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UNITED STATES
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 27, 1999
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
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(Exact name of registrant as specified in charter)
Delaware 52-0729657
- ------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11126 McCormick Road, Hunt Valley, Maryland 21031
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (410) 229-1000
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 filing requirements
for the past 90 days. Yes |X| No |_|
The number of shares of the registrant's Common Stock, $ .01 par value,
outstanding as of July 30, 1999 was 4,447,881.
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<PAGE>
TESSCO TECHNOLOGIES INCORPORATED
Index to Form 10-Q
Part I Financial Information
- --------------------------------------------------------------------------------
Item 1 Financial Statements
Consolidated Balance Sheets as of June 27, 1999
and March 28, 1999
Consolidated Statements of Income for the periods
ended June 27, 1999 and June 28, 1998
Consolidated Statements of Cash Flows for the
periods ended June 27, 1999 and June 28, 1998
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures about
Market Risk
Part II Other Information
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Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults upon Senior Securities
Item 4 Submission of Matters to a Vote of Security
Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------------
Signature
<PAGE>
TESSCO TECHNOLOGIES INCORPORATED
Consolidated Balance Sheets
<TABLE>
<CAPTION>
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June 27, March 28,
1999 1999
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(unaudited) (audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and marketable securities $ 61,800 $ 97,700
Trade accounts receivable, net 20,634,200 19,621,000
Product inventory 21,083,700 21,149,000
Deferred tax asset 626,600 626,600
Prepaid expenses and other current assets 1,541,400 1,968,900
- -------------------------------------------------------------------------------------------------------------------
Total current assets 43,947,700 43,463,200
PROPERTY AND EQUIPMENT, net 15,752,300 15,725,900
DEFERRED TAX ASSET 255,100 255,100
GOODWILL, net 3,535,900 3,618,200
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Total assets $ 63,491,000 $ 63,062,400
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 15,186,400 $ 12,938,500
Accrued expenses and other current liabilities 3,525,000 2,783,800
Revolving line of credit 754,000 4,403,000
Current portion of long-term debt 292,900 287,200
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Total current liabilities 19,758,300 20,412,500
DEFERRED TAX LIABILITY 14,500 14,500
OTHER LIABILITY - 50,000
LONG-TERM DEBT, net of current portion 7,047,300 7,128,700
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 26,820,100 27,605,700
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock - -
Common stock 47,000 47,000
Additional paid-in capital 20,598,400 20,598,400
Treasury stock, at cost (3,107,600) (3,107,600)
Retained earnings 19,133,100 17,918,900
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Total shareholders' equity 36,670,900 35,456,700
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Total liabilities and shareholders' equity $ 63,491,000 $ 63,062,400
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</TABLE>
See accompanying notes.
<PAGE>
TESSCO TECHNOLOGIES INCORPORATED
Consolidated Statements of Income
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Fiscal Quarters Ended
June 27, June 28,
1999 1998
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(unaudited) (unaudited)
Revenues $ 43,527,800 $ 36,299,800
Cost of goods sold 31,902,400 27,043,900
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Gross profit 11,625,400 9,255,900
Selling, general and
administrative expenses
9,341,200 8,522,600
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Income from operations 2,284,200 733,300
Interest expense, net (325,800) (230,700)
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Income before provision
for income taxes
1,958,400 502,600
Provision for income taxes 744,200 191,100
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Net income $ 1,214,200 $ 311,500
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Basic earnings per share $ 0.27 $ 0.07
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Diluted earnings per share $ 0.26 $ 0.07
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Basic weighted average shares
outstanding 4,449,800 4,411,500
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Diluted weighted average
shares outstanding 4,619,000 4,580,100
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See accompanying notes.
