Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM TO .
COMMISSION FILE NUMBER 1-4371
TECH-SYM CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA 74 1509818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10500 WESTOFFICE DRIVE, HOUSTON, TEXAS 77042
(Address of principal executive offices) Zip Code
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 713/785-7790
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON OUTSTANDING AT JULY 31, 1996
Common Stock, $.10 par value 6,217,481
<PAGE>
Form 10-Q
Tech-Sym Corporation
INDEX
PAGE NO.
Part I. Financial Information:
Consolidated Balance Sheet June 30, 1996
and December 31, 1995 ..................................... 1
Consolidated Statement of Income and Accumulated
Earnings for Three Months Ended June 30,
1996 and 1995 ............................................. 2
Consolidated Statement of Income and Accumulated
Earnings for Six Months ended June 30,
1996 and 1995 ............................................. 3
Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 ................... 4
Notes to Consolidated Financial Statements ...................... 5-6
Management's Discussion and Analysis of financial
Condition and Results of Operations ....................... 7-9
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K ....................... 10-11
Signatures ...................................................... 11
<PAGE>
Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Tech-Sym Corporation
Consolidated Balance Sheet
June 30, 1996 December 31, 1995
------------- -----------------
(stated in thousands)
Assets
Current assets:
Cash and cash equivalents ............... $ 37,864 $ 20,715
Short-term investments .................. 100 100
Receivables - net ....................... 56,636 54,199
Unbilled revenue ........................ 45,175 39,137
Inventories ............................. 84,758 59,492
Other ................................... 2,279 4,675
--------- ---------
Total current assets .............. 226,812 178,318
Property, plant and equipment - net ....... 46,321 42,469
Long term receivables - net ............... 9,799 10,567
Other assets .............................. 34,792 33,672
--------- ---------
Total assets ...................... $ 317,724 $ 265,026
========= =========
Liabilities
Current liabilities:
Notes payable ........................... $ 11,338 $ 24,237
Current maturities of long-term debt .... 6,620 4,861
Accounts payable ........................ 23,863 14,480
Billings in excess of cost and
estimated earnings on uncompleted
contracts ............................. 8,622 6,880
Taxes on income ......................... 7,693 1,366
Accrued and other liabilities ........... 18,877 22,737
--------- ---------
Total current liablilites ......... 77,013 74,561
Long-term debt ............................ 14,551 29,522
Minority interest ......................... 18,359
Other liabilities and deferred credits .... 40,483 10,925
--------- ---------
Total liabilities ................. 150,406 115,008
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
7,893,481 and 7,860,351 shares ........... 789 786
Additional capital ........................ 39,027 38,486
Accumulated earnings ...................... 140,150 122,855
Cumulative translation adjustments ........ (1,604) (1,095)
Common stock held in treasury at
cost (1,308,600 and 1,307,592 shares) .... (11,044) (11,014)
--------- ---------
Total shareholders' investment .... 167,318 150,018
--------- ---------
Total liabilities and
shareholders' investment ......... $ 317,724 $ 265,026
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 2 Form 10-Q
Tech-Sym Corporation
Consolidated Statement of Income and
Accumulated Earnings
For The Three Months
Ended June 30,
------------------------
1996 1995
--------- ---------
(stated in thousands except
for per share amounts)
Sales ............................................ $ 71,184 $ 59,101
--------- ---------
Costs and expenses:
Cost of sales ................................ 44,987 39,177
Selling, general and administrative
expenses ................................... 17,711 11,770
Company sponsored product
development ................................ 5,357 3,569
Interest expense ............................. 760 832
Gain on issuance of stock
by subsidiary .............................. (21,166)
Interest and other (income)
expense - net .............................. (1,017) (1,039)
--------- ---------
46,632 54,309
--------- ---------
Income before income taxes
minority interest and
extraordinary item ...................... 24,552 4,792
Provision for income taxes ....................... 8,460 1,464
Minority interest expense ........................ 41
--------- ---------
Income before extraordinary item .......... 16,051 3,328
Extraordinary item:
Loss on early extinguishment of debt,
net of applicable income taxes
of $557 ..................................... 1,035
--------- ---------
Net income ................................ 15,016 3,328
Accumulated earnings:
Beginning of period .......................... 125,134 110,978
--------- ---------
End of period ................................ $ 140,150 $ 114,306
========= =========
Earnings per common share:
Income before extraordinary item .......... $ 2.44 $ 0.51
Extraordinary item ........................ (0.16) 0.00
--------- ---------
Net income ................................ $ 2.28 $ 0.51
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 3 Form 10-Q
Tech-Sym Corporation
Consolidated Statement of Income and
Accumulated Earnings
For The Six Months
Ended June 30,
------------------------
1996 1995
--------- ---------
