from the renegotiation of the Company's revolving line of credit agreement.
The provision for income taxes increased by $885,000 to $1.6 million in
fiscal 1995 compared to $673,000 in fiscal 1994. This increase was due primarily
to the increased level of income before taxes in fiscal 1995, offset by a
slightly lower effective tax rate.
Liquidity and Capital Resources
Net cash used in operating activities was approximately $2.7 million in
fiscal 1996. The significant change in operating cash flow was primarily a
result of increased net income offset by increases in accounts receivable,
inventory and accounts payable levels.
(C) TESSCO, Year Ending 3/96 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF [logo]TM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash provided by operating activities was approximately $5.5 million in
fiscal 1995. The significant increase in operating cash flow for fiscal 1995 was
primarily the result of an increase in net income, the current tax benefit
related to an officer's exercise of certain stock options and warrants
concurrently with the initial public offering, and improved overall working
capital management. The net use of cash of $1.4 million in fiscal 1994 was
primarily the result of changes in operating assets and liabilities requiring a
use of cash, particularly a growth in accounts receivable levels.
Net cash used in investing activities in each fiscal year consisted
primarily of the acquisition of property and equipment. In fiscal 1994, the
repayment of a note receivable from an officer of the Company resulted in a
small net receipt of cash from investing activities.
Net cash provided by financing activities was approximately $196,000, $3.4
million and $1.3 million in fiscal 1996, 1995 and 1994, respectively. In fiscal
1995, this was primarily the result of the Company's initial public offering,
offset by the repayment of the revolving line of credit. In fiscal 1994 this was
primarily the result of increased borrowings under the Company's credit
facility.
During fiscal 1996, the Company renegotiated its revolving line of credit.
The new line is unsecured and has a maximum borrowing capacity of $10.0 million.
The borrowings bear interest at a fluctuating rate as set forth in the revolving
line of credit agreement. The Company may elect a rate based on either (i) the
lender's prime lending rate or (ii) the London Interbank Offered Rate ("LIBOR"),
with the minimum rate being LIBOR plus 1.75% There were no outstanding
borrowings under the revolving line of credit as of March 31, 1996. The
revolving line of credit agreement expires on March 31, 1998.
The Company made capital expenditures totaling $5.5 million, $760,000 and
$150,000 during fiscal 1996, 1995 and 1994, respectively. During fiscal 1996,
the Company temporarily funded the purchase of its new distribution facility and
will refinance it with permanent financing and attractive assistance from the
state of Maryland and Baltimore county. The Company expects to make capital
expenditures of approximately $6 million in fiscal 1997.
Other Matters
On April 16, 1996, the Company received a 30-day Notice of Termination of
its Distributor Agreement from Andrew Corporation. On April 18, 1996, TESSCO
filed a lawsuit seeking a declaration that Andrew had violated the Maryland
Anti-Trust Act and the Maryland Fair Distributorship Act. The Court ruled on
June 10, 1996, that these claims should be arbitrated. The Company requested ex
parte, interlocutory and permanent injunctive relief. The Company was granted an
ex parte injunction which currently allows a continued supply of Andrew product.
The ex parte injunction was extended by consent of Andrew through July 1, 1996.
The Company is seeking a further extension known as an interlocutory injunction
until such time as the entire case can be heard. Counsel for the Company
believes that the Company's claims under its lawsuits are meritorious; that it
is entitled to permanent injunctive relief, and that Andrew Corporation is
subject to the Maryland Fair Distributorship Act, which requires, among other
things, that Andrew give 60 days' notice of termination and an opportunity to
cure. Sales of Andrew product as a percentage of total sales represented 29% and
23%, respectively, for fiscal 1996 and the fourth quarter of fiscal 1996. The
Company continues to offer competitive alternative product offerings and sources
for Andrew product items. Should the injunctive relief not be extended, or
alternative product acceptability be low or product availability become
unreliable, the impact on revenues and earnings could be material.
14 (C) TESSCO, Year Ending 3/96
<PAGE>
QUARTERLY RESULTS OF OPERATIONS TESSCO TECHNOLOGIES INCORPORATED [logo]TM
<TABLE>
<CAPTION>
Fiscal 1995 Quarters Ended Fiscal 1996 Quarters Ended
..................................................................................................................................
July 1, Sept. 30, Dec. 30, March 31, June 30, Sept. 29, Dec. 29, March 29,
1994 1994 1994 1995 1995 1995 1995 1996
..................................................................................................................................
<S> <C>
Revenues $18,241,000 $18,198,900 $19,844,100 $18,233,600 $19,185,100 $21,989,600 $23,805,600 $27,309,800
Cost of
goods sold 14,214,200 14,149,300 15,486,000 13,979,300 14,599,500 16,709,200 17,365,600 20,300,100
..................................................................................................................................
