FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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 0-28422
GEOSCIENCE CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA 76-0497775
(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) 780-1881
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 APRIL 30, 1999
- ---------------------------- -----------------------------
Common Stock, $.01 par value 9,985,350
<PAGE>
FORM 10-Q
GEOSCIENCE CORPORATION
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet March 31, 1999 (unaudited)
and December 31, 1998 1
Consolidated Statement of Income for the quarter ended
March 31, 1999 and 1998, (unaudited) 2
Consolidated Statement of Cash Flows for the quarter ended March 31,
1999 and 1998, (unaudited) 3
Consolidated Statement of Changes in Shareholders' Investment for the
quarter ended March 31, 1999 and 1998, (unaudited) 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOSCIENCE CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
(unaudited)
ASSETS
Current assets
Cash and cash equivalents ............................ $ 884 $ 659
Receivables, net ..................................... 36,722 35,332
Inventories, net ..................................... 67,106 65,046
Other ................................................ 6,513 6,162
-------------- -----------------
Total current assets .............................. 111,225 107,199
Property, plant and equipment, net ............................ 27,332 28,334
Long-term receivables, net .................................... 12,862 9,566
Other assets .................................................. 5,233 5,751
-------------- -----------------
Total assets ...................................... $ 156,652 $ 150,850
============== =================
LIABILITIES
Current liabilities
Notes payable and current maturities of long-term debt $ 28,362 $ 29,883
Accounts payable ..................................... 19,198 14,471
Unearned revenue ..................................... 301 287
Taxes on income ...................................... 1,893 1,621
Payable to Tech-Sym Corporation ...................... 10,615 10,423
Other accrued liabilities ............................ 7,918 8,382
-------------- -----------------
Total current liabilities ......................... 68,287 65,067
Long-term debt ................................................ 5,905 5,413
Other liabilities and deferred credits ........................ 736 780
-------------- -----------------
Total liabilities ................................. 74,928 71,260
SHAREHOLDERS' INVESTMENT
Common stock - authorized 35,000,000 shares,
$.01 par value; issued 10,504,350 shares .................... 105 105
Additional capital ............................................ 44,946 44,946
Accumulated earnings .......................................... 43,521 40,956
Accumulated other comprehensive loss .......................... (534) (103)
Common stock held in treasury,
at cost (519,000 shares) .................................... (6,314) (6,314)
-------------- -----------------
Total shareholders' investment .................... 81,724 79,590
-------------- -----------------
Total liabilities and shareholders' investment .... $ 156,652 $ 150,850
============== =================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
1
<PAGE>
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
For the Quarter
Ended March 31,
----------------------
1999 1998
-------- --------
Revenue ............................................ $ 30,142 $ 33,311
Cost of revenue .................................... 18,861 20,051
-------- --------
Gross margin .............................. 11,281 13,260
Expenses:
Company-sponsored product development ............ 2,406 1,901
Selling, general and administrative expense ...... 6,942 7,393
Interest expense ................................. 848 755
Interest and other income, net ................... (2,633) (148)
-------- --------
Income before income taxes ................ 3,718 3,359
Provision for income taxes ......................... 1,153 1,041
-------- --------
Net income ................................ $ 2,565 $ 2,318
======== ========
Earnings per common share - basic and diluted ...... $ .26 $ .23
Weighted average common shares outstanding
Basic ..................................... 9,985 9,980
Diluted ................................... 10,014 9,995
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Quarter
Ended March 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income ................................................... $ 2,565 $ 2,318
Adjustments to reconcile net income to net
cash provided by (used for) operating activities
Depreciation and amortization .......................... 2,462 2,498
Merger termination settlement .......................... (3,000)
Change in operating assets and liabilities
Receivables .............................................. (1,390) 4,175
Inventories .............................................. (2,060) 90
Other current assets ..................................... (351) (768)
Long-term receivables .................................... (4,083) 910
Other assets ............................................. 101 (357)
