SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 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 Identification No.)
incorporation or organization)
10500 WESTOFFICE DRIVE
HOUSTON, TEXAS 77042
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 785-7790
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
Name Of Each Exchange
Title Of Each Class On Which Registered
------------------------------------------------- -----------------------
COMMON STOCK (PAR VALUE $.10 PER SHARE)AND COMMON NEW YORK STOCK EXCHANGE
STOCK PURCHASE RIGHTS (THE RIGHTS ARE NOT CURRENTLY
EXERCISABLE OR TRANSFERABLE APART FROM THE
COMMON STOCK)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
As of March 13, 1995, 5,756,628 shares of the registrant's Common Stock
were issued and outstanding. The aggregate market value of the voting stock held
by non-affiliates of the registrant (assuming only for purposes of this
computation that directors and officers may be affiliates) was $122,874,500
(based on the closing sales price published in THE WALL STREET JOURNAL reports
of New York Stock Exchange Composite Transactions on March 13, 1995).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into
the Part of the Form 10-K specified herein: (1) Annual Report to Shareholders
for 1994 (to the extent set forth in Parts I and II of this Annual Report); and
(2) Proxy Statement for the Annual Meeting of Shareholders to be held April 25,
1995 (to the extent set forth in Part III of this Annual Report).
PART I
ITEM 1. BUSINESS
GENERAL
Tech-Sym Corporation (the "Company" or "Registrant") is a
diversified electronics engineering and manufacturing company primarily involved
in the design, development, and production of products used for communications,
seismic exploration for hydrocarbons, defense systems, and environmental
monitoring.
The Company, incorporated in Nevada in 1944, is headquartered
in Houston, Texas. The Company operates through seven principal subsidiaries:
Anarad, Inc. ("Anarad") located in Santa Barbara, California; Continental
Electronics Corporation ("Continental") located in Dallas, Texas; Enterprise
Electronics Corporation ("EEC") located in Enterprise, Alabama; Metric Systems
Corporation ("Metric") located in Fort Walton Beach, Florida; Syntron, Inc.
("Syntron") located in Houston, Texas; Tecom Industries, Incorporated ("Tecom")
located in Chatsworth, California; and TRAK Microwave Corporation ("TRAK")
located in Tampa, Florida. The business of the Company is conducted as one
segment comprised of four product areas.
COMMUNICATIONS. The communications products include microwave
components, radio transmitters, and antennas.
The microwave components and subsystems are used by customers
to make communications and radar products. Microwave components include energy
sources (oscillators and amplifiers), frequency multipliers, filters, ferrite
isolators and circulators, and a broad range of passive components for
modulation and control of microwave energy. Microwave subsystems consist of
synthesizers, frequency converters, and microwave assemblies. These microwave
components and subsystems are used in such areas as wireless communications,
satellite communications, aircraft instruments, radars, electronic warfare
systems, and industrial microwave heating and cooking. Original equipment
manufacturers purchase these products to integrate into systems.
Radio transmitter products include a complete line of
transmitters and related equipment for the radio broadcast industry such as high
power transmitters for use in the "short" and "medium" wave frequency bands as
well as transmitters that operate at the radio broadcast frequencies commonly
referred to as "AM" and "FM". High power radio frequency energy sources such as
large particle accelerators are also made for medical and physics research
installations. Communications and radar equipment for U.S. and foreign defense
agencies have also been designed and manufactured. Customers include the
commercial radio broadcast industry, private and government agencies that
operate radio broadcast stations, and organizations or government funded
operations that engage in scientific research.
In 1994, the Company acquired majority ownership interest of a
business in Santiago, Chile, that designs and manufactures solid state AM
transmitters. The Company plans to offer the solid state AM transmitters for
sale in North America, and the Chilean business will support the sale and
maintenance of the Company's transmitters in South America.
Also in 1994, the Company entered into a joint manufacturing
agreement with the Ministry of Film, Radio, and Television in the People's
Republic of China. The agreement provides for the manufacture of FM and
shortwave broadcast transmitters at the Company's facility in Dallas as well as
in Beijing.
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The Company's antennas include log periodic antennas, horns,
broadband dish and feed assemblies, and broadband omnidirectional antennas used
for wireless voice and data communication, satellite communication,
surveillance, and range instrumentation. The Company also supplies antennas,
controllers, and rotators for information gathering by the U.S. surveillance
community and high power antennas for jamming enemy radars during electronic
warfare missions. Telemetry tracking systems and microprocessor-based antenna
controllers are sold to the U.S. for use on test and training ranges. The
Company has also designed, manufactured, and independently tested antennas for
air and land mobile satellite communications systems.
SEISMIC EXPLORATION. The Company designs and manufactures
products that acquire, digitize, transmit, record, display, and analyze acoustic
energy produced on the surface by air guns, dynamite, or other sound sources and
reflected from underground or subsea geologic formations. After the stored data
is processed, potential locations of hydrocarbon deposits can be determined.
With the advent of more powerful computers, three dimensional ("3-D") seismic
surveys have become more routine. The 3-D surveys result in higher resolution
than two dimensional surveys and the success rate of oil and gas wells based on
3-D surveys is much greater. The demand for the Company's seismic equipment has
increased with the demand for 3-D surveys.
Principal seismic products include the SYNTRAK 480(R) Digital
Streamer System consisting of one to sixteen arrays, each up to 6,000 meters in
length, containing sensors, electronic modules, and conductors. As the arrays
are towed behind a boat, the acoustic energy is collected by the sensors,
digitized and transmitted via a patented, low power telemetry communications
scheme through the towed cable array to the boat. Once on board, the data is
saved on magnetic tape by the Company's high-speed shipboard recording system.
A related product is the Ocean Bottom Cable which is placed on
the ocean floor instead of towed behind a boat. It is used in shallow water,
congested areas, and transition zones where large seismic vessels cannot
operate. It can also be used to monitor a reservoir as hydrocarbons are removed.
Both the SYNTRAK 480(R) system and the Ocean Bottom Cable are
being upgraded to integrate the latest technology. The amount of seismic data
acquired will be increased by the use of 24-bit integrated circuits and the
volume of the modules reduced 60% through the use of hybrid technology to
combine most of the discrete components. The upgraded products are scheduled for
deployment in 1995.
Another seismic product recently introduced is the
PolySeis(TM) system which the Company has developed with partial funding from
the INSTITUTE FRANCAIS DU PETROLE. The PolySeis(TM) system is a modular radio
and/or wireline telemetry seismic data acquisition system that can be easily
configured by the user for most land or transition zone needs. The system is
specifically adaptive to the unique requirements associated with exploration in
transition zones or in areas that are inaccessible or difficult to reach such as
lakes, swamps, or mountainous areas.
The Company maintains operations for the design, manufacture,
and repair of seismic cables in England, Singapore, and Houston, the latter of
which was acquired from Digicon, Inc., in 1994. The ability to design,
manufacture and repair seismic cables enhances the Company's quality control
over critical processes and its ability to provide needed services to its
customers worldwide.
In an effort to expand the product line from exploration into
oil and gas production, the Company has used its expertise in designing marine
electronic systems to manufacture multiplexed, hydro-hydraulic control pods and
advanced acquisition systems for offshore drilling. It is expected that these
computer controlled data and control systems will replace or augment old
hydraulic control systems currently used on offshore drilling rigs as the rigs
are replaced or overhauled.
-2-
DEFENSE SYSTEMS. The principal defense systems products
include shipboard electronics, airborne training systems, range instrumentation
systems, and mechanical systems.
The Company first became involved in shipboard electronics in
1979, when it received a contract for the design, development, and qualification
testing of electronic control, monitoring, and power distribution equipment for
the U.S. Navy's Vertical Launching System (VLS). Upon successful completion of
this development effort, full scale production was initiated and has been
continuous since. Utilizing the expertise gained during the VLS development
effort, the Company expanded its business operations in this area to include
subsystems for the AN/SQQ-89 Surface Anti-Submarine Warfare Combat System,
firing mechanisms for the submarine launched Tomahawk and Trident missiles, and
radar cable assemblies for the AEGIS weapon system. In 1994, the Company
acquired the Switchboard Systems Division of Ferranti Technologies, Inc., which
produces electronic power switching and intercommunications equipment primarily
for U.S. Navy ships.
The airborne training systems consist of pods which are
attached to aircraft to collect data on the position, altitude, flight
characteristics, and weapons systems of the aircraft during simulated combat.
The data inputs are sent via telemetry to ground instrumentation equipment for
display, debriefing, and subsequent analysis by the participants. Under a
contract awarded in 1994, the Company is producing airborne and ground equipment
utilizing Global Positioning Systems (GPS) receivers to precisely locate and
track aircraft operated on the training ranges. The use of this equipment will
reduce the government's cost of operating Air Combat Maneuvering Instrumentation
(ACMI) ranges since manned radar tracking sites and other equipment will become
unnecessary.
The Company also designs and manufactures transportable radar
systems used on military training ranges to replicate foreign military radars
that control surface-to-air missiles (SAMs) and anti-aircraft artillery fire.
These systems are used to train aircrews on defensive maneuvers and to test the
effectiveness of electronic countermeasures.
The mechanical systems designed and manufactured by the
Company include antenna support structures for large communications antennas,
custom containers with environmental controls for sensitive electronics
equipment such as satellites and missiles, and aircraft launcher rail assemblies
for the AMRAAM missile. The Company has also developed and manufactures air
cargo systems for airborne supply operations including on-board cargo
roller/restraint systems, air-drop platforms, and cargo handling equipment for
many types of aircraft.
The Company manufactures a variety of other systems including
memory expansion equipment for the FAA's air traffic control Interim Update
Plan, TOW missile launchers used on the U.S. Army's Bradley Fighting Vehicle,
custom automated test equipment for a variety of electronic equipment, and radar
surveillance systems.
ENVIRONMENTAL MONITORING. Products in this area include
weather radar and display systems as well as gas analyzers and continuous
emissions monitoring systems.
Meteorological agencies and television broadcasters use the
Company's Doppler weather radars to forecast weather and provide severe weather
warnings. The Doppler process measures both reflectivity and velocity of rain
droplets and is used to detect, quantify and display precipitation intensity,
velocity, and turbulence. It is extremely helpful in analyzing severe weather
conditions such as hurricanes, tornadoes, thunderstorms, and wind shear. EEC has
coupled the high performance Doppler radar with sophisticated data processing
systems. These range from low-cost PC-based display and control systems through
UNIX platform mid-range systems to larger scientific systems utilizing Hewlett
Packard, IBM and the DEC-Alpha type computers and software.
-3-
With the development of powerful data processing systems known
as Weather Windows(R) and EDGE(R) (Enterprise Doppler Graphics Environment), the
products give meteorologists automated radar control as well as enhanced
meteorological displays and image processing capabilities. The systems can be
integrated into a network to obtain accurate weather information for a large
geographic area. More than 600 weather radars have been installed in more than
60 countries.
