10-Q 1 a2087150z10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 0-24746 TESSCO TECHNOLOGIES INCORPORATED (Exact name of registrant as specified in charter) Delaware 52-0729657 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 11126 McCormick Road, Hunt Valley, Maryland 21031 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (410) 229-1000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| The number of shares of the registrant's Common Stock, $ .01 par value per share, outstanding as of August 2, 2002 was 4,513,747. TESSCO TECHNOLOGIES INCORPORATED INDEX TO FORM 10-Q
PART I FINANCIAL INFORMATION -------------------------------------------------------------------------------------------------------------------- Item 1 Financial Statements Consolidated Balance Sheets as of June 30, 2002 and March 31, 3 2002 Consolidated Statements of Income for the fiscal quarters ended 4 June 30, 2002 and July 1, 2001 Consolidated Statements of Cash Flows for the fiscal quarters 5 ended June 30, 2002 and July 1, 2001 Notes to Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and 8 Results of Operations Item 3 Quantitative and Qualitative Disclosures about Market Risk 11 PART II OTHER INFORMATION -------------------------------------------------------------------------------------------------------------------- Item 1 Legal Proceedings 12 Item 2 Changes in Securities 12 Item 3 Defaults upon Senior Securities 12 Item 4 Submission of Matters to a Vote of Security Holders 12 Item 5 Other Information 12 Item 6 Exhibits and Reports on Form 8-K 13 -------------------------------------------------------------------------------------------------------------------- Signature 14
2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS TESSCO TECHNOLOGIES INCORPORATED CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------ June 30, March 31, 2002 2002 ------------------------------------------------------------------------------------ (unaudited) (audited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ -- $ 505,100 Trade accounts receivable, net 30,116,600 28,111,400 Product inventory 33,199,200 38,480,500 Deferred tax asset 2,231,000 2,231,000 Prepaid expenses and other current assets 1,078,700 1,745,400 ------------------------------------------------------------------------------------ Total current assets 66,625,500 71,073,400 ------------------------------------------------------------------------------------ PROPERTY AND EQUIPMENT, net 25,864,200 25,843,100 GOODWILL AND OTHER INTANGIBLE ASSETS, net 2,678,700 2,692,200 OTHER LONG-TERM ASSETS 652,800 620,600 ------------------------------------------------------------------------------------ Total assets $ 95,821,200 $ 100,229,300 ------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 28,220,900 $ 28,137,500 Accrued expenses and other current liabilities 5,477,300 5,993,500 Revolving credit facility 332,000 5,408,000 Current portion of long-term debt 383,900 377,800 ------------------------------------------------------------------------------------ Total current liabilities 34,414,100 39,916,800 ------------------------------------------------------------------------------------ DEFERRED TAX LIABILITY 2,679,500 2,679,500 LONG-TERM DEBT, net of current portion 5,966,100 6,063,400 OTHER LONG-TERM LIABILITIES 801,600 762,200 ------------------------------------------------------------------------------------ Total liabilities 43,861,300 49,421,900 ------------------------------------------------------------------------------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock -- -- Common stock 48,200 48,200 Additional paid-in capital 21,929,800 21,910,400 Treasury stock, at cost (3,792,600) (3,792,600) Retained earnings 33,774,500 32,641,400 ------------------------------------------------------------------------------------ Total shareholders' equity 51,959,900 50,807,400 ------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $ 95,821,200 $ 100,229,300 ------------------------------------------------------------------------------------
See accompanying notes. 3 TESSCO TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------------- Fiscal Quarters Ended June 30, July 1, 2002 2001 -------------------------------------------------------------------------------- (unaudited) (unaudited) Revenues $69,135,100 $59,894,200 Cost of goods sold 50,569,800 43,711,700 -------------------------------------------------------------------------------- Gross profit 18,565,300 16,182,500 Selling, general and administrative expenses 16,406,900 15,268,300 -------------------------------------------------------------------------------- Income from operations 2,158,400 914,200 Interest and other expense, net 315,900 457,300 -------------------------------------------------------------------------------- Income before provision for income taxes 1,842,500 456,900 Provision for income taxes 709,400 173,600 -------------------------------------------------------------------------------- Net income $ 1,133,100 $ 283,300 -------------------------------------------------------------------------------- Basic earnings per share $ 0.25 $ 0.06 -------------------------------------------------------------------------------- Diluted earnings per share $ 0.25 $ 0.06 -------------------------------------------------------------------------------- Basic weighted average shares outstanding 4,508,500 4,499,100 -------------------------------------------------------------------------------- Diluted weighted average shares outstanding 4,571,800 4,508,100 --------------------------------------------------------------------------------
