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 JUNE 30, 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 JULY 30, 1999
- ---------------------------- ----------------------------
Common Stock, $.10 par value 6,035,231
<PAGE>
FORM 10-Q
TECH-SYM CORPORATION
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet June 30, 1999 (unaudited)
and December 31, 1998..............................................1
Consolidated Statement of Income for the quarter ended June 30,
1999 and 1998, (unaudited)..........................................2
Consolidated Statement of Income for the six months ended June
30, 1999 and 1998, (unaudited)....................................3
Consolidated Statement of Cash Flows for the six months ended
June 30, 1999 and 1998, (unaudited)................................4
Consolidated Statement of Changes in Shareholders' Investment
for the six months ended June 30, 1999 and 1998, (unaudited).......5
Notes to Consolidated Financial Statements........................6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................11-14
Part II. Other information:
Item 4. Submission of Matters to Vote of Security Holders...............15
Item 6. Exhibits and Reports on Form 8-K................................15
Signatures..................................................................16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECH-SYM CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
(UNAUDITED)
------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ....................... $ 4,390 $ 3,417
Short-term investments .......................... 139 228
Receivables, net ................................ 24,342 25,271
Unbilled revenue ................................ 38,678 39,315
Inventories, net ................................ 27,370 24,753
Net assets of discontinued operations (Note 2) .. 64,754 86,806
Other ........................................... 2,102 6,235
------------- -----------------
Total current assets ....................... 161,775 186,025
Property, plant and equipment, net ................... 19,630 18,817
Long-term receivables, net ........................... 2,182 2,224
Other assets ......................................... 23,150 17,035
------------- -----------------
Total assets ............................... $ 206,737 $ 224,101
============= =================
LIABILITIES
Current liabilities
Notes payable ................................... $ 16,888 $ 13,911
Current maturities of long-term debt ............ 955 1,178
Accounts payable ................................ 8,056 8,152
Billings in excess of cost and estimated earnings
on uncompleted contracts ..................... 7,733 5,163
Taxes on income ................................. 508
Other accrued liabilities ....................... 7,717 7,661
------------- -----------------
Total current liabilities .................. 41,349 36,573
Long-term debt ....................................... 1,884 2,335
Other liabilities and deferred
credits ............................................ 17,845 17,462
------------- -----------------
Total liabilities .......................... 61,078 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 8,067,731 and 8,044,881,
respectively ...................................... 807 804
Additional capital ................................... 41,694 41,361
Accumulated earnings ................................. 137,912 157,739
Accumulated other comprehensive loss, net ............ (4,453) (3,489)
Common stock held in treasury at cost
(2,055,100 and 1,980,400 shares) .................. (30,301) (28,684)
------------- -----------------
Total shareholders' investment ............. 145,659 167,731
------------- -----------------
Total liabilities and
shareholders' investment ................ $ 206,737 $ 224,101
============= =================
</TABLE>
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 JUNE 30,
--------------------
1999 1998
-------- --------
Revenue ................................................ $ 35,331 $ 32,607
Cost of revenue ........................................ 27,989 22,587
-------- --------
Gross margin ...................................... 7,342 10,020
Company-sponsored product development .................. 891 649
Selling, general and administrative expense ............ 8,029 8,021
Interest expense ....................................... 314 240
Other expense (income), net ............................ 625 (235)
-------- --------
(Loss) income from continuing operations before
income taxes ..................................... (2,517) 1,345
(Benefit) provision for income taxes ................... (805) 509
-------- --------
(Loss) income from continuing operations .......... (1,712) 836
(Loss) income from discontinued operations, net
of applicable income tax (benefit) expense and
minority interest (Note 2) ....................... (19,146) 3,389
-------- --------
Net (loss) income ................................. $(20,858) $ 4,225
======== ========
(Loss) earnings per common share