<PAGE>
TESSCO TECHNOLOGIES INCORPORATED
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
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Three Months Ended
June 27, June 28,
1999 1998
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(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,214,200 $ 311,500
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 641,200 545,900
Provision for bad debts 56,600 124,900
Deferred income taxes - -
Increase in trade accounts receivable (1,069,800) (1,750,000)
Decrease (increase) in product inventory 65,300 (640,100)
Decrease in prepaid expenses and other current assets 427,500 22,700
Increase (decrease) in trade accounts payable 2,247,900 (6,037,900)
Increase in accrued expenses & other current liabilities 741,200 5,400
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Net cash provided by (used in) operating activities 4,324,100 (7,417,600)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (585,300) (874,800)
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Net cash used in investing activities (585,300) (847,800)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit - 3,862,900
Net repayments of revolving line of credit (3,649,000) -
Payments on long-term debt (75,700) (71,900)
Proceeds from exercise of stock options - 42,200
Decrease in other liabilities (50,000) -
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Net cash (used in) provided by financing activities (3,774,700) 3,833,200
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Net decrease in cash and marketable securities (35,900) (4,459,200)
CASH AND MARKETABLE SECURITIES, beginning of period 97,700 4,459,200
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CASH AND MARKETABLE SECURITIES, end of period $ 61,800 $ -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
TESSCO TECHNOLOGIES INCORPORATED
Notes to Consolidated Financial Statements
June 27, 1999
(Unaudited)
Note 1. Description of Business and Basis of Presentation
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TESSCO Technologies Incorporated (the "Company") is a leading provider of
products and value-added services to the wireless communications industry. The
Company serves customers in the cellular telephone, Personal Communications
Services (PCS), paging and mobile radio-dispatch markets, including a
diversified mix of cellular, PCS and paging carriers, dealers, self-maintained
users and consumers. The Company offers a wide selection of over 18,000 stock
keeping units, which are broadly classified as base site infrastructure,
subscriber accessory, and test and maintenance products. Although the Company
conducts business selling various products to different customer groups, these
products and customers all fall within the wireless telecommunications industry;
therefore, the Company reports operating results as one reportable segment.
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 for the interim periods presented. 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. The results
of operations presented in the accompanying interim financial statements are not
necessarily representative of operations for an entire year. The information
included in this Form 10-Q should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the fiscal
year ended March 28, 1999.
Note 2. Earnings Per Share
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In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share."
SFAS No. 128 simplifies the standards for computing earnings per share
previously found in Accounting Principles Board (APB) Opinion No. 15 "Earnings
per Share" by replacing the presentation of primary earnings per share (EPS)
with basic EPS and replacing fully diluted EPS with diluted EPS. Basic EPS
excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted EPS is computed by dividing income available to common
shareholders by the weighted average number of common shares and the dilutive
common equivalent shares outstanding for the period.
<PAGE>
The dilutive effect of all options outstanding has been determined by using the
treasury stock method. The weighted average shares outstanding is calculated as
follows:
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Fiscal Quarters Ended
June 27, June 28,
1999 1998
- -----------------------------------------------------------------------
Basic weighted average common
shares outstanding 4,449,800 4,411,500
Effect of dilutive common
equivalent shares 169,200 168,600
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Diluted weighted average
shares outstanding 4,619,000 4,580,100
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Options to purchase 166,800 shares of common stock at a weighted average
exercise price of $29.23 per share were outstanding as of June 27, 1999, but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.
Note 3. New Accounting Pronouncements
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During March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
that computer software costs that are incurred in the preliminary project stage
should be expensed as incurred. Once the capitalization criteria of SOP 98-1
have been met, external direct costs of materials and services consumed in
developing or obtaining internal-use computer software; payroll and
payroll-related costs for employees who are directly associated with and who
devoted time to the internal-use computer software project (to the extent of the
time spent directly on the project); and the interest costs incurred when
developing computer software for internal use should be capitalized.
Under SOP 98-1, training costs, data conversion costs and internal costs
incurred for upgrades, enhancements and maintenance should be expensed as
incurred. Impairment of capitalized software should be recognized in accordance
with the provision of FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The SOP is
effective for fiscal years beginning after December 15, 1998 and is to be
adopted prospectively. The adoption of SOP 98-1 has not had a material effect on
the Company's financial position or results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This commentary should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition and Results of Operations from the Company's
Form 10-K for the fiscal year ended March 28, 1999.
