================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended December 31, 2000 [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 001-13601 OYO GEOSPACE CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 76-0447780 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 12750 South Kirkwood, Suite 200 Stafford, Texas 77477 (Address of Principal Executive Offices) (281) 494-8282 (Registrant's telephone number, including area code) 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_____ ----- There were 5,522,930 shares of the Registrant's Common Stock outstanding as of the close of business on February 6, 2000. ================================================================================
Table of Contents <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION Page - ------------------------------- Number ------ <S> <C> Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K 13 </TABLE> 2
PART I - FINANCIAL INFORMATION Item 1. Financial Statements REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors OYO Geospace Corporation and Subsidiaries We have reviewed the accompanying consolidated balance sheet of OYO Geospace Corporation and Subsidiaries as of December 31, 2000, and the related consolidated statements of operations for the three months ended December 31, 2000 and 1999, and the consolidated statements of cash flows for the three months ended December 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the aforementioned financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of September 30, 2000, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended (not presented herein) and, in our report dated November 9, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of September 30, 2000, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ PricewaterhouseCoopers LLP Houston, Texas January 24, 2001 3
OYO GEOSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) <TABLE> <CAPTION> ASSETS December 31, 2000 September 30, 2000 ----------------- ------------------ (unaudited) <S> <C> <C> Current assets: Cash and cash equivalents ............................ $ 1,074 $ 3,989 Trade accounts and notes receivable, net ............. 11,179 8,509 Inventories .......................................... 22,774 22,095 Deferred income tax .................................. 1,464 1,320 Prepaid expenses and other ........................... 1,851 1,778 -------- -------- Total current assets ............................ 38,342 37,691 Rental equipment, net .................................... 2,549 1,846 Property, plant and equipment, net ....................... 19,359 19,550 Goodwill and other intangible assets, net ................ 5,097 5,204 Deferred income tax ...................................... 315 675 Other assets ............................................. 151 142 -------- -------- Total assets .................................... $ 65,813 $ 65,108 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term debt $ 201 $ 198 Accounts payable ..................................... 5,268 5,694 Accrued expenses and other ........................... 3,286 2,679 Income tax payable ................................... 385 232 -------- -------- Total current liabilities ....................... 9,140 8,803 Long-term debt ........................................... 3,932 3,984 Deferred income tax ...................................... 1,531 1,612 -------- -------- Total liabilities ............................... 14,603 14,399 -------- -------- Stockholders' equity: Preferred stock ...................................... -- -- Common stock ......................................... 55 55 Additional paid-in capital ........................... 30,183 30,088 Retained earnings .................................... 22,146 21,875 Accumulated other comprehensive loss ................. (663) (679) Unearned compensation-restricted stock awards ........ (511) (630) -------- -------- Total stockholders' equity ...................... 51,210 50,709 -------- -------- Total liabilities and stockholders' equity ...... $ 65,813 $ 65,108 ======== ======== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 4
OYO GEOSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited) <TABLE> <CAPTION> Three Months Three Months Ended Ended December 31, 2000 December 31, 1999 ----------------- ----------------- <S> <C> <C> Sales .......................................... $ 14,967 $ 12,795 Cost of sales .................................. 10,108 8,413 ----------- ----------- Gross profit ................................... 4,859 4,382 Operating expenses: Selling, general and administrative expenses 2,982 2,431 Research and development expenses .......... 1,469 1,336 ----------- ----------- Total operating expenses .............. 4,451 3,767 ----------- ----------- Income from operations ......................... 408 615 Other income (expense): Interest expense ........................... (80) (77) Interest income ............................ 34 80 Other, net ................................. 24 26 ----------- ----------- Total other income (expense), net ..... (22) 29 ----------- ----------- Income before income tax expense ............... 386 644 Income tax expense ............................. 115 225 ----------- ----------- Net income ..................................... $ 271 $ 419 =========== =========== Basic earnings per share ....................... $ 0.05 $ 0.08 =========== =========== Diluted earnings per share ..................... $ 0.05 $ 0.08 =========== =========== Weighted average shares outstanding - Basic .... 5,463,152 5,409,837 Weighted average shares outstanding - Diluted .. 5,577,984 5,474,332 </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 5
