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, 2000
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 AUGUST 4, 2000
---------------------------- -----------------------------
Common Stock, $.10 par value 5,809,051
<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, 2000 (unaudited)
and December 31, 1999 1
Consolidated Statement of Income for the quarter ended
June 30, 2000 and 1999 (unaudited) 2
Consolidated Statement of Income for the six months
ended June 30, 2000 and 1999 (unaudited) 3
Consolidated Statement of Cash Flows for the six
months ended June 30, 2000 and 1999 (unaudited) 4
Consolidated Statement of Changes in Shareholders'
Investment for the six months ended June 30, 2000
and 1999 (unaudited) 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-13
Part II. Other information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
<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, 2000 DECEMBER 31, 1999
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .............................................................. $ 31,963 $ 27,399
Short-term investments ................................................................. 1,819 1,804
Receivables, net ....................................................................... 35,275 30,371
Unbilled revenue ....................................................................... 38,129 34,150
Inventories, net ....................................................................... 20,700 20,648
Deferred income taxes .................................................................. 3,745 3,771
Net assets of discontinued operations (Note 2) ......................................... 4,319 11,992
Other .................................................................................. 712 566
--------------- ---------------
Total current assets ............................................................... 136,662 130,701
Property, plant and equipment, net ....................................................... 33,977 31,439
Long-term deferred tax asset ............................................................. 5,863 3,631
Other assets ............................................................................. 4,531 9,832
--------------- ---------------
Total assets ....................................................................... $ 181,033 $ 175,603
=============== ===============
LIABILITIES
Current liabilities
Notes payable .......................................................................... $ 575 $ 1,630
Current maturities of long-term debt ................................................... 788 861
Accounts payable ....................................................................... 9,910 8,074
Billings in excess of cost and estimated earnings on uncompleted contracts ............. 5,314 6,906
Other accrued liabilities .............................................................. 16,291 12,924
--------------- ---------------
Total current liabilities .......................................................... 32,878 30,395
Long-term debt ........................................................................... 1,028 1,450
Other liabilities and deferred
credits .................................................................................. 14 26
--------------- ---------------
Total liabilities .................................................................. 33,920 31,871
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 8,153,931 and
8,118,831 shares ....................................................................... 815 811
Additional capital ....................................................................... 42,608 42,290
Accumulated earnings ..................................................................... 140,874 134,255
Accumulated other comprehensive loss, net ................................................ (1,246) (919)
Common stock held in treasury at cost (2,354,280 and 2,183,050 shares) ................... (35,938) (32,705)
--------------- ---------------
Total shareholders' investment ..................................................... 147,113 143,732
--------------- ---------------
Total liabilities and shareholders' investment ..................................... $ 181,033 $ 175,603
=============== ===============
</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)
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED JUNE 30,
------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Revenue .................................................................................. $ 44,705 $ 35,331
Cost of revenue .......................................................................... 31,940 27,989
--------------- ---------------
Gross margin ........................................................................ 12,765 7,342
Company-sponsored product development .................................................... 975 891
Selling, general and administrative expense .............................................. 8,857 8,029
Interest expense ......................................................................... 49 314
Other (income) expense, net .............................................................. (76) 625
--------------- ---------------
Income (loss) from continuing operations before
income taxes ............................................................................. 2,960 (2,517)
Provision (benefit) for income taxes ..................................................... 1,066 (805)
--------------- ---------------
Income (loss) from continuing operations ............................................ 1,894 (1,712)
Discontinued operations (Note 2) ......................................................... (19,146)
--------------- ---------------
Net income (loss) ................................................................... $ 1,894 $ (20,858)
=============== ===============
Earnings (loss) per common share ......................................................... (496)
Continuing operations
Basic ............................................................................ $ .33 $ (.28)
Diluted .......................................................................... .32 (.28)
Discontinued operations
Basic ............................................................................ (3.17)
Diluted .......................................................................... (3.17)
Net income
Basic ............................................................................ .33 (3.45)
Diluted .......................................................................... .32 (3.45)
Weighted average common shares outstanding
Basic ............................................................................... 5,796 6,047
Diluted ............................................................................. 5,843 6,047
</TABLE>
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)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Revenue .................................................................................. $ 87,298 $ 73,327
Cost of revenue .......................................................................... 62,217 54,963
--------------- ---------------
Gross margin ........................................................................ 25,081 18,364
