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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 10-Q
ON FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended June 30, 2000
[ ] 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
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There were 5,507,638 shares of the Registrant's Common Stock outstanding as of
the close of business on August 8, 2000.
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This amendment amends:
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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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 and 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.
The seismic data acquisition industry suffered a substantial downturn in
fiscal 1999, which adversely impacted our operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Demand for Our Products is Volatile; Industry Conditions Currently are
Uncertain; Pricing Pressures May Continue".
Results of Operations
The following table sets forth for the three and nine months ended June 30,
2000 and 1999, the percentage of certain statement of operations items to total
sales:
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
----------------------------- ----------------------------
2000 1999 2000 1999
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 83.9% 60.4% 73.3% 58.9%
Gross profit 16.1% 39.6% 26.7% 41.1%
Selling, general and administrative 21.1% 23.5% 18.5% 23.8%
Research and development 12.6% 14.7% 11.2% 14.1%
Income (loss) from operations (17.6)% 1.4% (3.0)% 3.2%
Other income (expense), net (1.1)% (1.0)% (0.2)% (0.6)%
Income (loss) before provision for income taxes (18.7)% 0.4% (3.2)% 2.6%
Income tax expense (benefit) (6.2)% (1.7)% (1.2)% 0.3%
Net income (loss) (12.5)% 2.1% (2.0)% 2.3%
</TABLE>
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Fiscal Year 2000 Compared to Fiscal Year 1999.
Sales for the three months and nine months ended June 30, 2000 increased $3.4
million, or 35.2%, and $7.9 million, or 24.2%, respectively, from the
corresponding periods of the prior fiscal year. Our sales increased primarily
because of an increase in demand for our land-based seismic products for the
Canadian and Middle Eastern marketplaces. This sales increase was partially
offset by a decline in sales of our marine-based seismic products as a result of
the oversupply of deepwater seismic vessels.
Cost of sales for the three months and nine months ended June 30, 2000
increased $5.1 million, or 87.9%, and $10.5 million, or 54.5%, respectively,
from the corresponding periods of the prior fiscal year. Cost of sales
increased as a percentage of total sales to 83.9% and 73.3% in the three months
and nine months ended June 30, 2000, respectively, from 60.4% and 58.9% in the
corresponding periods of the prior fiscal year. Several factors have
contributed to the decline in our gross profit margin since the prior year
periods. First, the sales of our land-based seismic products continue to
experience competitive pricing pressures despite a recent increase in demand. As
a result of these pricing pressures, in recent months we made a highly
competitive bid on a large equipment order. As expected, the revenues from the
resulting order absorbed fixed overhead costs which otherwise would have been
unabsorbed, however, our direct labor costs exceeded those anticipated for
filling the order. We expect competitive pressures to continue throughout the
remainder of this fiscal year. Second, the sales mix contains fewer sales of
marine-based products due to an over supply of deepwater seismic vessels. Sales
of our marine products have historically had the highest gross profit margins.
Finally, a number of other factors contributed to the decline in our gross
profit margin including currency fluctuations resulting in increased cost of
foreign-purchased materials, increased warranty expenses associated with our
thermal imaging products and increased inventory obsolescence costs associated
with the introduction of a new reservoir characterization acquisition system.
Selling, general and administrative expenses for the three months ended June
30, 2000 increased $0.5 million, or 21.7%, from the corresponding period of the
prior fiscal year and for the nine months ended June 30, 2000 decreased $0.3
million, or 3.5%, from the corresponding period of the prior fiscal year. These
increases and decreases are primarily the result of periodic fluctuations in our
bad debt expenses. Selling, general and administrative expenses decreased as a
percentage of total sales to 21.1% and 18.5% in the three months and nine months
ended June 30, 2000, respectively, from 23.5% and 23.8% in the corresponding
periods of the prior fiscal year, primarily reflecting higher sales volume.
Research and development expenses for the three months ended June 30, 2000
increased $0.2 million, or 16.1%, and for the nine months ended June 30, 2000
decreased $0.1 million, or 1.3%, from the corresponding periods of the prior
fiscal year. Research and development expenses decreased as a percentage of
total sales to 12.6% and 11.2% in the three months and nine months ended June
30, 2000, respectively, from 14.7% and 14.1% in the corresponding periods of the
prior fiscal year, reflecting higher sales volume.
Our effective tax rate for the three months ended June 30, 2000 was a benefit
of 33.1% compared to a benefit of 480.0% for the three months ended June 30,
1999. The effective tax rate for the nine months ended June 30, 2000 was a
benefit of 37.3% compared to a tax provision of 14.0% for the corresponding
period of the prior fiscal year. The tax rates for the prior year periods ended
June 30, 1999 include the impact of $0.2 million nonrecurring tax benefit
relating to the utilization of tax credits and other attributes from prior
years. Excluding the tax benefit, the effective tax rates for each of the
periods ended June 30, 1999 would have been 35.0%.
