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, 1998
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, 1998
Common Stock, $.10 par value 6,064,881
<PAGE>
Form 10-Q
TECH-SYM CORPORATION
INDEX
PAGE NO.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet March 31, 1998 (unaudited)
and December 31, 1997 1
Consolidated Statement of Income and Accumulated Earnings for
the Quarter Ended March 31, 1998 and 1997 (unaudited) 2
Consolidated Statement of Cash Flows for the Quarter Ended
March 31, 1998 and 1997 (unaudited) 3
Consolidated Statement of Changes in Shareholders' Investment for
the Quarter Ended March 31, 1998 and 1997 (unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-7
Part II. Other information: 8
Signatures 8
<PAGE>
Page 1
Form 10-Q
ITEM 1. FINANCIAL STATEMENTS
TECH-SYM CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)
March 31, December 31,
1998 1997
------------------------------
(unaudited)
------------------------------
ASSETS
Current assets:
Cash and cash equivalents $18,914 $13,384
Short-term investments 4,458 5,588
Receivables, net 69,162 76,980
Unbilled revenue 47,209 48,140
Inventories 96,377 96,962
Other 7,438 8,046
-----------------------------
Total current
assets 243,558 $249,100
Property, plant and equipment, net 49,456 49,049
Long-term receivables, net 17,004 18,759
Other assets 29,177 29,842
-----------------------------
Total
assets $339,195 $346,750
=============================
LIABILITIES
Current liabilities:
Notes payable $50,787 $54,137
Current maturities of long-term debt 8,194 8,622
Accounts payable 19,700 23,479
Billings in excess of cost and estimated
earnings
on uncompleted contracts 8,368 9,941
Taxes on income 6,350 5,888
Other accrued liabilities 19,287 21,399
-----------------------------
Total current liabilities 112,686 123,466
Long-term debt 15,786 16,139
Other liabilities 28,790 29,005
-----------------------------
Total liabilities 157,262 168,610
Minority interest 15,482 14,957
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 8,005,981
and 7,994,881, respectively 801 799
Additional capital 40,837 40,677
Accumulated earnings 155,896 152,644
Accumulated other comprehensive loss (3,031) (3,277)
Common stock held in treasury at cost
(1,951,900 and 1,936,900 shares,
respectively) (28,052) (27,660)
------------------------------
Total shareholders' investment 166,451 163,183
------------------------------
Total liabilities, minority
interest and
shareholders' investment $339,195 $346,750
==============================
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
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the Quarter
Ended March 31,
--------------------------------
1998 1997
(unaudited)
--------------------------------
Revenue $77,724 $72,898
Cost of revenue 51,313 50,811
--------------------------------
Gross profit 26,411 22,087
Selling, general and administrative expenses 17,419 15,564
Research and development expense 3,481 3,155
Interest expense 1,036 680
Interest and other income, net (1,100) (434)
--------------------------------
Income from continuing operations before
income taxes
and minority interest 5,575 3,122
Provision for income taxes 1,840 984
Minority interest 483 96
--------------------------------
Income from continuing operations 3,252 2,042
Discontinued operation
Loss from operations of CogniSeis
net of applicable
income tax benefits of $289 and
minority interest of $146 (496)
--------------------------------
Net income $3,252 $1,546
--------------------------------
Accumulated earnings:
Beginning of period 152,644 145,195
--------------------------------
End of period $155,896 $146,741
================================
Earnings (loss) per common share - basic
Continuing operations $0.54 $0.34
Discontinued operation (0.08)
--------------------------------
Net income $0.54 $0.26
================================
Average shares outstanding - basic 6,058 6,041
Earnings (loss) per common share - diluted
Continuing operations $0.53 $0.33
Discontinued operation (0.08)
--------------------------------
Net income $0.53 $0.25
================================
Average shares outstanding - diluted 6,157 6,174
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
(IN THOUSANDS)
For the Quarter
Ended March 31,