Gas analyzers and continuous emissions monitoring systems
(CEMs) which incorporate microprocessor-based analytical instruments are
designed and manufactured by a subsidiary acquired by the Company in 1994. The
equipment is used to determine the amounts of certain chemicals, toxic vapors,
and specific pollutants in the air. Analyzers produced by the Company include
infrared, ultraviolet, chemiluminescent, paramagnetic, and electrochemical
technologies utilized in various configurations, depending upon the measurement
characteristics of a particular process.
Passage of the U.S. Clean Air Act created significant
requirements for the measurement of designated hazardous air pollutants. This
Act requires industrial sources to install monitoring instrumentation to sample
the pollutants being emitted. In response, many other countries around the globe
are enacting similar laws. The Company has experience meeting EPA regulations
and offers Fourier transform infrared (FTIR) technology which has the unique
capability of measuring practically all airborne chemicals in virtually any
combination.
GOVERNMENT CONTRACTS
Sales under contracts with or for the United States Government
accounted for $81.9 million or 41% of the Company's sales in 1994. Most of the
Company's Government contracts are fixed-price contracts. Under this type of
contract, the price paid to the Company is not subject to adjustment by reason
of the costs incurred by the Company in the performance of the contract, except
that adjustments are made for costs incurred due to contract changes ordered by
the Government. Cost overruns incurred in connection with fixed-price contracts,
particularly those involving engineering and development, could substantially
reduce the Company's profitability or cause losses.
Government contracts may be terminated for the convenience of
the Government at any time the Government believes that such termination would
be in its best interests. Under contracts terminated for the convenience of the
Government, the Company is entitled to receive payments for its allowable costs
and, in general, a proportionate share of its fee or profit for the work
actually performed. Under the Truth in Negotiations Act, the Government has a
right for three years after final payment on substantially all negotiated
Government contracts to examine all the Company's cost records with respect to
such contracts in order to determine whether the Company used and made available
to the Government, or to the prime contractor in the case of a subcontract,
accurate, complete and current cost or pricing information in preparing bids and
conducting negotiations on the contracts or any amendments thereto.
The Company recognizes revenue under its Government contracts
on the percentage of completion method generally measured by the percentage of
total costs incurred to date to estimated total costs for each contract.
Estimated losses on contracts are provided for in full when they become
apparent. Provided the job is on schedule, the Company normally recovers most of
its costs on large contracts under a progress payment system whereby 80% to 85%
of its allowable costs incurred in performing the contract, including applicable
indirect costs such as general and administrative expenses, may be collected
from the Government on a current basis, while related profit, if any, is
billable only upon completion of the contract, or in certain instances, as
delivery of units is made. The Company and Government representatives closely
monitor the Company's performance against the overall budget of cost and profit
for a job as the job progresses. Revisions of a budget may occur during the
course of the work for many reasons, including increases or decreases in the
scope of the work, change orders and funding adjustments, as well as for the
Company's performance against such budget. Budget revisions forecasting profit
reductions are recorded by the Company on a current basis, whereas forecasted
profit increases are recorded over the remaining period of performance.
-4-
The Company believes that business done under Government
contracts differs from ordinary commercial contracts in certain other ways.
Capital requirements tend to be smaller because of the progress payment system.
There is no significant bad debt loss risk and, in general, receivables are paid
promptly. The Company has also found that, in the case of Department of Defense
contracts, the contract dispute procedures are well defined and generally permit
expeditious and inexpensive resolutions of contract problems.
COMPETITION AND BUSINESS CONDITIONS
The Company faces significant competition in most aspects of
its business. Its principal competitors in each area of its activities include
corporations with substantially greater assets and access to larger financial
resources than the Company. The Company's products are of a highly technical
nature and involve the use of techniques and materials similar to those used by
its competitors. The principal competitive factors with respect to the Company's
products are technological innovation, product quality, price, adherence to
delivery schedules and product reliability. A significant portion of the
Company's sales are made under Government contracts awarded on the basis of
competitive proposals. In addition to price, the factors involved in the award
of such contracts include the quality of the proposal and reputation of the
bidder. While the Company faces competition with respect to each of its product
lines, the Company believes it is a principal supplier of meteorological radars
to both foreign and domestic government agencies and commercial users and of
marine seismic survey systems to the petroleum industry.
Demand for many of the products sold by the Company is
dependent on the level and nature of the nation's defense expenditures. See
"Other Information" included in Management's Discussion and Analysis set forth
on page 21 of the Company's Annual Report to Shareholders for the year ended
December 31, 1994, which information is incorporated herein by reference. The
defense-related electronic systems and components manufactured by the Company
are sold primarily to the United States armed forces, defense contractors, and
foreign countries for military and training use. General increases or decreases
in the level of defense appropriations tend to affect demand for defense-related
products, but do not necessarily have a corresponding effect on demand for the
specialized products manufactured by the Company. Due to the process by which
appropriations and contracts are approved for defense projects, it is common for
the Company to experience delays in the receipt of anticipated orders, which can
adversely affect operating results by shifting operating revenues from one
period to another. Because most of the Company's defense-related contracts are
awarded on a fixed-price basis, cost overruns can affect the Company's
profitability.
MARKETING AND CUSTOMERS
The Company's products are primarily marketed directly by the
sales force of each of its operating subsidiaries, with the assistance of
domestic and international independent technical sales representatives who
receive commissions on their sales. The principal customers for the
communications products include the United States Government (primarily the
armed services), government contractors, communication equipment manufacturers,
radio broadcast companies and organizations, and research organizations. The
seismic exploration customers include independent seismic survey contractors and
national oil companies. The defense systems products are sold to the armed
forces of the United States and foreign governments, government contractors, and
aircraft manufacturers. Environmental monitoring products are sold to government
and commercial weather services, television stations, airports, utility
companies, incinerators, and industrial plants.
-5-
The Company's largest customer is the United States
Government, its agencies and contractors, whose purchases accounted for
approximately 41% of the Company's consolidated sales in 1994. Of that amount,
approximately 96% was attributable to purchases by the Department of Defense and
its contractors. The loss of these Government contracts would have a material
adverse effect on the Company as a whole. Contracts with or for the United
States Government and most prime contractors may be terminated by the Government
at will. See "Government Contracts." The Company has not, however, experienced
any significant problems with contract cancellations.
One of the government contractors is Martin Marietta
Corporation. In 1993, Martin Marietta Corporation acquired the business of
General Electric Aerospace Operations Division. For the years ended December 31
of 1992, 1993, and 1994, the combined sales to these customers accounted for
12.9%, 11.5% and 9.9% of the Company's consolidated revenues. The loss of the
combined business from Martin Marietta Corporation would have a material adverse
effect on the Company and its subsidiaries taken as a whole.
PRODUCT DEVELOPMENT
Information concerning the amount spent during each of the
last three years on Company-sponsored research and development activities is set
forth in the Company's "Consolidated Statement of Income" on page 22 of the
Company's Annual Report to Shareholders for the year ended December 31, 1994,
which information is incorporated herein by reference. Certain of the Company's
research and development activities are undertaken pursuant to Government
contracts and subcontracts. The costs incurred under these contracts for product
research and development are charged to cost of sales, rather than to product
development costs.
PATENTS
Although TRAK, Tecom, Continental and Syntron hold a number of
United States and foreign patents, the Company believes that its business is not
materially dependent upon the protection afforded by patents, but primarily upon
the experience and continued creative skills of its personnel. In many cases,
because of rapidly changing technology and the need for confidentiality, the
Company does not seek to obtain patents.
BACKLOG
The backlog of unshipped orders was $108,194,000 and
$121,293,000 as of December 31, 1993 and 1994, respectively. The backlog as of
such dates which was reasonably expected to be filled within twelve months of
such date was $94,051,000 and $104,402,000, respectively.
The backlog figures include only the sales value of the
equipment or products for which the Company has received orders it believes to
be firm. Contracts with or for the United States Government and most prime
contractors may be terminated by the Government at will. See "Government
Contracts." The Company has not, however, experienced any significant problems
with contract cancellations.
MATERIALS AND SUPPLIES
The Company's operations require a wide variety of electronic
and mechanical components and raw materials. Each of these items is available
from several commercial sources. The Company does not depend on any single
source for a significant portion of its supplies.
-6-
ENVIRONMENTAL PROTECTION
As previously reported, the Company received notice on October
31, 1994, that it has been named by the 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. According
to EPA documents, the estimated cost of remediation is $579,000. Based on
documents received to date, the Company believes that most, if not all, of the
hazardous materials involved at the site were placed there after the Company
sold the property in 1977.
No material effect on the operations of the Company is
presently anticipated in the compliance with Federal, State and local provisions
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, and the Company does not expect
to make any material capital expenditures in the next year in order to comply
with any such provisions.
EMPLOYEES
As of December 31, 1994, the Company employed a total of
1,988 persons. None of the Company's employees is represented by a labor union.
PRODUCT LINE SALES
Information concerning the Company's product line sales is set
forth under the caption "Product Line Sales" on page 20 of the Company's Annual
Report to Shareholders for the year ended December 31, 1994, which information
is incorporated herein by reference.
EXPORT SALES
Information concerning the Company's export sales is set forth
in Note 12 of the Notes to Consolidated Statements contained in the Company's
Annual Report to Shareholders for the year ended December 31, 1994, which
information is incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Houston,
Texas, in a company-owned building. The Company, through its Tech-Sym Management
Corporation subsidiary, occupies approximately 7,500 square feet of the 20,000
square foot building. Approximately 7,500 square feet of the building is leased
to third parties, with the remainder of the building available for lease or
expansion.
Metric's electronic systems manufacturing operations are
conducted from office and plant facilities comprising a total of 226,000 square
feet located on three tracts totaling 38 acres owned by the Company in Fort
Walton Beach, Florida. Metric also leases 30,000 square feet of manufacturing,
office and storage space in several nearby facilities. Its Sumter, South
Carolina, operation leases 35,000 square feet for fabrication and assembly
operations.
-7-
EEC's meteorological radar manufacturing operations are
conducted from office and plant facilities comprising 43,000 square feet located
on an 11 acre tract owned by the Company in Enterprise, Alabama.
The electronic components manufacturing operation conducted by
the Company's TRAK subsidiary consists of office and plant facilities located on
ten acres owned by TRAK in Tampa, Florida, with combined square footage of
approximately 123,000 square feet. TRAK'S subsidiary, TRAK Microwave Limited,
leases plant and office facilities totaling 45,500 square feet in Dundee,
Scotland, of which a 5,500 square foot facility is available for sub-lease.
Tecom's antenna manufacturing operations are conducted in a
50,000 square foot leased facility located in Chatsworth, California.
Syntron's seismic survey systems operations are conducted from
company-owned facilities comprising 81,000 square feet located on a 15.2 acre
tract and leased facilities totalling 85,000 square feet, in Houston, Texas.
