FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number 1-4371
Tech-Sym Corporation
(Exact name of Registrant as specified in its charter)
Nevada 74-1509818
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10500 Westoffice Drive, Suite 200, Houston, Texas 77042
- ------------------------------------------------- -------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (713) 785-7790
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No ___.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Outstanding at April 30, 1999
- ---------------------------- -----------------------------
Common Stock, $.10 par value 6,068,631
<PAGE>
FORM 10-Q
TECH-SYM CORPORATION
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet March 31, 1999 (unaudited)
and December 31, 1998 ...................................... 1
Consolidated Statement of Income for the quarter
ended March 31, 1999 and 1998, (unaudited) ................. 2
Consolidated Statement of Cash Flows for the quarter ended
March 31, 1999 and 1998, (unaudited) ...................... 3
Consolidated Statement of Changes in Shareholders'
Investment for the quarter ended March 31, 1999 and
1998, (unaudited) ......................................... 4
Notes to Consolidated Financial Statements .................... 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 9-10
Part II. Other information:
Item 6. Exhibits and Reports on Form 8-K .......................... 11
Signatures ............................................................ 11
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
TECH-SYM CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents ........................ $ 6,834 $ 3,417
Short-term investments ........................... 365 228
Receivables, net ................................. 27,353 25,271
Unbilled revenue ................................. 38,389 39,315
Inventories, net ................................. 23,765 24,753
Net assets of discontinued operations (Note 2) ... 82,745 86,806
Other ............................................ 7,478 6,235
--------- ---------
Total current assets ........................ 186,929 186,025
Property, plant and equipment, net ................... 19,302 18,817
Long-term receivables, net ........................... 2,224 2,224
Other assets ......................................... 20,008 17,035
--------- ---------
Total assets ................................ $ 228,463 $ 224,101
========= =========
LIABILITIES
Current liabilities
Notes payable .................................... $ 14,908 $ 13,911
Current maturities of long-term debt ............. 1,010 1,178
Accounts payable ................................. 7,301 8,152
Billings in excess of cost and estimated
earnings on uncompleted contracts .............. 7,799 5,163
Taxes on income .................................. 508
Other accrued liabilities ........................ 9,565 7,661
--------- ---------
Total current liabilities ................... 40,583 36,573
Long-term debt ....................................... 2,113 2,335
Other liabilities and deferred credits ............... 17,637 17,462
--------- ---------
Total liabilities ........................... 60,333 56,370
SHAREHOLDERS' INVESTMENT
Preferred stock-authorized 2,000,000 shares,
without par value; none issued
Common stock-authorized 20,000,000 shares,
$.10 par value; issued 8,053,331 and
8,044,881, respectively ............................ 805 804
Additional capital ................................... 41,496 41,361
Accumulated earnings ................................. 158,770 157,739
Accumulated other comprehensive loss, net ............ (4,257) (3,489)
Common stock held in treasury at cost (1,980,400
shares) ............................................ (28,684) (28,684)
--------- ---------
Total shareholders' investment .............. 168,130 167,731
--------- ---------
Total liabilities and shareholders' investment $ 228,463 $ 224,101
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
1
<PAGE>
TECH-SYM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE QUARTER
ENDED MARCH 31,
---------------------
1999 1998
-------- ---------
Revenue ................................................ $ 37,996 $ 33,293
Cost of revenue ........................................ 26,974 23,966
-------- --------
Gross margin ....................................... 11,022 9,327
Company-sponsored product development .................. 982 677
Selling, general and administrative expense ............ 8,370 7,175
Interest expense ....................................... 367 281
Interest and other income, net ......................... (213) (488)
-------- --------
Income from continuing operations before
income taxes .................................... 1,516 1,682
Provision for income taxes ............................. 485 555
-------- --------
Income from continuing operations ................. 1,031 1,127
Income from discontinued operations, net of
applicable income tax expense and
minority interest (Note 2) ...................... 2,125
-------- --------
Net income ........................................ $ 1,031 $ 3,252
======== ========
Earnings per common share
Continuing operations
Basic .......................................... $ .17 $ .19
Diluted ........................................ .17 .18
Discontinued operations
Basic .......................................... .35
Diluted ........................................ .35
Net income
Basic .......................................... .17 .54