Gross profit 4,026,800 4,049,600 4,358,100 4,254,300 4,585,600 5,280,400 6,440,000 7,009,700
Selling,
general, and
administrative
expenses 3,100,500 3,044,100 3,150,500 3,205,100 3,359,200 3,818,000 4,722,200 5,227,300
..................................................................................................................................
Income from
operations 926,300 1,005,500 1,207,600 1,049,200 1,226,400 1,462,400 1,717,800 1,782,400
Interest income
(expense), net (110,700) (113,100) 9,700 57,000 70,300 63,600 52,800 (7,700)
..................................................................................................................................
Income before
provision
for taxes 815,600 892,400 1,217,300 1,106,200 1,296,700 1,526,000 1,770,600 1,774,700
Provision for
income taxes 322,500 358,900 458,100 419,100 477,900 540,800 643,300 665,000
..................................................................................................................................
Net income $ 493,100 $ 533,500 $ 759,200 $ 687,100 $ 818,800 $ 985,200 $ 1,127,300 $ 1,109,700
..................................................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Percentage of Revenues
...................................................................................................................................
Fiscal 1995 Quarters Ended Fiscal 1996 Quarters Ended
...................................................................................................................................
July 1, Sept. 30, Dec. 30, March 31, June 30, Sept. 29, Dec. 29, March 29,
1994 1994 1994 1995 1995 1995 1995 1996
...................................................................................................................................
<S> <C>
Revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of
goods sold 77.9 77.7 78.0 76.7 76.1 76.0 72.9 74.3
...................................................................................................................................
Gross profit 22.1 22.3 22.0 23.3 23.9 24.0 27.1 25.7
Selling,
general, and
administrative
expenses 17.0 16.7 15.9 17.5 17.5 17.4 19.8 19.1
...................................................................................................................................
Income from
operations 5.1 5.5 6.1 5.8 6.4 6.7 7.2 6.5
Interest income
(expense), net (0.6) (0.7) 0.0 0.3 0.4 0.3 0.2 (0.0)
...................................................................................................................................
Income before
provision for taxes 4.5 4.9 6.1 6.1 6.8 6.9 7.4 6.5
Provision for
income taxes 1.8 2.0 2.3 2.3 2.5 2.5 2.7 2.4
...................................................................................................................................
Net income 2.7 2.9 3.8 3.8 4.3 4.5 4.7 4.1
</TABLE>
(C) TESSCO, Year Ending 3/96 15
<PAGE>
BALANCE SHEETS TESSCO TECHNOLOGIES INCORPORATED [logo]TM
<TABLE>
<CAPTION>
ASSETS
March 29, March 31,
1996 1995
...............................................................................................................
<S> <C>
Current Assets:
Cash and marketable securities $ 439,400 $ 8,453,100
Trade accounts receivable, net of allowance
for doubtful accounts and sales returns of
$431,800 and $474,000, respectively 14,312,500 8,057,300
Product inventory 13,689,400 8,573,900
Deferred tax asset 280,600 277,100
Prepaid expenses and other current assets 566,700 474,500
...............................................................................................................
Total current assets 29,288,600 25,835,900
...............................................................................................................
Property and Equipment:
Building 4,808,600 --
Computer equipment and software 1,781,200 1,439,600
Furniture and equipment 1,187,300 886,500
Tooling 295,100 295,100
Leasehold improvements 591,200 569,100
Equipment held under capital lease 600,000 600,000
...............................................................................................................
9,263,400 3,790,300
Less-accumulated depreciation and amortization 2,660,700 2,093,500
...............................................................................................................
Property and Equipment, net 6,602,700 1,696,800
Deferred Tax Asset 87,900 32,500
Other Assets 548,700 610,800
...............................................................................................................
Total assets $36,527,900 $28,176,000
...............................................................................................................
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligation $ 126,400 $ 120,600
Trade accounts payable 9,642,700 6,607,700
Accrued expenses and other current liabilities 2,129,700 1,052,200
...............................................................................................................
Total current liabilities 11,898,800 7,780,500
Capital Lease Obligation, Net of Current Portion 85,000 199,300
Other Long-Term Liabilities -- 27,800
...............................................................................................................
Total liabilities 11,983,800 8,007,600
Commitment and Contingencies
Stockholders' Equity
Preferred stock, $.01 par value, 500,000 shares authorized
and no shares issued and outstanding -- --
Common stock, $.01 par value, 9,500,000 shares authorized;
4,462,572 shares issued and 4,218,814 shares outstanding
as of March 29, 1996 and 4,328,397 shares issued and
4,091,785 shares outstanding as of March 31, 1995 44,600 43,300
Additional paid-in capital 18,232,900 17,739,000
Treasury stock at cost, 243,758 shares and 236,612 shares, respectively (2,126,400) (1,965,900)
Retained earnings 8,393,000 4,352,000
...............................................................................................................
Total stockholders' equity 24,544,100 20,168,400
Total liabilities and stockholders' equity $36,527,900 $28,176,000
...............................................................................................................
