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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-17195
LANDMARK GRAPHICS CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 76-0029459
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15150 MEMORIAL DRIVE
HOUSTON, TEXAS 77079-4303
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 560-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
PREFERRED SHARES PURCHASE RIGHTS
COMMON STOCK, $0.05 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K./X/
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was $420,032,529 as of July 23, 1996 based upon the average bid and
asked prices of such stock as reported in the National Market System of the
National Association of Securities Dealers Automated Quotation System (the
"Nasdaq National Market") on that day.
There were 17,528,052 shares of common stock, $0.05 par value, outstanding
at July 23, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Selected designated portions of the Registrant's definitive Proxy Statement
relating to the 1996 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Annual Report.
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PART 1
ITEM 1. BUSINESS
GENERAL
Landmark Graphics Corporation (the "Company" or "Landmark") was
incorporated in Texas in July 1982 under the name "Landmark Graphics
Corporation" and reincorporated under the same name in Delaware in June 1987.
Unless the context otherwise requires, references to "Landmark" and the
"Company" include the prior Texas corporation as well as the current Delaware
corporation and its subsidiaries. Landmark's executive offices are located at
15150 Memorial Drive, Houston, Texas 77079-4304, and its telephone number is
(713) 560-1000.
The Company designs, markets and supports sophisticated computer-aided
exploration ("CAEX") and computer-aided reservoir management ("CARM") software
and systems. In more than 70 countries, geologists, geophysicists and petroleum
engineers use Landmark products in exploration and production. The Company's
applications software transforms vast quantities of seismic, well log economic
and other data into detailed computer models of petroleum reservoirs. These
models reveal critical information about subsurface formations.
Landmark offers an extensive line of integrated software applications, for
seismic processing, three dimensional ("3D") and two dimensional ("2D") seismic
interpretations, geologic and petrophysical interpretation, mapping and
modeling, reservoir modeling and simulation well log and production analysis,
drilling and production engineering and data management. Through its
professional service and consulting business, Landmark provides software
training, onsite support, workflow analysis, assistance in designing computer
networks, integration of applications, data management services and installation
services. In addition to providing software products, the Company is a
value-added reseller of workstations and other hardware and provides a range of
services, including software and systems support and training, systems
configuration and network design, and data loading and management.
In 1984, Landmark shipped the first commercially available
microprocessor-based interactive CAEX system for interpretation of three
dimensional seismic data and continues to be a leader in the industry with a
series of innovations in 3D seismic technology. The Company has also expanded
the breadth of its applications portfolio to include geologic and petrophysical
interpretation and analysis, geologic mapping and modeling, seismic data
processing, reservoir engineering, reservoir modeling and simulation, drilling
and production. The Company believes that there is a significant need in the
CAEX and CARM markets for systems that enable geoscientists in different
technical disciplines to work in multidisciplinary teams using a common database
and integrated tools. In response to this need, the Company has introduced
OpenWorks, a software integration and data management platform that offers an
open systems computing environment for the concurrent visualization,
interpretation, analysis and management of different types of data for
exploration and production in a standardized environment. OpenWorks is based on
a UNIX operating system, employs standard graphical user interfaces and
networking protocols, and functions with the Oracle relational database
management system. OpenWorks enables integration of multiple applications,
including Landmark's applications as well as third-party applications.
PROPOSED MERGER
On June 30, 1996, the Company and Halliburton Company ("Halliburton")
entered into an Agreement and Plan of Merger (the "Merger Agreement") providing
for the merger (the "Merger") of the Company with and into a wholly-owned
subsidiary of Halliburton. The Merger Agreement provides for the exchange of
0.574 shares of Halliburton common stock for each outstanding share of the
Company's common stock and for all outstanding options to purchase shares of the
Company's common stock to be assumed by the corporation surviving the Merger and
converted into options to purchase shares of Halliburton common stock. The
Merger transaction is subject to the Company's shareholder approval and is
expected to be accounted for as a pooling of interests. No adjustments have been
made in the accompanying audited financial statements of the Company to give
effect to the Merger because the proposed transaction has not been consummated.
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INDUSTRY BACKGROUND
Several trends are driving the oil and gas industry to reduce risk and cost
and to increase productivity in exploration and production. In heavily explored
regions of the world, many reservoirs that are easy to locate and exploit are
already under development or in production; accordingly, the search for
additional oil and gas reserves has required increasingly expensive exploration
and production programs, often in more complex reservoirs and more remote
locations. The increasing difficulty and cost of locating oil and gas and the
drive to create a competitive advantage by being the low-cost producer have led
companies to seek more efficient ways to discover and develop reserves. At the
same time, continuing low oil and gas prices have led many energy companies to
reduce exploration and production budgets. These factors make the optimal
placement of drilling locations increasingly important, particularly offshore
where drilling platforms alone can cost between $25 million and $100 million.
CAEX and CARM systems provide powerful tools to reduce the incidence of
drilling dry holes and improve the productivity and efficiency of both the
exploration and production processes. Increasingly, oil and gas companies are
seeking to improve efficiency and reduce the risk by employing modeling and
analysis techniques throughout the exploration and production process. As a
result, oil and gas companies can better capitalize on the enormous amounts of
data they have collected in recent years. As the technology has advanced, CAEX
and CARM have become accepted and widely used in the industry, facilitating
better understanding of the subsurface and providing better results in locating
and extracting reserves than traditional methods.
Early 3D seismic interpretation and analysis were performed on
mainframe-based systems. These systems were generally available only to large,
integrated oil companies with the substantial resources required to purchase
mainframe computers and to develop the associated software. With the shift from
mainframe computers to less expensive, powerful workstations and PC's,
workstation-based CAEX and CARM systems have become commercially viable. In the
1990's, the movement to client-server computing environments has facilitated
work group interaction. The increased ease-of-use and improved price/performance
ratios that have resulted from continued technological advances have helped to
significantly expand the CAEX and CARM marketplaces in recent years as systems
have now become readily available to the entire spectrum of oil and gas
companies, including small independents, exploration and production technology
boutiques, and national oil companies.
EXPLORATION AND PRODUCTION PROCESS
The exploration and production process typically begins with the selection
of a defined geographical target area and the collection and analysis of various
types of data, including seismic and well log data, which may provide
information as to the location of potential oil and gas reservoirs within the
target area. Seismic data, which is acquired over a wide area by directing sound
waves into the earth and measuring the responses as they reflect from subsurface
geologic features, is used primarily by geophysicists to map potential
hydrocarbon bearing formations and the structures that bound them, such as
faults. Well log data is used primarily by geologists to pick the tops and
bottoms of geologic strata and analyze the porosity, permeability and other
physical properties of the geologic strata in a small area around a well
borehole. Geologists, geophysicists and other geoscientists use this data to
develop drilling plans.
Once a well is successfully drilled in a reservoir, geoscientists collect
additional data about the reservoir, combine it with data collected in the
exploration phase, and refine their analyses to arrive at a development plan.
This new information allows the production professional to further define the
boundaries and physical properties of the reservoir, determine the appropriate
number and placement of development wells and determine the proposed rate of
production from each well.
Once development is completed and the reservoir is producing, geologists
and petroleum engineers analyze well logs, pressure and flow tests, and
production histories to further their understanding of the physical properties
of the reservoir. As a more accurate description of the reservoir develops,
petroleum engineers devise programs to maximize the recovery of hydrocarbons
throughout the life of the reservoir.
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Each phase of this process is critical to the successful overall
development and management of the reservoir. Until recently, significant parts
of the process, including three-dimensional modeling and visualization of the
subsurface, were either not feasible or required a time-consuming manual
drafting and interpretation process, and were typically performed separately by
geologists, geophysicists, engineers and others. Although these professionals
may study the same geologic area of interest and may share a common objective
with respect to the reservoir's development, they have historically operated
independently from one another, with relatively little sharing of data or
interpretations. The Company believes that CAEX and CARM and the integration of
professionals into multi-disciplinary asset teams through an integrated software
platform are important in enabling oil and gas companies to improve productivity
in the exploration and production process and to maximize value from the
enormous amounts of data now available.
THE COMPANY
Landmark was the original supplier of microprocessor-based 3D seismic
interpretation products in the CAEX marketplace. The Company remains committed
to providing CAEX tools which exploit the full value of 3D visualization,
interpretation and analysis, enabling oil and gas companies to maximize the
value of their substantial investments in 3D seismic data. The Company
recognized in the early 1980's, at a time when the Company's competitors focused
on the analysis of two dimensional seismic data, that 3D seismic data offered
superior interpretive and analytical results. Fueled by its focus on 3D
technology, Landmark experienced rapid growth throughout the 1980's despite
severe reductions in exploration and production in the United States and
downsizing of the oilfield services industry.
As customers place increasing importance on streamlining work flows between
multi-disciplinary teams, the Company believes petroleum companies will demand
state-of-the-art software in various technical disciplines which can be easily
shared. The ability to access and manage vast quantities of data will also be
essential to these companies. The Company is focusing on the organization of
internal teams in order to respond to customers' rapidly changing needs.
Establishing strong entrepreneurial product groups will enhance the Company's
ability to provide the best available software needed by customers.
Additionally, the Company believes the creation of an integrated solutions group
will expand the Company's ability to provide complete solutions to customers.
To complement its core 3D seismic interpretation products, the Company has
developed, licensed or acquired other products that offer functionality to
geologists, geophysicists, reservoir engineers and other earth science
professionals. Geologic mapping and seismic processing software applications
have become core products along with 3D seismic interpretation and reservoir
engineering software applications, and the Company has expanded its offerings of
software to support the exploration and production geologist. Several recent
acquisitions have significantly expanded the Company's ability to meet the needs
of geologists, geophysicists and petroleum engineers:
In March 1994, with the acquisition of Advance Geophysical Corporation
("Advance") of Denver, Colorado, Landmark acquired the ProMAX family of
products, which provide seismic processors and interpreters with tools to
manipulate raw seismic data and to condense it into a form that is ready
for interpretation.
The September 1994 acquisition of Houston-based Stratamodel, Inc.
("Stratamodel") further expanded Landmark's product offerings to include
reservoir characterization and modeling software products used by
geoscientists in oil and gas exploration and production.
Also in September 1994, the Company acquired MGI Associates, Inc.
("MGA"), a leader in the development of personal computer-based petroleum
economics and reservoir engineering software applications.
In February 1995, the Company acquired certain assets of DRD
Corporation ("DRD"), including drilling and completion engineering software
applications.
In June 1995, the Company acquired GeoGraphix, Inc. ("GeoGraphix"), a
Denver, Colorado-based company that designs, implements, markets and
supports technical mapping and data analysis software.
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These products address unique requirements of the oil and gas exploration
and production industry. The technology which GeoGraphix has developed is
used by geoscientists, petrophysicists, petroleum engineers and land
professionals to organize, visualize and assess data which has a spatial
context. GeoGraphix's "smaller-scale" systems for basic geological and
engineering problems complement Landmark's traditional solutions designed
for the rigorous demands of complex reservoir characterization. The
addition of GeoGraphix provides worldwide customers with a broad range of
scaleable solutions across the "complexity spectrum" from basic to complex.
In March 1996, the Company acquired the general application software
operations of the Western Atlas Software Division from Western Atlas
International, Inc. ("WAII"). The Western Atlas software product families
acquired by Landmark involve both exploration and production software
product lines, including VIP, a full physics reservoir simulator, as well
as SigmaView, a geostatistical application.
Since its inception in 1982, the Company has made significant research and
development expenditures for the development of geoscience applications
software. The Company believes that its customers generally are unwilling or
unable to incur the expense or delay of developing such software, and expertise
internally, and have determined that competitive pressures in exploration and
production necessitate the acquisition of geoscience systems such as those
offered by Landmark.
STRATEGY
Landmark's strategy is to provide complete computing solutions and other
information services for the exploration and production of oil and gas
reservoirs to provide business advantages for its global customers, including
software, services and third-party hardware. The Company executes this strategy
in the following ways:
Applications Development. The Company develops new software applications
and enhancements to existing software applications, both internally and through
joint development efforts with business partners or licensees, or otherwise
acquires software applications from third parties. To complement these efforts,
the Company configures hardware to take advantage of the full range of
functionality offered by the Company's software applications.
Integration of Applications and Data Management. The Company expects that,
as the exploration and production industry intensifies its use of technology,
there will be an increasing demand for software integration and data management
platforms such as OpenWorks. The Company intends to continue the development of
OpenWorks, to embrace prevailing technology standards within the OpenWorks
platform, and to intensify its marketing of OpenWorks as a means of enabling
multidisciplinary teams of geoscientists to work concurrently with the same data
and applications.
Integrated Solutions and Expansion of Services. Landmark has created an
Integrated Solutions Group to provide account management, training, first-line
support and consulting services across most of Landmark's product groups. In
addition, because the Company believes that offering a comprehensive range of
services to its customers is a critical aspect of its business, the Company
intends to continue enhancing and expanding its range of services to meet the
evolving requirements of its customers.
Broadening of Customer Base. In addition to selling to its established
customer base of major multinational and large independent oil companies, the
Company sells to small independent oil and gas firms and state-owned energy
companies.
Growth Through Acquisitions. The Company intends to continue to evaluate
and, if attractive opportunities arise, acquire or license products and
technologies and acquire businesses which it believes are important to achieving
its strategy.
PRODUCTS AND SERVICES
Landmark's core products are its seismic interpretation software
applications, seismic processing applications, geologic interpretation and
mapping applications, 3D reservoir modeling applications, production
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engineering applications, technical mapping and data analysis applications and
OpenWorks software integration and data management platform. The Company also
offers a number of other complementary software applications.
SEISMIC INTERPRETATION APPLICATIONS
Landmark's software applications designed primarily to enhance the
visualization, interpretation and analysis of 3D and 2D seismic data include the
following:
SeisWorks (3D/2D seismic interpretation). SeisWorks provides a range of
capabilities for seismic interpretation and analysis. SeisWorks/3D incorporates
full multi-survey merge capabilities. SeisWorks/2D is a complete, stand-alone
interpretation package. SeisWorks is fully integrated with the OpenWorks
environment for immediate access and data sharing among geophysicists, geologist
and engineers.
EarthCube (high-performance 3D seismic interpretation). EarthCube provides
real time seismic interpretation, analysis and visualization in a 3-D integrated
environment. EarthCube leverages high-performance graphics and CPU power to
combine multiple interpretation and analysis technologies for seismic-based
exploration and production.
SuperSeisWorks (3D seismic interpretation application suite). The
SuperSeisWorks suite of applications includes SeisWorks/3D, SeisCube and ZAP!III
linked by a single license for convenience and productivity.
ZAP! III (automatic horizon picking). ZAP! III allows geoscientists to map
a seismic reflection surface through an entire 3D volume in minutes or even
seconds. This task could take weeks or months when done manually.
SeisCube (visualization and interpretation of 3D volumes). This product
allows geoscientists to select a 3D surface to map with ZAP! III and then peel
away overlying seismic data to view the surface in three dimensions. Users of
SeisCube in conjunction with SeisWorks/3D can scan through the solid 3D cube on
screen before they begin to interpret specific surfaces, faults or other
geologic features.
SurfCube (perspective displays of interpreted surfaces). This software
allows the user to rotate a full 3D perspective display to check the quality of
interpretations, add color and other seismic attributes to enhance the clarity
and content of surfaces, and communicate complex geological relationships to
others.