Diluted ........................................ .17 .53
Weighted average common shares outstanding
Basic ............................................. 6,071 6,058
Diluted ........................................... 6,176 6,157
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
TECH-SYM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE QUARTER
ENDED MARCH 31,
-------------------
1999 1998
------- --------
Cash flows from operating activities
Net income ............................................ $ 1,031 $ 3,252
Income from discontinued operations............... (2,125)
Adjustments to reconcile income from continuing
operations to net cash provided by continuing
operations
Depreciation and amortization .................... 1,191 1,555
Change in operating assets and liabilities
Receivables ...................................... (2,082) 1,835
Unbilled revenue ................................. 926 3,003
Inventories ...................................... 988 879
Other assets ..................................... (4,377) 1,082
Accounts payable and taxes on income ............. (1,441) (3,739)
Billing in excess and other accrued liabilities .. 4,622 (4,328)
Other liabilities and deferred credits ........... 26 (122)
------- --------
Net cash provided by operating activities of
continuing operations ....................... 884 1,292
------- --------
Cash flows from investing activities of continuing
operations
Capital expenditures .................................. (1,585) (1,358)
Purchase of investment securities ..................... (137)
Other ................................................. 4 (468)
------- --------
Net cash used for investing activities of
continuing operations ....................... (1,718) (890)
------- --------
Cash flows from financing activities of continuing
operations
Net borrowings (payments) under bank line of credit
agreement ........................................... 1,012 (382)
Payments on long-term debt ............................ (346) (222)
Proceeds from exercise of stock options ............... 136 162
Acquisition of treasury shares ........................ (392)
------- --------
Net cash provided by (used for) financing
activities of continuing operations........... 802 (834)
------- --------
Net cash provided by discontinued operations ............ 3,449 2,519
------- --------
Net increase in cash and cash equivalents ............... 3,417 2,087
Cash and cash equivalents at beginning of period ........ 3,417 6,538
------- --------
Cash and cash equivalents at end of period .............. $ 6,834 $ 8,625
======= ========
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
TECH-SYM CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE QUARTER ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED COMPREHENSIVE TREASURY STOCK SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) SHARES AMOUNT INVESTMENT
------ ------ ------- -------- ------------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 .......... 8,045 $ 804 $ 41,361 $157,739 $(3,489) 1,980 $(28,684) $167,731
Comprehensive income for 1999
Net income ........................ 1,031
Other comprehensive
Income (loss), net of tax
Foreign currency translation
adjustments .................. (768)
Total comprehensive income .. 263
Issuance of common stock
for stock options ................ 8 1 135 136
------ ----- -------- -------- ------- ----- -------- --------
Balance, March 31, 1999 ............. 8,053 $ 805 $ 41,496 $158,770 $(4,257) 1,980 $(28,684) $168,130
====== ===== ======== ======== ======= ===== ======== ========
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED COMPREHENSIVE TREASURY STOCK SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) SHARES AMOUNT INVESTMENT
------ ------ ------- -------- ------------- ------ ------ ----------
Balance, December 31, 1997 .......... 7,995 $ 799 $ 40,677 $152,644 $(3,277) 1,937 $(27,660) $163,183)
Comprehensive income for 1998
Net income ........................ 3,252
Other comprehensive
Income, net of tax
Foreign currency translation
adjustments ................. 246
Total comprehensive income.. 3,498
Acquisition of treasury shares ...... 15 (392) (392)
Issuance of common stock
for stock options ................ 11 2 160 162
------ ----- -------- -------- ------- ----- -------- --------
Balance, March 31, 1998 ............. 8,006 $ 801 $ 40,837 $155,896 $(3,031) 1,952 $(28,052) $166,451
====== ===== ======== ======== ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Tech-Sym
Corporation and its subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the financial statements and notes thereto appearing in the Company's Form
10-K for the year ended December 31, 1998.
In the opinion of the Company's management ("Management") all adjustments
necessary for a fair presentation of the results of operations for all periods
reported have been included. Such adjustments consist only of normal recurring
items.
The consolidated statements of income for the quarter ended March 31, 1999
are not necessarily indicative of the results expected for the full year ending
December 31, 1999.
The consolidated statements have been restated to reflect the Company's
broadcast equipment, air monitoring products and real estate investment
subsidiaries, as well as it's majority owned geoscientific business, GeoScience
Corporation, as discontinued operations in accordance with Accounting Principles
Board Opinion No. 31 (Note 2).
