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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-24746
TESSCO Technologies Incorporated
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(Exact name of registrant as specified in charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
52-0729657
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(IRS Employer Identification No.)
11126 McCormick Road, Hunt Valley, Maryland 21031
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
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including area code: (410) 229-1000
Securities registered pursuant to Section 12(b) of the Act:
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None
Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
[X] Yes [ ] 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 other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ]
The aggregate market value of 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 June 18,1998 was $20.50. The number of shares of the
registrant's Common Stock, $ .01 par value, outstanding as of June 18,1998 was
4,417,214.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to shareholders in
connection with the 1998 Annual Meeting of Shareholders to be held August 14,
1998, are incorporated by reference into Part III.
Part I
ITEM 1: BUSINESS
General
................................................................................
TESSCO Technologies Incorporated ("TESSCO" or the "Company") is a
leading provider of products and value-added services in the wireless
communications industry. The Company currently serves more than 7,000
customers per month in the cellular telephone, Personal Communication
System (PCS), paging and mobile radio-dispatch markets, including a
diversified mix of cellular, PCS and paging carriers, dealers and
self-maintained users. The Company offers a wide selection of over
18,000 stock keeping units (SKUs) which are broadly classified as base
site infrastructure, subscriber accessory and test and maintenance
products. 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 1998, the Company offered
over 18,000 SKUs. The Company's product and service offerings are
broadly classified as base site infrastructure, subscriber accessory,
and test and maintenance, which accounted for approximately 53%, 33%
and 14% of product revenues during fiscal 1998, respectively.
Base site 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 (OEMs). Products include base station
antennas, cable and transmission line, filtering systems, small towers,
lightning protection devices, connectors and miscellaneous hardware.
The Company's base site infrastructure service offerings include
connector installation, custom jumper assembly, filter product tuning,
site "kitting" and "logistics integration."
Subscriber accessory products 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 and affinity marketing programs 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 subscriber accessory products,
are developed and offered under its private labels, mainly "Wireless
Solutions."
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 29, 1998, the Company was offering products purchased from
over 275 manufacturers. Although a substantial portion of the Company's
purchases are concentrated with a small number of vendors
(approximately 49% of TESSCO's fiscal 1998 revenues were generated by
the sale of products purchased from its top ten vendors, with products
purchased from its largest vendor generating approximately 16%), the
Company believes that alternative sources of supply are available for
virtually every product type it carries.
On January 1, 1997, the Company ceased purchasing Andrew-manufactured
cable products. The Company has continued its progress in converting
customers from Andrew-manufactured cable products to competitive
alternatives. While this situation has been challenging and contributed
to the Company's earnings shortfall in fiscal year 1998, the Company
believes that it will be strategically stronger going forward as the
Company diversifies vendor concentration and increases its marketing
and sales effectiveness.
Customers
................................................................................
TESSCO's customer base consists of cellular, PCS and paging carriers,
dealers 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. Cellular, PCS and paging carriers, dealers and self-maintained
users accounted for approximately 41%, 40% and 19% of fiscal 1998
product revenues, respectively.
Cellular, PCS and paging carriers are responsible for building and
maintaining the infrastructure system and providing airtime service to
individual subscribers.
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.
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 6% of TESSCO's revenues during
fiscal 1998. TESSCO's ten largest customers accounted for approximately
17% of its revenues during fiscal 1998.
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.
Sales and Customer Service: 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 110
representatives as of March 29, 1998, is responsible for initiating and
building long-term relationships with customers as well as for
responding to incoming inquiries and orders. Scheduled calls are made
to each regularly 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 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 63% in fiscal 1998, compared to 61% in fiscal 1997. The
average number of customers per month has increased from 6,181 in
fiscal 1997 to 7,027 in fiscal 1998.
Marketing: TESSCO's proprietary customer data base contains detailed
information on over 40,000 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
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
and 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 50,000 current and prospective buyers in 121
countries, 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 currently 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 Business Units and Vendor Transactions: The Company focuses on
offering 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. As of March 29, 1998 and March 28, 1997, the Company
had an immaterial level of backlog orders, all of which are expected to
be filled within 90 days of fiscal year-end. 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 care 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 29, 1998, the Company had 290 full-time equivalent
employees. Of the Company's full-time equivalent employees, 161 were
engaged in customer and vendor service, marketing and product
management, 83 were engaged in warehouse and distribution operations,
and 46 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 distributors, such as
Hutton Communications, Cellstar and Brightpoint, and numerous regional
distributors. In addition, many manufacturers sell direct. Barriers to
entry for distributors are relatively low, particularly in the
subscriber 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 275 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 based on 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(R),"
"Your Total Source(R)," "The Wireless Journal(R)," "Wireless
Solutions(R)," "Cartwright Communications," and "TESSCO Service
Solutions." 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 corporate headquarters and centralized distribution
center are located in a 184,000 square foot Global Logistics Center
located north of Baltimore in Hunt Valley, Maryland. During fiscal year
1996, the Company purchased this property to consolidate its
facilities. Certain long-term debt is secured by the property, as
described in Note 4 to the Consolidated Financial Statements.
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 who are not directors
is as follows:
- - --------------------------------------------------------------------------------------------------------------------------------
Name Age Position
- - --------------------------------------------------------------------------------------------------------------------------------
Robert B. Barnhill, Jr. 54 Chairman, Robert B. Barnhill, Jr. is Chairman, President and Chief
President and Executive Officer and founded the business in 1982.
Chief Executive
Officer
- - --------------------------------------------------------------------------------------------------------------------------------
Gerald T. Garland 47 Treasurer and Chief Gerald T. Garland joined the Company in September 1993 and
Financial Officer currently serves as Treasurer and Chief Financial Officer.
Previously, he was a Senior Vice President in the Commercial
Finance Division of NationsBank and was a financial manager
and plant controller for Black & Decker Corporation.
- - --------------------------------------------------------------------------------------------------------------------------------
Richard A. Guipe 50 Director-Base Site Richard A. Guipe joined the Company in June 1996 and currently
Infrastructure Products serves as Director of the Base Site Infrastructure Products
Business Unit Business Unit. 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.