Continuing operations
Basic .......................................... $ (.28) $ .14
Diluted ........................................ (.28) .14
Discontinued operations
Basic .......................................... (3.17) .56
Diluted ........................................ (3.17) .55
Net (loss) income
Basic .......................................... (3.45) .70
Diluted ........................................ (3.45) .68
Weighted average common shares outstanding
Basic ............................................. 6,047 6,058
Diluted ........................................... 6,047 6,168
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
TECH-SYM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
1999 1998
-------- --------
Revenue ................................................ $ 73,327 $ 65,900
Cost of revenue ........................................ 54,963 46,553
-------- --------
Gross margin ...................................... 18,364 19,347
Company-sponsored product development .................. 1,873 1,326
Selling, general and administrative expense ............ 16,399 15,294
Interest expense ....................................... 681 521
Other expense (income), net ............................ 412 (723)
-------- --------
(Loss) income from continuing operations before
income taxes .................................... (1,001) 2,929
(Benefit) provision for income taxes ................... (320) 966
-------- --------
(Loss) income from continuing operations .......... (681) 1,963
(Loss) income from discontinued operations, net
of applicable income tax (benefit) expense and
minority interest (Note 2) ....................... (19,146) 5,514
-------- --------
Net (loss) income ................................. $(19,827) $ 7,477
======== ========
(Loss) earnings per common share
Continuing operations
Basic .......................................... $ (.11) $ .32
Diluted ........................................ (.11) .32
Discontinued operations
Basic .......................................... (3.18) .91
Diluted ........................................ (3.18) .89
Net (loss) income
Basic .......................................... (3.29) 1.23
Diluted ........................................ (3.29) 1.21
Weighted average common shares outstanding
Basic ............................................. 6,022 6,058
Diluted ........................................... 6,022 6,162
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
TECH-SYM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income ........................................ $(19,827) $ 7,477
Loss (income) from discontinued operations .......... 9,846 (5,514)
Provision for disposal of discontinued operation .... 9,300
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations
Provision for inventory write-down .................. 4,000
Depreciation and amortization ....................... 2,411 2,591
Loss on disposal of property, plant & equipment ..... 75
Change in operating assets and liabilities
Receivables ......................................... 929 2,801
Unbilled revenue .................................... 637 5,088
Inventories ......................................... (6,617) (1,179)
Other assets ........................................ (2,266) 833
Accounts payable and taxes on income ................ (1,275) (3,158)
Billing in excess and other accrued liabilities ..... 3,297 (5,063)
Other liabilities and deferred credits .............. 87 (1,905)
-------- --------
Net cash provided by operating activities of
continuing operations .......................... 597 1,971
-------- --------
Cash flows from investing activities of continuing
operations
Capital expenditures ..................................... (3,149) (2,374)
Purchase of investment securities ........................ (137)
Sale of investment securities ............................ 226
Other .................................................... 57 472
-------- --------
Net cash used for investing activities of
continuing operations ........................... (3,003) (1,902)
-------- --------
Cash flows from financing activities of continuing
operations
Net borrowings (payments) under bank line of credit
agreements .............................................. 3,006 (6,803)
Payments on long-term debt ............................... (688) (438)
Proceeds from long-term debt ............................. 99 495
Proceeds from exercise of stock options .................. 336 331
Acquisition of treasury shares ........................... (1,617) (392)
-------- --------
Net cash provided by (used for) financing
activities of continuing operations ............... 1,136 (6,807)
-------- --------
Net cash provided by discontinued operations ............... 2,243 5,546
-------- --------
Net increase (decrease) in cash and cash equivalents ....... 973 (1,192)
Cash and cash equivalents at beginning of period ........... 3,417 6,538
-------- --------
Cash and cash equivalents at end of period ................. $ 4,390 $ 5,346