OYO GEOSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) <TABLE> <CAPTION> Three Months Three Months Ended Ended December 31, 2000 December 31, 1999 ----------------- ------------------ <S> <C> <C> Cash flows from operating expenses: Net income ............................................... $ 271 $ 419 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Deferred income tax ..................................... 130 62 Depreciation and amortization ........................... 957 829 Amortization of restricted stock awards ................. 119 128 Bad debt expense ........................................ 55 79 Effects of changes in operating assets and liabilities: Trade accounts and notes receivable ................. (2,725) (2,252) Inventories ......................................... (679) 259 Prepaid expenses and other assets ................... (73) (94) Accounts payable .................................... (426) 1,121 Accrued expenses and other .......................... 640 (23) Income tax payable .................................. 153 (155) ------- ------- Net cash provided by (used in) operating activities . (1,578) 373 ------- ------- Cash flows from investing activities: Capital expenditures ..................................... (1,384) (1,307) Proceeds from sale of equipment .......................... 1 75 ------- ------- Net cash used in investing activities ............... (1,383) (1,232) ------- ------- Cash flows from financing activities: Increase in notes payable ................................ 3,816 -- Principal payments on notes payable ...................... (3,863) (45) Proceeds from exercise of stock options .................. 77 -- ------- ------- Net cash provided by (used in) financing activities . 30 (45) ------- ------- Effect of exchange rate changes on cash ...................... 16 (119) ------- ------- Decrease in cash and cash equivalents ........................ (2,915) (1,023) Cash and cash equivalents, beginning of period ............... 3,989 5,280 ------- ------- Cash and cash equivalents, end of period ..................... $ 1,074 $ 4,257 ======= ======= </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 6
OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation The consolidated balance sheet of OYO Geospace Corporation and its subsidiaries (the "Company") at September 30, 2000, has been derived from the Company's audited consolidated financial statements at that date. The consolidated balance sheet at December 31, 2000, and the consolidated statements of operations for the three months ended December 31, 2000 and 1999, and the consolidated statements of cash flows for the three months ended December 31, 2000 and 1999, have been prepared by the Company, without audit. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows have been made. The results of operations for the three months ended December 31, 2000, are not necessarily indicative of the operating results for a full year or of future operations. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been omitted. The accompanying consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended September 30, 2000. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information as of December 31, 2000 and for the three months ended December 31, 2000 and 1999, because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act. 2. Earnings Per Common Share The following table summarizes the calculation of net earnings and weighted average common shares and common equivalent shares outstanding for purposes of the computation of earnings per share: <TABLE> <CAPTION> Three Months Ended --------------------------------------- December 31, 2000 December 31, 1999 ----------------- ----------------- <S> <C> <C> Net earnings available to common stockholders (in thousands) $ 271 $ 419 ============== ============== Weighted average common shares outstanding 5,463,152 5,409,837 Weighted average common share equivalents outstanding 114,832 64,495 -------------- -------------- Weighted average common shares and common share equivalents outstanding 5,577,984 5,474,332 ============== ============== Basic earnings per common share $ 0.05 $ 0.08 ============== ============== Diluted earnings per common share $ 0.05 $ 0.08 ============== ============== </TABLE> 3. Comprehensive Income Comprehensive income includes all changes in a company's equity, except those resulting from investments by and distributions to owners. The following table summarizes the components of comprehensive income (in thousands): 7
OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) <TABLE> <CAPTION> Three Months Ended ---------------------------------------- December 31, 2000 December 31, 1999 ----------------- ----------------- <S> <C> <C> Net income $ 271 $ 419 Foreign currency translation adjustments 16 (119) --------------- -------------- Total comprehensive income $ 287 $ 300 =============== ============== </TABLE> 4. Trade Accounts and Notes Receivable Trade and notes receivable consisted of the following (in thousands): <TABLE> <CAPTION> December 31, 2000 September 30, 2000 ----------------- ------------------ <S> <C> <C> Trade accounts receivable $ 9,141 $ 8,187 Trade notes receivable 2,442 675 Allowance for doubtful accounts and notes (404) (353) --------- ---------- $ 11,179 $ 8,509 ========= ========== </TABLE> 5. Inventories Inventories consisted of the following (in thousands): <TABLE> <CAPTION> December 31, 2000 September 30, 2000 ----------------- ------------------ <S> <C> <C> Finished goods $ 3,489 $ 2,900 Work in process 3,402 2,708 Raw materials 15,883 16,487 --------- --------- $ 22,774 $ 22,095 ======== ======== </TABLE> 6. Segment and Geographic Information The Company manages its business and makes decisions with respect to the deployment of resources on a single consolidated product-line basis. The Company has one reportable segment comprised of operations in the United States, Canada and the United Kingdom. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following analysis of the financial condition and results of operations of OYO Geospace Corporation should be read in conjunction with the Consolidated Financial Statements and Notes related thereto included elsewhere in this Form 10-Q. Industry Overview We design and manufacture instruments and equipment used in the acquisition and processing of seismic data for the oil and gas industry and for the commercial graphics industry. We have been in the seismic instrument and equipment business since 1980, marketing our products primarily to the oil and gas industry worldwide. Geoscientists use seismic data to map potential or existing oil and gas bearing formations and the geologic structures that surround them. Seismic data is used primarily in connection with the exploration, development and production of oil and gas. Seismic data acquisition is conducted on land in several stages. First, an energy source imparts seismic waves into the earth, reflections of which are received and measured by geophones and hydrophones. Electrical signals generated by the geophones and hydrophones are then transmitted through leader wire, geophone and hydrophone string connectors and telemetric cable to data collection units, which store information for processing and analysis. Seismic thermal imaging products are output devices used in the field or office to create a graphic representation of the seismic data after it has been acquired. Marine seismic data acquisition is conducted primarily by large ocean-going vessels that tow long seismic cables known as "streamers". Usually, the energy source in marine seismic data acquisition is an airgun, and the reflected seismic waves are received and measured by hydrophones, which are attached to the streamers. The streamers then transmit the electrical impulses back to the vessel via telemetric cable included within the streamers, and the seismic data is then processed in much the same manner as it is on land. It is estimated that one-to two-thirds of the reserves associated with every discovery will be left behind in the reservoir, not able to be recovered economically or at times even identified. Reservoir characterization and management programs, in which the reservoir is carefully imaged and monitored throughout the life of the field, are now seen as a vital tool for improving rates of return. Surveys repeated in time show dynamic changes within the reservoir and can be used to monitor the effects of production. We are developing and marketing a suite of borehole and reservoir characterization products and services targeted at this market. We expect to incur significant future research and development expenditures aimed at the development of additional seismic acquisition products and services used for high definition reservoir characterization for use in both land and marine environments. While orders for our products have always had the potential to vary substantially from quarter to quarter, with variations in timing impacting our operating results and cash flow, manufacturing capability and expense levels in any given quarter, reservoir characterization projects, especially deepwater projects, contemplate more equipment over a greater period of time than is typically associated with conventional surface seismic systems. Revenue and expense recognition in accordance with generally accepted accounting principles for these large scale projects has the potential to produce beneficial--but strong--fluctuations in quarterly performance. 9
Results of Operations The following table sets forth for the three months ended December 31, 2000 and 1999, the percentage of certain statement of operations items to total sales: <TABLE> <CAPTION> Three Months Ended December 31, --------------------------------- 2000 1999 -------------- ---------- <S> <C> <C> Sales........................................... 100.0% 100.0% Cost of sales................................... 67.5 65.8 Gross profit.................................... 32.5 34.2 Selling, general and administrative............. 19.9 19.0 Research and development........................ 9.9 10.4 Income from operations.......................... 2.7 4.8 Other income (expense), net..................... (0.1) 0.2 Income before provision for income taxes........ 2.6 5.0 Provision for income taxes...................... 0.8 1.7 Net income...................................... 1.8 3.3 </TABLE> Fiscal Year 2000 Compared to Fiscal Year 1999. Sales for the three months ended December 31, 2000 increased $2.2 million, or 17.0% from the corresponding period of the prior year. The increase in sales was primarily due to an increase in demand in the Canadian marketplace for our land-based seismic products. The increase in sales was partially offset by decreases in sales of our marine and thermal imaging products. Cost of sales for the three months ended December 31, 2000 increased $1.7 million, or 20.1% from the corresponding period of the prior year. Cost of sales increased as a percentage of total sales to 67.5% in the three months ended December 31, 2000 from 65.8% in the corresponding periods of the prior year. This percentage increase was generally attributable to the sales mix in the current quarter containing a greater percentage of our land-based seismic products, which generally have lower gross profit margins than our marine-based seismic and thermal imaging products. In addition, we continue to experience competitive pricing pressures on our land-based seismic products. Selling, general and administrative expenses for the three months ended December 31, 2000 increased $0.6 million, or 22.7% from the corresponding period of the prior year. Selling, general and administrative expenses increased as a percentage of total sales to 19.9% in the three months ended December 31, 2000 from 19.0% in the corresponding period of the prior year, primarily as a result of costs associated with increasing our workforce. Research and development expenses for the three months ended December 31, 2000 increased $0.1 million, or 10.0%, from the corresponding period of the prior year. Research and development expenses decreased as a percentage of total sales to 9.9% in the three months ended December 31, 2000 from 10.4% in the corresponding period of the prior year, primarily as a result of the higher sales. Our effective tax rate for the three months ended December 31, 2000 was 29.8% compared to 34.9% for the three months ended December 31, 1999. The tax rate of the current period includes a benefit resulting from the resolution of contingent tax matters from prior years. Excluding this benefit, our effective rate would be 34.8% for the current period. Liquidity and Capital Resources At December 31, 2000, we had $1.1 million in cash and cash equivalents. For the three months ended December 31, 2000, we used approximately $1.6 million of cash in operating activities principally resulting from increases in accounts receivable and inventories, and a decrease in trade accounts payable. 10