Syntron's European subsidiary, Syntron Europe Limited, operates from a 52,000
square foot office and plant facility on a 2.8 acre tract owned by the Company
in Derbyshire, England. Syntron's Asian subsidiary, Syntron Asia Pte. Ltd., has
leased a 1.4 acre tract in Singapore and operates from a 33,300 square foot
office and plant facility it constructed on the site.
The manufacturing operations for Continental's high power
energy sources are conducted from office and plant facilities comprising 160,000
square feet on a 14 acre tract owned by the company in Dallas, Texas.
Continental also leases an 80,000 square foot building on a 4 acre tract
contiguous to the Continental property. Continental-Lensa S.A. of Santiago,
Chile, leases 5,400 square feet for its assembly operations.
Anarad's emission monitoring manufacturing operations are
conducted in two facilities totalling 30,000 square feet leased in Santa
Barbara, California.
The Company is the developer of a 9,000 acre
residential/recreational project located near Concho, Arizona, in which Lake
Investment Company, a wholly-owned subsidiary of the Company, owns a 100%
interest. Approximately 900 acres of this development remains unsold. The
Company intends to continue its efforts to liquidate its real estate operations
and to use the proceeds in its manufacturing operations.
Certain of the facilities of the Company and its subsidiaries
are subject to mortgage debt as set forth in Note 6 of the Notes to Consolidated
Financial Statements contained in the Company's Annual Report to Shareholders
for the year ended December 31, 1994, which information is incorporated herein
by reference.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, the Company received notice on October
18, 1994, that Thomcast A.G. ("Thomcast") commenced an action in the United
States District Court for the Northern District of Alabama, Southern Division,
alleging that Continental Electronics Corporation ("Continental"), a
wholly-owned subsidiary of the Company, and Eternal Word Television Network,
Inc., a customer of Continental, have infringed and are infringing two claims of
United States Patent No. 4,560,944 (the "Patent") assigned to Thomcast.
Continental's motion to transfer the case to the Northern District of Texas was
denied and Continental voluntarily dismissed its declaratory action in that
court.
-8-
Thomcast has stated that its damages cannot presently be
ascertained, but has computed its alleged damages on past sales at approximately
$6,500,000 and has requested treble damages, prejudgment interest, costs and
attorneys' fees. Although the Company believes it has meritorious defenses to
such claims, it cannot predict the ultimate resolution of this matter. Trial on
the matter is scheduled to occur after May 1, 1996.
There are various other lawsuits and claims pending against
the Company's subsidiaries. In the opinion of Tech-Sym's management, based in
part on advice of counsel, none of these actions will have a material adverse
effect on the consolidated financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1994 to a
vote of the Company's security holders through the solicitation of proxies or
otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning
the current executive officers (as defined by the Securities and Exchange
Commission rules) of the Company. These officers serve at the discretion of the
Board of Directors of the Company and of various subsidiaries of the Company, as
the case may be.
NAME AGE POSITIONS
Wendell W. Gamel 65 Chairman of the Board, President and Director
of the Company and officer and director of
various subsidiaries of the Company
Coy J. Scribner 63 Vice President and Director of the Company,
President and Director of Metric, and
Chairman of the Board of EEC
Ray F. Thompson 58 Vice President, Treasurer, Controller and
Chief Financial Officer of the Company and
officer and director of various subsidiaries
of the Company
J. Rankin Tippins 42 Secretary and General Counsel of the Company
and officer and director of various
subsidiaries of the Company
O. Dale Burris 58 President of TRAK Microwave Corporation
Robert M. McDonald 64 President of Continental Electronics
Corporation
Richard F. Miles 46 President of Syntron, Inc.
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There are no family relationships between any of the above
persons. Executive officers are elected annually by the Board of Directors of
the Company or a wholly-owned subsidiary of the Company, as the case may be, at
their respective meetings of directors held immediately following the annual
meeting of shareholders for such Company, to serve for the ensuing year or until
their successors have been elected. The annual meeting of shareholders of the
Company is normally held in April of each year and the annual meeting of each of
the Company's principal subsidiaries, including Metric, TRAK, Syntron, and
Continental, are held in June of each year. There are no arrangements or
understandings between any officer and any other person pursuant to which the
officer was elected.
Mr. Gamel has been Chairman of the Board and President of the
Company for more than the past five years. Mr. Gamel has served as a director of
the Company continuously since 1966.
Mr. Scribner has been Vice President of the Company, President
and a director of Metric, and Chairman of the Board of EEC, for more than the
past five years. He has been a director of the Company continuously since 1983.
Mr. Thompson has been Treasurer, Controller and Chief
Financial Officer of the Company for more than the past five years. In February
of 1993, he was elected to the additional office of Vice President of the
Company.
Mr. Tippins was elected Secretary and General Counsel of the
Company effective January 1, 1991, after serving for two years as Assistant
Secretary and Associate General Counsel.
Mr. Burris has served as President of TRAK for more than the
past five years.
Mr. McDonald was elected President of Continental on September
29, 1990. For two years prior to that date, he was the General Manager of the
Continental Electronics Division of Varian Associates, Inc. (the predecessor of
Continental).
Mr. Miles was elected President of Syntron on January 29,
1990. He had been General Manager of Geosource Marine starting in 1984 and, when
Halliburton Geophysical Services (HGS) acquired Geosource Marine in 1988, he
became the Manager of the HGS North America Marine and Central Marine Support
and was employed in that capacity until his association with Syntron in 1990.
PART II
The information called for by Items 5 through 8, inclusive, of
Part II of this form is contained in the following sections of the Company's
Annual Report to Shareholders for 1994, which sections are incorporated herein
by reference:
CAPTION AND PAGE OF
ANNUAL REPORT
Item 5. Market for Registrant's "Stockholder and Market Information";
Common Equity and page 37
Related Stockholder
Matters.
-10-
Item 6. Selected Financial Data "Selected Financial Data"; page 17
Item 7. Management's Discussion "Management's Discussion and Analysis of
and Analysis of Financial Condition and Results of
Financial Condition and Operations"; pages 18 - 21, inclusive
Results of Operations
Item 8. Financial Statements Tech-Sym Corporation and Subsidiaries
and Supplementary Data Consolidated Financial Statements; pages
22 through 36, inclusive
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no such changes or disagreements.
PART III
The information called for by Items 10, 11, 12 and 13 of Part
III of this form (other than the information required by Item 10 with respect to
executive officers which has been included in Part I above as Item 4A) is
contained in the Company's definitive proxy statement for the Annual Meeting of
Shareholders to be held April 25, 1995. Such information has been filed with the
Securities and Exchange Commission and is incorporated herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
A list of the financial statements incorporated
herein by reference is set forth in the Index to Financial
Statements and Schedules submitted as a separate section of
this report.
(2) FINANCIAL STATEMENT SCHEDULES
A list of the financial statement schedules included
herein is contained in the accompanying Index to Financial
Statements and Schedules.
-11-
(3) EXHIBITS
The following documents are included as Exhibits to this
report. An asterisk (*) before an Exhibit number denotes that such Exhibit has
been incorporated by reference to the registration statement or report specified
in the brackets thereafter.
*3(a) Articles of Incorporation of Registrant, as amended [Registrant's 10-K
(1989), SEC File No. 1-4371, Exhibit 3(a)]
*3(b) By-Laws of Registrant, as amended [Registrant's 10-K (1993), SEC File
No. 1-4371, Exhibit 3(b)]
*4(a) Amended and Restated Rights Agreement dated as of June 1, 1988,
between the Registrant and Continental Stock Transfer and Trust
Company, as rights agent, relating to Common Stock Purchase Rights
[Registrant's 10-K (1993), SEC File No. 1-4371, Exhibit 4(a)]
*4(b) Note Agreement dated as of March 1, 1989, between the Registrant and
Principal Mutual Life Insurance Company et al with respect to
$20,000,000 principal amount of 10.28% Senior Notes due March 1, 2001
(excluding attachments) [Registrant's 10-K (1988), SEC File No.
1-4371, Exhibit 4(b)]
*4(c) 10.28% Note dated March 14, 1989, of Registrant due March 1, 2001 in
the principal amount of $12 million and issued to Principal Mutual
Life Insurance Company [Registrant's 10-K (1988), SEC File No. 1-4371,
Exhibit 4(c)]
*4(d) 10.28% Note dated March 14, 1989, of Registrant due March 1, 2001 in
the principal amount of $5 million and issued to Crown Life Insurance
Company [Registrant's 10-K (1988), SEC File No. 1-4371, Exhibit 4(d)]
*4(e) 10.28% Note dated March 14, 1989, of Registrant due March 1, 2001 in
the principal amount of $2 million and issued to Guarantee Mutual Life
Company [Registrant's 10-K (1988), SEC File No. 1-4371, Exhibit 4(e)]
*4(f) 10.28% Note dated March 14, 1989, of Registrant due March 1, 2001 in
the principal amount of $1,000,000 and issued to Security Mutual Life
Insurance Company [Registrant's 10-K (1988), SEC File No. 1-4371,
Exhibit 4(f)]
*10(a) 1980 Stock Option Plan of Registrant [Registration Statement No.
2-68084, Exhibit 1.1]
*10(b) First Amendment to 1980 Stock Option Plan of Registrant dated February
23, 1982 [Registration Statement No. 2-77742, Exhibit 10(b)]
*10(c) Second Amendment to 1980 Stock Option Plan of Registrant dated
February 17, 1983 [Registration Statement No. 2-87064, Exhibit 10(c)]
-12-
*10(d) 1990 Stock Option Plan of Registrant [Registration Statement No.
33-38208, Exhibit 28.1]
*10(e) 1990 Stock Option Plan, as amended, effective February 21, 1991
[Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(e)]
*10(f) 1990 Stock Option Plan, as amended, effective February 17, 1994
[Registration No. 33-56535, Exhibit 4.1]
*10(g) Written description of incentive bonus compensation plan effective
February 20, 1992 [Registrant's 10-K (1991) SEC File No. 1-4371,
Exhibit 10(f)]
*10(h) Deferred Compensation Agreement dated January 1, 1978, between the
Registrant and Robert E. Moore with attached Amendments through
January 1, 1991 [Registrant's 10-K (1990) SEC File No. 1-4371, Exhibit
10 (g)]
*10(i) Consulting Agreement dated January 1, 1981, between TRAK Microwave
Corporation and Rollin J. Sloan [Registration Statement No. 2-87064,
Exhibit 10(p)]
*10(j) First Amendment to Consulting Agreement dated January 1, 1984, between
TRAK Microwave Corporation and Rollin J. Sloan [Registrant's 10-K
(1983), SEC File No. 1-4371, Exhibit 10(t)]
*10(k) Second Amendment to Consulting Agreement dated January 1, 1986,
between TRAK Microwave Corporation and Rollin J. Sloan [Registrant's
10-K (1985), SEC File No. 1-4371, Exhibit 10(cc)]
*10(l) Third Amendment to Consulting Agreement dated December 10, 1987,
between Registrant and Rollin J. Sloan [Registrant's 10-K (1987), SEC
File No. 1-4371, Exhibit 10(cc)]
*10(m) Consulting Agreement dated January 1, 1988, between Registrant and
Robert E. Moore [Registrant's 10-K (1987), SEC File No. 1-4371,
Exhibit 10(dd)]
*10(n) Form of Director's Stock Option Agreement dated February 20, 1986,
entered into between Registrant and Keith R. Beeman (4,000 shares),
Christopher C. Kraft, Jr. (1,000 shares), Walter B. Putnam (10,000
shares), and Joal A. Teresko (5,000 shares) [Registrant's 10-K (1986),
SEC File No. 1-4371, Exhibit 10(kk)]
*10(o) Form of Director's Stock Option Agreement dated as of December 10,
1987, entered into between Registrant and Keith R. Beeman (5,000
shares), A. A. Gallotta, Jr. (5,000 shares), Christopher C. Kraft, Jr.