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
TECH-SYM CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED COMPREHENSIVE TREASURY STOCK SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS SHARES AMOUNT INVESTMENT
------ ------ ---------- ----------- ------------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 .... 8,045 $ 804 $ 41,361 $ 157,739 $ (3,489) 1,980 $(28,684) $ 167,731
Comprehensive loss for 1999
Net loss ...................... (19,827)
Other comprehensive
loss, net of tax
Foreign currency
translation adjustments . (964)
Total comprehensive loss (20,791)
Acquisition of treasury shares .. 75 (1,617) (1,617)
Issuance of common stock
for stock options ............ 23 3 333 336
------ ------ ---------- ----------- ------------- ------ -------- -------------
Balance at June 30, 1999 ........ 8,068 $ 807 $ 41,694 $ 137,912 $ (4,453) 2,055 $(30,301) $ 145,659
====== ====== ========== =========== ============= ====== ======== =============
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED COMPREHENSIVE TREASURY STOCK SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) SHARES AMOUNT INVESTMENT
------ ------ ---------- ----------- ------------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 ...... 7,995 $ 799 $ 40,677 $ 152,644 $ (3,277) 1,937 $(27,660) $ 163,183
Comprehensive income for 1998
Net income ...................... 7,477
Other comprehensive
income, net of tax
Foreign currency
translation adjustments ... 209
Total comprehensive income 7,686
Acquisition of treasury shares .... 15 (392) (392)
Issuance of common stock
for stock options .............. 21 3 328 331
------ ------ ---------- ----------- ------------- ------ -------- -------------
Balance at June 30, 1998 .......... 8,016 $ 802 $ 41,005 $ 160,121 $ (3,068) 1,952 $(28,052) $ 170,808
====== ====== ========== =========== ============= ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<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 of normal
recurring items, as well as a $4,000,000 charge in the second quarter for
inventory write-downs within the Communications segment (See Management's
Discussion and Analysis).
The consolidated statements of income for the quarter and six months
ended June 30, 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 its majority owned geoscientific business, GeoScience
Corporation, as discontinued operations in accordance with Accounting Principles
Board Opinion No. 30 (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
and six months ended June 30, 1999 and 1998. The net assets of the discontinued
operations are segregated at June 30, 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. During the second quarter of 1999, the Company did not
receive scheduled payments on the $3,100,000 note receivable from Consumer Loan
Portfolios, Inc., for the sale of Lake. Due to the non-payment of the note
receivable, the Company intends to issue a demand for arbitration and statement
of claim as provided in the purchase agreement.
Since the measurement date, the Company has marketed its radio and
television broadcast equipment business, Continental. Several potential
purchasers conducted initial due diligence investigations. None of the potential
buyers has made a binding offer for the business to date. Since the Company
announced its intent to divest the broadcast equipment business, Continental has
incurred significant operational losses, mainly generated by its German
operation. Despite recent financial and operational improvements under new
management, the Company believes that continued improvements in both operational
results and market acceptance of digital products are necessary before
prospective buyers will have a strong interest in acquiring the business.
Continental's sales backlog increased due to new orders booked during the
quarter ended June 30, 1999 and revenue increased to $10,639,000 from $7,939,000
in the same period of the prior year. Management intends to continue its cost
reduction program by eliminating excess physical infrastructure. Given these
facts, the Company recognized previously deferred after-tax losses of $9,846,000
and a $9,300,000 after-tax provision for losses anticipated to be incurred until
and upon completion of the disposition of the broadcast equipment business.
6
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
operating results of the discontinued geoscientific business from the
measurement date through the anticipated disposal date have been deferred, and
are not included in the accompanying financial statements. The deferred losses
and the provision for anticipated losses at Continental were recognized in the
current period as discussed above. Revenue related to discontinued operations
for the quarter ended June 30, 1999 was $27,575,000 and $10,639,000 for
GeoScience and Continental, respectively. Revenue related to discontinued
operations for the six months ended June 30, 1999 was $57,717,000 and
$18,254,000 and $348,000 for GeoScience, Continental and Anarad, respectively.