Vox Cube (analysis and visualization of seismic data attributes in 3D
space). This software helps users predict the presence of hydrocarbons by
adjusting the opacity and color of a 3D seismic volume to display only those
data attributes that are needed, such as phase, porosity or velocity.
SynTool (synthetic seismograms generation). SynTool creates synthetic
seismic traces from well log readings, enabling geoscientists to correlate more
effectively limited, extremely precise well log data with more extensive,
indirect seismic data.
TDQ (time-depth conversion). This product allows geoscientists to convert
time-based seismic data to depth-based geological data quickly and accurately,
and vice versa. It facilitates the use of multiple Landmark applications in a
single project.
PostStack (post stack processing for seismic interpreters). PostStack
provides seismic interpreters with the ability to access post stack processing
functions to optimize data to show particular features of interest. PostStack is
launched from within SeisWorks and uses SeisWorks data for easy user access.
PAL (seismic attribute extraction). PAL enables interpreters to extract
attributes directly from SeisWorks data. PAL provides more than 50 possible
attributes, enabling extensive examination of seismic data. These attributes can
then be displayed in a SeisWorks map view, overlaid on a VoxCube horizon or
evaluated in RAVE.
SeisWell (well log-to-seismic calibration). Using this software,
geoscientists can calibrate well log and seismic data using interactive wavelet
extraction technology. These techniques allow geoscientists to create
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synthetic seismograms and properly establish accurate time-depth relationships
that help define a precise earth model (acquired from WAII).
SeisTie (seismic vintage matching). This software helps geoscientists tie
different vintages of seismic data using a wavelet extraction process. By
vintage matching different 2D data, or 2D to 3D, or multiple 3D seismic data
sets, geoscientists are able to maximize the investment in available seismic
data (acquired from WAII).
3-D Knowledge Integrator (3-D visual integrator). This software is a 3D
visual integrator that allows geoscientists and engineers to simultaneously
share and quality control interpretations in a common window using multiple data
types from multiple applications. Interpreted data is projected to a common 3D
scene, where it can be viewed and manipulated to achieve visual integration
between disciplines (acquired from WAII).
SEISMIC PROCESSING APPLICATIONS
These applications provide tools for geoscientists to process complex
seismic data on their own workstations, which can eliminate the need to send
data to outside contractors.
MicroMAX (field seismic processing). MicroMAX enables geoscientists to use
personal computers to perform various quality control tasks and test seismic
data during the data acquisition process.
ProMAX (2D/3D seismic processing). This software consists of an extensive
library of techniques that help processing specialists to convert large amounts
of raw field recordings into 2D and 3D seismic images for further analysis and
interpretation. The new ProMAX version 6.0 has been expanded with capabilities
for high-volume 3D processing for very large datasets and has been integrated
with the seismic interpretation workflow.
ProMAX MVA (interpretive velocity modeling). ProMAX MVA (Migration Velocity
Analysis) enables geoscientists to construct accurate velocity models for
prestack depth migration, giving interpreters improved seismic images of complex
geology. ProMAX MVA is an add-on package to ProMAX.
ProMAX Prospector (post-stack processing). Prospector is a special version
of ProMAX designed for seismic interpreters, rather than processors. This
application allows geoscientists to analyze certain data attributes and perform
simple processing on selected seismic sections, to improve their understanding
of subsurface geology.
ProMAX VSP (borehole seismic processing). This is another version of ProMAX
designed to process "vertical" seismic data acquired inside wellbores. It
enables geoscientists to match precise well information (measured in units of
depth) with seismic data (measured in units of time), to obtain a better
understanding of the subsurface geology near the borehole.
MIMIC+/QUIK+ (forward ray trace modeling). This software is used to create
geologic models and perform ray trace modeling to accurately position and model
complex subsurface geologic structures (acquired from WAII).
RAYMAP+ (map migration and depth conversion). This inverse modeling package
produces accurate depth and geological maps from interpreted seismic data, using
ray tracing techniques. It accurately corrects for overlying structural and
velocity distortions while map migrating interpreted horizons and faults to
their true spatial location in depth (acquired from WAII).
SIVA+ (seismic interval velocity analysis). This software provides
interactive interval and stacking velocity analysis using model-based ray
tracing to compute velocity functions from seismic data. These accurate interval
velocities are necessary for proper depth conversion of seismic data (acquired
from WAII).
VESPA+ (wave equation seismic modeling). This software enables geoscientist
to analyze the complete seismic response to a layered geologic model by
generating full-wave synthetic seismograms for both shot-receiver and vertical
seismic profile (VSP) geometries. It can also be used to calibrate amplitude
variation with offset (AVO) studies, and to determine seismic acquisition
parameters (acquired from WAII).
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GEOLOGIC INTERPRETATION AND MAPPING APPLICATIONS
The following software applications enable geoscientists to interpret and
map a variety of geologic data:
Z-MAP Plus (geologic mapping and modeling). Z-MAP Plus provides
geoscientists with an extensive collection of geomathematical tools to compute
and model faults, horizons, fluid contacts, reservoir volumes and many other
geologic features. In addition, it provides users with a variety of specialized
tools for creating high quality plots, maps, montages and other paper displays
for use in presentations.
StratWorks (geologic interpretation). This software product is Landmark's
first application designed for routine well log correlation, interpretation and
mapping and is the Company's first product aimed primarily at geologists and
seismic interpreters who need log interpretation tools. In addition, links
between StratWorks and the Company's other applications make it easier for users
to integrate complex geological information with seismic interpretations,
resulting in better understanding of oil and gas prospects.
PetroWorks (well log analysis). PetroWorks is an application that allows
geologists and seismic interpreters to analyze subsurface geology and reservoir
characteristics, which can eliminate the need to consult an expert well log
analyst.
3D RESERVOIR MODELING AND SIMULATION APPLICATIONS
The following applications create interactive three-dimensional models of
oil and gas reservoirs using a variety of subsurface data:
SGM (Stratagraphic geocellular modeling). SGM is the core software product
for modeling reservoir rock and fluid properties. It provides real-time rotation
and visualization of a 3D graphic framework of cells within earth layers, as
well as mathematical calculations.
GTM (geocellular template modeling). This companion module to SGM allows
geoscientists to create "templates" of various geological features such as
buried reefs, channels, and other spatial changes in rock type. Special
lighting, shading, and transparency tools aid visualization.
StrataMap (interactive gridding and editing). StrataMap provides
interactive mapping capabilities. Using StrataMap, geoscientists can quickly map
seismic or well data sets and incorporate the results into their 3D reservoir
models.
StrataSim (fluid flow simulator). This product provides an interactive link
between geologic modeling and reservoir engineering. Users can test static
reservoir models with simulations of dynamic fluid flows to determine the most
efficient ways to extract oil and gas.
OpenSGML (development tools). Open SGM is an enabling technology that
allows users to incorporate third party or in-house modeling algorithms into
SGM, or develop new software applications links to SGM.
RAVE/DV (reservoir characterization). This tool enables geoscientists and
engineers to visualize relationships among various seismic and reservoir
attributes. It allows them to correlate statistically significant clusters of
reservoir properties with existing or potential well locations in standard map
and cross section views.
SigmaView (geostatistical and modeling application). SigmaView is a
geostatistical modeling and data analysis application that improves a
geoscientist's ability to integrate well and seismic data and to quantify
uncertainty. Geoscientist can perform geostatistical tests, geostatistical
modeling, analysis of the results, and
quantification of uncertainty.
GeoLink (geological-to-engineering upscaling). This product is used to
convert geological, stratigraphical, or geostatistical models for use in
reservoir simulation. The detailed layers of these models are honored while
upscaling to common fluid flow units to input into reservoir simulation
packages.
DESKTOP-VIP (reservoir simulation). A full suite of integrated modules for
reservoir simulation, including preprocessing, simulation of complex time
dependent fluid injection and recovery process, and postprocessing analysis of
the results.
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VIP-ENCORE (black oil reservoir simulation). This software is used to model
depletion, conventional waterfloods, and immiscible hydrocarbon gas injection
reservoirs.
VIP-COMP (compositional simulation). Used to model volatile oils, gas
condensates, gas cycling, and enhance recovery project using inert gas injection
and recycling.
VIP-THERM (thermal simulation). Used to model hot water, steam injection,
compositional or non-isothermal reservoirs.
2DVIEW/3DVIEW (visualization tool). This software is used to visualize
reservoir simulation results in either 2 or 3 dimensions.
DESKTOP-PVT (equation-of-state phase behavior characterization). This
software is used to create a complete equation-of-state (EOS) characterization
and then used to extrapolate results under different conditions or for the
design of additional reservoir simulation experiments.
PRODUCTION ENGINEERING APPLICATIONS
The following applications are designed for drilling and production
engineering and economics:
ARIES for Windows (economics and reserve management). ARIES for Windows
includes three modules: one for production engineering graphics, one that
monitors petroleum reserve activities and volumes and one for economic analysis.
DIMS (drilling information management system). At the drilling site, this
application replaces inefficient manual/paper data collection and reporting
methods with a digital system using relational database technology.
WIMS (well information management system). WIMS software provides an
efficient database with tools to develop completions and workovers.
POWAR (production operators workstation). This is a system for daily data
collection and reporting on producing wells. POWAR captures data in the field
and moves it through the central production account system.
GMS (gas management system). GMS is used with POWAR to track and allocate
gas production from point-of-sale back to partners.
WELLPLAN (relational database, data analysis and engineering software
system). WELLPLAN is used for drilling, completions and well service operations.
It is utilized at the rig site and office, providing seamless integration
between reporting and engineering functions.
COMPASS for Windows (directional well planning). COMPASS enables oil
companies and drilling contractors to plan, analyze and monitor directional
wells and identify potential problems during the drilling process.
ARGUS (geographical information system). ARGUS is a geographic information
system that provides many different professionals with a common map-based method
of accessing and viewing data stored in multiple databases. It can be used by
both geoscientists and managers to better understand relationships among various
types of data.
GEOGRAPHIX PRODUCT LINE
GeoGraphix Exploration System -- GES (geoscientific mapping and data
management). GES is comprised of a suite of Windows-based tools optimized for
managing cartographic, well and seismic data; creating posted base maps and
bubble maps, cross sections, contour maps and 3D displays; calculating reservoir
volume; modeling structurally complex surfaces; and generating interactive
presentations.
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SeisVision (3D seismic interpretation). As part of the GeoGraphix product
line, SeisVision is a Windows NT-based 3D seismic interpretation system. It
includes easy data loading, viewing and picking of horizons in a variety of
modes, fault interpretation and depth conversion as well as integrated mapping.
LeaseMap (petroleum land management). In a Windows environment, LeaseMap
assists land professionals in managing prospective and producing properties.
GEMS (reservoir and production engineering). GEMS is a suite of
Windows-based reservoir and production engineering applications that allows
petroleum engineers to access wellbore information, maximize production and
recovery of reserves, determine reservoir limits for future drilling and
stimulations, and perform acquisition analysis and reserves reporting.
Prizm (multi-well log analysis system). Prizm enables geoscientists and
petrophysicists to analyze and interpret well log data in a Windows-based
environment.
THE OPENWORKS SOFTWARE INTEGRATION AND DATA MANAGEMENT PLATFORM
The OpenWorks software integration and data management platform allows
multidisciplinary teams to efficiently run multiple applications from different
disciplines in side-by-side windows and, via a common Oracle database, exchange
data among them. OpenWorks also provides a software development platform which
can enhance productivity in designing and building new applications, both for
the Company and for third-party applications developers. The OpenWorks platform
is specifically designed to support modular applications, which are simpler to
build, maintain and enhance than large "monolithic" applications. Customers are
able to use the OpenWorks tool kit to integrate their own proprietary
applications with purchased applications.
OpenWorks has been developed to provide a standards-based, open systems
technology architecture. OpenWorks is based on a UNIX operating system, employs
standard graphical user interfaces (X Window System and Motif) and networking
protocols (TCP/IP and NFS) and functions with the Oracle relational database
management system. Landmark's applications interface with its latest release of
the OpenWorks platform. Additional products continue to be written under, or
converted or linked to, the OpenWorks platform. OpenWorks also includes several
options for directly linking certain applications of third parties. Several
third-party software developers, on their own, or as business partners with the
Company, have developed new applications under OpenWorks, or linked existing
applications to OpenWorks, further expanding the universe of applications
capable of being run on the Company's computer-aided exploration systems. In
addition, several oil companies have purchased copies of OpenWorks for use by
their own developers.
In addition to OpenWorks, the Company offers Geo-dataWorks. This product is
Landmark's application designed for graphical management and querying of
geoscience data. It provides users of Landmark's software applications easy
access to data without having to become a database expert.
SERVICES
The opportunities for enhancing Landmark's services offerings are based on
a combination of (1) expanding customer need and (2) additional business growth
for Landmark. As customers have increasingly moved from traditional functional
organizations to multidisciplinary asset teams, they have a need for
professional consulting to assist in the reengineering of their workflow
processes and organizational structures. In addition, over the last few years,
many customers have downsized or eliminated their internal support functions,
creating new opportunities to Landmark to provide those services.
To respond to this opportunity, Landmark has been greatly expanding its
service organization, infrastructure, service and educational offerings, and
marketing activities. These programs are provided by Company employees who
combine oil finding experience, workflow expertise, Landmark technology and
products, and information technology and skills. Landmark uses project
management practices and methodologies to deliver value to customers through a
process that (1) evaluates customers needs and comprehends their business
9
<PAGE> 11
goals, (2) formulates solutions aligned with those goals, and (3) effectively
delivers those solutions. Landmark's consulting services include:
Data Management. This service is designed to create solutions to manage the
tremendous amounts of data used by asset teams and that may be located
throughout an organization in a variety of disparate data repositories.
Workflow Improvement. Landmark consultants work with customers to integrate
and streamline their geoscience and engineering processes and implement
associated support systems.
Geocomputing Environment. This service evaluates, recommends and implements
improvements to a customer's computing infrastructure to support current
and future business requirements.
Application Integration. Consultants integrate a wide range and variety of
applications to effectively support operational processes.
Certified Installation. This service sets up new software and
infrastructure to support asset teams without interrupting day-to-day
business activities.
Onsite Client Support. Landmark's onsite support services include
applications support, database administration, and computing environment
and systems support.
Landmark also offers standard service contracts which provide customers
with updates and enhancements to its software products, telephone support,
hardware maintenance and other services.
Landmark delivers public and private training and education for all its
current software products as well as general technology courses. Landmark
training courses are developed and taught by geologists, geophysicists and
engineers with extensive experience in the industry and with the Company's
software. The majority of courses combine lectures and labs with hands-on
experience. Courses are taught by certified instructors who are specialists in
the subjects they teach.
HARDWARE
The Company does not develop or manufacture computer hardware. Instead, the
Company configures standard commercially available workstations and related
hardware with the Company's software applications to satisfy customer
requirements. The Company's systems incorporate Sun SPARCstation, IBM RISC
System/6000 or Silicon Graphics, Inc. workstations, which employ derivatives of
the UNIX operating system. The Company also offers PC-based workstations, which
employ derivatives of the DOS, Windows and Windows NT operating systems. The
typical system consists of a CPU with memory, mass storage and imaging hardware
appropriate for Landmark's data-intensive applications. The Company evaluates
other hardware platforms on a continuing basis and supports additional hardware
platforms for certain applications, depending on the particular needs of the
software and the customer.
The Company's systems operate as stand-alone workstations or may be
integrated into a work group environment. All of the Company's UNIX workstations
support TCP/IP networking protocols and operate on Ethernet local area networks.