</TABLE>
The accompanying notes are an integral part of these financial statements.
16 (C) TESSCO, Year Ending 3/96
<PAGE>
STATEMENTS OF INCOME TESSCO TECHNOLOGIES INCORPORATED [logo]TM
<TABLE>
<CAPTION>
Fiscal Years Ended
..................................................................................................................................
March 29, March 31, April 1,
1996 1995 1994
..................................................................................................................................
<S> <C>
Revenues $92,290,100 $74,517,600 $61,375,600
Cost of goods sold 68,974,400 57,828,800 47,317,100
..................................................................................................................................
Gross profit 23,315,700 16,688,800 14,058,500
Selling, general and administrative expenses 17,126,700 12,500,200 11,099,400
Retroactive compensation adjustment -- -- 746,600
..................................................................................................................................
Income from operations 6,189,000 4,188,600 2,212,500
Interest income (expense), net 179,000 (157,100) (511,300)
..................................................................................................................................
Income before provision for income taxes 6,368,000 4,031,500 1,701,200
Provision for income taxes 2,327,000 1,558,600 673,400
..................................................................................................................................
Net income $ 4,041,000 $ 2,472,900 $ 1,027,800
..................................................................................................................................
Primary earnings per share $0.89 $0.64 $0.34
..................................................................................................................................
..................................................................................................................................
Fully diluted earnings per share $0.88 $0.64 $0.32
..................................................................................................................................
..................................................................................................................................
Primary weighted average shares outstanding 4,555,200 3,834,000 3,030,900
..................................................................................................................................
..................................................................................................................................
Fully diluted weighted average shares outstanding 4,591,300 3,894,200 3,248,800
..................................................................................................................................
</TABLE>
The accompanying notes are an integral part of these financial statements.
(C) TESSCO, Year Ending 3/96 17
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
TESSCO TECHNOLOGIES INCORPORATED [logo]TM
<TABLE>
<CAPTION>
Total
Common Additional Subscriptions and Treasury Retained Stockholders'
Stock Paid-In Capital Notes Receivable Stock Earnings Equity
....................................................................................................................................
<S> <C>
Balance at
March 26, 1993 $ 16,400 $ 822,700 $ (216,700) $ (177,600) $ 877,500 $ 1,322,300
Repurchase of common
stock for treasury -- -- -- (1,100) -- (1,100)
Payment received on
common stock
subscriptions and
notes receivable -- -- 63,700 -- -- 63,700
Accretion of redemption
value of mandatory
redeemable convertible
preferred stock -- -- -- -- (26,200) (26,200)
Redemption of
common stock -- (153,000) 153,000 -- -- --
Conversion of
mandatory redeemable
convertible preferred
stock to common stock 12,400 3,964,500 -- -- -- 3,976,900
Net income -- -- -- -- 1,027,800 1,027,800
....................................................................................................................................
Balance at
April 1, 1994 28,800 4,634,200 -- (178,700) 1,879,100 6,363,400
Net proceeds from
initial public offering 9,700 10,023,200 -- -- -- 10,032,900
Net proceeds from
exercise of options
and warrants in exchange
for cash and treasury stock 4,800 2,367,400 -- (1,787,200) -- 585,000
Tax benefit of option exercises -- 714,200 -- -- -- 714,200
Net income -- -- -- -- 2,472,900 2,472,900
....................................................................................................................................
Balance at
March 31, 1995 43,300 17,739,000 -- (1,965,900) 4,352,000 20,168,400
Net proceeds from exercise
of options in exchange
for cash and treasury stock 1,300 463,900 -- (160,500) -- 304,700
Tax benefit of option exercises -- 30,000 -- -- -- 30,000
Net income -- -- -- -- 4,041,000 4,041,000
....................................................................................................................................
Balance at
March 29, 1996 $ 44,600 $18,232,900 -- $(2,126,400) $8,393,000 $ 24,544,100
....................................................................................................................................
....................................................................................................................................
</TABLE>
The accompanying notes are an integral part of these financial statements.
18 (C) TESSCO, Year Ending 3/96
<PAGE>
STATEMENTS OF CASH FLOWS TESSCO TECHNOLOGIES INCORPORATED [logo]TM
<TABLE>
<CAPTION>
Fiscal Years Ended
..................................................................................................................................
March 29, March 31, April 1,
1996 1995 1994
..................................................................................................................................
<S> <C>
Cash Flows from Operating Activities:
Net income $ 4,041,000 $2,472,900 $ 1,027,800
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 629,300 552,300 519,900
Provision for bad debts 166,200 186,300 204,900
Deferred income taxes (58,900) (79,800) 13,100
Increase in trade accounts receivable (6,421,400) (652,400) (2,165,700)
(Increase) decrease in product inventory (5,115,500) (289,100) 211,000
(Increase) decrease in prepaid expenses and
other current assets (92,200) 374,000 (334,400)
Increase (decrease) in trade accounts payable 3,035,000 2,025,300 (994,400)
Increase in accrued expenses and other
current liabilities, net of non-cash items in fiscal 1996 and 1995 1,107,500 1,225,600 175,500
Decrease in other long-term liabilities (27,800) (41,800) (19,800)
..................................................................................................................................