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE 2 - DISCONTINUED OPERATIONS
Effective June 30, 1998, the Company adopted a plan to sell its businesses
involved in real estate development (Lake Investment Company or "Lake"),
manufacture of air monitoring products (Anarad, Inc. or "Anarad") and
manufacture of radio and television broadcast equipment (Continental Electronics
Inc., or "Continental"), and effective December 31, 1998, the Company adopted a
plan to sell its majority owned (79.12%) subsidiary, GeoScience Corporation
("GeoScience"). The effective dates of June 30, 1998 and December 31, 1998 are
the respective measurement dates referred to when discussing the results of
operations of these businesses.
The presentation of the discontinued operations includes segregation of the
operating results in the Consolidated Statement of Income for the quarter ended
March 31, 1999 and 1998. The net assets of the discontinued operations are
segregated at March 31, 1999 and December 31, 1998 in the Consolidated Balance
Sheet and Consolidated Statement of Cash Flows. Accordingly, the revenue, costs
and expenses, assets and liabilities and cash flows of these discontinued
operations have been excluded from the respective captions in the Consolidated
Statement of Income, Consolidated Balance Sheet and Consolidated Statement of
Cash Flows and have been reported as "Income (loss) from discontinued
operations, net of applicable income taxes (benefits)", as "Net assets of
discontinued operations" and as "Net cash provided by discontinued operations"
for all periods listed above. The results of discontinued operations do not
reflect any interest expense or management fees allocated by the Company. Data
presented for earnings per share reflect the reclassification of the
discontinued operations.
On November 18, 1998, the Company sold Lake. On March 15, 1999, the Company
sold substantially all of the assets of Anarad. The results of operations and
disposition of Lake and Anarad were reflected in the 1998 financial statements.
The Company is actively marketing its radio and television broadcast
equipment business, Continental. Several potential purchasers have conducted
initial due diligence investigations. None of the known potential buyers have
made a binding offer for the business to date.
5
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Continental incurred $2,837,000 additional losses on operations during the
quarter ended March 31, 1999. These losses have been combined and deferred with
the deferred losses incurred in 1998 following the measurement date. The
deferred losses to date total $7,925,000 and any additional operating losses
will also be deferred until the disposition of Continental. The Company
currently anticipates that the sale of Continental will result in a net gain,
offsetting the deferred losses. However, it is possible that the results of the
sale will not be sufficient to recover the deferred losses.
In December 1998, the Boards of Directors of the Company and GeoScience
committed to a plan to seek a strategic merger partner for GeoScience. On
January 18, 1999, the Company and GeoScience signed an agreement to merge
GeoScience with a third party, subject to stockholder and regulatory approval.
The Company, GeoScience and the third party subsequently terminated the proposed
merger. During the quarter ended March 31, 1999, the third party paid GeoScience
$3,000,000 in connection with such termination. The Company and GeoScience
continue to pursue opportunities to combine GeoScience's operations with a
strategic partner. The Company currently anticipates that the ultimate disposal
of GeoScience will result in a gain.
In accordance with standard accounting and reporting procedures, the results
of the discontinued operations from the respective measurement dates through the
anticipated disposal dates have been deferred for GeoScience and Continental.
Therefore, the results of the discontinued operations are not included in the
accompanying financial statements. The revenue related to discontinued
operations for the quarter ended March 31, 1999 was $30,142,000, $7,615,000 and
$348,000 for GeoScience, Continental and Anarad, respectively.
The revenue related to discontinued operations for the quarter ended March
31, 1998 was $33,331,000, $9,701,000, $1,011,000 and $408,000 for GeoScience,
Continental, Anarad and Lake, respectively. Income before income taxes was
$3,818,000 and $176,000 for GeoScience and Continental, respectively, while
Anarad and Lake experienced losses before income tax benefit of $27,000 and
$74,000, respectively. Net income for the discontinued operations for the
quarter ended March 31, 1998 was $2,075,000 and $118,000 for GeoScience and
Continental, respectively and net loss for the same period was $18,000 and
$50,000 for Anarad and Lake, respectively.
For financial reporting purposes, the assets and liabilities of the
discontinued operations at March 31, 1999 have been classified in the
consolidated balance sheet as net assets of discontinued operations and consists
of the following (in thousands):
GEOSCIENCE(1) CONTINENTAL TOTAL
------------ ----------- --------
Current assets .......................... $111,225 $30,079 $141,304
Total assets ............................ 157,571 37,707 195,278
Current liabilities ..................... 59,700 19,603 79,303
Total liabilities ....................... 83,778 28,755 112,533
Net assets of discontinued operations ... 73,793 8,952 82,745
(1) GeoScience net assets represents 79.12% ownership of GeoScience by the
Company including minority interest liability and deferred expense, goodwill
and deferred amortization expense, intercompany payable and additional
income tax expense.