Revenue related to discontinued operations for the quarter ended June
30, 1998 was $33,201,000, $7,939,000, $750,000 and $368,000 for GeoScience,
Continental, Anarad and Lake, respectively. Income before income taxes for the
quarter ended June 30, 1998 was $5,021,000 for GeoScience, while Continental,
Anarad and Lake experienced losses of $2,816,000, $250,000 and $86,000,
respectively. Net income for the discontinued operations for the quarter ended
June 30, 1998 was $6,728,000 for GeoScience, and net loss for the same period
was $1,887,000, $468,000, and $357,000 for Continental, Anarad and Lake,
respectively. All income/loss amounts exclude Tech-Sym Corporate overhead
allocations.
The revenue related to discontinued operations for the six months ended
June 30, 1998 was $66,512,000, $17,640,000, $1,761,000 and $776,000 for
GeoScience, Continental, Anarad and Lake, respectively. Income before income
taxes for the six months ended June 30, 1998 was $8,839,000 for GeoScience,
while Continental, Anarad and Lake experienced losses of $2,640,000, $277,000
and $160,000, respectively. Net income for the discontinued operations for the
six months ended June 30, 1998 was $9,286,000 for GeoScience and net loss for
the same period was $1,769,000, $486,000 and $407,000 for Continental, Anarad
and Lake, respectively. All income/loss amounts exclude Tech-Sym Corporate
overhead allocations.
For financial reporting purposes, the assets and liabilities of the
discontinued operations at June 30, 1999 have been classified in the
consolidated balance sheet as net assets of discontinued operations and consist
of the following (in thousands):
GEOSCIENCE (1) CONTINENTAL TOTAL
-------------- ----------- --------
Current assets ...................... $ 80,775 $ 19,807 $100,582
Total assets ........................ 134,606 27,229 161,835
Current liabilities ................. 46,556 21,680 68,236
Total liabilities ................... 65,748 31,333 97,081
Net assets of discontinued operations 68,858 (4,104) 64,754
(1) GeoScience net assets presented in this table reflect Tech-Sym's
79.12% ownership of GeoScience, including minority interest liability and
deferred expense, goodwill and deferred amortization expense, intercompany
payable and additional income tax expense.
7
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 - INVENTORIES
Inventories, which consist principally of electronic components, of
which $6,405,000 are subject to lease, are summarized as follows (in thousands):
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
Raw materials ............................ $ 17,643 $ 16,686
Work in progress ......................... 7,185 7,514
Finished goods ........................... 8,636 2,430
------------- -----------------
33,464 26,630
Less reserve ............................. (6,094) (1,877)
------------- -----------------
$ 27,370 $ 24,753
============= =================
NOTE 4 - PER SHARE DATA
Basic per share amounts are 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.
Due to the Company's losses, diluted earnings per share presented on the
Consolidated Statement of Income for the quarter and six months ended June 30,
1999, do not reflect any effect from outstanding stock options because to do so
would have been anti-dilutive. Outstanding stock options for the quarter and six
months ended June 30, 1999 were 961,120. The Company had 341,460 outstanding
options that were anti-dilutive and were excluded from the computation of
diluted earnings per share for the quarter and six months ended June 30, 1998.
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. Additionally, the Company purchased 3,000
shares of its common stock under the new repurchase plan during the second
quarter of 1999.
NOTE 5 - RECENT PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 137 ("FAS 137") ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which delayed implementation and the
effective date of FAS 133 until after June 15, 2000.
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.