Net cash (used in) provided by operating activities (2,736,800) 5,773,300 (1,362,100)
Cash Flows from Investing Activities:
Acquisition of property and equipment (5,473,100) (759,900) (150,200)
Advances on note receivable -- -- (232,500)
Repayment of note receivable -- -- 390,500
..................................................................................................................................
Net cash (used in) provided by investing activities (5,473,100) (759,900) 7,800
Cash Flows from Financing Activities:
Net (decrease) increase in borrowings under
credit facility and cash overdraft -- (6,881,500) 1,383,800
Net proceeds from initial public offering -- 10,032,900 --
Proceeds from exercise of stock options 304,700 585,000 --
Proceeds from common stock subscriptions and
notes receivable -- -- 63,700
Repurchase of common stock for treasury -- -- (1,100)
Payment of capital lease obligation (108,500) (296,700) (143,900)
..................................................................................................................................
Net cash provided by financing activities 196,200 3,439,700 1,302,500
Net (decrease) increase in cash and marketable securities (8,013,700) 8,453,100 (51,800)
Cash and Marketable Securities, beginning of year 8,453,100 -- 51,800
..................................................................................................................................
Cash and Marketable Securities, end of year $ 439,400 $8,453,100 $ --
..................................................................................................................................
..................................................................................................................................
</TABLE>
The accompanying notes are an integral part of these financial statements.
(C) TESSCO, Year Ending 3/96 19
<PAGE>
NOTES TO FINANCIAL STATEMENTS TESSCO TECHNOLOGIES INCORPORATED [logo]TM
1. Organization and Initial Public Offering:
TESSCO Technologies Incorporated (the Company) is a leading distributor of
products to the wireless communications industry.
On September 28, 1994, the Company sold 966,870 shares of its common
stock for $12.00 per share in connection with an initial registration
with the Securities and Exchange Commission. In connection with this
transaction, the Company incurred costs of $1,569,500 consisting
principally of underwriting, legal, accounting and other fees. Additionally,
certain existing stockholders sold 1,218,130 shares of their common stock
holdings to the public and certain officers and directors of the Company
exercised certain stock options and warrants, resulting in the issuance of an
additional 325,851 shares of common stock.
The net proceeds to the Company of $10,032,900 from the offering and
$585,000 from the exercise of certain stock options and warrants were used to
repay the Company's borrowing under a working capital revolving line of credit
and for general corporate purposes. The unaudited pro forma supplemental
earnings per share would have been $0.58 for fiscal year 1995 assuming the
Offering and the application of proceeds therefrom occurred at the beginning of
the period.
In connection with the initial public offering, the Company effected a
three-for-one stock split. In addition, the Company increased the number of
authorized shares of common stock to 9,500,000 and authorized 500,000 shares of
a newly-created class of preferred stock. All references in the accompanying
financial statements and related notes with respect to common stock, preferred
stock, and per share amounts have been retroactively restated for the effects of
the split and the new number of authorized shares. The Company also approved, in
connection with the public offering, the granting of options to purchase 424,400
shares of common stock at the initial public offering price.
2. Summary of Significant Accounting Policies:
Fiscal Year
The Company maintains its accounts on a fifty-two/fifty-three week fiscal
year ending on the Friday falling on or between March 26 and April 1. The fiscal
years ending March 29, 1996 and March 31, 1995 each contained 52 weeks, and the
fiscal year ended April 1, 1994, contained 53 weeks.
Cash and Marketable Securities
Cash and marketable securities includes marketable securities with a
maturity of 90 days or less.
Product Inventory
Product inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method and includes certain
charges directly and indirectly incurred in bringing product inventories to the
point of sale.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
Useful lives
Computer equipment and software 5 years
Furniture, equipment and tooling 3-10 years
Building 30 years
Amortization is provided on leasehold improvements and equipment held under
capital lease using the straight-line method over the terms of the leases
ranging from three to ten years.
Other Assets
Other assets consist mainly of goodwill and trademarks which are being
amortized using the straight-line method over 15 and 5 years, respectively.
Accumulated amortization as of March 29, 1996 and March 31, 1995 was
approximately $250,100 and $188,000, respectively.
Revenue Recognition
The Company records sales when product is shipped to the customers.
Advertising Costs
The Company capitalizes certain costs related to the printing and
production of its product catalogs. These costs are amortized over a period of
six months commencing with the distribution of the catalogs.
Supplemental Cash Flow Information
Cash paid for interest during fiscal years 1996, 1995 and 1994 totaled $0,
$181,400 and $339,900 respectively. Cash paid for income taxes for fiscal years
1996, 1995 and 1994 totaled $1,547,000, $712,000 and $652,000 respectively.
