10-K405 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 1-4371 TECH-SYM CORPORATION (Exact name of registrant as specified in its charter) NEVADA 74-1509818 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10500 WESTOFFICE DRIVE HOUSTON, TEXAS 77042 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 785-7790 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT Name Of Each Exchange Title Of Each Class On Which Registered ------------------------------------------------- ----------------------- COMMON STOCK (PAR VALUE $.10 PER SHARE)AND COMMON NEW YORK STOCK EXCHANGE STOCK PURCHASE RIGHTS (THE RIGHTS ARE NOT CURRENTLY EXERCISABLE OR TRANSFERABLE APART FROM THE COMMON STOCK) SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 13, 1995, 5,756,628 shares of the registrant's Common Stock were issued and outstanding. The aggregate market value of the voting stock held by non-affiliates of the registrant (assuming only for purposes of this computation that directors and officers may be affiliates) was $122,874,500 (based on the closing sales price published in THE WALL STREET JOURNAL reports of New York Stock Exchange Composite Transactions on March 13, 1995). DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the Part of the Form 10-K specified herein: (1) Annual Report to Shareholders for 1994 (to the extent set forth in Parts I and II of this Annual Report); and (2) Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 1995 (to the extent set forth in Part III of this Annual Report). PART I ITEM 1. BUSINESS GENERAL Tech-Sym Corporation (the "Company" or "Registrant") is a diversified electronics engineering and manufacturing company primarily involved in the design, development, and production of products used for communications, seismic exploration for hydrocarbons, defense systems, and environmental monitoring. The Company, incorporated in Nevada in 1944, is headquartered in Houston, Texas. The Company operates through seven principal subsidiaries: Anarad, Inc. ("Anarad") located in Santa Barbara, California; Continental Electronics Corporation ("Continental") located in Dallas, Texas; Enterprise Electronics Corporation ("EEC") located in Enterprise, Alabama; Metric Systems Corporation ("Metric") located in Fort Walton Beach, Florida; Syntron, Inc. ("Syntron") located in Houston, Texas; Tecom Industries, Incorporated ("Tecom") located in Chatsworth, California; and TRAK Microwave Corporation ("TRAK") located in Tampa, Florida. The business of the Company is conducted as one segment comprised of four product areas. COMMUNICATIONS. The communications products include microwave components, radio transmitters, and antennas. The microwave components and subsystems are used by customers to make communications and radar products. Microwave components include energy sources (oscillators and amplifiers), frequency multipliers, filters, ferrite isolators and circulators, and a broad range of passive components for modulation and control of microwave energy. Microwave subsystems consist of synthesizers, frequency converters, and microwave assemblies. These microwave components and subsystems are used in such areas as wireless communications, satellite communications, aircraft instruments, radars, electronic warfare systems, and industrial microwave heating and cooking. Original equipment manufacturers purchase these products to integrate into systems. Radio transmitter products include a complete line of transmitters and related equipment for the radio broadcast industry such as high power transmitters for use in the "short" and "medium" wave frequency bands as well as transmitters that operate at the radio broadcast frequencies commonly referred to as "AM" and "FM". High power radio frequency energy sources such as large particle accelerators are also made for medical and physics research installations. Communications and radar equipment for U.S. and foreign defense agencies have also been designed and manufactured. Customers include the commercial radio broadcast industry, private and government agencies that operate radio broadcast stations, and organizations or government funded operations that engage in scientific research. In 1994, the Company acquired majority ownership interest of a business in Santiago, Chile, that designs and manufactures solid state AM transmitters. The Company plans to offer the solid state AM transmitters for sale in North America, and the Chilean business will support the sale and maintenance of the Company's transmitters in South America. Also in 1994, the Company entered into a joint manufacturing agreement with the Ministry of Film, Radio, and Television in the People's Republic of China. The agreement provides for the manufacture of FM and shortwave broadcast transmitters at the Company's facility in Dallas as well as in Beijing. -1- The Company's antennas include log periodic antennas, horns, broadband dish and feed assemblies, and broadband omnidirectional antennas used for wireless voice and data communication, satellite communication, surveillance, and range instrumentation. The Company also supplies antennas, controllers, and rotators for information gathering by the U.S. surveillance community and high power antennas for jamming enemy radars during electronic warfare missions. Telemetry tracking systems and microprocessor-based antenna controllers are sold to the U.S. for use on test and training ranges. The Company has also designed, manufactured, and independently tested antennas for air and land mobile satellite communications systems. SEISMIC EXPLORATION. The Company designs and manufactures products that acquire, digitize, transmit, record, display, and analyze acoustic energy produced on the surface by air guns, dynamite, or other sound sources and reflected from underground or subsea geologic formations. After the stored data is processed, potential locations of hydrocarbon deposits can be determined. With the advent of more powerful computers, three dimensional ("3-D") seismic surveys have become more routine. The 3-D surveys result in higher resolution than two dimensional surveys and the success rate of oil and gas wells based on 3-D surveys is much greater. The demand for the Company's seismic equipment has increased with the demand for 3-D surveys. Principal seismic products include the SYNTRAK 480(R) Digital Streamer System consisting of one to sixteen arrays, each up to 6,000 meters in length, containing sensors, electronic modules, and conductors. As the arrays are towed behind a boat, the acoustic energy is collected by the sensors, digitized and transmitted via a patented, low power telemetry communications scheme through the towed cable array to the boat. Once on board, the data is saved on magnetic tape by the Company's high-speed shipboard recording system. A related product is the Ocean Bottom Cable which is placed on the ocean floor instead of towed behind a boat. It is used in shallow water, congested areas, and transition zones where large seismic vessels cannot operate. It can also be used to monitor a reservoir as hydrocarbons are removed. Both the SYNTRAK 480(R) system and the Ocean Bottom Cable are being upgraded to integrate the latest technology. The amount of seismic data acquired will be increased by the use of 24-bit integrated circuits and the volume of the modules reduced 60% through the use of hybrid technology to combine most of the discrete components. The upgraded products are scheduled for deployment in 1995. Another seismic product recently introduced is the PolySeis(TM) system which the Company has developed with partial funding from the INSTITUTE FRANCAIS DU PETROLE. The PolySeis(TM) system is a modular radio and/or wireline telemetry seismic data acquisition system that can be easily configured by the user for most land or transition zone needs. The system is specifically adaptive to the unique requirements associated with exploration in transition zones or in areas that are inaccessible or difficult to reach such as lakes, swamps, or mountainous areas. The Company maintains operations for the design, manufacture, and repair of seismic cables in England, Singapore, and Houston, the latter of which was acquired from Digicon, Inc., in 1994. The ability to design, manufacture and repair seismic cables enhances the Company's quality control over critical processes and its ability to provide needed services to its customers worldwide. In an effort to expand the product line from exploration into oil and gas production, the Company has used its expertise in designing marine electronic systems to manufacture multiplexed, hydro-hydraulic control pods and advanced acquisition systems for offshore drilling. It is expected that these computer controlled data and control systems will replace or augment old hydraulic control systems currently used on offshore drilling rigs as the rigs are replaced or overhauled. -2- DEFENSE SYSTEMS. The principal defense systems products include shipboard electronics, airborne training systems, range instrumentation systems, and mechanical systems. The Company first became involved in shipboard electronics in 1979, when it received a contract for the design, development, and qualification testing of electronic control, monitoring, and power distribution equipment for the U.S. Navy's Vertical Launching System (VLS). Upon successful completion of this development effort, full scale production was initiated and has been continuous since. Utilizing the expertise gained during the VLS development effort, the Company expanded its business operations in this area to include subsystems for the AN/SQQ-89 Surface Anti-Submarine Warfare Combat System, firing mechanisms for the submarine launched Tomahawk and Trident missiles, and radar cable assemblies for the AEGIS weapon system. In 1994, the Company acquired the Switchboard Systems Division of Ferranti Technologies, Inc., which produces electronic power switching and intercommunications equipment primarily for U.S. Navy ships. The airborne training systems consist of pods which are attached to aircraft to collect data on the position, altitude, flight characteristics, and weapons systems of the aircraft during simulated combat. The data inputs are sent via telemetry to ground instrumentation equipment for display, debriefing, and subsequent analysis by the participants. Under a contract awarded in 1994, the Company is producing airborne and ground equipment utilizing Global Positioning Systems (GPS) receivers to precisely locate and track aircraft operated on the training ranges. The use of this equipment will reduce the government's cost of operating Air Combat Maneuvering Instrumentation (ACMI) ranges since manned radar tracking sites and other equipment will become unnecessary. The Company also designs and manufactures transportable radar systems used on military training ranges to replicate foreign military radars that control surface-to-air missiles (SAMs) and anti-aircraft artillery fire. These systems are used to train aircrews on defensive maneuvers and to test the effectiveness of electronic countermeasures. The mechanical systems designed and manufactured by the Company include antenna support structures for large communications antennas, custom containers with environmental controls for sensitive electronics equipment such as satellites and missiles, and aircraft launcher rail assemblies for the AMRAAM missile. The Company has also developed and manufactures air cargo systems for airborne supply operations including on-board cargo roller/restraint systems, air-drop platforms, and cargo handling equipment for many types of aircraft. The Company manufactures a variety of other systems including memory expansion equipment for the FAA's air traffic control Interim Update Plan, TOW missile launchers used on the U.S. Army's Bradley Fighting Vehicle, custom automated test equipment for a variety of electronic equipment, and radar surveillance systems. ENVIRONMENTAL MONITORING. Products in this area include weather radar and display systems as well as gas analyzers and continuous emissions monitoring systems. Meteorological agencies and television broadcasters use the Company's Doppler weather radars to forecast weather and provide severe weather warnings. The Doppler process measures both reflectivity and velocity of rain droplets and is used to detect, quantify and display precipitation intensity, velocity, and turbulence. It is extremely helpful in analyzing severe weather conditions such as hurricanes, tornadoes, thunderstorms, and wind shear. EEC has coupled the high performance Doppler