PRODUCT DEVELOPMENT
Landmark is committed to providing computer-aided tools which enhance the
visualization and characterization of the subsurface and which permit the
integration of different data types and of different interpretations. The
Company has focused and will continue to focus research and development efforts
on helping oil and gas companies maximize the value of their substantial
investment in seismic, well log and reservoir data through CAEX/CARM products
and services.
The Company is focusing research and development efforts on integrating all
its principal applications under the OpenWorks software integration and data
management platform to provide the broadest suite of integrated applications in
the industry. In addition, the Company has taken an open systems approach to the
10
<PAGE> 12
development and marketing of OpenWorks to encourage other software vendors to
develop new applications or modify existing applications to run on OpenWorks.
The Company believes its open systems approach is consistent with the
efforts of the Petrotechnical Open Software Corporation ("POSC") and Public
Petroleum Data Model ("PPDM") to develop industry standards for the
computerization of the exploration and production process. The Company intends
to continue to develop its products in compliance with POSC and/or PPDM
standards that become widely accepted in the oil and gas industry.
The Company's existing customers are active in determining development
ideas and prioritizing enhancements and future products. Through user groups,
focus groups and a computerized system of tracking requests received from daily
interactions with customer support personnel, the Company is in close contact
with the needs and requirements of its customers and their innovative uses of
technology. Landmark's software developers and systems engineers work closely
with hardware vendors to configure hardware systems to take advantage of the
full range of functionality offered by the Company's software, including
client-server functionality and graphics visualization capabilities.
As of June 30, 1996, the Company employed approximately 323 people in
product design and development functions. During the fiscal years ended June 30,
1996, 1995 and 1994, the Company expended approximately $25.0 million, $19.9
million and $18.4 million, respectively, on product design and development
(which figures are net, respectively, of capitalized software development costs
of $6.2 million, $3.7 million and $2.7 million). In addition to the amount
capitalized in fiscal 1996, the Company capitalized $1.3 million in connection
with the WAII acquisition, $1.0 million in connection with Argus (see Note 6 in
the Notes to Consolidated Financial Statements included elsewhere herein) and
$700,000 in connection with other acquisitions. In addition to the amount
capitalized in fiscal 1995, the Company capitalized $600,000 in connection with
the acquisition of MGA and $1.2 million in connection with the acquisition of
certain assets of DRD.
SEGMENT INFORMATION, MAJOR CUSTOMERS AND EXPORT SALES
The information regarding the Company's business segments, major customers,
foreign and domestic operations and export sales appears in Note 17 in the Notes
to Consolidated Financial Statements included elsewhere herein.
MARKETING AND SALES
The Company believes that personal customer contact is an important factor
in marketing its CAEX/CARM systems and therefore sells its systems through a
direct sales force located in more than 20 sales and technical support centers
worldwide. Sales personnel generally have either a geoscience education or
expertise in selling advanced technology-based systems.
The Company sells products and services to major multinational energy
companies, such as Amoco, British Petroleum, Chevron, Conoco, Phillips
Petroleum, Royal Dutch/Shell, Texaco and Unocal, and to large independent oil
and gas companies, such as Amerada Hess, Enron, Enterprise Oil, Marathon Oil,
Maxus Energy, PanCanadian, and Pennzoil. Landmark has also increased the sale of
products and services to national and small independent oil and gas companies.
For the year ended June 30, 1996, approximately 52% of the Company's total
revenues were generated by international sales.
BACKLOG
The Company's products are composed of industry standard hardware
components that are assembled in response to specific customer requirements.
Although certain international orders may take several months to ship, the
Company's products are generally shipped within an average of 10 days following
receipt of an order. Accordingly, the Company does not believe that its product
revenue backlog is material to an understanding of its business.
11
<PAGE> 13
Service revenues are primarily derived from hardware and software service
contracts. The service contracts generally have a one-year term and renew
automatically unless canceled not less than 30 days prior to the anniversary
date. As of June 30, 1996, the twelve-month backlog under such contracts was
approximately $29.7 million as compared to approximately $26.5 million at June
30, 1995.
The Company has also negotiated and signed multi-year contracts with
several customers to deliver a combination of products, services and
professional consulting. These contracts can enhance customer success by
providing greater access to applications along with onsite support, customized
training, consulting services and workflow studies to improve their
productivity. The Company benefits by establishing a contractual multi-year
relationship with customers that provide a defined and continuing revenue
stream.
GOVERNMENT REGULATION
The Company must generally obtain validated export licenses from the U.S.
government prior to selling its products in certain foreign countries. To date,
the Company has not experienced any significant unusual difficulty in obtaining
the required export licenses; however, there can be no assurance that it will
not experience difficulty in obtaining such licenses in connection with future
export sales.
COMPETITION
The market for CAEX/CARM systems is highly competitive. Some of the
Company's existing and potential competitors have substantially greater
marketing, financial and technical resources than the Company. The Company's
existing and potential competitors include a division of Schlumberger, Ltd. and
specialized software companies. The Company also experiences competition from
certain of the major oil and gas companies which have internally developed, and
may continue internally developing, CAEX/CARM systems, thereby limiting the
Company's potential customer base. In addition, new competitors are entering the
market and competition is intensifying. There can be no assurance that sales of
the Company's products will not be adversely affected if its current competitors
or new market entrants introduce new products with better functionality,
performance, price or other characteristics than the Company's products.
The Company believes that the principal competitive factors in the
CAEX/CARM market are first-to-market advantage, installed base size, software
integration, product functionality and performance, the relationship of product
price and performance, and customer support and consulting services. The Company
believes that it competes effectively with respect to each of these factors.
PATENTS, COPYRIGHTS, TRADEMARKS AND LICENSES
The Company generally relies on patent, copyright and trademark laws,
license and nondisclosure agreements, and technical measures to protect its
rights in its software products. All employees of the Company are required to
sign an agreement that they will maintain the confidentiality of the Company's
proprietary information. The Company's products generally are licensed to
customers pursuant to an agreement that restricts the use of the products to the
customer's internal purposes.
The Company has applied for U.S. and foreign patents for several of its
existing and future products. A U.S. patent covering an invention in the
Company's TurboZAP! was issued October 8, 1991 as U.S. Patent 5,056,066. Another
patent was issued October 6, 1992 as U.S. Patent 5,153,858 which covers an
innovative method for picking horizons in 3D seismic data. Two additional
patents, (U.S. Patent 4,821,164 and U.S. Patent 4,991,095) relating to processes
for three-dimensional mathematical modeling of underground geologic volumes were
issued on April 11, 1989 and February 5, 1991, respectively. U.S. Patent
5,432,751, which was issued July 11, 1995, covers a computerized method of
automatically picking horizons from a 3D volume of seismic data traces. The
Company acquired from Western Atlas International, Inc., Patent No. 5,416,750,
which was issued May 16, 1996, regarding a Bayesian sequential indicator
simulator of lithology from seismic data. The above patents will expire 17 years
after the issuance date. Other patents are pending seeking coverage for
inventions in the Company's new generation of ZAP! products and software
acquired from Western Atlas International, Inc. Still other patents are pending
seeking coverage for the Company's
12
<PAGE> 14
OpenWorks method of information communication between concurrently operating
computer programs. Software products originated by the Company's employees are
covered by copyright.
The Company has trademark rights in the marks applied to its software
products. U.S. trademark registrations have been issued for the marks LANDMARK,
LANDMARK and pyramid logo, OPENWORKS, STRATWORKS, SEISWORKS, PETROWORKS, ZAP!,
WELLBASE, GEOGRAPHIX, ISOMAP, SEISMAP, LEASEMAP, BLITZ, EOS-PAK, EXECUTIVE
ASSISTANT, GEOLINK, MIMIC, OASIIS, QUIKCDP, QUIKDIF, QUIKDIG, QUILRAY, QUIKSHOT,
QUIKVSP, RAYMAP, SIERRA, SIERRA GEOPHYSICS, SIGMAVIEW, SIVA, VIP, VIP-COMP,
VIP-CORE, VIP-DUAL, VIP-ENCORE, VIP-EXECUTIVE, AND VIP-POLYMER. Canadian
trademark registrations have been issued for POGO, DIMS, and WIMS. UK trademark
registrations have been issued for SIERRA AND SIERRA GEOPHYSICS. Trademark
registration applications are pending for other marks of the Company.
The Company has acquired licenses from third-party software vendors to sell
certain software applications developed by those vendors. In addition, the
Company has acquired licenses from other software vendors for networking,
utilities, and other software products. These licenses typically provide for an
initial fee which covers a certain number of copies and for payment thereafter
on a per copy basis.
PERSONNEL
At June 30, 1996, the Company employed approximately 1,022 employees. The
Company's future success will depend in large part on its continued ability to
attract and retain highly skilled employees. None of its employees is
represented by a collective bargaining agreement, and the Company believes that
its relations with its employees are very good.
ITEM 2. PROPERTIES
The Company owns a 150,000 square foot building and undeveloped land of
approximately 12 acres adjacent to the building located in Houston, Texas. This
facility is primarily used for certain research and development, product
assembly, executive and administrative, and sales and support functions. The
land and building are pledged as collateral for obligations under the Company's
revolving credit facility.
The Company owns a building in Austin, Texas, and approximately 10 acres of
undeveloped land adjacent thereto, and leases a 22,813 square foot facility in
Englewood, Colorado, and a 20,708 square foot facility in Denver, Colorado.
These facilities are used for research and development and sales and support
functions. The Company also leases a 36,000 square foot facility in London,
England, which is used for sales and support functions, 12,185 square foot
vacant facility in Houston, Texas, previously occupied by Stratamodel and a
14,475 square foot facility in Houston, Texas, for its shipping and distribution
activities. Additionally, the Company leases various facilities in the United
States and in 19 foreign countries which are used for sales and support
functions.
The Company believes that its present facilities will be adequate for its
anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
There is no litigation pending which might have a material adverse effect
on the Company or the market for its Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal
quarter ended June 30, 1996.
13
<PAGE> 15
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the Nasdaq National Market under the symbol
"LMRK". The following table sets forth, for the quarters indicated, the high and
low sales prices per share for the Common Stock as reported on the Nasdaq
National Market:
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
----------------------------------------------------------------- ------ ------
<S> <C> <C>
First Quarter.................................................... $28.50 $25.25
Second Quarter................................................... 25.25 18.25
Third Quarter.................................................... 26.00 16.13
Fourth Quarter................................................... 20.25 16.25
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995
-----------------------------------------------------------------
<S> <C> <C>
First Quarter.................................................... $33.25 $19.25
Second Quarter................................................... 23.75 16.00
Third Quarter.................................................... 22.50 17.73
Fourth Quarter................................................... 27.00 18.25
</TABLE>
As of July 23, 1996 there were 338 holders of record of the Company's
Common Stock.
The Company has not paid any cash dividends since its inception and does
not intend to pay cash dividends in the foreseeable future. Furthermore, certain
provisions of the Company's credit agreement restrict the Company's ability to
pay cash dividends. The Company presently intends to retain earnings for use in
its business, with any future decision to pay cash dividends dependent upon the
Company's growth, profitability, financial condition and other factors the Board
of Directors may deem relevant.
14
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
Software product sales................. $ 83,288 $ 83,735 $ 70,329 $ 53,212 $39,413
Hardware product sales................. 29,252 31,845 31,833 26,674 28,127
Services............................... 74,772 55,626 41,089 33,089 29,251
-------- -------- -------- -------- -------
Total revenue.................. 187,312 171,206 143,251 112,975 96,791
-------- -------- -------- -------- -------
Cost of revenue:
Cost of software product sales......... 9,735 9,939 6,387 6,237 4,074
Cost of hardware product sales......... 26,625 26,373 26,424 20,576 19,725
Cost of services....................... 37,823 32,555 26,514 19,755 21,603
-------- -------- -------- -------- -------
Total cost of revenue.......... 74,183 68,867 59,325 46,568 45,402
-------- -------- -------- -------- -------
Gross profit................... 113,129 102,339 83,926 66,407 51,389
-------- -------- -------- -------- -------
Operating expenses:
Research and development............... 24,953 19,887 18,360 15,198 15,250
Selling, marketing and
administrative...................... 68,802 58,848 45,364 41,996 35,419
Acquired research and development
costs............................... 11,250 3,700 -- -- --
Restructuring, merger and other
costs............................... 4,172 4,501 13,567 -- 8,300
-------- -------- -------- -------- -------
Total operating expenses....... 109,177 86,936 77,291 57,194 58,969
-------- -------- -------- -------- -------
Income (loss) from operations............ 3,952 15,403 6,635 9,213 (7,580)
Other, net............................... 3,308 3,298 1,879 37 1,788
-------- -------- -------- -------- -------
Income (loss) before income taxes........ 7,260 18,701 8,514 9,250 (5,792)
Provision (benefit) for income taxes..... 1,945 5,196 2,667 2,125 (72)
-------- -------- -------- -------- -------
Net income (loss)........................ $ 5,315 $ 13,505 $ 5,847 $ 7,125 $(5,720)
======== ======== ======== ======== =======
Net income (loss) per common and common
equivalent shares...................... $ 0.30 $ 0.77 $ 0.36 $ 0.51 $ (0.42)
======== ======== ======== ======== =======
Weighted average common and common
equivalent shares outstanding.......... 17,761 17,464 16,371 13,927 13,629
Pro forma information (unaudited):
Net income (loss) as reported............ $ 5,315 $ 13,505 $ 5,847 $ 7,125 $(5,720)
Pro forma charge in lieu of income
taxes.................................. -- -- 1,256 554 434
-------- -------- -------- -------- -------
Pro forma net income (loss).............. $ 5,315 $ 13,505 $ 4,591 $ 6,571 $(6,154)
-------- -------- -------- -------- -------
Pro forma income (loss) per share........ $ 0.30 $ 0.77 $ 0.28 $ 0.47 $ (0.45)
======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
-------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $ 79,321 $ 97,517 $106,601 $ 51,980 $47,158
Total assets........................... 231,134 211,151 189,153 105,974 99,100
Bank debt.............................. 3,000 12,007 13,150 1,144 1,467
Retained earnings...................... 40,753 35,637 22,957 22,308 16,838
Total stockholders' equity............. 165,396 158,898 142,604 80,752 73,530
</TABLE>
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<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Management's Discussion and Analysis ("MD&A") is the Company's analysis of
its financial performance and of significant trends which may impact future
performance. It should be read in conjunction with the consolidated financial
statements of the Company and the related notes thereto. Certain of the
statements made in the Company's MD&A are forward-looking statements related to
the transition to integrated solution sales and are based on current
expectations that involve a number of risks and uncertainties. The factors that
could cause actual results to differ materially include the following:
unanticipated delays in implementation/transition to delivery of integrated
solutions; uncertainty in oil and gas markets; competitive factors and pricing
pressures; timing of development and acceptance of new product/services;
technical obsolescence of the Company's products/services; inability to recruit
required sales management, marketing and consulting personnel; and the risks
detailed from time to time in the Company's SEC reports, including the Form 8-K
filed on April 2, 1996 that identifies certain of these risk factors.
The Company, incorporated in 1982, designs, markets and supports software
and systems which are used in exploration and production efforts of oil and gas
companies worldwide. The Company derives revenues from licensing software
products, providing related professional and consulting services and reselling
hardware. In most instances, customers pay the Company an initial license fee
for the software. Generally, revenue from software is recognized by the Company
upon shipment. Customers have the option to pay an annual maintenance fee,
calculated as a percentage of current list price, which entitles them to routine
support and product updates. The Company generally recognizes revenues related
to customer support agreements ratably over the contract period. See Note 1 in
the Notes to Consolidated Financial Statements included elsewhere herein.