- - --------------------------------------------------------------------------------------------------------------------------------
Mary Lynn Schwartz 42 Director-Performance Mary Lynn Schwartz rejoined the Company in November 1997
Development and currently serves as Director of Performance Development.
Between 1992 and 1997, she owned and managed a local public
accounting and management consulting practice. She previously
served as the Company's Chief Financial Officer from 1988 to 1992.
- - --------------------------------------------------------------------------------------------------------------------------------
Randolph S. Wilgis 34 Director-Subscriber Randolph S. Wilgis joined the Company in June 1991 and currently
Accessory Products serves as Director of the Subscriber Accessory Products Business
Business Unit 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
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 during fiscal years 1997 and 1998
are as follows:
- - --------------------------------------------------------------------------------
High Low
- - --------------------------------------------------------------------------------
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
- - --------------------------------------------------------------------------------
Fiscal 1998
First Quarter 23 1/4 15
Second Quarter 32 21 1/2
Third Quarter 28 3/8 18
Fourth Quarter 19 3/4 16 15/16
- - --------------------------------------------------------------------------------
As of June 18, 1998, the approximate number of security holders of
record of the Company was 64.
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.
ITEM 6: SELECTED FINANCIAL DATA
- - ---------------------------------------------------------------------------------------------------------------------------
Fiscal Years Ended March 29, March 28, March 29, March 31, April 1,
1998 1997 1996 1995 1994
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STATEMENT OF INCOME DATA
Revenues $131,658,200 $147,086,000 $92,290,100 $74,517,600 $61,375,600
Costs of goods sold 95,858,800 109,817,800 68,974,400 57,828,800 47,317,100
- - ---------------------------------------------------------------------------------------------------------------------------
Gross profit 35,799,400 37,268,200 23,315,700 16,688,800 14,058,500
- - ---------------------------------------------------------------------------------------------------------------------------
Selling, general and
administrative expenses 29,662,200 29,183,200 17,126,700 12,500,200 11,099,400
Restructuring charge - 310,200 - - -
Retroactive compensation adjustment - - - - 746,600
- - ---------------------------------------------------------------------------------------------------------------------------
Income from operations 6,137,200 7,774,800 6,189,000 4,188,600 2,212,500
Interest income (expense), net (712,600) (982,100) 179,000 (157,100) (511,300)
- - ---------------------------------------------------------------------------------------------------------------------------
Income before provision
for income taxes 5,424,600 6,792,700 6,368,000 4,031,500 1,701,200
Provision for income taxes 2,049,000 2,614,800 2,327,000 1,558,600 673,400
- - ---------------------------------------------------------------------------------------------------------------------------
Net income $ 3,375,600 $ 4,177,900 $ 4,041,000 $ 2,472,900 $ 1,027,800
===========================================================================================================================
Diluted earnings per share $ 0.73 $ 0.89 $ 0.89 $ 0.64 $ 0.34
Diluted weighted average
shares outstanding 4,610,300 4,703,800 4,555,200 3,834,000 3,030,900
- - ---------------------------------------------------------------------------------------------------------------------------
SELECTED OPERATING DATA
Average buyers per month 7,027 6,181 4,569 3,898 3,621
Orders shipped 302,028 255,392 176,412 141,950 123,886
Revenues per employee $ 454,000 $ 584,000 $ 576,000 $ 583,000 $ 531,000
- - ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital 22,170,100 21,181,300 17,389,800 18,055,400 10,295,500
Total assets 59,926,900 50,915,300 36,527,900 28,176,000 19,054,300
Short-term debt 294,000 416,900 126,400 120,600 169,500
Long-term debt 7,441,400 7,637,900 85,000 199,300 6,053,100
Shareholders' equity 33,391,500 29,371,600 24,544,100 20,168,400 6,363,400
- - ---------------------------------------------------------------------------------------------------------------------------
Fiscal 1998 Quarters Ended Fiscal 1997 Quarter Ended
- - ---------------------------------------------------------------------------------------------------------------------------
March 29, Dec. 28, Sept. 28, June 29, March 28, Dec. 27, Sept. 27, June 28,
1998 1997 1997 1997 1997 1996 1996 1996
- - ---------------------------------------------------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS
Revenues $31,838,600 $32,484,300 $33,212,000 $34,123,400 $33,358,400 $38,901,700 $38,158,000 $36,667,900
Cost of goods
sold 22,565,200 23,544,000 24,380,100 25,369,500 24,549,400 29,002,700 28,563,400 27,702,300
- - ---------------------------------------------------------------------------------------------------------------------------
Gross profit 9,273,400 8,940,300 8,831,900 8,753,900 8,809,000 9,899,000 9,594,600 8,965,600
- - ---------------------------------------------------------------------------------------------------------------------------
Selling,
general and
administrative
expenses 7,727,300 7,314,100 7,224,400 7,396,500 7,743,800 7,690,200 7,093,000 6,656,200
Restructuring
charge - - - - 310,200 - - -
- - ---------------------------------------------------------------------------------------------------------------------------
Total operating
expenses 7,727,300 7,314,100 7,224,400 7,396,500 8,054,000 7,690,200 7,093,000 6,656,200
- - ---------------------------------------------------------------------------------------------------------------------------
Income from
operations 1,546,100 1,626,200 1,607,500 1,357,400 755,000 2,208,800 2,501,600 2,309,400
Interest income
(expense), net (143,900) (164,900) (202,700) (201,200) (260,200) (292,100) (293,500) (136,300)
- - ---------------------------------------------------------------------------------------------------------------------------
Income before
provision for
income taxes 1,402,200 1,461,300 1,404,800 1,156,200 494,800 1,916,700 2,208,100 2,173,100
Provision for
income taxes 516,300 555,300 533,800 443,500 188,000 735,400 852,400 839,000
- - ---------------------------------------------------------------------------------------------------------------------------
Net income $ 885,900 $ 906,000 $ 871,000 $ 712,700 $ 306,800 $ 1,181,300 $ 1,355,700 $ 1,334,100