6
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 - INVENTORIES
Inventories, which consist principally of electronic components are
summarized as follows (in thousands):
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
Raw materials ........................... $ 16,615 $ 16,686
Work in progress ........................ 6,933 7,514
Finished goods .......................... 2,223 2,430
-------------- -----------------
25,771 26,630
Less reserve ............................ (2,006) (1,877)
-------------- -----------------
$ 23,765 $ 24,753
============== =================
NOTE 4 - PER SHARE DATA
Basic per share amounts have been computed based on the average number of
common shares outstanding. Diluted per share amounts reflect the increase in
average common shares outstanding that would result from the exercise of
outstanding stock options computed using the treasury stock method. Stock
options are the only potentially dilutive shares the Company has outstanding for
all periods presented. Outstanding options to purchase 46,000 and 313,000 shares
of common stock were excluded from the computation of diluted earnings per share
for the three month period ended March 31, 1999 and 1998, respectively, because
to do so would have been anti-dilutive using the treasury stock method.
NOTE 5 - RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("FAS 133") ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. FAS 133 is effective for fiscal years
beginning after June 15, 1999 and establishes accounting and reporting standards
for derivative instruments. The Company has historically not engaged in
significant derivative instrument activity. Adoption of FAS 133 is not expected
to have a material effect on the Company's financial position or operational
results.
NOTE 6 - SEGMENT INFORMATION
The Company manages its business primarily on a product basis. The Company's
reportable segments are communications, defense systems and weather information
systems. The reportable segments provide products as described in the Company's
Form 10-K for the year ended December 31, 1998. The accounting policies of the
segments are those described in Note 1 to the Notes to the Consolidated
Financial Statements included in that Form 10-K.
The Company evaluates the performance of its segments and allocates resources
to them based on revenue and income before taxes; however, there is a charge to
allocate corporate headquarters' general and administrative costs to each of its
operating segments.
7
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The tables below present certain information regarding the continuing
operations for the quarter ended March 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
WEATHER
COMMUNI- DEFENSE INFORMATION RECONCILING
QUARTER ENDED MARCH 31, 1999 CATIONS SYSTEMS SYSTEMS ITEMS TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers ................. $ 20,498 $ 12,639 $ 4,859 $ -- $ 37,996
Interest expense ............ 169 1 -- 197 (1) 367
Other (income) and expense,
net ....................... 340 (5) (70) (478)(2) (213)
Income (loss) before income
taxes (benefits) (6) ...... (40) 845 1,126 (415)(3) 1,516
Depreciation and amortization 749 328 60 54 (4) 1,191
Capital expenditures ........ 1,001 419 160 5 (5) 1,585
<CAPTION>
WEATHER
COMMUNI- DEFENSE INFORMATION RECONCILING
QUARTER ENDED MARCH 31, 1998 CATIONS SYSTEMS SYSTEMS ITEMS TOTAL
----------- ----------- ----------- ----------- -----------
Revenue from unaffiliated
customers ................. $ 17,175 $ 12,336 $ 3,782 $ -- $ 33,293
Interest expense ............ 163 -- -- 118 (1) 281
Other (income) and expense,
net ....................... 391 (125) (422) (332)(2) (488)
Income (loss) before income
taxes (benefits) (7) ...... (575) 696 1,065 496 (3) 1,682
Depreciation and amortization 926 347 141 142 (4) 1,556
Capital expenditures ........ 1,203 76 45 -- 1,324
</TABLE>
Reconciling items for the quarter ended March 31, 1999 and 1998.
(1) Corporate interest expense.
(2) Corporate other (income) and expense, net.
(3) Net of notes 1 and 2 and unallocated corporate expenses.
(4) Corporate depreciation and amortization, which is included in the corporate
expense pool.
(5) Corporate capital expenditures.
(6) Includes allocations of corporate expenses of $400,000, $325,000 and $86,000
to Communications, Defense Systems and Weather Information Systems,
respectively.
(7) Includes allocations of corporate expenses of $300,000, $263,000 and $57,000
to Communications, Defense Systems and Weather Information Systems,
respectively.
