SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended June 28, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition
period from ___________________________ to __________________.
Commission File Number 0-24746
TESSCO Technologies Incorporated
(Exact name of registrant as specified in its charter)
Delaware 52-0729657
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
34 Loveton Circle Sparks, Maryland 21152
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 472-7000
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 report(s)), and (2) has been" subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of July 29, 1996:
Class: Common Stock, $.01 par value Number of Shares: 4,272,826
<PAGE>
Part I
Item 1. Financial Statements
TESSCO Technologies Incorporated
Balance Sheets
ASSETS
June 28, March 29,
1996 1996
------------- ------------
(unaudited) (audited)
CURRENT ASSETS:
Cash and marketable securities $ - $ 439,400
Trade accounts receivable, net 20,771,800 14,312,500
Product inventory 17,878,100 13,689,400
Deferred tax asset 320,900 280,600
Prepaid expenses and other current assets 752,800 566,700
------------- ------------
Total current assets 39,723,600 29,288,600
PROPERTY AND EQUIPMENT, net 8,223,400 6,602,700
DEFERRED TAX ASSET 100,500 87,900
OTHER ASSETS 4,312,900 548,700
------------- ------------
Total assets $52,360,400 $36,527,900
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under credit facility $ 7,138,400 $ -
Current portion of capital lease obligations 124,800 126,400
Trade accounts payable 16,198,200 9,642,700
Accrued expenses and other current liabilities 2,824,400 2,129,700
------------- ------------
Total current liabilities 26,285,800 11,898,800
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 54,700 85,000
------------- ------------
Total liabilities 26,340,500 11,983,800
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 44,700 44,600
Additional paid-in capital 18,433,300 18,232,900
Treasury stock, at cost (2,185,200) (2,126,400)
Retained earnings 9,727,100 8,393,000
------------- ------------
Total stockholders' equity 26,019,900 24,544,100
------------- ------------
Total liabilities and stockholders' equity $52,360,400 $36,527,900
============= ============
<PAGE>
TESSCO Technologies Incorporated
Statements of Operations
(unaudited)
Fiscal Quarters Ended
-----------------------------
June 28, June 30,
1996 1995
---- ----
Revenues $36,667,900 $19,185,100
Cost of goods sold 27,702,300 14,599,500
----------- -----------
Gross profit 8,965,600 4,585,600
Selling, general and administrative expenses 6,656,200 3,359,200
----------- ----------
Income from operations 2,309,400 1,226,400
Interest income (expense), net (136,300) 70,300
----------- ----------
Income before provision for income taxes 2,173,100 1,296,700
Provision for income taxes 839,000 477,900
----------- ----------
Net income $ 1,334,100 $ 818,800
=========== ===========
Primary earnings per share $ 0.28 $ 0.18
=========== ===========
Fully diluted earnings per share $ 0.28 $ 0.18
=========== ===========
Primary weighted average shares outstanding 4,684,600 4,428,200
=========== ===========
Fully diluted weighted average shares
outstanding 4,708,100 4,455,500
=========== ==========
<PAGE>
TESSCO Technologies Incorporated
Statements of Cash Flows
(unaudited)
Fiscal Quarters Ended
---------------------------
June 28, June 30,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,334,100 $ 818,800
Adjustments to reconcile net income to
net cash provided by operating
activities, net of effects of
business acquired in fiscal 1997
Depreciation and amortization 241,600 183,400
Provision for bad debts 121,700 33,900
Deferred income taxes (52,900) (30,400)
Increase in trade accounts receivable (5,002,700) (832,900)
Increase in product inventory (2,271,600) (103,600)
(Increase) decrease in prepaid expenses
and other current assets (186,100) 61,000
Increase (decrease) in trade accounts payable 4,800,500 (112,800)
Increase in accrued expenses and other
current liabilities 694,700 442,000
Decrease in other long-term liabilities -- (10,400)
--------- --------
Net cash (used in) provided by
operating activities (320,700) 449,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquired business (5,740,000) --
Acquisition of property and equipment (1,626,900) (94,900)
---------- --------
Net cash used in investing activities (7,366,900) (94,900)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowings under credit
facility and cash overdraft 7,138,400 --
Proceeds from exercise of stock options 141,700 115,100
Payment of capital lease obligations (31,900) (29,000)
--------- --------
Net cash provided by (used in)
financing activities 7,248,200 86,100
Net (decrease) increase in cash and
marketable securities (439,400) 440,200
CASH AND MARKETABLE SECURITIES, beginning of
period 439,400 8,453,100
-------- ---------
CASH AND MARKETABLE SECURITIES, end of period $ -- $ 8,893,300
======== =========
<PAGE>
TESSCO Technologies Incorporated
Notes to Unaudited Financial Statements
June 28, 1996
1. Description of Business and Basis of Presentation
TESSCO Technologies Incorporated is a leading distributor of products to the
wireless communications industry. The Company serves over 12,000 customers 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 which is broadly classified
as infrastructure, mobile and portable accessory and test and maintenance.
