Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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 1-4371
Tech-Sym Corporation
(Exact name of Registrant as specified in its charter)
Nevada 74 1509818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10500 Westoffice Drive, Houston, Texas 77042
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: 713/785-7790
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, and
(2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Outstanding at October 31, 1994
Common Stock, $.10 par value 5,743,978
INDEX
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet September 30, 1994
and December 31, 1993 1
Consolidated Statement of Income and Accumulated
Earnings for Three Months Ended September 30,
1994 and 1993 2
Consolidated Statement of Income and Accumulated
Earnings for Nine Months Ended September 30,
1994 and 1993 3
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1994 and 1993 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Item 3. Legal Proceedings 10
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Tech-Sym Corporation
Consolidated Balance Sheet
September 30, 1994 December 31, 1993
------------------ -----------------
(stated in thousands)
Assets
Current assets:
Cash and cash equivalents $23,334 $20,317
Marketable Securities 431 7,873
Receivables - net 35,530 30,095
Unbilled revenue 33,378 36,537
Inventories 38,615 31,642
Other 5,480 3,404
-------- --------
Total current assets 136,768 129,868
Property, plant and equipment - net 35,272 32,651
Long term receivables - net 8,647 9,218
Goodwill and other assets 19,675 13,130
-------- --------
Total assets $200,362 $184,867
======== ========
Liabilities
Current liabilities:
Notes payable and current maturities
of long-term debt $6,012 $3,442
Billings in excess of cost and
estimated earnings on uncompleted
contracts 5,819 5,346
Accounts payable 7,826 5,771
Taxes on income 1,906 2,264
Accrued and other liabilities 19,004 17,787
-------- --------
Total current liablilites 40,567 34,610
Long-term debt 23,977 23,317
Deferred income taxes 2,973 2,973
Other liabilities 9,274 9,423
-------- --------
Total liabilities 76,791 70,323
Shareholders' Investment
Preferred stock - authorized 2,000,000
shares, without par value;
none issued
Common stock - authorized 20,000,000
shares, $.10 par value; issued
7,047,470 and 7,034,370 shares 705 703
Additional capital 34,720 34,432
Accumulated earnings 100,243 91,288
Cumulative translation adjustments (1,077) (1,537)
Common stock held in treasury at
cost (1,308,542 and 1,288,752 shares) (11,020) (10,342)
-------- --------
Total shareholders' investment 123,571 114,544
-------- --------
Total liabilities and
shareholders' investment $200,362 $184,867
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
1
Tech-Sym Corporation
Consolidated Statement of Income and
Accumulated Earnings
For The Three Months
Ended September 30,
----------------------------
1994 1993
(stated in thousands except
for per share amounts)
Sales $51,328 $44,072
-------- ---------
Costs and expenses:
Cost of sales 34,663 27,418
Selling, general and administrative
expenses 10,585 10,030
Company sponsored product
development 1,855 1,666
Interest expense 817 734
Interest and other (income)
expense - net (1,263) 8
-------- ---------
46,657 39,856
-------- ---------
Income before income taxes 4,671 4,216
Provision for income taxes 1,495 1,660
-------- ---------
Net income 3,176 2,556
Accumulated earnings:
Beginning of period 97,067 85,936
-------- ---------
End of period $100,243 $88,492
======== =========
Earnings per common share:
Net income $ .55 $ .45
===== =====
The accompanying notes are an integral part of these consolidated
financial statements.
2
Tech-Sym Corporation
Consolidated Statement of Income and
Accumulated Earnings
For the Nine Months
Ended September 30,
----------------------------
1994 1993
(stated in thousands except
for per share amounts)
Sales $143,335 $141,212
-------- ---------
Costs and expenses:
Cost of sales 94,022 91,622
Selling, general and administrative
expenses 30,821 31,260
Company sponsored product
development 5,234 4,585
Interest expense 2,145 2,301
Interest and other (income)
expense - net (2,167) (666)
-------- ---------
130,055 129,102
-------- ---------
Income before income taxes 13,280 12,110
Provision for income taxes 4,325 4,690
-------- ---------
Net income 8,955 7,420
Accumulated earnings:
Beginning of period 91,288 81,072
-------- ---------
End of period $100,243 $88,492
======== =========
Earnings per common share:
Net income $1.55 $1.31
===== =====
The accompanying notes are an integral part of these consolidated
financial statements.