-----------------------
1998 1997
(unaudited)
-----------------------
Cash flows from operating activities:
Net income $3,252 $1,546
Adjustments to reconcile net income to net
Cash provided by (used for) operating activities:
Depreciation and amortization 4,168 3,292
Minority interest 483 (50)
Change in operating assets and liabilities:
Receivables 7,704 (3,186)
Unbilled revenue 931 (3,108)
Inventories 585 (3,211)
Accounts payable and taxes on income (3,317) (2,148)
Billing in excess and other accrued
liabilities (3,685) (891)
Long-term receivables-net and other assets 1,672 2,433
Other liabilities and deferred credits 31 (5,620)
------------------------
Net cash provided by (used for) operating
activities 11,824 (10,943)
------------------------
Cash flows from investing activities:
Capital expenditures (3,751) (2,554)
Sale of investment securities 3,582 6,280
Purchase of investment securities (2,452) (3,925)
Other investing activities (162) 434
-----------------------
Net cash (used for) provided by investing
activities (2,783) 235
-----------------------
Cash flows from financing activities:
Net (payments) borrowings under bank line of
credit agreements (3,350) 4,669
Proceeds from long-term debt 856 15
Payments on long-term debt (787) (1,976)
Proceeds from exercise of stock options 162 143
Acquisition of Tech-Sym and GeoScience
treasury shares (392) (1,445)
Proceeds from sale of notes receivable 7,848
-----------------------
Net cash (used for) provided by financing
activities (3,511) 9,254
-----------------------
Net increase (decrease) in cash and cash
equivalents 5,530 (1,454)
Cash and cash equivalents at beginning of
period 13,384 20,450
-----------------------
Cash and cash equivalents at end of period $18,914 $18,996
=======================
Non cash transactions:
Reduction in balance of notes receivable sold
with recourse $850
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 4
Form 10-Q
TECH-SYM CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Additional Accumulated Comprehensive Treasury Stock Shareholders'
Shares Amount Capital Earnings Income(Loss) Shares Amount Investment
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 ....... 7,995 $ 799 $ 40,677 $152,644 ($3,277) 1,937 ($27,660) $163,183
Comprehensive income for 1998:
Net income ...................... 3,252
Other comprehensive
income, net of tax
Foreign currency
translation adjustments 246
Total comprehensive income 3,498
Acquisition of treasury shares ..... 15 (392) (392)
Issuance of common stock
for stock options ............... 11 2 160 162
------------------------------------------------------------------------------------
Balance at March 31, 1998 .......... 8,006 $ 801 $ 40,837 $155,896 ($3,031) 1,952 ($28,052) $166,451
====================================================================================
Accumulated
Other Total
Common Stock Additional Accumulated Comprehensive Treasury Stock Shareholders'
Shares Amount Capital Earnings Income(Loss) Shares Amount Investment
------------------------------------------------------------------------------------
Balance at December 31, 1996 ....... 7,941 $794 $ 39,753 $145,195 ($ 911) 1,905 ($26,759) $158,072
Comprehensive income for 1997:
Net income ...................... 1,546
Other comprehensive
income (loss), net of tax
Foreign currency
translation adjustments (1,233)
Total comprehensive income 313
Issuance of common stock
for stock options ............... 9 1 142 143
------------------------------------------------------------------------------------
Balance at March 31, 1997 .......... 7,950 $795 $ 39,895 $146,741 ($2,144) 1,905 ($26,759) $158,528
====================================================================================
</TABLE>
<PAGE>
Page 5 Form 10-Q
TECH-SYM CORPORATION
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Tech-Sym
Corporation and its subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the financial statements and notes thereto appearing in the Company's
Annual Report for the year ended December 31, 1997.
In the opinion of the Company's management ("Management") all adjustments
necessary for a fair presentation of the results of operations for all periods
reported have been included. Such adjustments consist only of normal recurring
items.
