-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KcBgVi6lIvdkckNmESV40m/Ws89BegkO5pKAoKyKXgV+cKMGSeZGVpX0UiGQNkw3 lqzaPrZvoe3fGBwyLW8C9g== 0000890566-97-002376.txt : 19971113 0000890566-97-002376.hdr.sgml : 19971113 ACCESSION NUMBER: 0000890566-97-002376 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19971113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECH SYM CORP CENTRAL INDEX KEY: 0000096669 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 741509818 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-04371 FILM NUMBER: 97715258 BUSINESS ADDRESS: STREET 1: 10500 WESTOFFICE DR STREET 2: SUITE 200 CITY: HOUSTON STATE: TX ZIP: 77042-5391 BUSINESS PHONE: 7137857790 MAIL ADDRESS: STREET 1: 10500 WESTOFFICE DRIVE STREET 2: SUITE 200 CITY: HOUSTON STATE: TX ZIP: 77042-5391 FORMER COMPANY: FORMER CONFORMED NAME: WESTEC CORP DATE OF NAME CHANGE: 19700721 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN EQUITIES INC DATE OF NAME CHANGE: 19660921 10-Q/A 1 Form 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 1-4371 Tech-Sym Corporation (Exact name of Registrant as specified in its charter) Nevada 74 1509818 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10500 Westoffice Drive, Suite 200, Houston, Texas 77042 (Address of principal executive offices) Zip Code Registrant's telephone number, including area code: 713/785-7790 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Outstanding at July 31, 1997 Common Stock, $.10 par value 6,031,481 Form 10-Q/A Tech-Sym Corporation INDEX ----- Page No. -------- Part I. Financial Information: Consolidated Balance Sheet June 30, 1997 and December 31, 1996 1 Consolidated Statement of Income and Accumulated Earnings for the Quarter Ended June 30, 1997 and 1996 2 Consolidated Statement of Income and Accumulated Earnings for the Six Months Ended June 30, 1997 and 1996 3 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1997 and 1996 4 Notes to Consolidated Financial Statements 5-9 Management's Discussion and Analysis of Financial Condition and Results of Operations 10-15 Signatures 16 Page 1 Form 10-Q/A PART I. FINANCIAL INFORMATION Item 1. Financial Statements Tech-Sym Corporation Consolidated Balance Sheet (stated in thousands, June 30, December 31, except share amounts) 1997 1996 ----------- ------------ Assets (unaudited) Current assets: Cash and cash equivalents .................... $ 12,339 $ 20,450 Short-term investments ....................... 5,810 6,380 Receivables - net ............................ 60,712 62,217 Unbilled revenue ............................. 49,476 48,814 Inventories .................................. 90,792 82,808 Other ........................................ 11,069 6,098 --------- --------- Total current assets ................... 230,198 226,767 Property, plant and equipment - net ............ 45,708 48,917 Long-term receivables - net .................... 12,666 16,695 Other assets ................................... 23,817 30,900 Net assets of discontinued operation ........... 12,385 --------- --------- Total assets ........................... $ 324,774 $ 323,279 ========= ========= Liabilities Current liabilities: Notes payable ................................ $ 38,798 $ 29,406 Current maturities of long-term debt ......... 7,089 4,251 Accounts payable ............................. 17,428 21,115 Billings in excess of cost and estimated earnings on uncompleted contracts .......... 8,293 9,728 Taxes on income .............................. 4,721 5,201 Other accrued liabilities .................... 16,774 21,331 --------- --------- Total current liablilites .............. 93,103 91,032 Long-term debt ................................. 18,016 13,974 Other liabilities and deferred credits ......... 39,010 43,022 --------- --------- Total liabilities ...................... 150,129 148,028 Minority interest ................................ 15,532 17,179 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 7,964,181 and 7,941,231 shares ................ 796 794 Additional capital ............................. 40,083 39,753 Accumulated earnings ........................... 148,184 145,195 Cumulative translation adjustments ............. (2,303) (911) Common stock held in treasury at cost (1,936,400 and 1,905,400 shares) .............. (27,647) (26,759) --------- --------- Total shareholders' investment ......... 159,113 158,072 --------- --------- Total liabilities and shareholders' investment .............. $ 324,774 $ 323,279 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. Page 2 Form 10-Q/A Tech-Sym Corporation Consolidated Statement of Income and Accumulated Earnings (stated in thousands, except per share amounts) For the Quarter Ended June 30, ------------------------ 1997 1996 --------- --------- (unaudited) Sales ............................................ $ 72,225 $ 65,780 --------- --------- Costs and expenses: Cost of sales .................................. 