First Quarter of Fiscal 2000 Compared to First Quarter of Fiscal 1999
- --------------------------------------------------------------------------------
Revenues increased by $7.2 million, or 19.9%, to $43.5 million for the first
quarter of fiscal 2000 compared to $36.3 million for the first quarter of fiscal
1999. The overall increase was primarily a result of increased unit volume. The
Company experienced revenue growth across all of its product categories. The
largest increase was experienced in the sale of mobile and portable accessory
products and services, primarily attributable to growth in affinity marketing
programs. Base site infrastructure, mobile and portable accessory and test and
maintenance products and services accounted for approximately 51%, 38% and 11%,
respectively, of revenues during the first quarter of fiscal 2000. The Company
experienced revenue growth from its reseller, system operator and consumer
services categories, partially offset by a decrease in its international
category. Resellers, system operators, consumer services and international users
accounted for approximately 28%, 56%, 10% and 6%, respectively, of revenues
during the first quarter of fiscal 2000.
Gross profit increased by $2.4 million, or 25.6%, to $11.6 million for the first
quarter of fiscal 2000 compared to $9.3 million for the first quarter of fiscal
1999 due to the increase in revenues between quarters. The gross profit margin
increased to 26.7% for the first quarter of fiscal 2000 compared to 25.5% for
the first quarter of fiscal 1999. The increase in gross profit margin percentage
principally resulted from favorable product mix.
Total operating expenses increased by $818,600, or 9.6%, to $9.3 million for the
first quarter of fiscal 2000 compared to $8.5 million for the first quarter of
fiscal 1999. Total operating expenses decreased as a percentage of revenues to
21.5% for the first quarter of fiscal 2000 from 23.5% for the first quarter of
fiscal 1999. The increase in these expenses is primarily attributable to a
continued investment in personnel and marketing expenses to support revenue and
gross profit growth, while the decrease as a percentage of revenue is
attributable to a disproportionately greater increase in revenue growth.
Income from operations increased by $1.6 million, or 212%, to $2.3 million for
the first quarter of fiscal 2000 compared to $733,300 for the first quarter of
fiscal 1999. The operating income margin increased to 5.2% for the first quarter
of fiscal 2000 compared to 2.0% for the first quarter of fiscal 1999.
Net interest expense increased by $95,100, or 41%, to $325,800 for the first
quarter of fiscal 2000 compared to $230,700 for the first quarter of fiscal
1999. This increase is due to increased levels of borrowing under the Company's
revolving line of credit to finance working capital requirements.
<PAGE>
Income before provision for income taxes increased $1.5 million or 290% to $2.0
million for the first quarter of fiscal 2000 compared to $502,600 for the first
quarter of fiscal 1999. The effective tax rate for both quarters was
approximately 38%. Net income and earnings per share (diluted) for the first
quarter of fiscal 2000 increased 290% and 271%, respectively, compared to the
first quarter of fiscal 1999.
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
Net cash provided by operating activities was $4.3 million for the first quarter
of fiscal 2000, compared to net cash used by operating activities of $7.4
million for the first quarter of fiscal 1999. This change was primarily the
result of significant increases in net income and trade accounts payable and a
decrease in product inventory. Net cash used in investing activities decreased
to $585,300 for the first quarter of fiscal 2000 compared to $847,800 for the
first quarter of fiscal 1999, primarily due to a reduction in capital
expenditures. Net cash used by financing activities was $3.8 million for the
first quarter of fiscal 2000 compared to net cash provided by financing
activities of $3.8 million for the first quarter of fiscal 1999. This change was
primarily a result of the Company's repayments under its revolving credit
facility in the first quarter of fiscal 2000 in contrast to borrowings under its
revolving credit facility during the first quarter of fiscal 1999.
<PAGE>
Year 2000 Issue
- --------------------------------------------------------------------------------
The Year 2000 issue is the result of computer programs using only two digits to
identify a year within date fields. Date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. Such an error could
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on its assessment, the Company determined that it would be required to
modify or replace significant portions of its software so that its computer
systems would properly utilize dates beyond December 31, 1999. The Company has
utilized both internal and external resources to reprogram, or replace, and test
its software for Year 2000 modifications. The cost of new software purchased is
being capitalized; all other costs are being expensed as incurred. The cost of
the project is not expected to have a material effect on the results of
operations. The remediation and testing of all of the Company's "mission
critical" systems has been completed and such systems are currently Year 2000
compliant.