NOTE 7 - SUBSEQUENT EVENT
During the second quarter of 1999, the Company repurchased 71,700 shares of
its common stock under a previously approved repurchase program. Effective May
11, 1999, the Company's Board of Directors authorized the Company to repurchase
250,000 shares of its common stock and rescinded the 6,100 shares remaining on
the previous program.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As discussed in Note 2 to the Notes to Consolidated Financial Statements, the
Company has discontinued certain businesses, therefore management's discussion
and analysis of financial condition and results of operations below relates only
to the Company's continuing businesses.
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1999 COMPARED TO THE QUARTER
ENDED MARCH 31, 1998
Revenue for the quarter ended March 31, 1999 increased $4,703,000 or 14% to
$37,966,000 compared to $33,293,000 for the quarter ended March 31, 1998. The
increase occurred primarily in the Communications segment, where the increase
was $3,323,000 or 19%, over the prior year period. The increase was due to (1)
major antenna programs currently under contract that were not in process in the
first quarter of 1998 and (2) increased demand for ferrite products used in
cellular base stations reflecting the improving market conditions in the
wireless communications industry. The Weather Information Systems segment
increased $1,077,000 or 28% over the prior year period as a result of strong
fourth quarter 1998 bookings for weather radar systems. The Defense Systems
segment was essentially flat, providing only a $303,000 increase over the
comparative period in 1998.
Consolidated gross margin as a percentage of sales for the quarter ended
March 31, 1999 improved to 29% from 28% for the comparative period in 1998. The
percentage for the Communications segment improved to 27% from 25% primarily as
a result of plant efficiency and increased manufacturing volume. The gross
margin percentage for the Weather Information Systems segment increased to 49%
from 46% primarily as a result of the larger volume for the current period. The
Defense Systems segment suffered a decrease in gross margin percentage, to 25%
from 26% as a result of higher costs on several programs nearing completion.
Company-sponsored product development expenditures for the quarter were
$305,000 greater than in the quarter ended March 31, 1998. Expenditures within
the Communications segment were essentially flat between the two periods, while
expenditures increased slightly at both the Weather Information Systems and
Defense Systems segments. The increased expenditures within the Weather
Information Systems segment were mainly for the development of a kylstron based
weather radar. The increase within the Defense Systems segment primarily related
to the ongoing development of the new digital temperature control unit for the
advanced tactical forward looking infrared targeting system that began last
year. The product development efforts of each business segments are focused on
products with known sales opportunities.
Selling, general and administrative expenses increased $1,195,000 or 17% to
$8,370,000 for the quarter ended March 31, 1999 compared to the same quarter in
the prior year. General and administrative expenses within the Communications
segment were greater primarily as a result of additional costs related to the
restructuring efforts that began in the fourth quarter of 1998. Additionally,
expenses at corporate headquarters were greater than the prior year period.
Interest expense for the current period increased $86,000 to $367,000 from
$281,000 in the prior year period primarily as a result of additional borrowings
to support the working capital requirements and to fund capital expenditures.
Other income decreased $275,000 to $213,000 for the quarter compared to $488,000
for the quarter ended March 31, 1998. The quarter ended March 31, 1998 included
a $325,000 payment received by the Weather Information Systems segment regarding
the settlement of a dispute.
The Company's effective tax rate was 32% for 1999 as compared to the 33% rate
used for the first quarter in 1998 due to anticipated tax benefits associated
with research and experimentation efforts and increased Foreign Sales
Corporation activity.
Income from continuing operations for the quarter ended March 31, 1999 was
$1,031,000 or $.17 per diluted share as compared to $1,127,000 or $.18 per
diluted share for the quarter ended March 31, 1998. Increases in operating
expenses more than offset the favorable gain in gross margin.
The results of the discontinued air monitoring business for the quarter ended
March 31, 1999 were recognized in 1998. The results of the operations of the
discontinued broadcast equipment manufacturing business and the Company's
geoscientific subsidiary for the quarter ended March 31, 1999 were deferred and
will be
9
<PAGE>
included with the gain on the disposal of these operations. The period ended
March 31, 1998 included net results of $2,125,000 or $.35 per diluted share
relating to the discontinued operations discussed in Note 2.
