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 MARCH 31, 1997
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, SUITE 200, 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 APRIL 30, 1997
- ---------------------------- -----------------------------
Common Stock, $.10 par value 6,035,781
<PAGE>
Form 10-Q
INDEX
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Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet March 31, 1997 and December 31, 1996 ...... 1
Consolidated Statement of Income and Accumulated Earnings
for Three Months Ended March 31, 1997 and 1996 ..................... 2
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1997 and 1996 ...................................... 3
Notes to Consolidated Financial Statements ........................... 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................. 6-8
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K .............................. 9
Signatures ............................................................... 9
<PAGE>
Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Tech-Sym Corporation
Consolidated Balance Sheet
March 31, December 31,
1997 1996
------------ ------------
(stated in thousands)
Assets
Current assets:
Cash and cash equivalents ................ $ 18,996 $ 20,450
Short-term investments ................... 4,025 6,380
Receivables - net ........................ 63,166 62,217
Unbilled revenue ......................... 52,722 48,814
Inventories .............................. 86,609 82,808
Other .................................... 8,335 6,098
------------ ------------
Total current assets ............... 233,853 226,767
Property, plant and equipment - net ........ 49,041 48,917
Long-term receivables - net ................ 9,130 16,695
Other assets ............................... 27,322 30,900
------------ ------------
Total assets ....................... $ 319,346 $ 323,279
============ ============
Liabilities
Current liabilities:
Notes payable ............................ $ 34,496 $ 29,406
Current maturities of long-term debt ..... 2,238 4,251
Accounts payable ......................... 19,033 21,115
Billings in excess of cost and
estimated earnings on uncompleted
contracts .............................. 10,584 9,728
Taxes on income .......................... 5,537 5,201
Other accrued liabilities ................ 19,584 21,331
------------ ------------
Total current liablilites .......... 91,472 91,032
Long-term debt ............................. 13,605 13,974
Other liabilities and deferred credits ..... 38,635 43,022
------------ ------------
Total liabilities .................. 143,712 148,028
Minority interest ............................ 16,211 17,179
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
7,949,781 and 7,941,231 shares ............ 795 794
Additional capital ......................... 39,895 39,753
Accumulated earnings ....................... 147,636 145,195
Cumulative translation adjustments ......... (2,144) (911)
Common stock held in treasury at
cost (1,905,400 shares) ................... (26,759) (26,759)
------------ ------------
Total shareholders' investment ..... 159,423 158,072
------------ ------------
Total liabilities and
shareholders' investment .......... $ 319,346 $ 323,279
============ ============
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 March 31,
------------------------------
1997 1996
(stated in thousands except
for per share amounts)
Sales ........................................ $ 79,521 $ 71,685
------------ ------------
Costs and expenses:
Cost of sales ............................ 52,665 45,494
Selling, general and administrative
expenses ............................... 18,150 16,745
Company sponsored product
development ............................ 4,688 5,447
Interest expense ......................... 762 1,263
Interest and other (income)
expense - net .......................... (325) (643)
------------ ------------
75,940 68,306
------------ ------------
Income before income taxes
and minority interest ............... 3,581 3,379
Provision for income taxes ................... 1,097 1,100
Minority interest expense .................... 43
------------ ------------
Net income ............................ 2,441 2,279
Accumulated earnings:
Beginning of period ...................... 145,195 122,855
------------ ------------
End of period ............................ $ 147,636 $ 125,134
============ ============
Earnings per common share:
Net income ............................ $ .40 $ .35
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Page 3 Form 10-Q
Tech-Sym Corporation
Consolidated Statement of Cash Flows
For the Three Months
Ended March 31,
---------------------------
1997 1996
(stated in thousands)
Cash flows from operating activities:
Net income ..................................... $ 2,441 $ 2,279
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............... 3,292 2,465
Minority interest ........................... 43
Change in assets and liabilities:
Receivables ................................. (3,186) 25,977
Unbilled revenue ............................ (3,908) (2,918)
Inventories ................................. (3,801) (2,313)
Accounts payable and taxes on income ........ (1,746) 863
Billing in excess and
other accrued liabilities .................. (891) 3,259
Long-term receivables - net and other assets 10,281 (1,539)
Other liabilities and deferred credits (4,387) (10,983)
------------ ------------
Net cash provided by
(used for) operating activities .............. (1,862) 17,090
------------ ------------
Cash flows from investing activities:
Capital expenditures ........................... (2,554) (5,310)
Payment for purchase of business,