(5,000 shares), and Joal A. Teresko (5,000 shares) [Registrant's 10-K
(1988), SEC File No. 1-4371, Exhibit 10(ii)]
-13-
*10(p) Termination Agreement dated May 1, 1991, between the Registrant and
Wendell W. Gamel [Registrant's 10-K (1991) SEC File No. 1-4371,
Exhibit 10(p)]
*10(q) Termination Agreement dated May 1, 1991, between the Registrant and
Coy J. Scribner [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit
10(q)]
*10(r) Termination Agreement dated May 1, 1991, between the Registrant and
Ray F. Thompson [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit
10(r)]
*10(s) Termination Agreement dated May 1, 1991, between the Registrant and
Richard F. Miles [Registrant's 10-K (1991) SEC File No. 1-4371,
Exhibit 10(s)]
*10(t) First Amendment to Termination Agreement, dated April 26, 1994,
between the Registrant and Richard F. Miles [Registration No.
33-56533, Exhibit 10(s)]
*10(u) Termination Agreement dated May 1, 1991, between the Registrant and J.
Rankin Tippins [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit
10(t)]
*10(v) Termination Agreement dated May 1, 1991, between the Registrant and O.
Dale Burris [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit
10(u)]
*10(w) Termination Agreement dated May 1, 1991, between the Registrant and
Robert M. McDonald [Registrant's 10-K (1991) SEC File No. 1-4371,
Exhibit 10(v)]
*10(x) Trust Agreement dated June 11, 1991 between the Registrant and Texas
Commerce Bank National Association [Registrant's 10-K (1991) SEC File
No. 1-4371, Exhibit 10(w)]
*10(y) First Amendment dated June 1, 1992, to Trust Agreement dated June 11,
1991, between the Registrant and Texas Commerce Bank National
Association [Registrant's 10-K (1992) SEC File No. 1-4371, Exhibit
10(x)]
*10(z) Nonemployee Director Retirement Plan of the Registrant effective
January 1, 1992 [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit
10(x)]
*10(aa) Executive Retirement Agreement dated May 1, 1991, between the
Registrant and Wendell W. Gamel [Registrant's 10-K (1991) SEC File No.
1-4371, Exhibit 10(y)]
*10(bb) Executive Retirement Agreement dated May 1, 1991, between the
Registrant and Coy J. Scribner [Registrant's 10-K (1991) SEC File No.
1-4371, Exhibit 10(z)]
-14-
*10(cc) Executive Retirement Agreement dated May 1, 1991, between the
Registrant and Ray F. Thompson [Registrant's 10-K (1991) SEC File No.
1-4371, Exhibit 10(aa)]
*10(dd) Executive Retirement Agreement dated May 1, 1991, between the
Registrant and O. Dale Burris [Registrant's 10-K (1991) SEC File No.
1-4371, Exhibit 10(bb)]
*10(ee) Executive Retirement Agreement dated July 1, 1991, between Registrant
and J. Rankin Tippins [Registrant's 10-K (1991) SEC File No. 1-4371,
Exhibit 10(cc)]
*10(ff) Executive Retirement Agreement dated April 26, 1994, between the
Registrant and Richard F. Miles [Registration No. 33-56533, Exhibit
10(ee)]
13 Pages 17-37 of the Annual Report to Shareholders of Registrant for the
year ended December 31, 1994, are included as an Exhibit to this
report for the information of the Securities and Exchange Commission,
and, except for those portions thereof specifically incorporated by
reference elsewhere herein, such pages of the Annual Report should not
be deemed filed as a part of this report
21 Subsidiaries of the Registrant
23 Consent of independent accountants
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were required to be filed during the
quarter ended December 31, 1994.
-15-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /S/ RAY F. THOMPSON
Ray F. Thompson, Vice President,
Treasurer and Controller (Principal
financial officer and principal
accounting officer)
Date: March 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /S/ WENDELL W. GAMEL
Wendell W. Gamel, Chairman of the
Board, President and Director
(Principal executive officer)
Date: March 29, 1995
By: /S/ W. L. CREECH
W. L. Creech
Director
Date: March 29, 1995
By: /S/ A. A. GALLOTTA, JR.
A. A. Gallotta, Jr.
Director
Date: March 29, 1995
By: /S/ CHRISTOPHER C. KRAFT, JR.
Christopher C. Kraft, Jr.
Director
Date: March 29, 1995
-16-
By: /S/ ROBERT E. MOORE
Robert E. Moore
Director
Date: March 29, 1995
By: /S/ COY J. SCRIBNER
Coy J. Scribner
Director
Date: March 29, 1995
By: /S/ ROLLIN J. SLOAN
Rollin J. Sloan
Director
Date: March 29, 1995
By: /S/ JOAL A. TERESKO
Joal A. Teresko
Director
Date: March 29, 1995
By: /S/ CHARLES K. WATT
Charles K. Watt
Director
Date: March 29, 1995
-17-
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE IN
ANNUAL REPORT*
(a) The following documents are filed as part of
this report:
(1) Financial Statements:
Consolidated Statements of Income for
the three years ended December 31, 1994 ...................... 22
Consolidated Balance Sheets at
December 31, 1994 and 1993 ................................... 23
Consolidated Statements of Cash Flows for
the three years ended December 31, 1994 ...................... 24
Consolidated Statements of Changes in
Shareholders' Investment for the three
years ended December 31, 1994 ................................ 25
Notes to Consolidated Financial Statements .................... 26
Quarterly Financial Information (Unaudited) ................... 35
Report of Independent Accountants ............................. 36
PAGE
IN THIS REPORT
ON FORM 10-K
(2) Financial Statement Schedules:
Report of Independent Accountants on
Financial Statement Schedules ........................... S-2
VIII Valuation and Qualifying Accounts and
Reserves for the three years ended
December 31, 1994 ....................................... S-3
*Incorporated by reference from the indicated pages of the 1994 Annual Report to
Shareholders.
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of
Tech-Sym Corporation:
Our audits of the consolidated financial statements referred to in our report
dated February 23, 1995 appearing in the 1994 Annual Report to Shareholders of
Tech-Sym Corporation (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedules listed in Item 14(a)(2) of this Form
10-K. In our opinion, these Financial Statement Schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Houston, Texas
February 23, 1995
S-2
TECH-SYM CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves (Schedule VIII)
For the Three Years Ended December 31, 1994
<TABLE>
<CAPTION>
===========================================================================================================================
(In thousands)
Charged Charged Charged
Balance to costs to costs to costs
at and Balance and Balance and Balance
beginning expenses Deductions at end expenses Deductions at end expenses Deductions at end
Description of 1992 1992 1992 of 1992 1993 1993 of 1993 1994 1994 of 1994
----------- ------- ---- ---------- ------- ---- ---------- ------- ---- ---------- -------
Tech-Sym Corporation and
Consolidated Subsidiaries
-------------------------
Reserves deducted
from assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current receivables $ 609 $ 94 $ 549 $ 154 $ 154 $ 171 $ 137 $ 350 $ 98 $ 389
Long-term receivables 149 170 147 172 287 147 312 162 262 212
--- --- --- --- --- --- --- --- --- ---
$ 758 $ 264 $ 696 $ 326 $ 441 $ 318 $ 449 $ 512 $ 360 $ 601
=== === === === === === === === === ===
</TABLE>
S-3
<PAGE>
TECH-SYM CORPORATION
SELECTED FINANCIAL DATA
(In thousands except per share amounts)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year:
Sales ............................ $197,593 $184,310 $179,649 $176,416 $134,770
Costs and expenses ............... 179,258 167,794 169,530 162,504 122,227
-------- -------- -------- -------- --------
Income before income taxes ....... 18,335 16,516 10,119 13,912 12,543
Provision for income taxes ....... 6,100 6,300 3,700 5,300 4,800
-------- -------- -------- -------- --------
Net income ....................... $ 12,235 $ 10,216 $ 6,419 $ 8,612 $ 7,743
======== ======== ======== ======== ========
Earnings per common share ........ $ 2.12 $ 1.80 $ 1.13 $ 1.50 $ 1.26
======== ======== ======== ======== ========
------------------------------------------------------------------------------------------
At Year End:
Current assets ................... $145,386 $129,868 $116,198 $125,567 $116,256
Current liabilities .............. 54,302 34,610 27,862 37,524 35,196
Working capital .................. 91,084 95,258 88,336 88,043 81,060
Property,plant and equipment - net 36,699 32,651 33,109 32,470 32,495
Long-term debt ................... 21,587 23,317 26,635 27,929 27,624
Total assets ..................... 215,238 184,867 168,908 173,282 158,252
Total liabilities ................ 88,124 70,323 65,767 73,949 67,925
Shareholders' investment ......... 127,114 114,544 103,141 99,333 90,327
------------------------------------------------------------------------------------------
</TABLE>
No divideds were paid on common stock for any of the above years.
Page 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
[BAR GRAPH WITH COORDINATES INDICATED IN THE TABLE BELOW]
WORKING CAPITAL
In Millions of Dollars
1990 ................. 81.1
1991 ................. 88.0
1992 ................. 88.3
1993 ................. 95.3
1994 ................. 91.1
At December 31, 1994, the Company's working capital was $91,084,000 as
compared to $95,258,000 at December 31, 1993. The Company's cash, cash
equivalent and marketable securities decreased to $23,003,000 at December 31,
1994 from $28,190,000 at December 31, 1993, primarily because of cash used for
acquisitions and increases in receivables and inventory relating to the
Company's overall increase in sales volume, partially offset by increases in
notes and accounts payable.
The Company's operations provided cash in the amount of $4,645,000 in 1994,
$15,381,000 in 1993, and $1,019,000 in 1992. During 1994, the Company received
U.S. Government contracts which generally provide for progress billing based
upon a percentage (usually 80-85%) of costs incurred, while remaining costs and
total profit are billable only upon completion of the contract or, in certain
instances, as delivery of units is made. In addition, large contracts with
foreign customers usually provide for substantial advance payments. Less
reliance on government contracts, which contain provisions for progress
payments, will increase the Company's requirements for cash. Increased pressure
for financing of purchases by commercial customers, primarily for seismic
exploration systems and radio transmitters, will also increase cash
requirements.
