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, 1997 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, SUITE 200
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
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK (PAR VALUE $.10 PER NEW YORK STOCK EXCHANGE
SHARE) AND COMMON 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. |_|
As of March 13, 1998, 6,059,181 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 $166,643,210 (based on the
March 13, 1998, closing sales price of $27.8125 published in THE WALL STREET
JOURNAL reports of New York Stock Exchange Composite Transactions).
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
1997 (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 28, 1998
(to the extent set forth in Part III of this Annual Report).
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in this Form 10-K,
including without limitation the statements under "Item 1. Business," "Item 3.
Legal Proceedings" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," are forward-looking statements.
Although Tech-Sym Corporation believes that the expectations reflected in such
forward-looking statements are reasonable as of the date hereof, no assurance
can be given that such expectations will prove to be correct. Readers are
cautioned not to place undue reliance on these forward-looking statements.
Important factors that could cause actual results to differ materially from
expectations ("Cautionary Statements") include without limitation (i) the risk
of technological change relating to the Company's products and the risk of the
Company's inability to develop new competitive products in a timely manner, (ii)
the risk of decreased demand for the Company's products due to fluctuations in
energy industry activity, communications industry activity, and levels of
government expenditures on defense equipment, (iii) the Company's reliance on
certain significant customers, [iv] risk associated with a significant amount of
foreign sales, (v) the credit risk to the Company from certain sales
arrangements, (vi) the risk of fluctuations in future operating results, (vii)
the risks of excess or inadequate inventory levels, (viii) the risks of changing
government regulations or statutes, (ix) the risks of general market conditions,
competition, and pricing, and (x) the risk of continued access to capital
markets and commercial bank financing on favorable terms. The Company undertakes
no obligation to revise or publicly release the results of any revision to these
forward-looking statements. All subsequent written and oral forward-looking
statements attributable to Tech-Sym Corporation or persons acting on its behalf
are expressly qualified in their entirety by Cautionary Statements.
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 manufacture of products used for communications, oil
and gas exploration and production and defense.
The Company, incorporated in Nevada in 1944, is headquartered in
Houston, Texas. The Company operates through five principal subsidiaries:
Continental Electronics Corporation ("Continental") located in Dallas, Texas;
Enterprise Electronics Corporation ("EEC") located in Enterprise, Alabama;
GeoScience Corporation ("GeoScience") located in Houston, Texas; Metric Systems
Corporation ("Metric") located in Fort Walton Beach, Florida; and TRAK
Communications Inc. ("TRAK") located in Tampa, Florida.
COMMUNICATIONS. The Company's communications products include
microwave components and subsystems, timing and positioning equipment, antennas,
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broadcast transmitters, high power energy sources, weather information systems,
and electronic defense products.
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 receiver 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 their
systems. The Company also produces high performance and compact GPS filter
amplifiers for use in airborne and terrestrial navigation guidance systems.
The Company also builds extremely accurate timing systems for use by
government and commercial organizations, such as NASA, telephone companies, and
electric power utilities, to synchronize communication carrier signals, initiate
or time events, and extract timing information from the Global Positioning
System (GPS) satellites.
The Company designs and produces antennas for wireless voice and
data communication, satellite communication, surveillance, and range
instrumentation. The Company also supplies antennas, fiber optic controllers,
and positioners for information gathering by the U.S. surveillance community and
high power antennas used by the military for jamming enemy radars. Telemetry
tracking systems and microprocessor-based antenna controllers are sold to the
U.S. and foreign governments for use on military test and training ranges. The
Company also has designed and produces antennas for air and land mobile
satellite communications systems. In the wireless local loop market, the Company
provides high performance base station and home subscriber antennas for
telephony systems. Its antennas are also embedded in spread spectrum wireless
systems used by merchandisers to read bar codes and transfer information to and
between computer information systems.
Broadcast 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". The Company also manufactures high power radio
frequency energy sources such as large particle accelerators for medical and
physics research installations, and communications and radar equipment for U.S.
and foreign defense agencies. The Company's principal 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.
The Company's TELEFUNKEN Sendertechnik GmbH subsidiary in Berlin,
Germany, designs and manufactures broadcast transmitters and antennas for the
world market. Its digital audio broadcast equipment produces compact disk
quality sound for specially designed FM radios and currently is in use in
several test markets. It also designs and manufactures solid state band IV/V
television transmitters which also are being modified for use in digital
television broadcasting.
Through its Continental-Lensa subsidiary in Santiago, Chile, the
Company designs and manufactures solid state AM transmitters for sale in the
Western
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Hemisphere as well as in Europe. The Company also participates in a joint
manufacturing agreement with the Ministry of Film, Radio, and Television in the
People's Republic of China which provides for the manufacture of FM and
shortwave broadcast transmitters at the Company's facility in Dallas, as well as
in Beijing.
Meteorological agencies, television broadcasters, and the U.S.
military forces use the Company's Doppler weather radars to forecast weather and
provide severe weather warnings. The Doppler radar measures both reflectivity
and velocity of rain droplets and is used to detect, quantify and display
precipitation intensity, velocity, and turbulence. The radar is extremely
helpful in analyzing severe weather conditions such as hurricanes, tornadoes,
thunderstorms, and wind shear. The addition of dual polarization to the radar
provides information on the size and shape of echo-producing droplets, resulting
in more accurate calculations of precipitation levels and in the identification
of hail.
EEC has coupled its high performance Doppler radar with
sophisticated data processing systems. These systems range from low-cost
PC-based display and control systems through UNIX platform mid-range systems to
larger scientific systems utilizing Hewlett Packard, IBM, Silicon Graphics, and
the DEC Alpha station computers. The processing systems known as Weather
Windows(R) and EDGE(R) (Enterprise Doppler Graphics Environment) provide
meteorologists with 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. A
unique software utility program developed by EEC for meteorologists, known as
SMART (System for Meteorological Analysis in Real Time), provides displays of
weather features such as wind field vectors and the growth and decay of storm
cells. EEC's weather radars with dual polarization and precision Doppler
processing, coupled with SMART and a full-featured computer based control and
display subsystem, provide meteorologists and forecasters with an unprecedented
amount of critical weather information. More than 600 of the Company's weather
radars have been installed in more than 60 countries.
GEOSCIENCE. The Company designs, develops, and manufactures products
that acquire, digitize, transmit, record, and display acoustic energy produced
by air guns, dynamite, or other sound sources and reflected from underground or
subsea geologic formations. The Company's products are used by the oil and gas
exploration and production industry to identify and define subsurface geologic
structures primarily to predict the existence and location of oil and gas
reserves. 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.
The Company is developing products that will enable its existing 3-D
seismic data acquisition systems to be used in connection with 4-D seismic
surveys. The 4-D process, or time-lapse 3-D, measures the same length, depth and
width of data acquired in 3-D surveys, but also features the capability to time
intervals between two or more surveys. The process is well suited for reservoir
monitoring application, and is intended to identify fluid movements and changes
in the producing status of the reservoir.
Principal seismic products include the digital SYNTRAK 960-24(TM)
Multiple Streamer Telemetry System consisting of one to sixteen seismic streamer
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cables, each up to 12,000 meters in length, containing sensors, 24-bit digital
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 SYNTRAK 960-24(TM) Ocean Bottom Cable
System. The system is used in shallow water environments as well as in ocean
bottom operations in congested and obstructed areas where conventional towed
streamer cables cannot be used efficiently.
The PolySeis ATS(TM) System, which the Company developed with
partial funding from the INSTITUTE FRANCAIS DU PETROLE, is a 24-bit 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
specifically is 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, jungles or mountainous areas.
The Company maintains operations for the design, manufacture, and
repair of marine seismic cables in England, Singapore, and Houston. 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. A reduced diameter array marine cable has been
developed to reduce drag when towed through the water and to reduce weight and
handling problems on board the seismic vessel. A subsidiary of the Company and
the China Oil Offshore Geophysical Corporation operate a joint venture to
manufacture and repair marine seismic cables in the People's Republic of China.
Seismic cables for use on land as well as ocean bottom cables also are produced
by the Company in Houston.
The Company, through its Symtronix subsidiary, provides expert
services in converting and loading seismic data into useable formats and
provides computer support and maintenance services in Russia, Belarus, and
Azerbaijan.
In June 1997, the Company adopted a plan to sell its geoscientific
software subsidiary, CogniSeis, and completed the sale on October 14, 1997. See
Note 3 of the Notes to Consolidated Financial Statements included in the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
which information is incorporated herein by reference.
On December 18, 1997, the Company's subsidiary, Syntron, acquired
all of the shares of Innovative Transducers Inc. ("ITI"). ITI manufactures and
sells transducers and arrays used in connection with engineering applications
and the acquisition of seismic data, and provides repair services with respect
to such products.
DEFENSE SYSTEMS. The principal defense systems products include
airborne training and instrumentation systems, shipboard electronics, and
mechanical systems which are designed and manufactured by its subsidiary, Metric
Systems Corporation. The Company also provides support personnel and services to
military training ranges.
The airborne training systems consist of instrumentation 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 most current version of
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the pod contains a high-performance Global Positioning System (GPS) receiver
integrated with other state-of-the-art electronics to collect precise time and
position information, along with weapons data from the aircraft during simulated
combat. The data inputs are recorded in the pods and can be transmitted to
identical pods on other aircraft, allowing training exercises to be conducted
without being "tethered" to a fixed range location. The data can be downloaded
or sent via telemetry to ground instrumentation equipment for display,
debriefing, and subsequent analysis by the participants. This equipment reduces
the cost of operating Air Combat Maneuvering Instrumentation (ACMI) ranges since
manned radar tracking sites and other equipment are unnecessary. The Company
also produces a family of advance threat radar emitters and simulators that
operate with the instrumentation pods to simulate a realistic combat environment
for pilot training.
The Company's shipboard electronic products are used on a variety of
platforms. Electronic control, monitoring and power distribution equipment
designed and produced by the Company has been used since the late 1970s on the
U.S. Navy's Vertical Launching Systems (VLS) deployed on the Ticonderoga
(CG-47), Spruance (DD-963), and Arleigh Burke (DDG-51) classes of cruisers and
destroyers. Similar systems have also been sold to the governments of Canada,
Japan, Australia, New Zealand, Germany, Spain, and the Netherlands. The Company
also supplies shipboard product subsystems for the AN/SQQ-89 Surface
Anti-Submarine Warfare Combat System, firing mechanisms for the Tomahawk and
Trident missiles, and cable assemblies for the AEGIS weapon system. The
Company's shipboard electrical switchgear, generator control, weapons control
and internal communications equipment also have been installed on several
classes of U.S. Navy and foreign government ships.
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, torpedoes, and missiles, aircraft launcher rail assemblies for
the AMRAAM missile, and mobile ground equipment used to clean and lubricate
aircraft engines. The Company also has 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 custom
automated test equipment such as the Common Rail and Launcher Test Set used to
test many types of airborne weapons launching systems. The Company also is
providing integration support for the U.S. Army Joint Surveillance and Target
Attack Radar System (JSTARS) Common Ground Station (CGS).
GOVERNMENT CONTRACTS
Sales under contracts with or for the United States Government
accounted for $88.5 million or 30% of the Company's sales in 1997. Most of the
Company's Government contracts are fixed-price contracts. Under a fixed-price
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, substantially could
reduce the Company's profitability or cause losses.
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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 interest. 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 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 which generally is 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 75% to 80%
of its allowable costs incurred in performing the contract, including applicable
indirect costs such as selling, 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, and 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.
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 also has 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 (i) marine seismic
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data acquisition systems to the petroleum industry, and (ii) meteorological
radars to foreign government agencies.
Demand for many of the products sold by the Company depends upon the
level and nature of the nation's defense expenditures. See "Other Information"
included in Management's Discussion and Analysis set forth on page 23 of the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
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, the Company commonly
experiences delays in the receipt of anticipated orders, which can adversely
impact 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 primarily are 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),
communication equipment manufacturers, government and commercial weather
services, foreign government agencies, radio broadcast companies and
organizations, research organizations, and government contractors. The customers
for geoscience products include independent and foreign national oil and gas
companies, seismic contractors, geophysical contractors and government agencies
around the world. The defense systems products are sold to the armed forces of
the United States and foreign governments, government contractors, and aircraft
manufacturers.
The Company's largest customer is the United States Government, its
agencies and contractors, whose purchases accounted for approximately 30% of the
Company's consolidated sales in 1997. Of that amount, approximately 85% 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.
During fiscal 1997, 1996, and 1995, approximately 48%, 47%, and 43%,
respectively, of the Company's revenue was derived from sales to customers
outside the United States. See Note 14 of Notes to Consolidated Financial
Statements included in the Company's annual Report to Shareholders for the year
ended December 31, 1997, which information is incorporated herein by reference.
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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 24 of the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
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 the Company holds 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. Because of rapidly changing
technology and the need for confidentiality, the Company does not seek to obtain
patents in many cases.
BACKLOG
The backlog of unshipped orders was $152,306,000 and $127,896,000 as
of December 31, 1997 and 1996, respectively. The backlog as of such dates which
was reasonably expected to be filled within twelve months of such date was
$146,142,000 and $112,392,000, 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. Most of these items are available from
several commercial sources. The Company does not depend on any single source for
a significant portion of its supplies except for the 24-bit analog-to-digital
converters and hybrid processors used in Syntron's SYNTRAK 960-24(TM) towed
array system and ocean bottom cable.
ENVIRONMENTAL PROTECTION
No material effect on the operations of the Company presently is
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 to comply with any
such provisions.
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EMPLOYEES
As of December 31, 1997, the Company employed a total of 2,459
persons worldwide, of whom 1,925 were employed in the United States. None of the
Company's domestic 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 23 of the Company's Annual Report
to Shareholders for the year ended December 31, 1997, which information is
incorporated herein by reference.
GEOGRAPHICAL INFORMATION
Certain geographical information concerning the Company's business
is set forth in Note 14 of the Notes to Consolidated Statements contained in the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
which information is incorporated herein by reference.
YEAR 2000
The Company currently is in the process of evaluating its
information technology infrastructure for the Year 2000 compliance. The Company
does not expect that the cost to modify its information technology
infrastructure to be Year 2000 compliant will be material to its financial
condition or results of operations. The company does not anticipate any material
disruptions in its operations as a result of any failure by the Company to be in
compliance.
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 10,000 square feet of the 20,000
square foot building. The remaining portion of the building is leased to a third
party.
The manufacturing operations conducted by the subsidiaries of TRAK
Communications include (i) 123,000 square feet of office and plant facilities on
ten acres owned in Tampa, Florida, (ii) 45,500 square feet of office and plant
facilities owned in Dundee, Scotland, (iii) 14,500 square feet of offices and
plant facilities leased in San Clemente, California, (iv) 54,650 square feet of
offices, plant facilities, and warehouse space leased in Chatsworth, California,
(v) 12,000 square feet of office and plant facilities leased in Largo, Florida,
and (vi) 36,685 square feet of office and plant facilities leased in Hagerstown,
Maryland.
Continental Electronics conducts its broadcast transmitter and high power
energy source manufacturing operations 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
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the Continental property. Continental-Lensa S.A. of Santiago, Chile, owns a
13,000 square foot facility for its assembly operations. TELEFUNKEN
Sendertechnik GmbH operates from a leased facility of approximately 65,000
square feet in Berlin, Germany.
EEC conducts its weather information systems manufacturing
operations from office and plant facilities comprising 43,000 square feet
located on an 11 acre tract owned by the Company in Enterprise, Alabama.
The GeoScience subsidiaries conduct their manufacturing and services
operations from (i) 110,000 square feet of offices and plant facilities on a
17.4 acre tract owned in Houston, Texas, (ii) 108,000 square feet of leased
offices and plant facilities at four locations in Houston, Texas, (iii) 5,000
square feet of leased offices and plant facilities in Fort Worth, Texas, (iv)
52,000 square feet of office and plant facilities on a 2.8 acre tract owned in
Derbyshire, England, and (v) a 33,300 square foot company-owned office and plant
facility on a 1.4 acre tract leased in Singapore. Additional office space for
service centers and sales offices is leased in The People's Republic of China,
Russia, Singapore, Belarus, and Azerbaijan.
Within 1998, GeoScience's subsidiary, Syntron, currently plans to
begin and complete construction of an 80,000 square foot production facility
adjacent to its currently owned facility in Houston, Texas, to replace certain
leased facilities and consolidate operations.
Metric conducts its defense systems manufacturing operations 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 5,000 square feet of office and storage space in
several nearby facilities.
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 550 acres of this development remains unsold.
Certain of the facilities of the Company and its subsidiaries are
subject to mortgage debt as set forth in Note 8 of the Notes to Consolidated
Financial Statements contained in the Company's Annual Report to Shareholders
for the year ended December 31, 1997, which information is incorporated herein
by reference.
The Company believes that it has, or can obtain, adequate and
suitable facilities for the business expected over the next several years. The
Company maintains customary compensation, liability, and property insurance for
all of its operations.
ITEM 3. LEGAL PROCEEDINGS
There are various 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, results of operations or cash flows of the
Company.
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ITEM 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1997 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 68 Chairman of the Board, President and Director of
the Company and officer and director of various
subsidiaries of the Company
Coy J. Scribner 66 Vice President and Director of the Company,
President and Director of Metric, and Chairman
of the Board of EEC
Ray F. Thompson 61 Vice President, Treasurer, and Chief Financial
Officer of the Company and officer and director
of various subsidiaries of the Company
J. Rankin Tippins 45 Secretary and General Counsel of the Company and
officer and director of various subsidiaries of
the Company
Paul L. Harp 49 Controller and Chief Accounting Officer of the
Company
O. Dale Burris 61 President of TRAK Communications Inc.
Robert M. McDonald 67 President of Continental Electronics Corporation
Richard F. Miles 49 President and Director of GeoScience
Corporation, Chairman of the Board and President
of Syntron
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
11
<PAGE>
such Company, to serve for the ensuing year or until their successors have been
elected. The annual meetings of shareholders of the Company and GeoScience
normally are held in April of each year and the annual meeting of each of the
Company's principal subsidiaries, including Metric, TRAK Communications, EEC,
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 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 has been Secretary and General Counsel of the Company
for more than the past five years.
Mr. Harp was elected Controller of the Corporation effective July 1,
1996, and is the Chief Accounting Officer for the Company. He previously had
served as Secretary, Treasurer, and Controller of Metric since 1982.