The Company had noncash transactions during fiscal years 1996, 1995 and
1994 as follows:
1996 1995 1994
Accretion of redemption
value of preferred stock $ -- $ -- $ 26,200
Exercise of options and
warrants in exchange for
treasury stock 160,500 1,787,200 --
Redemption of stock
subscription and
note receivable -- -- 153,000
Tax benefit from exercise
of stock options 30,000 714,200 --
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could significantly differ from those
estimates.
20 (C) TESSCO, Year Ending 3/96
<PAGE>
NOTES TO FINANCIAL STATEMENTS TESSCO TECHNOLOGIES INCORPORATED [logo]TM
3. Note Receivable From Officer:
As of March 26, 1993, the Company had a note receivable from the Chief
Executive Officer with a balance of $158,000. This note bore interest at the
annual short-term applicable Federal rate. During fiscal year 1994, the Company
provided an additional $232,500 to the Officer under the note. The total note
balance was repaid by the Officer in March 1994.
4. Borrowings Under Credit Facility:
Effective February 28, 1994, the Company entered into an Amended and
Restated Financing and Security Agreement (the Agreement) with a bank for a
$10,000,000 revolving credit facility available through December 31, 1996. There
was no balance outstanding under the Agreement as of March 29, 1996 and March
31, 1995. The Company repaid the outstanding balance under the Agreement during
fiscal 1995 from a portion of the proceeds from the initial public offering.
Borrowings are secured by accounts receivable, inventory and certain other
assets of the Company. Borrowings available to the Company under the Agreement
are based upon the Company's trade accounts receivable and product inventory and
at March 31, 1995, the maximum borrowing capacity was $10,000,000. The Company
also pays a 0.25% fee based on the average daily unused balance.
Interest rates under the Agreement are based on the Company's quarterly
debt service coverage ratios as follows:
Debt Service
Coverage Interest Rate
................................................................................
Less than 2.5 Prime plus 1/2% or LIBOR plus 2 1/2%
2.5 to 3.0 Prime plus 1/4% or LIBOR plus 2 1/4%
3.0 to 4.5 Prime or LIBOR plus 2%
Greater than 4.5 Prime or LIBOR plus 1 3/4%
The provisions of the Agreement require the Company to meet certain
financial covenants and ratios and contain other limitations including a
restriction on dividend payments.
During fiscal 1996, the Company renegotiated its existing revolving line of
credit. The new line is unsecured and bears interest at either the prime rate or
the London Interbank Offered Rate (LIBOR) with the minimum rate being LIBOR plus
1.75%. The unsecured line of credit expires on March 31, 1998.
During fiscal years 1996, 1995 and 1994, the maximum borrowings under the
revolving credit facility totaled $0, $6,413,500 and $6,445,400, respectively.
The average borrowings totaled $0, $5,383,200 and $5,033,800 in fiscal years
1996, 1995 and 1994, respectively. The weighted average interest rate on
borrowings was 0.0%, 6.6% and 6.9% for the respective fiscal years.
Interest expense on the credit facility for fiscal years 1996, 1995 and
1994, totaled $0, $166,000 and $355,200, respectively.
5. Leases:
The Company has entered into a lease for various property and equipment
expiring in fiscal year 1998 which has been capitalized using an interest rate
of 10.2%. The Company also has several noncancelable operating leases for office
and warehouse facilities and equipment that expire at various times through
December 31, 2000. Rent expense for fiscal years 1996, 1995 and 1994 totaled
$520,200, $463,400 and $466,900, respectively.
As of March 29, 1996, future minimum lease payments related to leases were
as follows:
Capital Operating
Lease Leases
................................................................................
1997 $141,000 $ 372,200
1998 88,200 219,200
1999 -- 267,700
2000 -- 267,700
2001 -- 200,700
................................................................................
229,200 $1,327,500
Less -- Interest 17,800
................................................................................
Present value of future
minimum lease payments $211,400
6. Stock Options and Warrants:
The Company has two stock option plans -- the 1984 Employee Incentive Stock
Option Plan (the 1984 Plan) and the 1994 Stock and Incentive Plan (the 1994
Plan). Under the 1984 Plan and 1994 Plan, options for a maximum of 401,250 and
333,000 shares, respectively, may be granted at prices not less than 100% of the
fair market value at the date of option grant and for a term of not greater than
ten years. The 1994 Plan also allows for the granting of non-qualified options,
stock appreciation rights, restricted stock and restricted stock units, and
other performance awards, none of which have been granted as of March 29, 1996.
In addition, non-plan options and warrants have been granted at the
discretion of the Board of Directors. Transactions involving options and
warrants are summarized as follows:
Options 1996 1995 1994
................................................................................