See accompanying notes. 4 TESSCO TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------------- Fiscal Quarters Ended June 30, July 1, 2002 2001 --------------------------------------------------------------------------------------------------------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,133,100 $ 283,300 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,092,500 1,058,600 Provision for bad debts 79,300 233,800 Deferred income taxes and other 7,200 37,600 Increase in trade accounts receivable (2,084,500) (1,748,800) Decrease in product inventory 5,281,300 4,211,000 Decrease in prepaid expenses and other current assets 666,700 647,300 Increase in trade accounts payable 83,400 1,653,500 (Decrease) increase in accrued expenses and other current liabilities (516,200) 34,500 --------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 5,742,800 6,410,800 --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (1,100,100) (813,500) --------------------------------------------------------------------------------------------------------- Net cash used in investing activities (1,100,100) (813,500) --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments under revolving credit facility (5,076,000) (4,965,000) Payments on long-term debt (91,200) (113,800) Proceeds from issuance of stock 19,400 21,400 --------------------------------------------------------------------------------------------------------- Net cash used in financing activities (5,147,800) (5,057,400) --------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (505,100) 539,900 CASH AND CASH EQUIVALENTS, beginning of period 505,100 -- --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of period $ -- $ 539,900 ---------------------------------------------------------------------------------------------------------
See accompanying notes. 5 TESSCO TECHNOLOGIES INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (Unaudited) Note 1. Description of Business and Basis of Presentation -------------------------------------------------------------------------------- TESSCO Technologies Incorporated, a Delaware corporation (the Company), is a leading provider of integrated product plus supply chain solutions to the professionals that design, build, run, maintain and use wireless voice, data, messaging, tracking and Internet systems. TESSCO is in the VitalLink(R) position between buyers and manufacturers. While creating Your Total Source(R) opportunity for its customers to improve the way business is done, TESSCO presents, markets, sells and supports manufacturers' products as a part of a total customer solution, thus providing a cost-effective channel to a broad and diverse customer base. Approximately 95% of the Company's sales are made to customers in the United States. Although the Company conducts business selling various products to different customer groups, these products and customers all fall within the telecommunications industry; therefore, the Company reports operating results as one reportable segment. In management's opinion, the accompanying interim financial statements of the Company include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of the Company's financial position for the interim periods presented. These statements are presented in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the Company's annual financial statements have been omitted from these statements, as permitted under the applicable rules and regulations. The results of operations presented in the accompanying interim financial statements are not necessarily representative of operations for an entire year. The information included in this Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended March 31, 2002. Note 2. Earnings Per Share -------------------------------------------------------------------------------- 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:
--------------------------------------------------------------------- Fiscal Quarters Ended June 30, July 1, 2002 2001 --------------------------------------------------------------------- Basic weighted average common shares outstanding 4,508,500 4,499,100 Effect of dilutive common equivalent shares 63,300 9,000 --------------------------------------------------------------------- Diluted weighted average shares outstanding 4,571,800 4,508,100 ---------------------------------------------------------------------
Options to purchase 891,995 shares of common stock at a weighted average exercise price of $21.64 per share were outstanding as of June 30, 2002, but the common equivalent shares were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares and, therefore, the effect of including such shares would be antidilutive. Note 3. Recent Accounting Pronouncements -------------------------------------------------------------------------------- In June 2001, the Financial Accounting Standards Board approved Statement of Financial Accounting Standard ("FAS") No. 141, BUSINESS COMBINATIONS, and FAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. FAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. FAS No. 142 requires companies to cease amortizing goodwill and certain other intangible 6 assets. FAS No. 142 also establishes a new method of testing goodwill and intangible assets for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of FAS No. 142 resulted in discontinuation of amortization of our goodwill commencing April 1, 2002; however, we are required to test goodwill and intangible assets for impairment under the new standard during fiscal 2003. The following table presents the impact of FAS 142 on net income and earnings per share had FAS 142 been in effect for the quarter ended July 1, 2001:
For the Quarter Ended June 30, 2002 July 1, 2001 ------------------------------ Reported net income .................................... $ 1,133,100 $ 283,300 Add: Goodwill amortization ............................. -- 41,500 ------------------------------ Adjusted net income .................................... $ 1,133,100 $ 324,800 ============================== EARNINGS PER SHARE: Reported net income ..................................... $ 0.25 $ 0.06 Add: Goodwill amortization .............................. -- 0.01 ------------------------------ Adjusted net income $ 0.25 $ 0.07 ============================== DILUTED EARNINGS PER SHARE: Reported net income ..................................... $ 0.25 $ 0.06 Add: Goodwill amortization .............................. -- 0.01 ------------------------------ Adjusted net income ..................................... $ 0.25 $ 0.07 ==============================
In August 2001, FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes FAS No. 121 and ABP Opinion No. 30. This statement retains the fundamental provisions of Statement 121 that requires testing of long-lived assets for impairment using undiscounted cash flows; however, the statement eliminates the requirement to allocate goodwill to these long-lived assets. The statement also requires that long-lived assets to be disposed of by a sale must be recorded at the lower of the carrying amount or the fair value, less the cost to sell the asset and depreciation should cease to be recorded on such assets. Any loss resulting from the write-down of the assets will be recognized in income from continuing operations. Additionally, long-lived assets to be disposed of other than by sale may no longer be classified as discontinued until they are disposed of. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. Adoption of this statement had no impact on the financial statements. Note 4. Related Party Transactions -------------------------------------------------------------------------------- In August 2001, the Company guaranteed a personal revolving line of credit to the Company's chief executive officer from a commercial bank in the principal amount of $2,500,000. In connection therewith, the Company's chief executive officer and his spouse entered into a Reimbursement and Security Agreement, which obligates them to reimburse the Company for any amounts paid by the Company under its guaranty. These obligations to the Company under the Reimbursement and Security Agreement are secured by certain assets of the chief executive officer and represent full recourse obligations to the chief executive officer and his spouse. 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This commentary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations from the Company's Form 10-K for the fiscal year ended March 31, 2002. First Quarter of Fiscal 2003 Compared to First Quarter of Fiscal 2002 -------------------------------------------------------------------------------- Revenues increased by $9.2 million, or 15%, to $69.1 million for the first quarter of fiscal 2003 compared to $59.9 million for the first quarter of fiscal 2002. Revenues from mobile devices and accessories increased 38% and revenues from test and maintenance products increased 30%, while revenues from network infrastructure products decreased 8%. Network infrastructure, mobile devices and accessories and test and maintenance products accounted for approximately 36%, 39% and 25%, respectively, of revenues during the first quarter of fiscal 2003, as compared to 45%, 33% and 22%, respectively, of revenues during the first quarter of fiscal 2002. We experienced revenue growth in the dealers and resellers, and consumer market categories, partially offset by a decrease in our systems operators and international categories. Systems operators, dealers and resellers, consumer services and international users accounted for approximately 43%, 39%, 16% and 2%, respectively, of revenues during the first quarter of fiscal 2003, compared to 52%, 36%, 7% and 5%, respectively, of revenues during the first quarter of fiscal 2002. The significant increase in revenues from mobile devices and accessories is attributed to increased volumes from an existing customer relationship. This relationship is an e-commerce, complete supply-chain relationship with a wireless service provider. We sell and deliver wireless telephones and accessories to consumers and other end-users. We purchase the telephones and accessories, accept orders, and then serialize, package and kit the telephones and accessories for delivery to the end-user. The significant increase in test and maintenance revenues is a result of increased volumes from an existing supply chain relationship with an Original Equipment Manufacturer (OEM). We take orders from the OEM's authorized service centers for repair and replacement parts, and then we configure, kit and deliver the parts to these customers. The decline in revenues of network infrastructure products can be attributed to the continued tight capital markets. Many of our customers are experiencing difficulty in obtaining consistent and continuing access to capital to finance their growth and, correspondingly, to finance the purchase of our products. Our on-going ability to earn sales from customers looking to us for product and supply chain solutions is dependent upon a number of factors. The terms, and accordingly the factors, applicable to each relationship often differ. Among these factors are the strength of the customer's business, the supply and demand for the product or service, and our ability to support the customer and to continually demonstrate that we can improve the way they do business. Moreover, we believe that in order to achieve our stated goal of increasing market share, we must focus on: achieving a higher share of current product categories purchased by our customers, both large and small; expanding the product categories purchased by these customers; and continuing to acquire and sell more customers, on a monthly basis. Gross profit increased by $2.4 million, or 15%, to $18.6 million for the first quarter of fiscal 2003 compared to $16.2 million for the first quarter of fiscal 2002, due to revenue growth. The gross profit margin percent decreased to 26.9% for the first quarter of fiscal 2003 compared to 27.0% for the first quarter of fiscal 2002. Gross profit margin percent for network infrastructure increased, while mobile devices and accessories and test and maintenance products decreased. The decrease in gross profit margin percent for mobile devices and accessories and test and maintenance products was attributable to the expansion of the two relationships discussed above, both of which operate at slightly lower than historical gross profit margin percents. However, the effect of these lower margin percents was partially offset by changes in product mix and the increase in network infrastructure gross profit margin percent. We account for inventory at the lower of cost or market and, as a result, write-offs/write downs occur due to damage, deterioration, obsolescence, changes in prices and other causes. Total selling, general and administrative expenses increased by $1.1 million, or 7%, to $16.4 million for the first quarter of fiscal 2003 compared to $15.3 million for the first quarter of fiscal 2002. The increase in these expenses 8 is primarily attributable to continued investment in personnel; costs related to our Vendor Symposium, a major marketing initiative intended to build a higher level of collaboration with our suppliers; and expenses related to a proposed acquisition that did not occur during the first quarter and is not likely to occur in the near future. The total expenses relating to the Vendor Symposium and proposed acquisition, which were fully expensed in this quarter, were approximately $575,000. We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective customers and make decisions regarding extension of credit terms to such prospects based on this evaluation. Accordingly, we recorded a provision for bad debts of $79,300 and $233,800 for the quarters ended June 30, 2002 and July 1, 2001, respectively. Total selling, general and administrative expenses decreased as a percentage of revenues to 23.7% for the first quarter of fiscal 2003 from 25.5% for the first quarter of fiscal 2002. Income from operations increased by $1.2 million, or 136%, to $2.2 million for the first quarter of fiscal 2003 compared to $914,200 for the first quarter of fiscal 2002. The operating income margin increased to 3.1% for the first quarter of fiscal 2003 compared to 1.5% for the first quarter of fiscal 2002. Net interest and other expense decreased by $141,400, or 31%, to $315,900 for the first quarter of fiscal 2003 compared to $457,300 for the first quarter of fiscal 2002. This decrease is due to lower interest rates and a reduction in borrowings on our revolving credit facility, partially offset by an increase in credit card fees. Income before provision for income taxes increased by $1.4 million or 303%, to $1.8 million for the first quarter of fiscal 2003 compared to $456,900 for the first quarter of fiscal 2002. The effective tax rates in the first quarter for fiscal years 2003 and 2002 were 38.5% and 38.0%, respectively. Net income and earnings per share (diluted) for the first quarter of fiscal 2003 increased 300% and 317%, respectively, compared to the first quarter of fiscal 2002. Liquidity and Capital Resources -------------------------------------------------------------------------------- Net cash provided by operating activities was $5.7 million for the first quarter of fiscal 2003 compared to $6.4 million for the first quarter of fiscal 2002. This decrease was primarily the result of a smaller increase in accounts payable and a larger increase in accounts receivable compared to fiscal 2002, partially offset by a decrease in inventory and an increase in net income. Net cash used in investing activities increased to $1.1 million for the first quarter of fiscal 2003 compared to $813,500 for the first quarter of fiscal 2002, as a result of increased