3
Tech-Sym Corporation
Consolidated Statement of Cash Flows
For the Nine Months
Ended September 30,
----------------------------
1994 1993
(stated in thousands)
Cash flows from operating activities:
Net income $8,955 $7,420
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,170 5,494
Deferred income taxes 551
Change in operating assets and liabilities:
Receivables (4,160) (7,116)
Unbilled revenue 4553 (1,851)
Inventories (2,439) 1,025
Accounts payable (398) (1,296)
Billing in excess and
other accrued liabilities (2,758) 6143
Taxes on income (358) 657
Long-term receivables - net and oth (654) (2,858)
Other - net (743) 874
----- -----
Net cash provided by operating activit 8,168 9,043
----- -----
Cash flows from investing activities:
Capital expenditures (5,847) (4,666)
Payment for purchase of business,
net of cash acquired (8,846)
Purchases of investment securities (4,512)
Sales of investment securities 7443 5965
Other investing activities (367) (1,115)
----- -----
Net cash used for investing activities (7,617) (4,328)
----- -----
Cash flows from financing activities:
Net borrowings (payments) under
line of credit agreements 4,483 (1,418)
Proceeds from long-term debt 1090
Payments on long-term debt (2719) (344)
Proceeds from exercise of stock option 413 1456
Cash paid to acquire treasury stock (801) (451)
----- -----
Net cash provided by (used for)
financing activities 2,466 (757)
----- -----
Net increase in cash and cash equivalent 3,017 3,958
Cash and cash equivalents at beginning
of period 20,317 12,934
------ ------
Cash and cash equivalents at end of
period $23,334 $16,892
====== ======
Cash flow from operating activities include:
Interest paid $2,543 $2,653
Income taxes paid 6,010 3,742
The accompanying notes are an integral part of these consolidated
financial statements.
4
Notes to Consolidated Financial Statements
1. The unaudited consolidated financial statements include the
accounts of Tech-Sym Corporation and its subsidiaries ("the Company")
for the three month and nine month periods ended September 30, 1994
and 1993 and should be read in conjunction with the financial
statements and the notes thereto included in the Company's latest
annual report. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of these unaudited statements have been included.
Such financial results, however, should not be construed as
necessarily indicative of future earnings.
2. Inventories are valued at the lower of cost or market. Cost
is determined on the first-in, first-out method. Inventories
(principally electronic parts) which aggregated $38,615,000 at
September 30, 1994, include raw materials of $14,658,000 and
work-in-process and finished goods of $23,957,000.
3. Shares of common stock of the Company have been reserved at
September 30, 1994 for issuance as follows:
53,550 shares for issuance upon exercise of options
granted under the 1980 Stock Option Plan of the
Company.
39,400 shares for issuance upon exercise of options
granted to nonemployee directors.
723,470 shares for issuance upon exercise of options
granted or to be granted under the 1990 Stock Option
Plan of the Company.
3,277,674 shares for issuance upon exercise of common
stock purchase rights granted pursuant to the
Company's Common Stock Purchase Rights Plan adopted by
the Board of Directors on June 1, 1988.
4. The Company provides deferred income taxes for temporary
differences arising when revenues or expenses are recognized in
different periods for financial and tax reporting purposes.
Provision for federal income taxes for the three and nine month
periods ended September 30, 1994 and 1993 was equivalent to an
effective rate of 33% and 36%, respectively, of earnings before
income taxes. The difference between the effective rate and the
U.S. statutory rate for 1994 is due principally to tax benefits
of foreign sales and research and development credits.
5
Additionally, foreign income taxes were not accrued on certain
foreign income due to operating loss carry forwards and certain
state income taxes are less for the current period due to an
over payment in prior periods.
5. Earnings per common share are based on the weighted average
number of shares outstanding during each period (5,762,000 and
5,702,000 for the three months ended September 30, 1994 and
1993, respectively, and 5,765,000 and 5,649,000 for the nine
month period ended September 30, 1994 and 1993, respectively).
6. During the quarter ending September 30, 1994, the Company
acquired all the outstanding shares of Anarad, Inc., certain
operating assets from Digicon, Inc. and a majority interest in a
radio transmitter company in Chile S.A. These acquisitions are
considered to be financially immaterial individually and in the
aggregate and not significant to the operations of the Company.
6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources:
The Company's operating activities provided cash in the amount of
$8,168,000 for the nine months ended September 30, 1994, and cash
in the amount of $9,043,000 for the nine months ended September
30, 1994. During March 1989, the Company completed a long-term
unsecured note financing in the principal amount of $20,000,000.
The Company is required to repay such amount in annual principal
installments of approximately $2,857,000 beginning in 1995. The
terms of the unsecured note financing impose limitations on future
(additional) borrowings. Given the current level of liquid assets
and projected cash flows from future operations, the Company does
not presently anticipate the need for future borrowings in excess
of such limitations. Subsequent to the completion of the note
financing, the Company also negotiated new unsecured bank lines of
credit which, among other changes, removed the restrictions as to
amounts that may be distributed from subsidiaries to Tech-Sym
Corporation. At September 30, 1994, the Company had unused
committed lines of credit which aggregated $24,400,000.
After working capital, the chief use of the Company's funds has
normally been capital expenditures. Capital expenditures for
property, plant and equipment were $5,847,000 and $4,666,000 for
the nine months ended September 30, 1994 and 1993, respectively.
Results of Operations:
The following is management's discussion and analysis of certain
significant factors which have affected the Company's earnings
during the periods included in the accompanying consolidated
statements of income.