===========================================================================================================================
Diluted earnings
per share $ 0.20 $ 0.20 $ 0.19 $ 0.16 $ 0.07 $ 0.25 $ 0.29 $ 0.28
- - ---------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF REVENUES
Revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold 70.9 72.5 73.4 74.3 73.6 74.6 74.9 75.5
- - ---------------------------------------------------------------------------------------------------------------------------
Gross profit 29.1 27.5 26.6 25.7 26.4 25.4 25.1 24.5
- - ---------------------------------------------------------------------------------------------------------------------------
Selling, general and
administrative
expenses 24.3 22.5 21.8 21.7 23.2 19.8 18.6 18.2
Restructuring charge - - - - 0.9 - - -
- - ---------------------------------------------------------------------------------------------------------------------------
Total operating
expenses 24.3 22.5 21.8 21.7 24.1 19.8 18.6 18.2
- - ---------------------------------------------------------------------------------------------------------------------------
Income from
operations 4.9 5.0 4.8 4.0 2.3 5.7 6.6 6.3
Interest income
(expense), net (0.5) (0.5) (0.6) (0.6) (0.8) (0.8) (0.8) (0.4)
- - ---------------------------------------------------------------------------------------------------------------------------
Income before
provision for
income taxes 4.4 4.5 4.2 3.4 1.5 4.9 5.8 5.9
Provision for
income taxes 1.6 1.7 1.6 1.3 0.6 1.9 2.2 2.3
- - ---------------------------------------------------------------------------------------------------------------------------
Net income 2.8 2.8 2.6 2.1 0.9 3.0 3.6 3.6
- - ---------------------------------------------------------------------------------------------------------------------------
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Fiscal 1998 Compared to Fiscal 1997
................................................................................
Revenues decreased by $15.4 million, or 10.5%, to $131.7 million in
fiscal 1998 compared to $147.1 million in fiscal 1997. Most of the
overall decrease was a result of restructuring a fulfillment contract
in February 1997 and the need to transition approximately 28% of
business associated with a major cable vendor. Revenues from the
Company's base site infrastructure and subscriber accessory products
and services decreased, while sales of test and maintenance products
and services remained flat. The largest percentage decrease was
experienced in the sale of subscriber accessory products and services
due to a contractual restructuring associated with one of the Company's
phone fulfillment programs. Base site infrastructure, subscriber
accessory and test and maintenance products and services accounted for
approximately 53%, 33% and 14%, respectively, of fiscal 1998 revenues.
Revenues decreased from both cellular, PCS and paging carriers and
dealers. Self-maintained users maintained fiscal 1997 levels. Cellular,
PCS and paging carriers, dealers and self-maintained users accounted
for approximately 41%, 40% and 19%, respectively, of fiscal 1998
revenues.
Gross profit decreased by $1.5 million, or 3.9%, to $35.8 million in
fiscal 1998 compared to $37.3 million in fiscal 1997 due to the
reduction in revenues between years. The gross profit margin improved
to 27.2% in fiscal 1998 from 25.3% in fiscal 1997, primarily due to
positive product mix changes principally in the base site
infrastructure and subscriber accessory areas of the business.
Total operating expenses remained relatively flat for the fiscal 1998,
totaling $29.7 million in fiscal 1998 compared to $29.5 million in
fiscal 1997. An increase in expenses attributable to the continued
investment in compensation and marketing expenses and to increased
facilities costs related to the new Global Logistics Center was offset
to some extent by the restructuring charge taken in fiscal 1997. Total
operating expenses increased as a percentage of revenues to 22.5% in
fiscal 1998 from 20.1% in fiscal 1997, primarily as a result of the
reduced revenue base.
Income from operations decreased by $1.6 million, or 21.1%, to $6.1
million in fiscal 1998 compared to $7.8 million in fiscal 1997, and as
a percentage of revenues decreased to 4.7% in fiscal 1998 from 5.3% in
fiscal 1997.
Net interest expense decreased by $269,500, or 27.4%, to $712,600 in
fiscal 1998 compared to $982,100 in fiscal 1997. This decrease is due
to reduced debt levels from positive cash flow and lower interest rates
during fiscal 1998.
The provision for income taxes decreased by $565,800, or 21.6%, to $2.0
million in fiscal 1998 compared to $2.6 million in fiscal 1997. The
effective tax rate in fiscal 1998 was 37.8% compared to 38.5% in fiscal
1997.
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 Communications' (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 subscriber accessory products and
services. Base site infrastructure, subscriber 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, PCS and paging
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 due to the
increase in revenues between years. The gross profit margin remained
constant at 25.3%, as increased margins from product and service mix
changes were 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
the inclusion of Cartwright expenses 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 $982,100 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 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.
Liquidity and Capital Resources
................................................................................
The Company's balance sheet position remains very strong. As of March
29, 1998, cash and marketable securities totaled $4.5 million,
representing the Company's positive net cash flow during fiscal 1998.
Working capital increased to $22.2 million as of March 29, 1998, from
$21.2 million as of March 28, 1997. Shareholders' equity increased to
$33.4 million as of March 29, 1998, from $29.4 million as of March 28,
1997.
The Company generated approximately $9.9 million of net cash from
operating activities in fiscal 1998 compared with $3.2 million in
fiscal 1997 and $(2.7) million in fiscal 1996. The significant increase
in operating cash flow was primarily a result of an increase in trade
accounts payable and a decrease in trade accounts receivable, offset by
the reduction in net income during fiscal 1998.
Capital expenditures totaled $5.0 million in fiscal 1998, compared to
$5.7 million in fiscal 1997 and $5.5 million in fiscal 1996, as the
Company continued to invest in its consolidated Global Logistics
Center. In fiscal 1997, the Company used $6.7 million to acquire the
Cartwright Communications Company.