Company-sponsored product development .................................................... 1,718 1,873
Selling, general and administrative expense .............................................. 18,130 16,399
Interest expense ......................................................................... 116 681
Other (income) expense, net .............................................................. (5,485) 412
--------------- ---------------
Income (loss) from continuing operations before income taxes ........................ 10,602 (1,001)
Provision (benefit) for income taxes ..................................................... 3,983 (320)
--------------- ---------------
Income (loss) from continuing operations ............................................ 6,619 (681)
Discontinued operations (Note 2) ......................................................... (19,146)
--------------- ---------------
Net income (loss) ................................................................... $ 6,619 $ (19,827)
=============== ===============
Earnings (loss) per common share
Continuing operations
Basic ............................................................................ $ 1.14 $ (.11)
Diluted .......................................................................... 1.13 (.11)
Discontinued operations
Basic ............................................................................ (3.18)
Diluted .......................................................................... (3.18)
Net income
Basic ............................................................................ 1.14 (3.29)
Diluted .......................................................................... 1.13 (3.29)
Weighted average common shares outstanding
Basic ............................................................................... 5,819 6,022
Diluted ............................................................................. 5,847 6,022
</TABLE>
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,
----------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) .......................................................................... $ 6,619 $ (19,827)
Loss from discontinued operations ..................................................... 19,146
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by continuing operations
Provision for inventory write-down .................................................... 4,000
Gain on sale of equity investment ..................................................... (2,966)
Loss on disposal of property, plant & equipment ....................................... 33 75
Depreciation and amortization ......................................................... 3,893 2,411
Change in operating assets and liabilities
Receivables ........................................................................... (1,308) 929
Unbilled revenue ...................................................................... (3,979) 637
Inventories ........................................................................... (52) (6,617)
Other assets .......................................................................... 476 (2,266)
Accounts payable and taxes on income .................................................. 1,836 (1,275)
Billing in excess and other accrued liabilities ....................................... (2,123) 3,297
Other liabilities and deferred credits ................................................ (454) 87
--------------- ---------------
Net cash provided by operating activities of continuing operations .................. 1,975 597
--------------- ---------------
Cash flows from investing activities of continuing operations
Capital expenditures ....................................................................... (4,752) (3,149)
Capital expenditures on equipment manufactured for lease ................................... (1,920)
Purchase of investment securities .......................................................... (15) (137)
Sale of investment securities .............................................................. 226
Proceeds from sale of equity investment .................................................... 9,500
Other ...................................................................................... 104 57
--------------- ---------------
Net cash provided by (used for) investing activities of continuing operations ....... 2,917 (3,003)
--------------- ---------------
Cash flows from financing activities of continuing operations
Net (payments) borrowings under bank line of credit agreements ............................. (1,055) 3,006
Payments on long-term debt ................................................................. (439) (688)
Proceeds from long-term debt ............................................................... 99
Proceeds from exercise of stock options .................................................... 322 336
Acquisition of treasury shares ............................................................. (3,233) (1,617)
--------------- ---------------
Net cash (used for) provided by financing activities of continuing operations ........ (4,405) 1,136
--------------- ---------------
Net cash provided by discontinued operations ................................................. 4,077 2,243
--------------- ---------------
Net increase in cash and cash equivalents .................................................... 4,564 973
Cash and cash equivalents at beginning of period ............................................. 27,399 3,417
--------------- ---------------
Cash and cash equivalents at end of period ................................................... $ 31,963 $ 4,390
=============== ===============
</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, 2000 AND 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TREASURY STOCK TOTAL
----------------- ADDITIONAL ACCUMULATED COMPREHENSIVE ----------------- SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS SHARES AMOUNT INVESTMENT
------ --------- ----------- ------------ ------------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ...... 8,119 $ 811 $ 42,290 $ 134,255 $ (919) 2,183 $ (32,705) $ 143,732
Comprehensive income for 2000
Net income ...................... 6,619
Other comprehensive
loss, net of tax
Foreign currency
translation adjustments ... (327)
Total comprehensive income 6,292
Acquisition of treasury shares .... 171 (3,233) (3,233)
Issuance of common stock
for stock options .............. 35 4 318 322
------ --------- ----------- ------------ ------------- ------ --------- ------------
Balance at June 30, 2000 .......... 8,154 $ 815 $ 42,608 $ 140,874 $ (1,246) 2,354 $ (35,938) $ 147,113
====== ========= =========== ============ ============= ====== ========= ============
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TREASURY STOCK TOTAL
-------------- ADDITIONAL ACCUMULATED COMPREHENSIVE ---------------- SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS SHARES AMOUNT INVESTMENT
------ ------ ---------- ----------- ------------- ------ -------- -------------
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
====== ====== ========== =========== ============= ====== ======== =============
</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, 1999.