(stated in thousands except
for per share amounts)
Sales ............................................ $ 142,869 $ 111,895
--------- ---------
Costs and expenses:
Cost of sales ................................ 90,481 74,240
Selling, general and administrative
expenses ................................... 34,456 24,278
Company sponsored product
development ................................ 10,804 6,959
Interest expense ............................. 2,023 1,710
Gain on issuance of stock
by subsidiary .............................. (21,166)
Interest and other (income)
expense - net .............................. (1,660) (1,895)
--------- ---------
114,938 105,292
--------- ---------
Income before income taxes
minority interest and
extraordinary item ...................... 27,931 6,603
Provision for income taxes ....................... 9,560 2,117
Minority interest expense ........................ 41
--------- ---------
Income before extraordinary item .......... 18,330 4,486
Extraordinary item:
Loss on early extinguishment of debt,
net of applicable income taxes
of $557 ..................................... 1,035
--------- ---------
Net income ................................ 17,295 4,486
Accumulated earnings:
Beginning of period .......................... 122,855 109,820
--------- ---------
End of period ................................ $ 140,150 $ 114,306
========= =========
Earnings per common share:
Income before extraordinary item .......... $ 2.79 0.69
Extraordinary item ........................ (0.16) 0.00
--------- ---------
Net income ................................ $ 2.63 $ 0.69
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 4 Form 10-Q
Tech-Sym Corporation
Consolidated Statement of Cash Flows
For the Six Months
Ended June 30,
--------------------
1996 1995
-------- --------
(stated in thousands)
Cash flows from operating activities:
Net income ........................................... $ 17,295 $ 4,486
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ..................... 6,019 5,477
Gain on issuance of stock by subsidiary ........... (21,166)
Change in operating assets and liabilities:
Receivables ....................................... (2,437) 823
Unbilled revenue .................................. (6,038) (3,194)
Inventories ....................................... (25,266) (7,550)
Accounts payable and taxes on income .............. 15,710 1,001
Billing in excess and
other accrued liabilities ........................ (2,118) 2,793
Long-term receivables - net and other assets ...... (1,511) (1,276)
Other liabilities and deferred credits ............ 29,558 (1,100)
Other ............................................. 1,887 (1,881)
-------- --------
Net cash provided by
(used for) operating activities .................... 11,933 (421)
-------- --------
Cash flows from investing activities:
Capital expenditures ................................. (8,411) (4,782)
Other investing activities ........................... (301) (75)
-------- --------
Net cash used for investing activities ............... (8,712) (4,857)
-------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line of credit agreements ........................... (11,859) 4,281
Proceeds from long-term debt ......................... 3,406 1,607
Payments on long-term debt ........................... (17,658) (4,854)
Proceeds from issuance of subsidiary common stock .... 39,525
Proceeds from exercise of stock options .............. 544 464
Cash paid to acquire treasury shares ................. (30)
-------- --------
Net cash provided by financing activities ............ 13,928 1,498
-------- --------
Net increase (decrease) in
Cash and cash equivalents ............................ 17,149 (3,780)
Cash and cash equivalents at beginning of period ..... 20,715 24,083
-------- --------
Cash and cash equivalents at end of period ........... $ 37,864 $ 20,303
======== ========
Cash flow from operating activities include:
Interest paid ........................................ $ 2,864 $ 1,816
Income taxes paid .................................... 2,553 3,371
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 Form 10-Q
Tech-Sym Corporation
Notes to Consolidated Financial Statements
1. The unaudited consolidated financial statements include the
accounts of Tech-Sym Corporation and its subsidiaries ("the
Company") for the three month and six month periods ended June
30, 1996 and 1995 and should be read in conjunction with the
financial statements and the notes thereto included in the
Company's latest annual report. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of these unaudited state-
ments have been included. Such financial results, however,
should not be construed as necessarily indicative of future
earnings.
2. Inventories are valued at the lower of cost or market. Cost is
determined on the first-in, first-out method. Inventories (principally
electronic parts) which aggregated $84,758,000 at June 30, 1996,
include raw materials of $29,338,000 and work-in-process and finished
goods of $55,420,000.
3. Shares of common stock of the Company have been reserved at
June 30, 1996 for issuance as follows:
26,500 shares for issuance upon exercise of options granted
under the 1980 Stock Option Plan of the Company.
20,000 shares for issuance upon exercise of
options granted to nonemployee directors.
660,840 shares for issuance upon exercise of options granted
or to be granted under the 1990 Stock Option Plan of the
Company.
3,638,610 shares for issuance upon exercise of common stock
purchase rights granted pursuant to the Company's Common Stock
Purchase Rights Plan adopted by the Board of Directors on June
1, 1988.