A summary of the period to period changes in the principal items
included in the consolidated statements of income is shown below:
Comparison of Comparison of
Three Months Nine Months
Ended September 30, Ended September 30,
1994 and 1993 1994 and 1993
-----------------------------------------
Increase(Decrease)
(stated in thousands)
Sales $7,256 $2,123
Costs and expenses (6,801) 953
Income before income taxes 455 1,170
Provision for income taxes (165) (365)
Net income $ 620 $1,535
===== =====
7
Comparison of Three Months Ended September 30, 1994 and 1993:
Sales for the quarter ended September 30, 1994 increased 16%
while costs and expenses increased 17% which resulted in an
increase in income before income taxes of 11%. The increase
in sales for the quarter as compared to the same quarter a
year ago was primarily the result of increased sales in the
defense system area ($2,568,000 or 19%) and increased sales
in the communication area ($2,022,000 or 11%). Additionally,
the acquisition of Anarad, Inc. effective July 8, 1994
contributed $2,920,000 to sales in the third quarter of 1994.
The sales of seismic survey systems products for the quarter
were essentially the same as last year.
Cost of sales increased 26% due to the sales increase in product
lines that carry less gross margin. Selling, general and
administrative expenses increased 6% which compares very
favorably to the 16% increase in sales.
Company sponsored product development increased 11% for this
quarter primarily due to an increase in the cost of development
programs in the seismic survey systems area. Interest expense
increased slightly due to larger average borrowings for the
quarter ended September 30, 1994 as compared to the quarter ended
September 30, 1993. Interest and other income increased
substantially, primarily due to unused sales credits granted to a
customer for exchanged equipment who has since gone out of the
seismic business. A lower effective tax rate also contributed to
the increase in net income. See Note 4 of the Notes to the
Consolidated Financial Statements contained on pages 5 and 6 of
this report for information on income taxes.
Comparison of Nine Months Ended September 30, 1994 and 1993:
Sales for the nine months period ended September 30, 1994
increased 2% while costs and expenses increased 1% for the same
period. This resulted in an increase of 10% in income before
income taxes. The increase in sales was attributable to the
acquisition of Anarad, Inc. as explained above while the rest of
the product groups were essentially the same as last year.
Cost of sales increased 4% as compared to the 2% increase in
sales while selling, general and administrative expenses were
essentially the same as last year. Company sponsored product
development increased 14%, interest expense decreased 7% and
interest and other income was considerably higher for the 1994
period when compared to the like period of 1993. These changes
were primarily due to the same reasons discussed above for the
quarterly comparison.
8
Environmental Matters:
On October 31, 1994, the Company received notice that it has been
named by the United States Environmental Protection Agency ("EPA")
as one of the potentially responsible parties under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Super Fund Amendments and
Reauthorization Act of 1986, regarding property at the Leeds
Silver Reclamation site in Leeds, Washington County, Utah. The
EPA is currently unable to provide the Company with an estimate of
total clean-up costs and, accordingly, the Company is unable to
calculate its potential share of associated clean-up costs. The
Company has not determined whether it is liable for such costs nor
whether contribution from other parties and/or insurance proceeds
may be available to offset any amounts due.
9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 18, 1994, the Company received notice that Thomcast
A.G. ("Plaintiff") commenced an action in the United States
District Court for the Northern District of Alabama, Southern
Division, alleging that Continental Electronics Corporation
("CEC"), a wholly-owned subsidiary of the Company, and Eternal
Word Television Network, Inc., a customer of CEC, have infringed
and are infringing two claims of United States Patent No.
4,560,944 (the "Patent") assigned to Thomcast A.G. The Plaintiff
is seeking in such suit (i) an injunction against further
infringement, (ii) an unspecified amount of compensatory and
exemplary damages together with interest and costs, and (iii) an
award of attorney's fees and costs of suit.
On November 3, 1994, CEC commenced an action for declaratory
judgment in the United States District Court for the Northern
District of Texas against Thomcast A.G. CEC is seeking in such
suit (i) a declaration by the Court that CEC has not infringed any
of the claims of the Patent, (ii) a declaration by the Court that
the claims of the Patent are invalid and unenforceable, and (iii)
an award of attorney's fees and costs.
On November 7, 1994, CEC filed a motion to transfer the case
pending in the Northern District of Alabama to the Northern
District of Texas. If the motion is granted and the action
transferred, the case could be consolidated with the action for
declaratory judgment filed by CEC.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. There were no reports on Form 8-K
filed during the three months ended September 30, 1994.
10
SIGNATURES
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.
TECH-SYM CORPORATION
Registrant
Date: November 10, 1994 /s/ Wendell W. Gamel
Wendell W. Gamel, Chairman of
the Board and President
Date: November 10, 1994 /s/ Ray F. Thompson
Ray F. Thompson, Vice-
President, Treasurer,
Controller and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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