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 Statement of Income for the quarter and six months
ended June 30, 2000, are not necessarily indicative of the results expected for
the full year ending December 31, 2000.
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 the manufacture of air monitoring products (Anarad, Inc.
or "Anarad") and the manufacture of radio and television broadcast equipment
(Continental Electronics Corporation or "Continental"), and effective December
31, 1998, the Company adopted a plan to sell its majority owned subsidiary,
GeoScience Corporation ("GeoScience"), involved in the manufacture of seismic
equipment used in the exploration for hydrocarbons. 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, 2000, and 1999. The net assets of the discontinued
operations are segregated at June 30, 2000, and December 31, 1999, in the
Consolidated Balance Sheet and at June 30, 2000, and 1999 in the 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 March 15, 1999, the Company sold substantially all of the assets of
Anarad and on December 13, 1999, the Company sold GeoScience.
In October 1999, Continental entered into a plan of liquidation of its
German subsidiary. In February 2000, Continental entered into a letter of intent
to sell the assets of its digital television product line ("DTV"). On April 26,
2000, Continental completed the sale of the DTV product line for $2,687,000 in
cash and $1,163,000 note receivable maturing in six months. Continental is
conducting discussions with other parties regarding its remaining product lines.
In November 1998, the Company sold Lake Investment Company to Consumer
Loan Portfolios Inc. for cash plus notes receivable. During 1999, the Company
did not receive scheduled payments on the remaining $3,100,000 notes receivable.
Due to the non-payment of the notes receivable, the Company issued a demand for
arbitration and a statement of claim as provided for in the purchase agreement.
During July 2000, the Company received an Award of Arbitrators in the amount of
$3,100,000 plus pre-judgement interest of $633,000 and recovery of attorney's
fees and arbitration costs totaling $32,000. The award has been filed with the
District Court in Harris County Texas, for enforcement and shall accrue interest
at the rate of 15% per annum until paid in full. In addition,
6
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the Superior Court of Arizona, Maricopa County, has appointed a receiver over
the real property, personal property and mixed property providing security for
the debt owed to the Company. The Company has not accrued interest income in
1999 or 2000.
Continental incurred after-tax operating losses of $1,999,000 and
$2,712,000 during the quarter and six months ended June 30, 2000, respectively,
which were previously provided for in the estimated loss on disposal of
discontinued operations during the year ended December 31, 1999. The revenue
related to Continental for the quarter and six months ended June 30, 2000, was
$11,237,000 and $15,708,000, respectively. Revenue related to discontinued
operations for the quarter ended June 30, 1999, was $10,639,000 and $27,575,000
for Continental and GeoScience, respectively. Revenue related to discontinued
operations for the six months ended June 30, 1999, was $18,254,000, $57,717,000
and $348,000 for Continental, GeoScience and Anarad, respectively.
For financial reporting purposes, the assets and liabilities of
Continental at June 30, 2000, are classified in the consolidated balance sheet
as net assets of discontinued operations, which consist of the following (in
thousands):
Current assets $16,438
Total assets 25,990
Current liabilities 13,938
Total liabilities 21,671
Net assets of discontinued operations 4,319
NOTE 3 - INVENTORIES
Inventories, which consist principally of electronic components, are
summarized as follows (in thousands):
JUNE 30, 2000 DECEMBER 31, 1999
------------------ ------------------
Raw materials ........ $ 13,796 $ 13,204
Work in progress ..... 7,397 6,782
Finished goods ....... 1,751 2,579
------------------ ------------------
22,944 22,565
Less reserve ......... (2,244) (1,917)
------------------ ------------------
$ 20,700 $ 20,648
================== ==================
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.
