SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 10 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended March 28, 1997
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 identification no.)
incorporation or organization)
34 Loveton Circle, Sparks, MD 21152-5100
---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
|
Registrant's telephone number, including area code 410-229-1000
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]
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 29, 1997 was $87,044,840. The number of shares of the registrant's Common Stock, $.01 par value, outstanding as of May 29, 1997 was 4,352,242.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 1997 Annual Meeting of Shareholders are incorporated by reference into Part III.
PART I
Item 1: Business
General
................................................................................
TESSCO Technologies Incorporated ("TESSCO" or the "Company") is a
leading national supplier of products to the wireless communications
industry. The Company currently serves more than 6,100 customers per
month in the cellular telephone, Personal Communication System (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 of nearly 17,500 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 and Services
................................................................................
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 simple
hardware items 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 1997, the Company offered
nearly 17,500 SKUs. The Company's product and service offerings are
broadly classified as infrastructure, mobile and portable accessory,
and test and maintenance, which accounted for approximately 49%, 38%
and 13% of revenues during fiscal 1997, 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. The Company's infrastructure service offering includes connector installation, custom jumper assembly, filter product tuning, site "kitting" and "logistics integration."
Mobile and portable accessories 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. Customized order fulfillment services round out the Company's service offering.
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 3.8% in fiscal 1997.
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.
As of March 28, 1997 the Company was offering products purchased from over 270 manufacturers. Although a substantial portion of the Company's purchases are concentrated with a small number of vendors (approximately 57% of TESSCO's fiscal 1997 revenues were generated by the sale of products purchased from its top ten vendors, with products purchased from our largest vendor generating approximately 14%), the Company believes that alternative sources of supply are available for virtually every product type it carries.
The Company has continued its progress in converting customers from Andrew-manufactured cable products to competitive alternatives. In the fourth quarter, the Company ceased selling Andrew products completely, yet was able to achieve 70% of the third quarter cable gross profit and 100% of the prior year's fourth quarter cable gross profit. While this situation has been unpleasant and contributed significantly to the Company's earnings shortfall in the fourth quarter, the Company believes that it will be stronger going forward as the Company diversifies vendor concentration and increases its marketing and sales effectiveness.
Customers
................................................................................
TESSCO's customer base consists of dealers, cellular, PCS 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, PCS and paging carriers and self-maintained users accounted for approximately 37%, 46% and 17% of fiscal 1997 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, PCS 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, CellularOne 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 more than 7% of TESSCO's revenues during fiscal 1997. TESSCO's ten largest customers accounted for approximately 23% of its revenues during fiscal 1997. While the Company generally does not have contracts with its customers, it did enter into a long-term agreement to provide fulfillment services in an attempt to protect its upfront investment with a particular customer. The existing agreement could have limited the customer's corporate flexibility; accordingly, with the Company's concurrence, the customer sent notification of its desire to terminate effective March 1, 1998, and redefine the scope of its business relationship after that date. At the present time, the Company is unable to estimate what changes will result and what effect, if any, these changes will have on the Company's earnings.
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.
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.
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 99 representatives as of March 28, 1997, 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 was approximately 61% in fiscal 1997. The average number of customers per month has increased from 2,646 in fiscal 1992 to 6,181 in fiscal 1997.
Marketing
TESSCO's proprietary customer data base contains detailed information on over 35,000 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, phone contact 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.
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 25,000 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 its complete Buyer's Guide on computer diskette and CD-ROM. In addition, the Company provides a continuing series of electronic interchange services designed to facilitate and encourage customer orders, including computerized order entry, fax on demand product specifications and price and delivery options, and Internet access.
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 7.1 during fiscal 1997 from 4.8 during fiscal 1993. Generally, the Company has been able to return slow-moving inventory to its vendors.
In addition to determining the fundamental product offering, the Company's product business unit teams provide 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.
Order Entry and Fulfillment
Orders are received at the Company's centralized customer relationship center. While entering orders, customer 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. An automated 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. 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 28, 1997, the Company had 297 full-time equivalent employees. Of the Company's full-time equivalent employees, 154 were engaged in customer and vendor service, marketing and product management, 104 were engaged in warehouse and distribution operations, and 39 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 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 270 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 total 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.
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," "The Wireless Journal," "Wireless Solutions" and "Cartwright Communications." 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 centralized distribution center is located in an approximately 156,000 square foot facility located north of Baltimore in Hunt Valley, Maryland. During fiscal 1996, the Company purchased this building which will allow for consolidation of its two current facilities into this location during fiscal 1998.
The Company's corporate headquarters are currently 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. The Company intends to sublease this facility upon completion of the consolidation.
Item 3: Legal Proceedings
None
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 is as follows:
NAME AGE POSITION
...........................................................................................................................
Robert B. Barnhill, Jr. 53 Chairman, Robert B. Barnhill, Jr. is Chairman, President and Chief
President and Financial Officer, and founded the business in 1982.
Chief Executive
Officer
Gerald T. Garland 46 Treasurer and Gerald T. Garland joined the Company in September of
Chief Financial 1993 and currently serves as Treasurer and Chief Financial
Officer Officer. Previously, he was a Senior Vice President in the
Commercial Finance
Division of
Maryland National
Bank and was a
financial manager
and plant
controller for
Black & Decker
Corporation.
Rocco A. Baldasare 40 Group Leader Rocco A. Baldasare joined the Company in March of 1990 and
currently serves as Group Leader for Cartwright Communications
Company, acquired in fiscal 1997. Previously, he was the
Director of Market Development with The Personal Marketing
Company, a publisher of personalized marketing products for
business executives.
Pierce B. Dunn 46 Group Leader Pierce B. Dunn joined the Company in July of 1995 and
currently serves as Group Leader for European Operations.
Previously, he was Chairman of CONNOR Environmental Services
and President of the Kirk Stieff Company, a manufacturer of
prestige gift products.
Richard A. Guipe 49 Group Leader Richard A. Guipe joined the Company in June of 1996 and
currently serves as Group Leader for Operations. Previously,
he was Vice President and General Manager for the Heliax
Products Division of Andrew Corporation and held various
senior management positions with Belden Wire and Cable.
Henry E. Hooper 43 Business Henry E. Hooper joined the Company in 1988 and cur-
Unit Leader rently serves as Team Leader for the Infrastructure Products
Business Unit. Previously, he held senior marketing positions
in the textile manufacturing industry and taught English.
Steven E. Lehukey 39 Group Leader Steven E. Lehukey joined the Company in March of 1994 and
currently serves as Group Leader for Customer Relations.
Previously, he was a Vice President in the Commercial Finance
Division of Maryland National Bank.
W. Bruce Quackenbush, Jr. 47 Group Leader W. Bruce Quackenbush, Jr. joined the Company in July of
1996 and currently serves as Group Leader for Corporate
Development. Previously, he served as Executive Director for
the Pride of Baltimore, Inc. and practiced law.
Randolph S. Wilgis 33 Business Randolph S. Wilgis joined the Company in June of 1991 and
Unit Leader currently serves as Team Leader for the Consumable and
Support Products Business Unit. Previously, he served as a
Project Manager for the Whiting Turner Company.
|
PART II
Item 5: Market for Registrant's Common Equity and Related Shareholder Matters
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 is as follows:
High Low
................................................................................
Fiscal 1995
Second Quarter
(from September 28) 17 1/4 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 1/4
Fiscal 1997
First Quarter 38 3/4 21 1/2
Second Quarter 42 1/4 33 3/4
Third Quarter 43 1/4 34 1/2
Fourth Quarter 37 1/2 18 1/8
|
As of May 29, 1997, the approximate number of security holders of record of the Company was 77.
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
11126 McCormick Road
Hunt Valley, Maryland USA 21030
Phone: 1-410-229-1000 (U.S.)
1-410-229-1200 (International)
Fax: 1-410-229-1656
e-mail: info@tessco.com
Internet: http://www.tessco.com
|
Analysts, investors and shareholders seeking additional information about TESSCO Technologies Incorporated are invited to contact:
Gerald T. Garland, Chief Financial Officer
Phone: 1-410-229-1378 Fax: 1-410-229-1656 e-mail: garland@tessco.com |
Item 6: Selected Financial Data
FISCAL YEARS ENDED
................................................................................................................................
March 28, 1997 March 29, 1996 March 31, 1995 April 1, 1994 March 26,1993
................................................................................................................................