Mr. Burris has served as President of TRAK Microwave for more
than the past five years. In March of 1997 he was elected as President of
TRAK Communications Inc.
Mr. McDonald has served as President of Continental for more than
the past five years.
Mr. Miles was elected President of Syntron, Inc., on January 29,
1990. In December of 1995, he was elected Chairman of the Board of Syntron and
resigned as President of Syntron. In March of 1996 and January of 1998,
respectively, he was elected President of GeoScience Corporation and re-elected
President of Syntron and continues to serve in those capacities.
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 1997, 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 50
Related Stockholder
Matters.
12
<PAGE>
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 Financial Condition and Results of
Condition and Results of Operations"; pages 18 through 23,
Operations inclusive
Item 8. Financial Statements Tech-Sym Corporation and Subsidiaries
and Supplementary Data Consolidated Financial Statements; pages
24 through 50, inclusive
ITEM 7.A. QUANTITAVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
None.
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 4(A) is
contained in the Company's definitive proxy statement for the Annual Meeting of
Shareholders to be held April 28, 1998. Such information which is to be filed
with the Securities and Exchange Commission within 120 days of December 31,
1997, pursuant to Regulation 14A under the Securities Exchange Act of 1934, is
incorporated herein by reference
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.
13
<PAGE>
(2) FINANCIAL STATEMENT SCHEDULES
A list of the financial statement schedules included herein is
contained in the accompanying Index to Financial Statements and
Schedules.
(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)]
10(a)+ 1990 Stock Option Plan, as amended effective
April 29, 1997.
10(b)+ Written description of incentive bonus
compensation plan effective January 1, 1997
*10(c)+ 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(d)+ 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(e)+ First Amendment to Termination Agreement, dated
April 26, 1994, between the Registrant and
Richard F. Miles [Registration No. 33-56533,
Exhibit 10(s)]
*10(f)+ 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(g)+ 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)]
14
<PAGE>
*10(h)+ Termination Agreement dated August 15, 1996,
between the Registrant and Paul L. Harp
[Registrant's 10-K (1996), SEC File No. 1-4371,
Exhibit 10(p)]
*10(i) 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(j) 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(k)+ 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(l)+ Executive Retirement Agreement, as amended and
restated, dated April 30, 1992, between the
Registrant and Wendell W. Gamel [Registrant's
10-K (1996), SEC File No. 1-4371, Exhibit 10(t)]
*10(m)+ Executive Retirement Agreement, as amended and
restated, dated April 30, 1992, between the
Registrant and Coy J. Scribner [Registrant's
10-K (1996), SEC File No. 1-4371, Exhibit 10(u)]
*10(n)+ Executive Retirement Agreement, as amended and
restated, dated April 30, 1992, between the
Registrant and Ray F. Thompson [Registrant's
10-K (1996), SEC File No. 1-4371, Exhibit 10(v)]
*10(o)+ Executive Retirement Agreement, as amended and
restated, dated April 30, 1992, between the
Registrant and O. Dale Burris [Registrant's 10-K
(1996), SEC File No. 1-4371, Exhibit 10(w)]
*10(p)+ Executive Retirement Agreement, as amended and
restated, dated April 30, 1992, between
Registrant and J. Rankin Tippins [Registrant's
10-K (1996), SEC File No. 1-4371, Exhibit 10(x)]
*10(q)+ Executive Retirement Agreement dated April 26,
1994, between the Registrant and Richard F.
Miles [Registration No. 33-56533, Exhibit
10(ee)]
15
<PAGE>
10(r)+ Executive Retirement Agreement dated January 1,
1998, between the Registrant and Paul L. Harp
13 Pages 17-50 of the Annual Report to Shareholders
of Registrant for the year ended December 31,
1997, 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
22 Power of Attorney
23 Consent of independent accountants
27 Financial Data Schedule which is deemed not to be
filed for purposes of liability under the federal
securities laws
+ Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to the
requirements of Item 14(c) of Form 10-K.
(B) REPORTS ON FORM 8-K
Registrant's Current Report on Form 8-K dated October 30, 1997 (Item
5 and Item 7 - reporting third quarter and nine months results as
set forth in the press release dated October 30, 1997).
16
<PAGE>
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 and
Treasurer (principal financial officer)
Date: March 30, 1998
By:/s/PAUL L. HARP
Paul L. Harp, Controller (principal
accounting officer)
Date: March 30, 1998
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 30, 1998
By:* W. L. CREECH
W. L. Creech
Director
Date: March 13, 1998
By: *MICHAEL C. FORREST
Michael C. Forrest
Director
Date: March 13, 1998
17
<PAGE>
By: *A. A. GALLOTTA, JR.
A. A. Gallotta, Jr.
Director
Date: March 13, 1998
By: *CHRISTOPHER C. KRAFT, JR.
Christopher C. Kraft, Jr.
Director
Date: March 13, 1998
By: *COY J. SCRIBNER
Coy J. Scribner
Director
Date: March 13, 1998
By: *CHARLES K. WATT
Charles K. Watt
Director
Date: March 13, 1998
*Signed by Ray F. Thompson as attorney-in-fact pursuant to Power of Attorney.
18
<PAGE>
FINANCIAL STATEMENTS AND
SCHEDULES
<PAGE>
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 Statement of Income for the three years
ended December 31, 1997........................................ 24
Consolidated Balance Sheet at December 31, 1997
and 1996....................................................... 25
Consolidated Statement of Cash Flows for the three
years ended December 31, 1997.................................. 26
Consolidated Statement of Changes in Shareholders'
Investment for the three years ended December 31, 1997......... 27
Notes to Consolidated Financial Statements....................... 28
Report of Independent Accountants................................ 50
PAGE
IN THIS REPORT
ON FORM 10-K
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement
Schedule...................................................... S-2
Valuation and Qualifying Accounts and Reserves
(Schedule II) for the three years ended
December 31, 1997............................................. S-3
*Incorporated by reference from the indicated pages of the 1997 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Tech-Sym Corporation:
Our audits of the consolidated financial statements referred to in our report
dated February 18, 1998, appearing in the 1997 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 Schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Houston, Texas
February 18, 1998
S-2
<PAGE>
TECH-SYM CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (SCHEDULE II)
FOR THE THREE YEARS ENDED
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
====================================================================================================================================
CHARGED TO CHARGED TO CHARGED TO
BALANCE AT COSTS AND BALANCE COSTS AND BALANCE COSTS AND BALANCE
BEGINNING EXPENSES DEDUCTIONS AT END EXPENSES DEDUCTIONS AT END EXPENSES DEDUCTIONS AT END
DESCRIPTION OF 1995 1995 1995 OF 1995 1996 1996 OF 1996 1997 1997 OF 1997
- -------------------- ---------- ---------- ---------- ------- ---------- ---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TECH-SYM CORPORATION
AND CONSOLIDATED
SUBSIDIARIES
Reserves deducted
from assets:
Current receivables ... $ 226 $ 1,467 $ 793 $ 900 $ 1,098 $ 555 $ 1,443 $ 441 $ 619 $ 1,265
Long-term receivables . 212 394 606 60 247 419 351 281 489
---------- ---------- ---------- ------- ---------- ---------- ------- --------- ---------- -------
$ 438 $ 1,861 $ 793 $ 1,506 $ 1,158 $ 802 $ 1,862 $ 792 $ 900 $ 1,754
========== ========== ========== ======= ========== ========== ======= ========= ========== =======
</TABLE>
S-3
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
TECH-SYM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
E X H I B I T S
TO ANNUAL REPORT OF REGISTRANT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
ON FORM 10-K (FILE NO. 1-4371)
<PAGE>
EXHIBIT INDEX
Thefollowing documents are included as Exhibits to this report. An asterisk
(*) placed opposite of the description of an Exhibit denotes that such
Exhibithas been incorporated by reference to the registration statement or
report specified in the brackets in such Exhibit description.
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT NUMBER
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 & Trust Company, as
rights agent, relating to Common Stock Purchase
Rights [Registrant's 10-K (1993), SEC File No.
1-4371, Exhibit 4(a)]
10(a)+ 1990 Stock Option Plan, as amended, effective __
April 29, 1997
10(b)+ Written description of incentive bonus __
compensation plan effective January 1, 1997
10(c)+ 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(d)+ 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(e)+ First Amendment to Termination Agreement, dated *
April 26, 1994, between the Registrant and
Richard F. Miles [Registration No. 33-56533,
Exhibit 10(s)]
10(f)+ 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)]
I-1
<PAGE>
10(g)+ 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(h)+ 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(i) 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(j) 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(k)+ 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(l)+ Executive Retirement Agreement, as amended and *
restated, dated April 30, 1992, between the
Registrant and Wendell W. Gamel [Registrant's
10-K (1996), SEC File No. 1-4371, Exhibit 10(t)]
10(m)+ Executive Retirement Agreement, as amended and *
restated, dated April 30, 1992, between the
Registrant and Coy J. Scribner [Registrant's
10-K (1996), SEC File No. 1-4371, Exhibit 10(u)]
10(n)+ Executive Retirement Agreement, as amended and *
restated, dated April 30, 1992, between the
Registrant and Ray F. Thompson [Registrant's
10-K (1996), SEC File No. 1-4371, Exhibit 10(v)]
10(o)+ Executive Retirement Agreement, as amended and *
restated, dated April 30, 1992, between the
Registrant and O. Dale Burris [Registrant's 10-K
(1996), SEC File No. 1-4371, Exhibit 10(w)]
10(p)+ Executive Retirement Agreement, as amended and *
restated, dated April 30, 1992, between
Registrant and J. Rankin Tippins [Registrant's
10-K (1996), SEC File No. 1-4371, Exhibit 10(x)]
I-2
<PAGE>
10(q)+ Executive Retirement Agreement dated April 26, *
1994, between the Registrant and Richard F.
Miles [Registration No. 633-56533, Exhibit 10(ee)]
10(r)+ Executive Retirement Agreement dated January 1, __
1998, between the Registrant and Paul L. Harp
13 Pages 17 through 50 of the Annual Report to __
Stockholders of Registrant for the year ended
December 31, 1997, 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 __
22 Power of Attorney __
23 Consent of independent accountants __
27 Financial Data Schedule which is deemed __
not to be filed for purposes of liability
under the federal securities laws
+Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to the requirements of Item 14(c) of Form
10-K.
I-3
EXHIBIT 10(a)
<PAGE>
TECH-SYM CORPORATION
1990 STOCK OPTION PLAN
(THIRD AMENDMENT)
This Third Amendment shall be effective upon its approval by the
stockholders of Tech-Sym Corporation (the "Company") at the 1997 annual meeting
of the stockholders. However, if the stockholders of the Company do not approve
this Third Amendment at the 1997 annual meeting of stockholders of the Company,
this amendment shall be null and void for all purposes. Further, no grants shall
be made pursuant to this amendment prior to the date this amendment is approved
by the stockholders. The terms of the Plan, as amended and restated by this
Third Amendment, are as set forth below.
1. PURPOSE
The purpose of the Tech-Sym corporation 1990 Stock Option Plan (the
"Plan") is to advance the interests of Tech-Sym Corporation (the "Company") and
its Subsidiaries (as defined below) by providing incentive awards and stock
ownership opportunities to those key employees including officers and directors
who are employees) who contribute significantly to the performance of the
Company and its Subsidiaries ("Key Employees") and stock ownership opportunities
to the members of the Board of Directors of the company (the "Board") who are
not employees of the Company or a Subsidiary ("Nonemployee Directors"). In
addition, the Plan is intended to enhance the ability of the Company and its
Subsidiaries to attract and retain individuals of superior managerial ability
and to motivate such individuals to exert their best efforts towards future
progress and profitability of the Company and its Subsidiaries.
For purposes of the Plan, a Subsidiary shall be any corporation in which
the Company has a direct or indirect ownership interest of 50% or more the total
combined voting power of all classes of stock in such corporation.
2. ADMINISTRATION AND INTERPRETATION
a. Administration. The Plan shall be administered by a committee
(the "Committee") consisting of not less than three members of the Board
appointed by and serving at the pleasure of the Board; provided that each member
shall be a "nonemployee director" within the meaning of Rule 16b-3 which has
been adopted by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as such Rule or its equivalent is in effect from time to
time. The Board may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee may prescribe, amend
and rescind rules and regulations for the administration of the Plan and shall
have the full power and authority to construe and interpret the Plan. A majority
of the members of the Committee shall constitute a quorum and the acts of a
majority of the members present at a meeting or the acts of a majority of the
members evidenced in writing shall be the acts of the Committee. The Committee
may correct any defect or any omission or reconcile any inconsistency in the
Plan or in any award or grant made hereunder in the manner and to the extent it
shall deem desirable.
The Committee shall have the full and exclusive right to grant all
Options and SARs (both as defined below), other than the automatic grant of
Options and SARs to Nonemployee Directors as provided in Section 5 below. In
granting Options or SARs, the Committee shall take into consideration the
contribution the employee has made or may make to the success of the Company or
its Subsidiaries and such other considerations as the Committee shall determine.
The Committee shall also have the authority to consult with and receive
recommendations from officers and other employees of the Company and its
Subsidiaries with regard to these matters. In no event shall any employee, his
legal representatives, heirs, legatees, distributees, or successors have any
right to participate in the Plan, except to such extent, if any, as the
Committee shall determine.
The Committee may from time to time in granting Options or SARs
under the Plan prescribe such other terms and conditions concerning such Options
or SARs as it deems appropriate, provided that such terms and conditions are not
more favorable to the Key Employee than those expressly set forth in the Plan.
The day-to-day administration of the Plan may be carried out by such
officers and employees of the Company and its Subsidiaries as shall be
designated from time to time by the Committee.
b. INTERPRETATION. The interpretation and construction by the
Committee of any provisions of the Plan or of any award or grant under the Plan
and any determination by the Committee under any provision of the Plan or any
such award or grant shall be final and conclusive for all purposes.
c. LIMITATION ON LIABILITY. Neither the Committee nor any member
thereof shall be liable for any act, omission, interpretation, construction or
determination made in connection with the Plan in good faith, and the members of
the Committee shall be entitled to indemnification and reimbursement by the
Company in respect of any claim, loss, damage or expense (including counsel
fees) arising therefrom to the full extent permitted by law and under any
directors and officers liability insurance coverage that may be in effect from
time to time.
3. SHARES SUBJECT TO AWARDS UNDER THE PLAN
a. LIMITATION ON NUMBER OF SHARES. The shares subject to grants of
Options and SARs shall be shares of the Company's authorized but unissued common
stock, par value$.10 per share, and shares, if any, of such common stock that
are issued but not outstanding and held as treasury stock by the Company
("Common Stock"). Subject to adjustment as hereinafter provided, the aggregate
number of shares of Common Stock as to which Options and/or SARs may be granted
under the Plan shall not exceed 1,158,000 shares.
Shares of Common Stock ceasing to be subject to an Option or SAR
because of the exercise of such Option or SAR shall no longer be subject to any
further grant under the Plan. If any outstanding Option or SAR, in whole or in
part, expires or terminates unexercised or is cancelled for any reason prior to
January 1, 2000, the shares of Common Stock allocable to the unexercised,
terminated, cancelled or forfeited portion of such Option or SAR may again be
made the subject of grants under the Plan.
b. ADJUSTMENTS OF AGGREGATE NUMBER OF SHARES. The aggregate number
of shares of Common Stock stated in Section 3(a) shall be subject to appropriate
adjustment, from time to time, in accordance with the provisions of Section 6
hereof. In the event of a change in the Common Stock of the Company that is
limited to a change in the designation thereof to "Capital Stock" or other
similar designation, or to a change in the par value thereof, or from par value
to no par value, without increase or decrease in the number of issued shares,
the shares resulting from any such change shall be deemed to be Common Stock
within the meaning of the Plan.
4. ELIGIBILITY
The individuals eligible to receive Options and/or SARs under the Plan
shall be those Key Employees as the Committee from time to time shall determine.
In addition, each Nonemployee Director shall automatically receive Options and
SARs under the Plan as provided in Section 5 below.
5. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
a. GRANTS OF OPTIONS.
(1) IN GENERAL. Options granted under the Plan may be either
"Incentive Stock Options or "Non-qualified Stock Options" (both as defined
below and collectively referred to as "Options"), or both. Options granted
under the Plan shall be such type and for such number of shares of Common
Stock, subject to such terms and conditions as the Committee shall
designate.
The Committee may grant Incentive Stock Options and/or Non-qualified
Stock Options to Key Employees at any time and from time to time before
January 1, 2000.
(2) INCENTIVE STOCK Options. The term "Incentive Stock Option" shall
mean an Option, or portion thereof, that is intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
(3) NON-QUALIFIED STOCK OPTIONS. The term "Non-qualified Stock
Option" shall mean any Option, or portion thereof, that is not an
Incentive Stock Option. Except as specifically provided herein, the
provisions of this Plan shall apply in the same manner to Incentive Stock
Options and to Non-qualified Stock Options.
b. GRANTS OF STOCK APPRECIATION RIGHTS.
(1) IN GENERAL. The term stock appreciation right or "SAR" shall
mean the right to receive from the Company an amount equal to the Market
Value Per Share (as defined in Section 5c.(4) below) on the exercise date,
over the Market Value Per Share on the date of grant, multiplied by the
total number of shares of Common Stock for which the SAR is exercised. The
amount payable by the Company upon the exercise of a SAR may be paid in
cash or in shares of Common Stock or in any combination thereof as the
Committee in its sole discretion shall determine, but no fractional shares
shall be issuable pursuant to any SAR.
SARs may be granted by the Committee to any Key Employee at any time
and from time to time before January 1, 2000. A SAR may, but need not,
relate to a specific Option granted under this Plan. If a SAR relates to a
specific Option, it may be granted either concurrently with the Option or
at any time prior to the exercise, termination, cancellation or expiration
of such Option.
(2) LIMITATIONS ON SARS. The Committee may fix such waiting periods,
exercise dates or other limitations as it shall deem appropriate with
respect to SARs granted under the Plan; provided, however, that each SAR
granted hereunder shall be exercisable only upon consent of the Committee;
and provided further, that a SAR that relates to a specific Option shall
be exercisable only when and to the extent that the Option to which it
relates is exercisable.
c. TERMS OF OPTIONS AND SARS. Options and SARs granted pursuant to
this Plan shall be evidenced by stock option agreements and/or SAR agreements
respectively (collectively referred to herein as "agreements") that shall comply
with and be subject to the following terms and conditions and may contain such
other provisions, consistent with this Plan, as the Committee shall deem
advisable. SARs that relate to a specific Option, however, may be evidenced by
stock option agreements or agreements amending and/or forming a part of the
stock option agreements to which such SARs relate. Reference herein to
agreements shall include, to the extent applicable, any amendments to such
agreements.
