UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 30, 2001
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 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 per
share, outstanding as of February 7, 2002 was 4,507,225.
TESSCO TECHNOLOGIES INCORPORATED
INDEX TO FORM 10-Q
PART I FINANCIAL INFORMATION
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ITEM 1 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 30, 2001 AND APRIL 1, 2001 3
CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED DECEMBER 30, 2001 4
AND DECEMBER 24, 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED DECEMBER 30, 5
2001 AND DECEMBER 24, 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 8
OPERATIONS
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 10
PART II OTHER INFORMATION
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ITEM 1 LEGAL PROCEEDINGS 11
ITEM 2 CHANGES IN SECURITIES 11
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5 OTHER INFORMATION 11
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 11
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SIGNATURE 12
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TESSCO TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
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December 30, April 1,
2001 2001
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(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ --
Trade accounts receivable, net 29,036,600 25,557,800
Product inventory 39,809,200 32,566,400
Deferred tax asset 1,531,600 1,531,600
Prepaid expenses and other current assets 1,673,300 2,689,600
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Total current assets 72,050,700 62,345,400
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PROPERTY AND EQUIPMENT, net 21,741,400 21,640,400
GOODWILL 2,770,500 3,002,400
OTHER LONG TERM ASSETS 583,300 425,300
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Total assets $ 97,145,900 $ 87,413,500
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 28,520,900 $ 16,744,600
Accrued expenses and other current liabilities 6,426,100 4,409,200
Revolving line of credit 3,280,000 10,011,000
Current portion of long-term debt 371,800 354,500
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Total current liabilities 38,598,800 31,519,300
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DEFERRED TAX LIABILITY 2,274,900 2,274,900
LONG-TERM DEBT, net of current portion 6,160,100 6,441,200
OTHER LONG TERM LIABILITIES 719,900 438,900
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Total liabilities 47,753,700 40,674,300
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock -- --
Common stock 48,100 48,000
Additional paid-in capital 21,847,300 21,748,300
Treasury stock, at cost (3,792,600) (3,792,600)
Retained earnings 31,289,400 28,735,500
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Total shareholders' equity 49,392,200 46,739,200
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Total liabilities and shareholders' equity $ 97,145,900 $ 87,413,500
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See accompanying notes.
3
TESSCO TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
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Fiscal Quarters Ended Nine Months Ended
December 30, December 24, December 30, December 24,
2001 2000 2001 2000
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(unaudited) (unaudited) (unaudited) (unaudited)
Revenues $ 65,025,100 $ 69,657,200 $ 186,959,300 $ 198,781,800
Cost of goods sold 47,056,400 50,321,500 136,050,700 144,642,600
-----------------------------------------------------------------------------------------------------------------------------------
Gross profit 17,968,700 19,335,700 50,908,600 54,139,200
Selling, general and administrative
expenses 15,344,000 16,105,800 45,507,800 44,505,800
-----------------------------------------------------------------------------------------------------------------------------------
Income from operations 2,624,700 3,229,900 5,400,800 9,633,400
Interest and other expense, net 339,900 519,400 1,159,600 1,482,200
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Income before provision for income
taxes 2,284,800 2,710,500 4,241,200 8,151,200
Provision for income taxes 913,900 1,030,000 1,687,300 3,097,500
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Net income $ 1,370,900 $ 1,680,500 $ 2,553,900 $ $ 5,053,700
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Basic earnings per share $ 0.30 $ 0.37 $ 0.57 $ 1.12
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Diluted earnings per share $ 0.30 $ 0.36 $ 0.56 $ 1.07
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Basic weighted average shares
outstanding 4,522,800 4,499,100 4,513,600 4,493,400
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Diluted weighted average shares
outstanding 4,607,200 4,685,700 4,557,200 4,717,100
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See accompanying notes.