radar with sophisticated data processing systems. These range from low-cost PC-based display and control systems through UNIX platform mid-range systems to larger scientific systems utilizing Hewlett Packard, IBM and the DEC-Alpha type computers and software. -3- With the development of powerful data processing systems known as Weather Windows(R) and EDGE(R) (Enterprise Doppler Graphics Environment), the products give meteorologists automated radar control as well as enhanced meteorological displays and image processing capabilities. The systems can be integrated into a network to obtain accurate weather information for a large geographic area. More than 600 weather radars have been installed in more than 60 countries. Gas analyzers and continuous emissions monitoring systems (CEMs) which incorporate microprocessor-based analytical instruments are designed and manufactured by a subsidiary acquired by the Company in 1994. The equipment is used to determine the amounts of certain chemicals, toxic vapors, and specific pollutants in the air. Analyzers produced by the Company include infrared, ultraviolet, chemiluminescent, paramagnetic, and electrochemical technologies utilized in various configurations, depending upon the measurement characteristics of a particular process. Passage of the U.S. Clean Air Act created significant requirements for the measurement of designated hazardous air pollutants. This Act requires industrial sources to install monitoring instrumentation to sample the pollutants being emitted. In response, many other countries around the globe are enacting similar laws. The Company has experience meeting EPA regulations and offers Fourier transform infrared (FTIR) technology which has the unique capability of measuring practically all airborne chemicals in virtually any combination. GOVERNMENT CONTRACTS Sales under contracts with or for the United States Government accounted for $81.9 million or 41% of the Company's sales in 1994. Most of the Company's Government contracts are fixed-price contracts. Under this type of contract, the price paid to the Company is not subject to adjustment by reason of the costs incurred by the Company in the performance of the contract, except that adjustments are made for costs incurred due to contract changes ordered by the Government. Cost overruns incurred in connection with fixed-price contracts, particularly those involving engineering and development, could substantially reduce the Company's profitability or cause losses. Government contracts may be terminated for the convenience of the Government at any time the Government believes that such termination would be in its best interests. Under contracts terminated for the convenience of the Government, the Company is entitled to receive payments for its allowable costs and, in general, a proportionate share of its fee or profit for the work actually performed. Under the Truth in Negotiations Act, the Government has a right for three years after final payment on substantially all negotiated Government contracts to examine all the Company's cost records with respect to such contracts in order to determine whether the Company used and made available to the Government, or to the prime contractor in the case of a subcontract, accurate, complete and current cost or pricing information in preparing bids and conducting negotiations on the contracts or any amendments thereto. The Company recognizes revenue under its Government contracts on the percentage of completion method generally measured by the percentage of total costs incurred to date to estimated total costs for each contract. Estimated losses on contracts are provided for in full when they become apparent. Provided the job is on schedule, the Company normally recovers most of its costs on large contracts under a progress payment system whereby 80% to 85% of its allowable costs incurred in performing the contract, including applicable indirect costs such as general and administrative expenses, may be collected from the Government on a current basis, while related profit, if any, is billable only upon completion of the contract, or in certain instances, as delivery of units is made. The Company and Government representatives closely monitor the Company's performance against the overall budget of cost and profit for a job as the job progresses. Revisions of a budget may occur during the course of the work for many reasons, including increases or decreases in the scope of the work, change orders and funding adjustments, as well as for the Company's performance against such budget. Budget revisions forecasting profit reductions are recorded by the Company on a current basis, whereas forecasted profit increases are recorded over the remaining period of performance. -4- The Company believes that business done under Government contracts differs from ordinary commercial contracts in certain other ways. Capital requirements tend to be smaller because of the progress payment system. There is no significant bad debt loss risk and, in general, receivables are paid promptly. The Company has also found that, in the case of Department of Defense contracts, the contract dispute procedures are well defined and generally permit expeditious and inexpensive resolutions of contract problems. COMPETITION AND BUSINESS CONDITIONS The Company faces significant competition in most aspects of its business. Its principal competitors in each area of its activities include corporations with substantially greater assets and access to larger financial resources than the Company. The Company's products are of a highly technical nature and involve the use of techniques and materials similar to those used by its competitors. The principal competitive factors with respect to the Company's products are technological innovation, product quality, price, adherence to delivery schedules and product reliability. A significant portion of the Company's sales are made under Government contracts awarded on the basis of competitive proposals. In addition to price, the factors involved in the award of such contracts include the quality of the proposal and reputation of the bidder. While the Company faces competition with respect to each of its product lines, the Company believes it is a principal supplier of meteorological radars to both foreign and domestic government agencies and commercial users and of marine seismic survey systems to the petroleum industry. Demand for many of the products sold by the Company is dependent on the level and nature of the nation's defense expenditures. See "Other Information" included in Management's Discussion and Analysis set forth on page 21 of the Company's Annual Report to Shareholders for the year ended December 31, 1994, which information is incorporated herein by reference. The defense-related electronic systems and components manufactured by the Company are sold primarily to the United States armed forces, defense contractors, and foreign countries for military and training use. General increases or decreases in the level of defense appropriations tend to affect demand for defense-related products, but do not necessarily have a corresponding effect on demand for the specialized products manufactured by the Company. Due to the process by which appropriations and contracts are approved for defense projects, it is common for the Company to experience delays in the receipt of anticipated orders, which can adversely affect operating results by shifting operating revenues from one period to another. Because most of the Company's defense-related contracts are awarded on a fixed-price basis, cost overruns can affect the Company's profitability. MARKETING AND CUSTOMERS The Company's products are primarily marketed directly by the sales force of each of its operating subsidiaries, with the assistance of domestic and international independent technical sales representatives who receive commissions on their sales. The principal customers for the communications products include the United States Government (primarily the armed services), government contractors, communication equipment manufacturers, radio broadcast companies and organizations, and research organizations. The seismic exploration customers include independent seismic survey contractors and national oil companies. The defense systems products are sold to the armed forces of the United States and foreign governments, government contractors, and aircraft manufacturers. Environmental monitoring products are sold to government and commercial weather services, television stations, airports, utility companies, incinerators, and industrial plants. -5- The Company's largest customer is the United States Government, its agencies and contractors, whose purchases accounted for approximately 41% of the Company's consolidated sales in 1994. Of that amount, approximately 96% was attributable to purchases by the Department of Defense and its contractors. The loss of these Government contracts would have a material adverse effect on the Company as a whole. Contracts with or for the United States Government and most prime contractors may be terminated by the Government at will. See "Government Contracts." The Company has not, however, experienced any significant problems with contract cancellations. One of the government contractors is Martin Marietta Corporation. In 1993, Martin Marietta Corporation acquired the business of General Electric Aerospace Operations Division. For the years ended December 31 of 1992, 1993, and 1994, the combined sales to these customers accounted for 12.9%, 11.5% and 9.9% of the Company's consolidated revenues. The loss of the combined business from Martin Marietta Corporation would have a material adverse effect on the Company and its subsidiaries taken as a whole. PRODUCT DEVELOPMENT Information concerning the amount spent during each of the last three years on Company-sponsored research and development activities is set forth in the Company's "Consolidated Statement of Income" on page 22 of the Company's Annual Report to Shareholders for the year ended December 31, 1994, which information is incorporated herein by reference. Certain of the Company's research and development activities are undertaken pursuant to Government contracts and subcontracts. The costs incurred under these contracts for product research and development are charged to cost of sales, rather than to product development costs. PATENTS Although TRAK, Tecom, Continental and Syntron hold a number of United States and foreign patents, the Company believes that its business is not materially dependent upon the protection afforded by patents, but primarily upon the experience and continued creative skills of its personnel. In many cases, because of rapidly changing technology and the need for confidentiality, the Company does not seek to obtain patents. BACKLOG The backlog of unshipped orders was $108,194,000 and $121,293,000 as of December 31, 1993 and 1994, respectively. The backlog as of such dates which was reasonably expected to be filled within twelve months of such date was $94,051,000 and $104,402,000, respectively. The backlog figures include only the sales value of the equipment or products for which the Company has received orders it believes to be firm. Contracts with or for the United States Government and most prime contractors may be terminated by the Government at will. See "Government Contracts." The Company has not, however, experienced any significant problems with contract cancellations. MATERIALS AND SUPPLIES The Company's operations require a wide variety of electronic and mechanical components and raw materials. Each of these items is available from several commercial sources. The Company does not depend on any single source for a significant portion of its supplies. -6- ENVIRONMENTAL PROTECTION As previously reported, the Company received notice on October 31, 1994, that it has been named by the Environmental Protection Agency ("EPA") as one of the potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Super Fund Amendments and Reauthorization Act of 1986, regarding property at the Leeds Silver Reclamation site in Leeds, Washington County, Utah. According to EPA documents, the estimated cost of remediation is $579,000. Based on documents received to date, the Company believes that most, if not all, of the hazardous materials involved at the site were placed there after the Company sold the property in 1977. No material effect on the operations of the Company is presently anticipated in the compliance with Federal, State