(1) PAYMENT OF OPTION EXERCISE PRICE. Upon exercise of an Option,
the full option exercise price for the shares with respect to which the
Option is being exercised shall be payable to the Company (i) in cash or
by check payable and acceptable to the Company or (ii) subject to the
approval of the Committee, (a) by tendering to the Company shares of
Common Stock owned by the optionee having an aggregate Market Value Per
Share as of the date of exercise and tender that is not greater than the
full option exercise price for the shares with respect to which the Option
is being exercised and by paying any remaining amount of the option
exercise price as provided in (i) above (provided that the Committee may,
upon confirming that the optionee owns the number of shares being
tendered, authorize the issuance of a new certificate for the number of
shares being acquired pursuant to the exercise of the Option less the
number of shares being tendered upon the exercise and return to the
optionee (or not require surrender of) the certificate for the shares
being tendered upon the exercise) or (b) by the optionee delivering to the
Company a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company cash or a
check payable and acceptable to the company to pay the option exercise
price; provided that in the event the optionee chooses to pay the option
exercise price as provided in (ii)(b) above, the optionee and the broker
shall comply with such procedures and enter into such agreements of
indemnity and other agreements as the Committee shall prescribe as a
condition of such payment procedure. Payment instruments will be received
subject to collection.
(2) NUMBER OF SHARES. Each agreement shall state the total
number of
shares of Common Stock that are subject to the Option and/or SAR.
(3) EXERCISE PRICE. The exercise price for each Option and SAR shall
be fixed by the Committee at the date of grant, but in no event may such
exercise price per share be less than the Market Value Per Share (as
defined below) on the date of the grant of the Option or SAR.
(4) MARKET VALUE PER SHARE. The Market Value Per Share as of any
particular date shall be determined by any fair and reasonable means
determined by the Committee, which may include, if the Common Stock is
listed for trading on the New York Stock Exchange, the closing price
published in THE WALL STREET JOURNAL reports of New York Stock Exchange -
Composite Transactions for the day of the grant, or if no trade of the
Common Stock shall have been reported for such date, the closing price
which is published in THE WALL STREET JOURNAL reports of the New York
Stock Exchange - Composite Transactions for the next day prior thereto on
which a trade of the Common Stock was so reported.
(5) TERM. The term of each Option and/or SAR shall be determined by
the Committee at the date of grant; provided, however, that each Option
and/or SAR shall, notwithstanding anything in the Plan or an agreement to
the contrary, expire ten years from the date the Option or SAR is granted
or, if earlier, the date specified in the agreement at the date of grant
of such Option or SAR.
(6) DATE OF EXERCISE. In the discretion of the Committee, each
agreement may contain a provision not inconsistent with Section 8 hereof
stating that the Option and/or SAR granted therein may not be exercised in
whole or in part for a period or periods of time specified in such
agreement, subject to Section 8, and except as so specified therein, any
Option or SAR may be exercised in whole at any time or in part from time
to time during its term. The Committee may, however, at any time, in its
sole discretion amend any outstanding Option or SAR to accelerate the time
that such Option or SAR shall be exercisable or to provide that the time
for exercising such Option or SAR shall be accelerated upon the occurrence
of a specified event.
(7) TERMINATION OF EMPLOYMENT. In the event that an individual's
employment with the Company and its Subsidiaries shall terminate, for
reasons other than (i) retirement with the consent of the Company or the
individual's employing Subsidiary, as the case may be, ("retirement"),
(ii) permanent disability or (iii) death, the individual's Options and/or
SARs shall be exercisable by him, subject to subsections (5) and (6)
above, only within three months after such termination, but only to the
extent the Option and/or SAR was exercisable immediately prior to such
termination of employment.
If, however, any termination of employment is due to retirement or
permanent disability, the individual shall have the right after such
termination of employment, subject to the provisions of subsections (5)
and (6) above, to exercise any outstanding Option and/or SAR in full at
any time during the remaining term provided therefor in the related
agreements. Whether any termination of employment is due to retirement or
permanent disability shall be determined by the Committee.
If an individual shall die while entitled to exercise an Option
and/or SAR, the individual's estate, personal representative or
beneficiary, as the case may be, shall have the right, subject to the
provisions of subsections (5) and (6) above, to exercise such Option
and/or SAR at any time within 12 months from the date of the optionee's
death, to the extent that the optionee was entitled to exercise the same
on the day immediately prior to the optionee's death.
d. EFFECTS OF EXERCISE OF OPTIONS AND SARS. The right of an
individual to exercise an Option or SAR shall terminate to the extent that such
Option or SAR is exercised and, to the extent that a SAR relates to a specific
Option, the exercise of the SAR shall terminate a corresponding portion of the
related Option and, conversely, to the extent that such optionee exercises the
related Option, a corresponding portion of such SAR shall terminate.
e. OPTIONS AND SARS GRANTED BY OTHER CORPORATIONS. Options and SARs
may be granted under the Plan from time to time in substitution for stock
options and stock appreciation rights held by employees of corporations who
become Key Employees as a result of a merger or consolidation of the employer
corporation with the Company or a Subsidiary, or the acquisition by the Company
or a Subsidiary of assets of the employer corporation, or the acquisition by the
Company or a Subsidiary of stock of the employer corporation, with the result
that such employer corporation becomes a Subsidiary.
f. OPTIONS AND SARS GRANTED TO NONEMPLOYEE DIRECTORS. Options and
SARs granted to Nonemployee Directors shall be subject to all provisions and
terms of this Plan otherwise applicable thereto, except that notwithstanding
such other provisions and terms of this Plan to the contrary, all Options and
SARs granted to Nonemployee Directors shall be subject to the following
provisions:
(1) TYPE AND TERMS OF AWARDS. Each Option granted to a Nonemployee
Director shall be a Non-qualified Stock Option and shall be automatically
accompanied by an SAR for the entire number of shares subject to the
Option. The agreement with respect to each such grant shall provide that
the accompanying SAR, if and to the extent exercised, shall be
automatically paid one-half in cash and one-half in shares of Common Stock
except that no fractional shares of Common Stock shall be issued. All
Options and SARs granted to Directors shall have an exercise price equal
to the Market Value Per Share on the date of grant, shall become
exercisable on and after the first anniversary of the date of grant
(except as provided in Section 8) and shall have a term of ten years
unless earlier terminated as provided in (3) below.
(2) GRANTING OF AWARDS. Each person who is elected or appointed to
the Board as a Nonemployee Director for the first time shall automatically
receive, on the date of his or her election or appointment, an Option for
10,000 shares of Common Stock. On the date of the regular annual meeting
of the stockholders of the Company in each year that this Plan is in
effect (commencing with the 1997 annual meeting of stockholders), each
Nonemployee Director who is in office on that day and who was not elected
for the first time at such annual meeting shall automatically receive an
Option for 2,000 shares of Common Stock.
(3) TERMINATION OF SERVICE. In the event that a Nonemployee Director
ceases to be a member of the Board, Options and SARs then held by such
individual shall be exercisable, subject to subsections c.(5) and (6)
above, only within 12 months after such termination of service and only to
the same extent that such Options and SARs were exercisable on the date of
such termination; provided, however, that if the termination is due to the
death, permanent disability or retirement of the individual pursuant to a
Company policy, all Options and SARs held by such Nonemployee Director
shall be exercisable after the date of such termination of service in full
at any time during the remaining term provided therefor in the related
agreements, subject to subsections c.(5) and (6) above.
g. INDIVIDUAL LIMITS. Notwithstanding anything in the Plan to the
contrary, no person may receive Options and SARs with respect to more than
250,000 shares of Common Stock during any calendar year, but disregarding any
SAR granted in tandem with an Option.
6. RECAPITALIZATION
The aggregate number of shares stated in Section 3a, the number of
shares of Common Stock to which each outstanding Option and SAR relates, and the
exercise price in respect of each such Option and SAR shall be adjusted in an
equitable manner determined by the Committee, in its sole discretion and without
liability to any person, in the event of (i) a subdivision or consolidation of
shares of Common Stock or other capital adjustments, (ii) the payment of a stock
dividend or a recapitalization or (iii) a "corporate transaction", as such term
is deemed in Treasury Regulation ss.1.425-1(a)(1)(ii), or any other transaction
which, in the opinion of the Committee, is similar to a "corporate transaction",
as deemed by the said Treasury Regulations as in effect on January 1, 1990,
including without limitation any spin-off or other distribution to the security
holders of the Company of securities or property of the Company or a Subsidiary.
The Committee may exercise its discretion to make any such adjustments on an
optionee-by-optionee basis and with respect to all or only some of the Options
or SARs held by an optionee.
7. MERGER OR CONSOLIDATION
Except as otherwise provided in Section 8 below, after a merger of
one or more corporations into the Company in which the Company shall survive, or
after a consolidation of the Company and one or more corporations, in which the
resulting corporation remains, as an independent, publicly-owned corporation, an
optionee shall, at the same cost, be entitled upon the exercise of an Option or
SAR to receive (subject to any required action by stockholders and the
discretion of the Committee as to the payment of cash with respect to a SAR)
such stock, cash and/or securities of the surviving or resulting corporation as
the board of directors of such corporation, in its sole discretion and without
liability to any person, shall determine to be equivalent, as nearly as
practicable, to the nearest whole number and class of shares of Common Stock or
other securities that were then subject to such Option or SAR and such shares of
stock or other securities shall, after such merger or consolidation, be deemed
to be shares of Common Stock for all purposes of the Plan and any agreement.
8. CHANGE IN CONTROL
In the event of a Change in Control (as defined below), then,
notwithstanding any other term of this Plan or any agreement to the contrary,
any and all outstanding Options and SARs not fully vested shall automatically
vest in full and, except as provided below with respect to a person subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), be immediately exercisable. The date on which such accelerated vesting
and immediate exercisability shall occur (the "Acceleration Date") shall be the
date of the occurrence of the Change in Control.
A "Change in Control" shall be deemed to have occurred if:
(a) any "person," as such term is used in Section 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company) together with its "Affiliates" and "Associates", as such term is
defined in Rule 12b-2 of the Exchange Act, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities;
(b) during any period of two consecutive years (not including any
period prior to the effective date of this Plan), individuals who at the
be inning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (a), (c) or
(d) of this definitions) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at
least a majority thereof; the stockholders of the Company approve a merger
or consolidation of the Company with any other company other than (i) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the combined voting
power of the voting securities of the Company (or such surviving entity)
outstanding immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as hereinabove
defined) acquires more than 25% of the combined voting power of the
Company's then outstanding securities; or
(d) the stockholders of the Company adopt a plan of complete
liquidation of the Company or approve an agreement for the sale, exchange
or disposition by the Company of all or a significant portion of the
Company's assets. For purposes of this clause (d), the term "the sale,
exchange or disposition by the Company of all or a significant portion of
the Company's assets" shall mean a sale or other disposition transaction
or series of related transactions involving assets of the Company or any
Subsidiary (including the stock of any Subsidiary) in which the value of
the assets or stock being sold or otherwise disposed of (as measured by
the purchase price being paid therefor or by such other method as the
Board determines is appropriate in a case where there is no readily
ascertainable purchase price) constitutes more than 25% of the fair market
value of the Company (as hereinafter defined). For purposes of the
preceding sentence, the "fair market value of the Company" shall be the
aggregate market value of the outstanding shares of common stock of the
Company (on a fully diluted basis) plus the aggregate market value of the
Company's other outstanding equity securities. The aggregate market value
of the shares of common stock of the Company shall be determined by
multiplying the number of shares of the Company's common stock (on a fully
diluted basis) outstanding on the date of the execution and delivery of a
definitive agreement with respect to the transaction or series of related
transactions (the "Transaction Date") by the average closing price of the
shares of common stock of the Company for the ten trading days immediately
preceding the Transaction Date. The aggregate market value of any other
equity securities of the Company shall be determined in a manner similar
to that prescribed in the immediately preceding sentence for determining
the aggregate market value of the shares of common stock of the Company or
by such other method as the Board shall determine is appropriate.
Notwithstanding the foregoing however, a Change in Control shall not
be deemed to have occurred if, prior to the time a Change in Control would
otherwise be deemed to have occurred pursuant to the above provisions, the Board
determines otherwise.
If during the 60-day period following any such Acceleration Date or,
with respect to an Option or SAR granted to an officer or director subject to
Section 16(b) of the Exchange Act, the 60-day period following the earlier of
the date that Section 16(b) of the Exchange Act ceases to apply to such person
or six months following the date of grant of such Option or SAR (but not to
exceed the remaining term of such Option or SAR), a participant (or beneficiary
thereof) elects to exercise an Option or SAR, the holder shall receive in cash
whichever of the following amounts is applicable:
(i) with respect to an acquisition of Common Stock described in
clause (a) of the definition of Change in Control, an amount equal to the
Acquisition Spread (as defined below);
(ii) with respect to a change in composition of the Board described
in clause (b) of the definition of Change in Control, an amount equal to
the Spread (as defined below); or
(iii) with respect to stockholder approval of an agreement or
adoption of a plan described in clause (c) or (d) of the definition of
Change in Control, an amount equal to the Merger Spread (as defined
below).
Notwithstanding the foregoing provisions of this Section 8, in the case of an
exercise in respect of an Incentive Stock Option, the holder may not receive an
amount in excess of the maximum amount that will enable such option to continue
to qualify as an Incentive Stock Option.
As used in this Section 8, the following terms shall have the
meaning indicated:
(1) The term "Acquisition Price Per Share" shall mean the greater of
(i) the highest price paid by a person (or an Affiliate or Associate
thereof) for any share of Common Stock acquired prior to, but in
connection with, a Change in Control described in clause (a) of the
definition of a Change in Control or (ii) the highest Market Value Per
Share for any day during the 60-day period ending on the date the Option
or SAR is exercised.
(2) The term "Acquisition Spread" shall mean an amount equal to the
product obtained by multiplying (i) the excess of (A) the Acquisition
Price Per Share over (B) the price per share of Common Stock at which the
Option or SAR is exercisable, by (ii) the number of shares of Common Stock
with respect to which such Option or SAR is being exercised.
(3) The term "Merger Price Per Share" shall mean the greater of (i)
the fixed or formula price for the acquisition of shares of Common Stock
specified in such agreement or adoption, if such fixed or formula price is
determinable on the date on which such Option or SAR is exercised, and
(ii) the highest Market Value Per Share for any day during the 60-day
period ending on the date on which such Option or SAR is exercised.
(4) The term "Merger Spread" shall mean an amount equal to the
product obtained by multiplying (i) the excess of (A) the Merger Price Per
Share over (B) the price per share of Common Stock at which the Option or
SAR is exercisable, by (ii) the number of shares of Common Stock with
respect to which such Option or SAR is being exercised.
(5) The term "Spread" shall mean an amount equal to the product
obtained by multiplying (i) the excess of (A) the highest Market Value Per
Share for any day during the 60-day period ending on the date the Option
or SAR is exercised over (B) the price per share of Common Stock at which
the Option or SAR is exercisable, by (ii) the number of shares of Common
Stock with respect to which the Option or SAR is being exercised.
The Company intends that this Section 8 shall comply with the
requirements of Rule 16b-3 and any future rules promulgated in substitution
therefor ("the Rule") under the Exchange Act during the term of the Plan. Should
any provision of this Section 8 not be necessary to comply with the requirements
of the Rule or should any additional provisions be necessary for this Section 8
to comply with the requirements of the Rule, the Board may amend the Plan to add
to or modify the provisions of the Plan accordingly.
9. EMPLOYEE'S AGREEMENT
If, at the time of the exercise of any Option or SAR, in the opinion
of counsel for the Company, it is necessary or desirable, in order to comply
with any then applicable laws or regulations relating to the sale of securities,
for the individual exercising the Option or SAR to agree to hold any shares
issued to the individual for investment and without intention to resell or
distribute the same and for the individual to agree to dispose of such shares
only in compliance with such laws and regulations, the individual will, upon the
request of the Company, execute and deliver to the Company a further agreement
to such effect.
10. WITHHOLDING FOR TAXES
Any cash payment under the Plan shall be reduced by any amounts
required to be withheld or paid with respect thereto under all present or future
federal, state and local tax and other laws and regulations that may be in
effect as of the date of each such payment ("Tax Amounts"). Any issuance of
Common Stock pursuant to the exercise of an Option or other distribution of
Common Stock under the Plan shall not be made until appropriate arrangements
have been made for the payment of any amounts that may be required to be
withheld or paid with respect thereto. Such arrangements may, at the discretion
of the Committee, include allowing the optionee to tender to the Company shares
of Common Stock owned by optionee, or to request the Company to withhold a
portion of the shares of Common Stock being acquired pursuant to the exercise or
otherwise distributed to optionee, which have a Market Value Per Share as of the
date of such exercise, tender or withholding that is not greater than the sum of
all Tax Amounts, together with payment of any remaining portion of all Tax
Amounts in cash or by check payable and acceptable to the Company.
11. TERMINATION OF AUTHORITY TO GRANT AWARDS
No Options or SARs may be granted pursuant to this Plan after
December 31, 1999.
12. AMENDMENT AND TERMINATION
The Board may from time to time and at any time alter, amend,
suspend, discontinue or terminate this Plan and any grants hereunder; provided,
however, that no such action of the Board may, without the approval of the
stockholders of the Company, alter the provisions of the Plan so as to (i)
increase the maximum number of shares of Common Stock that may be subject to
grants and distributed in the payment of exercises under the Plan (except as
provided in Section 3b); (ii) change the class of employees eligible to receive
grants under the Plan; (iii) extend beyond ten years the maximum terms of
Options or SARs granted under the Plan or extend the term of the Plan; or (iv)
change the operation of Section 5f., concerning automatic grants to Nonemployee
Directors, unless, in each case, such approval is not required to meet the
requirements of the Rule.
13. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS
Anything in the Plan or any agreement entered into pursuant to the
Plan to the contrary notwithstanding, if, at any time specified herein or
therein for the making of any determination, the issuance or other distribution
of shares of Common Stock, or the payment of consideration to an employee as a
result of the exercise of any SAR, as the case may be, any law, regulation or
requirement of any governmental authority having jurisdiction in the premises
shall require either the Company or the employee (or the employee's
beneficiary), as the case may be, to take any action in connection with any such
determination, the shares then to be issued or distributed, or such payment, the
issue or distribution of such shares or the making of such determination or
payment, as the case may be, shall be deferred until such action shall have been
taken.