Outstanding,
beginning of year 699,600 625,900 411,600
Granted 148,600 424,400 322,900
Exercised (134,200) (350,700) --
Cancelled -- -- (108,600)
................................................................................
Outstanding,
end of year 714,000 699,600 625,900
Available for grant
at end of year 74,000 222,600 447,000
................................................................................
Total reserved shares 788,000 922,200 1,072,900
Prices per share $3.00-28.00 $3.00-13.20 $3.00-6.67
Warrants 1996 1995 1994
................................................................................
Outstanding,
beginning of year -- 135,000 135,000
Granted -- -- --
Exercised -- (135,000) --
Cancelled -- -- --
................................................................................
Outstanding, end of year -- -- 135,000
Total reserved shares -- -- 135,000
Prices per share N/A N/A $3.00-3.33
7. Common Stock and Mandatory Redeemable
Convertible Preferred Stock:
Effective September 29, 1993, the Company's mandatory redeemable
convertible preferred stock was converted to common stock. The redemption value
of the mandatory redeemable convertible preferred stock was being accreted using
the effective-
(C) TESSCO, Year Ending 3/96 21
<PAGE>
NOTES TO FINANCIAL STATEMENTS TESSCO TECHNOLOGIES INCORPORATED [logo]TM
interest method over the related redemption periods. Accretion for fiscal
years 1996, 1995 and 1994 totaled $0, $0 and $26,200, respectively, as reflected
in the accompanying statements of changes in stockholders' equity.
8. Retroactive Compensation Adjustment:
During fiscal year 1994, the Board of Directors approved a compensation
adjustment for the Chief Executive Officer of the Company totaling $746,600,
related to services rendered since 1984. This compensation amount has been
shown as "retroactive compensation adjustment" in the accompanying statements
of operations.
9. Income Taxes:
A reconciliation of the difference between the provision for income taxes
computed at statutory rates and the provision for income taxes provided on
income is as follows:
1996 1995 1994
................................................................................
Statutory federal rate 34.0% 34.0% 34.0%
State taxes,
net of federal benefit 2.3 2.3 2.3
Non-deductible expenses 0.5 0.8 1.9
Other (0.3) 1.6 1.4
................................................................................
Effective rate 36.5% 38.7% 39.6%
The provision for income taxes was comprised of the following:
1996 1995 1994
................................................................................
Federal:
Current $2,128,000 $1,473,700 $600,100
Deferred (51,700) (69,600) 11,800
State:
Current 257,900 164,700 60,200
Deferred (7,200) (10,200) 1,300
................................................................................
Provision for
income taxes $2,327,000 $1,558,600 $673,400
................................................................................
Total deferred tax assets and deferred tax liabilities as of March 29, 1996
and March 31, 1995, and the sources of the differences between financial
accounting and tax basis of the Company's assets and liabilities which give rise
to the deferred tax assets and deferred tax liabilities are as follows:
1996 1995
................................................................................
Deferred tax assets:
Property, equipment
and capital leases $134,500 $ 94,700
Accrued expenses and reserves 297,800 295,500
Other assets 9,600 11,300
Miscellaneous -- 16,900
................................................................................
$441,900 $418,400
Deferred tax liabilities:
Prepaid expenses $17,200 $ 35,300
Other assets 56,200 73,500
................................................................................
$73,400 $ 108,800
10. Profit Sharing Plan:
The Company has implemented a 401(k) profit sharing plan that covers all
eligible employees. Contributions to the plan are made at the discretion of
the Company's Board of Directors. The Company's contribution to the plan
during fiscal years 1996, 1995 and 1994 totaled $47,200, $69,800 and $9,000,
respectively.
11. Asset Purchase:
During fiscal year 1993, the Company acquired certain assets and assumed
certain liabilities of Cellular Solutions Incorporated (CSI). The assets
acquired were inventory, tooling, catalog development, and certain intangible
assets, including trademarks and trade names. In consideration for these assets,
the Company assumed liabilities of CSI totaling $1,362,000. The acquisition has
been accounted for as a purchase with the purchase price being allocated to the
assets acquired based on their estimated fair values. The excess of the
liabilities assumed over the fair value of assets acquired of $713,300 is being
amortized over 15 years.
12. Earnings Per Share:
Primary and fully diluted earnings per share were computed based on the
weighted average number of common and common equivalent shares outstanding. The
mandatory redeemable convertible preferred stock was converted to common stock
during fiscal year 1994 (see Note 7) and, as a common stock equivalent, has been
treated as if it was converted at the beginning of the periods presented. The
dilutive effect of all options and warrants outstanding has been determined by
using the treasury stock method. The weighted average shares outstanding is
calculated as follows:
1996 1995 1994
................................................................................
Common stock 4,159,300 3,447,700 2,791,700
Effect of dilutive
common equivalent
shares 395,900 386,300 239,200
................................................................................
Primary weighted
average shares
outstanding 4,555,200 3,834,000 3,030,900
Effect of change in
share price 36,100 60,200 217,900
................................................................................