4
TESSCO TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Nine Months Ended
December 30, December 24,
2001 2000
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(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,553,900 $ 5,053,700
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 3,379,800 2,646,100
Provision for bad debts 650,300 407,700
Deferred income taxes and other 123,000 8,400
Increase in trade accounts receivable (4,129,100) (3,913,300)
Increase in product inventory (7,242,800) (8,320,500)
Decrease (increase) in prepaid expenses and other current assets 1,016,300 (252,100)
Increase in trade accounts payable 11,776,300 6,478,900
Increase in accrued expenses and other current liabilities 2,016,900 1,477,000
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Net cash provided by operating activities 10,144,600 3,585,900
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (3,248,900) (4,137,200)
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Net cash used in investing activities (3,248,900) (4,137,200)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under revolving credit facility (6,731,000) (254,000)
Payments on long-term debt (263,800) (274,400)
Proceeds from exercise of stock options 99,100 261,600
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Net cash used in financing activities (6,895,700) (266,800)
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Net decrease in cash and cash equivalents -- (818,100)
CASH AND CASH EQUIVALENTS, beginning of period -- 818,100
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CASH AND CASH EQUIVALENTS, end of period $ -- $ --
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See accompanying notes.
5
TESSCO TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2001
(Unaudited)
Note 1. Description of Business and Basis of Presentation
--------------------------------------------------------------------------------
TESSCO Technologies Incorporated (the "Company") is a leading supplier of the
product and supply chain solutions required to build, operate, maintain and use
wireless voice, data, messaging, tracking and Internet systems. The Company
provides marketing and sales services, knowledge and supply chain management,
product-solution delivery, and control systems utilizing extensive Internet and
information technology. Although the Company conducts business selling various
products to different customer groups, these products and customers all fall
within the 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 April 1, 2001.
Note 2. Earnings Per Share
--------------------------------------------------------------------------------
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.
6
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 Nine Months Ended
December 30, December 24, December 30, December 24,
2001 2000 2001 2000
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Basic weighted average common
shares outstanding 4,522,800 4,499,100 4,513,600 4,493,400
Effect of dilutive common
equivalent shares 84,400 186,600 43,600 223,700
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Diluted weighted average shares
outstanding 4,607,200 4,685,700 4,557,200 4,717,100
-------------------------------------------------------------------------------------------------------------------------------
Options to purchase 863,500 shares of common stock at a weighted average
exercise price of $22.49 per share were outstanding as of December 30, 2001, but
the common equivalent shares were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common shares and, therefore, the effect of
including such shares would be antidilutive.
Note 3. Recent Accounting Pronouncements
--------------------------------------------------------------------------------
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and
Other Intangible Assets" (effective for the Company for the fiscal year
beginning April 1, 2002). SFAS No. 141 prohibits pooling-of-interests accounting
for acquisitions. SFAS No. 142 specifies that goodwill and some intangible
assets will no longer be amortized but instead will be subject to periodic
impairment testing. The Company is in the process of evaluating the financial
statement impact of adoption of SFAS No. 142.
Note 4. Related Party Transactions
--------------------------------------------------------------------------------
In August 2001, the Company guaranteed a personal revolving line of credit to
the Company's chief executive officer from a commercial bank in the principal
amount of $2,500,000. In connection therewith, the Company's chief executive
officer and his spouse entered into a Reimbursement and Security Agreement,
which obligates them to reimburse the Company for any amounts paid by the
Company under its guaranty. These obligations to the Company under the
Reimbursement and Security Agreement are secured by certain assets of the chief
executive officer and are fully recourse to the chief executive officer and his
spouse.
7
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 April 1, 2001.
Third Quarter of Fiscal 2002 Compared to Third Quarter of Fiscal 2001
--------------------------------------------------------------------------------
Revenues decreased by $4.6 million, or 6.6%, to $65.0 million for the third
quarter of fiscal 2002 compared to $69.7 million for the third quarter of fiscal
2001. Revenues from base site infrastructure and subscriber accessory products
decreased but were partially offset by an increase in test and maintenance
equipment revenue. Base site infrastructure, subscriber accessory, and test and
maintenance products and services accounted for approximately 43%, 30% and 27%,
respectively, of revenues during the third quarter of fiscal 2002. We
experienced revenue growth in our reseller and international markets, but this
growth was offset by decreases in our systems operators and consumer services
markets. System operators, resellers, consumer services and international users
accounted for approximately 50%, 38%, 7% and 5%, respectively, of revenues
during the third quarter of fiscal 2002.