14. CHANGE IN CONTROL LIMITATION
Notwithstanding any other provision in the Plan, to the extent that the
acceleration of exercisability of an Option or SAR under this Plan following a
Change in Control, when aggregated with other payments or benefits to the
participant, whether or not payable pursuant to this Plan, would, as determined
by tax counsel selected by the Company, result in "excess parachute payments"
(as defined in Section 280G of the Code) such parachute payments or benefits
provided to a participant under this Plan shall be reduced to the extent
necessary so that no portion thereof shall be subject to the excise tax imposed
by Section 4999 of the Code, but only if, by reason of such reduction, the
participant's net after tax benefit shall exceed the net after tax benefit if
such reduction were not made. "Net after tax benefit" shall mean the sum of (i)
all payments and benefits which a participant receives or is then entitled to
receive that would constitute a "parachute payment" within the meaning of
Section 280G of the Code, less (ii) the amount of federal income taxes payable
with respect to the payments and benefits described in (i) above calculated at
the maximum marginal income tax rate for the year in which such payments and
benefits shall be paid to the participant (based upon the rate for such year as
set forth in the Code at the time of the first payment of the foregoing), less
(iii) the amount of excise taxes imposed with respect to the payments and
benefits described in (i) above by Section 4999 of the Code.
15. MISCELLANEOUS
a. NO EMPLOYMENT CONTRACT. Nothing contained in the Plan shall be
construed as conferring upon any employee the right to continue in the employ of
the Company or any Subsidiary.
b. EMPLOYMENT WITH SUBSIDIARIES. Employment by the Company for the
purpose of this Plan shall be deemed to include employment by, and to continue
during any period in which an employee is in the employment of, any Subsidiary.
c. NO RIGHTS AS A STOCKHOLDER. A participant shall have no rights as
a stockholder with respect to shares covered by such participant's Option or SAR
until the date of the issuance of shares to the participant pursuant thereto. No
adjustment will be made for dividends or other distributions or rights for which
the record date is prior to the date of such issuance.
d. NO RIGHT TO CORPORATE ASSETS. Nothing contained in the Plan shall
be construed as giving any participant, such participant's beneficiaries or any
other person any equity or other interest of any kind in any assets of the
Company or any Subsidiary or creating a trust of any kind or a fiduciary
relationship of any kind between the Company or a Subsidiary and any such
person.
e. NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any Subsidiary from taking any
corporate action that is deemed by the Company or such Subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any grant made under the Plan. No participant,
beneficiary or other person shall have any claim against the Company or any
Subsidiary as a result of any such action.
f. NON-ASSIGNABILITY. A participant shall not have the power or
right to sell, exchange, pledge, transfer, assign or otherwise encumber or
dispose of such participant's interest in any grant under the Plan nor shall
such interest be subject to seizure for the payment of a participant's debts,
judgments, alimony, or separate maintenance or be transferable by operation of
law in the event of a participant's bankruptcy or insolvency and to the extent
any such interest arising under the Plan is awarded to a spouse pursuant to any
divorce proceeding, such interest shall be deemed to be terminated and forfeited
notwithstanding an vesting provisions or other terms herein or in the agreement
evidencing such aware.
g. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of shares pursuant to the Plan will be used for general corporate
purposes.
h. SALE OF SUBSIDIARY OR ASSETS. In the event a Key Employee ceases
to be employed by the Company or a Subsidiary as a result of a sale or other
disposition by the Company of a Subsidiary or all or part of the business
operations of the Company or a Subsidiary, the Committee, in its sole
discretion, may accelerate the exercisability of any grant under the Plan, in
whole or in part, as it deems appropriate.
i. GOVERNING LAW; CONSTRUCTION. All rights and obligations under the
Plan shall be governed by, and the Plan shall be construed in accordance with,
the laws of the State of Texas without regard to the principles of conflicts of
laws. Titles and headings to Sections herein are for purposes of reference only,
and shall in no way limit, define or otherwise affect the meaning or
interpretation of any provisions of the Plan.
Effective Date of Plan: February 15, 1990.
Effective Date of Third Amendment: April 29, 1997.
EXHIBIT 10(b)
<PAGE>
TECH-SYM CORPORATION
WRITTEN DESCRIPTION OF INCENTIVE BONUS COMPENSATION PLAN
ADOPTED BY THE BOARD OF DIRECTORS OF TECH-SYM CORPORATION
EFFECTIVE JANUARY 1, 1997
The Board of Directors, pursuant to the recommendations of its
Compensation Committee, is authorized to make incentive bonus awards after the
end of each fiscal year to selected employees including the officers and
employees of Tech-Sym Management Corporation and the presidents of the Company's
wholly owned subsidiaries. The aggregate bonus pool from which such awards can
be made in any year cannot exceed 2% of the Company's consolidated earnings
before Federal and state income taxes plus an amount equal to 25% of the
aggregate subsidiary bonus pools.
After the close of each fiscal year, key employees of each of the
subsidiaries, except for the subsidiary presidents, shall share in a bonus pool,
calculated separately for each subsidiary, amounting to not less than 6% and not
more than 15% of such subsidiary's earnings before state and Federal income
taxes. Bonus amounts earned in excess of 6% pre-tax earnings depend upon the
degree by which each subsidiary exceeds certain performance criteria. The 6%
minimum will be increased (up to the maximum of 15%) one additional percentage
point for each fifteen points earned by the subsidiary in accordance with the
following:
(a) 1 point for each 2% increase in sales in excess of 15% over
the prior year.
(b) 1 point for each .1% increase in net profit as a percent of sales
over the average of the previous three years.
(c) 2 points for each 1%, in excess of 8%, for return on investment.
(Investment to be defined as Stockholders' Equity plus or minus
intercompany accounts).
(d) 5 points if 90% of forecasted pretax profits is achieved.
The amount of the bonus pool of the Company and of each subsidiary is
subject to reduction by the amount of (i) any bonuses such as Christmas bonuses
paid to employees for such year; (ii) the contributions which each such company
would be required to make to its retirement and/or thrift plan(s), if any, on
the total bonus pool amount for the accounts of its bonus recipients; and (iii)
any marketing incentives paid to employees for such year other than sales
commissions comprising all or part of an individuals regular compensation.
The apportionment of the total amount of the bonus and the recipients
thereof are determined by the management of each subsidiary subject to the
approval of either (i) the President or any Vice President of the Company
regarding employees with annual salaries of $60,000 or more, or (ii) the Board
of Directors of the Company, pursuant to recommendations of the Compensation
Committee, when the annual salary of any recipient exceeds $100,000 and in the
case of any recipient who is a division or subsidiary general manager or chief
executive officer, regardless of such person's compensation.
EXHIBIT 10(r)
<PAGE>
EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT made and entered into as of January 1, 1998, between
TECH-SYM CORPORATION (the "Company") and PAUL L. HARP (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive has rendered outstanding service to the Company
over a period of years and the Executive's experience and knowledge of the
affairs of the Company and his reputation and contacts are extremely valuable to
the Company; and
WHEREAS, in recognition of the Executive's service to the Company and to
encourage the Executive's continued service, the Company is desirous of offering
him, in addition to his regular compensation and termination benefits, certain
retirement benefits;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and the Executive hereby
agree as follows:
1. BENEFITS
1.1 QUALIFICATIONS FOR RETIREMENT BENEFITS. The Executive (or his surviving
spouse, as the case may be) shall be entitled to receive the retirement (or
death) benefits provided by this Agreement following his termination of
employment with the Company unless his employment with the Company is terminated
(i) voluntarily by the Executive prior to his attaining age 62, other than due
to a Total Disability (as defined below), or (ii) by the Company for Cause (as
defined below). A termination of employment that would entitle the Executive (or
his spouse) to receive retirement (or death) benefits as provided hereunder is
hereafter referred to as a "Qualified Termination."
For the purposes of this Agreement, the Company shall have "Cause" to terminate
the Executive's employment hereunder only upon (i) the willful and continued
failure by the Executive to perform substantially the Executive's duties with
the Company, other than any such failure resulting from the Executive's
incapacity due to physical or mental illness, after a demand for substantial
performance is delivered to the Executive by the Board of Directors of the
Company (the "Board") that specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the Executive's
duties or (ii) the willful engaging by the Executive in gross misconduct
materially and demonstrably injurious to the Company. For purposes of this
paragraph, an act or failure to act on the Executive's part shall be considered
"willful" if done or omitted to be done by the Executive otherwise than in good
faith and without reasonable belief that the Executive's action or omission was
in the best interest of the Company.
1.2 AMOUNT OF RETIREMENT BENEFITS. Following a Qualified Termination the
Executive shall receive, beginning with the later of the date of such Qualified
Termination or the Executive's 65th birthday (the "Commencement Date"), an
annual retirement benefit equal to 65% of the highest rate of annual base salary
in effect for the Executive with the Company at any time prior to the
Executive's 61st birthday (the "Base Salary") with such benefit payable on each
January 1 on or after the Commencement Date on which he is living; provided,
however, that if the Executive's Commencement Date is other than on January 1,
the Executive shall receive a partial annual retirement benefit for the
remainder of the year in which such Commencement Date occurs in an amount equal
to the full annual benefit that will commence on the next January 1 but reduced
by a fraction, the numerator of which is the number of calendar months during
such year that have elapsed prior to the Commencement Date (with any partial
month rounded up to a complete month), and the denominator of which is 12 and
such partial benefit shall be paid to the Executive on the first day of the
month coinciding with or next following the Commencement Date; provided further,
however, that:
(a) if the Executive's employment terminates due to a Qualified Termination
prior to his reaching age 65, the Executive may elect to commence receiving
his retirement benefits hereunder as of the date of such Qualified
Termination or any date thereafter, provided the Executive is at least age
62 as of such Early Commencement Date, by giving written notice of such
election to the Company prior to such Early Commencement Date and the
amount of the annual retirement benefit (and partial benefit, if any)
payable hereunder shall be reduced by 1.39% for each full calendar month by
which his Early Commencement Date precedes his 65th birthday unless the
Board, in its sole discretion, elects to waive all or part of this
reduction; and
(b) if on the Early Commencement Date the Executive is also entitled to
receive benefits under a separate Termination Agreement with the Company
dated effective as of August 15, 1996 (as the same may be amended from
time-to-time thereafter), then for purposes of subparagraph (a) above the
Executive's age as of the Early Commencement Date shall be increased by
(but not beyond age 65) the length of the Termination Period (as defined in
the Termination Agreement) remaining as of the Early Commencement Date.
1.3 DEATH BENEFITS. If the Executive is married on his date of death and
such death occurs while he is an employee of the Company or on or after a
Qualified Termination, including one due to Total Disability, his surviving
spouse ("Spouse") shall receive an annual survivor's benefit hereunder in an
amount equal to 37 1/2% of the Executive's Base Salary. The Spouse's benefit
shall commence on the first day of the month coinciding with or next following
the Executive's date of death. Subsequent payment(s) of the Spouse's benefit
shall be made on each anniversary of the date such survivor payments first
began, provided that the Spouse is alive on such anniversary date, and shall
cease when either a total of 10 annual survivor benefit payments have been paid
to the Spouse hereunder or the Spouse dies, whichever occurs first.
1.4 LUMP SUMS. Notwithstanding Section 1.2 or Section 1.3 hereof to the
contrary, the Board, in its sole discretion, may at any time direct that the
present value of any retirement (or death) benefits accrued under this
Agreement, as determined in accordance with the applicable mortality table and
applicable interest rate then in effect under Section 417 of the Internal
Revenue Code of 1986, as amended, be immediately paid to the Executive (or his
Spouse, as the case may be) in a lump sum in cash (by check).
1.5 CONTINUED HEALTH BENEFITS. On and after a Qualified Termination, the
Executive shall be entitled to continue, for as long as he lives, his
participation and that of his qualified dependents, if any, in the Company's
group health plan for active employees in which the Executive participated
immediately prior to such Qualified Termination provided that the Executive
continues to pay the regular active employee premium, if any, required by such
plan; however, in the event that continued participation by the Executive in
such plan after the date of his Qualified Termination is not permitted by the
plan or such plan is terminated or benefits under such plan would be taxable to
the Executive, the Company shall either obtain comparable coverage under another
group health plan of the Company (and under which benefits to the Executive
would not be taxable) or, if there is none, an individual insurance policy
providing comparable benefits with the Executive paying an amount of the premium
therefor that is not greater than that which he would have been required to pay
from time to time under the Company's group health plan for active employees had
his participation continued in such plan and the Company paying the balance of
such cost and any taxes on any income the Executive would have as a result of
such Company-provided coverage.
<PAGE>
2. TERMINATION AND AMENDMENT
2.1 TERMINATION OR AMENDMENT. The Company, by action of the Board, reserves
the right to amend or terminate this Agreement for whatever reasons it may deem
appropriate as of the first day of the month following the delivery to the
Executive of written notice of such amendment or termination; however, no such
amendment shall impair, reduce or void the Executive's (or his Spouse's) rights
with respect to the continued health benefits provided by Section 1.5 or the
retirement (or death) benefits (whether or not in pay status) accrued under this
Agreement as of the date of such amendment and further, any termination of this
Agreement by the Company shall, notwithstanding anything herein to the contrary,
entitle the Executive (or his Spouse, as the case may be) to immediately receive
from the Company the lump sum present value of the accrued retirement (or death)
benefits as calculated in accordance with Section 1.4.
3. ADMINISTRATION
3.1 BOARD DECISION. The Board's decision whether or not to waive the
reduction in the amount of benefits payable in the event of the Executive's
Qualified Termination prior to reaching age 65, as provided in Section 1.2(a),
shall be totally discretionary with the Board and need not be based upon any
standard nor be consistent with any past practices and shall be conclusive on
all parties.
3.2 BENEFITS UNFUNDED. This Agreement is completely separate from and is
not a part of any other plan, qualified or nonqualified, of the Company and its
subsidiaries. The benefits payable hereunder, if any, are in addition to those
that may be provided to the Executive under any other plan, arrangement or
agreement. Further, the benefits payable hereunder are completely unfunded and
shall be payable by the Company solely out of its general assets and the
Executive and his spouse shall be unsecured, general creditors of the Company
with respect to such benefits; provided, however, the Company, in its
discretion, may establish a grantor or rabbi trust to pay all or part of the
benefits it may be required to pay under this Agreement, in which event this
Agreement shall be deemed to be a part of such trust agreement and the Executive
hereby waives, with respect to the assets of such rabbi trust, any preference he
may have under state law with respect to such assets and acknowledges that he
shall be a general, unsecured creditor of the Company with respect to the same.
4. MISCELLANEOUS
4.1 NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement shall be
construed as a contract of employment between the Company and the Executive, or
as a right of the Executive to be continued in the employment of the Company or
as a limitation of the right of the Company to discharge the Executive at any
time, with or without Cause.
4.2 ASSIGNMENT. The benefits payable under this Agreement may not be
assigned, alienated, pledged, transferred, sold, encumbered or hypothecated in
any manner by the Executive or his spouse. Any attempted sale, conveyance,
transfer, assignment, pledge or encumbrance of this Agreement or of such rights,
interest and benefits or the levy of any attachment or similar process thereupon
shall be null and void and without effect.
4.3 BINDING EFFECT. The Company will require any successor, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance reasonably satisfactory to the Executive, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent as
the Company would have been required if no such succession had taken place.
Notwithstanding anything herein to the contrary, failure of the Company to
obtain such agreement prior to the effectiveness of any such succession shall
constitute a termination of this Agreement pursuant to Section 2.1 and entitle
the Executive (or Spouse) as the case may be, to immediate payment thereunder.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid that
executes and delivers the agreement provided for in this Section 4.3 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
4.4 MISCELLANEOUS. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and by the President or other authorized
officer of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provision or conditions at the same or at any
prior or subsequent time.
4.5 PAYMENTS. The Company may make any payments required by this Agreement,
when in the judgment of the Company the recipient is incapacitated by reasons of
physical or mental illness or infirmity, to the recipient directly, or to the
legal guardian of the recipient.
4.6 TAXES. The Company shall have the right to deduct from all payments
made under this Agreement, any taxes required by law to be withheld with respect
to such payments.
4.7 VALIDITY. The interpretation, construction and performance of this
Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Texas without regard to the principle of conflicts of laws.
The invalidity or unenforceability of any provisions of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
each of which shall remain in full force and effect.
4.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
4.9 EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for purposes
of this Agreement includes employment with any corporation in which the Company
has a direct or indirect ownership interest of 50% or more of the total combined
voting power of all classes of stock (a "Subsidiary").
4.10 ARBITRATION. Any dispute or controversy arising out of or in
connection with this Agreement as to whether the Executive (or his spouse) is
entitled to a retirement (or survivor's) benefit, the amount thereof or other
matter shall be submitted to arbitration pursuant to the following procedure:
(a) Either party may demand such arbitration in writing after the
controversy arises, which demand shall include the name of the arbitrator
appointed by the party demanding arbitration, together with a statement of
the matter in controversy.
(b) Within 15 days after such demand, the other party shall name an
arbitrator, or in default thereof, such arbitrator shall be named by the
Arbitration Committee of the American Arbitration Association, and the two
arbitrators so selected shall name a third arbitrator within 15 days or, in
lieu of such agreement on a third arbitrator by the two arbitrators so
appointed a third arbitrator shall be appointed by the Arbitration
Committee of the American Arbitration Association.
(c) The Company shall bear all arbitration costs and expenses, including
without limitation any legal fees and expenses incurred by the Executive
(or his Spouse) in connection with such arbitration procedure.
(d) The arbitration hearing shall be held at a site in Houston, Texas, to
be agreed to by a majority of the arbitrators on ten days' written notice
to the parties. (e) The arbitration hearing shall be concluded within ten
days unless otherwise ordered by a majority of the arbitrators, and the
award thereon shall be made within ten days after the close of the
submission of evidence. An award rendered by a majority of the arbitrators
appointed pursuant to this Agreement shall be final and binding on all
parties to the proceeding, and judgment on such award may be entered by
either party in the highest court, state or federal, having jurisdiction.
The parties stipulate that the provisions hereof shall be a complete
defense to any suit, action, or proceeding instituted in any federal, state, or
local court or before any administrative tribunal with respect to any
controversy or dispute arising under this Agreement, and which is arbitrable as
herein set forth. The arbitration provisions hereof shall, with respect to such
controversy or dispute, survive the termination of this Agreement.