Liquidity and Capital Resources
At June 30, 2000, we had $3.8 million in cash and cash equivalents. For the
nine months ended June 30, 2000, we generated $3.1 million of cash from
operating activities, principally resulting from our net loss adjusted for
noncash expenses and changes in working capital.
For the nine months ended June 30, 2000, we used approximately $4.3 million of
cash in investing activities, principally consisting of capital expenditures.
We estimate that total capital expenditures in fiscal 2000 will be approximately
$6.0 million.
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For the nine months ended June 30, 2000, we used $0.1 million of cash in
financing activities resulting from principal payments on long-term mortgage
notes payable.
We have a working capital line of credit, under which we are able to borrow
funds secured by our accounts receivable and inventory. The credit facility
expires in October 2001. Our credit facility prohibits us from paying cash
dividends on our common stock, limits our capital expenditures, limits our
additional indebtedness to $7.5 million, requires us to maintain certain
financial ratios and contains other customary covenants. There were no
borrowings under our line of credit at June 30, 2000.
The operating loss we experienced in the third quarter resulted in a
reduction in our borrowing availability. Our borrowing availability under the
credit facility at June 30, 2000 is limited to $1.5 million. We are currently in
discussions with our lender to increase our borrowing availability under the
credit facility.
We believe that the combination of existing cash reserves, cash flows from
operations and borrowing availability under our credit facility should provide
us with sufficient capital resources and liquidity to fund our planned
operations through fiscal 2000. We also believe we will be successful in either
increasing our borrowing availability with our current lender or securing
adequate financing elsewhere to fund our future operating needs. However, there
can be no assurance that we will be able to obtain such additional borrowings 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
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,
1999 under the headings "Forward-Looking Statements" and "Risk Factors".
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.
Demand for Our Products is Volatile; Industry Conditions Currently are
Uncertain; Pricing Pressures May Continue
In fiscal 1999 rapid declines in oil prices forced most major oil companies to
significantly reduce their exploration budgets, which in turn, caused most
seismic contractors (our primary customers) to significantly reduce the number
of operational crews performing seismic related activities. This crew reduction
resulted in large amounts of under utilized or idle seismic equipment in the
marketplace. Although oil and gas prices have recovered substantially from their
lows of last year, the industry has continued to be cautious in its capital
spending on exploration activities. Moreover, the surplus of equipment in the
industry and the time required to reassemble qualified crews has slowed recovery
of the land-based seismic markets, resulting in a discount-driven pricing
environment. Excess capacity with our marine customers is also adversely
affecting our business. The oversupply of deepwater marine seismic vessels,
coupled with the pending merger of Western Geophysical and Geco Prakla, has
resulted in reduced or delayed capital spending in the marine sector.
Until the number of operational seismic crews increases significantly and
until idle seismic equipment is again utilized, we believe our seismic equipment
sales may remain at depressed levels. Further, if oil and gas prices return to
lower levels, our sales may further decline.
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The recent industry environment has resulted in, and may continue to result
in, competitive pricing pressures on our land-based seismic products. In
addition, certain of our competitors are based outside the United States. As
the strength of the U.S. dollar increases against certain foreign currencies,
our ability to bid competitively against certain foreign competitors is
adversely affected. We intend to respond competitively to these market forces
in order to maintain, or improve, our market share. These pricing pressures may
continue to adversely impact our profitability.
In addition, the recent industry environment has resulted in, and may continue
to result in, a greater percentage of our sales being attributable to certain
consumable land-based seismic products that historically have provided lower
gross profit margins. Further, if overall sales decrease, our manufacturing
costs per unit increase as fixed costs are allocated over fewer units. The
combination of these factors may result in lower gross profit margins in future
periods.
We Are Subject to Currency Fluctuations for Purchased Materials
A Japanese manufacturer unaffiliated with us is currently the only supplier of
wide format printheads that we use in our wide format thermal plotters. We pay
for the printheads in Japanese yen. Accordingly, we are at risk that, due to
currency fluctuations, the cost of the printheads to us could increase. Our
practice is not to hedge these foreign currency exposures unless we are bound by
a firm purchase commitment.
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 June 30, 2000, our bad debt allowance was $0.7 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
OYO GEOSPACE CORPORATION
Date: August 10, 2000 By: /s/ Thomas T. McEntire
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Thomas T. McEntire
Chief Financial Officer
(principal financial officer)
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