Accounts payable ......................................... 4,727 (1,296)
Unearned revenue ......................................... 14 33
Taxes on income .......................................... 272 608
Payable to Tech-Sym ...................................... (838) 605
Other liabilities ........................................ (872) 1,680
-------- --------
Net cash (used for) provided by operating activities (2,453) 10,496
-------- --------
Cash flows from investing activities
Capital expenditures ......................................... (1,222) (2,685)
Other ........................................................ 7 52
-------- --------
Net cash used for investing activities .............. (1,215) (2,633)
-------- --------
Cash flows from financing activities
Net borrowings from (payments to) Tech-Sym Corporation ....... 1,030 (1,960)
Net payments under line of credit agreements ................. (627) (4,258)
Proceeds from long-term debt ................................. 806 856
Payments on long-term debt ................................... (316) (124)
Merger termination proceeds (Note 6) ......................... 3,000
-------- --------
Net cash provided by (used for) financing activities 3,893 (5,486)
-------- --------
Net increase in cash and cash equivalents ....................... 225 2,377
Cash and cash equivalents at beginning of period ............. 659 799
-------- --------
Cash and cash equivalents at end of period ................... $ 884 $ 3,176
======== ========
Non Cash Transactions
Reduction in balance of notes receivable sold with recourse .. $ 787 $ 850
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE QUARTER ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Additional Accumulated Comprehensive Treasury Stock Shareholders'
Shares Amount Capital Earnings Income (Loss) Shares Amount Investment
------- ------- ---------- ----------- ------------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 ........... 10,504 $ 105 $ 44,946 $ 40,956 $ (103) 519 $(6,314) $ 79,590
Comprehensive income for 1999
Net income ........................ 2,565
Other comprehensive
Income (loss), net of tax
Foreign currency
translation adjustments .... (431)
Total comprehensive income 2,134
------- ------- ---------- ----------- ------------- ------- ------- -------------
Balance, March 31, 1999 .............. 10,504 $ 105 $ 44,946 $ 43,521 $ (534) 519 $(6,314) $ 81,724
======= ======= ========== =========== ============= ======= ======= =============
<CAPTION>
Accumulated
Other Total
Common Stock Additional Accumulated Comprehensive Treasury Stock Shareholders'
Shares Amount Capital Earnings Income (Loss) Shares Amount Investment
------- ------- ---------- ----------- ------------- ------- ------- -------------
Balance at December 31, 1997 ......... 10,499 $ 105 $ 44,893 $ 33,447 $ (364) 519 $(6,314) $ 71,767
Comprehensive income for 1998
Net income ........................ 2,318
Other comprehensive
income, net of tax
Foreign currency
translation adjustments .... 202
Total comprehensive income 2,520
------- ------- ---------- ----------- ------------- ------- ------- -------------
Balance, March 31, 1998 .............. 10,499 $ 105 $ 44,893 $ 35,765 $ (162) 519 $(6,314) $ 74,287
======= ======= ========== =========== ============= ======= ======= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
GEOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
GeoScience Corporation and its subsidiaries (the "Company") have been prepared
in accordance with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the financial statements and notes thereto appearing in the
Company's Form 10-K for the year ended December 31, 1998.
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 quarter ended March 31,
1999 are not necessarily indicative of the results expected for the full year
ending December 31, 1999.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2 - INVENTORIES
Inventories, which consist principally of electronic components, are
summarized as follows (in thousands):
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
Raw materials ........................... $ 34,772 $ 33,819
Work in progress ........................ 12,012 14,388
Finished goods .......................... 28,106 26,426
-------------- -----------------
74,890 74,633
Less reserve ............................ (7,784) (9,587)
-------------- -----------------
$ 67,106 $ 65,046
============== =================
NOTE 3 - PER SHARE DATA
Basic per share amounts have been computed based on the average
number of common shares outstanding. Diluted per share amounts reflect the
increase in average common shares outstanding that would result from the
exercise of outstanding stock options computed using the treasury stock method.
Stock options are the only potentially dilutive shares the Company has
outstanding for all periods presented. Outstanding options to purchase 485,000
and 520,700 shares of common stock were excluded from the computation of diluted
earnings per share for the quarter ended March 31, 1999 and 1998, respectively,
because to do so would have been anti-dilutive using the treasury stock method.