IN WITNESS WHEREOF the Company has caused this Agreement to be
executed by its duly authorized officer, and the Executive has executed this
Agreement effective for all purposes as of the date first written above.
TECH-SYM CORPORATION
DATED: JANUARY 7, 1998 /S/WENDELL W. GAMEL
WENDELL W. GAMEL
CHAIRMAN AND PRESIDENT
EXECUTIVE
DATED: JANUARY 7, 1998 /S/PAUL L. HARP
PAUL L. HARP
SELECTED FINANCIAL DATA
(In thousands except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year:
Sales ........................................ $ 294,100 $ 299,052 $ 223,852 $ 197,593 $ 184,310
Costs and expenses ........................... 280,994 259,414 204,911 179,258 167,794
------------------------------------------------------------------------------
Income from continuing operations before income
taxes, minority interest and extraordinary
item ....................................... 13,106 39,638 18,941 18,335 16,516
Provision for income taxes ................... 3,902 13,196 5,902 6,286 5,969
Minority interest ............................ 519 1,088
------------------------------------------------------------------------------
Income from continuing operations ............ 8,685 25,354 13,039 12,049 10,547
Discontinued Operation:
Income (loss) from CogniSeis less applicable
income taxes and minority interest ......... (1,236) (1,979) (4) 66 (1,298)
------------------------------------------------------------------------------
Income before extraordinary item ............. 7,449 23,375 13,035 12,115 9,249
Extraordinary item, less applicable income
taxes ...................................... (1,035)
------------------------------------------------------------------------------
Net income ................................... $ 7,449 $ 22,340* $ 13,035 $ 12,115 $ 9,249
==============================================================================
Earnings (loss) per common share:
Continuing Operations
Basic .................................... $ 1.44 $ 3.99 $ 2.00 $ 1.85 $ 1.64
Diluted .................................. $ 1.41 $ 3.90 $ 1.95 $ 1.82 $ 1.62
Discontinued Operation
Basic .................................... $ (.20) $ (.31) $ .01 $ (.20)
Diluted .................................. $ (.20) $ (.30) $ .01 $ (.20)
Extraordinary Item
Basic and Diluted ........................ $ (.16)
Net Income
Basic .................................... $ 1.23 $ 3.52 $ 2.00 $ 1.86 $ 1.44
Diluted .................................. $ 1.21 $ 3.44 $ 1.95 $ 1.83 $ 1.42
Weighted average common shares outstanding:
Basic .................................... 6,038 6,350 6,521 6,498 6,409
Diluted .................................. 6,168 6,501 6,673 6,611 6,514
* Includes gain on sale of subsidiary stock of $13,758, net of taxes; and
write-off of goodwill of $3,627, which is not tax deductible.
At Year End:
Current assets ............................... $ 249,100 $ 226,767 $ 178,318 $ 152,067 $ 135,719
Current Liabilities .......................... 123,466 91,032 74,561 56,284 35,634
Working capital .............................. 125,634 135,735 103,757 95,783 100,085
Property, plant and equipment-net ............ 49,049 48,917 42,469 39,993 35,047
Long-term debt ............................... 16,139 13,974 29,522 21,587 23,317
Total Assets ................................. 346,750 323,279 265,026 225,803 194,732
Total Liabilities and minority interest ...... 183,567 165,207 115,008 90,016 71,395
Shareholders' investment ..................... 163,183 158,072 150,018 135,787 123,337
</TABLE>
No dividends were paid on common stock for any of the above years.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Working Capital
(In Millions of Dollars)
[BAR CHART PLOTTED FROM DATA IN TABLE BELOW]
1993 ............................ 100.1
1994 ............................ 95.8
1995 ............................ 103.8
1996 ............................ 135.7
1997 ............................ 125.6
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company satisfied its working capital and capital expenditure
requirements through available cash and bank borrowings. At December 31, 1997,
the Company's working capital was $125,634,000 as compared to $135,735,000 at
December 31, 1996. For the year, the Company's cash, cash equivalents and
short-term investments decreased $7,858,000 to $18,972,000 from $26,830,000 in
1996. Receivables, inventories and other current assets increased to
$230,128,000 from $199,937,000 in 1996. The majority of the increase in the
accounts receivable balance was a result of significant fourth quarter sales
within the geoscientific business area and slower collection experience
throughout the year. During the year the Company invested heavily in capital
equipment and inventory to facilitate its ability to meet customer orders in a
timely manner.
The Company's operations used cash in the amount of $19,414,000 in 1997
and $11,151,000 in 1995, and provided cash in the amount of $6,045,000 in 1996.
In 1997, cash was depleted as the Company experienced growth in its accounts
receivable as discussed above and maintained additional inventory to support the
Company's overall growth strategy. Concentrations of credit risk with respect to
the receivables, unbilled revenues, and long-term receivables from customers
other than the U.S. Government are generally limited due to the large number of
customers in the Company's customer base and their dispersion across different
industries and geographic areas. Approximately 13% of trade and notes
receivables at December 31, 1997, are with an oil and gas exploration company
located in Russia and a distributor located in China.
At December 31, 1997 and 1996, inventories included $12,026,000 and
$9,408,000, respectively, of electronic components related to the land and
transition zone seismic data acquisition system product line, PolySeis ATS(Trade
Mark). Management believes this product is in the early stage of its life cycle
and certain risks of market acceptance exist. The Company has recently
experienced limited leasing activity of this product and believes the demand for
this product will significantly increase and the related inventory will be sold
in the normal course of business.
Capital expenditures for land, buildings and improvements, and machinery
and equipment were $13,508,000, $16,182,000, and $8,875,000, for 1997, 1996, and
1995, respectively, and are expected to be approximately $12,725,000 in 1998.
Because of the Company's $152,306,000 backlog and anticipated new business, it
is expected that additional investments will be required in capital equipment
and facilities. The Company believes that the funds required for working capital
needs and capital equipment additions will come from available funds, unused
lines of credit, long-term borrowings and capital equipment financing.
At December 31, 1997, the Company had line of credit facilities
aggregating approximately $99,716,000 of which $36,450,000 was available for
additional short-term borrowings. In addition to the lines of credit, the
Company's majority-owned subsidiary, GeoScience Corporation ("GeoScience"), has
an agreement with a financial institution to sell up to a total of $15,000,000
of eligible customer notes receivable to the financial institution at 100% of
the principal amount thereof, subject to approval of the credit worthiness of
the customers issuing notes and the satisfaction of other conditions. GeoScience
is obligated to repurchase these notes from the financial institution in the
event of customer default or other covenant violations. As of December 31, 1997,
the financial institution had purchased notes which, in the aggregate, would
obligate GeoScience to repurchase $6,492,000 in principal amount of notes in the
event of customer defaults. To date, GeoScience has not experienced any
financial losses due to nonpayment by its customers or other covenant
violations.
18
<PAGE>
The Company plans to enhance its cash flow from operations by improving
the average collection time on receivables and by reducing inventory while
maintaining levels needed to support customer requirements. The Company believes
these actions, along with the available sources of funds, will provide the
necessary cash requirements to meet the Company's growth strategy.
In accordance with the TELEFUNKEN Sendertechnik GmbH ("TELEFUNKEN")
purchase agreement executed in January 1996, the Company received cash and
assumed pension liabilities related to nonactive employees at the acquisition
date pending transfer thereof to the seller at a later date. In October 1997,
the Company transferred to the seller the pension liabilities and related cash
in the amount of $7,925,000 pertaining to the nonactive employees at the
acquisition date.
The Company's operations outside the United States are subject to the
usual risks of such operations, including changes in governmental policies,
currency transfer restrictions and devaluation. The Company's foreign
subsidiaries use the local currency as their functional currency. The effects of
the exchange rate fluctuations in the translation process negatively impacted
cash and cash equivalents by $2,335,000 during 1997. The decrease primarily
resulted from the weakening of the Deutsche Mark in relation to the U.S. dollar.
Translation adjustments are reported as a separate component of shareholders'
investment.
RESULTS OF OPERATIONS
DISCONTINUED OPERATION
In June 1997, the Company's majority-owned subsidiary, GeoScience, adopted a
plan to sell its geoscientific software subsidiary, CogniSeis Development, Inc.
("CogniSeis"). Accordingly, the Consolidated Statement of Income of the Company
has been reclassified for all periods presented to report separately the results
of the discontinued operation through June 30, 1997 (the "measurement date").
On October 14, 1997 (the "disposal date"), CogniSeis was sold for cash
of $8,929,000, net of certain liabilities assumed pursuant to the terms of the
sale agreement, plus a note receivable. The total amount of the note receivable
due to the Company equals approximately $12,000,000 and is due in full by
December 30, 2003. The note receivable may be adjusted downward pursuant to
certain provisions of the sale agreement within a one year period. The payment
stream of the note receivable is based on sales of certain CogniSeis developed
software. The sale agreement also has a provision for early payout of the note
receivable as follows: $8,500,000 if paid within 90 days of the closing date;
$9,000,000 if paid between 90 and 180 days of the closing date; $9,500,000 if
paid between 180 and 270 days of the closing date; and $10,000,000 if paid
between 270 days and one year of the closing date.
The results of the discontinued operation from the measurement date
through the disposal date, which were insignificant, as well as the expected
gain on the sale have been deferred at December 31, 1997, until estimates
regarding certain provisions of the sale agreement can be made with reasonable
certainty.
Management's discussion and analysis of the results of operations
reflects the reclassification of the discontinued operation.
19
<PAGE>
Debt To Capital Ratio
In Percent
[BAR CHART PLOTTED FROM DATA IN TABLE BELOW]
1993 ............................ 17.7
1994 ............................ 20.9
1995 ............................ 28.1
1996 ............................ 23.2
1997 ............................ 32.6
1997 IN COMPARISON WITH 1996
Sales for the year ended December 31, 1997 decreased 2% to $294,100,000 from
$299,052,000 in 1996. The $4,952,000 decrease in sales occurred primarily in the
defense systems business area and was due to (i) a lower level of government
contract awards to the Company, including a delay in the award of a follow-on
Vertical Launching System (VLS) contract, and (ii) the nearing completion of
several major programs that had been in process over several years. The
$12,633,000, or 18% decrease in the defense systems business area was partially
offset by increases in the communications business area and the geoscientific
business area. Sales within the communications business area increased
$4,906,000, or 4% over 1996 as increased shipments of microwave products and
weather radars offset a reduction in broadcast systems that resulted from
delayed international customer orders. Sales increased $3,555,000, or 4% in the
geoscientific business area in 1997 as compared to 1996 as increased shipments
of seismic cables more than offset fewer shipments of 24-bit digital seismic
data acquisition modules. Further sales growth within the geoscientific business
area was hampered by aggressive competitive pricing on seismic cables and
seismic data acquisition systems.
The Company's gross margin decreased $2,423,000, or 3% to $93,003,000
compared to $95,426,000 in 1996, due to the overall decrease in sales. As a
percentage of sales, the gross margin remained constant at 32% for both 1996 and
1997. Improvement of the gross margin percentage in the defense systems business
area, resulting from cost control efforts, offset the gross margin percentage
decrease on microwave products within the communications business area that
occurred due to increased costs related to late product shipments and problems
related to overstaffing. By year end, the Company reduced the level of late
shipments and the number of employees. The gross margin percentage on
geoscientific equipment sales decreased due to the mix of products shipped
during the year, increased manufacturing costs on both seismic cables and 24-bit
modules, and higher warranty costs associated with the 24-bit modules.
Consolidated selling, general and administrative expenses for 1997
increased $6,135,000, or 10% to $65,218,000 from $59,083,000 in the prior year.
These expenses as a percentage of sales increased from 20% in 1996 to 22% in
1997. Most of the increase, $3,307,000, occurred in the geoscientific business
area as a result of (i) increased sales commission costs associated with
increased international sales, (ii) higher consulting costs associated with
seismic cable sales, (iii) additional support personnel costs associated with
higher employment levels added during the year in anticipation of accelerated
business growth, and (iv) the additional costs of managing the consolidated
geoscientific business and being a publicly traded company. The remaining
increase occurred in the communications business area due to increased general
selling expenses on broadcast equipment sales, primarily relating to digital
radio and television products, and increased commission costs on weather radars
as a result of increased sales.
Company-sponsored product development costs were $14,066,000 for 1997
compared to $14,293,000 in 1996. Within the communications business area, the
1997 expenses were $1,882,000 lower than in 1996 primarily due to the completion
of a major antenna development project in 1996 and lower development costs in
1997 for new broadcast equipment products at both the Germany and United States
broadcast manufacturing facilities. These expenses increased $1,195,000, or 18%
in the geoscientific business area over the prior year due to costs incurred for
design changes made to the 24-bit module and prototype development related to
efforts to develop new reservoir monitoring equipment.
20
<PAGE>
Shareholders' Investment
(In Millions of Dollars)
[BAR CHART PLOTTED FROM DATA IN TABLE BELOW]
1993 ............................ 123.3
1994 ............................ 135.8
1995 ............................ 150.0
1996 ............................ 158.1
1997 ............................ 163.2
The Company's interest expense for 1997 increased to $5,229,000 from
$3,174,000 in 1996. The $2,055,000 increase resulted from higher borrowings
primarily in the geoscientific business area to support the increased
expenditures for capital equipment and facilities, and to finance the growth in
accounts receivable and inventories. The increase in the receivables balance
throughout the year resulted from slower collections from certain customers.
Inventory growth occurred for 24-bit seismic data acquisition modules, seismic
cables and PolySeis ATS(Trade Mark) System components. Additionally, higher
borrowings were necessary to finance the growth of microwave and broadcast
product inventories in the communications business area to enable the Company to
meet the faster delivery requirements of its customers.
The Company's 1997 net interest and other income was $4,616,000 as
compared to $3,223,000 in 1996. The $1,393,000, or 43% increase was primarily
due to the recognition of foreign currency transaction gains on foreign currency
denominated debt within the broadcast part of the communications business area
that resulted from the strengthening U.S. dollar over the Deutsche Mark during
the year.
The Company's tax rate declined to 30% in 1997 from 34% in 1996. The
lower tax rate reflects the benefits to the Company derived from its Foreign
Sales Corporation and for expenditures for research and development. Also, in
1996 the Company provided for taxes at the statutory rate on the gain related to
the sale of subsidiary stock and incurred a non-deductible charge for the
write-off of goodwill at another subsidiary.
Income from continuing operations for 1997 was $8,685,000 or $1.41 per
share as compared to $25,354,000 or $3.90 per share in 1996. The 1997 results
were $6,538,000 less than the 1996 results due primarily to the net effect of
the items discussed above (net of unusual items in 1996 that included a
$13,758,000 gain on the sale of GeoScience Corporation stock and a $3,627,000
loss resulting from the write-off of impaired goodwill at another subsidiary).
The 1997 loss from the discontinued operation, $1,236,000, or $0.20 per
share reflected Tech-Sym's share of CogniSeis' operating results for the six
months ended June 30, 1997, whereas the 1996 loss of $1,979,000, or $0.30 per
share reflected Tech-Sym's share of CogniSeis' operations for a complete year.
The Company's net income of $7,449,000 or $1.21 per share for 1997 as
compared to $22,340,000 or $3.44 per share in 1996, reflects the net effect of
the items discussed above, plus the extraordinary item in 1996 relating to the
early extinguishment of debt.
1996 IN COMPARISON WITH 1995
Sales for the year ended December 31, 1996 increased 34% to $299,052,000 from
$223,852,000 in 1996. The increase resulted from (i) greater sales in the
communications business area, $38,104,000 or 41%, primarily due to strong
international demand for microwave components and high power broadcast equipment
including sales related to the acquisition of TELEFUNKEN effective January 1,
1996, (ii) increased sales in the geoscientific business area, $29,306,000 or
48%, primarily due to higher demand for seismic data acquisition systems and
repair of seismic cables, and (iii) increased sales in the defense systems
business area, $10,579,000 or 17%, mainly due to increased production on two
major programs that transitioned from the development stage into the production
stage during the year.
21
<PAGE>
Capital Expenditures
(In Millions of Dollars)
[BAR CHART PLOTTED FROM DATA IN TABLE BELOW]
1993 ............................ 7.00
1994 ............................ 10.23
1995 ............................ 8.88
1996 ............................ 16.18
1997 ............................ 13.51
The Company's gross margin increased $23,560,000, or 33% to $95,426,000
in 1996 compared to $71,866,000 in 1995. The increase was consistent with the
sales growth. Gross margin as a percentage of sales remained at 32% for 1996 and
1995.
The consolidated selling, general and administrative expenses for 1996
increased $14,778,000, or 33% over the prior year. The increase was primarily
attributable to the communications business area where these costs increased
substantially as a result of the acquisition of TELEFUNKEN and the overall
business growth of broadcast equipment products and microwave products during
the year. Additionally, these costs increased significantly in the geoscientific
business area due to (i) additional royalties on increased equipment sales, (ii)
additional personnel associated with general business growth, and (iii)
additional costs of managing the consolidated geoscientific business and being a
publicly traded company.
Company-sponsored product development cost was $14,293,000 for 1996
compared to $9,236,000 for 1995. The increase occurred within the communications
business area. The principle contributing factors to the increase were the
purchase of TELEFUNKEN effective January 1, 1996, which added costs for digital
audio and video development projects during the year, and higher expenditures on
new microwave products and antenna products.
The Company reduced its interest costs by $549,000, or 15% for the year,
as a result of using a portion of the proceeds from the issuance of GeoScience
common stock to retire debt and through negotiation of a reduction in the
interest rate on its line of credit borrowings.
Net interest and other income, excluding the $21,166,000 gain on
issuance of GeoScience common stock and the $3,627,000 write-off of goodwill of
another subsidiary, was $3,223,000 for 1996 compared to $4,339,000 for 1995. The
$1,116,000 or 26% decrease was primarily due to lower interest income on
long-term receivables and lower levels of short-term cash investments throughout
the year.
The provision for income taxes increased as a result of the higher
income for the year and due to an increase in the Company's tax rate to 34% from
31% the prior year. The rate increased as a result of providing for taxes at the
statutory rate on the gain from the issuance of GeoScience common stock and
incurring a non-deductible charge for the write-off of goodwill at another
subsidiary.