(in thousands, except per share and selected operating data)
Statement of Income Data:
Revenues $147,086 $ 92,290 $ 74,518 $ 61,375 $ 49,800
Cost of goods sold 109,818 68,974 57,829 47,317 37,896
...............................................................................................................................
Gross profit 37,268 23,316 16,689 14,058 11,904
...............................................................................................................................
Selling, general and administrative expenses 29,183 17,127 12,500 11,099 10,409
Restructuring charge 310 -- -- -- --
Retroactive compensation adjustment -- -- -- 747 --
.................................................................................................................................
Income from operations 7,775 6,189 4,189 2,212 1,495
Interest income (expense), net (982) 179 (157) (511) (450)
.................................................................................................................................
Income before provision for income taxes 6,793 6,368 4,032 1,701 1,045
Provision for income taxes 2,615 2,327 1,559 673 370
.................................................................................................................................
Net income $ 4,178 $ 4,041 $ 2,473 $ 1,028 $ 675
.................................................................................................................................
...............................................................................................................................
Fully diluted earnings per share $ 0.89 $ 0.88 $ 0.64 $ 0.32 $ 0.22
Fully diluted weighted average shares outstanding 4,719 4,591 3,894 3,249 3,058
.................................................................................................................................
Statement of Operations Data:
Average customers per month 6,181 4,569 3,898 3,621 3,308
Orders shipped 255,392 176,412 141,950 123,886 109,193
Revenues per employee (in thousands) $ 584 $ 576 $ 583 $ 531 $ 468
Balance Sheet Data (at period end):
Working capital $ 21,812 $ 17,390 $ 18,055 $ 10,296 $ 3,299
Total assets 50,915 36,528 28,176 19,054 17,563
Short-term debt 417 126 121 1,445 5,638
Long-term debt 8,268 85 199 6,053 620
Mandatory redeemable convertible preferred stock -- -- -- -- 3,951
Shareholders' equity 29,372 24,544 20,168 6,363 1,322
.................................................................................................................................
|
Quarterly Results of Operations
FISCAL 1996 QUARTERS ENDED
..................................................................................
June 30, 1995 Sept. 29, 1995 Dec. 29, 1995 March 29, 1996
.................................................................................
Revenues $19,185,100 $21,989,600 $23,805,600 $27,309,800
Cost of
goods sold 14,599,500 16,709,200 17,365,600 20,300,100
.................................................................................
Gross profit 4,585,600 5,280,400 6,440,000 7,009,700
Selling,
general, and
administrative
expenses 3,359,200 3,818,000 4,722,200 5,227,300
Restructuring charge -- -- -- --
.................................................................................
Total operating
expenses 3,359,200 3,818,000 4,722,200 5,227,300
.................................................................................
Income from
operations 1,226,400 1,462,400 1,717,800 1,782,400
Interest income
(expense), net 70,300 63,600 52,800 (7,700)
.................................................................................
Income before
provision
for taxes 1,296,700 1,526,000 1,770,600 1,774,700
Provision for
income taxes 477,900 540,800 643,300 665,000
.................................................................................
Net income $ 818,800 $ 985,200 $ 1,127,300 $ 1,109,700
.................................................................................
.................................................................................
Earnings per share $ .18 $ .21 $ .24 $ .24
.................................................................................
FISCAL 1997 QUARTERS ENDED
.....................................................................................
June 28, 1996 Sept. 27, 1996 Dec. 27, 1996 March 28, 1997
.....................................................................................
Revenues $36,667,900 $38,158,000 $38,901,700 $33,358,400
Cost of
goods sold 27,702,300 28,563,400 29,002,700 24,549,400
.....................................................................................
Gross profit 8,965,600 9,594,600 9,899,000 8,809,000
Selling,
general, and
administrative
expenses 6,656,200 7,093,000 7,690,200 7,743,800
Restructuring charge -- -- -- 310,200
.....................................................................................
Total operating
expenses 6,656,200 7,093,000 7,690,200 8,054,000
.....................................................................................
Income from
operations 2,309,400 2,501,600 2,208,800 755,000
Interest income
(expense), net (136,300) (293,500) (292,100) (260,200)
.....................................................................................
Income before
provision
for taxes 2,173,100 2,208,100 1,916,700 494,800
Provision for
income taxes 839,000 852,400 735,400 188,000
.....................................................................................
Net income $ 1,334,100 $ 1,355,700 $ 1,181,300 $ 306,800
.....................................................................................
.....................................................................................
Earnings per share $ .28 $ .29 $ .25 $ .07
.....................................................................................
|
Percentage of Revenues
FISCAL 1996 QUARTERS ENDED
.................................................................................
June 30, 1995 Sept. 29, 1995 Dec. 29, 1995 March 29, 1996
.................................................................................
Revenues 100.0 100.0 100.0 100.0
Cost of
goods sold 76.1 76.0 72.9 74.3
.................................................................................
Gross profit 23.9 24.0 27.1 25.7
Selling,
general, and
administrative
expenses 17.5 17.4 19.8 19.1
Restructuring charge 0.0 0.0 0.0 0.0
.................................................................................
Total operating
expenses 17.5 17.4 19.8 19.1
.................................................................................
Income from
operations 6.4 6.7 7.2 6.5
Interest income
(expense), net 0.4 0.3 0.2 (0.0)
.................................................................................
Income before
provision
for taxes 6.8 6.9 7.4 6.5
Provision for
income taxes 2.5 2.5 2.7 2.4
.................................................................................
Net income 4.3 4.5 4.7 4.1
.................................................................................
FISCAL 1997 QUARTERS ENDED
.....................................................................................
June 28, 1996 Sept. 27, 1996 Dec. 27, 1996 March 28, 1997
.....................................................................................
Revenues 100.0 100.0 100.0 100.0
Cost of
goods sold 75.5 74.9 74.6 73.6
.....................................................................................
Gross profit 24.5 25.1 25.4 26.4
Selling,
general, and
administrative
expenses 18.2 18.6 19.8 23.2
Restructuring charge 0.0 0.0 0.0 0.9
.....................................................................................
Total operating
expenses 18.2 18.6 19.8 24.1
.....................................................................................
Income from
operations 6.3 6.6 5.7 2.3
Interest income
(expense), net (0.4) (0.8) (0.8) (0.8)
.....................................................................................
Income before
provision
for taxes 5.9 5.8 4.9 1.5
Provision for
income taxes 2.3 2.2 1.9 0.6
.....................................................................................
Net income 3.6 3.6 3.0 0.9
.....................................................................................
.....................................................................................
|
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
Fiscal 1997 Compared to Fiscal 1996
................................................................................
Revenues increased by $54.8 million, or 59.4%, to $147.1 million in fiscal 1997 compared to $92.3 million in 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 Communication's (Cartwright) revenues for the last ten months of fiscal 1997. Revenues increased in each of the Company's major categories, with the largest percentage increase experienced in the sale of mobile and portable accessory products and services. Infrastructure, mobile and portable accessory and test and maintenance products and services accounted for approximately 49%, 38% and 13%, respectively, of fiscal 1997 revenues. Revenues also increased in each of the major customer classifications, with the largest growth experienced in self-maintained users. Cellular, paging and PCS carriers, dealers and self-maintained users accounted for approximately 46%, 37% and 17%, respectively, of fiscal 1997 revenues.
Gross profit increased by $14.0 million, or 59.8% to $37.3 million in fiscal 1997 compared to $23.3 million in fiscal 1996, while the gross profit margin remained constant at 25.3%. The gross profit margin remained constant primarily from increased margins from product and service mix changes, offset by the effect of more competitive pricing in fee-based fulfillment services.
Total operating expenses increased by $12.4 million, or 72.2% to $29.5 million in fiscal 1997 compared to $17.1 million in fiscal 1996. The increase in these expenses was primarily attributable to the continued investment in personnel and marketing expenses, facilities and relocation costs to build and support future revenue and gross profit growth, freight charges associated with increased sales activity and Cartwright expenses being included in the last ten months of fiscal 1997. Total operating expenses increased as a percentage of revenues to 20.1% in fiscal 1997 from 18.6% in fiscal 1996.
Income from operations increased by $1.6 million, or 25.6% to $7.8 million in fiscal 1997 compared to $6.2 million in fiscal 1996, and as a percentage of revenues decreased to 5.3% from 6.7% in fiscal 1996.
Net interest expense in fiscal 1997 was $982,000 compared to net interest income of $179,000 in fiscal 1996. This change is a direct result of interest on borrowings incurred in connection with the Company's acquisition of Cartwright, the funding of the Company's newly opened Global Logistics Center (GLC) and increased working capital requirements in fiscal 1997.