8
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
The tables below present certain information regarding the continuing
operations for the quarter ended June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1999
WEATHER
COMMUNI- DEFENSE INFORMATION RECONCILING
CATIONS SYSTEMS SYSTEMS ITEMS (1) TOTAL
-------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Revenue from unaffiliated customers $ 18,865 $ 12,054 $ 4,412 $ $ 35,331
Operating income (loss) ........... (2,755) 1,371 1,225 (159)
Tech-Sym Corporate Headquarters
expense ......................... 300 326 64 729 1,419
Interest expense .................. 140 30 144 314
Other (income) and expense, net ... 1,154 (30) (90) (409) 625
Income (loss) before income
taxes (benefits) ................ (4,349)(2) 1,045 (2) 1,251 (2) (464) (2,517)
Depreciation and amortization ..... 770 335 60 55 (3) 1,220
Capital expenditures .............. 989 281 257 37 1,564
<CAPTION>
QUARTER ENDED JUNE 30, 1998
WEATHER
COMMUNI- DEFENSE INFORMATION RECONCILING
CATIONS SYSTEMS SYSTEMS ITEMS (1) TOTAL
-------- -------- ----------- ----------- --------
Revenue from unaffiliated customers $ 15,272 $ 13,659 $ 3,676 $ $ 32,607
Operating income .................. 140 1,373 1,193 2,706
Tech-Sym Corporate Headquarters
expense ......................... 300 263 56 737 1,356
Interest expense .................. 167 1 72 240
Other (income) and expense, net ... 277 (217) (90) (205) (235)
Income (loss) before income
taxes (benefits) ................ (604)(2) 1,326 (2) 1,227 (2) (604) 1,345
Depreciation and amortization ..... 708 323 48 (44)(3) 1,035
Capital expenditures .............. 808 157 40 11 1,016
</TABLE>
Reconciling items for the quarter ended June 30, 1999 and 1998.
(1) Reconciling items represent corporate headquarters activity, other than
depreciation and amortization, that is not allocated to subsidiaries.
(2) Includes the allocated corporate headquarters expenses.
(3) Corporate depreciation and amortization, which is included in the allocated
and unallocated corporate expenses above.
9
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The tables below present certain information regarding the continuing operations
for the six months ended June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
WEATHER
COMMUNI- DEFENSE INFORMATION RECONCILING
CATIONS SYSTEMS SYSTEMS ITEMS (1) TOTAL
-------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated customers $ 39,363 $ 24,693 $ 9,271 $ $ 73,327
Operating income (loss) ........... (1,886) 2,537 2,367 3,018
Tech-Sym Corporate Headquarters
expense ......................... 700 651 150 1,425 2,926
Interest expense .................. 309 31 341 681
Other (income) and expense, net ... 1,494 (35) (160) (887) 412
Income (loss) before income
taxes (benefits) ................ (4,389)(2) 1,890 (2) 2,377 (2) (879) (1,001)
Depreciation and amortization ..... 1,519 662 121 109 (3) 2,411
Capital expenditures .............. 1,990 700 417 42 3,149
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
WEATHER
COMMUNI- DEFENSE INFORMATION RECONCILING
CATIONS SYSTEMS SYSTEMS ITEMS (1) TOTAL
-------- -------- ----------- ----------- --------
Revenue from unaffiliated customers $ 32,447 $ 25,995 $ 7,458 $ $ 65,900
Operating income .................. 419 2,207 1,893 4,519
Tech-Sym Corporate Headquarters
expense ......................... 600 526 113 553 1,792
Interest expense .................. 330 1 190 521
Other (income) and expense, net ... 668 (342) (512) (537) (723)
Income (loss) before income
taxes (benefits) ................ (1,179)(2) 2,022 (2) 2,292 (2) (206) 2,929
Depreciation and amortization ..... 1,634 670 189 98 (3) 2,591
Capital expenditures .............. 2,045 233 85 11 2,374
</TABLE>
Reconciling items for the six months ended June 30, 1999 and 1998.
(1) Reconciling items represent corporate headquarters activity, other than
depreciation and amortization, that is not allocated to subsidiaries.
(2) Includes the allocated corporate headquarters expenses.
(3) Corporate depreciation and amortization, which is included in the allocated
and unallocated corporate expenses above.
10
<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 JUNE 30, 1999 COMPARED TO THE QUARTER
ENDED JUNE 30, 1998
Revenue for the quarter ended June 30, 1999 increased $2,724,000 or 8%
to $35,331,000 compared to $32,607,000 for the quarter ended June 30, 1998. The
increase occurred primarily in the Communications segment, where the increase
was $3,593,000 or 24%, over the prior year period. The increase was due to (1)
major antenna programs under contract during the current period that were not in
process in the second quarter of 1998 and (2) increased demand for ferrite
products used in cellular base stations reflecting the improved market
conditions in the wireless communications industry. Revenue of the Weather
Information Systems segment increased $736,000 or 20% over the prior year period
primarily as a result of strong fourth quarter 1998 bookings for weather radar
systems. The Defense Systems segment decreased $1,605,000 as compared to the
same period in 1998 due to completion of certain jobs in the current period that
were in full production in the prior year period.