The Company used $421,100 of net cash for financing activities in
fiscal 1998, generating $8.8 million in fiscal 1997 and $196,200 in
fiscal 1996. In fiscal 1997, the Company took on additional borrowings
to fund the acquisition of Cartwright Communications Company and the
Global Logistics Center.
The Company has a revolving credit facility with a bank which provides
for a maximum borrowing capacity of $15.0 million through September 30,
1999. This agreement contains certain conditions, covenants and
representations with which the Company was in compliance as of March
29, 1998. As of March 29, 1998, the Company had no outstanding
borrowings under these facilities.
Market Risk
................................................................................
The Company does not use derivative financial instruments. Management
of the Company believes its exposure to market risks, including
exchange rate risk, interest rate risk and commodity price risk, is not
material at the present time.
Outlook
................................................................................
The Company expects revenue growth to be slow during the first half of
fiscal 1999 due to a soft market climate associated with anticipated
delays in PCS cell site construction. The Company has made necessary
investments in staffing and marketing initiatives focused on enhancing
long-term growth, which investments will continue in fiscal 1999. The
Company expects these investments to build a strong foundation to
support the Company's planned growth initiatives. The Company
recognizes that, in order to strategically position itself for future
growth, reduced operating margins may be expected in the short-term.
The Company continues to aggressively expand its product and service
offerings, as well as marketing and sales initiatives, in an attempt to
accelerate its revenue growth.
Year 2000 Issue
................................................................................
The Year 2000 issue is the result of computer programs using only two
digits to identify a year within date fields. Date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. Such an error could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Based on a recent assessment, the Company determined that it will be
required to modify or replace portions of its software so that its
computer systems will properly utilize dates beyond December 31, 1999.
The Company currently believes that with modifications to existing
software and conversions to new software, the effects of the Year 2000
issue can be mitigated. The Company will utilize both internal and
external resources to reprogram, or replace, and test the software for
Year 2000 modifications. The cost of new software purchased will be
capitalized; all other costs
will be expensed as incurred. Overall, these costs are not expected to
have a material effect on the results of operations.
In addition, the Company is assessing the readiness of its significant
suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate
their own Year 2000 issues. The Company's total Year 2000 costs include
the estimated costs associated with the impact on the Company of the
Year 2000 issue and on the Company's suppliers and customers, and are
based on currently available information. However, there can be no
guarantee that the systems of other companies will be timely converted,
or that a failure to convert by another company would not have a
material adverse effect on the Company. The Company has determined that
it has no exposure to contingencies related to the Year 2000 issue for
the products it has sold.
Forward-Looking Statements
................................................................................
This report contains a number of forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, all of
which are based on current expectations. The Company's future results
of operations and other forward-looking statements contained in this
report, particularly those contained in "Outlook," involve a number of
risks and uncertainties. For a variety of reasons, actual results may
differ materially from those described in any such forward-looking
statement. Such factors include, but are not limited to, the following:
the Company's dependence on a relatively small number of suppliers and
vendors, which could hamper the Company's ability to maintain
appropriate inventory levels and meet customer demand; the effect that
the loss of certain customers or vendors could have on the Company's
net profits; the possibility that unforeseen events could impair the
Company's ability to provide prompt and efficient service to its
customers; existing competition from national and regional distributors
and the absence of significant barriers to entry which could result in
pricing and other pressures on profitability and market share; and
continuing changes in the wireless communications industry, including
risks associated with conflicting technologies, changes in technology
and inventory obsolescence. Consequently, the reader is cautioned to
consider all forward-looking statements in light of the risks to which
they are subject.
ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
- - ---------------------------------------------------------------------------------------------------------------------------
March 29, March 28,
1998 1997
- - ---------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and marketable securities $ 4,459,200 $ -
Trade accounts receivable, net of allowances for doubtful accounts
and sales returns of $438,100 and $525,300, respectively 15,757,100 16,907,100
Product inventory 18,872,100 16,942,400
Deferred tax asset 523,900 376,100
Prepaid expenses and other current assets 1,609,400 861,500
- - ---------------------------------------------------------------------------------------------------------------------------
Total current assets 41,221,700 35,087,100
- - ---------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Land 2,185,500 2,185,500
Building and improvements 8,577,200 5,236,600
Leasehold improvements - 338,800
Information technology equipment and software 3,714,400 2,755,100
Equipment and furniture 4,821,100 3,658,100
Equipment held under capital lease - 600,000
Tooling 340,100 295,100
- - ---------------------------------------------------------------------------------------------------------------------------
19,638,300 15,069,200
Less-accumulated depreciation and amortization 4,883,100 3,706,100
- - ---------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 14,755,200 11,363,100
- - ---------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSET - 212,400
GOODWILL 3,950,00 4,252,700
- - ---------------------------------------------------------------------------------------------------------------------------
Total assets $59,926,900 $ 50,915,300
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $16,394,200 $ 10,771,700
Accrued expenses and other current liabilities 2,363,400 2,717,200
Current portion of long-term debt 294,000 331,900
Capital lease obligation - 85,000
- - ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 19,051,600 13,905,800
DEFERRED TAX LIABILITY 42,400 -
LONG-TERM DEBT, net of current portion 7,441,400 7,637,900
- - ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 26,535,400 21,543,700
- - ---------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 500,000 shares authorized
and no shares issued and outstanding - -
Common stock, $0.01 par value, 15,000,000 shares authorized;
4,669,920 shares issued and 4,408,348 shares outstanding
as of March 29, 1998, and 4,597,130 shares issued and
4,343,608 shares outstanding as of March 28, 1997 46,700 46,000
Additional paid-in capital 20,241,800 19,346,200
Treasury stock, at cost, 261,572 shares and 253,522 shares, respectively (2,843,500) (2,591,500)
Retained earnings 15,946,500 12,570,900
- - ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 33,391,500 29,371,600
- - ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $59,926,900 $ 50,915,300
===========================================================================================================================
The accompanying notes are an integral part of these consolidated balance sheets.