50,062 42,832 Selling, general and administrative expenses ..................................... 16,155 14,723 Company-sponsored product development .......... 3,394 3,561 Interest expense ............................... 1,081 706 Gain on issuance of stock by subsidiary ........ (21,166) Interest and other (income) - net .............. (1,824) (1,103) --------- --------- 68,868 39,553 --------- --------- Income from continuting operations before income taxes, minority interest and extraordinary item ......... 3,357 26,227 Provision for income taxes from continuing operations ..................... 932 8,998 Minority interest expense from continuing operations ..................... 242 246 --------- --------- Income from continuing operations before extraordinary item ............... 2,183 16,983 Discontinued operation: Loss from discontinued operation net of applicable income taxes of $425 and $538 and minority interest expense of $206 and $205, respectively .................. 740 932 --------- --------- Income before extraordinary item .......... 1,443 16,051 Extraordinary item: Extraordinary loss on early extinguishment of debt net of applicable income taxes of $557 .............. 1,035 --------- --------- Net income ................................ 1,443 15,016 Accumulated earnings: Beginning of period ............................ 146,741 125,134 --------- --------- End of period .................................. $ 148,184 $ 140,150 ========= ========= Earnings (loss) per common share: Continuing operations before extraordinary item ........................... $ 0.36 $ 2.58 Discontinued operation ......................... (0.12) (0.14) Extraordinary item ............................. (0.16) --------- --------- Net income ................................ $ 0.24 $ 2.28 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. Page 3 Form 10-Q/A Tech-Sym Corporation Consolidated Statement of Income and Accumulated Earnings (stated in thousands, except per share amounts) For The Six Months Ended June 30, ------------------------ 1997 1996 --------- --------- (unaudited) Sales ............................................ $ 145,123 $ 131,588 --------- --------- Costs and expenses: Cost of sales .................................. 100,873 85,995 Selling, general and administrative expenses ..................................... 31,594 28,704 Company-sponsored product development .......... 6,549 7,382 Interest expense ............................... 1,761 2,075 Gain on issuance of stock by subsidiary ........ (21,166) Interest and other (income) - net .............. (2,133) (1,934) --------- --------- 138,644 101,056 --------- --------- Income from continuting operations before income taxes, minority interest and extraordinary item ......... 6,479 30,532 Provision for income taxes from continuing operations ..................... 1,916 10,393 Minority interest expense from continuing operations ..................... 338 246 --------- --------- Income from continuing operations before extraordinary item ............... 4,225 19,893 Discontinued operation: Loss from discontinued operation net of applicable income taxes of $713 and $833 and minority interest expense of $352 and $205, respectively .................. 1,236 1,563 --------- --------- Income before extraordinary item .......... 2,989 18,330 Extraordinary item: Extraordinary loss on early extinguishment of debt net of applicable income taxes of $557 .............. 1,035 --------- --------- Net income ................................ 2,989 17,295 Accumulated earnings: Beginning of period ............................ 145,195 122,855 --------- --------- End of period .................................. $ 148,184 $ 140,150 ========= ========= Earnings (loss) per common share: Continuing operations before extraordinary item ........................... $ 0.70 $ 3.03 Discontinued operation ......................... (0.20) (0.24) Extraordinary item ............................. (0.16) --------- --------- Net income ................................ $ 0.50 $ 2.63 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. Page 4 Form 10-Q/A Tech-Sym Corporation Consolidated Statement of Cash Flows For the Six Months (stated in thousands) Ended June 30, --------------------- 1997 1996 --------- --------- (unaudited) Cash flows from operating activities: Net income ........................................... $ 2,989 $ 17,295 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization ..................... 6,836 6,019 Sale of equipment under operating lease ........... 731 Gain on issuance of stock by subsidiary ........... (21,166) Gain on foreign currency denominated debt ......... (641) Minority interest ................................. (14) 41 Change in assets and liabilities: Receivables ....................................... (883) 23,528 Unbilled revenue .................................. (662) (6,038) Inventories ....................................... (8,185) (15,175) Accounts payable and taxes on income .............. (2,922) 14,777 Billing in excess and other accrued liabilities ... (9,785) (2,118) Long-term receivables - net and other assets ...... (5,675) 885 Other liabilities and deferred credits ............ 