net of cash acquired .......................... 7,656
Sale (purchase) of investment securities ....... 2,355 (18,084)
Other investing activities ..................... 444
------------ ------------
Net cash provided by
(used for) investing activities .............. 245 (15,738)
------------ ------------
Cash flows from financing activities:
Net borrowings under line
of credit agreements .......................... 4,669 8,137
Proceeds from long-term debt ................... 15 81
Payments on long-term debt ..................... (1,976) (5,991)
Proceeds from exercise of stock options ........ 143 275
Acquisition of Tech-Sym and GeoScience treasury
shares ....................................... (1,455) (30)
Other .......................................... (1,233)
------------ ------------
Net cash provided by financing activities ...... 163 2,472
------------ ------------
Net increase (decrease) in
Cash and cash equivalents ...................... (1,454) 3,824
Cash and cash equivalents at beginning of period 20,450 20,715
------------ ------------
Cash and cash equivalents at end of period ..... $ 18,996 $ 24,539
============ ============
Cash flow from operating activities include:
Interest paid .................................. $ 819 $ 1,746
Income taxes paid .............................. 270 30
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Page 4 Form 10-Q
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 period ended March 31, 1997 and 1996 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 $86,609,000 at March 31, 1997, include raw
materials of $30,836,000 and work-in-process and finished goods of
$55,773,000.
3. Shares of common stock of the Company have been reserved at March 31, 1997
for issuance as follows:
600 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.
635,440 shares for issuance upon exercise of options granted or to be
granted under the 1990 Stock Option Plan of the Company.
3,347,711 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 period ended March
31, 1997 and 1996 was equivalent to an effective rate of 31% and 32%,
respectively, of earnings before income taxes. The difference between the
effective rate and the U.S. statutory rate for 1997 is due principally to
tax benefits of foreign sales.
<PAGE>
Page 5 Form 10-Q
Notes to Consolidated Financial Statements - Continued
5. Earnings per common share are based on the weighted average number of
shares outstanding during each period (6,041,000 and 6,563,000 for the
three months ended March 31, 1997 and 1996, respectively).
6. In 1997, Statement of Financial Accounting Standards No. 128 (FAS 128),
EARNINGS PER SHARE was issued. FAS 128 is effective for earnings per share
calculations for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Adoption of FAS 128 is
not expected to have a materrial effect on the Company's financial position
or operational results.
Quarter Ended
March 31,
1997 1996
-------- --------
Pro forma earnings per share
Earnings per common share ....... $ 0.40 $ 0.35
-------- --------
Earnings per common share
assuming dilution ............. $ 0.39 $ 0.33
-------- --------
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 author ized a 250,000 share increase in the stock
repurchase plan, with a revised maximum amount of 750,000 shares. Through
April 30, 1997, the Company had repurchased 610,200 shares at an average
price of $26.35 per share.
<PAGE>
Page 6 Form 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
The Company's operating activities used cash in the amount of $1,862,000 for the
three months ended March 31, 1997, versus providing cash in the amount of
$17,090,000 for the three months ended March 31, 1996. 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 March 31, 1997, the Company had
unused committed lines of credit which aggregated $52.9 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 $2,554,000 and $5,310,000 for the three months ended March 31, 1997 and
1996, 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
Three Months
Ended March 31,
1997 And 1996
--------------------
Increase(Decrease)
(stated in thousands)
Sales .................................. $ 7,836
Costs and expenses ..................... 7,634
--------------------
Income before income taxes
and minority interest ................ 202
Provision for income taxes ............. (3)
Minority interest expense .............. 43
--------------------
Net income ............................. $ 162
====================
<PAGE>
Page 7 Form 10-Q
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Continued
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996:
Revenue for the quarter ended March 31, 1997, increased 11% to $79,521,000 from
$71,685,000 for the year earlier period. Cost and expenses increased a
corresponding 11% to $75,940,000 from $68,306,000. Income before income taxes
and minority interest increased 5% to $3,581,000 from $3,379,000. The 11%
increase in revenue was the result of (i) increased sales in the geoscientific
area ($4,403,000 or 18%), due primarily to increased shipments of marine seismic
cables and increased maintenance and other revenue resulting from contract
awards to provide technical data services to bidders on oil exploration leases,
which offset revenue decreases resulting primarily from delayed placement of
geoscientific software orders by certain customers and (ii) increased sales in
the communications area ($4,441,000 or 15%), primarily due to greater demand for
microwave components, broadcast equipment, and weather radar equipment. The
increases in these areas more than offset the revenue decrease in the defense
systems area ($833,000 or 5%) due to delays in government orders.
