 |
|
Item 8. Consolidated Financial Statements and Supplementary Data.
Note 1. Organization
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, location tracking and Internet systems. The Company provides marketing and sales services, knowledge and
supply chain management, product-solution delivery and control systems utilizing extensive Internet and information
technology. Although the Company conducts business selling various products to different customer groups, these
products and customers all fall within the telecommunications industry; therefore, the Company reports operating
results as one reportable segment.
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
The Company's fiscal year is 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. The
fiscal years ended March 31, 2002 and March 26, 2000 contained 52 weeks and the fiscal year ended April 1, 2001
contained 53 weeks. The effect of the extra week in fiscal 2001 does not materially affect the Consolidated
Financial Statements of the Company.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments with an original 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:
Depreciation and amortization of property and equipment was $4,187,400, $3,320,400 and $2,419,400 for
fiscal years 2002, 2001 and 2000, respectively (see Note 3).
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are being amortized using the straight-line method over 15 years. Amortization
expense was $332,100, $332,400 and $327,000 for fiscal years 2002, 2001 and 2000, respectively. Accumulated
amortization as of March 31, 2002 and April 1, 2001 was approximately $2,184,400 and $1,852,300, respectively.
Revenue Recognition
The Company records revenue when product is shipped to the customer or when services are provided. Other than
subscriber accessory sales relating to the Company's private brand, Wireless Solutions®, TESSCO offers no product
warranties in excess of original equipment manufacturers' warranties. The Company's warranty expense is estimated
and accrued at the time of sale. Warranty expense was immaterial for the fiscal years 2002, 2001 and 2000.
Supplemental Cash Flow Information
Cash paid for interest during fiscal years 2002, 2001 and 2000 totaled $553,200, $1,035,200 and $604,200, respectively.
Cash paid for income taxes, net of refunds, for fiscal years 2002, 2001 and 2000 totaled $1,360,700, $3,450,700 and
$3,566,900, respectively.
The Company had non-cash transactions during fiscal years 2002, 2001 and 2000 as follows:
|
|
|
2002 |
|
2001 |
|
2000 |
|
| Exercise of options in exchange for stock |
|
$ -- |
|
$ 82,200 |
|
$ 603,000 |
|
| Tax benefit from exercise of stock options |
|
$ -- |
|
$ 50,700 |
|
$ 7,600 |
|
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 the revolving credit facility and the note payable to a bank, which bear interest at
variable rates, approximate their fair value as of March 31, 2002 and April 1, 2001.
Fair value of long-term debt, excluding the note payable to a bank, as of March 31, 2002
and April 1, 2001 is as follows:
|
|
|
2002 |
|
2001 |
|
| Note payable to Baltimore County, Maryland |
|
$ 149,200 |
|
$ 144,300 |
Note payable to the Maryland Economic
Development Corporation |
|
1,257,700 |
|
1,169,600 |
|
|
|
$ 1,406,900 |
|
$ 1,313,900 |
|
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 2002, 2001 and 2000 sales of products purchased from the Company's
top ten vendors accounted for 42%, 31% and 38% of total revenues, respectively, with sales of products purchased from
the Company's largest vendor generating approximately 13%, 6% and 8% 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 many of the product types it carries, the
loss of certain principal suppliers could have a material adverse effect on the Company.
The Company's future results could also be negatively impacted by the potential loss of certain
customers. For fiscal years 2002, 2001 and 2000, sales of products to the Company's top ten customers accounted for
22%, 25% and 14% of total revenues, respectively, with sales to the Company's largest customer generating
approximately 4%, 6% and 3% of total revenues, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States 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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard
No. 133 "Accounting for Derivative Instruments and Hedging Activities" (FAS No. 133). FAS No. 133 establishes
accounting and reporting standards for derivative instruments and derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variability in cash flows attributable to a particular risk,
or (c) a hedge of the foreign currency exposure of a net investment on a foreign operation, an unrecognized
firm commitment, an available for sale security and a forecasted transaction. FAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133" was
issued in June 1999 and deferred the effective date of FAS No. 133 to fiscal years beginning after June 15,
2000. FAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," was
issued on June 2000 and also amends FAS No. 133. FAS No. 138 addresses a limited number of issues causing
implementation difficulties. Consequently, the Company was required to implement FAS No. 133 for all fiscal
quarters for the fiscal year beginning April 2, 2001. The Company has no derivative instruments and therefore
the adoption of this pronouncement has not had a material effect on the Company's financial statements.