2,512 (10,269) -------- -------- Net cash provided by (used for) operating activities . (15,699) 7,779 -------- -------- Cash flows from investing activities: Capital expenditures ................................. (5,965) (8,411) Payment for purchase of business, net of cash acquired ................................ 7,656 Sale of investment securities ........................ 570 Other investing activities ........................... 270 (342) -------- -------- Net cash used for investing activities ............... (5,125) (1,097) -------- -------- Cash flows from financing activities: Net borrowings (payments) under bank line of credit agreements ................................ 9,392 (12,038) Proceeds from long-term debt ......................... 2,432 3,406 Payments on long-term debt ........................... (2,759) (20,431) Proceeds from sale of notes receivable ............... 7,848 Proceeds from exercise of stock options .............. 332 544 Acquisition of Tech-Sym and GeoScience treasury shares .......................... (3,140) (30) Proceeds from issuance of subsidiary common stock .... 39,525 Other ................................................ (1,392) (509) -------- -------- Net cash provided by financing activities ............ 12,713 10,467 -------- -------- Net increase (decrease) in Cash and cash equivalents ............................ (8,111) 17,149 Cash and cash equivalents at beginning of period ..... 20,450 20,715 -------- -------- Cash and cash equivalents at end of period ........... $ 12,339 $ 37,864 ======== ======== Cash flow from operating activities include: Interest paid ........................................ $ 1,921 $ 2,864 Income taxes paid .................................... 4,664 2,553 The accompanying notes are an integral part of these consolidated financial statements. Page 5 Form 10-Q/A Tech-Sym Corporation Notes to Consolidated Financial Statements 1. The accompanying unaudited consolidated financial statements of Tech-Sym Corporation and its subsidiaries (the "Company") have been prepared in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the financial statements and notes thereto appearing in the Company's Annual Report for the year ended December 31, 1996. In the opinion of the Company's management ("Management"), all adjustments necessary for a fair presentation of the results of operations for all periods reported have been included. Such adjustments consist only of normal recurring items. The consolidated statements of income for the three and six months ended June 30, 1997, are not necessarily indicative of the results to be expected for the full year ending December 31, 1997. The consolidated financial statements have been restated to reflect the geoscientific software subsidiary of the Company's majority owned subsidiary, GeoScience Corporation ("GeoScience"), as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30 (see Note 2). The accompanying consolidated financial statements for the quarter and six months ended June 30, 1997, have been restated. The restatement reflects the higher cost of revenue for certain engineering and manufacturing costs which were erroneously capitalized at the Company's majority-owned GeoScience subsidiary. The restatement also corrects an overstatement in sales and earnings at the Company's TRAK Microwave subsidiary that resulted from errors associated with manual inputs made into a new management information system. The restated consolidated statement of income and accumulated earnings for the quarter and six months ended June 30, 1997, are summarized as follows (in thousands, except per share amounts): Page 6 Form 10-Q/A Tech-Sym Corporation Notes to Consolidated Financial Statements - Continued Quarter Six months ended ended June 30, 1997 June 30, 1997 -------------------- --------------------- As As previously As previously As reported restated reported restated ---------- -------- ---------- -------- Sales .......................... $ 73,725 $ 72,225 $147,423 $145,123 Income from continuing operations before income taxes, minority interest and extraordinary item ......................... 5,287 3,357 9,799 6,479 Minority interest expense from continuing operations ................... 307 242 496 338 Income from continuing operations before extraordinary item ......................... 3,489 2,183 6,426 4,225 Net income ..................... 2,749 1,443 5,190 2,989 Earnings per common share: Continuing operations before extraordinary item ......... $ .58 $ .36 $ 1.06 $ .70 Net income .................. $ .46 $ .24 $ .86 $ .50 Retained earnings at June 30, 1997 ................ $150,385 $148,184 $150,385 $148,184 2. Effective June 30, 1997 (the "measurement date"), GeoScience adopted a plan to sell its geoscientific software subsidiary, CogniSeis Development, Inc. ("CogniSeis"). Accordingly, CogniSeis is reported as a discontinued operation for the periods presented. Management anticipates CogniSeis will incur operating losses approximating $500,000 from the measurement date through the disposal date. Such losses have been deferred due to the fact that Management expects a gain on the sale of CogniSeis. On July 15, 1997, GeoScience signed a letter of intent to sell CogniSeis for cash and guaranteed future royalties with a combined estimated value between $19.5 and $23 million. The proposed sale is subject to the terms of a negotiated Page 7 Form 10-Q/A Tech-Sym Corporation Notes to Consolidated Financial Statements - Continued definitive agreement which could vary from the letter of intent, and no assurances can be made that this transaction will be completed. Management's current estimate indicates that the total sale proceeds from the disposal of CogniSeis will result in a gain on the transaction. However, the ultimate financial impact of the negotiated definitive agreement could differ from Management's current estimate. The operating results (unaudited) of the discontinued operation are summarized as follows (in thousands): Quarter Ended June 30, 1997 1996 -------------------- Revenue $5,575 $5,404 ===== ===== Loss before provision for income taxes 1,371 1,675 Provision for income taxes 425 538 Minority interest 206 205 ------ ------ Net loss $ 740 $ 932 ====== ====== Six Months Ended June 30, 1997 1996 --------------------- Revenue $11,398 $11,281 ======= ======= Loss before provision for income taxes 2,301 2,601 Provision for income taxes 713 833 Minority interest 352 205 ------- ------- Net loss $ 1,236 $ 1,563 ======= ======= The net assets (unaudited) of the discontinued operation are summarized as follows (in thousands): June 30, 1997 ------------- Current assets $ 7,465 Property, plant and equipment, net 3,149 Other assets 5,747 Current liabilities (3,976) ------- Net assets $12,385 ======= Page 8 Form 10-Q/A Tech-Sym Corporation Notes to Consolidated Financial Statements - Continued 3. Inventories, stated at the lower of cost (first-in, first-out) or market, are summarized as follows (in thousands): June 30, 1997 December 31, 1996 ------------- ----------------- (unaudited) Raw Materials $34,726 $28,613 Work in Process 33,259 30,680 Finished Goods 22,807 23,515 ------- ------- Total inventories $90,792 $82,808 ======= ======= 4. Earnings per common share are based on the weighted average number of shares outstanding during each period (6,032,000 and 6,579,000 for the quarter ended June 30, 1997 and 1996 respectively, and 6,037,000 and 6,571,000 for the six month period ended June 30, 1997 and 1996, respectively). 5. During the first quarter of 1997, the Company sold notes receivable in the amount of $7,848,000 to a bank. In accordance with Statement of Financial Accounting Standards No. 125 (FAS 125), TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES the consolidated financial statements were restated to reflect both the asset and the liability associated with this transaction. 6. In 1997, Statement of Financial Accounting Standards No. 128 (FAS 128), EARNINGS PER SHARE was issued. FAS 128 is effective for earnings per share calculations for periods ending after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Adoption of FAS 128 is not expected to have a material effect on the Company's financial position or operational results. Quarter Ended June 30, 1997 1996 ------------------- Pro-forma earnings per share Earnings per common share $0.24 $2.28 Earnings per common share ----- ----- assuming dilution $0.23 $2.20 ----- ----- Page 9 Form 10-Q/A Tech-Sym Corporation Notes to Consolidated Financial Statements - Continued Six Months Ended June 30, 1997 1996 ------------------- Pro-forma earnings per share Earnings per common share $0.50 $2.63 Earnings per common share ----- ----- assuming dilution $0.48 $2.53 ----- ----- Page 10 Form 10-Q/A Tech-Sym Corporation Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS In June 1997, the Company's majority owned subsidiary, GeoScience Corporation ("GeoScience") adopted a plan to sell its geoscientific software subsidiary, CogniSeis Development, Inc. ("CogniSeis"). CogniSeis is accounted for as a discontinued operation. Accordingly, the consolidated financial statements have been presented to report separately the operating results of the continuing operations. All prior year amounts have been restated. RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1997 COMPARED TO THE QUARTER ENDED JUNE 30, 1996 Revenue increased $6,445,000 or 10% to $72,225,000 for the quarter ended June 30, 1997. The increase in revenue resulted primarily from increased shipments in the communications and geoscientific business which increased from the same quarter in the prior year $7,096,000 and $3,326,000, respectively. Within the