Many of the Company's customers are shifting from functional organizations
to interdisciplinary teams, which is creating the need for integrated products
and service sales. Accordingly, the Company's sales, marketing and support
organizations are currently being configured to better address the emerging
"solutions" market. These solution sales have the longer term potential of
generating larger contracts and more recurring revenue; however, they can also
lengthen customers' decision-making processes. The Company believes that its
competitors are dealing with similar changes in their sales and marketing
organizations.
The transition of the Company's sales organization may continue through
fiscal year 1997. The transition includes recruiting additional professional
sales management and strengthening market capabilities, as well as building a
professional and technical consulting organization. This transition may have a
negative impact on the Company's growth during this period but should position
the Company for the ongoing prospects that the market has to offer over the
longer term.
On March 25, 1994, the Company acquired all of the outstanding common stock
of Advance Geophysical Corporation ("Advance") in an acquisition accounted for
as a pooling of interests. On September 28, 1994, the Company acquired all of
the equity interests of Stratamodel, Inc. ("Stratamodel") in an acquisition
accounted for as a pooling of interests. On September 29, 1994, the Company
acquired all of the outstanding common stock of MGI Associates, Inc. ("MGA") in
an acquisition accounted for as a purchase. On February 28, 1995, the Company
purchased certain assets and assumed related liabilities of DRD Corporation
("DRD") in an acquisition accounted for as a purchase. On June 5, 1995, the
Company acquired all of the outstanding common stock of GeoGraphix, Inc.
("GeoGraphix") in an acquisition accounted for as a pooling of interests. On
September 20, 1995, the Company acquired all of the outstanding common stock of
Tech Logic, Inc. ("Tech Logic") in an acquisition accounted for as a pooling of
interests. Due to the immateriality of this transaction and its effect on the
historical financial statements of the Company for prior periods, those
statements have not been restated to reflect the operating results and financial
condition of Tech Logic. On March 29, 1996, the Company purchased the general
application software operations of Western Atlas International, Inc. ("WAII") in
an acquisition accounted for as a purchase. Accordingly, the Company's
Consolidated Financial Statements included elsewhere herein give effect to the
acquisitions accounted for as poolings of interests (other than Tech Logic) for
all periods presented and include the results of acquired
16
<PAGE> 18
operations accounted for as purchases and Tech Logic since the dates of
acquisition. The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto.
PROPOSED MERGER
On June 30, 1996, the Company and Halliburton Company ("Halliburton")
entered into an Agreement and Plan of Merger (the "Merger Agreement") providing
for the merger (the "Merger") of the Company with and into a wholly-owned
subsidiary of Halliburton. The Merger Agreement provides for the exchange of
0.574 shares of Halliburton common stock for each outstanding share of the
Company's common stock and for all outstanding options to purchase shares of the
Company's common stock to be assumed by the corporation surviving the Merger and
converted into options to purchase shares of Halliburton common stock. The
Merger transaction is subject to the Company's shareholder approval and is
expected to be accounted for as a pooling of interests. No adjustments have been
made in the accompanying audited financial statements of the Company to give
effect to the Merger because the proposed transaction has not been consummated.
RESULTS OF OPERATIONS
The following table presents certain items in the Consolidated Statements
of Income as a percentage of total revenues or of their respective revenue
components and the percentage change in the dollar amount of those items for
each of the years in the three-year period ended June 30, 1996.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, PERCENTAGE CHANGE
-------------------- ----------------------
1996 1995 1994 1995-1996 1994-1995
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Software product sales............................. 44 % 49 % 49% (1)% 19%
Hardware product sales............................. 16 19 22 (8) 0
Services........................................... 40 32 29 34 35
--- --- ---
Total revenue.............................. 100 100 100 9 20
--- --- ---
Cost of revenue:
Cost of software product sales(1).................. 12 12 9 (2) 56
Cost of hardware product sales(1).................. 91 83 83 1 0
Cost of services(1)................................ 51 59 65 16 23
--- --- ---
Total cost of revenue...................... 40 40 41 8 16
--- --- ---
Gross profit......................................... 60 60 59 11 22
Operating expenses:
Research and development........................... 13 12 13 25 8
Selling, marketing and administrative.............. 37 34 32 17 30
Acquired research and development.................. 6 2 N/A 204 N/A
Restructuring, merger and other costs.............. 2 3 9 (7) (67)
--- --- ---
Total operating expenses................... 58 51 54 26 12
--- --- ---
Income from operations............................... 2 % 9 % 5% (74)% 132%
</TABLE>
- ---------------
(1) This line item is expressed as a percentage of the corresponding revenue
line item and not as a percentage of total revenues.
FISCAL 1996 COMPARED TO FISCAL 1995
Total revenue. Total revenue for the year ended June 30, 1996 ("FY1996")
increased $16.1 million, or nine percent, from total revenue for the year ended
June 30, 1995 ("FY1995"). This increase is mainly attributable to a 34 percent
growth in services revenue. International revenue comprised approximately 52
percent of total revenue in FY1996 as compared to 56 percent in FY1995.
Software product sales. Software product sales consist of license fees for
the Company's proprietary and third party software. Software product sales
decreased by $447,000, or one percent, from FY1995. Software product sales as a
percentage of total revenue was 44 percent in FY1996 compared to 49 percent in
FY1995. The Company expects that this revenue should continue to be a
significant portion of total revenue but will decline in the future as a
percentage of total revenue as the Company expands its professional services
market.
17
<PAGE> 19
Hardware product sales. Hardware product sales relate to the resale of
third party computer hardware. Hardware product sales decreased $2.6 million, or
8 percent, from FY1995. This decrease is due primarily to the Company's decision
to offer hardware sales only to customers who desire comprehensive system
solutions.
Services. Services revenue relates to maintenance and support of the
Company's hardware and software products, and increasingly from revenue from a
variety of other professional services, including implementation, consulting and
integration of applications. Services revenue in FY1996 increased $19.1 million,
or 34 percent, from FY1995. Maintenance support revenues increased by $10.8
million, or 26 percent, from FY1995 due mainly to the continued expansion of the
installed base of the Company. Professional services revenue increased $8.3
million, or 60 percent, from FY1995 as a result of the Company's emphasis on
professional and technical consulting services.
Cost of software product sales. Cost of software product sales as a
percentage of software revenue was 12 percent in both FY1996 and FY1995.
Cost of hardware product sales. Cost of hardware product sales as a
percentage of hardware product sales increased to 91 percent in FY1996 compared
to 83 percent FY1995. The Company's offering of sales discounts to customers in
response to competitive pressures, particularly in the United States market,
negatively affected margins on hardware product sales in FY1996. As price
competitiveness in the computer hardware industry persists, discounts and the
resulting impact on hardware margins may continue. Although hardware product
contributes a lower margin, the Company plans to offer hardware sales only to
customers who desire comprehensive solution sales.
Cost of services. Cost of services as a percentage of the related revenue
decreased from 59 percent in FY1995 to 51 percent in FY1996. This decrease in
cost as a percentage of related revenue is mainly attributable to the
combination of higher maintenance support revenue associated with the expanding
installed base with only a minimal increase in related cost, offset by increased
costs related to the higher revenue from professional services revenue.
Research and development. Research and development costs increased $5.1
million, or 25 percent, from FY1995. This increase over the prior year relates
primarily to the addition of the MGA development function and the related costs.
The Company believes that continued investments in research and development are
important to its future growth and competitive position in the marketplace. The
Company capitalized $6.2 million or 20 percent of total research and development
costs during FY1996 as compared to $3.7 million or 16 percent in FY1995 due to
the increased level and range of products under development. The Company
amortized $3.8 million and $3.5 million of capitalized software costs in FY1996
and FY1995, respectively.
Selling, marketing and administrative. Selling, marketing and
administrative expenses increased $10.0 million, or 17 percent from the FY1995
amount. As a percentage of revenue, these costs were 37 percent in FY1996
compared to 34 percent in FY1995. The increase primarily is a result of the
increased costs of approximately $5.5 million associated with the transition of
the sales, marketing and support organizations. In addition, increased costs of
approximately $2.0 million related to the upgrade of the Company's information
system infrastructure were incurred in FY1996.
Acquired research and development costs. Acquired research and development
costs of $11.3 million for FY1996 relate primarily to the in-process research
and development activities acquired in connection with the WAII acquisition. The
Company reviewed the status of the acquired research and development activities
and determined that certain projects require further development by the Company
and that technological feasibility had not been established for certain of these
activities under the Company's software development plans and method to account
for software development costs. In addition to determining whether technological
feasibility had been reached, the Company determined that these projects did not
have alternative future uses to the Company. Therefore, a separate valuation of
the replacement cost of these activities was performed and resulted in a
valuation of $11.0 million. In accordance with generally accepted accounting
principles, this amount was expensed at the date of the WAII acquisition. The
Company expects to incur approximately $4.0 million to $5.0 million during the
next 12 to 18 months to document, merge and embed the acquired code and
development activities into products to be released in the future.
18
<PAGE> 20
In FY1995, $3.7 million was expensed as research and development costs as a
result of a similar evaluation performed in connection with the purchase of
certain assets of DRD.
Restructuring, merger and other costs. In July 1995, the Company completed
a strategic planning process which concluded with the decision to proactively
realign its resources. A restructuring charge of $3.1 million was recorded in
FY1996 to reflect severance costs for terminated employees, facility
consolidation and write-down of certain assets of the Company. In March 1996, a
charge of $1.0 million was recorded to reflect the write-off of redundant assets
and activities as a result of the WAII acquisition. This charge included
approximately $688,000 for capitalized software that would be replaced by
acquired WAII applications and the remaining for personnel and related costs.
Merger costs of $4.5 million in 1995 consist of advisor fees related to the
acquisitions of Stratamodel and GeoGraphix and certain restructuring,
termination and relocation charges related to the Stratamodel acquisition.
Taxes. During FY1996, the effective rate was lower than the statutory rate
and lower than the prior year's rate. The effective rate decreased primarily due
to benefits recognized from the Company's Foreign Sales Corporation.
FISCAL 1995 COMPARED TO FISCAL 1994
Total revenue. Total revenue for the year ended June 30, 1995 ("FY1995")
increased approximately 20% compared to total revenue for the year ended June
30, 1994 ("FY1994"). The increase in total revenue was primarily due to
increased sales to international markets and the addition of the MGA product
line. The Company's continued expansion into developing markets in Europe, Asia
and Latin America contributed to the increase in international revenue of
approximately 28 percent over the FY1994 amounts. International revenue
comprised approximately 56 percent of total revenue in FY1995 as compared to 53
percent in FY1994. FY1995 revenue includes approximately $12.0 million related
to the MGA product line which was acquired in the first quarter of FY1995.
Software product sales. Software product sales consist of license fees for
the Company's proprietary and third party software. The increase in software
product sales of approximately 19 percent over the prior fiscal year was
attributable to new product offerings, acquired product lines and strengthened
sales of the Company's core products. As a percentage of total revenues,
software product sales remained constant at 49 percent. The software product
sales increase of approximately $13.4 million resulted in a positive impact on
gross profit. The Company's strategy of offering petroleum companies a complete
spectrum of software applications has had a positive impact on software product
sales.
Hardware product sales. Hardware product sales relate to the resale of
third party computer hardware. Hardware product sales remained constant at
approximately $31.8 million. As a percentage of total revenue, hardware product
sales decreased from 22 percent in FY1994 to 19 percent in FY1995. This decrease
is due primarily to the Company's decision to continue to shift away from sales
of hardware to sales of software.
Services. Services revenue relates to maintenance and support of the
Company's hardware and software products as well as revenues from training and
consulting. As a percentage of total revenue, services increased from 29 percent
in FY1994 to 32 percent in FY1995; services increased approximately $14.5
million, or 35 percent, from the previous year. The increase in absolute dollars
was primarily due to a 59 percent increase in software maintenance revenues
which resulted from the expanding installed base of the Company's products and a
$3.6 million contribution by MGA. Hardware maintenance revenues remained
constant at approximately $6.6 million. The Company's hardware maintenance
revenues have been impacted by the presence of third party companies that offer
hardware maintenance at often lower prices. In response to this trend, the
Company began outsourcing hardware maintenance business activities in FY1995.
Cost of software product sales. Cost of software product sales, as a
percentage of software revenue, increased from 9 percent in FY1994 to 12 percent
in FY1995. Increased royalty costs resulting from higher sales of third party
applications and increased embedding of third party applications in the
Company's products has negatively impacted the current year's software product
margins.
Cost of hardware product sales. Cost of hardware product sales, as a
percentage of hardware product sales, remained constant at 83 percent in FY1995
and FY1994. Although hardware contributes a lower
19
<PAGE> 21
margin, the Company plans to continue to offer hardware to accommodate sales of
software and services to customers who desire comprehensive solutions.
Cost of services. Cost of services decreased as a percentage of the related
revenues from 65 percent in FY1994 to 59 percent in FY1995. While preserving
hardware maintenance revenues, the Company reduced expenses by discontinuing
processing services and outsourcing hardware maintenance services. These
decisions have positively impacted the services margin.
Research and development. Research and development costs increased 8
percent during FY1995 over the prior year. The increase over the prior year
relates to the addition of the MGA development function and the related costs.
The Company believes that continued investments in research and development are
important to its future growth and competitive position in the marketplace. The
increase in costs was partially offset by a higher level of capitalized software
costs during FY1995. The Company capitalized approximately $3.7 million or 16
percent of total research and development costs during FY1995 as compared to
approximately $2.7 million or 13 percent in FY1994 due to the increased level
and range of products under development. The Company amortized $3.5 million and
$2.3 million of capitalized software costs in FY1995 and FY1994, respectively.
Selling, marketing and administrative. Selling, marketing and
administrative expenses increased approximately $13.5 million from the FY1994
amount. As a percentage of revenue, the costs increased from 32 percent in
FY1994 to 34 percent in FY1995. The increase relates to incremental costs
associated with the addition of the MGA operations and increased selling costs
related to expanding the Company's presence in Europe and Asia.
Acquired research and development costs. Acquired research and development
costs of $3.7 million which approximate 2 percent of total revenues for FY1995,
relate to in-process development activities for projects which were acquired in
connection with the DRD purchase, but had not yet reached technological
feasibility. In accordance with generally accepted accounting principles, this
amount was expensed at the date of acquisition.
Restructuring, merger and other costs. Restructuring and other
non-recurring charges, which approximate one percent of total revenue for
FY1995, relate to the Company's restructuring plan which was designed to
eliminate redundancies and consolidate the Stratamodel operations. Management
expects this restructuring plan to result in reduced spending for the Company.
Additionally, non-recurring costs, including relocation and other
acquisition-related charges, were incurred in connection with the Stratamodel
acquisition.
Merger costs, which approximate less than 2 percent of total revenue for
FY1995, consist of accounting, legal and investment banking costs related to the
acquisitions of Stratamodel and GeoGraphix. Merger costs for FY1995 decreased
approximately $11.0 million from FY1994 primarily due to the inclusion in prior
year of a compensation charge related to Advance's Phantom Stock Plan.
Other income, net. Other income, net increased approximately $1.4 million
from FY1994 to FY1995. This increase was primarily attributable to higher net
interest income resulting from higher investment yields on invested funds.