- - ---------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Income
- - ---------------------------------------------------------------------------------------------------------------------------
Fiscal Years Ended March 29, March 28, March 29,
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Revenues $131,658,200 $147,086,000 $92,290,100
Cost of goods sold 95,858,800 109,817,800 68,974,400
- - ---------------------------------------------------------------------------------------------------------------------------
Gross profit 35,799,400 37,268,200 23,315,700
- - ---------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 29,662,200 29,183,200 17,126,700
Restructuring charge - 310,200 -
- - ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 29,662,200 29,493,400 17,126,700
- - ---------------------------------------------------------------------------------------------------------------------------
Income from operations 6,137,200 7,774,800 6,189,000
Interest income (expense), net (712,600) (982,100) 179,000
- - ---------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 5,424,600 6,792,700 6,368,000
Provision for income taxes 2,049,000 2,614,800 2,327,000
- - ---------------------------------------------------------------------------------------------------------------------------
Net income $ 3,375,600 $ 4,177,900 $ 4,041,000
===========================================================================================================================
Basic earnings per share $ 0.77 $ 0.97 $ 0.97
===========================================================================================================================
Diluted earnings per share $ 0.73 $ 0.89 $ 0.89
===========================================================================================================================
Basic weighted average shares outstanding 4,377,600 4,287,000 4,159,300
===========================================================================================================================
Diluted weighted average shares outstanding 4,610,300 4,703,800 4,555,200
===========================================================================================================================
The accompanying notes are an integral part of these consolidated statements.
Consolidated Statements of Changes in Shareholders' Equity
- - ---------------------------------------------------------------------------------------------------------------------------
Total
Common Stock Additional Treasury Retained Shareholders'
Shares AmountPaid-in Capital Stock Earnings Equity
- - ---------------------------------------------------------------------------------------------------------------------------
Balance at March 31,1995 4,091,785 $ 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 127,029 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 4,218,814 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 124,794 1,400 822,600 (465,100) - 358,900
Tax benefit of options exercises - - 290,700 - - 290,700
Net income - - - - 4,177,900 4,177,900
- - ---------------------------------------------------------------------------------------------------------------------------
Balance at March 28, 1997 4,343,608 46,000 19,346,200 (2,591,500) 12,570,900 29,371,600
Net proceeds from exercise of
options in exchange for
cash and treasury stock 64,740 700 780,100 (252,000) - 528,800
Tax benefit of options exercises - - 115,500 - - 115,500
Net income - - - - 3,375,600 3,375,600
- - ---------------------------------------------------------------------------------------------------------------------------
Balance at March 29, 1998 4,408,348 $ 46,700 $ 20,241,800 $ (2,843,500) $ 15,946,500 $ 33,391,500
===========================================================================================================================
The accompanying notes are an integral part of these consolidated statements.
Consolidated Statements of Cash Flows
- - ---------------------------------------------------------------------------------------------------------------------------
Fiscal Years Ended March 29, March 28, March 29,
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,375,600 $ 4,177,900 $ 4,041,000
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 1,928,100 1,433,200 629,300
Provision for bad debts 158,900 335,400 166,200
Deferred income taxes 107,000 (220,000) (58,900)
Decrease (increase) in trade accounts receivable 991,100 (1,351,700) (6,421,400)
Increase in product inventory (1,929,700) (1,335,900) (5,115,500)
Increase in prepaid expenses and other current assets (747,900) (294,800) (92,200)
Increase in trade accounts payable 5,622,500 174,000 3,035,000
Increase in accrued expenses and other current liabilities 392,200 247,700 1,107,500
Decrease in other long-term liabilities - - (27,800)
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 9,897,800 3,165,800 (2,736,800)
- - ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquired business - (6,726,800) -
Acquisition of property and equipment (5,017,500) (5,711,200) (5,473,100)
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,017,500) (12,438,000) (5,473,100)
- - ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in bank overdraft (630,500) 630,500 -
Payments on long-term debt (234,400) - -
Proceeds from long-term debt - 7,969,800 -
Proceeds from exercise of stock options 528,800 358,900 304,700
Payment of capital lease obligation (85,000) (126,400) (108,500)
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (421,100) 8,832,800 196,200
- - ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and marketable securities 4,459,200 (439,400) (8,013,700)
CASH AND MARKETABLE SECURITIES, beginning of period - 439,400 8,453,100
- - ---------------------------------------------------------------------------------------------------------------------------
CASH AND MARKETABLE SECURITIES, end of period $ 4,459,200 $ - $ 439,400
===========================================================================================================================
The accompanying notes are an integral part of these consolidated statements.
Notes to Consolidated Financial Statements
NOTE 1: ORGANIZATION
................................................................................
TESSCO Technologies Incorporated (the Company) is a leading provider of
products and value-added services in the wireless communications
industry. The Company serves customers in the cellular telephone,
Personal Communication Systems (PCS), paging and mobile radio-dispatch
markets, including a diversified mix of cellular, PCS and paging
carriers, dealers and self-maintained users. The Company offers a wide
selection of over 18,000 stock keeping units, which are broadly
classified as base site infrastructure, subscriber accessory and test
and maintenance products.
During fiscal year 1997, the Company increased its number of authorized
shares of common stock to 15,000,000.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
................................................................................
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal year
For fiscal years 1997 and 1996, the Company maintained its accounts on
a 52/53-week fiscal year ending on the Friday falling on or between
March 26 and April 1. The fiscal years ending March 28, 1997 and March
29, 1996 each contained 52 weeks. During fiscal year 1998, the Company
changed its fiscal year to the 52 or 53 weeks ending on the Sunday
falling on or between March 26 and April 1 to allow the financial year
to better reflect the Company's natural weekly accounting and business
cycle. Accordingly, fiscal year 1998 includes the 52-week period
beginning March 31, 1997 and ending March 29, 1998. The results of
operations and cash flows for the two-day period ended March 30, 1997
(the transition period) are immaterial for reporting purposes.
Cash and Marketable Securities
Cash and marketable securities include highly liquid investments 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 5-10 years
Building and improvements 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. Depreciation and
amortization of property and equipment was $1,600,200, $1,149,600 and
$567,300 for fiscal years 1998, 1997 and 1996, respectively.