4. The Company provides deferred income taxes for temporary differences
arising when revenues or expenses are recognized in different periods
for financial and tax reporting purposes.
Provision for federal income taxes for the three month and six month
periods ended June 30, 1996 and 1995 was equivalent to an effective
rate of 32% for both periods of normal operating earnings before income
taxes. Provision for income taxes on the gain on issuance of stock by
subsidiary was calculated using a 35% rate. The difference between the
effective rate and the U.S. statutory rate for 1996 is due principally
to tax benefits of foreign sales.
Page 6 Form 10-Q
Tech-Sym Corporation
Notes to Consolidated Financial Statements - Continued
5. Earnings per common share are based on the weighted average number of
shares outstanding during each period (6,579,000 and 6,511,000 for the
three months ended June 30, 1996 and 1995, respectively, and 6,571,000
and 6,501,000 for the six month period ended June 30, 1996 and 1995,
respectively).
6. Financial results for 1995 have been restated from those reported the
same period in the prior year to reflect the acquisition of CogniSeis
Development, Inc., in June 1995, which was accounted for as a pooling
of interests and to reflect the deferral of revenue recognition on
certain sales where the right of exchange for credit existed.
7. Effective June 24, 1996, the Board of Directors authorized the Company
to repurchase up to 500,000 shares of its common stock. Through August
9, 1996, the Company had repurchased 443,500 shares at an average price
of $25.69 per share.
Page 7 Form 10-Q
Tech-Sym Corporation
Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES:
The Company's operating activities provided cash in the amount of $11,933,000
for the six months ended June 30, 1996, versus the use of $421,000 for the six
months ended June 30, 1995. Effective May 17, 1996, the Company's subsidiary,
GeoScience Corporation, completed an initial public offering of 2,597,600 shares
of its common stock. After the offering, the Company owned 75.3% of this
subsidiary. The net proceeds to the subsidiary were $40.5 million of which $27.5
million was used to repay borrowings from the Company. The Company in turn used
these proceeds to pay $11.4 million off a revolving credit facility and the
balance to prepay its senior unsecured notes which were entered into in March
1989. At June 30, 1995, the Company had unused committed lines of credit which
aggregated $41.4 million.
After working capital, the chief use of the Company's funds has normally been
capital expenditures. Capital expenditures for property, plant and equipment
were $8,411,000 and $4,782,000 for the six months ended June 30, 1996 and 1995,
respectively.
RESULTS OF OPERATIONS:
The following is management's discussion and analysis of certain significant
factors which have affected the Company's earnings during the periods included
in the accompanying consolidated statements of income.
A summary of the period to period changes in the principal items included in the
consolidated statements of income is shown below:
Comparison of Comparison of
Three Months Six Months
Ended June 30, Ended June 30,
1996 and 1995 1996 and 1995
-------------- --------------
Increase (Decrease)
(stated in thousands)
Sales ................................... $ 12,083 $ 30,974
Costs and expenses ...................... (7,677) 9,646
-------- --------
Income before income taxes,
minority interest and
extraordinary item .................... 19,760 21,328
Provision for income taxes .............. 6,996 7,443
Minority interest expense ............... 41 41
-------- --------
Income before extraordinary item ........ 12,723 13,844
Extraordinary item ...................... 1,035 1,035
-------- --------
Net income .............................. $ 11,688 $ 12,809
======== ========
Page 8 Form 10-Q
Tech-Sym Corporation
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Continued
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995:
Sales for the quarter ended June 30, 1996 increased 20% while costs and expenses
decreased 14% which resulted in an increase in income before income taxes,
minority interest and extraordinary item of 412%. This 20% increase in sales was
the result of (i) increased sales in the geoscience area ($4,878,000 or 24%)
primarily due to shipments of its new 24-bit module, (ii) increase sales in the
communication area ($4,799,000 or 22%) primarily due to a greater demand for
microwave components and antennas and to a lesser extent the addition of sales
from TELEFUNKEN Sendertechnik GmbH which was acquired effective January 1, 1996,
and (iii) increased sales in the defense systems area ($2,338,000 or 16%)
primarily due to the transition of two major production programs from the
development stage into the production stage.
Cost of sales increased 15% while selling, general and administrative expense
increased 50% as compared to the first quarter of 1995. The increase in cost of
sales compares favorably with the increase in sales while the selling, general
and administrative expense increased at a faster rate primarily due to the
additional selling, general, and administrative costs associated with several
acquired businesses including (i) Photon System Ltd., which was acquired
effective September 12, 1995 in the geoscience area, (ii) TELEFUNKEN
Sendertechnik GmhB, which was acquired effective January 1, 1996 in the
communications area, and (iii) a minor acquisition in the microwave component
area.
