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 December 27, 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 February 7, 1997:
Class: Common Stock, $.01 par value Number of Shares: 4,342,991
---------
<PAGE>
Part I
Item 1. Financial Statements
TESSCO Technologies Incorporated
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
December 27, March 29,
1996 1996
---- ----
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and marketable securities $ - $ 439,400
Trade accounts receivable, net 19,139,900 14,312,500
Product inventory 22,279,400 13,689,400
Deferred tax asset 303,800 280,600
Prepaid expenses and other current assets 1,066,100 566,700
----------- -----------
Total current assets 42,789,200 29,288,600
PROPERTY AND EQUIPMENT, net 11,068,300 6,602,700
DEFERRED TAX ASSET 95,100 87,900
OTHER ASSETS 4,297,900 548,700
----------- -----------
Total assets $58,250,500 $36,527,900
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 331,900 $ -
Current portion of capital lease obligations 110,800 126,400
Trade accounts payable 13,682,900 9,642,700
Accrued expenses and other current liabilities 2,365,800 2,129,700
----------- -----------
Total current liabilities 16,491,400 11,898,800
Borrowings under credit facility 5,319,800 -
Long-term debt 7,664,300 -
Capital lease obligations, net of current portion 4,400 85,000
----------- -----------
Total liabilities 29,479,900 11,983,800
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 45,800 44,600
Additional paid-in capital 19,052,200 18,232,900
Treasury stock, at cost (2,591,500) (2,126,400)
Retained earnings 12,264,100 8,393,000
----------- -----------
Total stockholders' equity 28,770,600 24,544,100
----------- -----------
Total liabilities and stockholders' equity $58,250,500 $36,527,900
=========== ===========
</TABLE>
<PAGE>
TESSCO Technologies Incorporated
Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Fiscal Quarters Ended Nine Months Ended
--------------------- -----------------
December 27, December 29, December 27, December 29,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $38,901,700 $23,805,600 $113,727,600 $64,980,300
Cost of goods sold 29,002,700 17,365,600 85,268,400 48,674,300
----------- ----------- ------------ ------------
Gross profit 9,899,000 6,440,000 28,459,200 16,306,000
Selling, general and administrative
expenses 7,690,200 4,722,200 21,439,400 11,899,400
----------- ----------- ------------ -----------
Income from operations 2,208,800 1,717,800 7,019,800 4,406,600
Interest income (expense), net (292,100) 52,800 (721,900) 186,700
----------- ----------- ------------ -----------
Income before provision for income taxes 1,916,700 1,770,600 6,297,900 4,593,300
Provision for income taxes 735,400 643,300 2,426,800 1,662,000
----------- ----------- ------------ -----------
Net income $ 1,181,300 $ 1,127,300 $ 3,871,100 $ 2,931,300
=========== =========== ============ ===========
Primary earnings per share $ 0.25 $ 0.24 $ 0.82 $ 0.65
=========== =========== ============ ===========
Fully diluted earnings per share $ 0.25 $ 0.24 $ 0.82 $ 0.64
=========== =========== ============ ===========
Primary weighted average shares
outstanding 4,728,200 4,623,800 4,709,400 4,528,500
=========== =========== ============ ===========
Fully diluted weighted average shares
outstanding 4,728,200 4,645,700 4,729,900 4,571,900
=========== =========== ============ ===========
</TABLE>
<PAGE>
TESSCO Technologies Incorporated
Statements of Cash Flows
(unaudited)
Nine Months Ended
--------------------------
December 27, December 29,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,871,100 $2,931,300
Adjustments to reconcile net income to net cash
provided by operating activities, net of
effects of business acquired in fiscal 1997
Depreciation and amortization 957,600 525,700
Provision for bad debts 362,900 107,400
Deferred income taxes (30,400) (104,600)
Increase in trade accounts receivable (3,612,000) (4,168,700)
Increase in product inventory (6,672,900) (4,103,000)
Increase in prepaid expenses and other
current assets (499,400) (200,500)
Increase in trade accounts payable 3,085,200 3,155,900
Increase in accrued expenses and other
current liabilities 236,100 340,200
Decrease in other long-term liabilities - (27,800)
----------- -----------
Net cash used in operating activities (2,301,800) (1,544,100)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquired business (6,688,600) -
Acquisition of property and equipment (5,024,200) (432,500)
----------- ----------
Net cash used in investing activities (11,712,800) (432,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowings under credit facility 5,319,800 -
Net proceeds from long-term debt 7,996,200 -
Proceeds from exercise of stock options 355,400 294,100
Payment of capital lease obligations (96,200) (77,300)
----------- ----------
Net cash provided by financing activities 13,575,200 216,800
Net decrease in cash and marketable