Income from continuing operations for 1996 was $25,354,000 or $3.90 per
share as compared to $13,039,000 or $1.95 per share in 1995. The 1996 results,
net of the unusual items in 1996 that included a $13,758,000 net gain on the
issuance of GeoScience common stock and a $3,627,000 loss resulting from the
write-off of impaired goodwill at another subsidiary, were $2,184,000 greater
than the 1995 results. The large increase in selling, general and administrative
expenses and product development costs during 1996 offset most of the increase
in gross margin generated by the sales growth over 1995.
The increase in the loss from the discontinued operation to $1,979,000
in 1996 resulted primarily from increased selling, general and administrative
expenses associated with the CogniSeis acquisition of Photon Systems Ltd., in
September 1995.
22
<PAGE>
During 1996, the Company incurred a net loss of $1,035,000 on early
extinguishment of debt as a result of its election to pay off its senior debt
due to a favorable change in interest rates and the availability of cash from
the issuance of GeoScience common stock.
The Company's net income for the year was $22,340,000 or $3.44 per share
as compared to $13,035,000 or $1.95 per share in 1995. Excluding certain items
(gain of issuance of subsidiary stock, write off of goodwill, and extraordinary
item), net income would have increased only $209,000 over 1995.
PRODUCT LINE SALES
The following table set forth the percentage 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,
------------------------------
1997 1996 1995
------------------------------
Communications ..................... 46% 44% 42%
Geoscience ......................... 32% 30% 28%
Defense Systems .................... 20% 24% 27%
Certain geographical information with respect to the Company's business
is set forth in Note 14 of Notes to Consolidated Financial Statements.
OTHER INFORMATION
The Company's business strategy focuses on the development of technologically
advanced products within each of its business areas. The Company attempts to
develop business through internal product development and by acquiring product
lines, technology and businesses that complement internal product development.
The Company's communications business area broadened its ferrite and ceramics
product line and manufacturing capacity during 1997 with the minor acquisition
of Xtalonix Products, Inc. The Company anticipates that it will sell these
products to external customers in the future while supporting its own
requirements for ferrite and ceramics products in the near term. The Company
believes the market for digital audio and television equipment will accelerate
its development in late 1998, providing growth opportunities for the sale of our
broadcast equipment. The sale of the geoscientific software subsidiary,
CogniSeis, will enable GeoScience to focus its attention on seismic data
acquisition products where its expertise lies. The acquisition of Innovative
Transducers Inc., by GeoScience in December 1997, provides the company with new
products and advances the development of a new solid streamer cable for use in
seismic markets.
The Company's growth strategy in all business areas of the Company may
require additional expenditures for company-sponsored product development and
investment in property, plant and equipment in order to maximize future
opportunities. Sales and earnings in the commercial market, especially those in
the seismic exploration area, can be very volatile. Management believes the
Company's diversified markets reduce the adverse effects resulting from this
volatility and intends to continue to diversify the business as appropriate for
the Company's future.
23
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Sales ................................................................................. $ 294,100 $ 299,052 $ 223,852
---------------------------------------
Costs and expenses:
Cost of sales ....................................................................... 201,097 203,626 151,986
Selling, general and administrative expenses ........................................ 65,218 59,083 44,305
Company-sponsored product development ............................................... 14,066 14,293 9,236
Interest expense .................................................................... 5,229 3,174 3,723
Gain on issuance of subsidiary stock ................................................ (21,166)
Goodwill impairment ................................................................. 3,627
Interest and other income - net ..................................................... (4,616) (3,223) (4,339)
---------------------------------------
280,994 259,414 204,911
---------------------------------------
Income from continuing operations before income
taxes, minority interest and extraordinary item ................................. 13,106 39,638 18,941
Provision for income taxes .......................................................... 3,902 13,196 5,902
Minority interest ................................................................... 519 1,088
---------------------------------------
Income from continuing operations ................................................. 8,685 25,354 13,039
Discontinued operation:
Loss from operations of CogniSeis, less applicable income tax benefits of
$714, $1,039 and $2, respectively, and less applicable minority interest
of $352, $334 and $0, respectively ................................................ 1,236 1,979 4
---------------------------------------
Income before extraordinary item .................................................. 7,449 23,375 13,035
Extraordinary item:
Loss on early extinguishment of debt, less applicable income taxes of $557 ........ 1,035
---------------------------------------
Net income ........................................................................ $ 7,449 $ 22,340 $ 13,035
=======================================
Earnings (loss) per common share:
Continuing operations
Basic ............................................................................. $ 1.44 $ 3.99 $ 2.00
Diluted ........................................................................... $ 1.41 $ 3.90 $ 1.95
Discontinued operation
Basic ............................................................................. $ (.20) $ (.31)
Diluted ........................................................................... $ (.20) $ (.30)
Extraordinary item
Basic and diluted ................................................................. $ (.16)
Net income
Basic ......................................................................... $ 1.23 $ 3.52 $ 2.00
Diluted ....................................................................... $ 1.21 $ 3.44 $ 1.95
Weighted average common shares outstanding:
Basic ............................................................................... 6,038 6,350 6,521
Diluted ............................................................................. 6,168 6,501 6,673
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
CONSOLIDATED BALANCE SHEET
(In thousands except par value and number of shares)
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................................. $ 13,384 $ 20,450
Short-term investments ..................................................................... 5,588 6,380
Receivables - net .......................................................................... 76,980 62,217
Unbilled revenue ........................................................................... 48,140 48,814
Inventories ................................................................................ 96,962 82,808
Deferred taxes on income ................................................................... 4,402 5,240
Other ...................................................................................... 3,644 858
----------------------------
Total current assets ..................................................................... 249,100 226,767
Property, plant and equipment - net .......................................................... 49,049 48,917
Long-term receivables - net .................................................................. 18,759 16,695
Other assets ................................................................................. 29,842 30,900
----------------------------
Total assets ............................................................................. $ 346,750 $ 323,279
============================
LIABILITIES
Current liabilities:
Notes payable .............................................................................. $ 54,137 $ 29,406
Current maturities of long-term debt ....................................................... 8,622 4,251
Accounts payable ........................................................................... 23,479 22,321
Billings in excess of costs and estimated earnings on uncompleted contracts ................ 9,941 9,728
Taxes on income ............................................................................ 5,888 5,201
Other accrued liabilities .................................................................. 21,399 20,125
----------------------------
Total current liabilities ................................................................ 123,466 91,032
Long-term debt ............................................................................... 16,139 13,974
Deferred taxes on income ..................................................................... 6,171 6,539
Other liabilities ............................................................................ 22,834 36,483
----------------------------
Total liabilities ............................................................ 168,610 148,028
----------------------------
Minority interest ............................................................................ 14,957 17,179
----------------------------
Commitments and contingencies (Note 13)
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 7,994,881
and 7,941,231 shares, respectively ......................................................... 799 794
Additional capital ........................................................................... 40,677 39,753
Accumulated earnings ......................................................................... 152,644 145,195
Cumulative translation adjustments ........................................................... (3,277) (911)
Common stock held in treasury, at cost (1,936,900 and 1,905,400 shares,
respectively) .............................................................................. (27,660) (26,759)
----------------------------
Total shareholders' investment ........................................................... 163,183 158,072
----------------------------
Total liabilities, minority interest and shareholders' investment ........................ $ 346,750 $ 323,279
============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 7,449 $ 22,340 $ 13,035
Adjustments to reconcile net income to net cash provided by (used for) operating
activities:
Depreciation and amortization ..................................................... 14,076 13,938 11,887
Deferred income taxes ............................................................. 420 6,232 (677)
Gain on issuance of stock by subsidiary ........................................... (21,166)
Gain on foreign currency denominated debt ......................................... (1,012) (600)
Goodwill impairment ............................................................... 3,627
Minority interest ................................................................. 167 754
Change in operating assets and liabilities, net of impact of purchase of businesses:
Receivables ....................................................................... (21,057) 18,371 (5,277)
Unbilled revenue .................................................................. 674 (9,677) (4,808)
Inventories ....................................................................... (14,040) (11,974) (16,323)
Other assets ...................................................................... (4,976) (10,380) (9,349)
Accounts payable .................................................................. 1,552 5,696 (192)
Other accrued liabilities and billings in excess .................................. 4,122 (15,113) 3,363
Taxes on income ................................................................... (1,019) 3,835 (1,741)
Other noncurrent liabilities ...................................................... (5,770) 162 (1,069)
--------------------------------------
Net cash (used for) provided by operating activities ............................ (19,414) 6,045 (11,151)
--------------------------------------
Cash flows from investing activities:
Capital expenditures ................................................................ (13,508) (16,182) (8,875)
Investment in grantor trust ......................................................... (516) (519) (518)
Purchases of businesses, net of cash acquired ....................................... (5,334) 7,791 (5,942)
Proceeds from sale of CogniSeis ..................................................... 8,929
Investment in joint ventures ........................................................ (510)
Transfer of funded pension liability ................................................ (7,925)
Purchases of investment securities .................................................. (5,488) (6,280) (100)
Sales of investment securities ...................................................... 6,280 300
Other ............................................................................... 734 151 (23)
--------------------------------------
Net cash used for investing activities .......................................... (17,338) (15,039) (15,158)
--------------------------------------
Cash flows from financing activities:
Net borrowings under line of credit agreements ...................................... 25,231 8,416 10,730
Proceeds from long-term debt ........................................................ 4,879 2,447 17,910
Payments on long-term debt .......................................................... (3,823) (24,197) (6,826)
Sale of notes receivable with recourse .............................................. 8,974
Proceeds from issuance of subsidiary common stock ................................... 40,428
Proceeds from exercise of stock options ............................................. 929 1,275 1,127
Acquisition of Tech-Sym and GeoScience treasury stock ............................... (4,169) (18,791)
--------------------------------------
Net cash provided by financing activities ....................................... 32,021 9,578 22,941
--------------------------------------
Effect of exchange rate changes on cash and cash equivalents .......................... (2,335) (849)
--------------------------------------
Net decrease in cash and cash equivalents ............................................. (7,066) (265) (3,368)
Cash and cash equivalents at beginning of year ........................................ 20,450 20,715 24,083
--------------------------------------
Cash and cash equivalents at end of year .............................................. $ 13,384 $ 20,450 $ 20,715
======================================
Cash flows from operating activities include:
Cash transactions:
Interest paid ..................................................................... $ 4,969 $ 3,895 $ 3,742
======================================
Income taxes paid, net ............................................................ $ 5,498 $ 1,909 $ 7,441
======================================
Noncash transactions:
Reduction in balance of notes receivable sold with recourse ....................... $ 2,482
======================================
Note receivable, net, on sale of CogniSeis ........................................ $ 5,883
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
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, 1994 ................. 7,798 $ 780 $ 37,365 $109,820 $(1,164) 1,308 $(11,014) $135,787
Net income ................................. 13,035 13,035
Issuance of common stock for stock options . 62 6 853 859
Currency translation adjustment ............ 69 69
Tax benefit associated with stock options .. 268 268
------------------------------------------------------------------------------------
Balance, December 31, 1995 ................. 7,860 786 38,486 122,855 (1,095) 1,308 (11,014) 150,018
Net income ................................. 22,340 22,340
Issuance of common stock for stock options . 81 8 1,267 1,275
Currency translation adjustment ............ 184 184
Acquisition of treasury shares ............. 597 (15,745) (15,745)
------------------------------------------------------------------------------------
Balance, December 31, 1996 ................. 7,941 794 39,753 145,195 (911) 1,905 (26,759) 158,072
Net income ................................. 7,449 7,449
Issuance of common stock for stock options . 54 5 768 773
Currency translation adjustment ............ (2,366) (2,366)
Acquisition of treasury shares ............. 32 (901) (901)
Tax benefit associated with stock options .. 156 156
------------------------------------------------------------------------------------
Balance, December 31, 1997 ................. 7,995 $ 799 $ 40,677 $152,644 $(3,277) 1,937 $(27,660) $163,183
====================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
THE BUSINESS
Tech-Sym Corporation (the "Company" or "Tech-Sym") is a diversified electronics
engineering and manufacturing company primarily involved in the design,
development and manufacture of products used for communications, the exploration
and production of hydrocarbons and defense systems. The Company operates through
five principal subsidiaries from its headquarters in Houston, Texas.
On May 17, 1996, GeoScience Corporation ("GeoScience"), a subsidiary of
the Company, completed a sale of 2,597,600 shares of its common stock at $17.00
per share in an initial public offering. The sale generated net proceeds to the
Company of $40,428,000 and a gain of $21,166,000, reducing the Company's
ownership in GeoScience from 100% to 75.3%. At December 31, 1997, the Company's
ownership percentage in GeoScience was 79.16%. The change in ownership
percentage from 1996 was a result of GeoSciences' repurchase of shares for
treasury stock.
As discussed in Note 3, the Company's majority-owned subsidiary,
GeoScience, sold its geoscientific software subsidiary, CogniSeis Development,
Inc. ("CogniSeis") on October 14, 1997. CogniSeis is presented as a discontinued
operation in these financial statements. The presentation of the discontinued
operation includes segregation of the operating results of CogniSeis in the
Consolidated Statement of Income for the years ended December 31, 1997, 1996 and
1995 and the related income and expense footnotes. The net assets of the
discontinued operation are not segregated at December 31, 1996 in the
Consolidated Balance Sheet and related footnotes, or in the Consolidated
Statement of Cash Flows at December 31, 1996 and 1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tech-Sym
Corporation and its subsidiaries after the elimination of intercompany
transactions. Investments in companies and joint ventures over which the Company
has significant influence, but not a controlling interest, are carried on the
equity basis. Such investments have not historically had a material impact on
the Company's consolidated financial position or results of operations.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenues and expenses during the
reporting period. It is reasonably possible that actual results could differ
significantly from those estimates and significant changes to estimates could
occur. The Company's management believes that the estimates used in these
financial statements are reasonable.
SHORT-TERM INVESTMENTS AND OTHER CASH EQUIVALENTS
Short-term investments are carried at market value and have maturities of less
than one year. Short-term investments with original maturities of three months
or less when purchased are classified as cash equivalents by the Company.
Included in short-term investments at December 31, 1997 and 1996 are short-term
bonds in the amount of $5,488,000 and $6,280,000, respectively. Short-term
investments also include certificates of deposit of $100,000 with original
maturities greater than three months.
28
<PAGE>
REVENUE RECOGNITION
The Company recognizes revenue on long-term 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.
Revenue from the sale of products manufactured in standard manufacturing
operations is recognized at the time of shipment unless significant future
obligations remain. Where significant future obligations exist, revenue is not
recognized until obligations have been satisfied or are no longer significant.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
principally using the first-in, first-out or average cost method.
DEPRECIATION AND AMORTIZATION
Depreciation of plant and equipment is provided using the straight-line method
over the estimated useful lives of the related assets. 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.
Intangible assets are amortized using the straight-line method over 5 to
15 years. Amortization expense from continuing operations was $2,016,000,
$2,690,000 and $1,746,000 in 1997, 1996 and 1995, respectively. Intangible
assets of $11,139,000, and $13,001,000 at December 31, 1997 and 1996,
respectively, are included in other long-term assets and are net of accumulated
amortization of $10,158,000 and $11,099,000 at December 31, 1997 and 1996,
respectively. Amortization expense related to the discontinued operation was
$1,068,000, $1,345,000 and $549,000 in 1997, 1996 and 1995, respectively.
LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The carrying amount
of a long-lived asset is considered impaired when anticipated undiscounted cash
flows expected to result from the use of the asset and its eventual disposition
is less than its carrying amount. At December 31, 1996, the Company wrote off
the unamortized goodwill of $3,627,000 associated with the acquisition of
Anarad, Inc. in 1994. The Company believes that no material impairment exists at
December 31, 1997.
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.
29
<PAGE>
INCOME TAXES
The provision for income taxes is computed based on the pretax income included
in the consolidated statement of income. The asset and liability approach is
used to recognize 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.
FOREIGN CURRENCY TRANSLATION
The Company's foreign subsidiaries use the local currency as their 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.
FOREIGN EXCHANGE INSTRUMENTS
The Company enters into forward exchange contracts to hedge certain transactions
denominated in foreign currencies. The gains or losses on hedges of transaction
exposures are recognized into income currently. The cash flows related to these
gains and losses are reported as cash flows from operating activities.
EARNINGS PER SHARE
In February 1997, Financial Accounting Standard No. 128 ("FAS 128") Earnings Per
Share was issued. FAS 128 is effective for both interim and annual periods
ending after December 15, 1997. The Company adopted the pronouncement for the
year ended December 31, 1997. FAS 128 requires the Company to report both basic
earnings per share, which is based on the weighted average number of common
shares outstanding, and diluted earnings per share, which is based on the
weighted average number of common shares outstanding and all dilutive potential
common shares outstanding. Stock options are the only dilutive potential shares
the Company has outstanding for all periods presented. All prior years' earnings
per share data in this report have been recalculated to reflect the provisions
of FAS 128. At December 31, 1997, 1996 and 1995, options to acquire 232,700,
246,000 and 10,000 shares of common stock at weighted average exercise prices of
$34.46, $34.47 and $30.375, respectively, were not included in the computations
of dilutive EPS because the options' exercise price was greater than the average
market price of the common shares.
30
<PAGE>
STOCK-BASED COMPENSATION
In 1996, the Company adopted Statement of Financial Accounting Standard No. 123
("FAS 123") Accounting for Stock-Based Compensation. Upon adoption of FAS 123,
the Company continued to measure compensation expense for its stock-based
employee compensation plan using the intrinsic value method prescribed in APB
No. 25, Accounting for Stock Issued to Employees, and has provided in Note 10
pro forma disclosures of the effect on net income and earnings per share as if
the fair value-based method prescribed in FAS 123 has been applied in measuring
compensation expense.
TRANSFER OF FINANCIAL ASSETS
In 1997, the Company adopted Financial Accounting Standards No. 125 ("FAS 125"),
Accounting for Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities. FAS 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996.
During 1997, the Company sold $8,974,000 notes receivable to a financial
institution. In accordance with FAS 125, the balance of the notes receivable at
December 31, 1997 of $6,492,000 is reflected as a note receivable and a
corresponding note payable to the financial institution because the Company is
contingently liable for the collection of the notes receivable sold.