Gross profit decreased by $1.4 million, or 7.1%, to $18.0 million for the third
quarter of fiscal 2002 compared to $19.3 million for the third quarter of fiscal
2001, due to decreased revenues and increases in inventory reserve levels. We
account for inventory at the lower of cost or market, and as a result,
write-offs/reserves occur due to damage, deterioration, obsolescence, changes in
prices and other causes. The gross profit margin decreased to 27.6% for the
third quarter of fiscal 2002 compared to 27.8% for the third quarter of fiscal
2001.
Total selling, general and administrative expenses decreased by $761,800, or
4.7%, to $15.3 million for the third quarter of fiscal 2002 compared to $16.1
million for the third quarter of fiscal 2001. This decrease was primarily
attributable to lower order fulfillment costs, partially offset by continued
investment in personnel, as well as increased depreciation and amortization
related to information system developments. During the third quarter of fiscal
year 2002, we recorded a $295,100 provision for bad debts compared to $134,500
in the third quarter of fiscal year 2001. We continually evaluate the credit
worthiness of our existing customer receivable portfolio and provide an
appropriate reserve, based on this evaluation. Total selling, general and
administrative expenses increased as a percentage of revenues to 23.6% for the
third quarter of fiscal 2002 from 23.1% for the third quarter of fiscal 2001.
Income from operations decreased by $605,200, or 18.7%, to $2.6 million for the
third quarter of fiscal 2002 compared to $3.2 million for third quarter of
fiscal 2001. The operating income margin decreased to 4.0% for the third quarter
of fiscal 2002 compared to 4.6% for the third quarter of fiscal 2001.
Net interest and other expense decreased by $179,500 or 34.6%, to $339,900 for
the third quarter of fiscal 2002 compared to $519,400 for the third quarter of
fiscal 2001. This decrease is due to decreased levels of borrowing under our
revolving credit facility as well as lower interest rates.
Income before provision for income taxes decreased $425,700 or 15.7%, to $2.3
million for the third quarter of fiscal 2002 compared to $2.7 million for the
third quarter of fiscal 2001. The effective tax rate for fiscal 2002 and 2001
was 40% and 38%, respectively. The effective tax rate for the quarter increased,
due to changes in the relationship between non-deductible expenses and taxable
income, as well as state apportionment factors. Net income and earnings per
share (diluted) for the third quarter of fiscal 2002 decreased 18.4% and 16.7%,
respectively, compared to the third quarter of fiscal 2001.
First Nine Months of Fiscal 2002 Compared to First Nine Months of Fiscal 2001
--------------------------------------------------------------------------------
8
Revenues decreased by $11.8 million, or 5.9%, to $187.0 million for the first
nine months of fiscal 2002 compared to $198.8 million for the first nine months
of fiscal 2001. Revenues from base site infrastructure products and subscriber
accessory products decreased, but were partially offset by an increase in test
and maintenance products revenue. Base site infrastructure, subscriber
accessory, and test and maintenance products and services accounted for
approximately 44%, 31% and 25%, respectively, of revenues during the first nine
months of fiscal 2002. We experienced revenue growth in our reseller and
international markets, but this growth was offset by decreases in our systems
operators and consumer services markets. System operators, resellers, consumer
services and international users accounted for approximately 51%, 38%, 7% and
4%, respectively, of revenues during the first nine months of fiscal 2002.
Gross profit decreased by $3.2 million, or 6.0%, to $50.9 million for the first
nine months of fiscal 2002 compared to $54.1 million for the first nine months
of fiscal 2001, due to decreased revenues and increases in inventory reserve
levels. We account for inventory at the lower of cost or market, and as a
result, write-offs/reserves occur due to damage, deterioration, obsolescence,
changes in prices and other causes. The gross profit margin was 27.2% for the
first nine months of fiscal 2002 and 2001.