and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, and the Company does not expect to make any material capital expenditures in the next year in order to comply with any such provisions. EMPLOYEES As of December 31, 1994, the Company employed a total of 1,988 persons. None of the Company's employees is represented by a labor union. PRODUCT LINE SALES Information concerning the Company's product line sales is set forth under the caption "Product Line Sales" on page 20 of the Company's Annual Report to Shareholders for the year ended December 31, 1994, which information is incorporated herein by reference. EXPORT SALES Information concerning the Company's export sales is set forth in Note 12 of the Notes to Consolidated Statements contained in the Company's Annual Report to Shareholders for the year ended December 31, 1994, which information is incorporated herein by reference. ITEM 2. PROPERTIES The Company's corporate headquarters are located in Houston, Texas, in a company-owned building. The Company, through its Tech-Sym Management Corporation subsidiary, occupies approximately 7,500 square feet of the 20,000 square foot building. Approximately 7,500 square feet of the building is leased to third parties, with the remainder of the building available for lease or expansion. Metric's electronic systems manufacturing operations are conducted from office and plant facilities comprising a total of 226,000 square feet located on three tracts totaling 38 acres owned by the Company in Fort Walton Beach, Florida. Metric also leases 30,000 square feet of manufacturing, office and storage space in several nearby facilities. Its Sumter, South Carolina, operation leases 35,000 square feet for fabrication and assembly operations. -7- EEC's meteorological radar manufacturing operations are conducted from office and plant facilities comprising 43,000 square feet located on an 11 acre tract owned by the Company in Enterprise, Alabama. The electronic components manufacturing operation conducted by the Company's TRAK subsidiary consists of office and plant facilities located on ten acres owned by TRAK in Tampa, Florida, with combined square footage of approximately 123,000 square feet. TRAK'S subsidiary, TRAK Microwave Limited, leases plant and office facilities totaling 45,500 square feet in Dundee, Scotland, of which a 5,500 square foot facility is available for sub-lease. Tecom's antenna manufacturing operations are conducted in a 50,000 square foot leased facility located in Chatsworth, California. Syntron's seismic survey systems operations are conducted from company-owned facilities comprising 81,000 square feet located on a 15.2 acre tract and leased facilities totalling 85,000 square feet, in Houston, Texas. Syntron's European subsidiary, Syntron Europe Limited, operates from a 52,000 square foot office and plant facility on a 2.8 acre tract owned by the Company in Derbyshire, England. Syntron's Asian subsidiary, Syntron Asia Pte. Ltd., has leased a 1.4 acre tract in Singapore and operates from a 33,300 square foot office and plant facility it constructed on the site. The manufacturing operations for Continental's high power energy sources are conducted from office and plant facilities comprising 160,000 square feet on a 14 acre tract owned by the company in Dallas, Texas. Continental also leases an 80,000 square foot building on a 4 acre tract contiguous to the Continental property. Continental-Lensa S.A. of Santiago, Chile, leases 5,400 square feet for its assembly operations. Anarad's emission monitoring manufacturing operations are conducted in two facilities totalling 30,000 square feet leased in Santa Barbara, California. The Company is the developer of a 9,000 acre residential/recreational project located near Concho, Arizona, in which Lake Investment Company, a wholly-owned subsidiary of the Company, owns a 100% interest. Approximately 900 acres of this development remains unsold. The Company intends to continue its efforts to liquidate its real estate operations and to use the proceeds in its manufacturing operations. Certain of the facilities of the Company and its subsidiaries are subject to mortgage debt as set forth in Note 6 of the Notes to Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for the year ended December 31, 1994, which information is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS As previously reported, the Company received notice on October 18, 1994, that Thomcast A.G. ("Thomcast") commenced an action in the United States District Court for the Northern District of Alabama, Southern Division, alleging that Continental Electronics Corporation ("Continental"), a wholly-owned subsidiary of the Company, and Eternal Word Television Network, Inc., a customer of Continental, have infringed and are infringing two claims of United States Patent No. 4,560,944 (the "Patent") assigned to Thomcast. Continental's motion to transfer the case to the Northern District of Texas was denied and Continental voluntarily dismissed its declaratory action in that court. -8- Thomcast has stated that its damages cannot presently be ascertained, but has computed its alleged damages on past sales at approximately $6,500,000 and has requested treble damages, prejudgment interest, costs and attorneys' fees. Although the Company believes it has meritorious defenses to such claims, it cannot predict the ultimate resolution of this matter. Trial on the matter is scheduled to occur after May 1, 1996. There are various other lawsuits and claims pending against the Company's subsidiaries. In the opinion of Tech-Sym's management, based in part on advice of counsel, none of these actions will have a material adverse effect on the consolidated financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of 1994 to a vote of the Company's security holders through the solicitation of proxies or otherwise. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning the current executive officers (as defined by the Securities and Exchange Commission rules) of the Company. These officers serve at the discretion of the Board of Directors of the Company and of various subsidiaries of the Company, as the case may be. NAME AGE POSITIONS Wendell W. Gamel 65 Chairman of the Board, President and Director of the Company and officer and director of various subsidiaries of the Company Coy J. Scribner 63 Vice President and Director of the Company, President and Director of Metric, and Chairman of the Board of EEC Ray F. Thompson 58 Vice President, Treasurer, Controller and Chief Financial Officer of the Company and officer and director of various subsidiaries of the Company J. Rankin Tippins 42 Secretary and General Counsel of the Company and officer and director of various subsidiaries of the Company O. Dale Burris 58 President of TRAK Microwave Corporation Robert M. McDonald 64 President of Continental Electronics Corporation Richard F. Miles 46 President of Syntron, Inc. -9- There are no family relationships between any of the above persons. Executive officers are elected annually by the Board of Directors of the Company or a wholly-owned subsidiary of the Company, as the case may be, at their respective meetings of directors held immediately following the annual meeting of shareholders for such Company, to serve for the ensuing year or until their successors have been elected. The annual meeting of shareholders of the Company is normally held in April of each year and the annual meeting of each of the Company's principal subsidiaries, including Metric, TRAK, Syntron, and Continental, are held in June of each year. There are no arrangements or understandings between any officer and any other person pursuant to which the officer was elected. Mr. Gamel has been Chairman of the Board and President of the Company for more than the past five years. Mr. Gamel has served as a director of the Company continuously since 1966. Mr. Scribner has been Vice President of the Company, President and a director of Metric, and Chairman of the Board of EEC, for more than the past five years. He has been a director of the Company continuously since 1983. Mr. Thompson has been Treasurer, Controller and Chief Financial Officer of the Company for more than the past five years. In February of 1993, he was elected to the additional office of Vice President of the Company. Mr. Tippins was elected Secretary and General Counsel of the Company effective January 1, 1991, after serving for two years as Assistant Secretary and Associate General Counsel. Mr. Burris has served as President of TRAK for more than the past five years. Mr. McDonald was elected President of Continental on September 29, 1990. For two years prior to that date, he was the General Manager of the Continental Electronics Division of Varian Associates, Inc. (the predecessor of Continental). Mr. Miles was elected President of Syntron on January 29, 1990. He had been General Manager of Geosource Marine starting in 1984 and, when Halliburton Geophysical Services (HGS) acquired Geosource Marine in 1988, he became the Manager of the HGS North America Marine and Central Marine Support and was employed in that capacity until his association with Syntron in 1990. PART II The information called for by Items 5 through 8, inclusive, of Part II of this form is contained in the following sections of the Company's Annual Report to Shareholders for 1994, which sections are incorporated herein by reference: CAPTION AND PAGE OF ANNUAL REPORT Item 5. Market for Registrant's "Stockholder and Market Information"; Common Equity and page 37 Related Stockholder Matters. -10- Item 6. Selected Financial Data "Selected Financial Data"; page 17 Item 7. Management's Discussion "Management's Discussion and Analysis of and Analysis of Financial Condition and Results of Financial Condition and Operations"; pages 18 - 21, inclusive Results of Operations Item 8. Financial Statements Tech-Sym Corporation and Subsidiaries and Supplementary Data Consolidated Financial Statements; pages 22 through 36, inclusive ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no such changes or disagreements. PART III The information called for by Items 10, 11, 12 and 13 of Part III of this form (other than the information required by Item 10 with respect to executive officers which has been included in Part I above as Item 4A) is contained in the Company's definitive proxy statement for the Annual Meeting of Shareholders to be held April 25, 1995. Such information has been filed with the Securities and Exchange Commission and is incorporated herein. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) FINANCIAL STATEMENTS A list of the financial statements incorporated herein by reference is set forth in the Index to Financial Statements and Schedules submitted as a separate section of this report. (2) FINANCIAL STATEMENT SCHEDULES A list of the financial statement schedules included herein is contained in the accompanying Index to Financial Statements and Schedules. -11- (3) EXHIBITS The following documents are included as Exhibits to this report. An asterisk (*) before an Exhibit number denotes that such Exhibit has been incorporated by reference to the registration statement or report specified in the brackets thereafter. *3(a) Articles of Incorporation of Registrant, as amended [Registrant's 10-K (1989), SEC File No. 1-4371, Exhibit 3(a)] *3(b) By-Laws of Registrant, as amended [Registrant's 10-K (1993), SEC File No. 1-4371, Exhibit 3(b)] *4(a) Amended and Restated Rights Agreement dated as of June 1, 1988, between the Registrant and Continental Stock Transfer and Trust Company, as rights agent, relating to Common Stock Purchase Rights [Registrant's 10-K (1993), SEC File No. 1-4371, Exhibit 4(a)] *4(b) Note Agreement dated as of March 1, 1989, between the Registrant and Principal Mutual Life Insurance Company et al with respect to $20,000,000 principal amount of 10.28% Senior Notes due March 1, 2001 (excluding attachments) [Registrant's 10-K (1988), SEC File No. 1-4371, Exhibit 4(b)] *4(c) 10.28% Note dated March 14, 1989, of Registrant due March 1, 2001 in the principal amount of $12 million and issued to Principal Mutual Life Insurance Company [Registrant's 10-K (1988), SEC File No. 1-4371, Exhibit 4(c)] *4(d) 10.28% Note dated March 14, 1989, of Registrant due March 1, 2001 in the principal amount of $5 million and issued to Crown Life Insurance Company [Registrant's 10-K (1988), SEC File No. 1-4371, Exhibit 4(d)] *4(e) 10.28% Note dated March 14, 1989, of Registrant due March 1, 2001 in the principal amount of $2 million and issued to Guarantee Mutual Life Company [Registrant's 10-K (1988), SEC File No. 1-4371, Exhibit 4(e)] *4(f) 10.28% Note dated March 14, 1989, of Registrant due March 1, 2001 in the principal amount of $1,000,000 and issued to Security Mutual Life Insurance Company [Registrant's 10-K (1988), SEC File No. 1-4371, Exhibit 4(f)] *10(a) 1980 Stock Option Plan of Registrant [Registration Statement No. 2-68084, Exhibit 1.1] *10(b) First Amendment to 1980 Stock Option Plan of Registrant dated February 23, 1982 [Registration Statement No. 2-77742, Exhibit 10(b)] *10(c) Second Amendment to 1980 Stock Option Plan of Registrant dated February 17, 1983 [Registration Statement No. 2-87064, Exhibit 10(c)] -12- *10(d) 1990 Stock Option Plan of Registrant [Registration Statement No. 33-38208, Exhibit 28.1] *10(e) 1990 Stock Option Plan, as amended, effective February 21, 1991 [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(e)] *10(f) 1990 Stock Option Plan, as amended, effective February 17, 1994 [Registration No. 33-56535, Exhibit 4.1] *10(g) Written description of incentive bonus compensation plan effective February 20, 1992 [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(f)] *10(h) Deferred Compensation Agreement dated January 1, 1978, between the Registrant and Robert E. Moore with attached Amendments through January 1, 1991 [Registrant's 10-K (1990) SEC File No. 1-4371, Exhibit 10 (g)] *10(i) Consulting Agreement dated January 1, 1981, between TRAK Microwave Corporation and Rollin J. Sloan [Registration Statement No. 2-87064, Exhibit 10(p)] *10(j) First Amendment to Consulting Agreement dated January 1, 1984, between TRAK Microwave Corporation and Rollin J. Sloan [Registrant's 10-K (1983), SEC File No. 1-4371, Exhibit 10(t)] *10(k) Second Amendment to Consulting Agreement dated January 1, 1986, between TRAK Microwave Corporation and Rollin J. Sloan [Registrant's 10-K (1985), SEC File No. 1-4371, Exhibit 10(cc)] *10(l) Third Amendment to Consulting Agreement dated December 10, 1987, between Registrant and Rollin J. Sloan [Registrant's 10-K (1987), SEC File No. 1-4371, Exhibit 10(cc)] *10(m) Consulting Agreement dated January 1, 1988, between Registrant and Robert E. Moore [Registrant's 10-K (1987), SEC File No. 1-4371, Exhibit 10(dd)] *10(n) Form of Director's Stock Option Agreement dated February 20, 1986, entered into between Registrant and Keith R. Beeman (4,000 shares), Christopher C. Kraft, Jr. (1,000 shares), Walter B. Putnam (10,000 shares), and Joal A. Teresko (5,000 shares) [Registrant's 10-K (1986), SEC File No. 1-4371, Exhibit 10(kk)] *10(o) Form of Director's Stock Option Agreement dated as of December 10, 1987, entered into between Registrant and Keith R. Beeman (5,000 shares), A. A. Gallotta, Jr. (5,000 shares), Christopher C. Kraft, Jr. (5,000 shares), and Joal A. Teresko (5,000 shares) [Registrant's 10-K (1988), SEC File No. 1-4371, Exhibit 10(ii)] -13- *10(p) Termination Agreement dated May 1, 1991, between the Registrant and Wendell W. Gamel [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(p)] *10(q) Termination Agreement dated May 1, 1991, between the Registrant and Coy J. Scribner [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(q)] *10(r) Termination Agreement dated May 1, 1991, between the Registrant and Ray F. Thompson [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(r)] *10(s) Termination Agreement dated May 1, 1991, between the Registrant and Richard F. Miles [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(s)] *10(t) First Amendment to Termination Agreement, dated April 26, 1994, between the Registrant and Richard F. Miles [Registration No. 33-56533, Exhibit 10(s)] *10(u) Termination Agreement dated May 1, 1991, between the Registrant and J. Rankin Tippins [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(t)] *10(v) Termination Agreement dated May 1, 1991, between the Registrant and O. Dale Burris [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(u)] *10(w) Termination Agreement dated May 1, 1991, between the Registrant and Robert M. McDonald [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(v)] *10(x) Trust Agreement dated June 11, 1991 between the Registrant and Texas Commerce Bank National Association [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(w)] *10(y) First Amendment dated June 1, 1992, to Trust Agreement dated June 11, 1991, between the Registrant and Texas Commerce Bank National Association [Registrant's 10-K (1992) SEC File No. 1-4371, Exhibit 10(x)] *10(z) Nonemployee Director Retirement Plan of the Registrant effective January 1, 1992 [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(x)] *10(aa) Executive Retirement Agreement dated May 1, 1991, between the Registrant and Wendell W. Gamel [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(y)] *10(bb) Executive Retirement Agreement dated May 1, 1991, between the Registrant and Coy J. Scribner [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(z)] -14- *10(cc) Executive Retirement Agreement dated May 1, 1991, between the Registrant and Ray F. Thompson [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(aa)] *10(dd) Executive Retirement Agreement dated May 1, 1991, between the Registrant and O. Dale Burris [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(bb)] *10(ee) Executive Retirement Agreement dated July 1, 1991, between Registrant and J. Rankin Tippins [Registrant's 10-K (1991) SEC File No. 1-4371, Exhibit 10(cc)] *10(ff) Executive Retirement Agreement dated April 26, 1994, between the Registrant and Richard F. Miles [Registration No. 33-56533, Exhibit 10(ee)] 13 Pages 17-37 of the Annual Report to Shareholders of Registrant for the year ended December 31, 1994, are included as an Exhibit to this report for the information of the Securities and Exchange Commission, and, except for those portions thereof specifically incorporated by reference elsewhere herein, such pages of the Annual Report should not be deemed filed as a part of this report 21 Subsidiaries of the Registrant 23 Consent of independent accountants (B) REPORTS ON FORM 8-K No reports on Form 8-K were required to be filed during the quarter ended December 31, 1994. -15- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TECH-SYM CORPORATION By: /S/ RAY F. THOMPSON Ray F. Thompson, Vice President, Treasurer and Controller (Principal financial officer and principal accounting officer) Date: March 29, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /S/ WENDELL W. GAMEL Wendell W. Gamel, Chairman of the Board, President and Director (Principal executive officer) Date: March 29, 1995 By: /S/ W. L. CREECH W. L. Creech Director Date: March 29, 1995 By: /S/ A. A. GALLOTTA, JR. A. A. Gallotta, Jr. Director Date: March 29, 1995 By: /S/ CHRISTOPHER C. KRAFT, JR. Christopher C. Kraft, Jr. Director Date: March 29, 1995 -16- By: /S/ ROBERT E. MOORE Robert E. Moore Director Date: March 29, 1995 By: /S/ COY J. SCRIBNER Coy J. Scribner Director Date: March 29, 1995 By: /S/ ROLLIN J. SLOAN Rollin J. Sloan Director Date: March 29, 1995 By: /S/ JOAL A. TERESKO Joal A. Teresko Director Date: March 29, 1995 By: /S/ CHARLES K. WATT Charles K. Watt Director Date: March 29, 1995 -17- INDEX TO FINANCIAL STATEMENTS AND SCHEDULES PAGE IN ANNUAL REPORT* (a) The following documents are filed as part of this report: (1) Financial Statements: Consolidated Statements of Income for the three years ended December 31, 1994 ...................... 22 Consolidated Balance Sheets at December 31, 1994 and 1993 ................................... 23 Consolidated Statements of Cash Flows for the three years ended December 31, 1994 ...................... 24 Consolidated Statements of Changes in Shareholders' Investment for the three years ended December 31, 1994 ................................ 25 Notes to Consolidated Financial Statements .................... 26 Quarterly Financial Information (Unaudited) ................... 35 Report of Independent Accountants ............................. 36 PAGE IN THIS REPORT ON FORM 10-K (2) Financial Statement Schedules: Report of Independent Accountants on Financial Statement Schedules ........................... S-2 VIII Valuation and Qualifying Accounts and Reserves for the three years ended December 31, 1994 ....................................... S-3 *Incorporated by reference from the indicated pages of the 1994 Annual Report to Shareholders. All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Report of Independent Accountants on Financial Statement Schedules To the Board of Directors of Tech-Sym Corporation: Our audits of the consolidated financial statements referred to in our report dated February 23, 1995 appearing in the 1994 Annual Report to Shareholders of Tech-Sym Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Houston, Texas February 23, 1995 S-2 TECH-SYM CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves (Schedule VIII) For the Three Years Ended December 31, 1994
=========================================================================================================================== (In thousands) Charged Charged Charged Balance to costs to costs to costs at and Balance and Balance and Balance beginning expenses Deductions at end expenses Deductions at end expenses Deductions at end Description of 1992 1992 1992 of 1992 1993 1993 of 1993 1994 1994 of 1994 ----------- ------- ---- ---------- ------- ---- ---------- ------- ---- ---------- ------- Tech-Sym Corporation and Consolidated Subsidiaries ------------------------- Reserves deducted from assets: Current receivables $ 609 $ 94 $ 549 $ 154 $ 154 $ 171 $ 137 $ 350 $ 98 $ 389 Long-term receivables 149 170 147 172 287 147 312 162 262 212 --- --- --- --- --- --- --- --- --- --- $ 758 $ 264 $ 696 $ 326 $ 441 $ 318 $ 449 $ 512 $ 360 $ 601 === === === === === === === === === ===
S-3 EX-13 2 PAGES 17-37 OF THE ANNUAL REPORT TO SHAREHOLDERS TECH-SYM CORPORATION SELECTED FINANCIAL DATA (In thousands except per share amounts)
------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------------------- For the Year: Sales ............................ $197,593 $184,310 $179,649 $176,416 $134,770 Costs and expenses ............... 179,258 167,794 169,530 162,504 122,227 -------- -------- -------- -------- -------- Income before income taxes ....... 18,335 16,516 10,119 13,912 12,543 Provision for income taxes ....... 6,100 6,300 3,700 5,300 4,800 -------- -------- -------- -------- -------- Net income ....................... $ 12,235 $ 10,216 $ 6,419 $ 8,612 $ 7,743 ======== ======== ======== ======== ======== Earnings per common share ........ $ 2.12 $ 1.80 $ 1.13 $ 1.50 $ 1.26 ======== ======== ======== ======== ======== ------------------------------------------------------------------------------------------ At Year End: Current assets ................... $145,386 $129,868 $116,198 $125,567 $116,256 Current liabilities .............. 54,302 34,610 27,862 37,524 35,196 Working capital .................. 91,084 95,258 88,336 88,043 81,060 Property,plant and equipment - net 36,699 32,651 33,109 32,470 32,495 Long-term debt ................... 21,587 23,317 26,635 27,929 27,624 Total assets ..................... 215,238 184,867 168,908 173,282 158,252 Total liabilities ................ 88,124 70,323 65,767 73,949 67,925 Shareholders' investment ......... 127,114 114,544 103,141 99,333 90,327 ------------------------------------------------------------------------------------------