NOTE 4 - RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("FAS 133") ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. FAS 133 is effective for fiscal
years beginning after June 15, 1999 and establishes accounting and reporting
standards for derivative instruments. The Company has historically not engaged
in significant derivative instrument activity. Adoption of FAS 133 is not
expected to have a material effect on the Company's financial position or
operational results.
NOTE 5 - SEGMENT INFORMATION
The Company manages its business primarily on a product basis; the
Company has one reportable segment. The Company's reportable segment is
comprised of operations in the United States, Europe and Asia. The reportable
segment provides products and services as described in the Company's Form 10-K
for the year ended December 31, 1998. The accounting policies of the segment are
those described in Note 1 to Notes to the Consolidated Financial Statements
included in that Form 10-K.
5
<PAGE>
GEOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6 - MERGER AND TERMINATION
In December 1998, the Boards of Directors of the Company and Tech-Sym
Corporation (holder of 79.12% of outstanding Common shares of the Company)
committed to a plan to seek a strategic merger partner for the Company. On
January 18, 1999, the Company and Tech-Sym signed an agreement to merge the
Company with a third party, subject to stockholder and regulatory approval.
The Company, Tech-Sym and the third party subsequently terminated the
proposed merger. During the quarter ended March 31, 1999, the third party paid
the Company $3,000,000 in connection with such termination. The merger
termination fee, net of transactional expenses was recorded as other income. The
Company and Tech-Sym continue to pursue opportunities to combine the Company's
operations with a strategic partner.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Recent budget reductions for oil and gas exploration announced by
several oil companies hindered bookings for the first quarter of 1999. The
Company's backlog decreased from $37,500,000 at December 31, 1998 to
approximately $20,000,000 at March 31, 1999. The Company embarked on a major
cost reduction program in the first quarter of 1999 in response to the difficult
market conditions. The program includes a reduction in personnel levels through
attrition and layoffs, planned reductions in levels of research and development
spending and implementation of additional cost controls in all departments.
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1999 COMPARED TO THE QUARTER
ENDED MARCH 31, 1998
Revenue for the quarter ended March 31, 1999 decreased 10% to
$30,142,000 compared to $33,311,000 for the quarter ended March 31, 1998. The
decrease in revenue is attributable to the slow down in the seismic industry due
to budget cutbacks by oil and gas exploration companies. Revenue for the current
quarter included $3,500,000 for upward repricing of a customer's order due to
its failure to meet volume commitments. The gross margin decreased to 37% of
revenues for the quarter ended March 31, 1999 compared to 40% for the same
quarter in the prior year. The decrease in the gross margin percentage reflected
the change in the mix of products shipped as well as unfavorable manufacturing
costs. Shipments of data collection modules, which generally carry higher
margins than the Company's other products, decreased $4,600,000 to $7,800,000
from $12,400,000 in the comparative period in 1998.
Expenditures for research and development and selling, general and
administrative operations were essentially flat compared to the same quarter in
the prior year. As a percentage of revenue, these expenses increased to 31% for
the first quarter of 1999 compared to 28% for the first quarter of 1998. General
and administrative expenditures for the current period included approximately
$318,000 for employment reduction expenses. While somewhat reduced, the Company
continues to invest in research and development projects such as reservoir
monitoring equipment, solid streamer cables and the next generation recording
system and modules that it believes are most promising for future revenue and
profit.
Interest expense was $848,000 for the quarter ended March 31, 1999
compared to $755,000 for the quarter ended March 31, 1998. The $93,000 or 12%
increase reflects the Company's additional borrowing to meet its cash
requirements. Other income was $2,633,000 for the quarter ended March 31, 1999
compared to $148,000 for the same quarter in the prior year. The increase
primarily resulted from the settlement received, net of transactional expenses,
related to the termination of the merger agreement discussed in Note 6.
Additionally, the Company's interest income from notes receivable on products
sold increased $257,000 from the comparative period in 1998.
The effective tax rate for the quarter ended March 31, 1999 and 1998
was 31%.