In June 2001, the Financial Accounting Standards Board approved 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 assets. FAS No.
142 also establishes a new method of testing goodwill 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 will result in the Company's discontinuation of
amortization of its goodwill; however, the Company will be required to test its goodwill for impairment
under the new standard, which could have an adverse effect on the Company's future results of operations
if an impairment occurs. The Company has completed its initial evaluation of goodwill and intangible
assets and does not anticipate any immediate material adverse affect of this pronouncement on its
financial statements. During fiscal year 2002, the Company incurred goodwill amortization of $267,500,
which approximates the amount that would have been expensed for fiscal year 2003. In accordance with
the provisions of FAS No. 142, this amount will not be expensed in fiscal year 2003. As of March 31,
2002, the Company had goodwill, net of accumulated amortization of $2,452,200.
In August 2001, the 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 FAS No. 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 shall 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. The Company will apply this guidance prospectively.
Reclassifications
Certain reclassifications have been made to the prior year consolidated financial statements to conform
with the current year presentation.
Note 3. Property and Equipment
All of the Company's property and equipment is located in the United States. Property and equipment is
summarized as follows:
|
|
|
2002 |
|
2001 |
|
| Land |
|
$ 4,803,200 |
|
$ 2,185,500 |
| Building and improvements |
|
12,589,800 |
|
10,935,900 |
| Information technology equipment and software |
|
16,700,600 |
|
13,639,800 |
| Equipment, furniture and tooling |
|
7,888,400 |
|
6,881,300 |
|
|
|
41,982,000 |
|
33,642,500 |
|
| Less accumulated depreciation and amortization |
|
(16,138,900) |
|
(12,002,100) |
|
| Property and equipment, net |
|
$ 25,843,100 |
|
$ 21,640,400 |
|
Note 4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are summarized as follows:
|
|
|
2002 |
|
2001 |
|
| Payroll, benefits and taxes |
|
$ 3,796,400 |
|
$ 2,237,900 |
| Bank overdraft |
|
-- |
|
695,200 |
| Income and sales taxes |
|
871,700 |
|
505,100 |
| Other |
|
1,325,400 |
|
971,000 |
|
Accrued expenses and other
current liabilities |
|
$ 5,993,500 |
|
$ 4,409,200 |
|
Note 5. Borrowings Under Revolving Credit Facility
On September 30, 1999, the Company amended the terms of the Company's bank financing agreement. Pursuant to the
amended terms, the two facilities previously existing under the agreement, a $5,000,000 line of credit facility
and a $10,000,000 revolving credit loan, were consolidated into one $15,000,000 revolving credit facility and the
expiration date of the consolidated facility was extended until September 2002.
On September 28, 2000, the Company and its affiliates further amended the terms of the Company's
bank financing agreement. Pursuant to these amended terms, the previously consolidated $15,000,000 credit facility
was increased to $30,000,000, and the expiration date of the facility was extended from September 2002 until
September 2003.
The consolidated facility is unsecured and bears interest at a variable rate of the London
Interbank Offered Rate (LIBOR) plus 1.25% per annum on auto-borrow advances up to $7,000,000 and 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, on the remaining balance of
the facility.
The weighted average interest rate on borrowings under the credit facility was 5.36%, 8.78% and
6.94% for fiscal years 2002, 2001 and 2000, respectively. Interest expense on the credit facility for fiscal years
2002, 2001 and 2000 totaled $152,200, $600,000 and $156,400, respectively. Average borrowings under the credit
facility totaled $2,839,100, $6,833,200 and $2,228,600; maximum borrowings totaled $10,427,000, $11,000,000 and
$5,862,000 for fiscal years 2002, 2001 and 2000, respectively. The outstanding balance under the agreement as
of March 31, 2002 and April 1, 2001 was $5,408,000 and $10,011,000, respectively.
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. The Company was in compliance
with the provisions of the agreement during fiscal years 2002, 2001 and 2000.
