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 JUNE 30, 1995
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 JULY 31, 1995
Common Stock, $.10 par value 6,530,259
<PAGE>
INDEX
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PAGE NO.
--------
Part I. Financial Information:
Consolidated Balance Sheet June 30, 1995
and December 31, 1994 .............................................. 1
Consolidated Statement of Income and Accumulated
Earnings for Three Months Ended June 30,
1995 and 1994 ...................................................... 2
Consolidated Statement of Income and Accumulated
Earnings for Six Months Ended June 30,
1995 and 1994 ...................................................... 3
Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 1995 and 1994 ............................ 4
Notes to Consolidated Financial Statements ........................... 5-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 7-9
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K ............................ 10-11
Signatures ............................................................. 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Tech-Sym Corporation
Consolidated Balance Sheet
JUNE 30, 1995 DECEMBER 31, 1994
(RESTATED)
------------- -----------------
(stated in thousands)
Assets
Current assets:
Cash and cash equivalents ............... $ 20,303 $ 24,083
Marketable Securities ................... 100 300
Receivables - net ....................... 46,047 46,870
Unbilled revenue ........................ 37,523 34,329
Inventories ............................. 50,057 42,507
Other ................................... 6,318 3,979
--------- ---------
Total current assets .............. 160,348 152,068
Property, plant and equipment - net ....... 38,988 38,841
Long term receivables - net ............... 10,573 10,576
Goodwill and other assets ................. 25,030 24,318
--------- ---------
Total assets ...................... $ 234,939 $ 225,803
========= =========
Liabilities
Current liabilities:
Notes payable ........................... $ 15,117 $ 10,985
Current maturities of long-term debt .... 3,317 3,318
Accounts payable ........................ 13,724 13,566
Billings in excess of cost and
estimated earnings on uncompleted
contracts ............................. 6,271 7,636
Taxes on income ......................... 3,745 2,902
Accrued and other liabilities ........... 20,161 17,877
--------- ---------
Total current liablilites ......... 62,335 56,284
Long-term debt ............................ 18,490 21,587
Deferred income taxes ..................... 196 196
Other liabilities ......................... 10,935 12,035
--------- ---------
Total liabilities ................. 91,956 90,102
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
7,830,751 and 7,797,651 shares ........... 783 780
Additional capital ........................ 37,826 37,365
Accumulated earnings ...................... 116,094 109,734
Cumulative translation adjustments ........ (706) (1,164)
Common stock held in treasury at
cost (1,307,592 and 1,307,592 shares ..... (11,014) (11,014)
--------- ---------
Total shareholders' investment .... 142,983 135,701
--------- ---------
Total liabilities and
shareholders' investment ......... $ 234,939 $ 225,803
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE>
Tech-Sym Corporation
Consolidated Statement of Income and
Accumulated Earnings
FOR THE THREE MONTHS
ENDED JUNE 30,
---------------------------
1995 1994
(restated)
(stated in thousands except
for per share amounts)
Sales ............................................ $ 60,052 $ 52,665
--------- ---------
Costs and expenses:
Cost of sales ................................ 39,630 32,846
Selling, general and administrative
expenses ................................... 11,942 11,970
Company sponsored product
development ................................ 3,569 3,307
Interest expense ............................. 832 667
Interest and other (incom
expense - net .............................. (1,039) (522)
--------- ---------
54,934 48,268
--------- ---------
Income before income taxes ................ 5,118 4,397
Provision for income taxes ....................... 1,405 1,392
--------- ---------
Net income ................................ 3,713 3,005
Accumulated earnings:
Beginning of period .......................... 112,381 100,427
--------- ---------
End of period ................................ $ 116,094 $ 103,432
========= =========
Earnings per common share:
Net income ................................ $ .57 $ .46
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
Tech-Sym Corporation
Consolidated Statement of Income and
Accumulated Earnings
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------------
1995 1994
(restated)
(stated in thousands except
for per share amounts)
Sales ...................................... $ 117,989 $ 100,220
--------- ---------
Costs and expenses:
Cost of sales .......................... 77,229 61,933
Selling, general and administrative
expenses ............................. 24,746 22,775
Company sponsored product
development .......................... 6,959 6,540
Interest expense ....................... 1,710 1,328
Interest and other (income)
expense - net ........................ (1,895) (900)
--------- ---------
108,749 91,676
--------- ---------
Income before income taxes .......... 9,240 8,544
Provision for income taxes ................. 2,880 2,779
--------- ---------
Net income .......................... 6,360 5,765
Accumulated earnings:
Beginning of period .................... 109,734 97,667
--------- ---------
End of period .......................... $ 116,094 $ 103,432
========= =========
Earnings per common share:
Net income .......................... $ .98 $ .89
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
Tech-Sym Corporation
Consolidated Statement of Cash Flows