No divideds were paid on common stock for any of the above years. Page 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES [BAR GRAPH WITH COORDINATES INDICATED IN THE TABLE BELOW] WORKING CAPITAL In Millions of Dollars 1990 ................. 81.1 1991 ................. 88.0 1992 ................. 88.3 1993 ................. 95.3 1994 ................. 91.1 At December 31, 1994, the Company's working capital was $91,084,000 as compared to $95,258,000 at December 31, 1993. The Company's cash, cash equivalent and marketable securities decreased to $23,003,000 at December 31, 1994 from $28,190,000 at December 31, 1993, primarily because of cash used for acquisitions and increases in receivables and inventory relating to the Company's overall increase in sales volume, partially offset by increases in notes and accounts payable. The Company's operations provided cash in the amount of $4,645,000 in 1994, $15,381,000 in 1993, and $1,019,000 in 1992. During 1994, the Company received U.S. Government contracts which generally provide for progress billing based upon a percentage (usually 80-85%) of costs incurred, while remaining costs and total profit are billable only upon completion of the contract or, in certain instances, as delivery of units is made. In addition, large contracts with foreign customers usually provide for substantial advance payments. Less reliance on government contracts, which contain provisions for progress payments, will increase the Company's requirements for cash. Increased pressure for financing of purchases by commercial customers, primarily for seismic exploration systems and radio transmitters, will also increase cash requirements. During 1989, the Company completed a long-term unsecured note financing in the principal amount of $20,000,000. The Company is required to repay such amount in annual principal installments of $2,857,000 beginning in 1995. The terms of the unsecured note financing impose limitations on future (additional) borrowings. However, if the most restrictive limitation is used, defined consolidated funded debt cannot exceed 55% of defined consolidated total capitalization which would permit a maximum defined funded debt of approximately $155,000,000 as compared to $32,600,000 in actual funded debt as of December 31, 1994. Given the current level of liquid assets and forecasted cash flows from future operations, the Company does not presently anticipate the need for future borrowings in excess of such limitations. At December 31, 1994, the Company had unused lines of credit which aggregated $14,900,000. Because of the Company's $121,293,000 backlog and anticipated new business, it is expected that additional investments will be required in capital equipment and new facilities. Capital expenditures for land, buildings and improvements, and machinery and equipment were $8,921,000, $5,811,000, and $5,532,000, for 1994, 1993, and 1992, respectively, and such expenditures are expected to be approximately $9,500,000 for 1995. The Company believes that the funds required for working capital needs and capital equipment additions will come from available funds on hand, cash flows from operations, and capital equipment financing. Page 18 During 1994, the Company repurchased 41,000 shares of its common stock in the open market pursuant to a Stock Repurchase Plan adopted by the Board of Directors in 1991 and affirmed in 1994. The average cost of the 1994 purchases was $20.03 per share. During 1993, the Company repurchased 29,197 shares at an average cost of $15.44 per share. In 1992, the Company repurchased 145,200 shares at an average cost of $11.33 per share. The Company's decision to repurchase its shares was based on the market price of its common stock at the time of such repurchases. RESULTS OF OPERATIONS 1994 IN COMPARISON WITH 1993: Sales for the year increased 7.2% as compared with 1993 while costs and expenses increased 6.8% which resulted in an 11.0% increase in income before income taxes. The 7.2% increase in sales was the result of (i) greater sales in the communications area ($4,393,000 or 6.7%) primarily due to strong foreign demand for high power broadcast equipment and greater demand in general for commercial microwave components; (ii) increased sales of seismic exploration systems ($2,469,000 or 5.3%) primarily due to a new foreign customer; (iii) increased sales of defense systems ($1,299,000 or 2.2%) partially due to a minor acquisition in the defense systems area; and (iv) increased sales in the environmental monitoring area ($4,802,000 or 46.5%) due to the acquisition of Anarad, Inc., effective July 8, 1994. Cost of sales increased 10.1% while selling, general and administrative expenses increased 2.9% as compared to 1993. The increase in cost of sales for 1994 as compared to 1993 was primarily due to the increase in sales as well as a large lower margin contract in the defense systems area which is in its engineering phase. The increase in selling, general and administrative expense was in line with the increase in sales. Company-sponsored product development was essentially the same as last year and continues to be focused on the seismic exploration area. This was somewhat offset by a decrease in expenditures in the communications area. Interest expense decreased ($559,000 or 15.9%) from 1993 partially due to a 1993 payment to the Internal Revenue Service. Interest and other income - net increased due to additional interest bearing receivables. The effective income tax rate was lower in 1994 due to the utilization of loss carry-forward on foreign operations. [BAR GRAPH WITH COORDINATES INDICATED IN THE TABLE BELOW] DEBT TO CAPITAL RATIO In Percent 1990 ................. 25.4 1991 ................. 24.6 1992 ................. 23.2 1993 ................. 18.9 1994 ................. 22.0 1993 IN COMPARISON WITH 1992: Sales for the year increased 3% as compared with 1992 while costs and expenses decreased 1% which resulted in a 63% increase in income before income taxes. The 3% increase in sales was the result of (i) sales of seismic exploration systems ($19,168,000 or 69%) primarily due to market acceptance of the ocean bottom cable used in transition zones which was developed and proven in the prior two years; (ii) increased sales in the communications area of microwave components and assemblies ($2,893,000 or 12%) primarily due to the 1992 acquisition of a high power ferrite product line and, to a lesser extent, a general increase in the other microwave product lines; and (iii) increased sales in the environmental monitoring area of meteorological radar Page 19 ($1,100,000 or 12%) due to an unusually large order from an international customer and to an increase in activity in the domestic television market. The above increases were somewhat offset by decreases in (i) the defense systems area of training systems ($11,509,000 or 25%) due to an unusually higher level of activity in 1992 and to delays in options being exercised on several current programs; (ii) the communications area of high power energy sources ($3,765,000 or 12%) primarily due to less demand than normal for high frequency broadcast products during the current year; (iii) the defense area of naval systems ($2,597,000 or 9%) due to a decline in numbers of units in the U.S. Navy's annual purchase of vertical launching systems, although partially offset by an increase in volume of radar cable assemblies; and (iv) the communications area of antenna and antenna systems ($706,000 or 7%) due to less demand for specialty antennas from the U.S. Government, partially offset by an increase in sales of commercial antennas and range instrumentation antennas. [BAR GRAPH WITH COORDINATES INDICATED IN THE TABLE BELOW] SHAREHOLDERS' INVESTMENT In Millions of Dollars 1990 ................. 90.3 1991 ................. 99.3 1992 ................. 103.1 1993 ................. 114.5 1994 ................. 127.1 Cost of sales decreased 5% which reflects the strong performance of the seismic exploration area which historically carries a higher gross margin than most of the other areas. Selling, general and administrative expenses increased 5% primarily due to increased royalties resulting from improved sales in the seismic exploration area. Company-sponsored product development increased 20% due to increased activity in the communications area related to antenna and antenna systems and, to a lesser extent, in the seismic exploration area. This was somewhat offset by a decrease in company-sponsored product development activity in the communications area relating to microwave components. Interest expense was essentially the same as last year while interest and other income decreased primarily due to further decline in short-term interest rates received on marketable securities. The effective income tax rate was higher in 1993 primarily due to the 1% rate increase effective January 1, 1993 by the 1993 Tax Act. PRODUCT LINE SALES The following table sets forth the percentages for each of the last three years of total sales contributed by each of the Company's product lines which accounted for five percent or more of consolidated sales in any of such years: Year Ended December 31, ------------------------ 1994 1993 1992 ---- ---- ---- Communications................ 36% 35% 37% Seismic Exploration........... 25% 25% 15% Defense Systems............... 31% 32% 41% Environmental Monitoring...... 8% 6% 5% The majority of the Company's operations are located in the United States. Page 20 OTHER INFORMATION [BAR GRAPH WITH COORDINATES INDICATED IN THE TABLE BELOW] CAPITAL EXPENDITURES In Millions of Dollars 1990 ................. 7.32 1991 ................. 5.09 1992 ................. 5.53 1993 ................. 5.81 1994 ................. 8.92 In light of the reduction in the nation's defense budget, the Company has continued its attempts to develop business which is not related to government defense spending. During the last six years, the amount of the Company's sales attributable to expenditures by the U.S. Department of Defense has remained constant, but the portion of the Company's total sales attributable to expenditures by the U.S. Department of Defense has decreased from 65% to 40% due to the increase of sales in other areas. In addition, the Company's defense business encompasses a diversified array of products, the largest portion of which is not directly related to weapons but to training and communications. Management believes that the reduced defense spending will be directed more to weapons procurement and troop reduction than to training systems and communications. The Company has a strong backlog in these areas and is optimistic about maintaining its current sales level in these areas over the near term. Management does expect, however, that the portion of the Company's business which is more directly related to weapons will experience a reduction in sales as the U.S. Department of Defense expenditures in this area decline. The Company anticipates that it will continue to develop business which is unrelated to defense and, although no assurances can be given, anticipates that the development of such other business will offset declines, if any, in sales of the Company's defense related products. The gradual increase expected in the non-defense portion of the Company's business may require additional expenditures for company sponsored product development. In addition, sales and earnings in the commercial market, especially those in the seismic exploration area, are more volatile than under long-term military programs. However, Management believes it important to diversify the Company's markets and will take appropriate action to minimize any adverse effects. Page 21 TECH-SYM CORPORATION CONSOLIDATED STATEMENT OF INCOME (In thousands except per share amounts) For the Year Ended December 31, ----------------------------------- 1994 1993 1992 --------- --------- --------- Sales ................................... $ 197,593 $ 184,310 $ 179,649 --------- --------- --------- Costs and expenses: Cost of sales ........................ 129,804 117,851 123,466 Selling, general and administrative expenses ........................... 41,292 40,134 38,300 Company-sponsored product development 7,357 7,276 6,065 Interest expense ..................... 2,956 3,515 3,426 Interest and other income - net ...... (2,151) (982) (1,727) --------- --------- --------- 179,258 167,794 169,530 --------- --------- --------- Income before income taxes ...... 18,335 16,516 10,119 Provision for income taxes .............. 6,100 6,300 3,700 --------- --------- --------- Net income ...................... $ 12,235 $ 10,216 $ 6,419 ========= ========= ========= Earnings per common share ............... $ 2.12 $ 1.80 $ 1.13 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements. Page 22 TECH-SYM CORPORATION CONSOLIDATED BALANCE SHEET (In thousands except par value and number of shares) December 31, ----------------------- 1994 1993 --------- --------- ASSETS ............................................. -- -- Current assets: Cash and cash equivalents ...................... $ 22,703 $ 20,317 Marketable securities .......................... 300 7,873 Receivables - net .............................. 41,837 30,095 Unbilled revenue ............................... 34,329 36,537 Inventories .................................... 42,409 31,642 Other .......................................... 3,808 3,404 --------- --------- Total current assets ....................... 145,386 129,868 Property, plant and equipment - net ................ 36,699 32,651 Long-term receivables - net ........................ 10,142 9,218 Goodwill and other assets .......................... 23,011 13,130 --------- --------- Total assets ............................... $ 215,238 $ 184,867 ========= ========= LIABILITIES Current liabilities: Notes payable .................................. $ 10,985 $ 125 Current maturities of long-term debt ........... 3,318 3,317 Accounts payable ............................... 13,232 5,771 Billings in excess of costs and estimated earnings on uncompleted contracts ............ 6,365 5,346 Taxes on income ................................ 3,074 2,264 Other accrued liabilities ...................... 17,328 17,787 --------- --------- Total current liabilities .................. 54,302 34,610 Long-term debt ..................................... 21,587 23,317 Deferred income taxes .............................. 196 2,973 Other liabilities and deferred credits ............. 12,039 9,423 --------- --------- Total liabilities .......................... 88,124 70,323 --------- --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' INVESTMENT Preferred stock - authorized 2,000,000 shares, without par value, none issued Common stock - authorized 20,000,000 shares, $.10 par value; issued 7,059,870 and 7,034,370 ... 706 703 Additional capital ................................. 35,063 34,432 Accumulated earnings ............................... 103,523 91,288 Cumulative translation adjustments ................. (1,164) (1,537) Common stock held in treasury at cost (1,307,592 and 1,288,752 shares) ............ (11,014) (10,342) --------- --------- Total shareholders' investment ............. 127,114 114,544 --------- --------- Total liabilities and shareholders' investment ................. $ 215,238 $ 184,867 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. Page 23 TECH-SYM CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands)