Note 6. 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 2002,
2001 and 2000 was 4.66%, 8.13% and 7.21%, respectively. Interest expense under this note was $240,500,
$437,300 and $402,800 for fiscal years 2002, 2001 and 2000, respectively. As of March 31, 2002 and April 1,
2001, principal outstanding under this note was $5,040,300 and $5,273,600, respectively. The note is secured
by the real property of the Company. The note contains certain restrictive covenants that, among other things,
require the maintenance of certain financial ratios. The Company was in compliance with the provisions of the
agreement during fiscal years 2002, 2001 and 2000.
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 $6,400, $8,800 and $8,100 for fiscal years 2002, 2001 and 2000,
respectively. As of March 31, 2002 and April 1, 2001, principal outstanding under this note was $141,500
and $153,100, respectively. The note is secured by the Company owned real property located in Hunt Valley,
Maryland.
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 $40,100,
$43,300 and $45,400 for fiscal years 2002, 2001 and 2000, respectively. As of March 31, 2002 and April 1,
2001, principal outstanding under this note was $1,259,400 and $1,369,000, respectively. The note is
secured by the Company owned real property located in Hunt Valley, Maryland.
As of March 31, 2002, scheduled annual maturities of long-term debt are as follows:
|
| FISCAL YEAR |
|
| 2003 |
|
$ 377,800 |
|
| 2004 |
|
4,916,800 |
|
| 2005 |
|
133,300 |
|
| 2006 |
|
137,600 |
|
| 2007 |
|
216,300 |
|
| Thereafter |
|
659,400 |
|
|
|
|
$ 6,441,200 |
|
|
Note 7. Commitments and Contingencies
The Company leases 15,000 square feet of distribution and office space in Reno, Nevada under an operating
lease which expired in June 2001, but which has been extended on a month-to-month basis since that date.
Effective April 1, 2001, the Company entered into a lease, which expires in March 2006, for an additional
65,000 square feet of distribution and office space in Hunt Valley, Maryland, adjacent to the Company's
Global Logistics Center. This space is used as the Company's Solutions Development Center. Rent expense
for fiscal years 2002, 2001 and 2000 totaled $653,300, $125,200 and $113,100, respectively.
As of March 31, 2002, the Company's minimum future obligations under existing leases,
other than the $9,200 per month obligation under the Reno facility lease which is cancelable on
one-month notice, are as follows:
|
| FISCAL YEAR |
|
| 2003 |
|
$ 530,000 |
|
| 2004 |
|
540,500 |
|
| 2005 |
|
551,400 |
|
| 2006 |
|
562,400 |
|
|
|
|
$ 2,184,300 |
|
|
Lawsuits and claims are filed against the Company from time to time in the ordinary course of business.
The Company does not believe that any lawsuits or claims pending against the Company, individually or in the aggregate,
are material or will have a material adverse affect on the Company's financial condition or results of operations.
Note 8. 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 Consolidated Statements of Income is as follows:
|
|
|
2002 |
|
2001 |
|
2000 |
|
| Statutory federal rate |
|
34.0% |
|
34.0% |
|
34.0% |
| State taxes, net of federal benefit |
|
2.8 |
|
2.7 |
|
3.0 |
| Non-deductible expenses |
|
2.1 |
|
1.2 |
|
2.0 |
| Other |
|
-- |
|
0.1 |
|
(1.0) |
|
| Effective rate |
|
38.9% |
|
38.0% |
|
38.0% |
|
The provision for income taxes was comprised of the following:
|
|
|
2002 |
|
2001 |
|
2000 |
|
| Federal: Current |
|
$ 2,498,600 |
|
$ 1,864,100 |
|
$ 2,576,700 |
| Deferred |
|
(263,800) |
|
1,017,400 |
|
421,100 |
| State: Current |
|
280,200 |
|
231,600 |
|
346,600 |
| Deferred |
|
(31,000) |
|
119,400 |
|
52,600 |
|
| Provision for income taxes |
|
$ 2,484,000 |
|
$ 3,232,500 |
|
$ 3,397,000 |
|
Total deferred tax assets and deferred tax liabilities as of March 31, 2002 and April 1, 2001, 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:
|
|
|
2002 |
|
2001 |
|
Deferred tax assets:
Accrued expenses and reserves |
|
$ 2,231,000 |
|
$ 1,531,600 |
|
Deferred tax liabilities:
Property and equipment |
|
$ 2,611,400 |
|
$ 2,195,900 |
| Other assets |
|
68,100 |
|
79,000 |
|
|
|
$ 2,679,500 |
|
$ 2,274,900 |
|
Note 9. Profit-Sharing Plan
The Company has a 401(k) profit-sharing plan that covers all eligible employees. Contributions to the plan can be made by
employees as well as by the Company at the discretion of the Company's Board of Directors. Profit-sharing plan expense as
a result of Company contributions was $120,200, $75,300 and $76,800 during fiscal years 2002, 2001 and 2000, respectively.