RECENT PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 ("FAS 130") Reporting Comprehensive Income. FAS 130
requires the adoption of its provisions for fiscal years beginning after
December 15, 1997. The Company will adopt the statement in 1998. FAS 130 calls
for disclosure of comprehensive income in a financial statement that is
displayed with the same prominence as other financial statements that constitute
a full set of financial statements. Comprehensive income includes all changes in
the equity of a business enterprise during a period except those resulting from
investments by shareholders and distributions to shareholders. Such changes
would include net income and the cumulative translation adjustment. The adoption
of FAS 130 is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131 ("FAS 131") Disclosures About Segments of an
Enterprise and Related Information in June 1997. FAS 131 requires a business
enterprise to determine segments based on the "management approach." The
management approach means reporting segment information similar to the way
management reviews operating results and makes management decisions regarding
its various operating divisions. The requirements of this statement are
effective for fiscal years beginning after December 15, 1997, with no interim
application required in the initial year of application. The Company will adopt
FAS 131 in 1998.
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to the current year
presentation.
31
<PAGE>
NOTE 2 - ACQUISITIONS
On December 18, 1997, the Company's majority-owned subsidiary, GeoScience,
acquired all of the outstanding shares of Innovative Transducers Inc. ("ITI")
for $3,480,000 in cash. ITI manufactures and sells transducers and arrays used
in connection with engineering applications and the acquisition of seismic data
and provides repair services with respect to such products. The acquisition was
accounted for under the purchase method and, accordingly, the purchase price was
allocated to the net assets acquired based upon their estimated fair market
values. The excess of the purchase price over the estimated fair market value of
the net assets approximated $3,500,000, which has been accounted for as an
intangible asset and is being amortized over seven years using the straight-line
method.
The following table reflects unaudited pro forma combined results of the
Company and ITI on the basis that the acquisition had taken place at the
beginning of each year presented and includes the impact of certain adjustments
such as intangible amortization, interest expense and the related income tax
effects thereof (in thousands, except per share amounts):
December 31,
----------------------
1997 1996
----------------------
(unaudited)
Sales ................................................. $295,181 $300,462
Net income from continuing operations ................. 7,673 24,854
Net income per common share from continuing operations:
Basic ......................................... 1.27 3.91
Diluted ....................................... 1.24 3.82
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred had
the acquisition been consummated at the beginning of 1996 or at the beginning of
1997, or of the future operations of the combined companies under the ownership
and management of the Company.
In November 1997, the Company acquired through its subsidiary, TRAK
Communications, Inc., substantially all of the operating assets of a ceramics
manufacturer, Xtalonix Products, Inc. Acquisition costs of $1,854,000 were paid
in cash. The acquisition has been accounted for under the purchase method and,
accordingly, the purchase price was allocated to the net assets acquired based
upon their estimated fair market values. The excess of the purchase price over
the estimated fair market value of the assets acquired approximated $980,000,
which has been accounted for as an intangible asset and is being amortized over
15 years using the straight-line method. The operations related to this
acquisition are not material to the Company's consolidated results of
operations.
On January 1, 1996, the Company acquired, through its subsidiary,
Continental Electronics Corporation, all of the capital stock of TELEFUNKEN
Sendertechnik, GmbH ("TELEFUNKEN"), from Daimler-Benz Aerospace AG ("DASA").
TELEFUNKEN is a designer and manufacturer of broadcast transmitters and antenna
systems. The transaction was accounted for as a purchase.
32
<PAGE>
The purchase price for the acquisition was denominated in Deutsche Marks
and aggregated $9,221,000 based on exchange rates at December 31, 1995. The
purchase price was comprised of $6,986,000 cash and a $2,235,000 note payable to
DASA, due January 31, 1997. The purchase price approximated the fair value of
the net assets acquired. The fair value of assets acquired and liabilities
assumed at the acquisition date were $53,199,000 and $43,978,000, respectively.
Assets acquired included approximately $14,000,000 in cash and cash equivalents.
The following unaudited pro forma consolidated results of operations
have been prepared as if the acquisition of TELEFUNKEN had occurred at the
beginning of fiscal 1995 (in thousands, except per share amounts):
December 31, 1995
-----------------
(unaudited)
Sales................................................ $267,437
Net loss from continuing operations.................. (9,470)
Loss per common share from continuing operations:
Basic and diluted................................. (1.45)
NOTE 3 - DISCONTINUED OPERATIONS
In June 1997, the Company's majority-owned subsidiary, GeoScience, adopted a
plan to sell its geoscientific software subsidiary, CogniSeis. Accordingly, the
Consolidated Statement of Income of the Company has been reclassified for all
periods presented to report separately the results of the discontinued operation
through June 30, 1997 (the "measurement date").
On October 14, 1997 (the "disposal date"), GeoScience sold CogniSeis for cash of
$8,929,000, net of certain liabilities assumed pursuant to the terms of the sale
agreement, plus a note receivable. The total amount of the note receivable due
to the Company equals approximately $12,000,000 and is due in full by December
30, 2003. The note receivable may be adjusted downward pursuant to certain
provisions of the sale agreement within a one year period. The payment stream of
the note receivable is based on sales of certain CogniSeis developed software.
The sale agreement also has a provision for early payout of the note receivable
as follows: $8,500,000 if paid within 90 days of the closing date; $9,000,000 if
paid between 90 and 180 days of the closing date; $9,500,000 if paid between 180
and 270 days of the closing date; and $10,000,000 million if paid between 270
days and one year of the closing date.
The results of the discontinued operation from the measurement date through the
disposal date, which were insignificant, as well as the expected gain on the
sale, have been deferred at December 31, 1997 until estimates regarding certain
provisions of the sale agreement can be made with reasonable certainty. The
Company's portion of the estimated range of the expected gain is $0 -
$2,375,000. The note receivable, net of an allowance, of $5,883,000 related to
the sale of CogniSeis is included in long-term notes receivable at December 31,
1997.
33
<PAGE>
Summarized financial information for CogniSeis through the measurement
date is as follows (in thousands except per share data):
Year Ended December 31,
---------------------------
1997 1996 1995
---------------------------
Sales .......................................... $11,398 $22,858 $22,635
Loss before provision for income taxes ......... 2,302 3,352 6
Loss from the discontinued operation,
net of income taxes and minority interest .... 1,236 1,979 4
Loss per common share from the discontinued
operation:
Basic ........................................ .20 .31
Diluted ...................................... .20 .30
NOTE 4 - RECEIVABLES AND UNBILLED REVENUE
Receivables and unbilled revenue are summarized as follows (in thousands):
December 31,
-----------------
1997 1996
-----------------
Current receivables:
Commercial, less allowance for losses of $1,265 and $1,980 $67,601 $53,898
U.S. Government .......................................... 9,379 8,319
-----------------
$76,980 $62,217
=================
Unbilled revenues:
Commercial ............................................... $16,305 $15,378
U.S. Government .......................................... 31,835 33,436
-----------------
$48,140 $48,814
=================
Long-term receivables:
Commercial, less allowance for losses of $489 and $419 $18,759 $16,695
=================
Government receivables and unbilled revenue include amounts from prime
contractors with the U.S. Government where the Company is the subcontractor.
Current receivables at December 31, 1997 and 1996 include trade accounts
and the current portion of long-term notes receivable of $8,453,000 and
$8,090,000, respectively.
Included in long-term receivables are notes receivable on the sale of
real estate lots in the amounts of $5,211,000 and $6,796,000 at December 31,
1997 and 1996, respectively, secured by real estate sold. Long-term receivables
also include notes receivable on seismic equipment sales, in the amounts of
$7,665,000 and $9,899,000 at December 31, 1997 and 1996, respectively, generally
secured by equipment sold. Long-term notes receivable on seismic equipment sales
bear interest rates between 6.72% and 13% which are due to the Company in
monthly installments through October 1999. The current and long-term portion of
notes receivable includes $3,471,000 and $3,021,000, respectively, sold to a
financial institution with recourse at December 31, 1997 (Notes 1 and 13).
34
<PAGE>
NOTE 5 - INVENTORIES
Inventories, which consist principally of electronic components, are summarized
as follows (in thousands):
December 31,
--------------------------
1997 1996
--------------------------
Raw materials ............................... $ 39,935 $ 36,190
Work in process ............................. 35,964 31,933
Finished goods .............................. 28,701 23,515
--------------------------
104,600 91,638
Less reserve for obsolescence ............... (7,638) (8,830)
--------------------------
$ 96,962 $ 82,808
==========================
At December 31, 1997 and 1996, inventories included $12,026,000 and
$9,408,000, respectively, of electronic components related to the land and
transition zone seismic data acquisition system product line, PolySeis ATS(TM).
The Company's majority-owned subsidiary, GeoScience, together with members of a
consortium, completed commercial development of this product line in late 1995.
Management believes this product is in the early stage of its life cycle and
certain risks of market acceptance exist. GeoScience has recently experienced
limited leasing activity of this product and believes the demand for this
product will significantly increase and the related inventory will be sold in
the normal course of business.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are summarized as follows
(dollars in thousands):
December 31,
Estimated ---------------
lives 1997 1996
--------------------------------
At cost:
Land, buildings and improvements .. 10-35 $ 32,594 $ 30,286
Machinery and equipment ........... 3-12 85,193 86,249
----------------------
117,787 116,535
Less accumulated depreciation ....... (68,738) (67,618)
----------------------
$ 49,049 $ 48,917
======================
NOTE 7 - NOTES PAYABLE
At December 31, 1997, the Company had unsecured short-term line of credit
facilities aggregating approximately $99,716,000. Borrowings 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 including limitations
on asset sales, limitations on indebtedness, limitations on payments for
dividends and acquisition of treasury shares, limitations on investments, and
certain financial covenants and ratios. At December 31, 1997 and 1996,
borrowings under these lines totaled $54,137,000 and $29,406,000, respectively.
Weighted average interest rates on such borrowings outstanding at December 31,
1997 and 1996 were 8.10% and 8.27%, respectively.
35
<PAGE>
NOTE 8 - LONG-TERM DEBT
The components of long-term debt are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
----------------------
<S> <C> <C>
Unsecured note (denominated in Deutsche Marks) at Frankfurt interbank overnight rate (6.125% at
December 31, 1997) interest payable quarterly; due September 30, 2000 ................................ $ 5,618 $ 6,344
Real estate mortgage notes, due in monthly installments with interest at 7.44% to 10.75%, maturity
at various dates through 2012 ........................................................................ 6,744 5,126
Term loan, unsecured, due in semi-annual installments with interest at 5.3%, maturity in 2000 .......... 1,783 2,501
Notes secured by equipment, due in monthly installments with interest at 4.7% to 13.0%, maturity
at various dates through 2002 ........................................................................ 3,320 1,176
Notes sold to a financial institution with recourse, due in quarterly installments with interest
at 6.72%, maturing in 1999 ........................................................................... 5,848
Notes sold to a financial institution with recourse, due in monthly installments with interest
at prime plus 2.5%, maturing in 1998 ................................................................. 644
Other .................................................................................................. 804 3,078
----------------------
24,761 18,225
Less current maturities ................................................................................ (8,622) (4,251)
----------------------
$ 16,139 $ 13,974
======================
</TABLE>
The unsecured note contains certain restrictive covenants similar to
those for the lines of credit.
Future maturities of long-term debt are $8,622,000 in 1998; $7,523,000
in 1999; $4,111,000 in 2000; $1,527,000 in 2001; $1,079,000 in 2002; and
$1,899,000 thereafter. In 1996, the Company elected to retire its senior
unsecured notes with the proceeds received in connection with the GeoScience
public offering. The Company paid a premium of $1,035,000 net of income taxes
due to early extinguishment of this debt, which was recorded as an extraordinary
charge.
At December 31, 1997, $2,994,000 of machinery and equipment and
$8,523,000 of land, buildings and improvements were pledged as collateral to
secure various long-term debt obligations.
The Company has entered into a forward exchange contract to reduce
exposure to potentially adverse changes in the foreign currency exchange rate
related to the debt obligation associated with the purchase of TELEFUNKEN. At
December 31, 1997, the notional amount of the forward exchange contract of
$5,618,000 is not included in the consolidated balance sheet.
36
<PAGE>
NOTE 9 - INCOME TAXES
The components of income before income taxes were as follows (in thousands):
Year ended December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
Continuing operations
Domestic .................. $ 7,665 $ 37,351 $ 17,035
Foreign ................... 5,441 2,287 1,906
--------------------------------------
13,106 39,638 18,941
Discontinued operation
Domestic .................. (2,302) (3,352) (6)
--------------------------------------
$ 10,804 $ 36,286 $ 18,935
======================================
The provision for income taxes consists of the following (in thousands):
Year ended December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
Current tax expense
U.S. Federal .............. $ 1,802 $ 4,592 $ 5,658
State ..................... 365 399 506
Foreign ................... 601 934 413
--------------------------------------
Total current ..... 2,768 5,925 6,577
--------------------------------------
Deferred tax expense
U.S. Federal .............. (1,099) 7,334 (861)
Foreign ................... 1,519 (1,102) 184
--------------------------------------
Total deferred .... 420 6,232 (677)
--------------------------------------
Total provision ... $ 3,188 $ 12,157 $ 5,900
======================================
The total provision for (benefit from) income taxes is as follows (in
thousands);
Year ended December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
Continuing operations ............. $ 3,902 $ 13,196 $ 5,902
Discontinued operation ............ (714) (1,039) (2)
--------------------------------------
$ 3,188 $ 12,157 $ 5,900
======================================
37
<PAGE>
The income tax expense for 1997, 1996 and 1995 resulted in effective tax
rates of 29.5%, 33.5% and 31.2%, respectively. The reasons for the differences
between these effective tax rates and the U.S. statutory rate of 35% are as
follows (in thousands):
Year ended December 31,
-------------------------------
1997 1996 1995
-------------------------------
Federal taxes on income at statutory rates .. $ 3,781 $ 12,436 $ 6,627
State income taxes, net ..................... 238 260 329
Foreign Sales Corporation benefit ........... (875) (946) (590)
Research and development credits ............ (214)
Nondeductible intangible amortization ....... 195 1,827 256
Change in valuation allowance ............... 124 (653) (64)
Other, net .................................. (61) (767) (658)
-------------------------------
$ 3,188 $ 12,157 $ 5,900
===============================
Deferred tax liabilities (assets) at December 31, 1997 and 1996 are
comprised of the following (in thousands):
December 31,
----------------------
1997 1996
----------------------
Deferred tax liabilities:
Depreciation ..................................... $ 1,224 $ 315
Installment sales ................................ 699 750
Equity in earnings of affiliate .................. 1,276 1,049
Basis difference in affiliate stock .............. 7,632 7,632
Intangible amortization .......................... 232
Other ............................................ 416 657
----------------------
Gross deferred tax liabilities ................. 11,247 10,635
----------------------
Deferred tax assets:
Deferred compensation ............................ (2,263) (2,106)
Compensatory absences accruals ................... (804) (835)
Inventory accounting and valuation allowance ..... (2,056) (1,894)
Net operating loss carryforwards ................. (249) (1,144)
Product warranty and related accruals ............ (321) (368)
Receivable valuation allowances .................. (564) (758)
Contract percent of completion ................... (473) (1,092)
Intangible amortization .......................... (556)
Installment income on sale of CogniSeis .......... (1,272)
Research and experimentation tax credit .......... (579) (979)
Other ............................................ (1,044) (739)
----------------------
Gross deferred tax assets ...................... (10,181) (9,915)
Deferred tax asset valuation allowance ............. 703 579
----------------------
$ 1,769 $ 1,299
======================
38
<PAGE>
A deferred tax asset valuation allowance is provided to reduce tax
assets to a level which, more likely than not, will be realized. The components
of the deferred tax asset valuation allowance at December 31, 1997 consist of
$579,000 in research and development tax credits which are expected to expire
unused and $124,000 in tax effected foreign net operating losses.
Certain of the company's foreign subsidiaries utilized $2,656,000 in net
operating losses during 1997. In addition, a foreign subsidiary incurred a net
operating loss of $829,000 during 1997 resulting in total net operating losses
of $1,207,000, which will carryforward indefinitely.
NOTE 10 - STOCK OPTION PLANS
The Company's 1990 Stock Option Plan (the "1990 Plan") covers 1,158,000 shares
of common stock and provides for the granting of stock options and/or stock
appreciation rights ("SARs") to key employees of the Company and to the members
of the Board of Directors who are not employees of the Company ("Nonemployee
Directors"). Each 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 granted to key
employees are exercisable 20% after one year, with an additional 20% exercisable
each six months thereafter. Options granted to Nonemployee Directors are
exercisable in full after one year. Shares granted and subsequently canceled are
available for future grants. At December 31, 1997, options to purchase 248,370
shares of common stock were available for grant under the 1990 Plan.
Any SARs granted under the 1990 Stock Option Plan 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.
39
<PAGE>
Changes in outstanding options and/or SARs under the 1990 Plan during
1995, 1996 and 1997 were as follows:
Weighted
average
exercise
Shares price
--------------------------
Outstanding, December 31, 1994 ............ 506,820 $ 14.78
Options granted ......................... 17,000 28.21
Options canceled ........................ (9,320) 20.04
Options exercised ....................... (50,700) 14.43
--------------------------
Outstanding, December 31, 1995 ............ 463,800 15.20
Options granted ......................... 237,000 34.64
Options canceled ........................ (2,000) 27.89
Options exercised ....................... (68,780) 15.27
--------------------------
Outstanding, December 31, 1996 ............ 630,020 22.47
Options granted ......................... 82,500 28.00
Options canceled ........................ (16,300) 32.00
Options exercised ....................... (38,650) 15.79
--------------------------
Outstanding, December 31, 1997 ............ 657,570 $ 23.32
==========================
Exercisable options
December 31, 1995 ....................... 266,480 $ 12.84
December 31, 1996 ....................... 376,096 $ 14.89
December 31, 1997 ....................... 446,650 $ 19.18
In 1996, the Company's majority-owned subsidiary, GeoScience,
established the 1996 Equity Incentive Plan (the "1996 Plan") which covers
1,500,000 shares of GeoScience common stock and permits the granting of stock
options. Each 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 granted to key
employees are exercisable 25% after one year, with an additional 25% exercisable
each year thereafter. Options granted to Nonemployee Directors of GeoScience are
exercisable in full after six months. At December 31, 1997 and 1996, options
under the 1996 Plan covering 179,681 and 45,000 were exercisable at weighted
average exercise prices of $13.58 and $17.55, respectively.