Outstanding stock options of 75,000 and 665,870 were anti-dilutive and were
excluded from the computation of diluted earnings per share for the quarter and
six months ended June 30, 2000, respectively. Due to the Company's losses in the
prior year, diluted earnings per share presented on the Consolidated Statement
of Operations for the quarter and six months ended June 30, 1999, do not reflect
the effect of outstanding stock options because to do so would be anti-dilutive.
Outstanding stock options for the quarter and six months ended June 30, 1999
were 961,120.
During the first quarter of 2000, the Company repurchased 171,230 shares
of its common stock under a previously approved repurchase program. There was no
repurchase of the Company's common stock during the second quarter of 2000.
7
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5 - SEGMENT INFORMATION
The Company's reportable segments are business units that design,
manufacture and distribute distinct products, with distinct customer bases and
are each managed separately. 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, 1999. 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 from continuing operations,
however, there is a charge to allocate corporate headquarters' cost to each of
its operating segments.
The table below presents selected information as of and for the quarter
ended June 30, 2000, (in thousands):
<TABLE>
<CAPTION>
WEATHER
COMMUNI- DEFENSE INFORMATION RECONCILING
CATIONS SYSTEMS SYSTEMS OTHER ITEMS TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated customers .. $ 21,460 $ 17,012 $ 4,781 $ 1,452 $ $ 44,705
Operating income (loss) .............. 1,808 2,032 1,311 (833) 4,318
Corporate centralized general and
administrative expenses ........... 423 395 92 475(1) 1,385
Interest expense ..................... 42 7 49
Other expense and (income), net ...... 536 (6) (22) 37 (621) (76)
Income (loss) before income
taxes (benefits) .................. 807(2) 1,636(2) 1,241(2) (870) 146 2,960
Depreciation and amortization ........ 823 1,009 62 58 58(3) 2,010
Capital expenditures ................. 886 2,193(4) 112 1,744 4,935
</TABLE>
Notes for the quarter ended June 30, 2000.
(1) Corporate expenses not allocated to subsidiaries for financial reporting.
(2) Includes the allocated corporate expenses.
(3) Corporate depreciation and amortization, which is included in the allocated
and unallocated corporate expenses above.
(4) Includes expenditures of $980,000 for equipment manufactured for lease.
8
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The table below presents selected information as of and for the quarter
ended June 30, 1999, (in thousands):
<TABLE>
<CAPTION>
WEATHER
COMMUNI- DEFENSE INFORMATION RECONCILING
CATIONS SYSTEMS SYSTEMS ITEMS TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated customers .... $ 18,865 $ 12,054 $ 4,412 $ $ 35,331
Operating (loss) income ................ (2,755) 1,371 1,225 (159)
Corporate centralized general and
administrative expenses .............. 300 326 64 729(1) 1,419
Interest expense ....................... 140 30 144 314
Other expense and (income), 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 .......... 770 334 61 55(3) 1,220
Capital expenditures ................... 989 281 257 37 1,564
</TABLE>
Notes for the quarters ended June 30, 1999.
(1) Corporate expenses not allocated to subsidiaries for financial reporting.
(2) Includes the allocated corporate expenses.
(3) Corporate depreciation and amortization, which is included in the allocated
and unallocated corporate expenses above.