The consolidated statements of income for the three months ended March 31, 1998
are not necessarily indicative of the results expected for the full year ending
December 31, 1998.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
NOTE 2 - INVENTORIES
Inventories, which consist principally of electronic components are summarized
as follows (in thousands):
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
Raw materials $40,180 $39,935
Work in progress 38,252 35,964
Finished goods 17,945 21,063
------- -------
$96,377 $96,962
======= =======
NOTE 3 - DISCONTINUED OPERATION
In the fourth quarter of 1997, the Company's majority-owned subsidiary,
GeoScience Corporation, sold its CogniSeis Development, Inc., subsidiary. As a
result, the operations for the three month period ended March 31, 1997 have been
reclassified to report separately the results of the discontinued operation.
Revenue from CogniSeis for the quarter ended March 31, 1997 was $5,823,000.
As reported in the 1997 Tech-Sym Annual Report, the expected gain on the sale
has been deferred until estimates regarding certain provisions of the sale
agreement can be made with reasonable certainty.
NOTE 4 - PER SHARE DATA
Basic per share amounts have been computed based on the average number of common
shares outstanding. Diluted per share amounts reflect the increase in average
common shares outstanding that would result from the exercise of outstanding
stock options computed using the treasury stock method. Stock options are the
only dilutive potential shares the Company has outstanding for all periods
presented. Outstanding options to purchase 313,000 and 229,500 shares of common
stock were excluded from the computation of diluted earnings per share for the
three month period ended March 31, 1998 and 1997, respectively, because to do so
would have been anti-dilutive using the treasury stock method.
NOTE 5 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, REPORTING COMPREHENSIVE INCOME. This Statement establishes
standards for reporting and display of comprehensive income and its components.
Accumulated other comprehensive income (loss) by component is summarized in the
Consolidated Statement of Changes in Shareholders' Investment.
<PAGE>
Page 6 Form 10-Q
TECH-SYM CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1998 COMPARED TO THE QUARTER
ENDED MARCH 31, 1997
Revenue for the quarter ended March 31, 1998 increased $4,826,000 or 7% to
$77,724,000 compared to $72,898,000 for the quarter ended March 31, 1997. The
overall increase in revenue is primarily attributable to increased shipments of
the 24-bit seismic data acquisition module ("24-bit module") which resulted in a
$9,981,000 or 43% increase in revenue in the geoscientific business area. The
increase in shipments of the 24-bit module is a result of the large backlog at
December 31, 1997, whereby customers placed orders in the third and fourth
quarters of 1997 to take advantage of prices before the planned 1998 price
increases and to insure their place in the manufacturing cycle as demand for the
product increased. Increased revenue in the geoscientific business area was
offset by decreases in revenue in the communications business area of $2,401,000
or 7% and the defense systems business area of $2,918,000 or 19%. The revenue
decrease in the communications business area resulted from the lower levels of
new orders in the latter part of 1997 for large broadcast systems. The revenue
decrease in the defense systems business area resulted from nearing completion
on several major programs while being in the early stages of a large government
contract awarded during the first quarter of 1998.
The gross profit margin was 34% for the quarter ended March 31, 1998 compared to
30% for the same quarter in the prior year. The increase in the gross margin
percentage was primarily a result of a change in the sales mix within the
geoscientific business area with an increase in sales of the higher margin
24-bit module.
Selling, general and administrative expense increased $1,855,000 or 12% to
$17,419,000 for the quarter ended March 31, 1998 compared to the same quarter in
the prior year. Most of the increase is a result of the increase in revenue as
discussed above. As a percentage of revenue, selling, general and administrative
expense increased to 22% for the quarter ended March 31, 1998 from 21% for the
quarter ended March 31, 1997. Other increases in selling, general and
administrative expense occurred in the defense systems business area as a result
of proposal costs incurred for newly awarded contracts and on other large
contract opportunities. Research and development expense was $3,481,000 for the
first quarter of 1998 compared to $3,155,000 for the first quarter of 1997
reflecting the Company's continued support of new technology and product
development.
Interest expense was $1,036,000 for the quarter ended March 31, 1998 compared to
$680,000 for the quarter ended March 31, 1997. The $356,000 or 52% increase in
interest expense was attributable to the increase in the level of borrowings to
support the expenditures for capital equipment and facilities and to finance the
growth in accounts receivable and inventories which increased throughout 1997.
