Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 OCTOBER 31, 1996
- ---------------------------- -------------------------------
Common Stock, $.10 par value 6,033,331
<PAGE>
Form 10-Q
Tech-Sym Corporation
INDEX
-----
Page No.
--------
Part I. Financial Information:
Consolidated Balance Sheet September 30, 1996
and December 31, 1995 ................................................ 1
Consolidated Statement of Income and Accumulated
Earnings for Three Months Ended September 30,
1996 and 1995 ........................................................ 2
Consolidated Statement of Income and Accumulated
Earnings for Nine Months Ended September 30,
1996 and 1995 ........................................................ 3
Consolidated Statement of Cash Flows for the
Nine Months Ended September 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
Signatures ............................................................... 10
<PAGE>
Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Tech-Sym Corporation
Consolidated Balance Sheet
September 30, December 31,
1996 1995
--------- ---------
(stated in thousands)
Assets
Current assets:
Cash and cash equivalents ................. $ 27,353 $ 20,715
Short-term investments .................... 6,415 100
Receivables - net ......................... 61,400 54,199
Unbilled revenue .......................... 52,989 39,137
Inventories ............................... 83,335 59,492
Other ..................................... 2,511 4,675
--------- ---------
Total current assets ................ 234,003 178,318
Property, plant and equipment - net ......... 48,540 42,469
Long-term receivables - net ................. 11,861 10,567
Other assets ................................ 35,073 33,672
--------- ---------
Total assets ........................ $ 329,477 $ 265,026
========= =========
Liabilities
Current liabilities:
Notes payable ............................. $ 26,710 $ 24,237
Current maturities of long-term debt ...... 6,145 4,861
Accounts payable .......................... 29,694 14,480
Billings in excess of cost and
estimated earnings on uncompleted
contracts ............................... 9,717 6,880
Taxes on income ........................... 9,124 1,366
Accrued and other liabilities ............. 21,405 22,737
--------- ---------
Total current liablilites ........... 102,795 74,561
Long-term debt .............................. 14,681 29,522
Minority interest ........................... 16,805
Other liabilities and deferred credits ...... 38,211 10,925
--------- ---------
Total liabilities ................... 172,492 115,008
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
7,908,631 and 7,860,351 shares ............. 791 786
Additional capital .......................... 39,241 38,486
Accumulated earnings ........................ 143,447 122,855
Cumulative translation adjustments .......... (1,631) (1,095)
Common stock held in treasury at
cost (1,839,300 and 1,307,592 shares) ...... (24,863) (11,014)
--------- ---------
Total shareholders' investment ...... 156,985 150,018
--------- ---------
Total liabilities and
shareholders' investment ........... $ 329,477 $ 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 September 30,
-------------------------
1996 1995
(stated in thousands except
for per share amounts)
Sales .......................................... $ 88,110 $ 65,260
--------- ---------
Costs and expenses:
Cost of sales .............................. 60,163 42,130
Selling, general and administrative
expenses ................................. 16,753 13,520
Company sponsored product
development .............................. 4,794 3,573
Interest expense ........................... 1,822 1,075
Interest and other (income)
expense - net ............................ (683) (761)
--------- ---------
82,849 59,537
--------- ---------
Income before income taxes
and minority interest ................. 5,261 5,723
Provision for income taxes ..................... 1,696 1,820
Minority interest expense ...................... 268
--------- ---------
Net income .............................. 3,297 3,903
Accumulated earnings:
Beginning of period ........................ 140,150 114,306
--------- ---------
End of period .............................. $ 143,447 $ 118,209
========= =========
Earnings per common share:
Net income .............................. $ 0.53 $ 0.60
========= =========
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 Nine Months
Ended September 30,
------------------------
1996 1995
(stated in thousands except
for per share amounts)
Sales ............................................ $ 230,979 $ 177,156
--------- ---------
Costs and expenses:
Cost of sales ................................ 150,644 116,370
Selling, general and administrative
expenses ................................... 51,209 37,798
Company sponsored product
development ................................ 15,598 10,532
Interest expense ............................. 3,845 2,785
Gain on issuance of stock
by subsidiary .............................. (21,166)
Interest and other (income)
expense - net .............................. (2,343) (2,655)
--------- ---------
197,787 164,830
--------- ---------
Income before income taxes,
minority interest and
extraordinary item ...................... 33,192 12,326
Provision for income taxes ....................... 11,256 3,937
Minority interest expense ........................ 309
--------- ---------
Income before extraordinary item .......... 21,627 8,389
Extraordinary item:
Loss on early extinguishment of debt,
net of applicable income taxes
of $557 ..................................... 1,035
--------- ---------
Net income ................................ 20,592 8,389
Accumulated earnings:
Beginning of period .......................... 122,855 109,820
--------- ---------
End of period ................................ $ 143,447 $ 118,209
========= =========
Earnings per common share:
Income before extraordinary item .......... $ 3.35 1.29