The provision for income taxes increased by $288,000 to $2.6 million in fiscal 1997 compared to $2.3 million in fiscal 1996. The effective tax rate in fiscal 1997 was 38.5% compared to 36.5% in fiscal 1996. The increase in the effective tax rate is primarily due to the Company's borrowing position in fiscal 1997 compared to its investment in tax-exempt securities during fiscal 1996.
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 categories, with the largest growth experienced in the sale of infrastructure products and services. Infrastructure, mobile and portable accessory and test and maintenance products and services accounted for approximately 54%, 33% and 13%, respectively, of fiscal 1996 revenues. Revenues also increased in each of the major customer classifications, with the largest growth experienced in sales to cellular and paging carriers. Cellular, paging and PCS carriers, dealers and self-maintained users accounted for approximately 47%, 37% and 16%, respectively, of fiscal 1996 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.
Total operating 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. Total operating 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.
Liquidity and Capital Resources ................................................................................
Net cash provided by operating activities was approximately $3.2 million in fiscal 1997. The significant change in operating cash flow was primarily a result of net income offset by moderate increases in accounts receivable, inventory and accounts payable levels.
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.
Net cash provided by operating activities was approximately $5.8 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.
Net cash used in investing activities in each fiscal year consisted primarily of the acquisition of property and equipment. In fiscal 1997, the acquisition of Cartwright resulted in a large use of cash in investing activities.
Net cash provided by financing activities was approximately $8.8 million, $196,000 and $3.4 million in fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, this was primarily the result of the Company's borrowings to fund the acquisition of Cartwright Communications Company and the Global Logistics Center. 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.
During fiscal 1997, the Company renegotiated its revolving line of
credit. The new line is unsecured and has a maximum borrowing capacity
of $15.0 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 1.25% There were no outstanding borrowings under the
revolving line of credit as of March 28, 1997. The revolving line of
credit agreement expires on September 30, 1999.
The Company made capital expenditures totaling $5.7 million, $5.5 million and $760,000 during fiscal 1997, 1996 and 1995, respectively. During fiscal 1996, the Company temporarily funded the purchase of its new distribution facility and refinanced it in fiscal 1997 with permanent financing from its principal lender and assistance from the State of Maryland and Baltimore County. The Company expects to make capital expenditures of approximately $3.0 million in fiscal 1998.
Item 8: Financial Statements and Supplementary Data
Balance Sheets
...........................................................................................................................
March 28, 1997 March 29,1996
...........................................................................................................................
ASSETS
Current Assets:
Cash and marketable securities $ -- $ 439,400
Trade accounts receivable, net of allowance for doubtful accounts and
sales returns of $525,300 and $431,700, respectively 16,907,100 14,312,500
Product inventory 16,942,400 13,689,400
Deferred tax asset 376,100 280,600
Prepaid expenses and other current assets 861,500 566,700
...........................................................................................................................
Total current assets 35,087,100 29,288,600
...........................................................................................................................
Property and Equipment:
Land 2,185,500 2,185,500
Building 5,236,600 2,623,100
Leasehold improvements 338,800 591,200
Information technology equipment and software 2,755,100 1,781,200
Equipment and furniture 3,658,100 1,187,300
Equipment held under capital lease 600,000 600,000
Tooling 295,100 295,100
...........................................................................................................................
15,069,200 9,263,400
Less-accumulated depreciation and amortization 3,706,100 2,660,700
...........................................................................................................................
Property and Equipment, net 11,363,100 6,602,700
...........................................................................................................................
Deferred Tax Asset 212,400 87,900
Goodwill 4,252,700 548,700
...........................................................................................................................
Total assets $50,915,300 $36,527,900
...........................................................................................................................
...........................................................................................................................
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $10,771,700 $ 9,642,700
Accrued expenses and other current liabilities 2,086,700 2,129,700
Current portion of long-term debt 331,900 --
Current portion of capital lease obligation 85,000 126,400
...........................................................................................................................
Total current liabilities 13,275,300 11,898,800
Capital Lease Obligation, Net of Current Portion -- 85,000
Borrowings Under Credit Facility 630,500 --
Long-Term Debt 7,637,900 --
...........................................................................................................................
Total liabilities 21,543,700 11,983,800
...........................................................................................................................
Commitment and Contingencies
Shareholders' Equity
Preferred stock, $.01 par value, 500,000 shares authorized
and no shares issued and outstanding -- --
Common stock, $.01 par value, 15,000,000 shares authorized;
4,597,130 shares issued and 4,343,608 shares outstanding
as of March 28, 1997 and 4,462,572 shares issued and
4,218,814 shares outstanding as of March 29, 1996 46,000 44,600
Additional paid-in capital 19,346,200 18,232,900
Treasury stock, at cost, 253,522 shares and 243,758 shares, respectively (2,591,500) (2,126,400)
Retained earnings 12,570,900 8,393,000
...........................................................................................................................
Total shareholders' equity 29,371,600 24,544,100
...........................................................................................................................
Total liabilities and shareholders' equity $50,915,300 $36,527,900
...........................................................................................................................
...........................................................................................................................
|
The accompanying notes are an integral part of these financial statements.
Statements of Income
FISCAL YEARS ENDED
...........................................................................................................................
March 28,1997 March 29, 1996 March 31, 1995
...........................................................................................................................
Revenues $147,086,000 $92,290,100 $74,517,600
Cost of goods sold 109,817,800 68,974,400 57,828,800
...........................................................................................................................
Gross profit 37,268,200 23,315,700 16,688,800
...........................................................................................................................
Selling, general and administrative expenses 29,183,200 17,126,700 12,500,200
Restructuring charge 310,200 -- --
...........................................................................................................................
Total operating expenses 29,493,400 17,126,700 12,500,200
...........................................................................................................................
Income from operations 7,774,800 6,189,000 4,188,600
Interest income (expense), net (982,100) 179,000 (157,100)
...........................................................................................................................
Income before provision for income taxes 6,792,700 6,368,000 4,031,500
Provision for income taxes 2,614,800 2,327,000 1,558,600
...........................................................................................................................
Net income $ 4,177,900 $ 4,041,000 $ 2,472,900
...........................................................................................................................
...........................................................................................................................
Primary earnings per share $ 0.89 $ 0.89 $ 0.64
...........................................................................................................................
...........................................................................................................................
Fully diluted earnings per share $ 0.89 $ 0.88 $ 0.64
...........................................................................................................................
...........................................................................................................................
Primary weighted average shares outstanding 4,703,800 4,555,200 3,834,000
...........................................................................................................................
...........................................................................................................................
Fully diluted weighted average shares outstanding 4,719,200 4,591,300 3,894,200
...........................................................................................................................
...........................................................................................................................
|
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Shareholders' Equity
...........................................................................................................................
Total
Common Additional Treasury Retained Shareholders'
Stock Paid-In Capital Stock Earnings Equity
...........................................................................................................................
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
Net proceeds from exercise of options
in exchange for cash and treasury stock 1,400 822,600 (465,100) -- 358,900
Tax benefit of option exercises -- 290,700 -- -- 290,700
Net income -- -- -- 4,177,900 4,177,900
...........................................................................................................................
Balance at
March 28, 1997 $46,000 $19,346,200 $(2,591,500) $12,570,900 $ 29,371,600
...........................................................................................................................
...........................................................................................................................
|
The accompanying notes are an integral part of these financial statements.
Statements of Cash Flows
FISCAL YEARS ENDED
...........................................................................................................................
March 28,1997 March 29, 1996 March 31, 1995
...........................................................................................................................
Cash Flows from Operating Activities:
Net income $ 4,177,900 $ 4,041,000 $ 2,472,900
Adjustments to reconcile net income to net cash provided by
(used in) operating activities, net of effects of business
acquired in fiscal 1997:
Depreciation and amortization 1,433,200 629,300 552,300
Provision for bad debts 335,400 166,200 186,300
Deferred income taxes (220,000) (58,900) (79,800)
(Increase) in trade accounts receivable (1,351,700) (6,421,400) (652,400)
(Increase) in product inventory (1,335,900) (5,115,500) (289,100)
(Increase) decrease in prepaid expenses and
other current assets (294,800) (92,200) 374,000
Increase in trade accounts payable 174,000 3,035,000 2,025,300
Increase in accrued expenses and other
current liabilities, net of non-cash items 247,700 1,107,500 1,225,600
Decrease in other long-term liabilities -- (27,800) (41,800)
...........................................................................................................................