For the three months ended December 31, 2000, we used approximately $1.4 million of cash in investing activities, primarily related to capital expenditures. We estimate that our capital expenditures in fiscal 2001 will be approximately $6.0 million, which we expect to fund through operating cash flow and borrowings under our credit facility. For the three months ended December 31, 2000, we generated approximately $30,000 of cash from financing activities resulting from the proceeds received for the exercise of stock options partially offset by principal payments on long-term mortgage notes payable. We have a working capital line of credit under which we are able to borrow up to $10.0 million secured by accounts receivable and inventory. The credit agreement related to this line of credit expires in October 2001. The credit agreement prohibits us from paying cash dividends on common stock, limits capital expenditures, limits additional indebtedness to $7.5 million, requires the maintenance of certain financial ratios and contains other customary covenants. There were no borrowings outstanding at December 31, 2000 under the credit agreement, and borrowing availability was $10.0 million. Our borrowing availability under our existing credit facility is based on financial formulas and ratios, which are calculated at the end of each fiscal quarter. As a result of the operating losses we experienced in the third and fourth quarters of fiscal year 2000, our borrowing availability may be reduced in future periods. We currently are in discussions with a new lender to design a credit facility more suitable for our borrowing needs and we expect that facility to be in place during the second quarter. We believe that the combination of existing cash reserves, cash flows from operations and borrowing availability under our existing credit facility or borrowing availability under a new credit facility should provide us sufficient capital resources and liquidity to fund our planned operations through fiscal 2001. However, there can be no assurance that we will be able to successfully modify our existing credit facility or obtain a new credit facility or that such sources of capital will be sufficient to support our capital requirements in the long-term, and we may be required to issue additional debt or equity securities in the future to meet our capital requirements. Forward Looking Statements and Risks This Form 10-Q includes "forward-looking" statements which are subject to the "safe harbor" provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included herein, including statements about potential future products and markets, our future financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct, and actual results may differ materially from such forward-looking statements. Important factors that could cause actual results to differ materially from our expectations are disclosed below and in our Annual Report on Form 10-K for the year ended September 30, 2000 under the headings "Forward-Looking Statements and Risks". Further, all written and verbal forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by such factors. Our New Products May Not Achieve Market Acceptance. In recent years, we have incurred significant expenditures to fund our research and development efforts and we intend to continue those expenditures in the future. However, research and development is by its nature speculative, and we cannot assure you that these expenditures will result in the development of new products or services or that any new products and services we have developed recently or may develop in the future will be commercially marketable or profitable to us. In particular, we have incurred substantial expenditures to develop our recently introduced HDSeis(TM) product line. We cannot assure you that we will realize our expectations regarding market acceptance and revenues from these products and services. 11
We May Experience Fluctuations in Quarterly Results of Operations. Historically, the rate of new orders for our products has varied substantially from quarter to quarter. Moreover, we typically operate, and expect to continue to operate, on the basis of orders in hand for our products before we commence substantial manufacturing "runs"; hence, the completion of orders, particularly large orders for deepwater reservoir characterization projects, can significantly impact the operating results and cash flow for any quarter, and results of operations for any one quarter may not be indicative of results of operations for future quarters. Our Customer Financing Results in Credit Risks to Us. We have found it necessary from time to time to extend long term trade credit to our customers through accounts and notes receivable. As a result, we are subject to the credit risks of nonpayment or late payment. Given current industry conditions, some of our customers may experience liquidity difficulties, which increases those credit risks. We cannot assure you that sufficient aggregate amounts of uncollectible receivables and bad debt charges will not have a material adverse effect on our future results of operations. At December 31, 2000, our bad debt allowance was $0.4 million. We systematically adjust this allowance each month to reflect the estimated credit risk associated with our trade accounts and notes receivable. We base this adjustment on the level of past due accounts and notes receivable, customer creditworthiness, past payment history, access to underlying collateral and other factors. Although we believe this allowance is a fair representation of the credit risk with respect to our outstanding receivables, we can not assure you that this allowance will be adequate to cover every potential bad debt exposure. 12
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed with this Quarterly Report. 15.1 Awareness Letter of Independent Accountants (b) The Company did not file any reports on Form 8-K during the quarter for which this report is filed. 13
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. OYO GEOSPACE CORPORATION Date: February 6, 2001 By: /s/ Gary D. Owens ------------------------------------- Gary D. Owens, Chairman of the Board President and Chief Executive Officer (duly authorized officer) Date: February 6, 2001 By: /s/ Thomas T. McEntire ------------------------------------- Thomas T. McEntire Chief Financial Officer (principal financial officer) 14