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------
1995 1994
(restated)
(stated in thousands)
Cash flows from operating activities:
Net income ......................................... $ 6,360 $ 5,765
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization ................... 5,477 4,160
Change in operating assets and liabilities:
Receivables ..................................... 823 (3,157)
Unbilled revenue ................................ (3,194) 1,581
Inventories ..................................... (7,550) (770)
Accounts payable and taxes on income ............ 1,001 (160)
Billing in excess and
other accrued liabilities ...................... 919 (2,795)
Other current assets ............................ (2,339) (1,221)
Long-term receivables - net and other assets .... (1,276) (355)
Other - net ..................................... (642) 91
-------- --------
Net cash provided by
(used for) operating activities .................. (421) 3,139
-------- --------
Cash flows from investing activities:
Capital expenditures ............................... (4,782) (3,710)
Payment for purchase of business,
net of cash acquired .............................. (635)
Purchase of investment securities .................. (1,000)
Sales of investment securities ..................... 200 3,422
Other investing activities ......................... (275) (243)
-------- --------
Net cash used for investing activities ............. (4,857) (2,166)
-------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line of credit agreements ......................... 4,281 1,455
Proceeds from long-term debt ....................... 1,607 460
Payments on long-term debt ......................... (4,854) (245)
Proceeds from exercise of stock options ............ 464 372
-------- --------
Net cash provided by financing activities .......... 1,498 2,042
-------- --------
Net increase (decrease) in
cash and cash equivalents .......................... (3,780) 3,015
Cash and cash equivalents at beginning of period ... 24,083 21,308
-------- --------
Cash and cash equivalents at end of period ......... $ 20,303 $ 24,323
======== ========
Cash flow from operating activities include:
Interest paid ...................................... $ 1,816 $ 1,327
Income taxes paid .................................. 3,371 3,735
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 six month periods ended June 30, 1995 and 1994 and should be read
in conjunction with the financial statements and the notes thereto included
in the Company's 1994 annual report and Form S-4 dated May 19, 1995. 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 $50,057,000 at June 30, 1995, include raw materials
of $20,457,000 and work-in-process and finished goods of $29,600,000.
3. Shares of common stock of the Company have been reserved at June 30, 1995
for issuance as follows:
35,400 shares for issuance upon exercise of options granted under the 1980
Stock Option Plan of the Company.
28,600 shares for issuance upon exercise of options
granted to nonemployee directors.
705,970 shares for issuance upon exercise of options granted or to be
granted under the 1990 Stock Option Plan of the Company.
3,646,565 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 six month periods
ended June 30, 1995 and 1994 was equivalent to an effective rate of 32% and
35%, respectively, of earnings before income taxes. The difference between
the effective rate and the U.S. statutory rate is due principally to tax
benefits of foreign sales and research and development credits.
5
Additionally, for both the 1995 and 1994 periods, foreign income taxes were
not accrued on certain foreign income due to operating loss carry forwards.
Also, the Company received certain state income tax refunds due to
overpayment in prior periods.
5. Earnings per common share are based on the weighted average number of
shares outstanding during each period (6,511,000 and 6,510,000 for the
three months ended June 30, 1995 and 1994, respectively,and 6,501,000 and
6,504,000 for the six month period ended June 30, 1995 and 1994,
respectively).
6. On June 30, 1995, the Company completed its acquisition of CogniSeis
Development, Inc. through the issuance of 737,781 shares of common stock.
CogniSeis develops, markets and licenses seismic processing and geologic
interpretation systems. The transaction was accounted for as a pooling of
interests. Accordingly, the financial information presented herein has been
restated to include the accounts of the Company and CogniSeis as of June
30, 1994 and for the three and six month periods then ended. Separate
results of operations of the combining entities for the periods prior to
the acquisition are as follows (in thousands):
FOR THE FOR THE
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1995 1994 1995 1994
----------------------- ------------------------
Sales
Tech-Sym ........... $ 54,461 $ 48,329 $ 108,273 $ 92,007
CogniSeis .......... 5,591 4,336 9,716 8,213
--------- --------- --------- ---------
$ 60,052 $ 52,665 $ 117,989 $ 100,220
========= ========= ========= =========
Net Income
Tech-Sym ........... $ 3,310 $ 2,991 $ 6,406 $ 5,779
CogniSeis .......... 403 14 (46) (14)
--------- --------- --------- ---------
$ 3,713 $ 3,005 $ 6,360 $ 5,765
========= ========= ========= =========
6
Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES:
The Company's operating activities used cash in the amount of $421,000 for the
six months ended June 30, 1995, and provided cash in the amount of $3,139,000
for the six months ended June 30 1994. During March 1989, the Company completed
a long-term unsecured note financing in the principal amount of $20,000,000. In
March, 1995, the Company began to repay such amount in annual principal
installments of approximately $2,857,000. 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 June 30, 1995, the Company had
unused committed lines of credit which aggregated $35,000,000.