During 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 $2,857,000 beginning in 1995. The
terms of the unsecured note financing impose limitations on future (additional)
borrowings. However, if the most restrictive limitation is used, defined
consolidated funded debt cannot exceed 55% of defined consolidated total
capitalization which would permit a maximum defined funded debt of approximately
$155,000,000 as compared to $32,600,000 in actual funded debt as of December 31,
1994. Given the current level of liquid assets and forecasted cash flows from
future operations, the Company does not presently anticipate the need for future
borrowings in excess of such limitations. At December 31, 1994, the Company had
unused lines of credit which aggregated $14,900,000.
Because of the Company's $121,293,000 backlog and anticipated new business,
it is expected that additional investments will be required in capital equipment
and new facilities. Capital expenditures for land, buildings and improvements,
and machinery and equipment were $8,921,000, $5,811,000, and $5,532,000, for
1994, 1993, and 1992, respectively, and such expenditures are expected to be
approximately $9,500,000 for 1995. The Company believes that the funds required
for working capital needs and capital equipment additions will come from
available funds on hand, cash flows from operations, and capital equipment
financing.
Page 18
During 1994, the Company repurchased 41,000 shares of its common stock in
the open market pursuant to a Stock Repurchase Plan adopted by the Board of
Directors in 1991 and affirmed in 1994. The average cost of the 1994 purchases
was $20.03 per share. During 1993, the Company repurchased 29,197 shares at an
average cost of $15.44 per share. In 1992, the Company repurchased 145,200
shares at an average cost of $11.33 per share. The Company's decision to
repurchase its shares was based on the market price of its common stock at the
time of such repurchases.
RESULTS OF OPERATIONS
1994 IN COMPARISON WITH 1993:
Sales for the year increased 7.2% as compared with 1993 while costs and
expenses increased 6.8% which resulted in an 11.0% increase in income before
income taxes. The 7.2% increase in sales was the result of (i) greater sales in
the communications area ($4,393,000 or 6.7%) primarily due to strong foreign
demand for high power broadcast equipment and greater demand in general for
commercial microwave components; (ii) increased sales of seismic exploration
systems ($2,469,000 or 5.3%) primarily due to a new foreign customer; (iii)
increased sales of defense systems ($1,299,000 or 2.2%) partially due to a minor
acquisition in the defense systems area; and (iv) increased sales in the
environmental monitoring area ($4,802,000 or 46.5%) due to the acquisition of
Anarad, Inc., effective July 8, 1994.
Cost of sales increased 10.1% while selling, general and administrative
expenses increased 2.9% as compared to 1993. The increase in cost of sales for
1994 as compared to 1993 was primarily due to the increase in sales as well as a
large lower margin contract in the defense systems area which is in its
engineering phase. The increase in selling, general and administrative expense
was in line with the increase in sales. Company-sponsored product development
was essentially the same as last year and continues to be focused on the seismic
exploration area. This was somewhat offset by a decrease in expenditures in the
communications area. Interest expense decreased ($559,000 or 15.9%) from 1993
partially due to a 1993 payment to the Internal Revenue Service. Interest and
other income - net increased due to additional interest bearing receivables. The
effective income tax rate was lower in 1994 due to the utilization of loss
carry-forward on foreign operations.
[BAR GRAPH WITH COORDINATES INDICATED IN THE TABLE BELOW]
DEBT TO CAPITAL RATIO
In Percent
1990 ................. 25.4
1991 ................. 24.6
1992 ................. 23.2
1993 ................. 18.9
1994 ................. 22.0
1993 IN COMPARISON WITH 1992:
Sales for the year increased 3% as compared with 1992 while costs and
expenses decreased 1% which resulted in a 63% increase in income before income
taxes. The 3% increase in sales was the result of (i) sales of seismic
exploration systems ($19,168,000 or 69%) primarily due to market acceptance of
the ocean bottom cable used in transition zones which was developed and proven
in the prior two years; (ii) increased sales in the communications area of
microwave components and assemblies ($2,893,000 or 12%) primarily due to the
1992 acquisition of a high power ferrite product line and, to a lesser extent, a
general increase in the other microwave product lines; and (iii) increased sales
in the environmental monitoring area of meteorological radar
Page 19
($1,100,000 or 12%) due to an unusually large order from an international
customer and to an increase in activity in the domestic television market. The
above increases were somewhat offset by decreases in (i) the defense systems
area of training systems ($11,509,000 or 25%) due to an unusually higher level
of activity in 1992 and to delays in options being exercised on several current
programs; (ii) the communications area of high power energy sources ($3,765,000
or 12%) primarily due to less demand than normal for high frequency broadcast
products during the current year; (iii) the defense area of naval systems
($2,597,000 or 9%) due to a decline in numbers of units in the U.S. Navy's
annual purchase of vertical launching systems, although partially offset by an
increase in volume of radar cable assemblies; and (iv) the communications area
of antenna and antenna systems ($706,000 or 7%) due to less demand for specialty
antennas from the U.S. Government, partially offset by an increase in sales of
commercial antennas and range instrumentation antennas.
[BAR GRAPH WITH COORDINATES INDICATED IN THE TABLE BELOW]
SHAREHOLDERS' INVESTMENT
In Millions of Dollars
1990 ................. 90.3
1991 ................. 99.3
1992 ................. 103.1
1993 ................. 114.5
1994 ................. 127.1
Cost of sales decreased 5% which reflects the strong performance of the
seismic exploration area which historically carries a higher gross margin than
most of the other areas. Selling, general and administrative expenses increased
5% primarily due to increased royalties resulting from improved sales in the
seismic exploration area. Company-sponsored product development increased 20%
due to increased activity in the communications area related to antenna and
antenna systems and, to a lesser extent, in the seismic exploration area. This
was somewhat offset by a decrease in company-sponsored product development
activity in the communications area relating to microwave components. Interest
expense was essentially the same as last year while interest and other income
decreased primarily due to further decline in short-term interest rates received
on marketable securities. The effective income tax rate was higher in 1993
primarily due to the 1% rate increase effective January 1, 1993 by the 1993 Tax
Act.
PRODUCT LINE SALES
The following table sets forth the percentages for each of the last three
years of total sales contributed by each of the Company's product lines which
accounted for five percent or more of consolidated sales in any of such years:
Year Ended
December 31,
------------------------
1994 1993 1992
---- ---- ----
Communications................ 36% 35% 37%
Seismic Exploration........... 25% 25% 15%
Defense Systems............... 31% 32% 41%
Environmental Monitoring...... 8% 6% 5%
The majority of the Company's operations are located in the United States.
Page 20
OTHER INFORMATION
[BAR GRAPH WITH COORDINATES INDICATED IN THE TABLE BELOW]
CAPITAL EXPENDITURES
In Millions of Dollars
1990 ................. 7.32
1991 ................. 5.09
1992 ................. 5.53
1993 ................. 5.81
1994 ................. 8.92
In light of the reduction in the nation's defense budget, the Company has
continued its attempts to develop business which is not related to government
defense spending. During the last six years, the amount of the Company's sales
attributable to expenditures by the U.S. Department of Defense has remained
constant, but the portion of the Company's total sales attributable to
expenditures by the U.S. Department of Defense has decreased from 65% to 40% due
to the increase of sales in other areas. In addition, the Company's defense
business encompasses a diversified array of products, the largest portion of
which is not directly related to weapons but to training and communications.
Management believes that the reduced defense spending will be directed more to
weapons procurement and troop reduction than to training systems and
communications. The Company has a strong backlog in these areas and is
optimistic about maintaining its current sales level in these areas over the
near term. Management does expect, however, that the portion of the Company's
business which is more directly related to weapons will experience a reduction
in sales as the U.S. Department of Defense expenditures in this area decline.
The Company anticipates that it will continue to develop business which is
unrelated to defense and, although no assurances can be given, anticipates that
the development of such other business will offset declines, if any, in sales of
the Company's defense related products.
The gradual increase expected in the non-defense portion of the Company's
business may require additional expenditures for company sponsored product
development. In addition, sales and earnings in the commercial market,
especially those in the seismic exploration area, are more volatile than under
long-term military programs. However, Management believes it important to
diversify the Company's markets and will take appropriate action to minimize any
adverse effects.