securities (439,400) (1,759,800)
CASH AND MARKETABLE SECURITIES, beginning of period 439,400 8,453,100
----------- ----------
CASH AND MARKETABLE SECURITIES, end of period $ - $6,693,300
=========== ==========
<PAGE>
TESSCO Technologies Incorporated
Notes to Unaudited Financial Statements
December 27, 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 13,000 customers in
the cellular telephone, personal communications services (PCS), 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 December 27, 1996 and December 29, 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
Third Quarter of Fiscal 1997 Compared to Third Quarter of Fiscal 1996
Revenues increased by $15.1 million, or 63.4%, to $38.9 million for the
third quarter of fiscal 1997 compared to $23.8 million for the third quarter of
fiscal 1996. The overall increase was primarily a result of increased unit
volume and an expanded product offering, including fulfillment contracts and the
inclusion of the newly acquired Cartwright Communications Company's revenues for
the third quarter of fiscal 1997. 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 51%, 36%, and 13%, respectively, of product revenues during the
third quarter of fiscal 1997. Revenues also increased in each of the three major
customer classifications, with the largest growth experienced in self-maintained
users. Dealers, cellular and paging carriers, and self-maintained users
accounted for approximately 38%, 45%, and 17%, respectively, of product revenues
during the third quarter of fiscal 1997.
Gross profit increased by $3.5 million, or 53.7%, to $9.9 million for
the third quarter of fiscal 1997 compared to $6.4 million for the third quarter
of fiscal 1996, while the gross profit margin decreased to 25.4% from 27.1%. The
decrease in gross profit margin primarily resulted from product and service mix
changes, as well as the effect of more competitive pricing in fee-based
fulfillment services.
Selling, general and administrative expenses increased by $3.0 million,
or 62.9%, to $7.7 million during the third quarter of fiscal 1997 compared to
$4.7 million for the third quarter of fiscal 1996. The increase in these
expenses was primarily attributable to the continued investment in personnel to
build and support future revenue and gross profit growth, freight charges
associated with increased sales activity, and Cartwright Communications
Company's expenses being included in the third quarter of fiscal 1997. As a
percentage of revenues, selling, general and administrative expenses remained
constant at 19.8% for the third quarter of fiscal 1997, when compared to the
third quarter of fiscal 1996.
Income from operations increased by $491,000, or 28.6%, to $2.2 million
for the third quarter of fiscal 1997 compared to $1.7 million for the third
quarter of fiscal 1996. The operating income margin was 5.7% compared to the
corresponding prior year's 7.2% as a result of the reduction in gross profit
margin.
Net interest expense for the third quarter of fiscal 1997 was $292,000
compared to net interest income of $53,000 for the third 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 Company, the funding
of the Company's newly opened global logistics center, and increased working
capital requirements during the third quarter of fiscal 1997. The effective tax
rate for the third quarter of fiscal 1997 was 38.4% compared to 36.3% in the
corresponding prior year period. The increase in the effective tax rate is
primarily due to the Company's borrowing position in the third quarter of fiscal
1997 compared to its investment in tax-exempt securities during the third
quarter of fiscal 1996.
<PAGE>
First Nine Months of Fiscal 1997 Compared to First Nine Months of Fiscal 1996
Revenues increased by $48.7 million, or 75.0%, to $113.7 million for
the first nine months of fiscal 1997 compared to $65.0 million for the first
nine months of fiscal 1996. The overall increase was primarily a result of
increased unit volume and an expanded product offering, including fulfillment
services contracts and the inclusion of the newly acquired Cartwright
Communications Company's revenues for the months of June through December of
fiscal 1997. 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 49%,
39%, and 12%, respectively, of product revenues during the first nine months of
fiscal 1997. Revenues also increased in each of the three major customer
classifications, with the largest growth experienced in cellular and paging
carriers. Dealers, cellular and paging carriers, and self-maintained users
accounted for approximately 37%, 46%, and 17%, respectively, of product revenues
during the first nine months of fiscal 1997.
Gross profit increased by $12.2 million, or 74.5%, to $28.5 million for
the first nine months of fiscal 1997 compared to $16.3 million for the first
nine months of fiscal 1996, while the gross profit margin fell slightly to 25.0%
from 25.1%.