Taxes. During FY1995, the effective tax rate was lower than the statutory
rate and lower than the prior year's rate. The effective rate decreased
primarily due to recognition of deferred tax benefits of an acquired company.
The valuation allowance for deferred tax assets which approximated $2.2 million
at June 30, 1995, relates to certain deferred assets associated with an acquired
company. Full realization of the total benefit is dependent upon, among other
things, the Company's ability to maintain the present level of earnings.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $5.8 million from June 30, 1995. Cash
provided by operating activities for FY1996 was $41.3 million offset by cash
used in investing activities of $35.5 million and cash used in financing
activities of $11.6 million.
Trade accounts receivable increased $6.1 million from June 30, 1995, due
primarily to higher fourth quarter FY1996 revenues, offset by increased
collection efforts. Adjusted for non-revenue accounts receivable, the Company's
FY1996 and fourth quarter days sales outstanding were 102 days and 87 days,
respectively.
20
<PAGE> 22
Management intends to focus efforts on maintaining a quarterly days sales
outstanding within a 80 to 90 day range.
Software development costs, net increased by $4.7 million from June 30,
1995 due to the $1.3 million of software development costs recorded in
connection with the WAII acquisition, $1.0 million in connection with Argus as
defined below, $700,000 in connection with other acquisitions and the $6.2
million of costs capitalized during FY1996. These additions were offset by $3.8
million of amortization of software development costs in FY1996 and a $688,000
write-off in connection with the WAII acquisition. The Company will continue to
incur substantial software development costs in the future.
Goodwill increased $11.1 million from June 30, 1995. This increase is
primarily attributable to the $4.6 million of goodwill recorded from the WAII
acquisition and to a guarantee of $6.9 million of future payments related to the
MGA acquisition. The initial MGA guaranteed payment of $1.8 million was paid in
September 1995. Additional MGA guaranteed payments of $2.3 million and $2.8
million are due in September 1996 and 1997, respectively.
Accounts payable and accrued liabilities increased $9.2 million from June
30, 1995 due partially to the recording of the $2.3 million current liability
related to the second MGA guaranteed payment that is due on September 30, 1996.
The remainder of the increase was due to timing of the receipt and payment of
vendor invoices. Based on the nature of these accounts, period to period
fluctuations can be expected to continue.
Current maturities of long-term debt increased by $2.0 million due to the
recording of the $3.0 million line of credit guarantee related to the MGA
acquisition offset by the payoff of $1.0 of the term and credit revolver in
October 1995.
Other long-term liabilities increased by $2.9 million from June 30, 1996.
This increase mainly represents the final MGA guaranteed payment that is due to
be paid September 30, 1997. Long-term debt decreased by $11.0 million from June
30, 1995 as a result of the payoff of the term loan and credit revolver in
October 1995.
The Company's primary internal source of liquidity is cash flow generated
from operations. External sources of liquidity include debt and equity
financing. On December 15, 1995, the Company terminated its $25.0 million credit
facility and entered into a $100.0 million revolving credit agreement with a
syndicate of seven banks. The agreement contains certain restrictive and
financial covenants, including those related to indebtedness, net worth and
fixed charges, and provides for guarantees by certain subsidiaries of Landmark.
At June 30, 1996, there were $4.4 million in letters of credit and no revolving
loans outstanding under this facility and the Company was in compliance with the
aforementioned loan covenants. The Company believes funds generated from
operations will be sufficient to meet liquidity requirements in the foreseeable
future.
In connection with the MGA transaction, the Company acquired an option to
purchase the equity interests of a corporation owned by certain of the former
shareholders of MGA ("Argus") in exchange for a $3.0 million line of credit
guarantee. On April 29, 1996, this option agreement was terminated and the
Company was assigned ownership of certain software previously owned by Argus.
The Company made interest payments on behalf of Argus through June 30, 1996, and
recorded $3.0 million as short-term debt as the Company believed it would be
called to perform on the $3.0 million outstanding under the Argus credit
agreement. On July 1, 1996, the Company paid off the $3.0 million outstanding
under this credit agreement.
The Company has not paid cash dividends since its inception and does not
intend to pay cash dividends in the future. The Company presently intends to
retain earnings for use in its business, with any future decision to pay cash
dividends dependent on the Company's growth, profitability, financial condition
and other factors the Board of Directors may deem relevant. Furthermore, certain
provisions of the Company's revolving credit agreement restrict the Company's
ability to pay cash dividends.
Management continues to evaluate opportunities to acquire products,
technologies or businesses. These acquisition opportunities may involve the use
of cash or, depending upon the size and terms of the acquisition, may require
debt or equity financing. Expenses associated with these potential acquisitions
and post-acquisition integration issues may have an adverse impact on the
Company's results of operations in the period the transactions are consummated
or the periods shortly thereafter.
21
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Report of Independent Accountants..................................................... 23
Consolidated Statements of Income for the three years ended June 30, 1996............. 24
Consolidated Balance Sheets as of June 30, 1996 and 1995.............................. 25
Consolidated Statements of Changes in Stockholders' Equity for the three years ended
June 30, 1996....................................................................... 26
Consolidated Statements of Cash Flows for the three years ended June 30, 1996......... 27
Notes to Consolidated Financial Statements............................................ 28
Financial Statement Schedules:
Schedule VIII -- Valuation and Qualifying Accounts for the three years ended June 30,
1996................................................................................ 45
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Landmark Graphics Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 8, present fairly, in all material respects, the financial
position of Landmark Graphics Corporation and its subsidiaries at June 30, 1996
and 1995, and the results of their operations and their cash flows for the three
years ended June 30, 1996 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
July 22, 1996
23
<PAGE> 25
LANDMARK GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Software product sales................................... $ 83,288 $ 83,735 $ 70,329
Hardware product sales................................... 29,252 31,845 31,833
Services................................................. 74,772 55,626 41,089
-------- -------- --------
Total revenue.................................... 187,312 171,206 143,251
-------- -------- --------
Cost of revenue:
Cost of software product sales........................... 9,735 9,939 6,387
Cost of hardware product sales........................... 26,625 26,373 26,424
Cost of services......................................... 37,823 32,555 26,514
-------- -------- --------
Total cost of revenue............................ 74,183 68,867 59,325
-------- -------- --------
Gross profit..................................... 113,129 102,339 83,926
-------- -------- --------
Operating expenses:
Research and development................................. 24,953 19,887 18,360
Selling, marketing and administrative.................... 68,802 58,848 45,364
Acquired research and development costs.................. 11,250 3,700 --
Restructuring, merger and other costs.................... 4,172 4,501 13,567
-------- -------- --------
Total operating expenses......................... 109,177 86,936 77,291
-------- -------- --------
Income from operations..................................... 3,952 15,403 6,635
Interest income............................................ 3,414 4,182 2,696
Interest expense........................................... (583) (1,054) (882)
Foreign exchange loss...................................... (193) (229) (189)
Other income, net.......................................... 670 399 254
-------- -------- --------
Income before income taxes................................. 7,260 18,701 8,514
Provision for income taxes
Current.................................................. 5,112 4,927 3,777
Deferred................................................. (3,167) 269 (1,110)
-------- -------- --------
Net income................................................. $ 5,315 $ 13,505 $ 5,847
======== ======== ========
Net income per common and common equivalent shares......... $ 0.30 $ 0.77 $ 0.36
======== ======== ========
Weighted average common and common equivalent shares
outstanding.............................................. 17,761 17,464 16,371
Pro forma information (unaudited):
Net income as reported..................................... $ 5,315 $ 13,505 $ 5,847
Pro forma charge in lieu of income taxes................... -- -- 1,256
-------- -------- --------
Pro forma net income....................................... $ 5,315 $ 13,505 $ 4,591
======== ======== ========
Pro forma net income per share............................. $ 0.30 $ 0.77 $ 0.28
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 26
LANDMARK GRAPHICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS, EXCEPT
PAR VALUE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 58,294 $ 64,099
Receivables:
Trade accounts, less allowance for doubtful accounts of $2,916 and
$1,461, respectively............................................. 58,036 51,984
Current income tax receivable........................................ 1,452 1,003
Accrued revenue and other receivables................................ 10,317 7,838
Inventory............................................................ 3,314 4,340
Prepaid expenses and other assets.................................... 5,063 3,004
Deferred income taxes................................................ 4,830 3,847
--------- --------
Total current assets......................................... 141,306 136,115
Investments............................................................ 857 857
Property and equipment, net............................................ 47,474 47,503
Software development costs, net........................................ 12,660 7,932
Goodwill, net.......................................................... 23,033 11,949
Other assets, net...................................................... 5,804 6,795
--------- --------
$231,134 $211,151
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 14,336 $ 9,488
Accrued liabilities.................................................. 15,207 10,823
Deferred maintenance fees............................................ 25,755 14,597
Income taxes payable................................................. 3,687 2,683
Current maturities of long-term debt and short-term debt............. 3,000 1,007
--------- --------
Total current liabilities.............................................. 61,985 38,598
Deferred income taxes.................................................. 815 2,590
Long-term debt......................................................... -- 11,000
Other long-term liabilities............................................ 2,938 65
--------- --------
Total liabilities............................................ 65,738 52,253
--------- --------
Commitments and contingencies (Note 9)................................. -- --
Stockholders' equity:
Preferred stock, $1.00 par value; 3,600 shares authorized, none
issued or outstanding............................................. -- --
Common stock, $0.05 par value; 50,000 shares authorized, 17,498
shares issued and 17,272 outstanding in 1996 and 17,086 shares
issued and outstanding in 1995.................................... 875 854
Paid-in capital...................................................... 127,690 122,407
Retained earnings.................................................... 40,753 35,637
Treasury stock, at cost.............................................. (3,922) --
--------- --------
Total stockholders' equity............................................. 165,396 158,898
--------- --------
$231,134 $211,151
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
25
<PAGE> 27
LANDMARK GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------ ------ -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1993................ 13,826 $691 $ 57,753 $ 22,308 $ -- $ 80,752
Exercise of options for common stock... 307 16 3,922 -- -- 3,938
Tax benefit associated with exercised
options............................. -- -- 1,062 -- -- 1,062
Common stock issued in connection with
the purchase of the Houston
facility, net of expenses of $60.... 80 4 1,446 -- -- 1,450
Common stock issued, net of offering
costs of $3,141..................... 2,305 115 45,143 -- -- 45,258
Common stock issued in exchange for
performance units of an acquired
company, net of expenses of $79..... 405 20 8,572 -- -- 8,592
Distributions to stockholders by pooled
entity.............................. -- -- -- (3,902) -- (3,902)
Contribution of undistributed S
Corporation earnings................ -- -- 903 (903) -- --
Adjustment to reduce acquired company's
net income to a nine month amount... -- -- -- (393) -- (393)
Net income............................. -- -- -- 5,847 -- 5,847
----- ---- -------- -------- -------- ---------
Balances at June 30, 1994................ 16,923 846 118,801 22,957 -- 142,604
Exercise of options for common stock... 160 8 1,930 -- -- 1,938
Issuance of restricted stock to
officers............................ 3 -- 45 -- -- 45
Tax benefit associated with exercised
options............................. -- -- 1,631 -- -- 1,631
Distributions to stockholders by pooled
entity.............................. -- -- -- (825) -- (825)
Net income............................. -- -- -- 13,505 -- 13,505
----- ---- -------- -------- -------- ---------
Balances at June 30, 1995................ 17,086 854 122,407 35,637 -- 158,898
Exercise of options for common stock... 327 16 4,278 -- 1,884 6,178
Tax benefit associated with exercised
options............................. -- -- 792 -- -- 792
Issuance of restricted stock to
officers............................ 10 1 217 -- -- 218
Common stock issued in connection with
acquisition......................... 75 4 (4) (199) -- (199)
Purchase of treasury stock............. -- -- -- -- (5,806) (5,806)
Net income............................. -- -- -- 5,315 -- 5,315
----- ---- -------- -------- -------- ---------
Balances at June 30, 1996................ 17,498 $875 $127,690 $ 40,753 $ (3,922) $165,396
===== ==== ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 28
LANDMARK GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from:
Operating activities:
Net income.............................................. $ 5,315 $ 13,505 $ 5,847
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................ 10,770 8,683 7,373
Acquired research and development costs................. 11,250 3,700 --
Adjustment to reduce acquired company's net income
included above to a nine month amount................. -- -- (393)
Amortization of goodwill and intangible assets.......... 2,159 1,396 136
Amortization of capitalized software development
costs................................................. 3,783 3,472 2,284
Compensation related to performance units of acquired
company............................................... -- -- 6,608
Provision for doubtful accounts......................... 2,044 1,612 1,536
Deferred income taxes................................... (3,167) 269 (1,110)
Other................................................... 2,433 1,090 1,689
Changes in assets and liabilities, net of the effects of
purchased businesses:
Receivables............................................. (10,455) (10,440) (7,630)
Inventory............................................... 537 (1,583) (114)
Prepaid expenses and other.............................. (524) 784 (841)
Other assets............................................ 1,785 (2,353) (99)
Accounts payable and accrued liabilities................ 5,607 3,192 2,739
Deferred maintenance fees............................... 7,988 2,154 5,121
Deferred income taxes/income taxes payable.............. 1,755 1,977 1,359
-------- -------- --------
Net cash provided by operating activities............... 41,280 27,458 24,505
-------- -------- --------
Investing activities:
Capital expenditures.................................... (11,248) (14,992) (25,886)
Payments for purchased businesses, net of cash
acquired.............................................. (18,015) (18,928) --
Capitalized software development costs.................. (6,208) (3,705) (2,745)
Investment in equity securities......................... -- (6) 400
Proceeds from sale of property and equipment............ 21 160 229
-------- -------- --------
Net cash used in investing activities................... (35,450) (37,471) (28,002)
-------- -------- --------
Financing activities:
Additions to debt....................................... -- -- 14,150
Reductions of debt...................................... (12,007) (1,695) (2,144)
Proceeds from exercise of stock options................. 6,178 1,937 3,937
Acquisition of treasury stock........................... (5,806) -- --
Proceeds from sale of common stock, net of offering
costs................................................. -- -- 45,258
Issuance costs related to stock-based financing
activities............................................ -- -- (139)
Distributions to pooled entities' stockholders.......... -- (825) (3,902)
-------- -------- --------
Net cash provided by (used in) financing activities..... (11,635) (583) 57,160
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... (5,805) (10,596) 53,663
Cash and cash equivalents at beginning of year............. 64,099 74,695 21,032
-------- -------- --------
Cash and cash equivalents at end of year................... $ 58,294 $ 64,099 $ 74,695
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 29
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
Landmark Graphics Corporation (the "Company") is engaged in the
development, marketing and support of interactive computer-aided exploration and
reservoir management software and systems. The consolidated financial statements
include the accounts of the Company and its majority owned subsidiaries. The
prior year statements have been restated to give effect to certain acquisitions
that were accounted for as poolings of interests (see Note 2). All significant
intercompany balances and transactions have been eliminated.
Proposed Merger On June 30, 1996, the Company and Halliburton Company
("Halliburton") entered into an Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger (the "Merger") of the Company with and into
a wholly-owned subsidiary of Halliburton. The Merger Agreement provides for the
exchange of 0.574 shares of Halliburton common stock for each outstanding share
of the Company's common stock, and for all outstanding options to purchase
shares of the Company's common stock to be assumed by the corporation surviving
the Merger and converted into options to purchase shares of Halliburton common
stock. The Merger transaction is subject to the Company's shareholder approval
and is expected to be accounted for as a pooling of interests. No adjustments
have been made in the accompanying audited financial statements of the Company
to give effect to the Merger because the proposed transaction has not been
consummated.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Risk and Uncertainties The Company is involved in a competitive industry.