Page 21
<PAGE>
TECH-SYM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share amounts)
For the Year Ended December 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
Sales ................................... $ 197,593 $ 184,310 $ 179,649
--------- --------- ---------
Costs and expenses:
Cost of sales ........................ 129,804 117,851 123,466
Selling, general and administrative
expenses ........................... 41,292 40,134 38,300
Company-sponsored product development 7,357 7,276 6,065
Interest expense ..................... 2,956 3,515 3,426
Interest and other income - net ...... (2,151) (982) (1,727)
--------- --------- ---------
179,258 167,794 169,530
--------- --------- ---------
Income before income taxes ...... 18,335 16,516 10,119
Provision for income taxes .............. 6,100 6,300 3,700
--------- --------- ---------
Net income ...................... $ 12,235 $ 10,216 $ 6,419
========= ========= =========
Earnings per common share ............... $ 2.12 $ 1.80 $ 1.13
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 22
<PAGE>
TECH-SYM CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands except par value and number of shares)
December 31,
-----------------------
1994 1993
--------- ---------
ASSETS ............................................. -- --
Current assets:
Cash and cash equivalents ...................... $ 22,703 $ 20,317
Marketable securities .......................... 300 7,873
Receivables - net .............................. 41,837 30,095
Unbilled revenue ............................... 34,329 36,537
Inventories .................................... 42,409 31,642
Other .......................................... 3,808 3,404
--------- ---------
Total current assets ....................... 145,386 129,868
Property, plant and equipment - net ................ 36,699 32,651
Long-term receivables - net ........................ 10,142 9,218
Goodwill and other assets .......................... 23,011 13,130
--------- ---------
Total assets ............................... $ 215,238 $ 184,867
========= =========
LIABILITIES
Current liabilities:
Notes payable .................................. $ 10,985 $ 125
Current maturities of long-term debt ........... 3,318 3,317
Accounts payable ............................... 13,232 5,771
Billings in excess of costs and estimated
earnings on uncompleted contracts ............ 6,365 5,346
Taxes on income ................................ 3,074 2,264
Other accrued liabilities ...................... 17,328 17,787
--------- ---------
Total current liabilities .................. 54,302 34,610
Long-term debt ..................................... 21,587 23,317
Deferred income taxes .............................. 196 2,973
Other liabilities and deferred credits ............. 12,039 9,423
--------- ---------
Total liabilities .......................... 88,124 70,323
--------- ---------
COMMITMENTS AND CONTINGENCIES
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 7,059,870 and 7,034,370 ... 706 703
Additional capital ................................. 35,063 34,432
Accumulated earnings ............................... 103,523 91,288
Cumulative translation adjustments ................. (1,164) (1,537)
Common stock held in treasury at
cost (1,307,592 and 1,288,752 shares) ............ (11,014) (10,342)
--------- ---------
Total shareholders' investment ............. 127,114 114,544
--------- ---------
Total liabilities and
shareholders' investment ................. $ 215,238 $ 184,867
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 23
<PAGE>
TECH-SYM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 12,235 $ 10,216 $ 6,419
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................... 8,058 7,007 6,072
Deferred income taxes ........................... (3,315) (930) (159)
Change in operating assets and liabilities:
Receivables ...................................... (10,425) (5,142) 905
Unbilled revenue ................................. 3,602 (3,584) (254)
Inventories ...................................... (6,720) 1,415 (1,067)
Accounts payable ................................. 5,312 41 (2,272)
Billings in excess and other accrued liabilities . (3,650) 6,738 (6,412)
Other - net ...................................... (452) (380) (2,213)
-------- -------- --------
Net cash provided by operating activities .......... 4,645 15,381 1,019
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ............................... (8,921) (5,811) (5,532)
Investment in grantor trust ........................ (695) (453) (511)
Payments for purchases of businesses, net of
cash acquired .................................... (8,945) (2,685)
Purchases of investment securities ................. (6,507) (13,629)
Sales of investment securities ..................... 7,573 8,835 12,644
Other investing activities ......................... (37) (854) (611)
-------- -------- --------
Net cash used for investing activities ............. (11,025) (4,790) (10,324)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line of credit agreements ........................ 10,533 (3,982) 136
Proceeds from long-term debt ....................... 1,709 214
Payments on long-term debt ......................... (3,438) (396) (1,667)
Proceeds from exercise of stock options ............ 763 1,621 140
Cash paid to acquire treasury stock ................ (801) (451) (1,644)
-------- -------- --------
Net cash provided by (used for) financing
activities........................................ 8,766 (3,208) (2,821)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents . 2,386 7,383 (12,126)
Cash and cash equivalents at beginning of year ..... 20,317 12,934 25,060
-------- -------- --------
Cash and cash equivalents at end of year ........... $ 22,703 $ 20,317 $ 12,934
======== ======== ========
Cash flows from operating activities include:
Interest paid ...................................... $ 2,749 $ 2,841 $ 2,995
======== ======== ========
Income taxes paid - net ............................ $ 8,350 $ 5,814 $ 4,940
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 24
<PAGE>
TECH-SYM CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT
(In thousands)
<TABLE>
<CAPTION>
Common Stock Cumulative Treasury Stock
--------------- Additional Accumulated Translation -----------------
Shares Amount Capital Earnings Adjustments Shares Amount Total
------ ------- ---------- ----------- ----------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991.. 6,972 $697 $32,878 $74,653 1,223 $(8,895) $99,333
Net income for year......... 6,419 6,419
Issuance of common stock
from treasury for
stock options............. 42 (17) 98 140
Currency translation
adjustment................ $(1,107) (1,107)
Acquisition of treasury
shares.................... 145 (1,644) (1,644)
------ ------ ------- -------- -------- ----- -------- -------
Balance, December 31, 1992.. 6,972 697 32,920 81,072 (1,107) 1,351 (10,441) 103,141
Net income for year......... 10,216 10,216
Issuance of common stock
for stock options......... 62 6 873 879
Issuance of common stock
from treasury for
stock options............. 192 (91) 550 742
Currency translation
adjustment................ (430) (430)
Acquisition of treasury
shares.................... 29 (451) (451)
Tax benefit associated
with stock options........ 447 447
------ ------ ------- -------- -------- ----- -------- -------
Balance, December 31, 1993.. 7,034 703 34,432 91,288 (1,537) 1,289 (10,342) 114,544
Net income for year......... 12,235 12,235
Issuance of common stock
for stock options......... 26 3 442 445
Issuance of common stock
from treasury for
stock options............. 71 (22) 129 200
Currency translation
adjustment................ 373 373
Acquisition of treasury
shares.................... 41 (801) (801)
Tax benefit associated
with stock options........ 118 118
------ ------ ------- -------- -------- ----- -------- -------
Balance, December 31, 1994.. 7,060 $706 $35,063 $103,523 $(1,164) 1,308 $(11,014) $127,114
====== ====== ======= ======== ======== ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 25
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Tech-Sym Corporation and its subsidiaries (the Company) is a high
technology company that designs, develops, and manufactures electronic systems
and components used in diverse markets including communications, seismic
exploration, defense systems, and environmental monitoring.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Tech-Sym
Corporation and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
MARKETABLE SECURITIES AND CASH EQUIVALENTS:
Marketable securities are carried at the lower of cost or market.
Short-term investments with original maturities of three months or less are
classified as cash equivalents by the Company. Included in marketable securities
at December 31, of both 1994 and 1993 are short-term investments in certificates
of deposit of $100,000 with maturities greater than three months.
REVENUE RECOGNITION:
The Company recognizes revenue on contracts utilizing the percentage of
completion method, measured by the percentage of total costs incurred to date to
estimated total costs for each contract. Estimated losses on contracts are
provided for in full when they become apparent. Substantially all unbilled
revenue amounts are expected to be billed and collected within one year in
accordance with the terms of the related contracts, typically upon shipment of
deliverables.
The Company recognizes revenue from sales of products manufactured in
standard manufacturing operations, primarily seismic exploration systems, at the
time the products are shipped to the customer.
INVENTORIES:
Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out or average cost method.
DEPRECIATION AND AMORTIZATION:
Depreciation of plant and equipment is provided by the straight-line method
over their estimated useful lives. Major renewals and betterments are
capitalized while minor replacements, maintenance, and repairs which do not
extend useful lives are expensed. The cost and accumulated depreciation
applicable to assets retired or sold are removed from the respective accounts
and the resultant gain or loss is recognized at that time.
Goodwill is amortized by the straight-line method over 15 years.
Amortization expense was $554,000, $342,000, and $283,000, in 1994, 1993, and
1992, respectively. This resulted in total accumulated amortization of
$2,565,000 and $2,011,000 at December 31, 1994 and 1993.
RESEARCH AND DEVELOPMENT:
The Company performs research and development under both company-sponsored
programs and contracts with others, primarily the U.S. Government. Costs related
to company-sponsored research and development for new products and major product
improvements are expensed as incurred.
INCOME TAXES:
The provision for income taxes is computed based on the pretax income
included in the consolidated statement of income. Research and development tax
credits are recorded to the extent allowable as a reduction of the provision for
federal income taxes in the year the qualified research and development
expenditures are incurred. The asset and liability approach is used to recognize
Page 27
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities.
The Company has not recorded a deferred income tax liability for additional
U.S. Federal income taxes that would result from the distribution of earnings of
its foreign subsidiaries, if they were actually repatriated. The Company intends
to indefinitely reinvest the undistributed earnings of its foreign subsidiaries.
Any federal income taxes on such earnings, if remitted, would generally be
offset by available foreign tax credits.
FOREIGN CURRENCY TRANSLATION:
The Company's foreign subsidiaries use the local currency as the functional
currency. Accordingly, assets and liabilities of the Company's foreign
subsidiaries are translated using the exchange rates in effect at the balance
sheet date, while income and expenses are translated using average rates.
Translation adjustments are reported as a separate component of shareholders'
investment.
EARNINGS PER SHARE:
Earnings per common share are based on the weighted average number of
shares outstanding during each year (5,760,000 for 1994, 5,672,000 for 1993, and
5,697,000 for 1992). The effect of common stock equivalents (stock options) has
not been significant during 1994, 1993, and 1992.
ACQUISITIONS:
During 1994, 1993, and 1992, the Company made several acquisitions which
were insignificant individually and in the aggregate.
RECENT PRONOUNCEMENTS:
In 1994, the Company adopted Statement of Financial Accounting Standards
No. 115 (FAS 115), Accounting for Certain Investments in Debt and Equity
Securities. The adoption of FAS 115 was not material to the Company's financial
statements. The Company adopted Statement of Financial Accounting Standards No.
119, Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments, as of December 31, 1994.
NOTE 2 - RECEIVABLES AND UNBILLED REVENUE:
Receivables and unbilled revenue are summarized as follows (in thousands):
December 31,
---------------------
1994 1993
------- -------
Current receivables:
Commercial, less allowance
for losses of $389 and $137 .............. $28,931 $21,071
U.S. Government ........................... 12,906 9,024
------- -------
$41,837 $30,095
======= =======
Unbilled revenue:
Commercial ................................ $ 8,290 $ 8,277
U.S. Government ........................... 26,039 28,260
------- -------
$34,329 $36,537
======= =======
Long-term receivables:
Commercial, less allowance
for losses of $212 and $312 .............. $10,142 $ 9,218
======= =======
U.S. Government receivables and unbilled revenue include amounts from prime
contractors with the U.S. Government where the Company is the subcontractor.
Page 27
NOTE 3 - INVENTORIES:
Inventories which consist principally of electronic parts are summarized as
follows (in thousands):
December 31,
---------------------------
1994 1993
------- -------
Raw materials .......................... $15,502 $14,359
Work in process ........................ 21,040 12,133
Finished goods ......................... 5,867 5,150
------- -------
$42,409 $31,642
======= =======
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
The components of property, plant and equipment are summarized as follows
(dollars in thousands):
December 31,
Estimated -----------------------
Lives 1994 1993
--------- -------- -------
At cost:
Land, buildings and
improvements .................... 10-35 $25,288 $24,857
Machinery and equipment ........... 3-12 59,175 49,091
------- -------
84,463 73,948
Less accumulated depreciation ....... (47,764) (41,297)
------- -------
$36,699 $32,651
======= =======
NOTE 5 - NOTES PAYABLE:
At December 31, 1994 and 1993, the Company had unused short-term lines of
credit aggregating approximately $14,900,000 and $27,700,000, respectively.
Loans under these lines may be made in such amounts and at such maturities and
interest rates as are offered by the banks and accepted by the Company at the
time of each borrowing. The lines of credit contain certain restrictive
covenants similar to those for the senior unsecured notes. At December 31, 1994
and 1993, borrowings under these lines totaled $10,985,000 and $125,000,
respectively.
NOTE 6 - LONG-TERM DEBT:
The components of long-term debt are summarized as follows (dollars in
thousands):
December 31,
----------------------
1994 1993
-------- --------
Notes to insurance group:
Senior unsecured notes at 10.28%
interest payable semi-annually; due
in seven annual principal payments
of $2,857 each commencing March 1, 1995 ......... $ 20,000 $ 20,000
Other obligations:
Real estate mortgage notes, due in monthly
installments of $69 including interest at
9.9% to 12% maturing at various dates
through 2005 .................................... 4,892 3,543
Unsecured note at prime (6% at December
31, 1993) interest payable quarterly;
due December 31, 1994 ........................... 2,884
Other .............................................. 13 207
-------- --------
24,905 26,634
Less current maturities ............................ (3,318) (3,317)
-------- --------
$ 21,587 $ 23,317
======== ========
Aggregate maturities of long-term debt due after 1995 are, $3,345,000 in
1996, $3,392,000 in 1997, $3,443,000 in 1998, $3,417,000 in 1999, $3,388,000 in
2000, and $4,602,000 thereafter.