Consolidated gross margin as a percentage of sales for the quarter ended
June 30, 1999 decreased 10% to 21% from 31% for the comparative period in 1998
as a result of a $4,000,000 charge in the current period for additional
inventory reserves within the Communications segment. Without the additional
charge, the consolidated gross margin percentages would have increased 1% to 32%
of revenue. The gross margin percentage for the Communications segment was
unchanged from the prior year period without this additional charge. The gross
margin percentage increased to 32% from 26% in the Defense Systems segment,
while decreasing to 53% from 63% in the Weather Information Systems segment,
primarily reflecting the mix and stage of jobs in process at both segments
between the two reporting periods.
Company-sponsored product development expenditures for the quarter were
$242,000 greater than in the quarter ended June 30, 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.
Selling, general and administrative expenses were essentially flat
between the two periods. General and administrative expenses within the
Communications segment decreased primarily as a result of restructuring efforts.
Selling, general and administrative expenses for the Defense Systems segment
increased due to costs associated with increased proposal activity in the
current period over the prior year period. Expenses within the Weather
Information Systems segment decreased as a result of lower selling commissions
due to the mix of revenue during the current period which included more orders
that were not subject to commissions.
Interest expense for the current period increased $74,000 to $314,000
from $240,000 in the prior year period primarily as a result of additional
borrowings to support working capital requirements and to fund capital
expenditures within the Communications and Defense Systems segments. Other
expense was $625,000 for the current quarter compared to other income of
$235,000 for the quarter ended June 30, 1998. The $860,000 increase in expense
primarily reflects the costs associated with the shut down and closeout of the
Communications segment's San Clemente, California facility and the movement of
its residual operations to the Tampa, Florida facility. These costs consist of
non cash and cash charges. The non cash charges were $170,000 for the write-off
of obsolete inventory, $125,000 write-off of leasehold improvements, and
$165,000 for relocating assets and inventory and other miscellaneous costs. The
cash charges totaled $370,000 for employee severance payments and travel
expenses.
The Company's effective tax rate was 32% for 1999 as compared to the 33%
rate used for the second quarter in 1998 due to anticipated tax benefits
associated with research and experimentation efforts and increased activity
within our Foreign Sales Corporation.
Continuing operations for the quarter ended June 30, 1999 resulted in a
loss of $1,712,000 or $.28 per diluted share as compared to income of $836,000
or $.14 per diluted share for the quarter ended June 30, 1998.
11
<PAGE>
The results of the discontinued air monitoring business for the quarter
ended June 30, 1999 were recognized in 1998. The results of the operations of
the discontinued Geoscientific segment for the quarter ended June 30, 1999 were
deferred and will be included with the expected gain on the disposal of this
operation. The previously deferred after-tax losses of $9,846,000 for the
discontinued broadcast equipment manufacturing business were recognized in the
second quarter of 1999, as well as an after-tax provision of $9,300,000 for
anticipated additional losses in operations and upon disposal. The period ended
June 30, 1998 included net income of $3,389,000 or $.55 per diluted share
relating to the discontinued operations discussed in Note 2.
Net loss for the quarter ended June 30, 1999 was $20,858,000 or $3.45
per diluted share as compared to net income of $4,225,000 or $.68 per diluted
share for the quarter ended June 30, 1998, reflecting the net effect of the
items discussed above.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1998
Revenue for the six months ended June 30, 1999 increased $7,427,000 or
11% to $73,327,000 compared to $65,900,000 for the six months ended June 30,
1998. The increase occurred primarily in the Communications segment, where the
increase was $6,916,000 or 21%, 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 half 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 $1,813,000 or 24% over the prior year period as a result of strong
fourth quarter 1998 bookings for weather radar systems. The Defense Systems
segment decreased $1,302,000 or 5% due to completion of certain jobs in the
current period that were in full production in the prior year period.