Company sponsored product development increased 50% primarily due to the
relatively higher costs of product development at TELEFUNKEN Sendertechnik GmbH
which was acquired January 1, 1996, and to additional programs in the domestic
high power broadcast area. Interest expense decreased slightly due to the funds
received from a subsidiary initial public offering previously discussed which
were used to pay down debt . The Company recorded a gain of $21.2 million on the
issuance of stock by a subsidiary as discussed in the Liquidity and Capital
Resource section of this report. Interest and other (income) expense - net was
essentially the same for both periods. See Note 4 of the Notes to the
Consolidated Financial Statements contained on pages 5 and 6 of this report for
income tax information. The extraordinary item was the premium to prepay the
Company's senior notes as described elsewhere in this report.
Page 9 Form 10-Q
Tech-Sym Corporation
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Continued
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995:
Sales for the six month period ended June 30, 1996 increased 28% while costs and
expenses increased 9% which resulted in an increase in income before income
taxes, minority interest and extraordinary item of 323%. The increase in sales
was attributable to increases in sales of the (i) geoscience area ($13,423,000
or 37%), (ii) communication area ($12,602,000 or 29%), and (iii) defense systems
area ($5,517,000 or 20%). The reasons for these increases are substantially the
same as those discussed for the quarterly comparison.
Cost of sales increased 22% while selling, general and administrative expense
increased 42% for the six month period ended June 30, 1996. Company sponsored
product development increased 55%, essentially for the same reasons as discussed
in the quarterly comparison, interest expense increased 18% as a result of
higher borrowings in the first quarter of 1996, gain in issuance of stock by a
subsidiary was $21.2 million, and interest and other (income) expense decreased
12%. Income tax information and the extraordinary item were discussed in the
quarterly comparison.
Page 10 Form 10-Q
Tech-Sym Corporation
PART II. OTHER INFORMATION
ITEM 1. 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., ("EWTN) a customer of
Continental, have infringed and are infringing two claims of United States
patent No. 4,560,944 (the "Patent") assigned to Thomcast.
On July 15, 1996, the court granted Continental's motion for summary judgment
stating that "[T]here is no genuine issue of material fact and defendant
[Continental] is entitled to judgment as a matter of law." EWTN has subsequently
filed its own motion for summary judgment and Thomcast has filed a motion for
reconsideration of order granting summary judgment.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The shareholders of Registrant took the following action at the Annual Meeting
held April 30, 1996:
1. Elected all nine management nominees for directors
pursuant to proxies solicited without opposition under
regulation 14A, as stated below:
VOTES IN VOTES
NOMINEE FAVOR WITHHELD
W. L. Creech 6,066,847 18,348
M. C. Forrest 6,059,477 25,718
A. A. Gallotta, Jr. 6,060,047 25,148
W. W. Gamel 6,013,047 72,148
C. C. Kraft, Jr. 6,066,847 18,348
R. E. Moore 6,013,847 71,348
C. J. Scribner 6,013,847 71,348
J. A. Teresko 6,066,847 18,348
C. K. Watt 6,059,247 25,948
2. Ratified the appointment of Price Waterhouse as independent
accountants of the Registrant for the year ending December 31,
1996 (6,048,968 shares voted for, 19,165 shares voted against
and 17,062 shares abstained).
Page 11 Form 10-Q
Tech-Sym Corporation
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits to this report except for Exhibit 27 -
Financial Data Schedule which is deemed not to be filed for
purposes of liability under the federal securities laws.
(b) Reports on Form 8-K. There were no reports on Form 8-K
filed during the three months ended June 30, 1996.
No financial statements were filed as a part of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECH-SYM CORPORATION
Registrant
Date: August 14, 1996 /S/ WENDELL W. GAMEL
Wendell W. Gamel, Chairman of the
Board and President
Date: August 14, 1996 /S/ RAY F. THOMPSON
Ray F. Thompson, Vice President,
Treasurer, and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 37,864
<SECURITIES> 100
<RECEIVABLES> 56,636
<ALLOWANCES> 0
<INVENTORY> 84,758
<CURRENT-ASSETS> 226,812
<PP&E> 46,321
<DEPRECIATION> 0
<TOTAL-ASSETS> 317,724
<CURRENT-LIABILITIES> 77,013
<BONDS> 0
0
0
<COMMON> 789
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 317,724
<SALES> 71,184
<TOTAL-REVENUES> 0
<CGS> 44,987
<TOTAL-COSTS> 46,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 760
<INCOME-PRETAX> 24,552
<INCOME-TAX> 8,460
<INCOME-CONTINUING> 16,051
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<EXTRAORDINARY> (1,035)
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<NET-INCOME> 15,016
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