Page 28
The terms of the senior unsecured notes include certain covenants, the more
significant of which require that the Company and its designated principal
subsidiaries (a) maintain defined tangible net worth of at least $75,000,000;
(b) restrict the aggregate of certain future payments, including those for
dividends and acquisitions of treasury shares, to 75% of the Company's
cumulative post-December 31, 1988 consolidated net income (at December 31, 1994
accumulated earnings of $28,802,000 was available for dividends and acquisition
of treasury shares); (c) limit future borrowings and related pledges of assets
to certain levels; and (d) limit future dispositions (except in the ordinary
course of business) of assets, including stock of domestic subsidiaries, such
that the aggregate (greater of book or fair market) value during any twelve
month period does not exceed 20% of defined tangible net worth.
At December 31, 1994, $1,119,000 of machinery and equipment and $7,916,000
of land, buildings and improvements were pledged as collateral to secure various
long-term debt obligations.
NOTE 7 - INCOME TAXES:
The components of income before income taxes were as follows (in
thousands):
Year Ended December 31,
-------------------------------------------
1994 1993 1992
------- -------- -------
Domestic .................. $16,429 $ 16,530 $ 9,849
Foreign ................... 1,906 (14) 270
------- -------- -------
$18,335 $ 16,516 $10,119
======= ======== =======
The provision for income taxes consists of the following (in thousands):
Year Ended December 31,
-----------------------------------------
1994 1993 1992
------- ------- -------
U.S. Federal:
Current ................... $ 8,678 $ 6,692 $ 3,181
Deferred .................. (3,315) (930) (159)
------- ------- -------
5,363 5,762 3,022
State ....................... 375 347 424
Foreign ..................... 362 191 254
------- ------- -------
$ 6,100 $ 6,300 $ 3,700
======= ======= =======
The income tax expense for 1994, 1993, and 1992 resulted in effective tax
rates of 33.3%, 38.1%, and 36.6%, respectively. The reasons for the differences
between these effective tax rates and the U.S. statutory rate of 35% in 1994,
35% in 1993, and 34% in 1992 are as follows (in thousands):
Year Ended December 31,
------------------------------------
1994 1993 1992
------- ------- -------
Federal taxes on income at
statutory rates .................... $ 6,417 $ 5,781 $ 3,441
State income taxes - net ............. 244 226 280
Foreign Sales Corporation
benefit ............................ (472) (588) (466)
Other - net .......................... (89) 881 445
------- ------- -------
$ 6,100 $ 6,300 $ 3,700
======= ======= =======
Page 29
The Company increased its U.S. deferred tax liability in 1993 as a result
of legislation enacted during 1993 which increased the corporate tax rate to 35%
from 34% retroactive to January 1, 1993. The increase had an immaterial effect
on the consolidated financial statements.
Deferred tax liabilities (assets) at December 31, 1994 and December 31,
1993 are comprised of the following (in thousands):
December 31,
----------------------
1994 1993
------- -------
Deferred tax liabilities:
Depreciation ................................... $ 1,161 $ 2,923
Installment sales .............................. 987 1,627
Equity in earning of affiliate ................. 518 336
Percentage of completion ....................... 340 313
Other .......................................... 135 2
------- -------
Gross deferred tax liabilities .............. 3,141 5,201
Deferred tax assets:
Deferred compensation .......................... (1,589) (1,331)
Compensatory absences accruals ................. (885) (671)
Inventory accounting and
valuation allowance ........................... (1,532) (988)
Net operating loss carry forwards .............. (763) (844)
Accrued losses on contracts .................... (422) (111)
Product warranty and related reserves .......... (228) (1,121)
Receivable valuation allowances ................ (470) (124)
Accrued sales and other credits ................ (51) (351)
Other .......................................... (1,132) (213)
------- -------
Gross deferred tax assets ................... (7,072) (5,754)
Deferred tax asset
valuation allowance ........................... 763 844
------- -------
$(3,168) $ 291
======= =======
Deferred tax assets of $3,364,000 and $2,682,000 were included in other
current assets at December 31, 1994 and 1993, respectively. As a result of a
1994 acquisition, deferred tax assets at December 31, 1994 include an addition
of $144,000 which did not impact the provision for income taxes.
NOTE 8 - STOCK OPTION PLANS:
1980 STOCK OPTION PLAN:
The Company's 1980 Stock Option Plan (the 1980 Plan) provided for the
granting of options and stock appreciation rights (SARs) in tandem therewith to
key employees of the Company for the purchase of the Company's common shares.
Each option under the 1980 Plan was granted at an exercise price of 100% of fair
market value at date of grant. The options expire ten years from date of grant
and are exercisable 20% after one year, with an additional 20% exercisable each
six months thereafter. Stock options granted prior to January 1, 1987, must be
exercised in sequential order. Of the outstanding options covering a total of
43,150 shares at December 31, 1994, 42,250 were exercisable at prices from
$10.625 to $20.00 per share.
At December 31, 1994 and 1993, there were 43,150 and 66,650 shares,
respectively, of the Company's common stock reserved for issuance under the 1980
Plan. The 1980 Plan expired by its terms on December 31, 1989, and no additional
options can be granted under the plan.
Page 30
Changes in outstanding options under the 1980 Plan during 1992, 1993, and
1994 were as follows:
Number of Exercise Price
Shares Per Share
-------- --------------
Outstanding, December 31, 1991 ............ 150,600 $10.625-20.000
Expired or cancelled ...................... (8,600) 10.625-20.000
Exercised ................................. (800) 10.625
--------
Outstanding, December 31, 1992 ............ 141,200 10.625-20.000
Expired or cancelled ...................... (12,950) 12.625-20.000
Exercised ................................. (61,600) 10.625-17.375
--------
Outstanding, December 31, 1993 ............ 66,650 10.625-20.000
Exercised ................................. (23,500) 14.625-20.000
--------
Outstanding, December 31, 1994 ............ 43,150 $10.625-20.000
========
NONEMPLOYEE DIRECTOR OPTIONS:
During the period from December 8, 1983 to December 31, 1989, options
covering a total of 115,000 shares were granted to nonemployee Directors by the
Board of Directors and approved by the shareholders of the Company. Each option
was granted at an exercise price of 100% of the fair market value at date of
grant. Each option is exercisable in whole or in part until ten years after the
date of grant except that, absent a change in control of the Company, each
option terminates seven months after the option holder ceases to be a Director
for any reason except retirement, death, or disability.
At December 31, 1994 and 1993, there were 39,000 and 39,600 shares,
respectively, of the Company's common stock reserved for issuance upon exercise
of the nonemployee Director stock options at an exercise price per share of
$10.875 to $13.25.
1990 STOCK OPTION PLAN:
The Company's 1990 Stock Option Plan (the 1990 Plan) covers 858,000 shares
of common stock and provides for the granting of stock options and/or SARs to
key employees of the Company and to the members of the Board of Directors who
are not employees of the Company.
Options covering a total of 523,500 shares and related SARs have been
granted to key employees under the 1990 Plan. Each such option has an exercise
price of 100% of the fair market value on the date of grant and has a term of
ten years. The options are exercisable 20% after one year, with an additional
20% exercisable each six months thereafter.
Page 31
The 1990 Plan provides for the automatic grant of stock options and SARs to
nonemployee Directors. Each nonemployee Director of the Company was granted
effective February 15, 1990, options and SARs with respect to 10,000 shares of
common stock, and each optionee was required to surrender for cancellation
options previously granted by the Company with respect to the lesser of 10,000
shares or the number of shares covered by such previously granted options. The
1990 Plan further provides that newly-elected nonemployee Directors will
automatically receive options and SARs covering 10,000 shares at the time of his
or her election and that each nonemployee Director will automatically receive
options and SARs covering 1,000 shares each year at the time of his or her
reelection to the Board. Options covering a total of 107,000 shares and SARs
have been granted to nonemployee Directors under the 1990 Plan. These options
and SARs have an exercise price of $8.125 to $21.75, the fair market price on
the date of grant, have a ten year term and are exercisable in full after one
year.
At December 31, 1994, options under the 1990 Plan covering a total of
235,050 shares were exercisable.
Changes in outstanding options under the 1990 Plan during 1992, 1993, and
1994 were as follows:
Number of Exercise Price
Shares Per Share
-------- --------------
Outstanding, December 31, 1991 ............ 270,900 $ 8.000-13.000
Granted ................................... 13,500 10.625-13.500
Expired or cancelled ...................... (15,550) 8.000-12.375
Exercised ................................. (16,530) 8.000- 8.125
-------
Outstanding, December 31, 1992 ............ 252,320 8.000-13.500
Granted ................................... 250,750 14.500-15.750
Expired or cancelled ...................... (6,100) 8.000-13.000
Exercised ................................. (91,490) 8.000-12.375
-------
Outstanding, December 31, 1993 ............ 405,480 8.000-15.750
Granted ................................... 85,050 21.000-21.750
Expired or cancelled ...................... (4,300) 10.625-15.750
Exercised ................................. (22,560) 8.000-15.750
-------
Outstanding, December 31, 1994 ............ 463,670 $ 8.000-21.750
=======
The SARs granted under the 1980 and 1990 Stock Option Plans cannot be
exercised without the consent of the Compensation Committee of the Board of
Directors except in certain defined instances involving a change in control of
the Company. Since any exercises of SARs are expected to be allowed by the
Committee only in extenuating circumstances, any liability for benefits derived
therefrom will be recognized only at the time the Committee gives its approval
to such exercises. No SARs have been exercised to date.
Page 32
NOTE 9 - SHAREHOLDERS' INVESTMENT:
SHAREHOLDER RIGHTS PLAN:
The Board of Directors adopted a Shareholder Rights Plan in 1988 which in
certain limited circumstances would permit shareholders to purchase securities
at prices which would be substantially below market value.
STOCK REPURCHASES:
The Company's Board of Directors has authorized the Company to repurchase
shares of its common stock through open market purchases or privately negotiated
transactions. Since 1987 the Company has repurchased an aggregate of 1,237,597
shares related to these authorizations. The unreissued shares are held by the
Company and accounted for using the treasury stock method. The Company is
authorized to repurchase up to 758,800 additional shares under transactions
approved by the Board.
NOTE 10 - BENEFIT PLANS:
The Company has a defined contribution retirement plan covering
substantially all employees. The annual Company contribution and administrative
costs of the plan were $1,912,000 for 1994, $1,885,000 for 1993, and $1,973,000
for 1992. The Company's policy is to fund these retirement costs currently.