Total operating expenses increased by $1.0 million, or 2.3%, to $45.5 million
for the first nine months of fiscal 2002 compared to $44.5 million for the first
nine months of fiscal 2001. The increase in these expenses is primarily
attributable to continued investment in personnel, as well as increased
depreciation and amortization related to information system developments. During
the first nine months of fiscal 2002, we recorded $650,300 in bad debt expense
compared to $407,700 in fiscal 2001. We continually evaluate the credit
worthiness of our existing customer receivable portfolio and provide an
appropriate reserve, based on this evaluation. Total operating expenses
increased as a percentage of revenues to 24.3% for the first nine months of
fiscal 2002 from 22.4% for the first nine months of fiscal 2001.
Income from operations decreased by $4.2 million, or 43.9%, to $5.4 million for
the first nine months of fiscal 2002 compared to $9.6 million for the first nine
months of fiscal 2001. The operating income margin decreased to 2.9% for the
first nine months of fiscal 2002 compared to 4.8% for the first nine months of
fiscal 2001.
Net interest and other expense decreased by $322,600 or 21.8%, to $1.2 for the
first nine months of fiscal 2002 compared to $1.5 million for the first nine
months of fiscal 2001. This decrease is due to decreased levels of borrowing
under our revolving credit facility and lower interest rates.
Income before provision for income taxes decreased $3.9 million or 48.0% to $4.2
million for the first nine months of fiscal 2002 compared to $8.2 million for
the first nine months of fiscal 2001. The effective tax rate for fiscal 2002 and
2001 was 39.8% and 38.0%, respectively. The effective tax rate increased, due to
minor changes in the relationship between non-deductible expenses and taxable
income, as well as state apportionment factors. Net income and earnings per
share (diluted) for the first nine months of fiscal 2002 decreased 49.5% and
47.7%, respectively, compared to the first nine months of fiscal 2001.
Liquidity and Capital Resources
--------------------------------------------------------------------------------
Net cash provided by operating activities was $10.1 million for the first nine
months of fiscal 2002, compared to $3.6 million for the first nine months of
fiscal 2001. This increase was primarily the result of a smaller increase in
product inventory, and increases in trade accounts payable, depreciation and
amortization and accrued expenses and other current liabilities in the first
nine months of fiscal 2002, as compared to the first nine months of fiscal 2001,
and occurred notwithstanding a decrease in net income. Because of forecasted
increases in inventory and other working capital, we expect a net use in cash
from operations during the fourth quarter of fiscal 2002. However, we expect
positive cash flow from operations for fiscal year 2002. Net cash used in
investing activities decreased to $3.2 million for the first nine months of
fiscal 2002 compared to $4.1 million for the first nine months of fiscal 2001,
due to lower acquisitions of property and equipment. Net cash used by financing
activities was $6.9 million for the first nine months of fiscal 2002
9
compared to $266,800 for the first nine months of fiscal 2001. This increase is
primarily the result of increased repayments of our revolving line of credit
during the first nine months of fiscal 2002 compared to the first nine months of
fiscal 2001.
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. These forward-looking statements may generally be
identified by the use of the words "may," "will," "expects," "anticipates,"
"estimates," and similar expressions. 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; economic conditions that may impact customers'
ability to fund purchases of our products and services; the possibility that
unforeseen events could impair the Company's ability to service its customers
promptly and efficiently, if at all; the possibility that, for unforeseen
reasons, the Company may be delayed in entering into or performing, or may fail
to enter into or perform, anticipated contracts or may otherwise be delayed in
realizing or fail to realize 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 technologies, inventory obsolescence and evolving
Internet business models and the resulting competition. Consequently, the reader
is cautioned to consider all forward-looking statements in light of the risk 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 its exposure to market risks, including exchange rate risk,
interest rate risk and commodity price risk, is not material at the present
time.
10
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material legal proceedings.
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
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter covered by this
report.
11
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: FEBRUARY 15, 2002 By: /s/ ROBERT C. SINGER
-------------------------------------
Robert C. Singer
Senior Vice President and Chief
Financial Officer
(principal financial and accounting
officer)
12