Selling, general and administrative expenses increased by $9.5 million,
or 80.2%, to $21.4 million during the first nine months of fiscal 1997 compared
to $11.9 million for the first nine months of fiscal 1996. The increase in these
expenses was primarily attributable to the continued investment in personnel to
build and support future revenue and gross profit growth, freight charges
associated with increased sales activity, and Cartwright Communications
Company's expenses being included in the period of June through December of
fiscal 1997. As a percentage of revenues, selling, general and administrative
expenses increased to 18.9% for the first nine months of fiscal 1997 from 18.3%
for the first nine months of fiscal 1996.
Income from operations increased by $2.6 million, or 59.3%, to $7.0
million for the first nine months of fiscal 1997 compared to $4.4 million for
the first nine months of fiscal 1996, and as a percentage of revenues was 6.2%
compared to the prior year's 6.8%.
Net interest expense for the first nine months of fiscal 1997 was
$722,000 compared to net interest income of $187,000 for the first nine months
of fiscal 1996. This change is a direct result of interest on borrowings
incurred in connection with the Company's acquisition of Cartwright
Communications Company, the funding of the Company's newly opened global
logistics center, and increased working capital requirements during the first
nine months of fiscal 1997. The effective tax rate for the first nine months of
fiscal 1997 was 38.5% compared to 36.2% in the corresponding prior year period.
The increase in the effective tax rate is primarily due to the Company's
borrowing position in the first nine months of fiscal 1997 compared to its
investment in tax-exempt securities during the first nine months of fiscal 1996.
<PAGE>
Liquidity and Capital Resources
Net cash used in operating activities was $2.3 million for the first
nine months of fiscal 1997, compared to net cash used in operating activities of
$1.5 million for the first nine months 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 $11.7 million for the first nine months of fiscal 1997
compared to $433,000 for the first nine months of fiscal 1996. This increase was
primarily due to the Company's acquisition of Cartwright Communications Company
during the first quarter of fiscal 1997 as well as the Company's expenditures
related to its newly opened global logistics center distribution facility. Net
cash provided by financing activities increased to $13.6 million in the first
nine months of fiscal 1997 from $217,000 for the first nine months of fiscal
1996. This change is primarily a result of the Company's borrowing under its
credit facilities and proceeds from long-term debt to finance the Cartwright
acquisition and expenditures related to its global logistics center.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibit 11 - Earnings per share computation
(b) No reports on Form 8-K have been filed during the quarter covered
by this report.
<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: February 7, 1997
By: 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 13
27. Financial Data Schedule 14
Exhibit 11
Computation of Earnings per Share
(unaudited)
Fiscal Quarters Ended Nine Months Ended
-------------------------- --------------------------
December 27, December 29, December 27, December 29,
1996 1995 1996 1995
---- ---- ---- ----
Weighted average common
shares outstanding 4,308,900 4,178,800 4,268,200 4,144,000
Dilutive effect of common
equivalent shares (a) 419,300 445,000 441,200 384,500
---------- ---------- ---------- ----------
Primary average shares
outstanding 4,728,200 4,623,800 4,709,400 4,528,500
Effect of change in share
price (b) 0 21,900 20,500 43,400
---------- ---------- ---------- ----------
Fully diluted weighted
average shares
outstanding 4,728,200 4,645,700 4,729,900 4,571,900
========== ========== ========== ==========
Net income $1,181,300 $1,127,300 $3,871,100 $2,931,300
========== ========== ========== ==========
Primary earnings per
share $ 0.25 $ 0.24 $ 0.82 $ 0.65
========== ========== ========== ==========
Fully diluted earnings
per share $ 0.25 $ 0.24 $ 0.82 $ 0.64
========== ========== ========== ==========
(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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-29-1996
<PERIOD-END> DEC-27-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 19,140
<ALLOWANCES> 635
<INVENTORY> 22,279
<CURRENT-ASSETS> 42,789
<PP&E> 14,374
<DEPRECIATION> 3,306
<TOTAL-ASSETS> 58,250
<CURRENT-LIABILITIES> 16,491
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 28,725
<TOTAL-LIABILITY-AND-EQUITY> 58,250
<SALES> 113,728
<TOTAL-REVENUES> 113,728
<CGS> 85,268
<TOTAL-COSTS> 85,268
<OTHER-EXPENSES> 21,439
<LOSS-PROVISION> 363
<INTEREST-EXPENSE> 722
<INCOME-PRETAX> 6,298
<INCOME-TAX> 2,427
<INCOME-CONTINUING> 3,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,871
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
</TABLE>