The table below presents selected information as of and for the six
months ended June 30, 2000, (in thousands):
<TABLE>
<CAPTION>
WEATHER
COMMUNI- DEFENSE INFORMATION RECONCILING
CATIONS SYSTEMS SYSTEMS OTHER ITEMS TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated customers ... $ 42,129 $ 32,031 $ 9,739 $ 3,399 $ $ 87,298
Operating income (loss) ............... 3,278 3,257 2,622 (1,170) 7,987
Corporate centralized general and
administrative expenses ............ 846 789 183 936(1) 2,754
Interest expense ...................... 99 17 116
Other expense and (income), net ....... 1,153 (246) (72) 42 (6,362) (5,485)
Income (loss) before income
taxes (benefits) ................... 1,180(2) 2,697(2) 2,511(2) (1,212) 5,426 10,602
Depreciation and amortization ......... 1,538 2,018 126 94 117(3) 3,893
Capital expenditures .................. 1,356 3,233(4) 218 1,862 3 6,672
</TABLE>
Notes for the six months ended June 30, 2000.
(1) Corporate expenses not allocated to subsidiaries for financial reporting.
(2) Includes the allocated corporate expenses.
(3) Corporate depreciation and amortization, which is included in the allocated
and unallocated corporate expenses above.
(4) Includes expenditures of $1,920,000 for equipment manufactured for lease.
9
<PAGE>
TECH-SYM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The table below presents selected information as of and for the six
months ended June 30, 1999, (in thousands):
<TABLE>
<CAPTION>
WEATHER
COMMUNI- DEFENSE INFORMATION RECONCILING
CATIONS SYSTEMS SYSTEMS ITEMS TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated customers ... $ 39,363 $ 24,693 $ 9,271 $ $ 73,327
Operating (loss) income ............... (1,886) 2,537 2,367 3,018
Corporate centralized general and
administrative expenses ............. 700 651 150 1,425(1) 2,926
Interest expense ...................... 309 31 341 681
Other expense and (income), 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
</TABLE>
Notes for the six months ended June 30, 1999.
(1) Corporate expenses not allocated to subsidiaries for financial reporting.
(2) Includes the allocated corporate 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, 2000 COMPARED TO THE QUARTER
ENDED JUNE 30, 1999
Revenue for the quarter ended June 30, 2000, increased $9,374,000 or 27%
to $44,705,000 compared to $35,331,000 for the quarter ended June 30, 1999. The
increase occurred primarily in the defense systems and communications segments,
which increased $4,958,000 or 41% and $2,595,000 or 14%, respectively, over the
prior year period. The increase was due to new programs currently under contract
that were not in process in the second quarter of 1999. Additionally, the
current period consolidated revenue included $1,452,000 from CrossLink, Inc.
("CrossLink"), in which a majority equity interest was acquired in July 1999.
Revenue from the weather information systems segment increased slightly over the
prior year comparative period.
Consolidated gross margin as a percentage of sales was 29% and 21% for
the quarters ended June 30, 2000, and 1999, respectively. The gross margin for
the quarter ended June 30, 1999, included a $4,000,000 charge for additional
inventory reserves within the communications segment. Excluding the inventory
charge discussed above, the communications segment's gross margin was unchanged
for the quarters ended June 30, 2000, and 1999, respectively. The gross margin
percentage for the defense systems segment decreased to 25% from 32%, primarily
as a result of cost overruns on certain contracts and several new contracts in
the early start-up phase of production. The gross margin percentage for the
weather information systems segment was relatively flat quarter to quarter.
Company-sponsored product development for the current quarter had an
overall net increase of $84,000 compared to the quarter ended June 30, 1999. The
inclusion of CrossLink's company-sponsored product development in the current
quarter contributed $562,000 to the consolidated company-sponsored product
development, whereas, the Company's reportable segments had a combined decrease
of $478,000 in these expenditures, reflecting the completion of major projects
in 1999.
Selling, general and administrative expenses increased $828,000 or 10%
to $8,857,000 for the quarter ended June 30, 2000, compared to the same quarter
in the prior year. Selling, general and administrative expenses within the
communications segment increased $372,000 in the current quarter due to
increased marketing activity and greater general and administrative expenses
associated with the growth of that business. The inclusion of CrossLink's
general and administrative expenses in the current period also contributed
$394,000 to the consolidated general and administrative expenses. Selling costs
within the weather information systems segment increased $187,000 over the
comparative period reflecting a higher mix of contracts with sales commissions.