Future revenues, the ability to recover capitalized software costs, future
profitability and future financial condition could be impacted significantly by
a number of factors, including but not limited to: delays in customer
implementation/transition to delivery of integrated solutions; lack of customer
acceptance of integrated solutions; delivery of the Company products;
competitive factors and pricing pressures; timing of development and acceptance
of new products/services releases; technical obsolescence of the Company's
products/services; and the actions of competitors.
Financial Instruments Financial instruments including cash, receivables
and payables are included in the accompanying financial statements at amounts
which approximate fair value at June 30, 1996. Fair value of investments is
estimated based upon quoted market prices.
Revenue Recognition Revenue from the sale of hardware products and
software licenses is recognized at the time of shipment unless significant
future obligations remain. In these instances, revenue is not recognized until
obligations have been satisfied or are no longer significant. Services revenue
is comprised of postcontract customer support agreements, training and
consulting services. Post-contract customer support agreements are recorded as
deferred maintenance fees and recognized as revenue ratably over the contract
period. Training and consulting service revenue is recognized as the services
are performed.
Concentrations of Credit Risk The Company invests its excess cash
primarily in high quality short-term liquid money market instruments. The
Company's policy is to invest in instruments with an investment-grade or higher
credit rating. The investments generally mature within ninety days and therefore
are subject to little risk. The Company has not incurred losses related to these
investments.
Trade receivables, which result from sales in numerous countries, subject
the Company to concentrations of credit risk. The Company's policy is to
evaluate, prior to shipment, each customer's financial condition to determine
the credit terms to be extended. The Company extends credit to various companies
in the oil and gas industry. This concentration of credit risk may be affected
by changes in economic or other conditions and may, accordingly, impact the
Company's overall credit risk. Management believes that this potential credit
risk is reduced because a significant portion of consolidated accounts
receivable are due from large integrated oil and gas companies.
28
<PAGE> 30
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued Revenue and Other Receivables Accrued revenue and other
receivables consist of the current portion of lease contracts receivable, notes
receivable and other miscellaneous receivables.
Inventory Inventory, which is stated at the lower of cost, as determined
by the weighted average method, or market, is comprised primarily of hardware
component parts.
Property and Equipment Property and equipment are stated at cost. The cost
of repairs and maintenance is charged to operations as incurred. Depreciation
expense for financial statement purposes is computed using the straight-line
method over three to seven years for computer equipment and related purchased
software, five years for furniture, fixtures and equipment, the lesser of the
lease term or five years for leasehold improvements and twenty-five to fifty
years for buildings.
Software Development Costs Costs of developing software for sale are
charged to expense when incurred as research and development until technological
feasibility has been established for the product. Thereafter, software
development costs are capitalized until the software is ready for general
release to customers. Once the software is ready for general release,
amortization of the software development costs begins. Amortization is
calculated as the greater of the amount computed by applying the ratio of
revenues generated during the current year to currently anticipated gross
revenues over the remainder of the product life to the amount capitalized, or by
applying the straight-line method over the currently estimated remaining product
life. Capitalized software development costs are generally not amortized over
periods which exceed three years.
Goodwill Goodwill represents the cost in excess of fair value of the net
assets of companies acquired in transactions treated as purchases. These amounts
are being amortized on a straight-line basis over eight to twelve years.
Other Assets Other assets includes the long-term portion of lease payments
related to sales-type leases, notes receivable and other intangible assets. The
long-term portion of lease payments relates to sales-type leases with lease
terms of one to three years. Other intangible assets consist of patents,
organizational and other costs and are being amortized on a straight-line basis
for a period of three to five years.
Foreign Currencies The accounts of the Company's foreign subsidiaries,
whose functional currency is the U.S. dollar, are translated into U.S. dollars
on a monthly basis and the resulting gain or loss is included in the results of
operations. To mitigate the effect of fluctuations in exchange rates, the
Company utilizes a protective hedge program which is designed to hedge certain
identifiable assets and obligations, primarily accounts receivable.
Income Taxes Deferred taxes are recognized using the liability method.
This method gives consideration to the future tax consequences associated with
differences between financial accounting and tax bases of assets and
liabilities. This method gives immediate effect to changes in income tax laws
upon enactment.
Pro Forma Charge in Lieu of Income Taxes Prior to its acquisition by the
Company, Advance Geophysical Corporation ("Advance") had elected S Corporation
status for U.S. federal income tax purposes. Prior to October, 1993, GeoGraphix,
Inc. ("GeoGraphix") had elected S Corporation status for U.S. federal income tax
purposes. The tax liability associated with their income during these time
periods was the responsibility of their stockholders. To reflect the earnings of
these entities on an after-tax basis, an unaudited pro forma charge in lieu of
income taxes has been included in the accompanying Consolidated Statements of
Income for the period preceding the termination of S Corporation status. This
provision was computed as if Advance and GeoGraphix were C Corporations and
responsible for their federal and state income taxes.
Cash and Cash Equivalents The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
29
<PAGE> 31
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications Certain prior year amounts have been reclassified to
conform to current year presentation.
NOTE 2 ACQUISITIONS:
Advance Geophysical Corporation On March 25, 1994, the Company acquired
Advance, issuing a total of 2,626,746 of its shares in exchange for all of the
outstanding shares of common stock of Advance and all of the outstanding
performance units awarded under Advance's Phantom Stock Plan. This acquisition
has been accounted for as a pooling of interests. In accordance with the
pooling-of-interests method of accounting for S Corporations, all undistributed
retained earnings of Advance, as of the date of the acquisition, were presented
as an addition to paid-in capital of the combined companies.
Advance adopted a Phantom Stock Plan (the "Plan") to provide deferred
compensation to certain key employees through the award of performance units.
Under the provisions of the Plan, all performance units granted and all
commitments to grant additional performance units became fully vested upon the
acquisition of Advance. The Plan has been terminated and all performance units
were exchanged for 405,483 shares of the Company's common stock. The
Consolidated Statements of Income include compensation accrued and charged to
operations under the Plan of $12.8 million for the year ended June 30, 1994.
Under Plan provisions, participants were also entitled to receive an annual
bonus based on adjusted net income, as defined, payable at the discretion of the
Board of Directors. The Consolidated Statements of Income include bonuses
accrued and charged to operations under the Plan of $1.3 million for the years
ended June 30, 1994. All bonuses have been paid as of June 30, 1995.
Stratamodel, Inc. On September 28, 1994, the Company acquired all of the
equity interests of Stratamodel, Inc. ("Stratamodel"), in a transaction
accounted for as a pooling of interests, and accordingly, the financial
statements for the year ended June 30, 1994 have been restated to include the
accounts of Stratamodel. In connection with the acquisition, the Company issued
a total of 413,911 shares of its common stock, in exchange for all of the common
stock, stock options and warrants of Stratamodel. In addition, the Company
retired all of Stratamodel's outstanding debt of approximately $510,000 and paid
certain acquisition-related expenses of Stratamodel of approximately $293,000.
MGI Associates, Inc. On September 29, 1994, the Company purchased all the
issued and outstanding capital stock of MGI Associates, Inc., ("MGA"). The
Company acquired MGA for consideration of approximately $13.3 million which
consisted of cash of $10.5 million paid to acquire the stock, $1.2 million paid
to retire certain related party debt and approximately $1.6 million of
acquisition-related costs. The acquisition was accounted for using the purchase
method and, accordingly, the purchase price has been allocated to the assets
acquired based on estimated fair values at the date of acquisition. In
accordance with the purchase method of accounting, the acquired operations have
been included in the results of operations since the date of acquisition.
DRD Corporation On February 28, 1995 the Company purchased certain assets
and assumed certain liabilities of DRD Corporation ("DRD") in exchange for cash
consideration of approximately $5.8 million. The Company also incurred
accounting, legal and investment banking costs of approximately $600,000 related
to the acquisition. The assets acquired primarily consisted of drilling and
completion engineering software applications as well as in-process research and
development activities. The acquisition was recorded using the purchase method
of accounting and, accordingly, the acquired operations have been included in
the results of operations since the date of acquisition.
GeoGraphix, Inc. On June 5, 1995, the Company acquired all of the
outstanding common stock of GeoGraphix in exchange for 653,718 shares of Company
common stock in a transaction accounted for as a pooling of interests, and
accordingly the financial statements for the year ended June 30, 1994 have been
restated to include the accounts of GeoGraphix.
30
<PAGE> 32
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Western Atlas International, Inc. On March 29, 1996, the Company purchased
certain assets and assumed certain liabilities of Western Atlas International,
Inc. ("WAII") in exchange for cash consideration of approximately $12.1 million.
The Company also incurred accounting, legal and investment banking costs of
approximately $750,000 related to the acquisition. The assets acquired primarily
consisted of oil and gas exploration and production software applications and
goodwill, as well as in-process research and development activities. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the acquired operations have been included in the results of
operations since the date of acquisition. Unaudited proforma condensed
consolidated results of operations for the years ended June 30, 1996 and 1995
computed as if the WAII acquisition had occurred on July 1, 1994 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revenue........................................................ $196,019 $182,817
Net income..................................................... $ 13,639 $ 13,897
Net income per share........................................... $ 0.77 $ 0.79
</TABLE>
Other acquisitions during the year ended June 30, 1996 were not material.
NOTE 3 CUSTOMER LEASES:
The Company leases products to customers under agreements with lease terms
of one to three years which qualify as sales-type leases. The current portion of
the lease payments is included in accrued revenue and other receivables, while
the long-term portion is included in other assets as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1995
------- -------
<S> <C> <C>
Lease contracts receivable....................................... $10,760 $11,447
Less current portion............................................. (7,150) (6,363)
------- -------
$ 3,610 $ 5,084
======= =======
</TABLE>
Annual future lease payments to be received under sales-type leases are
$7.2 million, $2.6 million and $1.0 million for the years ended June 30, 1997,
1998 and 1999, respectively.
NOTE 4 INVESTMENTS:
On January 27, 1993, the Company acquired 100,000 shares of 3DX
Technologies, Inc. ("3DX"), formerly Novera Energy Inc., Convertible Preferred
Stock in exchange for cash, certain assets and a line of credit guarantee of
$400,000. On November 9, 1993, the Company exchanged the 100,000 shares of
Convertible Preferred Stock for 63,637 shares of 3DX common stock. Additionally,
in connection with a 3DX equity financing transaction, the Company paid 3DX
$400,000 which was then used to repay amounts borrowed by 3DX under the line of
credit guaranteed by the Company. In exchange for that payment, the Company was
issued 4,000 units, which consist of 4,000 shares of 3DX Redeemable Preferred
Stock (Redeemable stock) and 23,376 shares of 3DX common stock. In connection
with the above transaction, the line of credit guarantee between the Company and
3DX's lender was terminated.
The Redeemable stock has a liquidation preference of $100 per share and is
mandatorily redeemable in two equal installments on November 9, 2002 and 2003.
Each share of the Redeemable stock is noncumulative and entitles the holder to
ten votes. Dividends are payable annually on December 31 at the rate of $12.50
per share, if in cash, or 0.13276 shares of Redeemable stock per share of
Redeemable stock, if in stock.
One of the founders of 3DX, a company that obtains working interests in oil
and gas properties in return for providing interpretation services, is the
Company's former chairman and chief executive officer.
31
<PAGE> 33
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 PROPERTY AND EQUIPMENT, NET:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Land........................................................... $ 7,105 $ 7,105
Buildings and improvements..................................... 21,446 21,114
Furniture, fixtures and equipment.............................. 49,364 44,407
Automobile..................................................... 231 73
Computer software.............................................. 10,303 8,768
-------- --------
88,449 81,467
Accumulated depreciation and amortization...................... (40,975) (33,964)
-------- --------
$ 47,474 $ 47,503
======== ========
</TABLE>
NOTE 6 SOFTWARE DEVELOPMENT COST, NET:
Capitalized software development activity was as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Capitalized software at beginning of year...................... $ 18,975 $ 13,407
Development costs capitalized during the year.................. 6,208 3,705
Costs capitalized as a result of acquisition................... 2,991 1,863
Impairment of capitalized costs................................ (688) --
-------- --------
27,486 18,975
Accumulated amortization....................................... (14,826) (11,043)
-------- --------
Capitalized software at end of year............................ $ 12,660 $ 7,932
======== ========
</TABLE>
In connection with the MGA transaction, the Company acquired an option to
purchase the equity interests of a corporation ("Argus") owned by certain of the
former shareholders of MGA in exchange for the guarantee of a $5.0 million line
of credit for Argus. On April 29, 1996, this option to purchase the equity
interests was terminated and the Company was assigned ownership of certain
software previously owned by Argus. The Company guarantee of the line of credit
is secured by an interest in another software product owned by Argus. The
Company believed it would be called on to perform on the $3.0 million
outstanding under the line of credit, and accordingly, the accompanying balance
sheet at June 30, 1996 includes approximately $1.0 million in capitalized
software development costs, $1.5 million in prepaid expenses and $500,000 in
other assets, and $3.0 million short-term debt related to the Argus agreements.
The Company funded and retired the line of credit on July 1, 1996.
NOTE 7 ACCRUED LIABILITIES:
Accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1995
------- -------
<S> <C> <C>
Real estate, sales and other taxes............................... $ 2,932 $ 2,452
Deferred acquisition payments.................................... 2,975 --
Other............................................................ 9,300 8,371
------- -------
$15,207 $10,823
======= =======
</TABLE>
32
<PAGE> 34
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 LONG-TERM DEBT:
On July 1, 1993, the Company entered into two credit agreements consisting
of a $10.0 million five year-term loan and a $10.0 million revolving credit
facility. The term loan of $8.0 million and $4.0 million of the revolving credit
facility at June 30, 1995 were drawn in connection with the purchase of the
Houston facility. The agreement was amended on November 30, 1993 to increase the
revolving line of credit facility from $10.0 million to $25.0 million. The
obligations were collateralized by land and the Company's building.
On December 15, 1995 the Company terminated its $25.0 million credit
facility and entered into a $100.0 million revolving credit agreement with a
syndicate of seven banks. No revolving loans have been made under the facility
through June 30, 1996. The agreement is collateralized by land owned by the
Company and contains certain restrictive and financial convenants.
At June 30, 1996, the Company had outstanding letters of credit of
approximately $4.4 million.
NOTE 9 COMMITMENTS AND CONTINGENCIES:
Leases The Company has entered into operating leases for certain of its
facilities and equipment. Future minimum lease commitments under non-cancelable
operating leases with initial or remaining terms of one year or more at June 30,
1996 are payable as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
JUNE 30,
- ------------
<S> <C>
1997........................................................................ $ 3,742
1998........................................................................ 3,173
1999........................................................................ 2,795
2000........................................................................ 2,012
2001........................................................................ 1,853
Thereafter.................................................................. 2,622
-------
$16,197
=======
</TABLE>
Rental expense for fiscal 1996, 1995 and 1994 was approximately $3.3
million, $3.4 million and $3.0 million, respectively.
Incentive Bonus Plans The Company has performance bonus plans for all
employees of the Company not included in other incentive compensation plans.