Cost of revenue for the quarter ended March 31, 1997, increased $7,171,000 or
16% to $52,665,000 from $45,494,000. This increase was due to (i) the general
increase in sales over the year earlier period, (ii) increased costs on sales
within the communications area, primarily due to a greater amount of lower
margin cost plus fixed fee government contracts in the product mix for the
period, and (iii) a significant shift in the product mix of the sales within the
geoscientific business area which included (x) larger shipments of marine
seismic cables, which have higher production costs in relationship to selling
price as compared to the electronics portion of the seismic data acquisition
systems and (y) lower shipments of software products, which generally have a
very low cost of sales in comparison to equipment products and maintenance and
other service revenue.
Selling, general and administrative expense increased $1,405,000 or 8% to
$18,150,000 from $16,745,000 in the like quarter last year. While the increase
compares favorably with the increase in revenue for the current period, it
occurred primarily in the geoscientific business area due to (i) higher
commissions relating to a large international sale and (ii) increased royalties
relating to seismic equipment sales. Research and development expense for the
quarter decreased 14% to $4,688,000 from $5,447,000. The decrease was primarily
in the communications business area due to the completion of several projects
that were under development in the like period last year. The decrease also
reflected (i) the cost cutting measures initiated during the second half of 1996
within the geoscientific software business area and (ii) the reduction of field
testing expenses related to
Page 8 Form 10-Q
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Continued
the Polyseis products within the geoscientific equipment business area.
Interest expense decreased 40% to $762,000 from $1,263,000 as compared to the
prior year period as a result of the reduction of interest bearing debt due to
the proceeds from the initial public offering of 2,597,600 shares of the common
stock of the Company's subsidiary, GeoScience Corporation, as more fully
discussed in the Liquidity section of this Form 10-Q. Other income, net,
decreased 49% to $325,000 from $643,000 prmiarily due to (i) lower earnings on
investments and (ii) the like quarter in 1996 included a credit for investment
in foreign facilities.
The Company's software subsidiary, CogniSeis Development, Inc., posted a first
quarter pre-tax loss of $1,087,000. The Company is soliciting offers to acquire
the subsidiary and intends to sell it if the price and terms of an offer reflect
the intrinsic value and profit-making potential of the subsidiary and its
product lines.
<PAGE>
Page 9 Form 10-Q
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 with the
Commission during the three months ended March 31, 1997.
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 there unto duly authorized.
TECH-SYM CORPORATION
Registrant
Date: May 15, 1997 /s/ WENDELL W. GAMEL
-----------------------------
Wendell W. Gamel, Chairman of
the Board and President
(principal executive officer)
Date: May 15, 1997 /s/ RAY F. THOMPSON
-----------------------------
Ray F. Thompson, Vice-
President and Treasurer
(principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TECH-SYM'S 1ST QUARTER 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 18,996
<SECURITIES> 4,025
<RECEIVABLES> 63,166
<ALLOWANCES> 0
<INVENTORY> 86,609
<CURRENT-ASSETS> 233,853
<PP&E> 49,041
<DEPRECIATION> 0
<TOTAL-ASSETS> 319,346
<CURRENT-LIABILITIES> 91,472
<BONDS> 0
0
0
<COMMON> 795
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 319,346
<SALES> 79,521
<TOTAL-REVENUES> 0
<CGS> 52,665
<TOTAL-COSTS> 75,221
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 762
<INCOME-PRETAX> 3,581
<INCOME-TAX> 1,097
<INCOME-CONTINUING> 2,441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,441
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0
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