Net cash provided by (used in) operating activities 3,165,800 (2,736,800) 5,773,300
...........................................................................................................................
Cash Flows from Investing Activities:
Cash paid for acquired business (6,726,800) -- --
Acquisition of property and equipment (5,711,200) (5,473,100) (759,900)
...........................................................................................................................
Net cash used in investing activities (12,438,000) (5,473,100) (759,900)
...........................................................................................................................
Cash Flows from Financing Activities:
Net increase (decrease) in borrowings
under credit facility 630,500 -- (6,881,500)
Net proceeds from initial public offering -- -- 10,032,900
Net proceeds from long-term debt 7,969,800 -- --
Proceeds from exercise of stock options and warrants 358,900 304,700 585,000
Payment of capital lease obligations (126,400) (108,500) (296,700)
...........................................................................................................................
Net cash provided by financing activities 8,832,800 196,200 3,439,700
...........................................................................................................................
Net (decrease) increase in cash and marketable securities (439,400) (8,013,700) 8,453,100
Cash and Marketable Securities, beginning of period 439,400 8,453,100 --
...........................................................................................................................
Cash and Marketable Securities, end of period $ -- $ 439,400 $ 8,453,100
...........................................................................................................................
...........................................................................................................................
|
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
NOTE 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 shareholders 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. During fiscal 1997, the Company increased its number of authorized shares of common stock to 15,000,000.
NOTE 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 28, 1997, March 29, 1996 and March 31, 1995 each contained 52 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
...............................................................
Information technology 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.
Goodwill Goodwill is being amortized using the straight-line method over 15 years. Accumulated amortization as of March 28, 1997 and March 29, 1996 was approximately $533,200 and $250,100, respectively.
Revenue Recognition The Company records sales when product is shipped to the customers or when services are provided.
Advertising Costs The Company capitalizes certain costs related to the printing and production of its product catalogs. These costs are amortized over the useful life commencing with the distribution of the catalogs.
Supplemental Cash Flow Information Cash paid for interest during fiscal years 1997, 1996 and 1995 totaled $661,400, $0 and $181,400, respectively. Cash paid for income taxes for fiscal years 1997, 1996 and 1995 totaled $3,530,100, $1,547,000 and $712,000, respectively.
The Company had noncash transactions during fiscal years 1997, 1996 and 1995 as follows:
..................................................................................................................
1997 1996 1995
..................................................................................................................
Exercise of options and warrants in exchange for treasury stock 465,100 160,500 1,787,200
Tax benefit from exercise of stock options 290,700 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.
NOTE 3. Borrowings Under Credit Facility:
................................................................................
Effective September 30, 1996, the Company entered into an Amended and Restated Financing and Security Agreement (the Agreement) with a bank for a $15,000,000 revolving credit facility available through September 30, 1999. There was no balance outstanding under the Agreement as of March 28, 1997. 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 1.25%.
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 years 1997, 1996 and 1995, the maximum borrowings under the revolving credit facility totaled $6,609,000, $0 and $6,413,500, respectively. The average borrowings totaled $2,503,900, $0 and $5,383,200 in fiscal years 1997, 1996 and 1995, respectively. The weighted average interest rate on borrowings was 7.3%, 0.0% and 6.6% for the respective fiscal years.
Interest expense on the credit facility for fiscal years 1997, 1996 and 1995, totaled $210,200, $0 and $166,000, respectively.
NOTE 4. 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 a noncancelable operating lease for office facilities that expires on December 31, 2000. Rent expense for fiscal years 1997, 1996 and 1995 totaled $469,000, $520,200 and $463,400, respectively.
As of March 28, 1997, future minimum lease payments related to the leases were as follows:
...............................................................................................................
Capital Lease Operating Lease
...............................................................................................................
1998 $88,200 $219,200
1999 -- 267,700
2000 -- 267,700
2001 -- 200,700
...............................................................................................................
88,200 $955,300
Less -- Interest 3,200
...............................................................................................................
Present value of future minimum lease payments $85,000
...............................................................................................................
|
NOTE 5. 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:
.............................................................................................................
1997 1996 1995
.............................................................................................................
Statutory federal rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 2.3% 2.3% 2.3%
Non-deductible expenses 1.8% 0.5% 0.8%
Other 0.4% (0.3%) 1.6%
.............................................................................................................
Effective rate 38.5% 36.5% 38.7%
.............................................................................................................
The provision for income taxes was comprised of the following:
.............................................................................................................
1997 1996 1995
.............................................................................................................
Federal:
Current $2,133,400 $2,128,000 $1,473,700
Deferred 191,900 (51,700) (69,600)
State:
Current 261,300 257,900 164,700
Deferred 28,200 (7,200) (10,200)
Provision for income taxes $2,614,800 $2,327,000 $1,558,600
.............................................................................................................
Total deferred tax assets and deferred tax liabilities as of March 28, 1997 and
March 29, 1996, 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:
.............................................................................................................
1997 1996
.............................................................................................................
Deferred tax assets:
Property, equipment and capital leases $212,000 $134,500
Accrued expenses and reserves 376,100 297,800
Other assets 8,600 9,600
.............................................................................................................
$596,700 $441,900
.............................................................................................................
Deferred tax liabilities:
Prepaid expenses $ -- $ 17,200
Other assets 8,200 56,200
.............................................................................................................
$ 8,200 $ 73,400
.............................................................................................................
|
NOTE 6. 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 1997, 1996 and 1995 totaled $87,000, $47,200 and $69,800, respectively.
NOTE 7. Asset Purchase:
................................................................................
During fiscal year 1997, the Company acquired certain assets and assumed certain liabilities of Cincinnati, Ohio-based Cartwright Communications. The transaction was valued at $3,988,000 plus the net value of inventory, receivables and payables. The purchase was for cash and the assumption of certain liabilities. The goodwill associated with this transaction is being amortized over 15 years.
NOTE 8. 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 dilutive effect of all options outstanding has been determined by using the treasury stock method. The weighted average shares outstanding is calculated as follows:
.............................................................................................................
1997 1996 1995
.............................................................................................................
Common stock 4,287,000 4,159,300 3,447,700
Effect of dilutive common equivalent shares 416,800 395,900 386,300
.............................................................................................................
Primary weighted average shares outstanding 4,703,800 4,555,200 3,834,000
Effect of change in share price 15,400 36,100 60,200
.............................................................................................................
Fully diluted weighted average shares outstanding 4,719,200 4,591,300 3,894,200
.............................................................................................................
|
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.
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per Share." SFAS No. 128 simplifies the standards for computing earnings per share previously found in APB No. 15, "Earnings Per Share." It replaces the presentation of primary EPS with a presentation of basic EPS and requires a reconciliation of the numerator and denominator of the basic EPS calculation to the numerator and denominator of the diluted EPS calculation. 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 similarly to fully diluted EPS pursuant to APB Opinion No. 15.
SFAS No. 128 is effective for fiscal years ending after December 15, 1997, and early adoption is not permitted. When adopted, it will require restatement of prior years' EPS. When adopted for the year ended March 27, 1998, the Company will report basic EPS instead of primary EPS. Basic EPS for the years ended March 28, 1997 and March 29, 1996 is $0.97 and $0.97, respectively.
NOTE 9. Stock Based Compensation:
...............................................................................
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 633,000 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 28, 1997.
Transactions involving options and warrants are summarized as follows:
...............................................................................................................
1997 1996 1995
...............................................................................................................
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
...............................................................................................................
Outstanding,
beginning of year 714,000 $11.17 699,600 $ 8.72 625,900 $ 4.63
Granted 126,500 33.69 148,600 17.07 424,400 12.08
Exercised (134,500) 6.13 (134,200) 3.47 (350,700) 5.50
Cancelled ( 20,000) 34.00 -- -- -- --
...............................................................................................................
Outstanding,
end of year 686,000 $15.91 714,000 $11.17 699,600 $ 8.72
Exercisable at
end of year 438,900 -- 565,500 -- 309,700 --
Weighted average
fair value of
options granted
during the year $22.40 -- $ 9.93 -- -- --
..................................................................................................................
|
Information about fixed stock options outstanding and exercisable as of March 28, 1997 is as follows:
OUTSTANDING EXERCISABLE
.............................................................................................................