For the Year Ended December 31, -------------------------------- 1994 1993 1992 -------- -------- -------- Cash flows from operating activities: Net income ......................................... $ 12,235 $ 10,216 $ 6,419 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................... 8,058 7,007 6,072 Deferred income taxes ........................... (3,315) (930) (159) Change in operating assets and liabilities: Receivables ...................................... (10,425) (5,142) 905 Unbilled revenue ................................. 3,602 (3,584) (254) Inventories ...................................... (6,720) 1,415 (1,067) Accounts payable ................................. 5,312 41 (2,272) Billings in excess and other accrued liabilities . (3,650) 6,738 (6,412) Other - net ...................................... (452) (380) (2,213) -------- -------- -------- Net cash provided by operating activities .......... 4,645 15,381 1,019 -------- -------- -------- Cash flows from investing activities: Capital expenditures ............................... (8,921) (5,811) (5,532) Investment in grantor trust ........................ (695) (453) (511) Payments for purchases of businesses, net of cash acquired .................................... (8,945) (2,685) Purchases of investment securities ................. (6,507) (13,629) Sales of investment securities ..................... 7,573 8,835 12,644 Other investing activities ......................... (37) (854) (611) -------- -------- -------- Net cash used for investing activities ............. (11,025) (4,790) (10,324) -------- -------- -------- Cash flows from financing activities: Net borrowings (payments) under line of credit agreements ........................ 10,533 (3,982) 136 Proceeds from long-term debt ....................... 1,709 214 Payments on long-term debt ......................... (3,438) (396) (1,667) Proceeds from exercise of stock options ............ 763 1,621 140 Cash paid to acquire treasury stock ................ (801) (451) (1,644) -------- -------- -------- Net cash provided by (used for) financing activities........................................ 8,766 (3,208) (2,821) -------- -------- -------- Net increase (decrease) in cash and cash equivalents . 2,386 7,383 (12,126) Cash and cash equivalents at beginning of year ..... 20,317 12,934 25,060 -------- -------- -------- Cash and cash equivalents at end of year ........... $ 22,703 $ 20,317 $ 12,934 ======== ======== ======== Cash flows from operating activities include: Interest paid ...................................... $ 2,749 $ 2,841 $ 2,995 ======== ======== ======== Income taxes paid - net ............................ $ 8,350 $ 5,814 $ 4,940 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 24 TECH-SYM CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT (In thousands)
Common Stock Cumulative Treasury Stock --------------- Additional Accumulated Translation ----------------- Shares Amount Capital Earnings Adjustments Shares Amount Total ------ ------- ---------- ----------- ----------- ------ ------- ----- Balance, December 31, 1991.. 6,972 $697 $32,878 $74,653 1,223 $(8,895) $99,333 Net income for year......... 6,419 6,419 Issuance of common stock from treasury for stock options............. 42 (17) 98 140 Currency translation adjustment................ $(1,107) (1,107) Acquisition of treasury shares.................... 145 (1,644) (1,644) ------ ------ ------- -------- -------- ----- -------- ------- Balance, December 31, 1992.. 6,972 697 32,920 81,072 (1,107) 1,351 (10,441) 103,141 Net income for year......... 10,216 10,216 Issuance of common stock for stock options......... 62 6 873 879 Issuance of common stock from treasury for stock options............. 192 (91) 550 742 Currency translation adjustment................ (430) (430) Acquisition of treasury shares.................... 29 (451) (451) Tax benefit associated with stock options........ 447 447 ------ ------ ------- -------- -------- ----- -------- ------- Balance, December 31, 1993.. 7,034 703 34,432 91,288 (1,537) 1,289 (10,342) 114,544 Net income for year......... 12,235 12,235 Issuance of common stock for stock options......... 26 3 442 445 Issuance of common stock from treasury for stock options............. 71 (22) 129 200 Currency translation adjustment................ 373 373 Acquisition of treasury shares.................... 41 (801) (801) Tax benefit associated with stock options........ 118 118 ------ ------ ------- -------- -------- ----- -------- ------- Balance, December 31, 1994.. 7,060 $706 $35,063 $103,523 $(1,164) 1,308 $(11,014) $127,114 ====== ====== ======= ======== ======== ===== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 25 NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: Tech-Sym Corporation and its subsidiaries (the Company) is a high technology company that designs, develops, and manufactures electronic systems and components used in diverse markets including communications, seismic exploration, defense systems, and environmental monitoring. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Tech-Sym Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. MARKETABLE SECURITIES AND CASH EQUIVALENTS: Marketable securities are carried at the lower of cost or market. Short-term investments with original maturities of three months or less are classified as cash equivalents by the Company. Included in marketable securities at December 31, of both 1994 and 1993 are short-term investments in certificates of deposit of $100,000 with maturities greater than three months. REVENUE RECOGNITION: The Company recognizes revenue on contracts utilizing the percentage of completion method, measured by the percentage of total costs incurred to date to estimated total costs for each contract. Estimated losses on contracts are provided for in full when they become apparent. Substantially all unbilled revenue amounts are expected to be billed and collected within one year in accordance with the terms of the related contracts, typically upon shipment of deliverables. The Company recognizes revenue from sales of products manufactured in standard manufacturing operations, primarily seismic exploration systems, at the time the products are shipped to the customer. INVENTORIES: Inventories are valued at the lower of cost or market. Cost is determined on the first-in, first-out or average cost method. DEPRECIATION AND AMORTIZATION: Depreciation of plant and equipment is provided by the straight-line method over their estimated useful lives. Major renewals and betterments are capitalized while minor replacements, maintenance, and repairs which do not extend useful lives are expensed. The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts and the resultant gain or loss is recognized at that time. Goodwill is amortized by the straight-line method over 15 years. Amortization expense was $554,000, $342,000, and $283,000, in 1994, 1993, and 1992, respectively. This resulted in total accumulated amortization of $2,565,000 and $2,011,000 at December 31, 1994 and 1993. RESEARCH AND DEVELOPMENT: The Company performs research and development under both company-sponsored programs and contracts with others, primarily the U.S. Government. Costs related to company-sponsored research and development for new products and major product improvements are expensed as incurred. INCOME TAXES: The provision for income taxes is computed based on the pretax income included in the consolidated statement of income. Research and development tax credits are recorded to the extent allowable as a reduction of the provision for federal income taxes in the year the qualified research and development expenditures are incurred. The asset and liability approach is used to recognize Page 27 deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company has not recorded a deferred income tax liability for additional U.S. Federal income taxes that would result from the distribution of earnings of its foreign subsidiaries, if they were actually repatriated. The Company intends to indefinitely reinvest the undistributed earnings of its foreign subsidiaries. Any federal income taxes on such earnings, if remitted, would generally be offset by available foreign tax credits. FOREIGN CURRENCY TRANSLATION: The Company's foreign subsidiaries use the local currency as the functional currency. Accordingly, assets and liabilities of the Company's foreign subsidiaries are translated using the exchange rates in effect at the balance sheet date, while income and expenses are translated using average rates. Translation adjustments are reported as a separate component of shareholders' investment. EARNINGS PER SHARE: Earnings per common share are based on the weighted average number of shares outstanding during each year (5,760,000 for 1994, 5,672,000 for 1993, and 5,697,000 for 1992). The effect of common stock equivalents (stock options) has not been significant during 1994, 1993, and 1992. ACQUISITIONS: During 1994, 1993, and 1992, the Company made several acquisitions which were insignificant individually and in the aggregate. RECENT PRONOUNCEMENTS: In 1994, the Company adopted Statement of Financial Accounting Standards No. 115 (FAS 115), Accounting for Certain Investments in Debt and Equity Securities. The adoption of FAS 115 was not material to the Company's financial statements. The Company adopted Statement of Financial Accounting Standards No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments, as of December 31, 1994. NOTE 2 - RECEIVABLES AND UNBILLED REVENUE: Receivables and unbilled revenue are summarized as follows (in thousands): December 31, --------------------- 1994 1993 ------- ------- Current receivables: Commercial, less allowance for losses of $389 and $137 .............. $28,931 $21,071 U.S. Government ........................... 12,906 9,024 ------- ------- $41,837 $30,095 ======= ======= Unbilled revenue: Commercial ................................ $ 8,290 $ 8,277 U.S. Government ........................... 26,039 28,260 ------- ------- $34,329 $36,537 ======= ======= Long-term receivables: Commercial, less allowance for losses of $212 and $312 .............. $10,142 $ 9,218 ======= ======= U.S. Government receivables and unbilled revenue include amounts from prime contractors with the U.S. Government where the Company is the subcontractor. Page 27 NOTE 3 - INVENTORIES: Inventories which consist principally of electronic parts are summarized as follows (in thousands): December 31, --------------------------- 1994 1993 ------- ------- Raw materials .......................... $15,502 $14,359 Work in process ........................ 21,040 12,133 Finished goods ......................... 5,867 5,150 ------- ------- $42,409 $31,642 ======= ======= NOTE 4 - PROPERTY, PLANT AND EQUIPMENT: The components of property, plant and equipment are summarized as follows (dollars in thousands): December 31, Estimated ----------------------- Lives 1994 1993 --------- -------- ------- At cost: Land, buildings and improvements .................... 