Goodwill
Goodwill is being amortized using the straight-line method over 15
years. Amortization expense was $327,900, $283,600 and $62,000 for
fiscal years 1998, 1997 and 1996, respectively. Accumulated
amortization as of March 29, 1998 and March 28, 1997 was approximately
$861,100 and $533,200, 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 1998, 1997 and 1996 totaled
$516,200, $661,400 and $0, respectively. Cash paid for income taxes for
fiscal years 1998, 1997 and 1996 totaled $1,599,600, $3,530,100 and
$1,547,000, respectively.
The Company had noncash transactions during fiscal years 1998, 1997 and
1996 as follows:
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Exercise of options in exchange for treasury stock $252,000 $465,100 $160,500
Tax benefit from exercise of stock options 115,500 290,700 30,000
- - ---------------------------------------------------------------------------------------------------------------------------
Fair Value of Financial Instruments
The carrying amounts of cash and marketable securities, trade accounts
receivable, product inventory, prepaid expenses and other current
assets, trade accounts payable and accrued expenses and other current
liabilities and borrowings under credit facility approximate their fair
value as of March 29, 1998 and March 28, 1997.
Fair value of long-term debt as of March 29, 1998 and March 28, 1997 is
as follows:
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997
- - ---------------------------------------------------------------------------------------------------------------------------
Note payable to a bank $5,871,500 $6,000,000
Note payable to Baltimore County, Maryland 165,100 170,900
Note payable to the Maryland Economic Development Corporation 1,329,800 1,375,300
- - ---------------------------------------------------------------------------------------------------------------------------
$7,366,400 $7,546,200
- - ---------------------------------------------------------------------------------------------------------------------------
Concentration of Risk
The Company is dependent on third-party equipment manufacturers,
distributors and dealers for all of its supply of wireless
communications equipment. For fiscal years 1998, 1997 and 1996, sales
of products purchased from the Company's top ten vendors accounted for
49%, 57%, and 54% of total revenues, respectively, with sales of
products purchased from the Company's largest vendor generating
approximately 16%, 14%, and 28% of total revenues, respectively. The
Company is dependent on the ability of its vendors to provide products
on a timely basis and on favorable pricing terms. Although the Company
believes that alternative sources of supply are available for virtually
every product type it carries, the loss of certain principal suppliers
could have a material adverse effect on the Company.
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.
New Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." These statements will affect
the disclosure requirements for annual and interim financial statements
beginning in fiscal year 1999. The Company expects that the new
reporting requirements will have no material effect on its financial
position or results of operations.
Reclassifications
Certain reclassifications have been made to prior year consolidated
financial statements to conform with the current year presentation.
NOTE 3: BORROWINGS UNDER CREDIT FACILITY
...............................................................................
Effective June 13, 1997, the Company amended its Financing Agreement
(the Agreement) with a bank for a $15,000,000 revolving credit facility
available through September 30, 1999. The amended Agreement provides
for two revolving notes, a line of credit in the amount of $5,000,000
and a revolving credit loan in the amount of $10,000,000. The line of
credit is unsecured and bears interest at a variable rate of the London
Interbank Offered Rate (LIBOR) plus 1.25% per annum. The revolving
credit loan is unsecured and bears interest at a variable rate of
either the prime rate plus an applicable margin of up to 0.25% per
annum, or LIBOR plus an applicable margin of 1.25% to 1.75% per annum,
based upon maintenance of certain financial ratios.
The weighted average interest rate on borrowings under the credit
facility was 8.22%, 7.30%, and 0.00% for fiscal years 1998, 1997 and
1996, respectively. Interest expense on the credit facility for fiscal
years 1998, 1997 and 1996, totaled $400, $210,200 and $0, respectively.
Average borrowings under the credit facility totaled $4,700, $2,503,900
and $0, and maximum borrowings totaled $323,200, $6,609,000 and $0, for
fiscal years 1998, 1997 and 1996, respectively. The Company did not
borrow under the Agreement during fiscal year 1996. There was no
balance outstanding under the Agreement as of March 29, 1998 or March
28, 1997.
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.
NOTE 4: LONG-TERM DEBT
................................................................................
Effective July 16, 1996, the Company issued a revolving note payable to
a bank in the face amount of $6,000,000. Interest on the outstanding
principal balance was payable monthly, with the balance of unpaid
principal and interest due at maturity, April 30, 1997. Effective April
30, 1997, the Company converted the revolving note payable to a term
note payable. The converted term note is payable in monthly
installments of principal and interest beginning on July 1, 1997, with
the balance due at maturity, June 30, 2003. The note bears interest at
a floating rate of LIBOR plus 1.50% per annum. The weighted average
interest rate in fiscal years 1998 and 1997 was 7.27% and 7.07%,
respectively. Interest expense under this note was $439,700 and
$304,000 for fiscal years 1998 and 1997, respectively. As of March 29,
1998 and March 28, 1997, principal outstanding under this note was
$5,871,500 and $6,000,000, respectively. The note is secured by the
real property of the Company. The note contains certain restrictive
covenants which, among other things, require the maintenance of certain
financial ratios.
Effective July 16, 1996, the Company issued a note payable to Baltimore
County, Maryland, in the face amount of $200,000. The note is payable
in equal monthly installments of principal and interest of $1,600, with
the balance due at maturity, June 16, 2006. The note bears interest at
4.75% per annum. Interest expense under this note was $9,000 and $5,500
for fiscal years 1998 and 1997, respectively. As of March 29, 1998 and
March 28, 1997, principal outstanding under this note was $185,000 and
$193,700, respectively. The note is secured by the real property of the
Company.
Effective October 10, 1996, the Company issued a note payable to the
Maryland Economic Development Corporation in the face amount of
$1,800,000. The note is payable in equal quarterly installments of
principal and interest of $37,400 beginning on January 10, 1997, with
the balance due at maturity, October 10, 2011. The note bears interest
at 3.00% per annum. Interest expense under this note was $51,500 and
$26,800 for fiscal years 1998 and 1997, respectively. As of March 29,
1998 and March 27, 1997, principal outstanding under this note was
$1,678,900 and $1,776,100, respectively. The note is secured by the
real property of the Company.