Weighted Average Weighted Average Weighted Average
Range of Exercise Price Shares Remaining Contractual Life Exercise Price Shares Exercise Price
.............................................................................................................
$ 0.00 - 10.00 47,900 2.8 $ 3.67 47,900 $ 3.67
10.00 - 20.00 520,600 7.2 13.15 391,000 12.21
20.00 - 36.50 117,500 9.3 33.22 -- N/A
.............................................................................................................
$ 0.00 - 36.50 686,000 7.2 $15.93 438,900 $11.28
.............................................................................................................
|
The Company applies Accounting Principles Board Opinion 25 and related interpretations in accounting for the plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock option plans been determined based on fair value at the grant dates for grants under the plans consistent with the methodology of SFAS 123, the Company's net earnings and earnings per share for fiscal years 1997 and 1996 would have been reduced to the pro forma amounts indicated as follows:
.........................................................................................
1997 1996
.........................................................................................
Net earnings (in thousands) As reported $4,178 $4,041
Pro forma 3,786 3,888
Fully diluted earnings per share As reported $ 0.89 $ 0.88
Pro forma $ 0.80 $ 0.85
.........................................................................................
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in fiscal years 1997 and 1996:
..........................................................................................
1997 1996
..........................................................................................
Dividend yield 0% 0%
Expected volatility 53.6% 44.5%
Risk-free interest rate 6.5% 6.0%
Expected lives 8 years 8 years
..........................................................................................
|
Pro forma net income reflects only options granted in fiscal 1996 and fiscal 1997. Therefore, the full impact of calculating compensation cost for stock options under SFAS123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of four years and compensation cost for options granted prior to March 31, 1995 is not considered.
NOTE 10. Restructuring Charge:
...............................................................................
During the fourth quarter of fiscal 1997, the Company determined that it would consolidate its Maryland facilities. Currently, the Company has a lease for its corporate headquarters that expires on December 31, 2000. Based on the current monthly payments and the expected sublease rate the Company will receive after vacating its current corporate headquarters, the Company recorded a $310,200 restructuring charge in its fiscal 1997 Statement of Income.
Management's Responsibility for 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 28, 1997, March 29, 1996 and March 31, 1995.
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, President and Treasurer and Chief
Chief Executive Officer Financial Officer
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
|
TESSCO Technologies Incorporated:
We have audited the accompanying balance sheets of TESSCO Technologies Incorporated as of March 28, 1997 and March 29, 1996, and the related statements of income, changes in shareholders' equity and cash flows for the years ended March 28, 1997, March 29, 1996 and March 31, 1995. 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 28, 1997 and March 29, 1996, and the results of its operations and its cash flows for the years ended March 28, 1997, March 29, 1996 and March 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit 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.
/s/ Arthur Andersen LLP
------------------------
Arthur Andersen LLP
Baltimore, Maryland
April 14, 1997
|
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 1997 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 1997 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 1997 Annual Meeting of Shareholders, is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions
None.
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 financial statements are included in Item 8 of this Report:
Balance Sheets as of March 28, 1997 and March 29, 1996
Statements of Income for the fiscal years ended March 28, 1997, March 29, 1996, and March 31, 1995
Statements of Changes in Shareholders' Equity for the fiscal years ended March 28, 1997, March 29, 1996, and March 31, 1995
Statements of Cash Flows for the fiscal years ended March 28, 1997, March 29, 1996, and March 31, 1995
Notes to Financial Statements
Report of Independent Public Accountants
2. The following financial statement schedules are included herewith:
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 Exhibit 2 to 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)).
3.1.4 Certificate of Amendment to Certificate of Incorporation of
the Registrant filed September 6, 1996 (filed herwith).
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 Shareholders' 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 Registration
Statement on Form S-1 (No. 33-81834)).
|
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).
10.7.1 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 Annual Report on Form 10-K for
the fiscal year ended March 31, 1995).
10.7.2 First Amendment to Financing Agreement dated
September 26, 1996 (filed herewith).
10.7.3. Second Amendment to Financing Agreement dated
February 28, 1997 (filed herewith).
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 (incorporated by reference to Exhibit 10.11
to the Company's Annual Report on Form 10-K for the fiscal
year ended March 29, 1996).
11.1 Statement re: Computation of Per Share Earnings
(filed herewith).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
27 Financial Data Schedule (filed herewith).
|
(b) The registrant did not file any reports on Form 8-K during the quarter ended March 28, 1997.
Schedule II: For the Fiscal Years Ended March 28, 1997, March 29, 1996, and March 31, 1995
Valuation and Qualifying Accounts
...........................................................................................................
1997 1996 1995
...........................................................................................................
Allowance for doubtful accounts and sales returns:
Balance, beginning of year $431,700 $474,000 $366,400
Provisions 335,400 166,200 186,300
Writeoffs (241,800) (208,500) ( 78,700)
...........................................................................................................
Balance, end of year $525,300 $431,700 $474,000
...........................................................................................................
|
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dully caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TESSCO TECHNOLOGIES INCORPORATED
By: /s/ Robert B. Barnhill, Jr.
--------------------------------------
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.
By: /s/ Robert B. Barnhill, Jr. June 26, 1997 By: /s/ Gerald T. Garland
------------------------------------ ------------------------------------ June 26, 1997
Robert B. Barnhill, Jr. Gerald T. Garland
Chairman of the Board, President and Treasurer and
Chief Executive Officer Chief Financial Officer
(principal executive officer) (principal financial and accounting
officer)
By: /s/ Jerome C. Eppler June 26, 1997 By: /s/ Dennis J. Shaughnessy
------------------------------------ ------------------------------------ June 26, 1997
Jerome C. Eppler Dennis J. Shaughnessy
Director Director
By: /s/ Martin L. Grass June 26, 1997 By: /s/ Morton F. Zifferer, Jr.
------------------------------------ ------------------------------------ June 26, 1997
Martin L. Grass Morton F. Zifferer, Jr.
Director Director
By: /s/ Benn R. Konsynski June 26, 1997
------------------------------------
Benn R. Konsynski
Director
|
EXHIBIT INDEX
The following Exhibits are filed herewith:
3.1.4 Certificate of Amendment to Certificate of Incorporation of
the Registrant filed September 6, 1996.
10.7.2 First Amendment to Financing Agreement dated September 26,
1996.
10.7.3 Second Amendment to Financing Agreement dated February 28,
1997.
11.1 Statement re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
|
Exhibit 3.1.4
TESSCO TECHNOLOGIES INCORPORATED
CERTIFICATE OF AMENDMENT
TESSCO Technologies Incorporated, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Certificate of Incorporation of the Corporation (as heretofore amended) is hereby amended by deleting Article Fourth thereof and replacing such Article with the following:
FOURTH: The total number of shares of all classes of stock which the Corporation has authority to issue is fifteen million five hundred thousand (15,500,000) shares, of which fifteen million (15,000,000) shares shall be Common Stock, par value $0.01, and five hundred thousand (500,000) shares shall be Preferred Stock, par value $0.01 per share.
SECOND: That pursuant to a unanimous written consent of the Board of Directors of the Corporation dated May 9, 1996, resolutions were duly adopted setting forth the foregoing amendment to the Corporation's Certificate of Incorporation, declaring said amendment to be advisable, and providing that the amendment be brought before the stockholders of the Corporation for their consideration at the 1996 Annual Meeting of Stockholders.
THIRD: That thereafter, pursuant to such resolutions of its Board of Directors, an annual meeting of the stockholders of the Corporation was duly called and held on July 16, 1996, upon notice in accordance with section 222 of the General Corporation Law at which meeting that number of shares required by statute were voted in favor of the amendment.
FOURTH: That the amendment was duly adopted in accordance with the provisions of section 242 of the General Corporation Law.
IN WITNESS WHEREOF, said Corporation has caused this Certificate of Amendment to be signed by Robert B. Barnhill, Jr., its President and Chief Executive Officer, and Janet W. Barnhill, its Secretary, on this 26th day of July, 1996.
ATTEST:
/s/ JANET W. BARNHILL By: /s/ ROBERT B. BARNHILL, JR.
----------------------------- ------------------------------
Janet W. Barnhill, Secretary Robert B. Barnhill, Jr.
