Maryland-based TESSCO Technologies Incorporated, a provider of integrated product plus supply chain solutions to the wireless communications industry, announced its final negotiated settlement of the insurance claim related to the Oct. 12, 2002 flooding of its central sales, support, data and phone center, and receipt of all cash due under this settlement.
TESSCO has reportedly received a final installment of $5.8 million from its insurance carrier, bringing the total full and final settlement of the disaster claim to $23.1 million. This final installment closes all claims, including extra expenses required for recovery, building, information technology equipment, business personal property rebuild and/or replacement, and business interruption.
The claims and the related settlement are a result of the damage and disruption caused by the Oct. 12, 2002 event, when a publicly maintained water system malfunctioned, causing a torrent of water to break through the outside wall of TESSCO’s corporate headquarters, the Global Logistics Center. This event reportedly severely damaged the central computer center and flooded the entire 180,000-square-foot facility with 10 to 24 inches of water.
Of the $23.1 million total settlement: $10.0 million is related to extra expenses for temporary recovery efforts, including future amounts through May 2004; $10.1 million is related to the cost of the remediation, restoration and/or replacement of the facility, business personal property and computer system; and $3.0 million is related to business interruption.
As part of TESSCO’s rebuild plans, the damaged facility will be reconfigured for fulfillment and distribution. This reconfiguration will allow the consolidation of a 65,000-square-foot leased facility, which will no longer be required and is now being marketed for sublease. Currently, it is estimated that a $1.3 million pre-tax charge, or $0.17 per share, will be taken in the current quarter representing the write-off of the remaining book value of leasehold improvements and the present value of continuing lease obligations, in excess of expected sub-lease income. The lease extends until March 2006, and in the event that a sublease agreement cannot be made, or is made at a rate less favorable than that currently anticipated, an additional pre-tax charge of up to $830,000, or $0.12 per share, could be required.
In the current quarter, the expected $1.3 million facility abandonment pre-tax charge will be offset against a $3.1 million pre-tax gain from the insurance claim, resulting in a one-time earnings impact estimated at $0.25 per share, based on 4.4 million weighted average shares outstanding. Including the $0.17 per share gain that was previously recognized in the third quarter of fiscal 2003 as a result of a partial and interim business interruption claim payment, the total net earnings impact of the total $23.1 million insurance settlement and related facility abandonment would be $0.42 per share.
As a result, and based on current assumptions, TESSCO’s current quarter balance sheet will be impacted as follows: a $5.8 million increase in cash; a $1.0 million decrease in insurance receivables and other assets; a $2.3 million accrual for future extra expenses; a $1.4 million accrual for current and deferred taxes and other accrued expenses; and a $1.1 million increase to shareholders’ equity.
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