communications business, shipments of broadcast equipment, microwave products and weather radar systems demonstrated revenue growth over the second quarter of 1996. In the geoscientific business, the increase primarily resulted from increased shipments of land and ocean bottom cables. The increases in the communications and geoscientific business more than offset the $3,199,000 decrease in revenue in the defense systems business which was a result of delayed bookings of government and foreign orders. The consolidated gross profit margin decreased from 35% to 31% of revenue for the quarter ended June 30, 1997, compared to the same quarter in the prior year. The majority of the decrease in gross profit margin was attributed to the communications business. Within the broadcast area of the communications business, the gross profit margin was negatively impacted by cost over-runs on several long-term projects and initial start-up costs on a number of new products. The gross profit margin of the microwave products' portion of the communications business suffered due to production labor costs increasing at a greater rate than the increase in product shipments and due to inefficiencies and input errors relating to a new management information system. Increased material costs on several contracts within the defense systems business due to supplier problems also contributed to a lower than customary gross profit margin. The gross profit margin of the geoscientific business improved over the second quarter of 1996 primarily as a result of reduced costs derived from improved manufacturing efficiencies and decreased electronic Page 11 Form 10-Q/A Tech-Sym Corporation Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued component prices related to the 24-bit seismic data acquisition module that offset the increased engineering and manufacturing costs associated with design changes to the 24-bit module and increased manufacturing costs within the domestic seismic cable manufacturing facility. Consolidated selling, general and administrative expenses increased 10% to $16,155,000 during the second quarter of 1997. These expenses as a percentage of revenue decreased slightly in comparison to the same quarter a year ago. The majority of the $1,432,000 increase occurred within the geoscientific business. The increase primarily resulted from additional costs for support personnel and royalties associated with the overall growth in the business and additional commissions associated with increased international sales. Furthermore, expenses related to managing the consolidated business and being a publicly traded company were added. The Company-sponsored product development expenses were $3,394,000 for the quarter ended June 30, 1997, compared to $3,561,000 for the quarter ended June 30, 1996. The decrease was primarily in the communications business as a result of the completion of several projects relating to broadcast and antenna equipment that were under development in the second quarter of 1996. The overall decreases exceeded the increases incurred within the geoscientific business due to design changes to the 24-bit seismic data acquisition module. Interest expense increased to $1,081,000 during the second quarter of 1997 from $706,000 during the second quarter of 1996 as a result of the increase in interest bearing debt incurred primarily to support the growth of the business and, to a lesser extent, to fund the Company's stock buy-back program. Other income increased to $1,824,000 from $1,103,000 primarily due to foreign currency translation gains within the communications business. The effective tax rate for the quarter ended June 30, 1997 was 30% compared to 35% for the same period in the prior year. The Company's effective tax rate is lower than statutory United States rate due principally to benefits generated from foreign sales. Minority interest expense from continuing operations for the quarter ended June 30, 1997, was $242,000 compared to $246,000 for the quarter ended June 30, 1996. Minority interest expense reflects the portion of GeoScience Corporation's net income from continuing operations of $1,111,000 and $1,365,000 for the quarter ended June 30, 1997 and 1996, respectively, which is attributable to minority shareholders. Page 12 Form 10-Q/A Tech-Sym Corporation Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued Income from continuing operations before extraordinary item for the second quarter of 1997 was $2,183,000 compared to $16,983,000 for the corresponding quarter a year ago. The results of the second quarter of 1996 included a net gain of $13,700,000 related to the sale to the public of common shares of 24.7% of GeoScience Corporation. The lower gross profit margin and higher operating expenses as discussed above caused the income of continuing operations for the current quarter to be less than that of the 1996 quarter without the gain on the sale of GeoScience stock. Loss from the discontinued operation for the quarter ended June 30, 1997, decreased $192,000 or $.02 per share from the same quarter in the prior year as a result of an increase in interest income recognized on contract installment sales. Net income for the quarter ended June 30, 1997, decreased 90% to $1,443,000 or $.24 per share compared to net income of $15,016,000 or $2.28 per share for the same quarter in the prior year. The 1996 second quarter net income included a net gain of $13,700,000 resulting from the sale of common shares of GeoScience Corporation to the public and a net loss of $1,035,000 for the premium paid on early extinguishment of debt. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO JUNE 30, 1996 Revenue increased 10% to $145,123,000 for the six months ended June 30, 1997, from $131,588,000 for the same period in the prior year. The increase in revenue resulted from increased shipments in the communications and geoscientific business of $10,737,000 and $7,783,000, respectively. Revenue relating to the defense systems business decreased $4,032,000 from the same period in the prior year due to continued delays in the receipt of new government and foreign orders. Within the communications business, shipments in all major product areas (broadcast equipment, microwave products and weather radar systems) increased over the six months ended June 30, 1996. Increased shipments of land, ocean bottom and marine seismic cables and revenue relating to the technical data services provided to oil exploration and production customers resulted in a 20% growth in the revenue of the geoscientific business over the same period in the prior year. The consolidated gross profit margin decreased from 35% to 30% of revenue for the six months ended June 30, 1997. The overall decrease is primarily related to the communications business. Page 13 Form 10-Q/A Tech-Sym Corporation Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued The reasons for the decrease within the communications business are essentially the same as those discussed for the quarter, along with a change in the product mix within the broadcast area. The gross profit margin for the geoscientific business decreased from 41% to 39% of revenue for the six months ended June 30, 1997, compared to the six months ended June 30, 1996. The decrease was a result of (i) larger shipments of marine seismic cables, which have higher production costs in relationship to selling price as compared to the electronics portion of the seismic data acquisition systems, (ii) increased engineering and manufacturing costs associated with design changes to the 24-bit seismic data acquisition module and (iii) increased manufacturing costs within the domestic seismic cable manufacturing facility. The gross profit margin as a percent of revenue for the defense systems business improved from 22% to 24% over the same period in the prior year. Consolidated selling, general and administrative expenses increased to $31,594,000 for the period ended June 30, 1997, from $28,704,000. These expenses as a percentage of revenue decreased slightly in comparison to the same quarter in the prior year. The increase occurred in the geoscientific business. The increase in the geoscientific business resulted from (i) the growth in support personnel associated with the growth in the business, (ii) additional royalty costs associated with the overall increase in revenue, (iii) additional commissions associated with the increased international sales and (iv) the added costs of managing the consolidated geoscientific business as a publicly traded company. Company-sponsored product development expenses were $6,549,000 for the period ended June 30, 1997 compared to $7,382,000 for the period ended June 30, 1996. The decrease occurred primarily within the broadcast area of the communications business. The reasons for the decrease are as discussed in the results for the quarter ended June 30, 1997. Interest expense was $1,761,000 for the six month period ended June 30, 1997, as compared to $2,075,000 for the six month period ended June 30, 1996. The decrease was derived from the first three months of the year due to a reduction in interest bearing debt that occurred in the second quarter of 1996 as a result of proceeds generated from the sale of stock of GeoScience. Other income increased to $2,133,000 from $1,934,000 primarily due to foreign currency transaction gains within the communications business that more than offset the decrease in interest income on interest bearing receivables within the geoscientific business. The effective tax rate for the six months ended June 30, 1997 was Page 14 Form 10-Q/A Tech-Sym Corporation Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued 31% compared to 34% for the same period in the prior year. The Company's effective tax rate is lower than the statutory United States rate due principally to tax benefits generated from foreign sales. Minority interest expense from continuing