fixed asset purchases. Net cash used by financing activities was $5.1 million for the first quarter of fiscal 2003 and fiscal 2002. During the first quarter of fiscal 2003, our revolving credit facility balance decreased from $5.4 million at March 31, 2002 to $332,000 at June 30, 2002. Our revolving credit facility with a bank provides for a maximum borrowing capacity of $30.0 million and has a term expiring in September 2003. This agreement contains certain conditions, covenants and representations, all of which were complied with as of June 30, 2002. To minimize interest expense, our policy is to use excess available cash to pay down the balance on our revolving credit facility. Critical Accounting Policies and Estimates -------------------------------------------------------------------------------- Our discussion and analysis of our financial condition and results of our operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, slow-moving inventory, income taxes, property and equipment and intangible assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the 9 results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the policies below as critical to our business operations and the understanding of our results of operations. For a detailed discussion on the application of these and other accounting policies, see the Notes to the Consolidated Financial Statements in our Form 10-K for the fiscal year ended March 31, 2002. REVENUE RECOGNITION. We record revenue when product is shipped to the customer or when services are provided. Other than subscriber accessory sales relating to our private brand, Wireless Solutions(R), we offer no product warranties in excess of original equipment manufacturers' warranties. Warranty expense is estimated and accrued at the time of sale. Warranty expense was immaterial for the fiscal quarters ended June 30, 2002 and July 1, 2001. Our current and potential customers are continuing to look for ways to reduce their inventories and lower their total costs, including distribution, order taking and fulfillment costs, while still providing their customers excellent service. Some of these companies have turned to us to implement supply-chain solutions, including purchasing inventory, assisting in demand forecasting, configuring, packaging, kitting and delivering products and managing customer relations, from order taking through cash collections. In performing these solutions, we assume varying levels of involvement in the transactions and varying levels of credit and inventory risk. As our solutions offerings continually evolve to meet the needs of our customers, and in order to assure that we properly reflect our financial performance, we constantly evaluate our revenue accounting based on the guidance set forth in accounting standards generally accepted in the United States. When applying this guidance, we look at the following indicators: whether we are the primary obligor in the transaction; whether we have general inventory risk; whether we have latitude in establishing price; the extent to which we change the product or perform part of the service; whether we have supplier selection; whether we are involved in the determination of product and service specifications; whether we have physical inventory risk; whether we have credit risk; and whether the amount we earn is fixed. Each of our customer relationships is evaluated based on the above guidance and revenue is recorded on the appropriate basis. ALLOWANCE FOR DOUBTFUL ACCOUNTS. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the economy and/or the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make their payments, additional allowances may be required. EXCESS AND SLOW-MOVING INVENTORY. We account for inventory at the lower of cost or market, and as a result, write-offs/write-downs occur due to damage, deterioration, obsolescence, changes in prices and other causes. VALUATION OF GOODWILL, LONG-LIVED ASSETS AND INTANGIBLE ASSETS. We periodically evaluate our goodwill, long-lived assets and intangible assets for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on estimated future cash flows, market conditions, operational performance and legal factors. Future events could cause us to conclude that impairment indicators exist and that the net book value of long-lived assets and intangible assets is impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. INCOME TAXES. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We annually review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. If we are unable to generate sufficient taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to establish a valuation allowance against all or a significant portion of our deferred tax assets, resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results. 10 Summary Disclosures about Contractual Obligations and Commercial Commitments -------------------------------------------------------------------------------- The following table reflects a summary of our contractual cash obligations and other commercial commitments as of June 30, 2002:
PAYMENT DUE BY FISCAL YEAR ENDING --------------------------------- 2006 and Total 2003 2004 2005 thereafter ----- ---- ---- ---- ---------- Commercial bank financing ............. $6,350,000 $286,600 $4,916,800 $133,300 $1,013,300 Revolving credit facility ............. 332,000 332,000 -- -- -- Operating leases ...................... 2,053,600 399,300 540,500 551,400 562,400 Other commitment ...................... 443,600 218,500 225,100 -- -- -------------------------------------------------------------------- Total contractual cash obligations.................... $9,179,200 $1,236,400 $5,682,400 $684,700 $1,575,700 ====================================================================
Forward-Looking Statements -------------------------------------------------------------------------------- This Report contains a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, all of which are based on current expectations. These forward-looking statements may generally be identified by the use of the words "may," "will," "believes," "should," "expects," "anticipates," "estimates," and similar expressions. Our future results of operations and other forward-looking statements contained in this report involve a number of risks and uncertainties. For a variety of reasons, actual results may differ materially from those described in any such forward-looking statement. Such factors include, but are not limited to, the following: our dependence on a relatively small number of suppliers and vendors, which could hamper our ability to maintain appropriate inventory levels and meet customer demand; the effect that the loss of certain customers or vendors could have on our net profits; economic conditions that may impact customers' ability to fund purchases of our products and services; the possibility that unforeseen events could impair our ability to service customers promptly and efficiently, if at all; the possibility that, for unforeseen reasons, we may be delayed in entering into or performing, or may fail to enter into or perform, anticipated contracts or may otherwise be delayed in realizing or fail to realize anticipated revenues or anticipated savings; existing competition from national and regional distributors and the absence of significant barriers to entry which could result in pricing and other pressures on profitability and market share; and continuing changes in the wireless communications industry, including risks associated with conflicting technologies, changes in technologies, inventory obsolescence and evolving Internet business models and the resulting competition. Consequently, the reader is cautioned to consider all forward-looking statements in light of the risks to which they are subject. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have not used derivative financial instruments. We believe our exposure to market risks, including exchange rate risk, interest rate risk and commodity price risk, is not material at the present time. 11 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS Lawsuits and claims are filed against the Company from time to time in the ordinary course of business. We do not believe that any lawsuits or claims currently pending against the Company, individually or in the aggregate, are material, or will have a material adverse affect on our financial condition or results of operations. ITEM 2 - CHANGES IN SECURITIES None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Shareholders at the Company's corporate headquarters on July 25, 2002. At the meeting, the shareholders were asked to vote on the election of directors and the ratification of the appointment of the Company's independent public accountants. Each of these proposals was described in the Company's Definitive Proxy Statement filed with the Commission on June 21, 2002. ELECTION OF DIRECTORS. At the meeting, the shareholders re-elected Robert B. Barnhill, Jr. and Benn R. Konsynski, Ph.D. for a three-year term expiring at the Company's 2005 Annual Meeting of Shareholders. The votes cast for Mr. Barnhill, Jr. and Mr. Konsynski were as follows: Robert B. Barnhill, Jr. 3,893,747 For 385,719 Withheld Benn Konsynski, Ph.D. 4,261,047 For 18,419 Withheld John D. Beletic and Morton F. Zifferer, Jr. currently serve as directors of the Company. Their term expires at the 2003 Annual Meeting of Shareholders and until their successors are elected and qualify. Jerome C. Eppler and Dennis J. Shaughnessy also serve as directors of the Company. Their term expires at the 2004 Annual Meeting of Shareholders and until their successors are elected and qualify. INDEPENDENT AUDITORS. At the meeting, the shareholders ratified the appointment of Ernst & Young LLP to serve as the independent public accountants of the Company for the fiscal year ending March 30, 2003. The number of votes for was 4,272,666, the number of votes against or withheld was 5,375, and the number of abstentions was 1,425. ITEM 5 - OTHER INFORMATION None 12 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS: 99.1 Robert B. Barnhill, Jr., Chief Executive Officer, Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Robert C. Singer, Chief Financial Officer, Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) REPORTS ON FORM 8-K We filed current report on Form 8-K on June 4, 2002, reporting our change of auditors from Arthur Andersen LLP to Ernst & Young LLP. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TESSCO TECHNOLOGIES INCORPORATED Date: August 14, 2002 By: /s/ ROBERT C. SINGER ------------------------------- Robert C. Singer Senior Vice President and Chief Financial Officer (principal financial and accounting officer) 14