Payments pursuant to the business unit performance bonus plan ("Business Unit
Plan") are based on a percentage of each participant's base salary if certain
business unit performance criteria are achieved. For the years ended June 30,
1995 and 1994, $342,000 and $359,000 were accrued and paid to eligible employees
under the Business Unit Plan. No incentive bonus payments were made in fiscal
1996 under the Business Unit Plan.
Employment Agreements In connection with acquisitions, the Company has
entered into employment, non-competition and retention agreements (for three to
five years) with certain officers and key employees.
In December 1995, the Company entered into employment agreements with
certain officers of the Company. The agreements include provisions for
accelerated vesting of outstanding options upon a change in the control of the
Company and the payment of severance pay if employment is terminated within two
years of the change in control (see Note 1).
Litigation The Company is involved in certain claims and litigation arising
in the course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
33
<PAGE> 35
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 PREFERRED STOCK:
The Board of Directors has the authority to issue shares of preferred stock
in one or more series and to fix the rights, qualifications, preferences,
privileges, limitations or restrictions of each such series.
Stockholders' Rights Plan On August 23, 1995, the Company's Board of
Directors approved a Stockholder Rights Plan under which one preferred stock
purchase right is attached to each share of common stock outstanding. Pursuant
to the rights agreement covering the Stockholder Rights Plan, the rights become
exercisable ten days, subject to extension, after a party or group acquires or
commences a tender offer for 20% or more of the Company's common stock, unless
such transaction is approved by the Board of Directors. Each right entitles its
holder, under certain circumstances, to buy 1/100 share of a newly created
Series A Junior Participating Preferred Stock for $120. If 20% of the Company's
common stock is acquired by a party or group, each right not owned by the
20%-or-more stockholder and its affiliates and associates will entitle the
holder to purchase Company common stock having a market value of twice the
exercise price of the right. In addition, if the Company is involved in a merger
or certain other business combinations in which it is not the surviving
corporation, each right not owned by the 20%-or-more stockholder and its
affiliates and associates will entitle the holder to purchase common stock of
the surviving corporation having a market value of twice the exercise price of
the right. The rights, which expire on September 30, 2005 and do not have voting
rights, may be redeemed by the Company at $.01 per right prior to their becoming
exercisable.
NOTE 11 STOCK OPTION PLANS:
The Company has several stock option plans whereby options to purchase
shares of common stock have been or can be granted to directors, officers,
consultants and employees. Grant prices are, in most instances, equal to the
fair market value at the date of grant; however, under the provisions of the
plan, the Company has the option to set grant prices at a defined percentage
below fair market value. Matters such as vesting periods and expiration of
options are determined on a plan by plan, or grant by grant basis.
The following is a summary of stock option activity for the years ended
June 30, 1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
SHARES EXERCISE
UNDER OPTION PRICE RANGE
------------ -------------
LOW/HIGH
<S> <C> <C>
Outstanding at June 30, 1993............................ 2,128,994 $ 0.60/$23.75
Options granted....................................... 475,315 18.00/ 34.13
Options canceled...................................... (197,623) 10.25/ 28.13
Options exercised..................................... (307,354) .60/ 23.75
------------
Outstanding at June 30, 1994............................ 2,099,332 .60/ 34.13
Options granted....................................... 981,665 17.00/ 32.25
Options canceled...................................... (138,257) 10.00/ 32.25
Options exercised..................................... (160,185) .60/ 21.50
------------
Outstanding at June 30, 1995............................ 2,782,555 3.33/ 34.13
Options granted....................................... 959,550 16.33/ 28.19
Options canceled...................................... (261,698) 10.00/ 33.02
Options exercised(1).................................. (421,280) 3.33/ 24.00
------------
Outstanding at June 30, 1996............................ 3,059,127 $ 4.00/$34.13
==========
</TABLE>
- ---------------
(1) Of the 421,280 options exercised during fiscal 1996, 93,700 were issued from
the Company's treasury stock.
34
<PAGE> 36
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the options outstanding at June 30, 1996, 1,237,418 options were
exercisable. An additional 711,775 options would become exercisable upon the
completion of a change in control of the Company (Note 1). Upon completion of
the proposed merger with Halliburton, each option to acquire Company common
stock may be exchanged for an option to acquire Halliburton common stock using
the exchange ratio of 1 to 0.574, with the Halliburton option exercise price
being determined by dividing the existing exercise price by 0.574. At June 30,
1996 and 1995, there were 1,238,796 and 1,504,648 shares, respectively, reserved
for future grants under existing plans.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Number 123 ("FAS 123"), "Accounting for
Stock-Based Compensation". FAS 123 prescribes accounting and disclosure for
stock-based compensation under the fair value method, rather than intrinsic
value method, and is effective for the Company for the year ending June 30,
1997. Use of the fair value method for recording compensation expense is
optional. The Company has not yet determined the manner in which it will
implement FAS 123.
NOTE 12 PROFIT SHARING PLAN:
The Company established The Landmark Savings Plan (the "Plan") for the
benefit of all eligible employees. The Plan is qualified under sections 401(a)
and 401(k) of the Internal Revenue Code of 1986 and is subject to the provisions
of the Employee Retirement Income Security Act of 1974.
Employees may voluntarily contribute up to 16% of Compensation, as defined,
to the Plan. The participants' contributions are matched by the Company at a
rate of 50% of the first 8%, up to IRS limitations. For the years ended June 30,
1996, 1995 and 1994, contributions by the Company were $1.3 million, $931,000
and $623,000 respectively.
During fiscal 1996, 1995 and 1994, the Plan purchased 58,218, 46,733, and
5,394 shares, respectively, of the Company's common stock. At June 30, 1996,
1995 and 1994, the Plan owned 95,539, 57,791 and 36,933 shares respectively, of
the Company's common stock. Certain of the Company's subsidiaries sponsor
various defined contribution plans. These plans are immaterial.
NOTE 13 NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Net income per common and common equivalent share is computed using the
weighted average number of shares of common stock and common stock equivalents
outstanding during the year. Common stock equivalents are determined using the
treasury stock method which includes the number of shares issuable upon exercise
of antidilutive stock options, less the number of shares that could have been
repurchased with the exercise proceeds and its related tax benefit.
For purposes of the net income per share computation, the shares issued in
exchange for the equity interests of pooled entities have been treated as if
they had been issued and outstanding for all periods presented.
35
<PAGE> 37
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the weighted average number of shares
outstanding with the number of shares used in the computations of net income per
common and common equivalent share (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Weighted average number of shares outstanding............ 17,322 17,001 15,774
Share equivalents........................................ 439 463 597
------ ------ ------
Shares used in computing net income per share............ 17,761 17,464 16,371
====== ====== ======
</TABLE>
NOTE 14 ACQUIRED RESEARCH AND DEVELOPMENT COSTS:
Substantially all of the acquired research and development costs relate to
in-process research and development activities acquired in the WAII purchase in
1996 and the DRD purchase in 1995. The Company evaluated the status of the
acquired in-process development activities and determined that certain projects
had not reached technological feasibility under the Company's software
development plans and method to account for software development costs, and did
not have alternative future use to the Company. The Company performed a separate
valuation of the replacement cost of these activities and determined the
replacement cost approximated $11.0 million and $3.7 million, respectively. In
accordance with generally accepted accounting principles, this amount was
expensed at the date of acquisition. The Company expects to incur approximately
$4.0 to $5.0 million during the next 12 to 18 months to document, merge and
embed the acquired code and development activities into products to be released
in the future.
NOTE 15 RESTRUCTURING, MERGER AND OTHER COSTS:
For the year ended June 30, 1994, non-recurring costs included in the
Consolidated Statements of Income consist of a compensation charge related to
the common shares issued to Phantom Stock Plan participants and professional and
other fees and expenses related to the completion of the merger with Advance. In
connection with the acquisition, common stock was issued to Advance's Phantom
Stock performance unit holders in exchange for all of their outstanding
performance units. The fair value of the Company's stock was used to measure the
compensation costs relating to this Plan, which resulted in the recognition of a
nonrecurring charge of $11.1 million. Additionally, investment banking,
accounting and legal costs related to the merger of approximately $2.4 million
were incurred and are included in merger costs.
For the year ended June 30, 1995, merger costs included in the Consolidated
Statements of Income consist primarily of accounting, legal and investment
banking costs related to the completion of the Stratamodel and GeoGraphix
acquisitions. In connection with the Stratamodel acquisition, the Company
adopted a restructuring plan designed to eliminate redundancies and consolidate
operations. Under the plan, the Company recorded approximately $1.2 million in
restructuring charges in fiscal 1995 consisting of severance costs for
terminated employees and lease costs associated with duplicate facilities.
Additionally, non-recurring costs of approximately $600,000 were incurred in
connection with the acquisition, including relocation and other
acquisition-related costs.
36
<PAGE> 38
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 31, 1995, the Company announced a restructuring plan to proactively
realign its resources to achieve its strategic goals of offering integrated
solutions as well as point products. The realignment included terminating 74
employees and consolidating certain facilities. The Company recorded a charge of
approximately $3.1 million in the first quarter of fiscal 1996. Activity related
to this restructuring charge follows (in thousands):
<TABLE>
<CAPTION>
RESTRUCTURING CHARGE AT PAYMENTS THROUGH ACCRUED LIABILITY AT
JULY 31, 1995 JUNE 30, 1996 JUNE 30, 1996
----------------------- ---------------- --------------------
<S> <C> <C> <C>
Employee severance and
relocation..................... $ 2,353 $ (2,120) $233
Facilities....................... 202 (114) 88
Other............................ 545 (545) --
------ ------- ----
Total.................. $ 3,100 $ (2,779) $321
====== ======= ====
</TABLE>
All planned employee terminations have occurred. Remaining payments related
to employee severance and relocation are expected to be completed by February
1997, while facilities-related payments include certain future lease payments to
be made monthly through January 2004.
The remainder of restructuring, merger and other costs for the year ended
June 30, 1996 related primarily to terminated acquisition activities.
NOTE 16 INCOME TAXES:
The provision for income tax differs from the amounts computed based upon
the federal statutory rates for the reasons shown below:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 35 % 35 % 35 %
Amortization of goodwill.................................... 8 2 1
Nondeductible merger costs.................................. -- 4 8
Taxes related to foreign income............................. 1 (1 ) --
Foreign Sales Corporation benefit........................... (17 ) (5 ) (1 )
Deferred benefits not recognized (recognized)............... -- (9 ) 3
S corporation earnings...................................... -- -- (14 )
Tax-exempt income........................................... (1 ) (1 ) (3 )
State taxes................................................. -- 2 1
Other....................................................... 1 1 2
--- --- ---
27 % 28 % 32 %
=== === ===
</TABLE>
Income before income taxes was taxed under the following jurisdictions (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Domestic............................................... $(1,599) $20,567 $7,894
Foreign................................................ 8,859 (1,866) 620
------- ------- ------
$ 7,260 $18,701 $8,514
======= ======= ======
</TABLE>
Certain overseas operations are branches of Landmark Graphics and are
therefore subject to United States as well as foreign income tax. The above
analysis of pretax income and the following analysis of the
37
<PAGE> 39
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income tax provision (benefit) are therefore not directly related. Also, the
foreign taxes withheld on export sales are included in the foreign amount of the
current provision shown below.
Provision for income taxes included in the Consolidated Statements of
Income are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Current:
Federal.............................................. $ 1,605 $3,244 $ 1,508
State................................................ 22 256 87
Foreign.............................................. 3,485 1,427 2,182
------- ------ -------
Total current................................ 5,112 4,927 3,777
------- ------ -------
Deferred:
Federal.............................................. (3,507) (43) (968)
Foreign.............................................. 340 312 (142)
------- ------ -------
Total deferred............................... (3,167) 269 (1,110)
------- ------ -------
Provision for income taxes............................. $ 1,945 $5,196 $ 2,667
======= ====== =======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1996
----------
<S> <C>
Loss and credit carryovers................................................ $ 5,169
Warranty, bad debt and inventory reserves................................. 873
Cash-to-accrual adjustment................................................ 390
Vacation reserve.......................................................... 499
Other..................................................................... 139
-------
Total -- current................................................ $ 7,070
-------
Capitalized research and development costs................................ (2,734)
Intangible amortization................................................... 5,619
Foreign subsidiary earnings............................................... (1,104)
Depreciation.............................................................. (1,415)
Other..................................................................... (1,181)
-------
Total -- noncurrent............................................. $ (815)
-------
Net tax asset before valuation allowance.................................. 6,255
Valuation allowance....................................................... (2,240)
-------
Net deferred tax asset.................................................... $ 4,015
=======
</TABLE>
General business credit carryforwards of $408,000 and foreign tax credits
of $1.8 million were used to reduce current taxes payable.
In addition to the effect of the fiscal 1996 deferred provision for income
taxes, the net deferred tax asset decreased by $409,000 from fiscal year 1995
due to carryback of operating losses of acquired subsidiary companies for
federal tax refunds.
There was no change in the valuation allowance for deferred tax assets
during the current year.
38
<PAGE> 40
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For federal income tax purposes, the Company has foreign tax credit
carryforwards of $2.3 million expiring in years 1999 through 2001, research and
development credits of $2.1 million that expire beginning in 2004 and continuing
through 2009, and minimum tax credits of $377,000.
The current income tax receivable represents the anticipated refund of
domestic and foreign taxes which are recoverable due to subsidiary losses and
carryback of unused foreign tax credits.
NOTE 17 SEGMENT INFORMATION:
The Company operates exclusively in one industry segment, the supply of
computer-aided exploration and reservoir management systems and services to the
petroleum industry. No single customer represented in excess of 10% of total
revenues during any of the years presented.
Revenues and identifiable assets by geographic area, which reflect the
elimination of inter-geographic amounts, are presented below.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
United States:
Domestic...................................... $ 90,278 $ 74,765 $ 67,975
Export........................................ 56,643 67,422 49,762
Canada........................................... 4,307 4,360 2,907
Europe/Africa/Middle East........................ 26,260 18,264 15,296
Pacific Rim...................................... 4,938 5,059 5,004
Latin America.................................... 4,886 1,336 2,307
-------- -------- --------
$187,312 $171,206 $143,251
======== ======== ========
Export Sales from United States to:
Canada........................................... $ 3,189 $ 2,722 $ 3,966
Europe/Africa/Middle East........................ 27,070 37,300 25,822
Pacific Rim...................................... 16,510 15,230 10,957
Latin America.................................... 9,874 12,170 9,017
-------- -------- --------
$ 56,643 $ 67,422 $ 49,762
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Identifiable Assets:
United States.................................... $206,943 $196,482 $180,372
Canada........................................... 2,727 2,436 1,467
Europe/Africa/Middle East........................ 14,549 7,928 4,408
Pacific Rim...................................... 3,818 3,813 2,197
Latin America.................................... 3,097 492 709
-------- -------- --------
$231,134 $211,151 $189,153
======== ======== ========
</TABLE>
Revenues generated outside the United States primarily represent
maintenance and customer support services provided by the Company's foreign
offices.
The Company's operations outside North America function as sales
representatives and customer support offices. Transactions with these foreign
entities are conducted through contracts which provide for reimbursement of
certain costs and fees for services performed. Products are provided to
customers directly from the
39
<PAGE> 41
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. parent organization. Geographical profit and loss information has been
omitted as it is not deemed to be useful in analyzing and understanding the
Company's worldwide operations.