Fully diluted
weighted average
shares outstanding 4,591,300 3,894,200 3,248,800
................................................................................
The "effect of change in share price" above represents the impact on the
treasury stock method of the difference between the average share price during
the year and the year-end share price.
13. Subsequent Events
On April 18, 1996, the Company announced it had received a 30-day notice of
termination of its distributor agreement with Andrew Corporation. TESSCO filed a
lawsuit seeking a declaration that Andrew violated the Maryland Anti-Trust Act
and the Maryland Fair Distributor Act.
The Company was granted an ex parte injunction pursuant to which the
Company is assured a continued supply of Andrew product. The Company has asked
the court for permanent injunctive relief.
Sales of Andrew product as a percentage of total sales represented 29% and
23% for fiscal 1996 and the fourth quarter of fiscal 1996 respectively. (See
page 14, Other Matters, for additional information.)
On June 3, 1996, the Company announced the completion of the acquisition of
Cincinnati, Ohio-based Cartwright Communications. The transaction is valued at
$3,800,000 plus the net value of inventory, receivables and payables. The
purchase was for cash and the assumption of certain liabilities.
22 (C) TESSCO, Year Ending 3/96
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR TESSCO TECHNOLOGIES INCORPORATED [logo]TM
FINANCIAL STATEMENTS
The consolidated statements of TESSCO Technologies Incorporated have been
prepared by the Company in accordance with generally accepted accounting
principles. The financial information presented is the responsibility of
management and accordingly includes amounts upon which judgment has been
applied, or estimates made, based on the best information available.
The financial statements have been audited by Arthur Andersen LLP,
independent public accountants, for the fiscal years ended March 29, 1996,
March 31, 1995 and April 1, 1994.
The consolidated financial statements, in the opinion of management, present
fairly the financial position, results of operations and cash flows of the
Company as of the stated dates and periods in conformity with generally
accepted accounting principles. The Company believes that its accounting
systems and related internal controls used to record and report financial
information provide reasonable assurance that financial records are reliable
and that transactions are recorded in accordance with established policies and
procedures.
/s/ Robert B. Barnhill, Jr. /s/ Gerald T. Garland
Robert B. Barnhill, Jr. Gerald T. Garland
Chairman and Chief Executive Officer Treasurer and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
TESSCO Technologies Incorporated:
We have audited the accompanying balance sheets of TESSCO Technologies
Incorporated as of March 29, 1996 and March 31, 1995, and the related statements
of income, changes in stockholders' equity and cash flows for the years ended
March 29, 1996, March 31, 1995 and April 1, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TESSCO Technologies
Incorporated as of March 29, 1996 and March 31, 1995, and the results of its
operations and its cash flows for the years ended March 29, 1996, March 31,
1995 and April 1, 1994, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Baltimore, Maryland
April 18, 1996
(C) TESSCO, Year Ending 3/96 23
<PAGE>
The annual meeting of stockholders will be held at 2:00 P.M., Tuesday, July 16,
1996, at the TESSCO Technologies Incorporated Corporate Headquarters, 34 Loveton
Circle, Sparks, MD USA 21152.
DIRECTORS
Robert B. Barnhill, Jr. is Chairman and Chief Executive Officer
of TESSCO Technologies Incorporated.
Jerome C. Eppler is a principal of Olympic Capital Partners,
an investment banking firm.
Martin L. Grass is Chairman and Chief Executive Officer
of Rite Aid Corporation, a national drug store chain.
Benn R. Konsynski, Ph. D., is the George S. Craft Professor
of Business Administration for Decision and Information Analysis
at the Goizueta Business School of Emory University.
Dennis J. Shaughnessy is Managing Director of
Grotech Capital Group, a venture capital firm.
Morton F. Zifferer, Jr. is Chairman, President and
Chief Executive Officer of New Standard Corporation,
a metal products manufacturer.
OFFICERS
Robert B. Barnhill, Jr.
Chairman and Chief Executive Officer
Gerald T. Garland
Chief Financial Officer
TRANSFER AGENT
Chemical Mellon Shareholder Services
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 526-0801
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Baltimore, MD
CORPORATE COUNSEL
Neuberger, Quinn, Gielen, Rubin & Gibber, P.A.
Baltimore, MD
Whiteford, Taylor & Preston LLP
Baltimore, MD
MARKET MAKERS
Alex. Brown & Sons, Inc. J.C. Bradford & Co.*
Robert W. Baird & Co., Inc.* Ferris Baker Watts, Inc.*
William Blair & Co.* Herzog, Heine, Geduld, Inc.
*Analyst coverage
STOCK LISTING AND PRICES
The Company's common stock has been publicly traded on the NASDAQ National
Market since September 28, 1994 under the symbol "TESS." The quarterly range of
prices per share since the Company's stock has been publicly traded was as
follows:
High Low
................................................................................