10-35 $25,288 $24,857 Machinery and equipment ........... 3-12 59,175 49,091 ------- ------- 84,463 73,948 Less accumulated depreciation ....... (47,764) (41,297) ------- ------- $36,699 $32,651 ======= ======= NOTE 5 - NOTES PAYABLE: At December 31, 1994 and 1993, the Company had unused short-term lines of credit aggregating approximately $14,900,000 and $27,700,000, respectively. Loans under these lines may be made in such amounts and at such maturities and interest rates as are offered by the banks and accepted by the Company at the time of each borrowing. The lines of credit contain certain restrictive covenants similar to those for the senior unsecured notes. At December 31, 1994 and 1993, borrowings under these lines totaled $10,985,000 and $125,000, respectively. NOTE 6 - LONG-TERM DEBT: The components of long-term debt are summarized as follows (dollars in thousands): December 31, ---------------------- 1994 1993 -------- -------- Notes to insurance group: Senior unsecured notes at 10.28% interest payable semi-annually; due in seven annual principal payments of $2,857 each commencing March 1, 1995 ......... $ 20,000 $ 20,000 Other obligations: Real estate mortgage notes, due in monthly installments of $69 including interest at 9.9% to 12% maturing at various dates through 2005 .................................... 4,892 3,543 Unsecured note at prime (6% at December 31, 1993) interest payable quarterly; due December 31, 1994 ........................... 2,884 Other .............................................. 13 207 -------- -------- 24,905 26,634 Less current maturities ............................ (3,318) (3,317) -------- -------- $ 21,587 $ 23,317 ======== ======== Aggregate maturities of long-term debt due after 1995 are, $3,345,000 in 1996, $3,392,000 in 1997, $3,443,000 in 1998, $3,417,000 in 1999, $3,388,000 in 2000, and $4,602,000 thereafter. Page 28 The terms of the senior unsecured notes include certain covenants, the more significant of which require that the Company and its designated principal subsidiaries (a) maintain defined tangible net worth of at least $75,000,000; (b) restrict the aggregate of certain future payments, including those for dividends and acquisitions of treasury shares, to 75% of the Company's cumulative post-December 31, 1988 consolidated net income (at December 31, 1994 accumulated earnings of $28,802,000 was available for dividends and acquisition of treasury shares); (c) limit future borrowings and related pledges of assets to certain levels; and (d) limit future dispositions (except in the ordinary course of business) of assets, including stock of domestic subsidiaries, such that the aggregate (greater of book or fair market) value during any twelve month period does not exceed 20% of defined tangible net worth. At December 31, 1994, $1,119,000 of machinery and equipment and $7,916,000 of land, buildings and improvements were pledged as collateral to secure various long-term debt obligations. NOTE 7 - INCOME TAXES: The components of income before income taxes were as follows (in thousands): Year Ended December 31, ------------------------------------------- 1994 1993 1992 ------- -------- ------- Domestic .................. $16,429 $ 16,530 $ 9,849 Foreign ................... 1,906 (14) 270 ------- -------- ------- $18,335 $ 16,516 $10,119 ======= ======== ======= The provision for income taxes consists of the following (in thousands): Year Ended December 31, ----------------------------------------- 1994 1993 1992 ------- ------- ------- U.S. Federal: Current ................... $ 8,678 $ 6,692 $ 3,181 Deferred .................. (3,315) (930) (159) ------- ------- ------- 5,363 5,762 3,022 State ....................... 375 347 424 Foreign ..................... 362 191 254 ------- ------- ------- $ 6,100 $ 6,300 $ 3,700 ======= ======= ======= The income tax expense for 1994, 1993, and 1992 resulted in effective tax rates of 33.3%, 38.1%, and 36.6%, respectively. The reasons for the differences between these effective tax rates and the U.S. statutory rate of 35% in 1994, 35% in 1993, and 34% in 1992 are as follows (in thousands): Year Ended December 31, ------------------------------------ 1994 1993 1992 ------- ------- ------- Federal taxes on income at statutory rates .................... $ 6,417 $ 5,781 $ 3,441 State income taxes - net ............. 244 226 280 Foreign Sales Corporation benefit ............................ (472) (588) (466) Other - net .......................... (89) 881 445 ------- ------- ------- $ 6,100 $ 6,300 $ 3,700 ======= ======= ======= Page 29 The Company increased its U.S. deferred tax liability in 1993 as a result of legislation enacted during 1993 which increased the corporate tax rate to 35% from 34% retroactive to January 1, 1993. The increase had an immaterial effect on the consolidated financial statements. Deferred tax liabilities (assets) at December 31, 1994 and December 31, 1993 are comprised of the following (in thousands): December 31, ---------------------- 1994 1993 ------- ------- Deferred tax liabilities: Depreciation ................................... $ 1,161 $ 2,923 Installment sales .............................. 987 1,627 Equity in earning of affiliate ................. 518 336 Percentage of completion ....................... 340 313 Other .......................................... 135 2 ------- ------- Gross deferred tax liabilities .............. 3,141 5,201 Deferred tax assets: Deferred compensation .......................... (1,589) (1,331) Compensatory absences accruals ................. (885) (671) Inventory accounting and valuation allowance ........................... (1,532) (988) Net operating loss carry forwards .............. (763) (844) Accrued losses on contracts .................... (422) (111) Product warranty and related reserves .......... (228) (1,121) Receivable valuation allowances ................ (470) (124) Accrued sales and other credits ................ (51) (351) Other .......................................... (1,132) (213) ------- ------- Gross deferred tax assets ................... (7,072) (5,754) Deferred tax asset valuation allowance ........................... 763 844 ------- ------- $(3,168) $ 291 ======= ======= Deferred tax assets of $3,364,000 and $2,682,000 were included in other current assets at December 31, 1994 and 1993, respectively. As a result of a 1994 acquisition, deferred tax assets at December 31, 1994 include an addition of $144,000 which did not impact the provision for income taxes. NOTE 8 - STOCK OPTION PLANS: 1980 STOCK OPTION PLAN: The Company's 1980 Stock Option Plan (the 1980 Plan) provided for the granting of options and stock appreciation rights (SARs) in tandem therewith to key employees of the Company for the purchase of the Company's common shares. Each option under the 1980 Plan was granted at an exercise price of 100% of fair market value at date of grant. The options expire ten years from date of grant and are exercisable 20% after one year, with an additional 20% exercisable each six months thereafter. Stock options granted prior to January 1, 1987, must be exercised in sequential order. Of the outstanding options covering a total of 43,150 shares at December 31, 1994, 42,250 were exercisable at prices from $10.625 to $20.00 per share. At December 31, 1994 and 1993, there were 43,150 and 66,650 shares, respectively, of the Company's common stock reserved for issuance under the 1980 Plan. The 1980 Plan expired by its terms on December 31, 1989, and no additional options can be granted under the plan. Page 30 Changes in outstanding options under the 1980 Plan during 1992, 1993, and 1994 were as follows: Number of Exercise Price Shares Per Share -------- -------------- Outstanding, December 31, 1991 ............ 150,600 $10.625-20.000 Expired or cancelled ...................... (8,600) 10.625-20.000 Exercised ................................. (800) 10.625 -------- Outstanding, December 31, 1992 ............ 141,200 10.625-20.000 Expired or cancelled ...................... (12,950) 12.625-20.000 Exercised ................................. (61,600) 10.625-17.375 -------- Outstanding, December 31, 1993 ............ 66,650 10.625-20.000 Exercised ................................. (23,500) 14.625-20.000 -------- Outstanding, December 31, 1994 ............ 43,150 $10.625-20.000 ======== NONEMPLOYEE DIRECTOR OPTIONS: During the period from December 8, 1983 to December 31, 1989, options covering a total of 115,000 shares were granted to nonemployee Directors by the Board of Directors and approved by the shareholders of the Company. Each option was granted at an exercise price of 100% of the fair market value at date of grant. Each option is exercisable in whole or in part until ten years after the date of grant except that, absent a change in control of the Company, each option terminates seven months after the option holder ceases to be a Director for any reason except retirement, death, or disability. At December 31, 1994 and 1993, there were 39,000 and 39,600 shares, respectively, of the Company's common stock reserved for issuance upon exercise of the nonemployee Director stock options at an exercise price per share of $10.875 to $13.25. 1990 STOCK OPTION PLAN: The Company's 1990 Stock Option Plan (the 1990 Plan) covers 858,000 shares of common stock and provides for the granting of stock options and/or SARs to key employees of the Company and to the members of the Board of Directors who are not employees of the Company. Options covering a total of 523,500 shares and related SARs have been granted to key employees under the 1990 Plan. Each such option has an exercise price of 100% of the fair market value on the date of grant and has a term of ten years. The options are exercisable 20% after one year, with an additional 20% exercisable each six months thereafter. Page 31 The 1990 Plan provides for the automatic grant of stock options and SARs to nonemployee Directors. Each nonemployee Director of the Company was granted effective February 15, 1990, options and SARs with respect to 10,000 shares of common stock, and each optionee was required to surrender for cancellation options previously granted by the Company with respect to the lesser of 10,000 shares or the number of shares covered by such previously granted options. The 1990 Plan further provides that newly-elected nonemployee Directors will automatically receive options and SARs covering 10,000 shares at the time of his or her election and that each nonemployee Director will automatically receive options and SARs covering 1,000 shares each year at the time of his or her reelection to the Board. Options covering a total of 107,000 shares and SARs have been granted to nonemployee Directors under the 1990 Plan. These options and SARs have an exercise price of $8.125 to $21.75, the fair market price on the date of grant, have a ten year term and are exercisable in full after one year. At December 31, 1994, options under the 1990 Plan covering a total of 235,050 shares were exercisable. Changes in outstanding options under the 1990 Plan during 1992, 1993, and 1994 were as follows: Number of Exercise Price Shares Per Share -------- -------------- Outstanding, December 31, 1991 ............ 270,900 $ 8.000-13.000 Granted ................................... 13,500 10.625-13.500 Expired or cancelled ...................... (15,550) 8.000-12.375 Exercised ................................. (16,530) 8.000- 8.125 ------- Outstanding, December 31, 1992 ............ 252,320 8.000-13.500 Granted ................................... 250,750 14.500-15.750 Expired or cancelled ...................... (6,100) 8.000-13.000 Exercised ................................. (91,490) 8.000-12.375 ------- Outstanding, December 31, 1993 ............ 405,480 8.000-15.750 Granted ................................... 85,050 21.000-21.750 Expired or cancelled ...................... (4,300) 10.625-15.750 Exercised ................................. (22,560) 8.000-15.750 ------- Outstanding, December 31, 1994 ............ 