Net income for the quarter ended March 31, 1999 was $2,565,000 or
$.26 per diluted share as compared to $2,318,000 or $.23 per diluted share for
the quarter ended March 31, 1998, reflecting the net effect of the items
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the current period, the Company satisfied its working capital
and capital expenditure requirements through borrowings on its line of credit
facilities, advances from Tech-Sym and proceeds from the settlement related to
the terminated merger agreement. The Company's accounts receivable and inventory
balances increased during the period from December 31, 1998. At March 31, 1999
the Company's working capital balance was $42,938,000 compared to $42,132,000 at
December 31, 1998. Cash used for operations was $2,453,000 for the three months
ended March 31, 1999 and cash provided by operations was $10,496,000 for the
three months ended March 31, 1998.
At March 31, 1999, the Company had short-term line of credit
facilities aggregating $29,209,000 of which $4,491,000 was available for
additional short-term borrowings. The Company had a working capital ratio of
1.63 to 1.0 and debt to total capitalization of 30%. The Company believes that
its operating results and available line of credit facilities will provide
adequate sources of funds to meet foreseeable requirements.
7
<PAGE>
Purchases of property, plant and equipment totaled $1,222,000 for the
three months ended March 31, 1999 compared to $2,685,000 for the same period in
the prior year. The Company estimates that capital expenditures for property,
plant and equipment during the remainder of 1999 will be approximately
$3,000,000. 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.
YEAR 2000 COMPLIANCE
As reported in the Company's Form 10-K for the year ended December
31, 1998, the Company is continuing its efforts to insure Y2K software failures,
internally or externally, will not have an adverse effect on its financial
position or results of operations. Cross-functional project teams, established
during 1998 at each subsidiary, continue to review and assess the various
factors surrounding the Y2K issues. The Company estimates the total cost of Y2K
compliance activities will be less than $500,000 and the amount expended to date
is less than $250,000.
The Company expects to complete its Y2K project during 1999. Based on
available information, the Company does not believe any material exposure to
significant business interruption exists as a result of Y2K compliance issues.
Accordingly, the Company has not adopted any formal contingency plan in the
event its Y2K project is not completed in a timely manner. These costs and the
timing in which the Company plans to complete its Y2K modification and testing
processes are based on management's best estimates. However, there can be no
assurance that the Company will identify and remediate all significant Y2K
problems on a timely basis, that remedial efforts will not involve significant
time and expense or that such problems will not have a material adverse effect
on the Company's business, results of operations or financial position.
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.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits to this report except for Exhibit 27 -
Financial Data Schedule which is deemed not to be filed for
purposes of liability under the federal securities laws.
(b) Reports on Form 8-K.
Current report on Form 8-K dated February 5, 1999 Item 5.
Other Events, reported the execution of a definitive merger
agreement with Core Laboratories N.V. and Tech-Sym
Corporation, regarding GeoScience Corporation.
Current report on Form 8-K dated March 25, 1999 Item 5. Other
Events, reported the information set forth in the press
release dated March 24, 1999, regarding the termination of the
merger agreement filed on Form 8-K dated February 5, 1999.
No financial statements were filed as a part of these reports.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GEOSCIENCE CORPORATION
Registrant
Date: May 12, 1999 /s/ RICHARD F. MILES
Richard F. Miles, President
(principal executive officer)
Date: May 12, 1999 /s/ RAY F. THOMPSON
Ray F. Thompson, Vice President
and Chief Financial Officer
(principal financial officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM GEOSCIENCE CORPORATION FORM 10Q FIRST QUARTER 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 884
<SECURITIES> 0
<RECEIVABLES> 40,016
<ALLOWANCES> 3,294
<INVENTORY> 67,106
<CURRENT-ASSETS> 111,225
<PP&E> 51,005
<DEPRECIATION> 23,673
<TOTAL-ASSETS> 156,652
<CURRENT-LIABILITIES> 68,287
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 81,619
<TOTAL-LIABILITY-AND-EQUITY> 156,652
<SALES> 30,142
<TOTAL-REVENUES> 30,142
<CGS> 18,861
<TOTAL-COSTS> 28,209
<OTHER-EXPENSES> (2,633)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 848
<INCOME-PRETAX> 3,718
<INCOME-TAX> 1,153
<INCOME-CONTINUING> 2,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,565
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