Interest expense for the current quarter decreased $265,000 to $49,000
from $314,000 in the prior year quarter, reflecting the reduction of debt during
the fourth quarter of 1999 and first quarter of 2000 as a result of cash
received from the sale of GeoScience and the Company's equity investment in
Scientific Research Company ("SRC"). Other income was $76,000 for the current
quarter compared to other expense of $625,000 for the quarter ended June 30,
1999, reflecting increased interest earnings due to greater cash on deposit
during the second quarter of 2000. Expenses in the second quarter of 1999
reflect 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.
The Company expects its effective tax rate to be 36% for fiscal 2000.
The effective tax rate for the second quarter of 2000 was 36%.
Income from continuing operations and net income for the quarter ended
June 30, 2000 was $1,894,000 or $.32 per diluted share as compared to a loss
from continuing operations of $1,712,000 or $.28 per diluted share for the
quarter ended June 30, 1999. There were no reportable results from discontinued
operations included in net income for the quarter ended June 30, 2000. Prior
accruals for anticipated losses were still sufficient to cover current period
and expected future losses for the disposal period. For the quarter ended June
30, 1999, the Company recognized previously deferred after-tax losses of
$19,146,000 or $3.17 per diluted share for the discontinued radio and television
broadcast equipment business.
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RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1999
Revenue for the six months ended June 30, 2000, increased $13,971,000 or
19% to $87,298,000 compared to $73,327,000 for the six months ended June 30,
1999. The increase occurred primarily in the defense systems segment, which was
$7,338,000 or 30%, over the prior year period. The increase was due to new
programs currently under contract that were not in process in the first half of
1999 and the movement of other programs from the developmental phase to
production. Additionally, the current period consolidated revenue included
$3,399,000 from CrossLink, in which a majority equity interest was acquired in
July 1999. Revenue from the communications segment increased $2,766,000 or 7%
over the prior year reflecting the continued expansion of global communication
markets. Revenue from the weather information systems segment increased slightly
over the prior year comparative period.
Consolidated gross margin as a percentage of sales was 29% and 25% for
the six months ended June 30, 2000, and 1999, respectively. The gross margin for
the six months ended June 30, 1999, reflected an additional $4,000,000 charge
for inventory reserves within the communications segment. Excluding the
inventory charge, the communications segment's gross margin was unchanged for
the six months ended June 30, 2000, and 1999, respectively. The gross margin
percentage for the defense systems segment decreased to 27% from 29%, primarily
as a result of cost overruns on certain contracts and several new contracts in
the early start-up phase of production, in the second quarter of 2000. The gross
margin percentage for the weather information systems segment decreased to 49%
from 51%, primarily as a result of the volume mix and stage of completion of
contracts in process between the two periods.
Company-sponsored product development expenditures for the current six
months was $155,000 less than in the six months ended June 30, 1999. The
expenditures decreased $955,000 within the Company's reportable segments
reflecting the completion of major projects in 1999. Company-sponsored product
development expenditures were $800,000 for CrossLink during the period.
Selling, general and administrative expenses increased $1,731,000 or 11%
to $18,130,000 for the six months ended June 30, 2000, compared to the same
period in the prior year. The increase primarily occurred within the defense
systems segment relating to increased proposal activity and greater general and
administrative expenses associated with the growth of that business. The
inclusion of CrossLink's general and administrative expenses in the current
period contributed $696,000 to the consolidated general and administrative
expenses. General and administrative expenses within the communications segment
decreased $116,000 as compared to prior year period, which included additional
costs related to the restructuring efforts that began in the latter part of
1998. Selling costs within the weather information systems segment was
relatively flat compared to the prior year period.
Interest expense for the current six months decreased $565,000 to
$116,000 from $681,000 in the prior year, reflecting the reduction of debt
during the fourth quarter of 1999 and first quarter of 2000 as a result of cash
received from the sale of GeoScience and the Company's equity investment in SRC.
Other income was $5,485,000 for the current six months compared to other expense
of $412,000 for the six months ended June 30, 1999, reflecting a pre-tax gain of
$4,894,000 on the sale of the Company's equity investment in SRC and increased
interest earnings due to greater cash on deposit during the six months of 2000.
Expenses in the first six months of 1999 included 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.
The Company expects its effective tax rate to be 36% for fiscal 2000.