Fiscal 1995
Second Quarter
(from September 28) 17 15 1/2
Third Quarter 19 3/4 14 1/4
Fourth Quarter 19 1/4 15 1/2
Fiscal 1996
First Quarter 18 1/2 14 3/4
Second Quarter 26 1/2 17 1/4
Third Quarter 28 3/4 24 1/2
Fourth Quarter 28 3/4 25
As of May 17, 1996, the approximate number of security holders of record of the
Company was 79.
The Company has never declared or paid any cash dividends on its common stock
and does not expect to pay any cash dividends in the foreseeable future. The
Company's revolving line of credit agreement prohibits the payment of cash
dividends without the prior written consent of the lender.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report to the Securities and Exchange Commission
on Form 10-K is available without charge upon written request to:
Investor Relations
TESSCO Technologies Incorporated
34 Loveton Circle
Sparks, Maryland USA 21152-5100
Phone: 1-410-472-7300
Fax: 1-410-472-7557
e-mail: [email protected]
Internet: http://www.tessco.com
Analysts, investors and stockholders seeking additional information about TESSCO
Technologies Incorporated are invited to contact:
Gerald T. Garland
Chief Financial Officer
Phone: 1-410-472-7378
Fax: 1-410-472-7557
e-mail: [email protected]
(C) 1996 TESSCO Technologies Incorporated (bullet) All rights reserved (bullet)
No reproduction, total or partial, is permitted without written consent.
SKU 01243
24 (C) TESSCO, Year Ending 3/96
<PAGE>
Safe Harbor Provisions
Except for the historical information contained in the annual report, the
matters discussed in this annual report are forward-looking statements.
These statements are subject to risks and uncertainties that could cause
actual results to differ from those expected or predicted to occur. The Company
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, and this statement is intended to
advise of the risks and uncertainties to which the predictive statements are
subject. The Company's business is highly dependent on a relatively small number
of suppliers and vendors and, therefore, the Company's ability to maintain
appropriate inventory levels could be subject to significant risks. The
Company's future results of operations are also dependent on its ability
to provide prompt and efficient service to its customers and, as a result,
any disruptions to its day-to-day operations could have a material adverse
effect on the Company. The Company is also subject to significant competition,
including national as well as regional distributors. Barriers to entry are
relatively low and increasing competition from both national and regional
distributors could cause pricing and other pressures that would require the
Company to lower selling prices in order to maintain or increase market
share. The company is also faced with the risks related to continuing
changes in the wireless communications industry, including risks associated
with conflicting technologies, technological changes, and inventory
obsolescence. In addition, technological advances could reduce the need for
continued product purchases by industry participants.
All statements made in this annual report, in future filings by the Company
with the Securities and Exchange Commission, and oral statements made with the
approval of an authorized executive officer are subject to the risks and
uncertainties discussed above, which could cause actual results to differ
materially from historical earnings or those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance
on any forward-looking statements, which speak only as of the date made.
[logo]TM
(C) TESSCO, Year Ending 3/96
<PAGE>
[logo]TM TESSCO Technologies Incorporated
34 Loveton Circle
Sparks, Maryland USA 21152-5100
Phone: 1-410-472-7300
Fax: 1-410-472-7557
e-mail: [email protected]
Internet: http://www.tessco.com
23.1
Consent of Arthur Andersen LLP
<PAGE>
Arthur Andersen LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K, into TESSCO Technologies
Incorporated's previously filed Registration Statement on Form S-8 No. 33-87178.
/s/ Arthur Andersen LLP
April 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-29-1996 MAR-31-1995
<PERIOD-END> MAR-29-1996 MAR-31-1995
<CASH> 439 8,453
<SECURITIES> 0 0
<RECEIVABLES> 14,313 8,057
<ALLOWANCES> 432 474
<INVENTORY> 13,689 8,574
<CURRENT-ASSETS> 29,289 25,836
<PP&E> 9,263 3,790
<DEPRECIATION> 2,661 2,094
<TOTAL-ASSETS> 36,528 28,176
<CURRENT-LIABILITIES> 11,899 7,781
<BONDS> 0 0
0 0
0 0
<COMMON> 45 43
<OTHER-SE> 24,500 20,125
<TOTAL-LIABILITY-AND-EQUITY> 36,528 28,176
<SALES> 92,290 74,518
<TOTAL-REVENUES> 92,290 74,518
<CGS> 68,974 57,829
<TOTAL-COSTS> 68,974 57,829
<OTHER-EXPENSES> 17,127 12,500
<LOSS-PROVISION> 166 186
<INTEREST-EXPENSE> 0 157
<INCOME-PRETAX> 6,368 4,032
<INCOME-TAX> 2,327 1,559
<INCOME-CONTINUING> 4,041 2,473
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,041 2,473
<EPS-PRIMARY> .89 .64
<EPS-DILUTED> .88 .64
</TABLE>