Extraordinary item ........................ (0.16) 0.00
--------- ---------
Net income ................................ $ 3.19 $ 1.29
========= =========
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 Nine Months
Ended September 30,
-------- --------
1996 1995
(stated in thousands)
Cash flows from operating activities:
Net income ........................................... $ 20,592 $ 8,389
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ..................... 9,476 8,193
Gain on issuance of stock by subsidiary ........... (21,166)
Change in assets and liabilities net of effects
from purchase of Telefunken Sendertechnik GmbH:
Receivables ....................................... 18,764 2,860
Unbilled revenue .................................. (13,852) (7,516)
Inventories ....................................... (13,752) (10,693)
Accounts payable and taxes on income .............. 22,039 (2,481)
Billing in excess and
other accrued liabilities ........................ 1,505 8,160
Long-term receivables - net and other assets ...... (7,108) (1,778)
Other liabilities and deferred credits ............ (12,541) (5,501)
Other ............................................. 1,628 (2,589)
-------- --------
Net cash provided by
(used for) operating activities .................... 5,585 (2,956)
-------- --------
Cash flows from investing activities:
Capital expenditures ................................. (13,110) (6,980)
Payment for purchase of business,
net of cash acquired ................................ 7,656 (3,534)
Other investing activities ........................... (6,749) (212)
-------- --------
Net cash used for investing activities ............... (12,203) (10,726)
-------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line of credit agreements ........................... 3,149 7,730
Proceeds from long-term debt ......................... 3,702 1,932
Payments on long-term debt ........................... (20,887) (4,918)
Proceeds from issuance of subsidiary common stock .... 40,381
Proceeds from exercise of stock options .............. 760 787
Cash paid to acquire treasury shares ................. (13,849)
-------- --------
Net cash provided by financing activities ............ 13,256 5,531
-------- --------
Net increase (decrease) in
Cash and cash equivalents ............................ 6,638 (8,151)
Cash and cash equivalents at beginning of period ..... 20,715 24,083
-------- --------
Cash and cash equivalents at end of period ........... $ 27,353 $ 15,932
======== ========
Cash flow from operating activities include:
Interest paid ........................................ $ 3,444 $ 3,274
Income taxes paid .................................... 2,703 5,281
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
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 nine month periods ended September 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 statements have been
included. Such financial results, however, should not be construed as
necessarily indicative of future earnings.
2. Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out method. Inventories (principally electronic
parts) which aggregated $83,335,000 at September 30, 1996, include raw
materials of $22,822,000 and work-in-process and finished goods of
$60,513,000.
3. Shares of common stock of the Company have been reserved at September 30,
1996 for issuance as follows:
25,300 shares for issuance upon exercise of options granted under the
1980 Stock Option Plan of the Company.
15,000 shares for issuance upon exercise of options granted to
nonemployee directors.
651,890 shares for issuance upon exercise of options granted or to be
granted under the 1990 Stock Option Plan of the Company.
3,378,511 shares for issuance upon exercise of common stock purchase
rights granted pursuant to the Company's Common Stock Purchase Rights
Plan adopted by the Board of Directors on June 1, 1988.
4. The Company provides deferred income taxes for temporary differences
arising when revenues or expenses are recognized in different periods for
financial and tax reporting purposes.
Provision for federal income taxes for the three and nine month periods
ended September 30, 1996 and 1995 was equivalent to an effective rate of
32% of earnings from operations and an effective rate of 35% on both the
gain resulting from the sale of subsidiary stock and the loss on early
extinguishment of debt. The difference between the effective rate and the
U.S. statutory rate for 1996 is due principally to tax benefits of foreign
sales.
<PAGE>
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 (6,231,000 and 6,535,000 for the
three months ended September 30, 1996 and 1995, respectively,and 6,452,000
and 6,513,000 for the nine month period ended September 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 20, 1996, the Board of Directors authorized the Company to
repurchase up to 500,000 shares of its common stock. Effective August 15,
1996, the Board authorized a 250,000 share increase in the stock repurchase
plan, with a revised maximum amount of 750,000 shares. Through November 14,
1996, the Company had repurchased 571,700 shares at an average price of
$26.20 per share.
<PAGE>
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 $5,585,000 for
the nine months ended September 30, 1996, versus the use of $2,956,000 for the
nine months ended September 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 reduce the outstanding balance on a
revolving credit facility and to prepay its senior unsecured notes which were
entered into in March of 1989. At September 30, 1996, the Company had unused
committed lines of credit which aggregated $34.7 million.
During the nine months ended September 30, 1996, the Company repurchased 531,708
shares of its common stock, now held in treasury, at a total cost of
$13,849,000. Additionally, the Company's subsidiary, GeoScience Corporation,
repurchased 215,000 shares of its common stock as treasury shares at a total
cost of $2,759,000.