In management's opinion, the accompanying interim financial statements of the
Company include all adjustments, consisting only of normal, recurring
adjustments, necessary for a fair presentation of the Company's financial
position at June 28, 1996 and June 30, 1995 and the results of its operations
and its cash flows for the periods then ended. These statements are presented in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the Company's annual financial statements have been omitted from these
statements, as permitted under the applicable rules and regulations. Readers of
these statements should refer to the Company's annual financial statements and
notes thereto as of March 29, 1996 and for the year then ended. The results of
operations presented in the accompanying interim financial statements are not
necessarily representative of operations for an entire year.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
First Quarter of Fiscal 1997 Compared to First Quarter of Fiscal 1996
Revenues increased by $17.5 million, or 91.1%, to $36.7 million for the
first quarter of fiscal 1997 compared to $19.2 million for the first quarter of
fiscal 1996. The overall increase was primarily a result of increased unit
volume and an expanded product offering, including fulfillment contracts.
Revenues increased in each of the Company's three major product categories, with
the largest percentage increase experienced in the sale of mobile and portable
accessory products. Infrastructure, mobile and portable accessory and test and
maintenance products accounted for approximately 46%, 42%, and 12%,
respectively, of product revenues during the first quarter of fiscal 1997.
Revenues also increased in each of the three major customer classifications,
with the largest growth experienced in sales to cellular and paging carriers.
Dealers, cellular and paging carriers, and self-maintained users accounted for
approximately 37%, 47%, and 16%, respectively, of product revenues during the
first quarter of fiscal 1997.
Gross profit increased by $4.4 million, or 95.5%, to $9.0 million for
the first quarter of fiscal 1997 compared to $4.6 million for the first quarter
of fiscal 1996, while the gross profit margin increased to 24.5% from 23.5%. The
increase in gross profit margin primarily resulted from product and service mix
changes, pricing and purchasing programs, as well as the implementation of
fee-based fulfillment services.
Selling, general and administrative expenses increased by $3.3 million,
or 98.1%, to $6.7 million during the first quarter of fiscal 1997 compared to
$3.4 million for the first quarter of fiscal 1996. The increase in these
expenses was primarily attributable to increased compensation costs associated
with the continued investment in additional sales and marketing personnel and
freight charges associated with increased sales activity. As a percentage of
revenues, selling, general and administrative expenses increased to 18.2% for
the first quarter of fiscal 1997 from 17.5% for the first quarter of fiscal
1996.
Income from operations increased by $1.1 million, or 88.3%, to $2.3
million for the first quarter of fiscal 1997 compared to $1.2 million for the
first quarter of fiscal 1996, and as a percentage of revenues decreased to 6.3%
from 6.4%.
Net interest expense for the first quarter of fiscal 1997 was $136,000
compared to net interest income of $70,000 for the first quarter of fiscal 1996.
This change is a direct result of interest on borrowings incurred in connection
with the Company's acquisition of Cartwright Communications, the funding of the
global logistics center, and increased working capital requirements during the
first quarter of fiscal 1997. The effective tax rate for the first quarter of
fiscal 1997 was 38.6% compared to 36.9% in the corresponding prior year period.