President and Chief Executive
Officer
|
Exhibit 10.7.2
FIRST AMENDMENT
TO
FINANCING AGREEMENT
THIS FIRST AMENDMENT TO FINANCING AGREEMENT (this "Agreement") is made as of the 26th day of September, 1996, by TESSCO TECHNOLOGIES INCORPORATED (sometimes referred to herein as the "Parent"), a corporation organized under the laws of the State of Delaware, TESSCO COMMUNICATIONS INCORPORATED, a corporation organized under the laws of the State of Delaware, TESSCO INCORPORATED, a corporation organized under the laws of the State of Delaware, TESSCO FINANCIAL CORPORATION, a corporation organized under the laws of the State of Delaware, NATIONAL AIRTIME CORPORATION, a corporation organized under the laws of the State of Delaware, and WIRELESS SOLUTIONS INCORPORATED, a corporation organized under the laws of the State of Maryland, jointly and severally (collectively, the "Borrower") and NATIONSBANK, N.A., a national banking association, its successors and assigns (the "Lender").
RECITALS
A. The Borrower and the Lender entered into a Financing Agreement dated March 31, 1995 (the same, as amended, modified, substituted, extended, and renewed from time to time, the "Financing Agreement"). The Financing Agreement provides for some of the agreements between the Borrower and the Lender with respect to the "Loan" (as defined in the Financing Agreement), including a revolving credit facility in an amount not to exceed $10,000,000.
B. The Borrower has requested that the Lender revise certain of the financial covenants as more fully described herein.
C. The Lender is willing to agree to the Borrower's request on the condition, among others, that this Agreement be executed.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, receipt of which is hereby acknowledged, the Borrower and the Lender agree as follows:
1. The Borrower and the Lender agree that the Recitals above are a part of this Agreement. Unless otherwise expressly defined in this Agreement, terms defined in the Financing Agreement shall have the same meaning under this Agreement.
2. The Borrower and the Lender agree that on the date hereof the aggregate outstanding principal balance under the Revolving Credit Note (as defined in the Financing Agreement and subject to change for returned items and other adjustments made in the ordinary course of business) is $__________.
3. The Borrower represents and warrants to the Lender as follows:
(a) Borrower is a corporation duly organized, and validly existing and in good standing under the laws of the state in which it was organized and is duly qualified to do business as a foreign corporation in good standing in every other state wherein the conduct of its business or the ownership of its property requires such qualification;
(b) Borrower has the power and authority to execute and deliver this Agreement and perform its obligations hereunder and has taken all necessary and appropriate corporate action to authorize the execution, delivery and performance of this Agreement;
(c) The Financing Agreement, as amended by this Agreement, and each of the other Financing Documents remains in full force and effect, and each constitutes the valid and legally binding obligation of Borrower, enforceable in accordance with its terms;
(d) All of Borrower's representations and warranties contained in the Financing Agreement and the other Financing Documents are true and correct on and as of the date of Borrower's execution of this Agreement; and
(e) No Event of Default and no event which, with notice, lapse of time or both would constitute an Event of Default, has occurred and is continuing under the Financing Agreement or the other Financing Documents which has not been waived in writing by the Lender.
4. The Financing Agreement is hereby amended as follows:
(a) Section 5.1.14 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
Current Ratio. The Borrower will at all times maintain, tested as of the end of each fiscal quarter of the Borrower, a ratio of current assets (as determined in accordance with GAAP consistently applied) to current liabilities (as determined in accordance with GAAP consistently applied, except that the outstanding principal balance of the Revolving Loan shall not be included in current liabilities) of not less than 1.75 to 1.0.
(b) Section 5.1.15 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
Net Worth. Commencing 6/28/96, the Borrower will at all times maintain a Net Worth of not less than $22,000,000. The Net Worth requirement of this Section shall be increased at the end of each fiscal quarter, commencing 9/28/96, by 50% of the Borrower's net income (without regard to any loss) from the immediately preceding fiscal quarter.
(c) Section 5.1.16 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
Leverage Ratio. The Borrower will at all times maintain, tested as of the end of each fiscal quarter of the Borrower, a Liabilities to Worth Ratio of not more than 1.50 to 1.0.
(d) Section 5.1.17 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
Fixed Charges Coverage Ratio. The Borrower will maintain, tested as of the last day of each of the Borrower's fiscal quarters for the four (4) quarter period ending on that date (on a rolling four quarter basis), a Fixed Charges Coverage Ratio of not less than 1.50 to 1.0, and commencing fiscal year end 1998, a Fixed Charges Coverage Ratio of not less than 1.60 to 1.0.
(e) Section 5.1.18 is hereby added to the Financing Agreement:
Senior Funded Indebtedness to EBITDA Ratio. The Borrower will maintain, tested as of the last day of each of the Borrower's fiscal quarters for the four (4) quarter period ending on that date (on a rolling four quarter basis), a ratio of Senior Funded Indebtedness to EBITDA of not less than 2.50 to 1.0.
"Senior Funded Indebtedness" means at any date, the aggregate of all Indebtedness for Borrowed Money of the Borrower and its Subsidiaries, to the Lender whether secured or unsecured, having a final maturity (or which by the terms thereof is renewable or extendible at the option of the obligor for a period ending) more than a year after that date.
5. The Borrower hereby issues, ratifies and confirms the representations, warranties and covenants contained in the Financing Agreement, as amended hereby. The Borrower agrees that this Agreement is not intended to and shall not cause a novation with respect to any or all of the Obligations.
6. The Borrower acknowledges and warrants that the Lender has acted in good faith and has conducted in a commercially reasonable manner its relationships with the Borrower in connection with this Agreement and generally in connection with the Financing Agreement and the Obligations, the Borrower hereby waiving and releasing any claims to the contrary.
7. The Borrower shall pay at the time this Agreement is executed and delivered all fees, commissions, costs, charges, taxes and other expenses incurred by the Lender and its counsel in connection with this Agreement, including, but not limited to, reasonable fees and expenses of the Lender's counsel and all recording fees, taxes and charges.
8. This Agreement may be executed in any number of duplicate originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute but one and the same instrument. The Borrower agrees that the Lender may rely on a telecopy of any signature of the Borrower. The Lender agrees that the Borrower may rely on a telecopy of this Agreement executed by the Lender.
IN WITNESS WHEREOF, the Borrowers and the Lender have executed this Agreement under seal as of the date and year first written above.
WITNESS: TESSCO TECHNOLOGIES INCORPORATED
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: TESSCO COMMUNICATIONS INCORPORATED
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: TESSCO INCORPORATED
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: TESSCO FINANCIAL CORPORATION
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: NATIONAL AIRTIME CORPORATION
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: WIRELESS SOLUTIONS INCORPORATED
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: NATIONSBANK, N.A.
/s/ By: /s/ THOMAS O. HOLLAND
-------------------------- -----------------------------(Seal)
Thomas O. Holland
Vice President
|
Exhibit 10.7.3
SECOND AMENDMENT
TO
FINANCING AGREEMENT
THIS SECOND AMENDMENT TO FINANCING AGREEMENT (this "Agreement") is made as of the 28th day of February, 1997, by TESSCO TECHNOLOGIES INCORPORATED (sometimes referred to herein as the "Parent"), a corporation organized under the laws of the State of Delaware, TESSCO COMMUNICATIONS INCORPORATED, a corporation organized under the laws of the State of Delaware, TESSCO INCORPORATED, a corporation organized under the laws of the State of Delaware, TESSCO FINANCIAL CORPORATION, a corporation organized under the laws of the State of Delaware, NATIONAL AIRTIME CORPORATION, a corporation organized under the laws of the State of Delaware, WIRELESS SOLUTIONS INCORPORATED, a corporation organized under the laws of the State of Maryland, (each of the foregoing corporations, jointly and severally, collectively, the "Original Borrower") and CARTWRIGHT COMMUNICATIONS COMPANY, a corporation organized under the laws of the State of Delaware ("Cartwright"), jointly and severally (the Original Borrower and Cartwright collectively, the "Borrower"), and NATIONSBANK, N.A., a national banking association, its successors and assigns (the "Lender").
RECITALS
A. The Original Borrower and the Lender entered into a Financing Agreement dated March 31, 1995 (the same as amended by First Amendment to Financing Agreement dated September 26, 1996, and as amended, modified, substituted, extended, and renewed from time to time, the "Financing Agreement"). The Financing Agreement provides for some of the agreements between the Original Borrower and the Lender with respect to the "Loans" (as defined in the Financing Agreement), including a revolving credit facility in an amount not to exceed $10,000,000.
B. The Original Borrower has requested that the Lender permit Cartwright to become part of the Borrower under the Financing Agreement, increase the maximum principal amount of the Loans from $10,000,000 to $15,000,000, revise certain of the financial covenants and make other changes to the Financing Agreement as more fully described herein.