As of March 31, 2002, plan assets included 27,054 shares of Common Stock of the Company.
The Company maintains a non-qualified deferred compensation plan that covers directors and certain
executives as determined by the Board of Directors. Contributions to the plan can be made by these individuals through
the deferral of income, as well as by the Company at the discretion of the Company's Board of Directors; however, the
Company has made no contributions to the plan as of March 31, 2002. All plan assets are held in an irrevocable Rabbi
trust. These assets and the related liabilities are included in other long-term assets and other long-term liabilities
on the Company's Consolidated Balance Sheets.
The Company maintains a Supplemental Executive Retirement Plan for Robert B. Barnhill, Jr., Chairman,
President and CEO of the Company. This plan is funded through a life insurance policy for which the Company is the sole
beneficiary. The cash surrender value of the life insurance policy and the net present value of the benefit obligation
are included in other long-term assets and other long-term liabilities on the Company's Consolidated Balance Sheets.
Note 10. 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:
|
|
|
2002 |
|
2001 |
|
2000 |
|
| Basic weighted average shares outstanding |
|
4,500,800 |
|
4,494,800 |
|
4,472,500 |
| Effect of dilutive common equivalent shares |
|
75,100 |
|
187,800 |
|
127,000 |
|
| Diluted weighted average shares outstanding |
|
4,575,900 |
|
4,682,600 |
|
4,599,500 |
|
Options to purchase 803,150 shares of common stock at a weighted average exercise price of $22.71 per
share were outstanding as of March 31, 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 would be antidilutive.
Note 11. Stock-Based Compensation
The Company has two stock incentive plans, the 1984 Employee Incentive Stock Option Plan (the 1984 Plan) and the 1994
Stock and Incentive Plan (the 1994 Plan). The 1984 Plan and the 1994 Plan allow for the grant of awards in respect of
an aggregate of 401,250 and 1,172,500 shares of the Company's Common Stock, respectively. As of March 31, 2002, no
shares were available for issue in respect of additional awards under the 1984 Plan and 35,900 shares were available
for issue in respect of additional awards under the 1994 Plan. The 1994 Plan, which has a term of 10 years and expires
in 2004, allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights,
restricted stock and restricted stock units and other performance awards. To date, only options have been granted as
awards under the 1994 Plan.