Consolidated gross margin as a percentage of sales for the six months
ended June 30, 1999 decreased to 25% from 29% for the comparative period in 1998
primarily as a result of the $4,000,000 charge in the current period for
additional inventory reserves within the Communications segment. Without this
charge, the consolidated gross margin percentage would have increased 1% over
the prior year period. The gross margin percentage for the Communications
segment was unchanged from the prior year period without this additional charge.
The gross margin percentage increased to 29% from 26% for the Defense Systems
segment, while decreasing to 51% from 55% in the Weather Information Systems
segment, primarily reflecting the mix and stage of jobs in process at both
segments between the two reporting periods.
Company-sponsored product development expenditures for the current six
months were $547,000 greater than the six months ended June 30, 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.
Selling, general and administrative expenses increased $1,105,000 or 7%
to $16,399,000 for the six months ended June 30, 1999 compared to the same
period in the prior year. General and administrative expenses within the
Communications segment were greater primarily as a result of additional costs
during the first quarter of 1999 due to new staffing and employee severance
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 six month period increased $160,000 to
$681,000 from $521,000 in the prior year period primarily as a result of
additional borrowings to support working capital requirements and to fund
capital expenditures within the Communications and Defense Systems segments.
Other expense increased $1,135,000 to $412,000 for the current six months
compared to other income of $723,000 for the six months ended June 30, 1998. The
current six months included the costs associated with the shut down of the
Communications segment's San Clemente, California facility as previously
discussed in the Results of Operations-Quarter Ended June 30, 1999. The six
months ended June 30, 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 six months in 1998 due to anticipated tax benefits associated
with research and experimentation efforts and increased activity within our
Foreign Sales Corporation.
12
<PAGE>
Continuing operations for the six months ended June 30, 1999 resulted in
a loss of $681,000 or $.11 per diluted share as compared to income of $1,963,000
or $.32 per diluted share for the six months ended June 30, 1998.
The results of the discontinued air monitoring business for the six
months ended June 30, 1999 were recognized in 1998. The results of the
operations of the discontinued Geoscientific segment for the six months ended
June 30, 1999 were deferred and will be included with the expected gain on the
disposal of this operation. The previously deferred after-tax losses of
$9,846,000 for the discontinued broadcast equipment manufacturing business were
recognized in the second quarter of 1999, as well as an after-tax provision of
$9,300,000 for anticipated additional losses in operations and upon disposal.
The period ended June 30, 1998 included net income of $5,514,000 or $.89 per
diluted share relating to the discontinued operations.
Net loss for the six months ended June 30, 1999 was $19,827,000 or
$3.29 per diluted share as compared to net income of $7,477,000 or $1.21 per
diluted share for the six months ended June 30, 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 June 30, 1999, the Company's
working capital balance, net of assets of discontinued operations, was
$55,672,000, compared to $62,646,000 at December 31, 1998, reflecting the
Company's $4,000,000 inventory write-down within the Communications segment and
additional short-term borrowing. The Company had a working capital ratio of 2.35
to 1.0 and debt to total capitalization of 12%. Purchases of property, plant and
equipment for continuing operations totaled $3,149,000 for the six months ended
June 30, 1999 compared to $2,374,000 for the same period in the prior year. At
June 30, 1999, the Company's continuing operations had short-term line of credit
facilities aggregating $44,849,000 of which $23,726,000 was available for
additional short-term borrowings.
Due to the intent of Bank of America and First Union Bank to terminate
their banking relationship with our Continental Electronics Corporation and TRAK
Microwave Corporation subsidiaries, respectively, and our plans to consolidate
cash management at the corporate headquarters, we solicited several banks and
received two credit facility proposals during the quarter ended June 30, 1999.