After working capital, the chief use of the Company's funds has normally been
capital expenditures. Capital expenditures for property, plant and equipment
were $4,782,000 and $3,710,000 for the six months ended June 30, 1995 and 1994,
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1995 AND 1994 1995 AND 1994
------------------------------
Increase(Decrease)
(stated in thousands)
Sales ........................................ $ 7,387 $17,769
Costs and expenses ........................... 6,666 17,073
------- -------
Income before income taxes ................... 721 696
Provision for income taxes ................... 13 101
------- -------
Net income ................................... $ 708 $ 595
======= =======
7
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1995 AND 1994:
Sales for the quarter ended June 30, 1995 increased 14.0% from the like quarter
of 1994 while costs and expenses increased 13.8% which resulted in an increase
in income before income taxes of 16.4%. The increase in sales for the quarter as
compared to the same quarter a year ago was primarily the result of improved
sales in the seismic exploration area ($5,133,000 or 31%) primarily due to a
general increase in digital streamer systems as well as new seismic cables and
cable repairs. In addition, seismic processing software sales also improved for
the quarter ending June 30, 1995. The communications area also contributed to
the increase in sales for the quarter ($2,858,000 or 18%) due to greater demand
in general for commercial microwave components and strong foreign demand for
high power broadcast equipment. A sales increase was also registered in the
environmental area ($2,032,000 or 75%) due to the acquisition of Anarad, Inc.
effective July 8, 1994. The above increases in sales were somewhat offset by a
decrease in sales in the defense system area ($2,467,000 or 14%) due to a major
contract still in the design stage.
Cost of sales increased 21% while selling, general and administrative expenses
remained constant for the quarter. The increase in cost of sales for the 1995
quarter as compared to 1994 was primarily due to the increase in sales as well
as product mix in the seismic exploration area and lower gross margins in the
environmental monitoring area. Company sponsored product development increased
8% due to increased projects in the seismic exploration area. Interest expense
increased primarily due to an increase in rates as well as a larger average
principal balance outstanding during the period for 1995. Interest and other
income increased principally due to an increase in rates.
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 income tax information.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1994:
Sales for the six month period ended June 30, 1995 increased 17.7% while costs
and expenses increased 18.6% which resulted in an increase of 8.1% in income
before income taxes. The increase in sales was attributable to increases in
sales in the (i) seismic exploration system area ($9,483,000 or 28%); (ii)
communications area ($7,923,000 or 32%); and (iii) environmental area
8
($3,430,000 or 65%), which were offset somewhat by a decrease in sales of
defense systems ($1,938,000 or 7%).
Cost of sales increased 25% as compared to the 18% increase in sales while
selling, general and administrative expenses increased 9% as compared to last
year. Company sponsored product development increased 6%, interest expense
increased 29% and interest and other income more than doubled. The reason for
the changes for the six month comparisons are substantially the same as for the
quarter comparisons described above.
9
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The shareholders of Registrant took the following action at the Annual Meeting
held April 25, 1995:
1. Elected all nine management nominees for directors pursuant to proxies
solicited without opposition under regulation 14A, as stated below:
VOTES IN VOTES
NOMINEE FAVOR WITHHELD
------- --------- --------
W.L. Creech 4,828,472 17,565
A.A. Gallotta, Jr. 4,827,922 18,115
W.W. Gamel 4,785,372 60,665
C.C. Kraft, Jr. 4,828,472 17,565
R.E. Moore 4,785,372 60,665
C.J. Scribner 4,785,372 60,665
R.J. Sloan 4,784,822 61,215
J.A. Teresko 4,828,672 17,365
C.K. Watt 4,785,022 61,015
2. Ratified the appointment of Price Waterhouse as independent
accountants of the Registrant for the year ending December 31, 1995
(4,818,662 shares voted for, 11,680 shares voted against and 15,695
shares abstained).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits to this report except for Exhibit 27 - Financial
Data Schedule which is deemed not to be filed for purposes of
liability under the federal securities laws.
(b) Three reports on Form 8-K were filed with the Commission during the
three months ended June 30, 1995, as follows:
(i) Form 8-K dated April 13, 1995, incorporating a press release
announcing a letter of intent that the Company acquire all the
outstanding shares of CogniSeis Development, Inc. ("CogniSeis");
(ii) Form 8-K dated May 15, 1995, incorporating a press release
announcing the signature of a definitive merger agreement with
CogniSeis; and
10
(iii) Form 8-K dated June 30, 1995, incorporating a press release
announcing the completion of the acquisition of CogniSeis.
No financial statements were filed as a part of this report.
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: August 11, 1995 /s/ WENDELL W. GAMEL
Wendell W. Gamel, Chairman of
the Board and President
Date: August 11, 1995 /s/ RAY F. THOMPSON
Ray F. Thompson, Vice-
President, Treasurer,
Controller and Chief
Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S 10-Q FOR THE PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 20,303
<SECURITIES> 100
<RECEIVABLES> 46,047
<ALLOWANCES> 0
<INVENTORY> 50,057
<CURRENT-ASSETS> 160,348
<PP&E> 38,988
<DEPRECIATION> 0
<TOTAL-ASSETS> 234,939
<CURRENT-LIABILITIES> 62,335
<BONDS> 0
<COMMON> 783
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 234,939
<SALES> 117,989
<TOTAL-REVENUES> 0
<CGS> 77,229
<TOTAL-COSTS> 108,749
<OTHER-EXPENSES> (1,895)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,710
<INCOME-PRETAX> 9,240
<INCOME-TAX> 2,880
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
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<NET-INCOME> 6,360
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>