The increase in the effective tax rate is primarily due to the Company's
investment in tax-exempt securities during the first quarter of fiscal 1996.
Liquidity and Capital Resources
Net cash used in operating activities was $321,000 for the first
quarter of fiscal 1997, compared to net cash provided by operating activities of
$449,000 for the first quarter of fiscal 1996. This change was primarily the
result of an increase in net income offset by changes in operating assets and
liabilities, particularly an increase in accounts receivable and inventory
offset partially by an increase in accounts payable. Net cash used in investing
activities increased to $7.4 million for the first quarter of fiscal 1997
compared to $95,000 for the first quarter of fiscal 1996. This increase was
primarily due to the Company's acquisition of Cartwright Communications during
the first quarter of fiscal 1997 as well as the Company's expenditures related
to its new global logistics center distribution facility. Net cash provided by
financing activities increased to $7.2 million in the first quarter of fiscal
1997 from $86,000 for the first quarter of fiscal 1996. This change is primarily
a result of the Company's borrowing under its credit facilities to finance the
Cartwright acquisition and the expenditures related to its global logistics
center.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
On July 8, 1996, the Company announced that it had reached an agreement
to settle its lawsuit against the Andrew Corportation (Andrew). Under the
terms of the settlement, Andrew will continue to supply the Company with
products under the terms of its distributor agreement until December 31, 1996.
The parties also agreed to mutually dismiss all litigation and/or arbitration
proceedings and to cooperate in the orderly transition and termination of their
relationship. Sales of Andrew products represented 29% of the Company's revenues
during fiscal 1996 and 21% during the first quarter of fiscal 1997. The Company
will continue to offer competitive alternative product offerings during the
transition period. In the event that alternative product acceptability is low or
product availability becomes unreliable, the impact on the Company's revenues
and earnings could be material.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibit 11 - Earnings per share computation
(b) Current Report on Form 8-K, dated April 18, 1996 (Item 5) filed on
April 19, 1996.
Current Report on Form 8-K , dated June 3, 1996 (Item 5 re:
Cartwright acquisition) filed on June 15, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TESSCO Technologies Incorporated
(Registrant)
Date: August 12, 1996
By: /s/ Gerald T. Garland
Gerald T. Garland
Treasurer and Chief Financial Officer
(principal financial officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number Page
11. Earnings per share computation 10
Exhibit 11
Computation of Earnings per Share
(unaudited)
Fiscal Quarters Ended
------------------------
June 28, June 30,
1996 1995
--------- ---------
Weighted average common shares outstanding 4,228,700 4,105,100
Dilutive effect of common equivalent shares (a) 455,900 323,100
--------- ---------
Primary average shares outstanding 4,684,600 4,428,200
Effect of change in share price (b) 23,500 27,300
--------- ---------
Fully diluted weighted average shares outstanding 4,708,100 4,455,500
========= =========
Net income $1,334,100 $ 818,800
========= =========
Primary earnings per share $0.28 $0.18
========= =========
Fully diluted earnings per share $0.28 $0.18
========= =========
(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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited quarterly financial statements and is qualified in its
entirety by reference to such financial statements.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-END> JUN-28-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 20,772
<ALLOWANCES> 523
<INVENTORY> 17,878
<CURRENT-ASSETS> 39,724
<PP&E> 11,204
<DEPRECIATION> 2,981
<TOTAL-ASSETS> 52,360
<CURRENT-LIABILITIES> 26,286
<BONDS> 0
0
0
<COMMON> 45
<OTHER-SE> 25,974
<TOTAL-LIABILITY-AND-EQUITY> 52,360
<SALES> 36,668
<TOTAL-REVENUES> 36,668
<CGS> 27,702
<TOTAL-COSTS> 27,702
<OTHER-EXPENSES> 6,656
<LOSS-PROVISION> 122
<INTEREST-EXPENSE> 136
<INCOME-PRETAX> 2,173
<INCOME-TAX> 839
<INCOME-CONTINUING> 1,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,041
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