Based on our review of the proposed terms and cost projections submitted by the
banks, we selected the proposal offered by Bank of America, signed an expression
of interest, and notified our current bank, Wells Fargo Bank, of our decision.
Bank of America subsequently decided not to go forward with its proposal. As a
result of this decision, we were forced to seek extensions of the current credit
facilities with Wells Fargo Bank, Bank of America and First Union Bank, which
were granted until September 13, 1999, with certain restrictions on additional
debt and intercompany cash transactions. The total amount of funds available
under the lines, was reduced by $5,000,000. As the Company has not commenced
substantive discussions with any banks relating to new or replacement credit
facilities, there can be no assurance that we will be able to obtain such credit
facilities or whether acceptable terms for such facilities will be offered by
any bankers. We are evaluating our options and believe new credit facilities
will be obtained from Wells Fargo Bank or we will establish replacement credit
facilities with another bank. If we are successful in obtaining new credit
facilities, the terms of such facilities may provide for higher interest rates
or more restrictive terms than our existing facilities. If we are unable to
obtain adequate credit facilities, ability to fund working capital requirements
for our Continental and GeoScience subsidiaries, after the September 13, 1999
expiration date, will be adversely affected.
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 believes that it has addressed all potential
areas of exposure and believes no 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.
13
<PAGE>
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.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
1. Elected all eight (8) management nominees for directors pursuant
to proxies solicited without opposition under regulation 14A, as
stated below:
VOTES VOTES
NOMINEE IN FAVOR WITHHELD
------- -------- --------
J. Michael Camp 4,390,993 1,026,382
W. L. Creech 3,608,026 1,809,349
Michael C. Forrest 3,458,266 1,959,109
Richard S. Friedland 4,391,006 1,026,369
A.A. Gallotta, Jr. 3,459,026 1,958,349
Wendell W. Gamel 3,461,398 1,955,977
Coy J. Scribner 3,466,810 1,950,565
Charles K. Watt 4,237,491 1,179,884
2. Ratified the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Registrant for the year ending
December 31, 1999 (5,401,425 shares voted for, 11,237 voted
against and 4,571 shares abstained.)
3. Approved the adoption of the Tech-Sym Corporation 1998 Equity
Incentive Plan (Second Amendment and Restatement) (3,546,190
shares voted for, 1,858,974 shares voted against and 12,211
shares abstained.)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
*10(a) 1998 Equity Incentive Plan (Second Amendment and
Restatement) [Registrant's Definitive Proxy (filed
4/9/99, SEC File No. 1-4371, Exhibit A].
27 Financial Data Schedule
* Incorporated by reference to prior filing, as indicated.
(b) Reports on Form 8-K.
None
No financial statements were filed as a part of this report.
15
<PAGE>
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: August 16, 1999 /S/ J. MICHAEL CAMP
-------------------------------
J. Michael Camp, President
and Chief Executive Officer
Date: August 16, 1999 /S/ RAY F. THOMPSON
-------------------------------
Ray F. Thompson, Vice President
and Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TECH-SYM CORPORATION FORM 10-Q SECOND QUARTER 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,390
<SECURITIES> 139
<RECEIVABLES> 24,520
<ALLOWANCES> (178)
<INVENTORY> 27,370
<CURRENT-ASSETS> 161,775
<PP&E> 73,065
<DEPRECIATION> 53,435
<TOTAL-ASSETS> 206,737
<CURRENT-LIABILITIES> 41,349
<BONDS> 0
0
0
<COMMON> 807
<OTHER-SE> 144,852
<TOTAL-LIABILITY-AND-EQUITY> 206,737
<SALES> 73,327
<TOTAL-REVENUES> 73,327
<CGS> 54,963
<TOTAL-COSTS> 73,235
<OTHER-EXPENSES> 412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 681
<INCOME-PRETAX> (1,001)
<INCOME-TAX> (320)
<INCOME-CONTINUING> (681)
<DISCONTINUED> (19,146)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,827)
<EPS-BASIC> (3.29)
<EPS-DILUTED> (3.29)
</TABLE>