In addition, the Company is assessing the readiness of its significant suppliers
and large customers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate their own Year 2000 issues. The
Company's total Year 2000 costs include the estimated costs associated with the
impact on the Company of the Year 2000 issue and on the Company's suppliers and
customers and are based on currently available information. However, there can
be no guarantee that the systems of other companies will be timely converted or
that a failure to convert by another company would not have a material adverse
effect on the Company. The Company has determined that it has no exposure to
contingencies related to the Year 2000 issue for the products it has sold.
Forward-Looking Statements
- --------------------------------------------------------------------------------
This report contains a number of forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, all of which are based
on current expectations. The Company's future results of operations and other
forward-looking statements contained in this report involve a number of risks
and uncertainties. For a variety of reasons, actual results may differ
materially from those described in any such forward-looking statement. Such
factors include, but are not limited to, the following: the Company's dependence
on a relatively small number of suppliers and vendors, which could hamper the
Company's ability to maintain appropriate inventory levels and meet customer
demand; the effect that the loss of certain customers or vendors could have on
the Company's net profits; the possibility that unforeseen events could impair
the Company's ability to provide prompt and efficient service to its customers;
the possibility of unforeseen delays in entering into or performing under
anticipated contracts or in otherwise realizing anticipated revenues or
anticipated savings; existing competition from national and regional
distributors and the absence of significant barriers to entry which could result
in pricing and other pressures on profitability and market share; and continuing
changes in the wireless communications industry, including risks associated with
conflicting technologies, changes in technology and inventory obsolescence.
Consequently, the reader is cautioned to consider all forward-looking statements
in light of the risks to which they are subject.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has not used derivative financial instruments. Management of the
Company believes the Company's exposure to market risks, including exchange rate
risk, interest rate risk and commodity price risk, is not material at the
present time.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
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) EXHIBITS
11. Statement re: computation of per share earnings
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter covered by this
report.
<PAGE>
Signature
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
Date: August 10, 1999 By: /s/ Gerald T. Garland
--------------------------------------------
Gerald T. Garland
Treasurer and Chief Financial Officer
(principal financial and accounting officer)
<PAGE>
Exhibit Index
The following exhibits are filed herewith:
11. Statement re: Computation of Per Share Earnings
27. Financial Data Schedule
<PAGE>
Exhibit 11
TESSCO TECHNOLOGIES INCORPORATED
Statement re: Computation of Per Share Earnings
(Unaudited)
The information required by this Exhibit is set forth in Note 2 to the
Consolidated Financial Statements of the Company contained in Part I of this
Report.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The 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>
<CIK> 0000927355
<NAME> TESSCO Technologies Incorporated
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-26-2000
<PERIOD-START> MAR-28-1999
<PERIOD-END> JUN-27-1999
<EXCHANGE-RATE> 1
<CASH> 61,800
<SECURITIES> 0
<RECEIVABLES> 21,150,100
<ALLOWANCES> 515,900
<INVENTORY> 21,083,700
<CURRENT-ASSETS> 43,947,700
<PP&E> 22,620,600
<DEPRECIATION> 6,868,300
<TOTAL-ASSETS> 63,491,000
<CURRENT-LIABILITIES> 19,758,300
<BONDS> 8,094,200
0
0
<COMMON> 47,000
<OTHER-SE> 36,623,900
<TOTAL-LIABILITY-AND-EQUITY> 63,491,000
<SALES> 43,527,800
<TOTAL-REVENUES> 43,527,900
<CGS> 31,902,400
<TOTAL-COSTS> 31,902,400
<OTHER-EXPENSES> 9,341,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325,800
<INCOME-PRETAX> 1,958,400
<INCOME-TAX> 744,200
<INCOME-CONTINUING> 1,214,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,214,200
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.26
</TABLE>