As of March 29, 1998, scheduled annual maturities of long-term debt are
as follows:
- - ------------------------------------------------------------------------------
Fiscal year:
- - ------------------------------------------------------------------------------
1999 $ 294,000
2000 312,700
2001 332,900
2002 354,600
2003 377,800
Thereafter 6,063,400
- - ------------------------------------------------------------------------------
$7,735,400
- - ------------------------------------------------------------------------------
NOTE 5: LEASES
................................................................................
The Company entered into a lease for various property and equipment
which expired in fiscal year 1998 and had 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 1998, 1997 and 1996 totaled $305,000, $469,000
and $520,200, respectively.
As of March 29, 1998, future minimum lease payments, net of sublease
revenues, are as follows (Note 11):
- - ---------------------------------------------------------------------------------------------------------------------------
Fiscal year Lease obligation Sublease Net obligation
- - ---------------------------------------------------------------------------------------------------------------------------
1999 $267,700 $173,100 $ 94,600
2000 267,700 215,000 52,700
2001 200,700 167,100 33,600
- - ---------------------------------------------------------------------------------------------------------------------------
$736,100 $555,200 $180,900
- - ---------------------------------------------------------------------------------------------------------------------------
NOTE 6: 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 the income is as follows:
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Statutory federal rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 2.6% 2.3% 2.3%
Non-deductible expenses 1.0% 1.8% 0.5%
Other 0.2% 0.4% (0.3%)
- - ---------------------------------------------------------------------------------------------------------------------------
Effective rate 37.8% 38.5% 36.5%
- - ---------------------------------------------------------------------------------------------------------------------------
The provision for income taxes was comprised of the following:
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Federal: Current $1,730,000 $2,517,200 $2,128,000
Deferred 95,300 (191,900) (51,700)
- - ---------------------------------------------------------------------------------------------------------------------------
State: Current 212,000 317,700 257,900
Deferred 11,700 (28,200) (7,200)
- - ---------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $2,049,000 $2,614,800 $2,327,000
- - ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets and deferred tax liabilities as of March 29, 1998 and
March 28, 1997, 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 liabilities are as follows:
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997
- - ---------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Property, equipment and capital leases $191,400 $212,000
Accrued expenses and reserves 523,900 376,100
Other assets - 8,600
- - ---------------------------------------------------------------------------------------------------------------------------
$715,300 $596,700
- - ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred revenue $219,800 -
Other assets 14,000 8,200
- - ---------------------------------------------------------------------------------------------------------------------------
$233,800 $ 8,200
- - ---------------------------------------------------------------------------------------------------------------------------
NOTE 7: 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 1998, 1997 and 1996
totaled $66,700, $87,000 and $47,200, respectively. As of March 29,
1998, plan assets include 16,098 shares of common stock of the Company
and options to acquire an additional 19,902 shares at $3.67 per share.
NOTE 8: 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 acquisition has been
accounted for as a purchase, and the goodwill associated with this
transaction is being amortized over 15 years.
NOTE 9: EARNINGS PER SHARE
................................................................................
In February 1997, the FASB issued SFAS No. 128 "Earnings per Share."
SFAS No. 128 simplifies the standards for computing earnings per share
previously found in Accounting Principles Board (APB) Opinion No. 15
"Earnings per Share" by replacing the presentation of primary earnings
per share (EPS) with basic EPS and replacing fully diluted EPS with
diluted EPS. Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS is computed by
dividing income available to common shareholders by the weighted
average number of common shares and the dilutive common equivalent
shares outstanding for the period.
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:
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding 4,377,600 4,287,000 4,159,300
Effect of dilutive common equivalent shares 232,700 416,800 395,900
- - ---------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 4,610,300 4,703,800 4,555,200
- - ---------------------------------------------------------------------------------------------------------------------------
Options to purchase 268,300 shares of common stock at a weighted
average exercise price of $25.32 per share were outstanding as of March
29, 1998, but were not included in the computation of diluted earnings
per share because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect
would be antidilutive.
Subsequent to March 29, 1998, the Company granted additional options to
purchase 17,500 shares of common stock. In connection with the
Company's contribution to its 401(k) profit sharing plan, the plan
exercised options to acquire 8,232 shares of common stock of the
Company.
NOTE 10: 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 the 1994 Plan, options for a
maximum of 401,250 and 572,500 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
29, 1998.
In addition, non-plan options have been granted at the discretion of the Board
of Directors. Transactions involving options are summarized as follows:
- - ------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- - ------------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 686,000 $15.91 714,000 $11.17 699,600 $ 8.72
Granted 185,800 20.77 126,500 33.69 148,600 17.07
Exercised (72,800) 10.73 (134,500) 6.13 (134,200) 3.47
Cancelled (104,400) 19.83 (20,000) 34.00 - -
- - -----------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 694,600 $17.20 686,000 $15.91 714,000 $11.17
Exercisable at end of year 383,000 438,900 565,500
Weighted average fair value of options
granted during the year $12.57 $22.40 $ 9.93
- - ------------------------------------------------------------------------------------------------------------------------------
Information about fixed stock options outstanding and exercisable as of March
29, 1998 is as follows:
- - ---------------------------------------------------------------------------------------------------------------------------
OUTSTANDING EXERCISABLE
- - ---------------------------------------------------------------------------------------------------------------------------
Weighted Average
Range of Remaining Weighted Average Weighted Average
Exercise Price Shares Contractual Life Exercise Price Shares Exercise Price
- - ---------------------------------------------------------------------------------------------------------------------------
$0.00-15.00 366,100 5.7 $11.35 366,100 $11.35
15.00-25.00 208,500 7.9 18.85 16,900 17.58
25.00-36.50 120,000 8.1 32.17 - -
- - ---------------------------------------------------------------------------------------------------------------------------
$0.00-36.50 694,600 7.0 $17.20 383,000 $11.62
- - ---------------------------------------------------------------------------------------------------------------------------
The Company applies APB Opinion No. 25 and the related interpretations in
accounting for the plans. Accordingly, no compensation cost has been recognized
for the Company's 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 No. 123
"Accounting for Stock-Based Compensation," the Company's net earnings and
diluted earnings per share for fiscal years 1998, 1997 and 1996 would have
been reduced to the pro forma amounts indicated as follows:
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Net earnings (in thousands) As reported $ 3,376 $ 4,178 $ 4,041
Pro forma 2,538 3,786 3,888
- - ---------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share As reported $ 0.73 $ 0.89 $ 0.89
Pro forma $ 0.55 $ 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 1998, 1997 and 1996:
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Dividend yield 0.0% 0.0% 0.0%
Expected volatility 55.0% 53.6% 44.5%
Risk-free interest rate 5.5-6.9% 6.5% 6.0%
- - ---------------------------------------------------------------------------------------------------------------------------
Expected lives 7 years 8 years 8 years
- - ---------------------------------------------------------------------------------------------------------------------------
Pro forma net income reflects only options granted in fiscal years
1998, 1997 and 1996. Therefore, the full impact of calculating
compensation cost for options under SFAS No.123 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 11: RESTRUCTURING CHARGE
................................................................................