463,670 $ 8.000-21.750 ======= The SARs granted under the 1980 and 1990 Stock Option Plans cannot be exercised without the consent of the Compensation Committee of the Board of Directors except in certain defined instances involving a change in control of the Company. Since any exercises of SARs are expected to be allowed by the Committee only in extenuating circumstances, any liability for benefits derived therefrom will be recognized only at the time the Committee gives its approval to such exercises. No SARs have been exercised to date. Page 32 NOTE 9 - SHAREHOLDERS' INVESTMENT: SHAREHOLDER RIGHTS PLAN: The Board of Directors adopted a Shareholder Rights Plan in 1988 which in certain limited circumstances would permit shareholders to purchase securities at prices which would be substantially below market value. STOCK REPURCHASES: The Company's Board of Directors has authorized the Company to repurchase shares of its common stock through open market purchases or privately negotiated transactions. Since 1987 the Company has repurchased an aggregate of 1,237,597 shares related to these authorizations. The unreissued shares are held by the Company and accounted for using the treasury stock method. The Company is authorized to repurchase up to 758,800 additional shares under transactions approved by the Board. NOTE 10 - BENEFIT PLANS: The Company has a defined contribution retirement plan covering substantially all employees. The annual Company contribution and administrative costs of the plan were $1,912,000 for 1994, $1,885,000 for 1993, and $1,973,000 for 1992. The Company's policy is to fund these retirement costs currently. The Company has executive retirement agreements with certain executive officers of the Company and a nonemployee directors' retirement plan for those directors that have never been employees of the Company. The executive retirement agreements generally provide for the payment of specified amounts in the event of retirement at or after age 62, total and permanent disability, death, or termination of employment by the Company without cause. The nonemployee directors' retirement plan generally provides for the payment of specified amounts upon retirement on or after age 65 or upon termination of service due to disability or death. The Company has segregated certain assets in a grantor trust to meet these obligations, but those assets are available to creditors of the Company in the event of its bankruptcy or insolvency. Accordingly, these assets aggregating $4,215,000 and $3,575,000 at December 31, 1994 and 1993, respectively, are included in goodwill and other assets. The costs for the executive retirement agreements and the nonemployee directors' retirement plan in 1994, 1993, and 1992 were $695,000, $635,000, and $553,000, respectively. The status of the retirement plans at December 31 was as follows (in thousands): 1994 1993 ------- ------- Actuarial present value of: Vested benefit obligation .................... $ 4,907 $ 4,438 ======= ======= Accumulated benefit obligation ............... $ 4,931 $ 4,454 ======= ======= Projected benefit obligation ................. $ 5,211 $ 4,723 ------- ------- Plan assets at fair value Projected benefit obligation in excess of plan assets .................... 5,211 4,723 Unrecognized net gain .......................... (196) (156) Unrecognized prior service cost ................ (206) (266) Unrecognized net obligation at transition ............................... (567) (647) Adjustment to recognize minimum liability ........................... 689 800 ------- ------- Net deferred pension cost ...................... $ 4,931 $ 4,454 ======= ======= Page 33 The projected benefit obligation was developed assuming a beginning discount rate of 9% in 1994, 8% in 1993, and 9% in 1992 and an annual rate of increase in compensation levels of 5% in 1994, 1993, and 1992. NOTE 11 - COMMITMENTS AND CONTINGENCIES: CONCENTRATION OF CREDIT RISK: Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, marketable securities, receivables, unbilled revenue, and long-term receivables. The Company places its cash, cash equivalents, and marketable securities investments in investment grade, short-term debt instruments and limits the amount of credit exposure to any one commercial issuer. A portion of the Company's receivables and unbilled revenue are concentrated in the U.S. Government. Concentrations of credit risk with respect to the receivables, unbilled revenue, and long-term receivables from customers other than the U.S. Government are limited due to the large number of customers in the Company's customer base, and their dispersion across different industries and geographic areas. FINANCIAL INSTRUMENTS: The Company enters into various types of financial instruments in the normal course of business. The Company does not hold or issue financial instruments for trading purposes nor does it hold interest rate, leveraged, or other types of derivative financial instruments. Fair values for financial instruments are based on quoted market prices. The amounts ultimately realized upon settlement of these financial instruments will depend on actual market conditions during the remaining life of the instruments. Fair values of cash and cash equivalents, marketable securities, receivables, unbilled revenue, long-term receivables, accounts payable, and other accrued liabilities reflected in the December 31, 1994 balance sheet approximate carrying value at that date. The fair value of notes payable and long-term debt at December 31, 1994 would have been increased by approximately $1,500,000 based on borrowing rates currently available to the Company for borrowings with similar terms and maturities. LEASE COMMITMENTS: The Company leases manufacturing and other facilities under certain long-term agreements which expire at various dates to 2002. Total rentals charged to operations under such operating leases for years 1994, 1993, and 1992 were $1,111,000, $827,000, and $776,000, respectively. Future minimum rental commitments under all noncancellable operating leases in effect at December 31, 1994 total $2,431,000 as follows: 1995 - $683,000; 1996 - $611,000; 1997 - $511,000; 1998 - $292,000; 1999 - $171,000; and $163,000 thereafter. LITIGATION: In the ordinary course of business, the Company is involved in various pending or threatened legal actions. While Management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on the Company's consolidated financial position. CONTINGENCIES: The Company has no commitments or contingent liabilities which, in the judgment of Management, would result in losses which would materially affect the Company's consolidated financial position. Page 34 NOTE 12 - OTHER FINANCIAL INFORMATION: Sales under contracts and subcontracts where the U.S. Government is the ultimate customer generally accounted for approximately 41%, 42%, and 50% of the Company's sales in 1994, 1993, and 1992, respectively. Foreign sales (primarily exports from the U.S.) as a percentage of total sales are summarized by geographic area as follows: 1994 1993 1992 ---- ---- ---- Europe ......................... 16.8% 17.0% 15.7% Far East ....................... 11.4 6.6 10.5 Middle East .................... 1.4 5.0 2.9 Other areas .................... 6.9 5.6 5.3 ---- ---- ---- 36.5% 34.2% 34.4% ==== ==== ==== Other accrued liabilities comprised the following (in thousands): December 31, ------------------------- 1994 1993 ------- ------- Commissions payable ........................ $ 2,605 $ 1,588 Incentive bonus accruals ................... 1,855 2,530 Vacation accruals .......................... 2,636 2,441 Accrued product warranty and related reserves ...................... 478 3,202 Accrued interest payable ................... 803 1,028 Other ...................................... 8,951 6,998 ------- ------- $17,328 $17,787 ======= ======= Other liabilities and deferred credits include deferred gains on installment sales contracts of $3,711,000 and $3,761,000 at December 31, 1994 and 1993, respectively. NOTE 13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED): The following is a summary of unaudited quarterly financial data for the years 1994 and 1993 (in thousands except per share amounts): Earnings Per Gross Net Common Sales Profit Income Share -------- ------- ------- ----- March 31, 1994 .............. $ 43,678 $15,825 $ 2,788 $ .48 June 30, 1994 ............... 48,329 16,823 2,991 .52 September 30, 1994 .......... 51,328 16,665 3,176 .55 December 31, 1994 ........... 54,258 18,476 3,280 .57 -------- ------- ------- ----- $197,593 $67,789 $12,235 $2.12 ======== ======= ======= ===== March 31, 1993 .............. $ 46,775 $15,844 $ 2,375 $ .42 June 30, 1993 ............... 50,365 17,092 2,489 .44 September 30, 1993 .......... 44,072 16,654 2,556 .45 December 31, 1993 ........... 43,098 16,869 2,796 .49 -------- ------- ------- ----- $184,310 $66,459 $10,216 $1.80 ======== ======= ======= ===== Page 35 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Tech-Sym Corporation: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of cash flows and of changes in shareholders' investment present fairly, in all material respects, the financial position of Tech-Sym Corporation and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Houston, Texas February 23, 1995 Page 36 CORPORATE INFORMATION STOCKHOLDER AND MARKET INFORMATION Comparative Common Stock Data 1993 1994 ----------------------- ------------------------ Quarter High Low High Low ------- ------ ------ ------ ------ First ......... 17 1/4 13 1/4 22 1/2 17 5/8 Second ........ 17 5/8 14 3/8 21 7/8 19 1/8 Third ......... 21 1/2 17 22 3/8 19 1/2 Fourth ........ 21 3/8 18 1/2 24 3/8 20 1/2 No dividends were paid on such stock in 1993 or 1994, and the Company has no present intention of paying dividends. Record number of holders of Common Stock at February 28, 1995: 2,101. CORPORATE OFFICE 10500 Westoffice Drive, Suite 200 Houston, Texas 77042-5391 Telephone 713/785-7790 Telecopier 713/780-3524 TRANSFER AGENT AND REGISTRAR Continental Stock Transfer & Trust Company 2 Broadway New York, New York 10004 Telephone 212/509-4000 Telecopier 212/509-5150 STOCK EXCHANGE LISTING Tech-Sym Common Stock is listed on the New York Stock Exchange (Stock Symbol: TSY) INDEPENDENT ACCOUNTANTS Price Waterhouse LLP 1201 Louisiana Houston, Texas 77002 Stockholders are invited to attend the Tech-Sym Corporation Annual Meeting of Stockholders which will be held at 10:00 AM on Tuesday, April 25, 1995, in the Magnolia Room of the Houstonian Hotel & Conference Center at 111 North Post Oak Lane, Houston, Texas. A Proxy Statement will be sent to stockholders of record as of March 13, 1995. Page 37 EX-21 3 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 Subsidiaries of the Registrant Set forth below is certain information with respect to each of the Registrant's subsidiaries: STATE OF REGISTRANT'S SUBSIDIARY DOMICILE OWNERSHIP Anarad, Inc. (California) 100% Continental Electronics Corporation (Nevada) 100% Continental-Lensa S.A. (Chile) 75% Enterprise Electronics Corporation (Alabama) 100% Lake Investment Company (Arizona) 100% Concho Valley Country Club, Inc. (Arizona) 100% Livco Water Company (Arizona) 100% Metric Systems Corporation (Florida) 100% Symtronix Corporation (Nevada) 100% Syntron, Inc. (Delaware) 100% Syntron Europe Limited (Scotland) 100% Syntron Asia Pte. Ltd. (Singapore) 100% T-S Holding Corporation (Texas) 100% (formerly All Woods/Schroeder, Inc.) Tech-Sym Management Corporation (Delaware) 100% Tech-Sym International (FSC), Inc. (U.S. Virgin 100% Islands) Tecom Industries, Incorporated (California) 100% Tecom Limited (Scotland) 100% TRAK Microwave Corporation (Delaware) 100% TRAK Microwave Limited (Scotland) 100% The Registrant has certain other subsidiaries which are not named above. Such subsidiaries, when considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 4 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-8 (No. 2-77162), in the Prospectus constituting part of the Registration Statement on Form S-8 (No. 33-38208), in the Prospectus constituting part of the Registration Statement on Form S-8 (No. 33-61846) in the Prospectus constituting part of the Registration Statement on Form S-8 (No. 33-56535), and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-56533) of Tech-Sym Corporation of our report dated February 23, 1995, appearing on page 36 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page S-2 of this Form 10-K. /s/Price Waterhouse LLP PRICE WATERHOUSE LLP Houston, Texas March 29, 1995 EX-27 5 FINANCIAL DATA SCHEDULE
5 The Schedule contains summary financial information extracted from the Company's 10-K for the period ended December 31, 1994 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1994 DEC-31-1994 22,703,000 300,000 42,226,000 (389,000) 42,409,000 145,386,000 84,463,000 (47,764,000) 215,238,000 54,302,000 21,587,000 706,000 0 0 126,408,000 215,238,000 197,593,000 197,593,000 129,804,000 178,453,000 (2,151,000) 0 2,956,000 18,335,000 6,100,000 12,235,000 0 0 0 12,235,000 2.12 2.12