operations for the six months ended June 30, 1997, was $338,000 compared to $246,000 for the six months ended June 30, 1996. Minority interest expense reflects the portion of GeoScience Corporation's net income from continuing operations of $1,535,000 and $2,370,000 for the six months ended June 30, 1997 and 1996, respectively, which is attributable to minority shareholders. Income from continuing operations before extraordinary item for the six month period of 1997 was $4,225,000 compared to $19,893,000 for the corresponding period a year ago. The six months ended June 30, 1996 included a net gain of $13,700,000 as discussed in the results for the quarter ended June 30, 1997. The lower gross profit margin and higher operating expenses as discussed above caused the income of continuing operations for the current six month period to be less than that of the comparable 1996 period without the gain on the sale of GeoScience stock. Loss from the discontinued operation for the six months ended June 30, 1997 decreased $327,000 from the same period in the prior year as a result of an increase in interest income recognized on contract installment sales and the change in minority ownership interest between the two periods. Net income for the six months ended June 30, 1997, decreased 83% to $2,989,000 or $.50 per share compared to net income of $17,295,000 or $2.63 per share for the same period in the prior year. The 1996 results included a net gain of $13,700,000 on the sale of common shares of GeoScience Corporation to the public and a net loss of $1,035,000 for the premium paid on early extinguishment of debt. Backlog at June 30, 1997 was $122,000,000 compared to $147,000,000 at June 30, 1996. The decrease occurred primarily in the defense systems business and the broadcast area within the communications business. The decrease in backlog may unfavorably affect the Company's operating results for the third and fourth quarter if orders are not received in time to ship during the respective periods. Page 15 Form 10-Q/A Tech-Sym Corporation Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued LIQUIDITY AND CAPITAL RESOURCES The Company is currently satisfying its working capital and capital expenditure requirements through internally generated cash from operations and bank borrowings. At June 30, 1997, the Company's working capital balance was $137,095,000 compared to $135,735,000 at December 31, 1996. The increase in working capital is a result of a decrease in liabilities which resulted from segregating the net assets of the discontinued operation as a non-current asset at June 30, 1997 and an increase in inventory levels. Cash used for operations was $15,699,000 for the six months ended June 30, 1997, compared to cash provided by operations of $7,779,000 for the same period in the prior year. As of June 30, 1997, the Company had uncommitted bank lines of credit aggregating approximately $84,295,000. Borrowings under these lines were $38,798,000, including the discontinued operation. The Company had a working capital ratio of 2.47 to 1.0 and debt to total capitalization of 29%. The Company believes that its current financial position and available lines of credit will provide ample sources of funds to meet foreseeable requirements. Purchases of property, plant and equipment totaled $5,965,000 for the six months ended June 30, 1997, compared to $8,411,000 for the corresponding prior year period. The Company estimates that capital expenditures for property, plant and equipment during the remainder of 1997 will be approximately $9,830,000. Most of the anticipated capital expenditures are not subject to firm commitments and the Company may modify its plans depending on future results of operations or other factors. Forward-looking statements in this document are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including, without limitation, risks associated with the uncertainty of market acceptance of the Company's products, limited number of customers, as well as risks of downturns in economic conditions generally, risks associated with competition and competitive pricing pressures, and other risks detailed in the Company's filings with the Securities and Exchange Commission. Page 16 Form 10-Q/A Tech-Sym Corporation SIGNATURES Pursuant to the requirements 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 Registrant Date: November 13, 1997 /s/ WENDELL W. GAMEL Wendell W. Gamel, Chairman of the Board and President Date: November 13, 1997 /s/ RAY F. THOMPSON Ray F. Thompson, Vice- President, Treasurer, and Chief Financial Officer EX-27 2
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TECH-SYM FORM 10-Q/A 2ND QUARTER 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS DEC-31-1997 JUN-30-1997 12,339 5,810 60,712 0 90,792 230,198 45,708 0 324,774 93,103 0 0 0 796 0 324,774 145,123 0 100,873 138,644 0 0 1,761 0 0 4,225 (1,236) 0 0 2,989 0.50 0
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