During the fourth quarter of fiscal year 1997, the Company determined
that it would consolidate its Maryland facilities. The Company has a
lease for its former corporate headquarters that expires on December
31, 2000. Based on the current monthly payments and the expected
sublease rate the Company would receive after vacating its former
corporate headquarters, the Company recorded a $310,200 restructuring
charge in its fiscal year 1997 consolidated Statement of Income. As of
March 29, 1998 and March 28, 1997, the restructuring accrual was
$271,000 and $310,200, respectively.
NOTE 12: CONTINGENCY
................................................................................
In connection with the relocation of its corporate headquarters, the
Company received $1,000,000 from the Maryland Department of Business
and Economic Development which the Company may be required to repay
subject to the achievement of defined employment levels. Management of
the Company believes that it has satisfied the requirements of the
agreement and that it will not be required to repay the funds.
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 29,
1998, March 28, 1997 and March 29, 1996.
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 Chief Executive Officer Treasurer and Chief Financial Officer
Report of Independent Public Accountants
To the Board of Directors and Stockholders
of TESSCO Technologies Incorporated:
We have audited the accompanying consolidated balance sheets of TESSCO
Technologies Incorporated as of March 29, 1998 and March 28, 1997, and
the related consolidated statements of income, changes in shareholders'
equity and cash flows for the years ended March 29, 1998, March 28,
1997 and March 29, 1996. These financial statements and the schedule
referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conduct 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 29, 1998 and March 28, 1997, and
the results of its operations and its cash flows for the years ended
March 29, 1998, March 28, 1997 and March 29, 1996, 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. This 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
Baltimore, Maryland
April 24, 1998
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Part III
ITEM 10: DIRECTORS AND EXECUTIVE 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 1998 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 1998 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
1998 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 consolidated financial statements are included in Item
8 of this report:
Consolidated Balance Sheets as of March 29, 1998 and March 28,
1997
Consolidated Statements of Income for the fiscal years ended March
29, 1998, March 28, 1997 and March 29, 1996
Consolidated Statements of Changes in Shareholders' Equity for the
fiscal years ended March 29, 1998, March 28, 1997 and March 29,
1996
Consolidated Statements of Cash Flows for the fiscal years ended
March 29, 1998, March 28, 1997 and March 29, 1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants.
2. The following financial statement schedules are included herewith:
Schedule Description
------------------------------------------------------------------
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 (incorporated by reference to
Exhibit 3.1.4 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 28, 1997).
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 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)).
10.3 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)).
10.4 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)).
10.5 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)).
10.6.1 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).
10.6.2 First Amendment to Financing Agreement dated September 26, 1996
(incorporated by reference to Exhibit 10.7.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 28,
1997).
10.6.3 Second Amendment to Financing Agreement dated February 28, 1997
(incorporated by reference to Exhibit 10.7.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 28,
1997).
10.6.4 Third Amendment to Financing Agreement dated June 1, 1997
(incorporated by reference to Exhibit 10.7.4 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June
27, 1997).
10.7 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)).
10.8 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) During the quarter ended March 29, 1998, the registrant filed a report
on Form 8-K dated March 26, 1998.
SCHEDULE II: FOR THE FISCAL YEARS ENDED MARCH 29, 1998, MARCH 28, 1997 AND
MARCH 29, 1996
Valuation and Qualifying Accounts
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts and sales returns:
Balance, beginning of year $525,300 $431,700 $474,000
Provisions 158,900 335,400 166,200
Write-offs (246,100) (241,800) (208,500)
- - ---------------------------------------------------------------------------------------------------------------------------
Balance, end of year $438,100 $525,300 $431,700
- - ---------------------------------------------------------------------------------------------------------------------------
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TESSCO Technologies Incorporated
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 24, 1998 By: /s/ Gerald T. Garland June 24, 1998
------------------------------------ -----------------------------------------
Robert B. Barnhill, Jr. Gerald T. Garland
Chairman of the Board, Treasurer and Chief Financial Officer
President and Chief Executive Officer (principal financial and accounting officer)
(principal executive officer)
By: /s/ Jerome C. Eppler June 24, 1998 By: /s/ Dennis J. Shaughnessy June 24, 1998
------------------------------------ -----------------------------------------
Jerome C. Eppler Dennis J. Shaughnessy
Director Director
By: /s/ Martin L. Grass June 24, 1998 By: /s/ Morton F. Zifferer, Jr. June 24, 1998
------------------------------------ -----------------------------------------
Martin L. Grass Morton F. Zifferer, Jr.
Director Director
By: /s/ Benn R. Konsynski June 24, 1998
-------------------------------------
Benn R. Konsynski
Director
EXHIBIT INDEX
The following Exhibits are filed herewith:
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