C. The Lender is willing to agree to the Original Borrower's request on the condition, among others, that this Agreement be executed.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, receipt of which is hereby acknowledged, the Borrower and the Lender agree as follows:
1. The Borrower and the Lender agree that the Recitals above are a part of this Agreement. Unless otherwise expressly defined in this Agreement, terms defined in the Financing Agreement shall have the same meaning under this Agreement.
2. The Original Borrowers and Cartwright hereby jointly and severally acknowledge, confirm and agree that on and as of the date of this Agreement Cartwright has become, and is, a "Borrower" under the Financing Agreement, the Revolving Credit Note and the other Financing Documents for all purposes thereof, and as such shall be jointly and severally liable, as provided in the Financing Agreement, the Revolving Credit Note and the other Financing Documents, for all Obligations thereunder (whether incurred or arising prior to, on, or subsequent to the date hereof) and otherwise bound by all of the terms, provisions and conditions thereof.
3. Cartwright makes as of the date of this Agreement the representations contained in Section 3.1 of the Financing Agreement, except that in Section 3.1.11 of the Financing Agreement the applicable financial statements shall be the December 27, 1996 quarterly statements as reflected in the Borrower's 10Q filed with the United States Securities and Exchange Commission, and not the December 30, 1994 statements, and except that references in Section 3.1 of the Financing Agreement to EXHIBITS B, C and D, shall mean those exhibits with any amendments thereto set forth in Schedule 1 to this Agreement.
4. The Borrower and the Lender agree that on the date hereof the aggregate outstanding principal balance under the Revolving Credit Note (as defined in the Financing Agreement and subject to change for returned items and other adjustments made in the ordinary course of business) is $4,000,000.
5. The Original Borrower represents and warrants to the Lender as follows:
(a) Original Borrower is a corporation duly organized, and validly existing and in good standing under the laws of the state in which it was organized and has the power and authority to own its property and to carry on its business in each jurisdiction in which the Original Borrower does business;
(b) Original Borrower has the power and authority to execute and deliver this Agreement and perform its obligations hereunder and has taken all necessary and appropriate corporate action to authorize the execution, delivery and performance of this Agreement;
(c) The Financing Agreement, as amended by this Agreement, and each of the other Financing Documents to which the Original Borrower is a party remain in full force and effect, and each constitutes the valid and legally binding obligation of Original Borrower, enforceable in accordance with its terms;
(d) All of Original Borrower's representations and warranties contained in the Financing Agreement and the other Financing Documents to which the Original Borrower is a party are true and correct on and as of the date of Original Borrower's execution of this Agreement; and
(e) No Event of Default and no event which, with notice, lapse of time or both would constitute an Event of Default, has occurred and is continuing under the Financing Agreement or the other Financing Documents which has not been waived in writing by the Lender.
6. The Financing Agreement is hereby amended as follows:
(a) Section 1.1 of the Financing Agreement is hereby amended by deleting the definitions of "Applicable Margin," "Permitted Acquisitions," "Post Default Rate" and "Revolving Credit Expiration Date" in their entirety and by substituting therefor the following:
"Applicable Margin" means the applicable basis points per annum added, as set forth in Section 2.2.1(c), to the LIBOR Base Rate or the Prime Rate.
"Permitted Acquisitions" means Acquisitions, the aggregate consideration for all of which does not exceed $5,000,000, provided, however, that the consideration for the Acquisition of Cartwright Communications Company shall not be included in the calculation of that $5,000,000 limit.
"Post-Default Rate" means the Revolving Loan Rate in effect from time to time without regard to this definition, plus two percent (2%) per annum.
"Revolving Credit Expiration Date" means September 30, 1999.
(b) Section 2.1.1 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
2.1.1 Revolving Credit Facility. Subject to and upon the provisions of this Agreement, the Lender establishes a revolving credit facility (the "Revolving Credit Facility") in favor of the Borrower. The aggregate of all advances under the Revolving Credit Facility are sometimes referred to in this Agreement collectively as the "Revolving Loan". The "Revolving Credit Committed Amount" means $15,000,000.00. Provided, however, in no event shall the Lender consider any request for a Revolving Loan if after giving effect to the Borrower's request, the outstanding principal balance of the Revolving Loan and of the Letter of Credit Obligations would exceed the Revolving Credit Committed Amount.
(c) Section 2.1.5 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
2.1.5 Revolving Credit Unused Line Fee. The Borrower shall pay to the Lender a quarterly revolving credit facility fee (collectively, the "Revolving Credit Unused Line Fees" and individually, a "Revolving Credit Unused Line Fee") in an amount equal to one-quarter of one percent (0.25%) per annum on the average daily unused and undisbursed portion of the Revolving Credit Committed Amount in effect from time to time accruing during each calendar quarter. The accrued and unpaid portion of the Revolving Credit Unused Line Fee shall be paid by the Borrower to the Lender on the first day of the next calendar quarter (commencing on the first such date following the date hereof) and on the Revolving Credit Termination Date.
(d) Section 2.2.1(c) of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
(c) The term "Revolving Loan Rate" shall mean either the Base Rate
or the LIBOR Rate for such Revolving Loan as chosen by the Borrower in writing
prior to the making of such Revolving Loan in accordance with the terms and
conditions of this Agreement, including the following basis points (the
"Applicable Margin"), based upon the Borrower's reaching and maintaining the
following corresponding Fixed Charges Coverage Ratios as determined by the
Lender from the Borrower's financial statements delivered in accordance with
Section 5.1.1 hereof:
------------------------------------------------------------------------- -------------------- ----------------------
Applicable Margin Applicable Margin
Ratio for for
LIBOR Loans Base Rate Loans
------------------------------------------------------------------------- -------------------- ----------------------
If the Borrower's Fixed Charges Coverage Ratio 125 0
is greater than 2.0 to 1.0
------------------------------------------------------------------------- -------------------- ----------------------
If the Borrower's Fixed Charges Coverage Ratio 150 0
is greater than or equal to 1.75 to 1.0, but less than 2.0 to 1.0
------------------------------------------------------------------------- -------------------- ----------------------
If the Borrower's Fixed Charges Coverage Ratio 175 25
is less than 1.75 to 1.0
------------------------------------------------------------------------- -------------------- ----------------------
|
The initial Fixed Charges Coverage Ratio is assumed to be greater than 2.0 to
1.0. Upon the determination of the Fixed Charges Coverage Ratio at the end of
each of the Borrower's fiscal quarters (beginning on the fiscal quarter ending
March, 1997), the corresponding Revolving Loan Rate shall be in effect
commencing with the first day of the month following the receipt of the
applicable financial statements of the Borrower and continuing through and
including the next determination of the Fixed Charges Coverage Ratio. Provided,
however, in the event that the Borrower fails to timely provide the Lender with
the financial statements required by Section 5.1.1 hereof, then the Lender may
in good faith determine the Fixed Charges Coverage Ratio and the Borrower may
choose the corresponding Revolving Loan Rate set forth above.
(e) Section 2.3.2 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
2.3.2 Letter of Credit Fees. Prior to or simultaneously with the opening of each Letter of Credit, the Borrower shall pay to the Lender, a letter of credit fee (each a "Letter of Credit Fee" and collectively the "Letter of Credit Fees") in an amount equal to the amount of the Letter of Credit multiplied by the per annum Applicable Margin (minus 25 basis points) for LIBOR Loans under Section 2.2.1(c) of this Agreement. Such Letter of Credit Fees shall be paid upon the opening of the Letter of Credit and upon each anniversary thereof, if any thereof. In addition, the Borrower shall pay to the Lender any and all additional issuance, negotiation, processing, transfer or other fees to the extent and as and when required by the provisions of any Letter of Credit Agreement; such additional fees are included in and a part of the "Fees" payable by the Borrower under the provisions of this Agreement.
(f) Section 5.1.14 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
5.1.14 Current Ratio. The Borrower will at all times maintain, tested as of the end of each fiscal quarter of the Borrower, a ratio of current assets (as determined in accordance with GAAP consistently applied) to current liabilities (as determined in accordance with GAAP consistently applied, except that the outstanding principal balance of the Revolving Loan shall not be included in current liabilities) of not less than 1.50 to 1.0.