Net income for the quarter ended March 31, 1999 was $1,031,000 or $.17 per
diluted share as compared to $3,252,000 or $.53 per diluted share for the
quarter ended March 31, 1998, reflecting the net effect of the items discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
During the current period the Company satisfied its working capital and
capital expenditure requirements through borrowings on its line of credit
facilities and cash generated by operations. At March 31, 1999, the Company's
working capital balance, net of assets of discontinued operations, was
$62,540,000, compared to $62,646,000 at December 31, 1998. At March 31, 1999,
the Company's continuing operations had short-term line of credit facilities
aggregating $44,850,000 of which $25,929,000 was available for additional
short-term borrowings. The Company had a working capital ratio of 2.54 to 1.0
and debt to total capitalization of 10%. The Company believes that its results
of operations and available line of credit facilities will provide adequate
funds to meet foreseeable requirements.
Purchases of property, plant and equipment for continuing operations totaled
$1,585,000 for the three months ended March 31, 1999 compared to $1,358,000 for
the same period in the prior year. The Company estimates that capital
expenditures for property, plant and equipment during the remainder of 1999 will
be approximately $5,600,000. Most of the anticipated capital expenditures are
not subject to firm commitments and the Company may modify its plans depending
on future results of operations or other factors.
The Company is continuing its efforts to improve the average collection time
on receivables and to reduce inventory. The Company believes these efforts,
along with the available sources of funds, will provide the necessary cash
requirements to meet the Company's growth strategy.
YEAR 2000 COMPLIANCE
As reported in the Company's Form 10-K for the year ended December 31, 1998,
the Company is continuing its efforts to insure Y2K software failures,
internally or externally, will not have an adverse effect on its financial
position or results of operations. Cross-functional project teams, established
during 1998 at each subsidiary, continue to review and assess the various
factors surrounding the Y2K issues. The Company estimates the total cost of Y2K
compliance activities for both continuing and discontinued operations will be
less than $1,000,000 and the amount expended to date is less than $500,000.
The Company expects to complete its Y2K project during 1999. Based on
available information, the Company does not believe any material exposure to
significant business interruption exists as a result of Y2K compliance issues.
Accordingly, the Company has not adopted any formal contingency plan in the
event its Y2K project is not completed in a timely manner. These costs and the
timing in which the Company plans to complete its Y2K modification and testing
processes are based on management's best estimates. However, there can be no
assurance that the Company will identify and remediate all significant Y2K
problems on a timely basis, that remedial efforts will not involve significant
time and expense or that such problems will not have a material adverse effect
on the Company's business, results of operations or financial position.
Forward-looking statements in this document are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including, without limitation, risks associated with the
uncertainty of market acceptance of the Company's products, limited number of
customers, as well as risks of downturns in economic conditions generally, risks
associated with competition and competitive pricing pressures, and other risks
detailed in the Company's filings with the Securities and Exchange Commission.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits to this report except for Exhibit 27 -
Financial Data Schedule which is deemed not to be filed for purposes
of liability under the federal securities laws.
(b) Reports on Form 8-K.
Current report on Form 8-K dated February 5, 1999 Item 5. Other
Events, reported the execution of a definitive merger agreement with
Core Laboratories N.V. and Tech-Sym Corporation, regarding
GeoScience Corporation.
Current report on Form 8-K dated March 24, 1999 Item 5. Other
Events, reported the information set forth in the press release
dated March 24, 1999, regarding the termination of the merger
agreement filed on Form 8-K dated February 5, 1999.
No financial statements were filed as a part of this report.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECH-SYM CORPORATION
Registrant
Date: May 13, 1999 /s/ J. Michael Camp
J. Michael Camp, President
and Chief Executive Officer
Date: May 13, 1999 /s/ Ray F. Thompson
Ray F. Thompson, Vice President
and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TECH-SYM CORPORATION FORM 10-Q FIRST QUARTER 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,834
<SECURITIES> 365
<RECEIVABLES> 27,445
<ALLOWANCES> 92
<INVENTORY> 23,765
<CURRENT-ASSETS> 186,929
<PP&E> 71,895
<DEPRECIATION> 52,593
<TOTAL-ASSETS> 228,463
<CURRENT-LIABILITIES> 40,583
<BONDS> 0
0
0
<COMMON> 805
<OTHER-SE> 167,325
<TOTAL-LIABILITY-AND-EQUITY> 228,463
<SALES> 37,996
<TOTAL-REVENUES> 37,996
<CGS> 26,974
<TOTAL-COSTS> 36,326
<OTHER-EXPENSES> (213)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 367
<INCOME-PRETAX> 1,516
<INCOME-TAX> 485
<INCOME-CONTINUING> 1,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,031
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