After working capital, the chief use of the Company's funds has normally been
capital expenditures. Capital expenditures for property, plant and equipment
were $13,110,000 and $6,980,000 for the nine months ended September 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:
<PAGE>
Page 8 Form 10-Q
Tech-Sym Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
Comparison of Comparison of
Three Months Nine Months
Ended September 30, Ended September 30,
1996 AND 1995 1996 AND 1995
-------- -------
Increase(Decrease)
(stated in thousands)
Sales ................................. $ 22,850 $53,823
Costs and expenses .................... 23,312 32,957
-------- -------
Income before income taxes,
minority interest and
extraordinary item .................. (462) 20,866
Provision for income taxes ............ (124) 7,319
Minority interest expense ............. 268 309
-------- -------
Income before extraordinary item ...... (606) 13,238
Extraordinary item .................... --- 1,035
-------- -------
Net income ............................ $ (606) $12,203
======== =======
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:
Sales for the quarter ended September 30, 1996 increased 35% while costs and
expenses increased 39%, which resulted in a decrease in income before income
taxes and minority interest of 8%. This 35% increase in sales was the result of
(i) increased sales in the communications area ($11,491,000 or 48%) primarily
due to the addition of sales from TELEFUNKEN Sendertechnik GmbH which was
acquired effective January 1, 1996 and, to a lesser extent, a greater demand for
microwave components and antennas, (ii) increased sales in the geoscience area
($9,735,000 or 42%) primarily due to shipments of its new 24-bit digital
acquisition systems, and (iii) increased sales in the defense systems area
($2,188,000 or 13%) primarily due to increased production on two major programs
that transitioned from the development stage into the production stage during
the preceding quarter.
Cost of sales increased 43% while selling, general and administrative expense
increased 24% as compared to the third quarter of 1995. The increase in cost of
sales was primarily due to (i) costs associated with increased sales, (ii)
increased production costs on new products in the communications area,
particularly at the newly acquired TELEFUNKEN Sendertechnik unit, and (iii)
increased manufacturing costs of the new 24-bit modules over the standard 16-bit
modules and a greater mix of lower margin seismic cables in the geoscience area.
The increase in selling, general and administrative expense compares favorably
with the increase in sales and was primarily due to the additional costs
associated with several acquired businesses including (i) Photon Systems
<PAGE>
Page 9 Form 10-Q
Tech-Sym Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
Ltd., which was acquired effective September 12, 1995, in the geoscience area
and (ii) TELEFUNKEN Sendertechnik and a minor microwave component product line
in the communications area. Company sponsored product development costs
increased 34% primarily due to relatively higher costs of product development at
TELEFUNKEN Sendertechnik and to additional programs in the domestic broadcast
area. Interest expense increased in the geoscience area for the quarter
primarily due to borrowings required to support the increase in sales. Interest
and other income decreased slightly as compared to the same quarter in 1995.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:
Sales for the nine month period ended September 30, 1996 increased 30% while
costs and expenses, without the gain from issuance of stock by our GeoScience
subsidiary, increased 33%. Income before income taxes, minority interest and
extraordinary item increased 169%, including the gain ($21,166,000) on issuance
of stock by GeoScience. The increase in sales was attributable to increases in
sales in the (i) communications area ($24,093,000 or 36%), (ii) geoscience area
($17,073,000 or 26%), and (iii) defense systems area ($7,705,000 or 17%). The
reasons for these revenue increases are substantially the same as those
discussed for the quarterly comparisons.
Cost of sales increased 29% while selling, general and administrative expenses
increased 35% for the nine month period ended September 30, 1996. The reasons
for these increases are substantially the same as those discussed for the
quarterly comparison. Company sponsored product development increased 48%,
primarily for the same reasons as discussed in the quarterly comparison, and due
to additional product development costs related to antenna products in the
communications area. Interest expense increased 38% as a result of higher
borrowings required to support the increases in sales. Net interest and other
(income) expense decreased 12%, as the increase in interest income on long-term
receivables in the geoscience area ($646,000) was offset by lower interest
income earnings on cash on hand in all areas during the period.
<PAGE>
Page 10 Form 10-Q
Tech-Sym Corporation
PART II. OTHER INFORMATION
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.
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: November 14, 1996 /S/ WENDELL W. GAMEL
--------------------
Wendell W. Gamel,
Chairman of the Board and President
Date: November 14, 1996 /S/ RAY F. THOMPSON
Ray F. Thompson, Vice-President, Treasurer,
Controller and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TECHSYM'S THIRD QUARTER 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 27,353
<SECURITIES> 6,415
<RECEIVABLES> 61,400
<ALLOWANCES> 0
<INVENTORY> 83,335
<CURRENT-ASSETS> 234,003
<PP&E> 48,540
<DEPRECIATION> 0
<TOTAL-ASSETS> 329,477
<CURRENT-LIABILITIES> 102,795
<BONDS> 0
0
0
<COMMON> 791
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 329,477
<SALES> 88,110
<TOTAL-REVENUES> 0
<CGS> 60,163
<TOTAL-COSTS> 82,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,822
<INCOME-PRETAX> 5,261
<INCOME-TAX> 1,696
<INCOME-CONTINUING> 3,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,297
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0
</TABLE>