Other income increased $666,000 to $1,100,000 for the quarter ended March 31,
1998 compared to $434,000 for the quarter ended March 31, 1997. The increase in
other income related in part to a settlement reached in the Company's favor
related to a former competitor's non-compete agreement violation.
The Company has increased its effective tax rate to 33% for 1998 as compared to
the 31.5% rate used for the first quarter in 1997 due to its anticipated profit
level for the year.
Minority interest expense was $483,000 for the first quarter of 1998 compared to
$96,000 for the first quarter of 1997. The increase in minority interest expense
is a direct result of the increase in net income at the Company's majority-owned
subsidiary, GeoScience Corporation ("GeoScience"). During the fourth quarter of
1997, GeoScience sold its CogniSeis Development, Inc., subsidiary. As a result,
there were no results from the discontinued operation for the first quarter of
1998 compared to a loss from the discontinued operation of $496,000 for the
first quarter of 1997.
Net income for the quarter ended March 31, 1998 was $3,252,000 or $.53 per share
as compared to $1,546,000 or $.25 per share for the quarter ended March 31,
1997, reflecting the net effect of the items discussed above.
<PAGE>
Page 7 Form 10-Q
TECH-SYM CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
As a result of improved earnings and the stabilization of inventory levels, the
Company is currently satisfying its working capital and capital expenditure
requirements through internally generated cash from operations. At March 31,
1998, the Company's working capital balance was $130,872,000 compared to
$125,634,000 at December 31, 1997 The increase in working capital is largely a
result of the decrease in the notes payable balance for which payments were made
during the first quarter of 1998. Cash provided by operations was $11,824,000
for the quarter ended March 31, 1998 as compared to cash used for operations of
$10,943,000 for the quarter ended March 31, 1997.
At March 31, 1998, the Company had short-term line of credit facilities
aggregating $99,854,000 of which $41,159,000 was available for additional
short-term borrowings. The Company had a working capital ratio of 2.16 to 1.0
and debt to total capitalization of 31%. The Company believes that its current
financial position and available line of credit facilities will provide adequate
sources of funds to meet foreseeable requirements.
Purchases of property, plant and equipment totaled $3,751,000 for the quarter
ended March 31, 1998 compared to $2,554,000 for the same quarter in the prior
year. The Company estimates that capital expenditures for property, plant and
equipment during the remainder of 1998 will be approximately $8,975,000. Most of
the anticipated capital expenditures are not subject to firm commitments and the
Company may modify its plans depending on future results of operations or other
factors.
Forward-looking statements in this document are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties, including, without limitation, risks associated with the
uncertainty of market acceptance of the Company's products, limited number of
customers, as well as risks of downturns in economic conditions generally, risks
associated with competition and competitive pricing pressures, and other risks
detailed in the Company's filings with the Securities and Exchange Commission.
<PAGE>
Page 8 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.
(b) Reports on Form 8-K.
None.
No financial statements were filed as a part of this report.
SIGNATURES
Pursuant to the requirements of the Securities and 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: May 13, 1998 /s/ J. MICHAEL CAMP
--------------------
J. Michael Camp, President
Date: May 13, 1998 /s/ RAY F. THOMPSON
--------------------
Ray F. Thompson, Vice President,
Treasurer, and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TECH-SYM CORPORATION FORM 10-Q 1ST QUARTER 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 18,914
<SECURITIES> 4,458
<RECEIVABLES> 69,162
<ALLOWANCES> 0
<INVENTORY> 96,377
<CURRENT-ASSETS> 243,558
<PP&E> 49,456
<DEPRECIATION> 0
<TOTAL-ASSETS> 339,195
<CURRENT-LIABILITIES> 112,686
<BONDS> 0
801
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 339,195
<SALES> 77,724
<TOTAL-REVENUES> 0
<CGS> 51,313
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,036
<INCOME-PRETAX> 5,575
<INCOME-TAX> 1,840
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,252
<EPS-PRIMARY> .54
<EPS-DILUTED> .53
</TABLE>