In addition to options outstanding under the 1984 Plan and the 1994 Plan, non-plan options to
purchase an aggregate of 281,888 shares of the Company's Common Stock have been granted at the discretion of the
Board of Directors or the Compensation Committee of the Board of Directors. Transactions involving options are
summarized as follows:
|
|
|
2002 |
|
2001 |
|
2000 |
|
|
|
Shares |
|
Weighted
Average
Exercise
Price |
|
Shares |
|
Weighted
Average
Exercise
Price |
|
Shares |
|
Weighted
Average
Exercise
Price |
|
| Outstanding, beginning of year |
|
1,177,000 |
|
$ 20.19 |
|
990,700 |
|
$ 19.04 |
|
702,200 |
|
$ 18.23 |
| Granted |
|
193,000 |
|
12.47 |
|
276,800 |
|
23.50 |
|
396,300 |
|
20.14 |
| Exercised |
|
-- |
|
-- |
|
(23,200) |
|
13.27 |
|
(50,900) |
|
12.83 |
| Cancelled |
|
(103,700) |
|
21.39 |
|
(67,300) |
|
18.64 |
|
(56,900) |
|
22.19 |
|
| Outstanding, end of year |
|
1,266,300 |
|
$ 18.92 |
|
1,177,000 |
|
$ 20.19 |
|
990,700 |
|
$ 19.04 |
| Exercisable at end of year |
|
605,200 |
|
|
|
459,300 |
|
|
|
272,400 |
|
|
| Weighted average fair value of options granted during the year |
|
$ 3.22 |
|
|
|
$ 9.76 |
|
|
|
$ 7.14 |
|
|
|
Information about stock options outstanding and exercisable as of March 31, 2002 is as follows:
|
|
|
OUTSTANDING |
|
EXERCISABLE |
|
Range of
Exercise
Price |
|
Shares |
|
Weighted
Average
Remaining
Contractual
Life |
|
Weighted
Average
Exercise
Price |
|
Shares |
|
Weighted
Average
Exercise
Price |
|
| $ 0.00–15.00 |
|
431,800 |
|
4.0 |
|
$ 12.19 |
|
248,300 |
|
$ 12.05 |
|
| 15.00–25.00 |
|
731,500 |
|
4.7 |
|
21.05 |
|
265,400 |
|
19.83 |
|
| 25.00–36.50 |
|
103,000 |
|
4.8 |
|
31.97 |
|
91,500 |
|
32.70 |
|
| $ 0.00–36.50 |
|
1,266,300 |
|
4.5 |
|
$ 18.92 |
|
605,200 |
|
$ 18.59 |
|
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 FAS No. 123 "Accounting for Stock-Based Compensation," the Company's net earnings
and diluted earnings per share for fiscal years 2002, 2001 and 2000 would have been reduced to the pro forma amounts
indicated as follows:
|
|
|
2002 |
|
2001 |
|
2000 |
|
| Net earnings (in thousands): As reported |
|
$ 3,906 |
|
$ 5,2740 |
|
$ 5,543 |
| Pro forma |
|
1,576 |
|
3,231 |
|
4,047 |
| Diluted earnings per share: As reported |
|
$ 0.85 |
|
$ 1.13 |
|
$ 1.20 |
| Pro forma |
|
0.34 |
|
0.69 |
|
0.88 |
|
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 2002, 2001 and 2000:
|
|
|
2002 |
|
2001 |
|
2000 |
|
| Dividend yield |
|
0.0% |
|
0.0% |
|
0.0% |
| Expected volatility |
|
15.0% |
|
32.0% |
|
24.0% |
| Risk-free interest rate |
|
3.7-4.8% |
|
4.8-6.5% |
|
5.2-6.7% |
| Expected lives |
|
6 years |
|
6 years |
|
6 years |
|
During fiscal 2000, the Company adopted the Team Member Stock Purchase Plan. This plan
permits eligible employees to purchase up to 200,000 shares of the Company's Common Stock at 85% of market price.
The Company's only expense relating to this plan is for its administration. During fiscal 2002 and 2001, 8,185
and 6,449 shares, respectively, were sold to employees under this plan. The weighted average market value of the
shares sold in fiscal 2002 and 2001 was $10.48 and $16.11, respectively.
Note 12. Related Party Transaction
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.
Management's Responsibility for Financial Statements
The consolidated statements of TESSCO Technologies Incorporated have been prepared by the Company in accordance
with accounting principles generally accepted in the United States. 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 31, 2002, April 1, 2001 and March 26, 2000.
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 generally covered in the United States. 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.
Robert B. Barnhill, Jr.
Chairman, President and Chief Executive Officer
Robert C. Singer
Senior Vice President 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 (a Delaware Corporation) as of March 31, 2002 and April 1, 2001, and the related
consolidated statements of income, changes in shareholders' equity and cash flows for each of the
three years in the period ended March 31, 2002. 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 conducted our audits in accordance with auditing standards generally accepted in
the United States. 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 31, 2002
and April 1, 2001 and the results of its operations and its cash flows for each of the three years
in the period ended March 31, 2002, in conformity with accounting principles generally accepted in
the United States.
Our audits were made for the purpose of forming an opinion on the basic consolidated
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 consolidated financial
statements. This schedule has been subjected to the auditing procedures applied in our audits of the
basic consolidated financial statements and, in our opinion, is fairly stated in all material
respects the financial data required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
April 24, 2002
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