The Company has executive retirement agreements with certain executive
officers of the Company and a nonemployee directors' retirement plan for those
directors that have never been employees of the Company. The executive
retirement agreements generally provide for the payment of specified amounts in
the event of retirement at or after age 62, total and permanent disability,
death, or termination of employment by the Company without cause. The
nonemployee directors' retirement plan generally provides for the payment of
specified amounts upon retirement on or after age 65 or upon termination of
service due to disability or death. The Company has segregated certain assets in
a grantor trust to meet these obligations, but those assets are available to
creditors of the Company in the event of its bankruptcy or insolvency.
Accordingly, these assets aggregating $4,215,000 and $3,575,000 at December 31,
1994 and 1993, respectively, are included in goodwill and other assets.
The costs for the executive retirement agreements and the nonemployee
directors' retirement plan in 1994, 1993, and 1992 were $695,000, $635,000, and
$553,000, respectively. The status of the retirement plans at December 31 was as
follows (in thousands):
1994 1993
------- -------
Actuarial present value of:
Vested benefit obligation .................... $ 4,907 $ 4,438
======= =======
Accumulated benefit obligation ............... $ 4,931 $ 4,454
======= =======
Projected benefit obligation ................. $ 5,211 $ 4,723
------- -------
Plan assets at fair value
Projected benefit obligation
in excess of plan assets .................... 5,211 4,723
Unrecognized net gain .......................... (196) (156)
Unrecognized prior service cost ................ (206) (266)
Unrecognized net obligation
at transition ............................... (567) (647)
Adjustment to recognize
minimum liability ........................... 689 800
------- -------
Net deferred pension cost ...................... $ 4,931 $ 4,454
======= =======
Page 33
The projected benefit obligation was developed assuming a beginning
discount rate of 9% in 1994, 8% in 1993, and 9% in 1992 and an annual rate of
increase in compensation levels of 5% in 1994, 1993, and 1992.
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents,
marketable securities, receivables, unbilled revenue, and long-term receivables.
The Company places its cash, cash equivalents, and marketable securities
investments in investment grade, short-term debt instruments and limits the
amount of credit exposure to any one commercial issuer. A portion of the
Company's receivables and unbilled revenue are concentrated in the U.S.
Government. Concentrations of credit risk with respect to the receivables,
unbilled revenue, and long-term receivables from customers other than the U.S.
Government are limited due to the large number of customers in the Company's
customer base, and their dispersion across different industries and geographic
areas.
FINANCIAL INSTRUMENTS:
The Company enters into various types of financial instruments in the
normal course of business. The Company does not hold or issue financial
instruments for trading purposes nor does it hold interest rate, leveraged, or
other types of derivative financial instruments.
Fair values for financial instruments are based on quoted market prices.
The amounts ultimately realized upon settlement of these financial instruments
will depend on actual market conditions during the remaining life of the
instruments. Fair values of cash and cash equivalents, marketable securities,
receivables, unbilled revenue, long-term receivables, accounts payable, and
other accrued liabilities reflected in the December 31, 1994 balance sheet
approximate carrying value at that date. The fair value of notes payable and
long-term debt at December 31, 1994 would have been increased by approximately
$1,500,000 based on borrowing rates currently available to the Company for
borrowings with similar terms and maturities.
LEASE COMMITMENTS:
The Company leases manufacturing and other facilities under certain
long-term agreements which expire at various dates to 2002. Total rentals
charged to operations under such operating leases for years 1994, 1993, and 1992
were $1,111,000, $827,000, and $776,000, respectively.
Future minimum rental commitments under all noncancellable operating leases
in effect at December 31, 1994 total $2,431,000 as follows: 1995 - $683,000;
1996 - $611,000; 1997 - $511,000; 1998 - $292,000; 1999 - $171,000; and $163,000
thereafter.
LITIGATION:
In the ordinary course of business, the Company is involved in various
pending or threatened legal actions. While Management is unable to predict the
ultimate outcome of these actions, it believes that any ultimate liability
arising from these actions will not have a material adverse effect on the
Company's consolidated financial position.
CONTINGENCIES:
The Company has no commitments or contingent liabilities which, in the
judgment of Management, would result in losses which would materially affect the
Company's consolidated financial position.
Page 34
NOTE 12 - OTHER FINANCIAL INFORMATION:
Sales under contracts and subcontracts where the U.S. Government is the
ultimate customer generally accounted for approximately 41%, 42%, and 50% of the
Company's sales in 1994, 1993, and 1992, respectively.
Foreign sales (primarily exports from the U.S.) as a percentage of total
sales are summarized by geographic area as follows:
1994 1993 1992
---- ---- ----
Europe ......................... 16.8% 17.0% 15.7%
Far East ....................... 11.4 6.6 10.5
Middle East .................... 1.4 5.0 2.9
Other areas .................... 6.9 5.6 5.3
---- ---- ----
36.5% 34.2% 34.4%
==== ==== ====
Other accrued liabilities comprised the following (in thousands):
December 31,
-------------------------
1994 1993
------- -------
Commissions payable ........................ $ 2,605 $ 1,588
Incentive bonus accruals ................... 1,855 2,530
Vacation accruals .......................... 2,636 2,441
Accrued product warranty
and related reserves ...................... 478 3,202
Accrued interest payable ................... 803 1,028
Other ...................................... 8,951 6,998
------- -------
$17,328 $17,787
======= =======
Other liabilities and deferred credits include deferred gains on
installment sales contracts of $3,711,000 and $3,761,000 at December 31, 1994
and 1993, respectively.
NOTE 13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following is a summary of unaudited quarterly financial data for the
years 1994 and 1993 (in thousands except per share amounts):
Earnings
Per
Gross Net Common
Sales Profit Income Share
-------- ------- ------- -----
March 31, 1994 .............. $ 43,678 $15,825 $ 2,788 $ .48
June 30, 1994 ............... 48,329 16,823 2,991 .52
September 30, 1994 .......... 51,328 16,665 3,176 .55
December 31, 1994 ........... 54,258 18,476 3,280 .57
-------- ------- ------- -----
$197,593 $67,789 $12,235 $2.12
======== ======= ======= =====
March 31, 1993 .............. $ 46,775 $15,844 $ 2,375 $ .42
June 30, 1993 ............... 50,365 17,092 2,489 .44
September 30, 1993 .......... 44,072 16,654 2,556 .45
December 31, 1993 ........... 43,098 16,869 2,796 .49
-------- ------- ------- -----
$184,310 $66,459 $10,216 $1.80
======== ======= ======= =====
Page 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Tech-Sym Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in shareholders'
investment present fairly, in all material respects, the financial position of
Tech-Sym Corporation and its subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Houston, Texas
February 23, 1995
Page 36
<PAGE>
CORPORATE INFORMATION
STOCKHOLDER AND MARKET INFORMATION
Comparative Common Stock Data
1993 1994
----------------------- ------------------------
Quarter High Low High Low
------- ------ ------ ------ ------
First ......... 17 1/4 13 1/4 22 1/2 17 5/8
Second ........ 17 5/8 14 3/8 21 7/8 19 1/8
Third ......... 21 1/2 17 22 3/8 19 1/2
Fourth ........ 21 3/8 18 1/2 24 3/8 20 1/2
No dividends were paid on such stock in 1993 or 1994, and the Company has no
present intention of paying dividends.
Record number of holders of Common Stock at February 28, 1995: 2,101.
CORPORATE OFFICE
10500 Westoffice Drive, Suite 200
Houston, Texas 77042-5391
Telephone 713/785-7790
Telecopier 713/780-3524
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Telephone 212/509-4000
Telecopier 212/509-5150
STOCK EXCHANGE LISTING
Tech-Sym Common Stock is listed on the New York Stock Exchange
(Stock Symbol: TSY)
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1201 Louisiana
Houston, Texas 77002
Stockholders are invited to attend the Tech-Sym Corporation Annual Meeting of
Stockholders which will be held at 10:00 AM on Tuesday, April 25, 1995, in the
Magnolia Room of the Houstonian Hotel & Conference Center at 111 North Post Oak
Lane, Houston, Texas. A Proxy Statement will be sent to stockholders of record
as of March 13, 1995.
Page 37
EXHIBIT 21
Subsidiaries of the Registrant
Set forth below is certain information with respect to each of the
Registrant's subsidiaries:
STATE OF REGISTRANT'S
SUBSIDIARY DOMICILE OWNERSHIP
Anarad, Inc. (California) 100%
Continental Electronics Corporation (Nevada) 100%
Continental-Lensa S.A. (Chile) 75%
Enterprise Electronics Corporation (Alabama) 100%
Lake Investment Company (Arizona) 100%
Concho Valley Country Club, Inc. (Arizona) 100%
Livco Water Company (Arizona) 100%
Metric Systems Corporation (Florida) 100%
Symtronix Corporation (Nevada) 100%
Syntron, Inc. (Delaware) 100%
Syntron Europe Limited (Scotland) 100%
Syntron Asia Pte. Ltd. (Singapore) 100%
T-S Holding Corporation (Texas) 100%
(formerly All Woods/Schroeder, Inc.)
Tech-Sym Management Corporation (Delaware) 100%
Tech-Sym International (FSC), Inc. (U.S. Virgin 100%
Islands)
Tecom Industries, Incorporated (California) 100%
Tecom Limited (Scotland) 100%
TRAK Microwave Corporation (Delaware) 100%
TRAK Microwave Limited (Scotland) 100%
The Registrant has certain other subsidiaries which are not named above.
Such subsidiaries, when considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No. 2-77162), in
the Prospectus constituting part of the Registration Statement on Form S-8 (No.
33-38208), in the Prospectus constituting part of the Registration Statement on
Form S-8 (No. 33-61846) in the Prospectus constituting part of the Registration
Statement on Form S-8 (No. 33-56535), and in the Prospectus constituting part of
the Registration Statement on Form S-3 (No. 33-56533) of Tech-Sym Corporation of
our report dated February 23, 1995, appearing on page 36 of the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedules, which appears on page S-2 of this Form 10-K.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Houston, Texas
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the Company's
10-K for the period ended December 31, 1994 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 22,703,000
<SECURITIES> 300,000
<RECEIVABLES> 42,226,000
<ALLOWANCES> (389,000)
<INVENTORY> 42,409,000
<CURRENT-ASSETS> 145,386,000
<PP&E> 84,463,000
<DEPRECIATION> (47,764,000)
<TOTAL-ASSETS> 215,238,000
<CURRENT-LIABILITIES> 54,302,000
<BONDS> 21,587,000
<COMMON> 706,000
0
0
<OTHER-SE> 126,408,000
<TOTAL-LIABILITY-AND-EQUITY> 215,238,000
<SALES> 197,593,000
<TOTAL-REVENUES> 197,593,000
<CGS> 129,804,000
<TOTAL-COSTS> 178,453,000
<OTHER-EXPENSES> (2,151,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,956,000
<INCOME-PRETAX> 18,335,000
<INCOME-TAX> 6,100,000
<INCOME-CONTINUING> 12,235,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,235,000
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.12
</TABLE>