The effective tax rate for the first six months of 2000 was 38% due primarily to
the gain recognized on the sale of SRC.
Income from continuing operations and net income for the six months
ended June 30, 2000, was $6,619,000 or $1.13 per diluted share as compared to a
loss from continuing operations of $681,000 or $.11 per diluted share and a net
loss of $19,827,000 or $3.29 per diluted share for the six months ended June 30,
1999. There were no reportable results from discontinued operations included in
net income for the six months ended June 30, 2000. Prior accruals for
anticipated losses were still sufficient to cover current period and expected
future losses for the disposal period. For the six months ended June 30, 1999,
the Company recognized previously deferred after-tax losses of $19,146,000 for
the discontinued radio and television broadcast equipment business.
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LIQUIDITY AND CAPITAL RESOURCES
During the current period the Company satisfied its working capital and
capital expenditure requirements through cash on hand, from the sale of
GeoScience Corporation in December 1999, the sale of SRC in January 2000 and the
sale of the discontinued DTV product line in April 2000. At June 30, 2000,
$5,349,000 of cash and cash equivalents and short-term investments are subject
to restrictions related to letters of credit with various financial
institutions. At June 30, 2000, the Company's working capital balance, net of
assets of discontinued operations, was $99,465,000, compared to $88,314,000 at
December 31, 1999. At June 30, 2000, the Company's continuing operations had
short-term line of credit facilities aggregating $5,450,000, of which $4,875,000
was available for additional short-term borrowings. The Company had a working
capital ratio of 4.03 to 1.0 and debt to total capitalization of 2%.
Purchases of property, plant and equipment for continuing operations
during the six months ended June 30, 2000, totaled $6,672,000, including
$1,920,000 relating to the capitalization of costs associated with equipment
manufactured for lease, compared to $3,149,000 for the same period in the prior
year. The Company believes that its cash on hand, cash from results of
operations and available line of credit facilities will provide adequate funds
to meet foreseeable requirements.
Net cash provided by the discontinued operations of Continental was
$4,077,000 for the six months ended June 30, 2000, primarily as a result of cash
provided from the sale of the DTV product line and the collection of accounts
receivable, which exceeded other operating, investing and financing net cash
requirements. In October 1999, Continental entered into a plan of liquidation of
its German subsidiary. Under the terms of the plan, Continental is required to
fund the cash flow requirements of operating the German subsidiary during the
liquidation phase, which is expected to conclude during the year 2000. At June
30, 2000, Continental's estimated future commitment is reported in the balance
sheet as a reduction of net assets of discontinued operations. The Company has
guaranteed Continental's commitment under the plan of liquidation.
On June 27, 2000, the Veritas Capital Fund, L.P., through its portfolio
company Integrated Defense Technologies, Inc., agreed to acquire the outstanding
shares of the Company for $30.00 per share in cash. The transaction is subject
to regulatory and stockholder approval and is expected to close during the third
quarter of 2000.
YEAR 2000 COMPLIANCE
The Company is currently not aware of any Year 2000 problems in any of
its products or critical systems and continues to monitor for any Year 2000
related issues. The Company expects no future material expenditures relating to
Year 2000 issues.
Forward-looking statements in this release 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, the risk that the
merger may not be approved by regulatory bodies, the risk that the shareholders
may not approve the sale of the company, the risk that a material breach of an
agreement, obligation, representation, warranty or covenant could permit the
non-breaching party to terminate the merger agreement, the risk that the merger
agreement could be terminated if the merger is not completed by December 31,
2000, the risk that the parties could terminate the merger agreement by mutual
consent, and other risks detailed in the Company's filings with the Securities
and Exchange Commission.
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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 June 27, 2000 Item 5. Other
Events, reported the execution of a definitive agreement and plan
of merger with Integrated Defense Technologies, Inc., and
Tech-Sym Corporation.
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: August 11, 2000 /S/ J. MICHAEL CAMP
---------------------------------
J. Michael Camp, President
and Chief Executive Officer
Date: August 11, 2000 /S/ PAUL L. HARP
---------------------------------
Paul L. Harp, Chief Financial
Officer, Treasurer and Controller
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