(g) Section 5.1.17 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
5.1.17 Fixed Charges Coverage Ratio. The Borrower will maintain,
tested as of the last day of each of the Borrower's fiscal quarters for the four
(4) quarter period ending on that date (on a rolling four quarter basis), a
Fixed Charges Coverage Ratio of not less than 1.50 to 1.0.
(h) Section 5.1.18 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
5.1.18 Senior Funded Indebtedness to EBITDA Ratio. The Borrower will maintain, tested as of the last day of each of the Borrower's fiscal quarters for the four (4) quarter period ending on that date (on a rolling four quarter basis), a ratio of Senior Funded Indebtedness to EBITDA of not greater than 2.50 to 1.0.
"Senior Funded Indebtedness" means at any date, the aggregate of all Indebtedness for Borrowed Money of the Borrower and its Subsidiaries, to the Lender whether secured or unsecured, having a final maturity (or which by the terms thereof is renewable or extendible at the option of the obligor for a period ending) more than a year after that date.
(i) Section 5.2.1 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
5.2.1 Capital Structure, Merger, Acquisition or Sale of Assets Capital Structure, Merger, Acquisition or Sale of Assets. Except for Permitted Acquisitions, the Borrower shall not (i) enter into any merger or consolidation or amalgamation, windup or dissolve itself (or suffer any liquidation or dissolution) or (ii) make any Acquisition or sell, lease or otherwise dispose of any of its assets except inventory and obsolete or unused equipment disposed of in the ordinary course of its business, and except other asset dispositions which do not exceed $500,000 in the aggregate in any fiscal year or, if in excess of $500,000, for which the Lender has received not less than thirty (30) days prior written notice and the proceeds of which have been used to reduce non-subordinated indebtedness for borrowed money having a final maturity (or which by the terms thereof is renewable or extendible at the option of the obligor for a period ending) more than a year after the date proceeds are applied.
(j) Section 5.2.14 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
5.2.14 Capital Lease Obligations. The Borrower will not incur or permit to exist any Capital Leases unless otherwise expressly permitted by this Agreement or permit any Subsidiary so to do, if the aggregate amount of all such payments due under Capital Leases of the Borrower and its Subsidiaries (taken as a whole) would at any time exceed One Million Dollars ($1,000,000.00) in any twelve month period.
(k) The Financing Agreement is hereby amended by adding the following as new Sections 5.2.15 and 5.2.16:k) The Financing Agreement is hereby amended by adding the following as new Sections 5.2.15 and 5.2.16:
5.2.15 Capital Expenditures. The Borrower will not, directly or indirectly (by way of the acquisition of the securities of a Person or otherwise), make capital expenditures (a) which exceed in the aggregate $6,500,000 in fiscal year 1997, or (b) which exceed in the aggregate for any four (4) consecutive fiscal quarters (tested for the first time as of the end of the Borrower's first fiscal quarter in fiscal year 1998) 125% of the Borrower's depreciation (determined in accordance with GAAP, consistently applied to the Borrower) for those four (4) fiscal quarters; provided, however, in determining the amount of capital expenditures there shall be deducted capital expenditures financed with the proceeds of capital leases or loans having a final maturity (or which by the terms thereof is renewable or extendible at the option of the obligor for a period ending) more than a year after the date proceeds are applied.
5.2.16 Contingent Liabilities. The Borrower will not incur contingent liabilities (by guaranty, indemnification, reimbursement, other surety agreement, or otherwise) of $1,000,000 or more in the aggregate outstanding at any time, other than by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business.
(l) Section 6.1.12 of the Financing Agreement is hereby deleted in its entirety and substituted therefor is the following:
6.1.12 Change in Ownership. Any change in (i) the ownership of the Subsidiaries owned by the Parent or (ii) the Parent such that the Persons who currently own the Parent's voting common stock no longer own at least 50% of the Parent's voting common stock.
7. In addition to the information expressly required by Section 5.1.1 of the Financing Agreement, the Borrower agrees to provide to the Lender, no later than ten (10) days after the Borrower's receipt, a copy of each management letter furnished by the Borrower's independent certified public accountants.
8. At the time this Agreement is executed and delivered, the Borrower shall execute and deliver the Amended and Restated Revolving Credit Note in substantially the form attached to this Agreement as EXHIBIT A, which amends and restates the Revolving Credit Note. References in this Agreement, the Financing Agreement and the other Financing Documents to the "Revolving Credit Note" shall mean the Revolving Credit Note as so amended and restated.
9. The Borrower hereby ratifies and confirms the representations, warranties and covenants contained in the Financing Agreement, as amended hereby. The Borrower agrees that this Agreement is not intended to and shall not cause a novation with respect to any or all of the Obligations.
10. The Borrower shall pay at the time this Agreement is executed and delivered all fees, commissions, costs, charges, taxes and other expenses incurred by the Lender and its counsel in connection with this Agreement, including, but not limited to, reasonable fees and expenses of the Lender's counsel.
11. This Agreement may be executed in any number of duplicate originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute but one and the same instrument. The Borrower agrees that the Lender may rely on a telecopy of any signature of the Borrower. The Lender agrees that the Borrower may rely on a telecopy of this Agreement executed by the Lender.
IN WITNESS WHEREOF, the Borrowers and the Lender have executed this Agreement under seal as of the date and year first written above.
WITNESS: TESSCO TECHNOLOGIES INCORPORATED
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: TESSCO COMMUNICATIONS INCORPORATED
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: TESSCO INCORPORATED
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: TESSCO FINANCIAL CORPORATION
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: NATIONAL AIRTIME CORPORATION
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: WIRELESS SOLUTIONS INCORPORATED
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: CARTWRIGHT COMMUNICATIONS COMPANY
/s/ By: /s/ GERALD T. GARLAND
-------------------------- -----------------------------(Seal)
Gerald T. Garland
Treasurer
WITNESS: NATIONSBANK, N.A.
/s/ By: /s/ THOMAS O. HOLLAND
-------------------------- -----------------------------(Seal)
Thomas O. Holland
Vice President
|
Exhibit 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
The information required by this Exhibit is set forth in Note 8 to the Financial Statements of the Company contained in Item 8 of this Report.
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Subsidiary State of Incorporation ---------- ---------------------- TESSCO Inc. Delaware Cartwright Communications Company Delaware National Airtime Corporation Delaware TESSCO Financial Corporation Delaware TESSCO Communications Incorporated Delaware Wireless Solutions, Inc. Delaware |
Consent of Arthur Andersen LLP
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 June 26, 1997 |
| ARTICLE 5 |
| This schedule contains summary financial information extracted from the financial statements of the Company contained in Item 8 of the Company's 1997 form 10-K and is qualified in its entirety by reference to such financial statements (including the notes thereto). |
| CIK: 0000927355 |
| NAME: TESSCO TECHNOLOGIES INCORPORATED |
| MULTIPLIER: 1 |
| CURRENCY: U.S. Dollars |
| PERIOD TYPE | 12 MOS | 12 MOS |
| FISCAL YEAR END | MAR 28 1997 | MAR 29 1996 |
| PERIOD START | MAR 27 1996 | MAR 28 1995 |
| PERIOD END | MAR 28 1997 | MAR 29 1996 |
| EXCHANGE RATE | 1.000 | 1.000 |
| CASH | 0 | 439 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 16,907 | 14,313 |
| ALLOWANCES | 525 | 432 |
| INVENTORY | 16,942 | 13,689 |
| CURRENT ASSETS | 35,087 | 29,289 |
| PP&E | 15,069 | 9,263 |
| DEPRECIATION | 3,706 | 2,661 |
| TOTAL ASSETS | 50,915 | 36,528 |
| CURRENT LIABILITIES | 13,275 | 11,899 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 0 | 0 |
| COMMON | 46 | 45 |
| OTHER SE | 29,326 | 24,500 |
| TOTAL LIABILITY AND EQUITY | 50,915 | 36,528 |
| SALES | 147,086 | 92,290 |
| TOTAL REVENUES | 147,086 | 92,290 |
| CGS | 109,818 | 68,974 |
| TOTAL COSTS | 109,818 | 68,974 |
| OTHER EXPENSES | 29,183 | 17,127 |
| LOSS PROVISION | 335 | 166 |
| INTEREST EXPENSE | 982 | 0 |
| INCOME PRETAX | 6,793 | 6,368 |
| INCOME TAX | 2,615 | 2,327 |
| INCOME CONTINUING | 4,178 | 4,041 |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | 4,178 | 4,041 |
| EPS PRIMARY | .89 | .89 |
| EPS DILUTED | .89 | .88 |