40
<PAGE>
The following table summarizes significant ranges of Tech-Sym's
outstanding and exercisable options at December 31, 1997:
Options outstanding Options exercisable
-----------------------------------------------------------
Weighted Weighted Weighted
average average average
Range of remaining exercise exercise
Exercise Prices Shares life in years price Shares price
- ---------------------------------------------------------------------------
$8.00-12.00 86,150 2.5 $8.09 86,150 $8.09
12.01-18.00 197,250 5.3 15.35 197,250 15.35
18.01-27.00 59,970 6.8 21.79 59,970 21.79
27.01-35.875 314,200 8.6 32.79 103,280 34.23
------- -------
8.00-35.875 657,570 6.6 23.32 446,650 19.18
======= =======
Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if the Company had accounted for
its stock options under the fair value method of FAS 123. The fair value of the
options at date of grant was estimated using a Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------
Tech-Sym GeoScience Tech-Sym GeoScience Tech-Sym
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expected life 5.4 years 6.7 years 6.3 years 6.5 years 8 years
Interest rate 6.38% 6.09% 6.18% 6.58% 5.99%
Volatility 24% 54% 29% 51% 37%
Dividend yield 0% 0% 0% 0% 0%
</TABLE>
41
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro forma
net income and earnings per share from continuing operations was as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Net income from continuing operations, as reported $8,685 $25,354 $13,039
Net income from continuing operations, pro forma .. 7,565 24,536 12,986
Continuing operations:
Earnings per share - basic, as reported ......... 1.44 3.99 2.00
Earnings per share - diluted, as reported ....... 1.41 3.90 1.95
Earnings per share - basic and diluted, pro forma 1.25 3.86 1.99
Weighted average fair value of
Tech-Sym options granted during the year ........ $10.33 $ 14.09 $ 14.71
Weighted average fair value of
GeoScience options granted during the year ...... $ 6.35 $ 7.43
</TABLE>
Pro forma net income includes $291,000 and $357,000 compensation
expense, net of income taxes, for the year ended December 31, 1997 and 1996,
respectively, related to the Company's majority-owned subsidiary, GeoScience.
The pro forma effect on net income for 1997, 1996 and 1995 is not
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
NOTE 11 - 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 1,866,297
shares related to these authorizations. The shares are held by the Company and
accounted for using the treasury stock method. The Company is authorized to
repurchase up to 121,300 additional shares.
GeoScience's Board of Directors has authorized GeoScience to repurchase
shares of its common stock through open market purchases. Since 1996, GeoScience
has repurchased an aggregate of 519,000 shares. The shares are held by
GeoScience and accounted for using the treasury stock method. GeoScience is
authorized to purchase up to 281,000 additional shares.
42
<PAGE>
NOTE 12 - BENEFIT PLANS
The Company maintains a defined contribution retirement plan covering
substantially all domestic employees. The annual Company contribution and
administrative costs of the plan were $1,612,000 for 1997, $2,126,000 for 1996
and $1,898,000 for 1995. The Company's majority-owned subsidiary, GeoScience,
has a defined contribution retirement plan (the GeoScience Plan) and 1997 was
the first full year of existence for the GeoScience Plan. GeoScience's
contribution and administrative costs of the GeoScience Plan were $400,000 in
1997. 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. These assets
aggregating $6,330,000 and $5,638,000 at December 31, 1997 and 1996,
respectively, are included other assets.
The costs for the executive retirement agreements and the nonemployee
directors' retirement plan in 1997, 1996 and 1995 were $750,000, $813,000 and
$855,000, respectively. The status of the retirement plans at December 31 was as
follows (in thousands):
1997 1996
------------------
Actuarial present value of:
Vested benefit obligation .............................. $ 6,503 $ 6,182
==================
Accumulated benefit obligation ......................... $ 6,523 $ 6,188
==================
Projected benefit obligation ........................... $ 6,778 $ 6,483
==================
Plan assets at fair value:
Projected benefit obligation in excess of plan assets .. $ 6,778 $ 6,483
Unrecognized net gain .................................... (310) (507)
Unrecognized prior service cost .......................... (27) (87)
Unrecognized net obligation at transition ................ (326) (405)
Adjustment to recognize minimum liability ................ 408 704
------------------
Net pension liability .................................... $ 6,523 $ 6,188
==================
43
<PAGE>
The projected benefit obligation was developed assuming a beginning
discount rate of 7.5% in 1997 and 1996, 9% in 1995 and an annual rate of
increase in compensation levels of 5% in 1997, 1996 and 1995.
TELEFUNKEN, which was acquired in January 1996, sponsored a
noncontributory defined benefit pension plan for employees that provides
benefits based upon specified percentages of the participants' salaries and the
number of months of continuous service as of the date of retirement. In
accordance with the purchase agreement, the Company was required to assume the
pension liability for the employees which were active at the acquisition date.
Additionally, the Company received cash and assumed pension liabilities related
to nonactive employees at the acquisition date pending transfer thereof to the
seller at a later date. In October 1997, the Company transferred to the seller
the pension liabilities and related cash assets of $7,925,000 pertaining to the
nonactive employees at the acquisition date.
The cost for the foreign subsidiary's noncontributory defined benefit
pension plan was $202,000 in 1997 and $342,000 in 1996. The status of the plan
at December 31, 1997 and 1996 is as follows for active employees (in thousands):
1997 1996
------------------
Actuarial present value of:
Vested benefit obligation .............................. $ 3,314 $ 3,539
==================
Accumulated benefit obligation ......................... $ 3,526 $ 3,806
==================
Projected benefit obligation ........................... $ 4,198 $ 4,578
==================
Plan assets at fair value:
Projected benefit obligation in excess of plan assets .. $ 4,198 $ 4,578
Unrecognized net gain .................................... (672) (772)
------------------
Net pension liability .................................... $ 3,526 $ 3,806
==================
The projected benefit obligation was developed assuming a beginning
discount rate of 6.5% in 1997, 6.75% in 1996 and an annual rate of increase in
compensation levels of 2.5% in 1997 and 3% in 1996.
44
<PAGE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of
credit risk are primarily cash and cash equivalents, short-term investments,
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 generally tries to limit the amount of
credit exposure to any one commercial issuer. A portion of the Company's
receivables and unbilled revenue are concentrated with the U.S. Government.
Concentrations of credit risk with respect to the receivables, unbilled
revenues, and long-term receivables from customers other than the U.S.
Government are generally limited due to the large number of customers in the
Company's customer base and their dispersion across different industries and
geographic areas. Approximately 13% of receivables at December 31, 1997 are with
an oil and gas exploration company located in Russia and a distributor located
in China.
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.
Fair values of 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, short-term investments,
receivables, unbilled revenue, long-term receivables, accounts payable, other
accrued liabilities, notes payable and long-term debt reflected in the December
31, 1997 and 1996 balance sheet approximate carrying value at that date.
LETTERS OF CREDIT
The Company has outstanding irrevocable letters of credit in the amount of
$9,129,000 as of December 31, 1997. These letters, which have terms from one
month to three years, are primarily maintained as security for performance and
for advances received on long-term contracts. The letters of credit reflect fair
value as a condition of their underlying purpose and are subject to fees
competitively determined in the market place.
45
<PAGE>
LEASE COMMITMENTS
The Company leases manufacturing and other facilities and equipment under
certain long-term agreements which expire at various dates through 2020. Total
rentals charged to operations under such operating leases for 1997, 1996 and
1995 were $1,674,000, $1,721,000 and $2,439,000, respectively.
Future minimum rental commitments under all noncancelable operating
leases in effect at December 31, 1997 total as follows: $1,077,000 in 1998;
$971,000 in 1999; $940,000 in 2000; $447,000 in 2001; $344,000 in 2002; and
$1,470,000 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, operating results or cash flows.
OTHER COMMITMENTS AND CONTINGENCIES
In accordance with the provisions of a note purchase agreement with a financial
institution, the Company has the ability to sell up to $15,000,000 of eligible
notes receivable. At December 31, 1997, the Company is contingently liable (in
the event of customer default or covenant violations) for notes receivable sold
to the financial institution of $6,492,000. During 1997, the Company sold
$8,974,000 of notes receivable to the financial institution under this
arrangement.
The Company has no commitments or contingent liabilities which, in the
judgment of management, would result in losses that would materially affect the
Company's consolidated financial position, operating results or cash flows.
46
<PAGE>
NOTE 14 - GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company is a diversified electronics engineering and manufacturing company
primarily involved in the design, development and manufacture of products used
for communications, the exploration and production of hydrocarbons and defense
systems.
The Company's areas of operation outside the United States principally
include Europe and Asia. Sales between geographic regions are accounted for at
prices intended to yield a reasonable return to the selling affiliate. The
Company's geographic information from continuing operations is as follows (in
thousands):
Year ended December 31,
--------------------------------
1997 1996 1995
--------------------------------
Revenue from unaffiliated customers:
United States ............................. $ 236,826 $243,782 $198,572
Europe .................................... 50,342 48,551 17,516
Asia ...................................... 4,945 4,419 5,458
Other foreign ............................. 1,987 2,300 2,306
--------------------------------
Total ................................... $ 294,100 $299,052 $223,852
================================
Sales between geographic regions:
United States ............................. $ 6,792 $ 8,299 $ 3,191
Europe .................................... 5,266 9,243 767
Other foreign ............................. 2,645 1,942 633
--------------------------------
Total ................................... $ 14,703 $ 19,484 $ 4,591
================================
Net income (loss) from continuing operations:
United States ............................. $ 4,912 $ 18,804 $ 11,580
Europe .................................... 3,290 5,901 813
Asia ...................................... 1,121 592 472
Other foreign ............................. (638) 57 174
--------------------------------
Total ................................... $ 8,685 $ 25,354 $ 13,039
================================
Identifiable assets at end of year:
United States ............................. $ 301,467 $263,611 $244,084
Europe .................................... 36,026 46,571 11,953
Asia ...................................... 6,163 6,357 5,487
Other foreign ............................. 3,094 6,740 3,502
--------------------------------
Total ................................... $ 346,750 $323,279 $265,026
================================
47
<PAGE>
Net income (loss) from continuing operations include all costs and
expenses directly related to the geographic area. Identifiable assets of
geographic areas are those assets related to the Company's operations in each
area and include the identifiable assets of the discontinued operation at
December 31, 1996 and 1995. The Company's investment in consolidated foreign
subsidiaries at December 31, 1997, 1996 and 1995 approximated $12,937,000,
$14,828,000 and $2,611,000, respectively.
Total export revenue consisting of sales from the Company's U.S.
operating subsidiaries by geographic area are as follows (in thousands):
1997 1996 1995
-----------------------------------------
Europe ...................... $45,239 $52,045 $25,665
Asia ........................ 22,556 16,151 28,295
Other ....................... 16,274 16,364 16,769
-----------------------------------------
Total ..................... $84,069 $84,560 $70,729
=========================================
Foreign currency transaction gains and losses included in the
Consolidated Statement of Income were $1,012,000 and $600,000 in 1997 and 1996
and were immaterial in 1995.
Sales under contracts and subcontracts where the U.S. Government is the
ultimate customer accounted for approximately 30%, 31% and 36% of the Company's
sales in 1997, 1996 and 1995, respectively.
NOTE 15 - OTHER FINANCIAL INFORMATION
Other accrued liabilities are comprised of the following (in thousands):
December 31,
--------------------
1997 1996
--------------------
Commissions payable .................................. $ 3,072 $ 2,840
Incentive bonus accruals ............................. 1,579 2,159
Vacation accruals .................................... 2,310 2,970
Accrued product warranty and related reserves ........ 943 878
Accrued interest payable ............................. 636 454
Other ................................................ 12,859 10,824
--------------------
$21,399 $20,125
====================
Other long-term liabilities include deferred gains on installment sales
contracts of $2,867,000 and $3,575,000 at December 31, 1997 and 1996,
respectively.
48
<PAGE>
NOTE 16 - QUARTERLY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly financial data for the years
1997 and 1996 (in thousands except per share amounts):
<TABLE>
<CAPTION>
Quarter ended
----------------------------------------------------------------------
March 31, June 30, September 30, December 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Sales ................................................... $ 72,898 $ 72,225 $ 71,254 $ 77,723
Gross profit ............................................ 22,087 22,163 21,647 27,106
Net income from continuing operations ................... 2,042 2,183 729 3,731
Loss from discontinued operation ........................ (496) (740)
Net income .............................................. $ 1,546 $ 1,443 $ 729 $ 3,731
Earnings (loss) per common share
Continuing operations
Basic ............................................... $ .34 $ .36 $ .12 $ .62
Diluted ............................................. $ .33 $ .35 $ .12 $ .61
Discontinued operation
Basic and diluted ................................... $ (.08) $ (.12)
Net income
Basic ............................................... $ .26 $ .24 $ .12 $ .62
Diluted ............................................. $ .25 $ .23 $ .12 $ .61
1996
Sales ................................................... $ 65,808 $ 65,780 $ 83,181 $ 84,283
Gross profit ............................................ 22,645 22,948 24,181 25,652
Net income from continuing operations * ................. 2,910 16,983 3,853 1,608
Income (loss) from discontinued operation ............... (631) (932) (556) 140
Extraordinary item ...................................... (1,035)
Net income .............................................. $ 2,279 $ 15,016 $ 3,297 $ 1,748
Earnings (loss) per common share
Continuing operations
Basic ............................................... $ .44 $ 2.58 $ .62 $ .27
Diluted ............................................. $ .43 $ 2.52 $ .61 $ .26
Discontinued operation
Basic and diluted ................................... $ (.09) $ (.14) $ (.09) $ .02
Extraordinary item
Basic and diluted ................................... $ (.16)
Net income
Basic ............................................... $ .35 $ 2.28 $ .53 $ .29
Diluted ............................................. $ .34 $ 2.22 $ .52 $ .28
</TABLE>
* THE SECOND QUARTER OF 1996 INCLUDES GAIN ON SALE OF SUBSIDIARY STOCK OF
$13,758, NET OF TAXES, AND THE FOURTH QUARTER OF 1996 INCLUDES THE WRITE
OFF OF GOODWILL OF $3,627, WHICH IS NOT TAX DEDUCTIBLE.
Earnings per common share are computed independently for each of the quarters
presented and therefore may not sum to the totals for the year.
49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, 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.
PRICE WATERHOUSE LLP
Houston, Texas
February 18, 1998
STOCKHOLDER AND MARKET INFORMATION
Comparative Common Stock Data
1996 1997
Quarter High Low High Low
- ---------------------------------------------------------------------------
First 36 3/4 28 3/8 32 1/2 29
Second 40 28 1/8 34 27 3/8
Third 30 1/8 23 34 3/4 31
Fourth 29 7/8 26 35 23 3/4
No dividends were paid on such stock in 1996 or 1997, and the Company has no
present intention of paying dividends.
Record number of holders of Common Stock at February 28, 1998: 1,880.
50
EXHIBIT 21
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Set forth below is certain information with respect to each of the Registrant's
subsidiaries:
STATE OF
SUBSIDIARY DOMICILE
Anarad, Inc. (California)
Continental Electronics Corporation (Nevada)
Continental-Lensa S.A. (Chile)
TELEFUNKEN Sendertechnik GmbH (Germany)
Enterprise Electronics Corporation (Alabama)
GeoScience Corporation (Nevada)
GeoSensor Corporation (Delaware)
Symtronix Corporation (Nevada)
Symtronix Company (Russia)
Syntron, Inc. (Delaware)
Geophysical Cable Co., Ltd. (China)
Innovative Transducers Inc. (Delaware)
Syntron Europe Limited (Scotland)
Syntron Asia Pte. Ltd. (Singapore)
Syntron (UK) Limited (Scotland)
Zhong Hai Syntron (TianJin) (China)
Geophysical Cable Company Ltd.
Lake Investment Company (Arizona)
Concho Valley Country Club, Inc. (Arizona)
Livco Water Company (Arizona)
Metric Systems Corporation (Florida)
Paratech Corporation (Delaware)
TreadMarks(TM), L.L.C. (Texas)
T-S Holding Corporation (Texas)
(formerly All Woods/Schroeder, Inc.)
Tech-Sym Management Corporation (Delaware)
Tech-Sym International (FSC), Inc. (Barbados)
TRAK Communications Inc. (Delaware)
Daden-Anthony Associates, Inc. (Nevada)
Tecom Industries, Incorporated (California)
Tecom Limited (Scotland)
TRAK Ceramics Inc. (Delaware)
TRAK Microwave Corporation (Delaware)
TRAK Microwave Limited (Scotland)
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 22
<PAGE>
POWER OF ATTORNEY
Each of the undersigned, a director of Tech-Sym Corporation (the
"Company"), does hereby constitute and appoint Wendell W. Gamel and Ray F.
Thompson his true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, to
sign the Company's Form 10-K Annual Report pursuant to Section 13 of the
Securities Exchange Act of 1934 for the fiscal year ended December 31, 1997, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto the
attorneys-in-fact full power and authority to sign such documents on behalf of
the undersigned and to make such filing, as fully to all intents and purposes as
the undersigned might or could do in person, hereby ratifying and confirming all
that the attorneys-in-fact, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
Dated: March 13, 1998
TECH-SYM CORPORATION
/S/W. L. CREECH /S/CHRISTOPHER C. KRAFT, JR.
W. L. Creech Christopher C. Kraft, Jr.
Director Director
/S/MICHAEL C. FORREST /S/COY J. SCRIBNER
Michael C. Forrest Coy J. Scribner
Director Director
/S/A. A. GALLOTTA, JR. /S/CHARLES K. WATT
A. A. Gallotta, Jr. Charles K. Watt
Director Director
EXHIBIT 23
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (SEC File Nos. 5, 33-38208, 33-61846, 33-56535) of
Tech-Sym Corporation of our report dated February 18, 1998, appearing on page 50
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 Schedule, which appears on page S-2 of this Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE TECH-SYM 1997 ANNUAL REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE T0 SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,384
<SECURITIES> 5,558
<RECEIVABLES> 76,980
<ALLOWANCES> 0
<INVENTORY> 96,962
<CURRENT-ASSETS> 249,100
<PP&E> 49,049
<DEPRECIATION> 0
<TOTAL-ASSETS> 346,750
<CURRENT-LIABILITIES> 123,466
<BONDS> 0
0
0
<COMMON> 799
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 346,750
<SALES> 294,100
<TOTAL-REVENUES> 0
<CGS> 201,097
<TOTAL-COSTS> 280,994
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,229
<INCOME-PRETAX> 13,106
<INCOME-TAX> 3,902
<INCOME-CONTINUING> 8,685
<DISCONTINUED> 1,236
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,449
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.21
</TABLE>