NOTE 18 CASH FLOW INFORMATION:
Net cash provided by operating activities includes cash payments for
interest and income taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Income taxes............................................. $1,948 $1,857 $2,349
Interest................................................. 522 1,043 742
</TABLE>
During the years ended June 30, 1996, 1995 and 1994, there were noncash
financing activities of $1.5 million, $1.6 million and $1.1 million
respectively, relating to tax benefits received from the exercise of
nonqualified stock options by employees. These benefits were recorded as a
reduction of income taxes payable and an increase to paid-in capital.
There were noncash investing activities of approximately $1.5 million for
the year ended June 30, 1994 which relates to stock issued in connection with
the purchase of the Houston facility.
There were noncash operating activities during the year ended June 30, 1994
of approximately $8.7 million. This amount relates to common stock issued to
satisfy obligations due to Advance's Phantom Stock performance unit holders.
Noncash activities during the year ended June 30, 1996 included the
acquisition of software and software rights related to the $3.0 million
guarantee of Argus indebtedness (see Note 6).
NOTE 19 QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data, as restated for the effects of the
acquisitions accounted for as poolings of interests, is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996:
Revenues.................................. $39,810 $50,172 $43,338 $53,992
Gross profit.............................. 23,125 30,158 25,748 34,098
Net income (loss)......................... 294 6,379 (5,968) 4,610
Net income (loss) per share............... $ 0.02 $ 0.36 $ (0.34) $ 0.26
1995:
Revenues.................................. $31,767 $45,248 $44,970 $49,221
Gross profit.............................. 17,984 26,601 27,558 30,196
Net income (loss)......................... (972) 5,763 3,189 5,525
Net income (loss) per share............... $ (0.06) $ 0.33 $ 0.18 $ 0.31
</TABLE>
40
<PAGE> 42
LANDMARK GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item with respect to items 401 and 405 of
Regulation S-K appears in the sections entitled "Election of Directors",
"Executive Officers" and "Compliance with Section 16(a) of the Exchange Act"
included in the Company's definitive Proxy Statement relating to the 1996 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the section entitled
"Executive Compensation" included in the Company's definitive Proxy Statement
relating to the 1996 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" included in the
Company's definitive Proxy Statement relating to the 1996 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears in the section entitled
"Election of Directors" included in the Company's definitive Proxy Statement
relating to the 1996 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
41
<PAGE> 43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) See Index to Consolidated Financial Statements at Item 8 of
this report.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
(IF APPLICABLE)
SEQUENTIALLY INCORPORATION BY REFERENCE
NUMBERED FROM
EXHIBIT NUMBER AND DESCRIPTION PAGE FORM DATE FILE NO. EXHIBIT
- ----------------------------------------------- ------------ ---- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1 -- Stock Purchase Agreement by and
among the Company, MGI
Associates, Inc., Munro
Engineering, Inc. and all of the
Shareholders of MGI Associates,
Inc. ........................... N/A 8-K 09/29/94 0-17195 2.3
2.2 -- Agreement and Plan of Merger,
dated June 30, 1996, by and
among, Landmark Graphics
Corporation, Halliburton Company
and Halliburton Acq. Company.... N/A 8-K 06/30/96 0-17195 2.1
2.3 -- Purchase Agreement by and
between the Company and Western
Atlas International, Inc. (WAII)
for certain assets of WAII...... N/A 10-Q 06/30/96 0-17195 2.1
2.4(a) -- Addendum No. 1 to Stock Purchase
Agreement, by and among the
Company, MGI Associates, Inc.,
Munro Engineering, Inc. and all
of the Shareholders of MGI
Associates, Inc................. N/A 10-Q 12/31/95 0-17195 2.1(a)
2.4(b) -- Addendum No. 2 to Stock Purchase
Agreement, by and among the
Company, MGI Associates, Inc.,
Munro Engineering, Inc. and all
of the Shareholders of MGI
Associates, Inc................. N/A 10-Q 12/31/95 0-17195 2.1(b)
(3) Articles of Incorporation and Bylaws
3.1 -- Restated Certificate of
Incorporation, as amended....... N/A S-1 07/12/89 33-29916 3.1
3.2 -- Bylaws, as amended.............. N/A 8-A 09/05/95 0-17195 99.4
(10) Material Contracts
10.1 -- The Landmark Graphics
Corporation 1984 Incentive Stock
Option Plan, as amended,
together with form of stock
option agreement used
thereunder...................... N/A S-1 07/12/89 33-29916 10.7
10.2 -- The Landmark Graphics
Corporation 1985 Incentive Stock
Option Plan, as amended,
together with form of stock
option agreement used
thereunder...................... N/A S-1 07/12/89 33-29916 10.8
10.3 -- The 1987 Non-Qualified Stock
Option Plan, as amended,
together with form of stock
option agreement used
thereunder...................... N/A S-1 07/12/89 33-29916 10.9
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
(IF APPLICABLE)
SEQUENTIALLY INCORPORATION BY REFERENCE
NUMBERED FROM
EXHIBIT NUMBER AND DESCRIPTION PAGE FORM DATE FILE NO. EXHIBIT
- ----------------------------------------------- ------------ ---- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
10.4 -- Amended Form of Indemnification
Agreement between Registrant and
its directors and certain of its
officers........................ N/A S-1 07/12/89 33-23957 10.1
10.5 -- The 1989 Flexible Stock Option
Plan with form of stock option
agreement used thereunder....... N/A 10-K 06/30/89 0-17195 10.23
10.6 -- Amendment to the 1989 Flexible
stock option plan............... N/A 10-K 06/30/90 0-17195 10.12
10.7 -- The Directors' Stock Option Plan
with form of stock option
agreement used thereunder....... N/A 10-K 06/30/91 0-17195 10.11
10.8 -- Amendment to Stock Option
Agreement....................... N/A 10-K 06/30/92 0-17195 10.10
10.9 -- The Consultants' Stock Option
Plan with form of stock option
agreement used thereunder....... N/A S-8 03/11/91 33-39358 28.4
10.10 -- The 1990 Employee Stock Option
Plan with form of stock option
agreement used thereunder....... N/A S-8 03/11/91 33-39358 28.5
10.11 -- Severance Agreement dated August
7, 1992, between Company and its
officers........................ N/A 10-K 06/30/92 0-17195 10.17
10.12 -- Letter Loan Agreement dated
November 30, 1993 between
Company and NationsBank of
Texas, N.A...................... N/A 10-Q 12/31/93 0-17195 10.1
10.13 -- Letter Loan Agreement dated
October 31, 1994 between Company
and NationsBank of Texas,
N.A............................. N/A 10-Q 12/31/94 0-17195 10.1
10.14 -- Lease Agreement dated March 25,
1994 between Company and Alton-
S.G.P. Ltd. .................... N/A 10-Q 03/31/94 0-17195 10.1
10.15 -- Employment Agreement, dated
March 25, 1994, between the
Company and Samuel Rutt Bridges. N/A 10-K 06/30/94 0-17195 10.15
10.16 -- 1994 Flexible Incentive Plan.... N/A 10-Q 12/31/94 0-17195 10.2
10.17 -- Credit Agreement dated December
15, 1995 between the Company and
ABN Amro Bank, N.V., as Agent... N/A 10-Q 12/31/95 0-17195 10.2
10.18 -- Change in Control Agreement
between the Company and Senior
Executives of the Company....... N/A 10-Q 12/31/95 0-17195 10.2
(21) Subsidiaries of the Company
21.1 -- Subsidiaries of the Company..... N/A N/A N/A N/A
(23) Consents of Experts and Counsel
23.1 -- Consent of Price Waterhouse
LLP............................. N/A N/A N/A N/A
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
(IF APPLICABLE)
SEQUENTIALLY INCORPORATION BY REFERENCE
NUMBERED FROM
EXHIBIT NUMBER AND DESCRIPTION PAGE FORM DATE FILE NO. EXHIBIT
- ----------------------------------------------- ------------ ---- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
(27) Financial Data Schedule
27.1 -- Financial Data Schedule-Fiscal
Year 1996....................... N/A N/A N/A N/A
(99) Additional Exhibits
99.1 -- Registration Rights Agreement
among Company, the former
Shareholders of Stratamodel,
Inc. and certain employees of
Stratamodel, Inc................ N/A 8-K 09/29/94 0-17195 99.1
99.2 -- Registration Rights Agreement
among Company, the former
Shareholders of GeoGraphix, Inc.
and certain employees of
GeoGraphix, Inc................. N/A 8-K 06/05/95 0-17195 99.1
99.3 -- Registration Rights Agreement
among Company, the former
Shareholders of Advance
Geophysical Corporation and
certain employees of Advance
Geophysical Corporation......... N/A 8-K 03/25/94 0-17195 99.1
99.4 -- Rights Agreement dated September
1, 1995 by and between the
Company and Chemical Bank....... N/A 8-K 09/21/95 0-17195 99.4
99.5 -- Stock Option Agreement dated
June 30, 1996, by and among
Landmark Graphics Corporation
and Halliburton Company......... N/A 8-K 06/30/96 0-17195 99.1
99.6 -- Voting Agreement, dated June 30,
1996, by and among Halliburton
Company, S. Rutt Bridges and
Barbara Ann Bridges............. N/A 8-K 06/30/96 0-17195 99.2
99.7 -- First Amendment to Rights
Agreement, date June 30, 1996,
by and between Landmark Graphics
Corporation and Chemical Bank... N/A 8-K 06/30/96 0-17195 99.3
99.8 -- Cautionary Statement for
Purposes of the "Safe Harbor"
Provision of the Private
Securities Reform Act of 1995... N/A 8-K 04/02/96 0-17195 99.1
</TABLE>
(b) Reports on Form 8-K.
Form 8-K dated June 30, 1996 (filed on July 5, 1996) which reported
that the Company entered into an Agreement and Plan of Merger with
Halliburton Company ("Halliburton") pursuant to which the parties propose
to merge the Company with and into a wholly-owned subsidiary of
Halliburton. The merger was unanimously approved by both the Company's and
Halliburton's Boards of Directors. In the case of the Company, such
transaction is subject to the approval of the merger by the stockholders of
the Company. The parties anticipate that the merger will be completed in
the fourth quarter of the 1996 calendar year.
44
<PAGE> 46
LANDMARK GRAPHICS CORPORATION
SCHEDULE VIII -- VALUATIONS AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND -------------------------- END OF
OF PERIOD EXPENSES WRITE-OFFS CONVERSIONS PERIOD
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Inventory reserves:
June 30, 1996................. $ 576,000 $ 300,000 $ (411,000) -- $ 465,000
June 30, 1995................. 1,519,000 1,189,000 (2,132,000) -- 576,000
June 30, 1994................. 2,478,000 973,000 (1,932,000) -- 1,519,000
Lease inventory accumulated
amortization:
June 30, 1996................. $ 315,000 $ 189,000 -- $ (17,000) $ 487,000
June 30, 1995................. 165,000 150,000 -- -- 315,000
June 30, 1994................. 187,000 180,000 -- (202,000) 165,000
Allowance for doubtful accounts:
June 30, 1996................. $1,461,000 $2,044,000 $ (889,000) $ 300,000 $2,916,000
June 30, 1995................. 1,706,000 1,612,000 (1,857,000) -- 1,461,000
June 30, 1994................. 2,108,000 1,536,000 (1,938,000) -- 1,706,000
</TABLE>
Deferred income taxes valuation allowance:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
OF PERIOD ADDITIONS DEDUCTIONS PERIOD
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
June 30, 1996................. $2,240,000 $ -- $ -- $2,240,000
June 30, 1995................. 3,463,000 1,808,000 (3,031,000) 2,240,000
</TABLE>
45
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LANDMARK GRAPHICS CORPORATION
Date: July 29, 1996 By: /s/ ROBERT P. PEEBLER
------------------------------------
Robert P. Peebler
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ ROBERT P. PEEBLER President, Chief Executive July 29, 1996
- --------------------------------------------- Officer and Director (Principal
Robert P. Peebler Executive Officer)
/s/ WILLIAM H. SEIPPEL Vice President, Finance and Chief July 29, 1996
- --------------------------------------------- Financial Officer (Principal
William H. Seippel Financial and Accounting
Officer)
/s/ SAM K. SMITH Chairman of the Board July 29, 1996
- ---------------------------------------------
Sam K. Smith
/s/ LUCIO L. LANZA Director July 29, 1996
- ---------------------------------------------
Lucio L. Lanza
/s/ JAMES A. DOWNING, II Director July 29, 1996
- ---------------------------------------------
James A. Downing, II
/s/ CHARLES L. BLACKBURN Director July 29, 1996
- ---------------------------------------------
Charles L. Blackburn
/s/ S. RUTT BRIDGES Director July 29, 1996
- ---------------------------------------------
S. Rutt Bridges
/s/ THEODORE LEVITT Director July 29, 1996
- ---------------------------------------------
Theodore Levitt
</TABLE>
46
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
(IF APPLICABLE)
SEQUENTIALLY INCORPORATION BY REFERENCE
NUMBERED FROM
EXHIBIT NUMBER AND DESCRIPTION PAGE FORM DATE FILE NO. EXHIBIT
- ----------------------------------------------- ------------ ---- -------- -------- -------
<C> <S> <C> <C> <C> <C> <C>
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1 -- Stock Purchase Agreement by and
among the Company, MGI
Associates, Inc., Munro
Engineering, Inc. and all of the
Shareholders of MGI Associates,
Inc. ........................... N/A 8-K 09/29/94 0-17195 2.3
2.2 -- Agreement and Plan of Merger,
dated June 30, 1996, by and
among, Landmark Graphics
Corporation, Halliburton Company
and Halliburton Acq. Company.... N/A 8-K 06/30/96 0-17195 2.1
2.3 -- Purchase Agreement by and
between the Company and Western
Atlas International, Inc. (WAII)
for certain assets of WAII...... N/A 10-Q 06/30/96 0-17195 2.1
2.4(a) -- Addendum No. 1 to Stock Purchase
Agreement, by and among the
Company, MGI Associates, Inc.,
Munro Engineering, Inc. and all
of the Shareholders of MGI
Associates, Inc................. N/A 10-Q 12/31/95 0-17195 2.1(a)
2.4(b) -- Addendum No. 2 to Stock Purchase
Agreement, by and among the
Company, MGI Associates, Inc.,
Munro Engineering, Inc. and all
of the Shareholders of MGI
Associates, Inc................. N/A 10-Q 12/31/95 0-17195 2.1(b)
(3) Articles of Incorporation and Bylaws
3.1 -- Restated Certificate of
Incorporation, as amended....... N/A S-1 07/12/89 33-29916 3.1
3.2 -- Bylaws, as amended.............. N/A 8-A 09/05/95 0-17195 99.4
(10) Material Contracts
10.1 -- The Landmark Graphics
Corporation 1984 Incentive Stock
Option Plan, as amended,
together with form of stock
option agreement used
thereunder...................... N/A S-1 07/12/89 33-29916 10.7
10.2 -- The Landmark Graphics
Corporation 1985 Incentive Stock
Option Plan, as amended,
together with form of stock
option agreement used
thereunder...................... N/A S-1 07/12/89 33-29916 10.8
10.3 -- The 1987 Non-Qualified Stock
Option Plan, as amended,
together with form of stock
option agreement used
thereunder...................... N/A S-1 07/12/89 33-29916 10.9
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
(IF APPLICABLE)
SEQUENTIALLY INCORPORATION BY REFERENCE
NUMBERED FROM
EXHIBIT NUMBER AND DESCRIPTION PAGE FORM DATE FILE NO. EXHIBIT
- ----------------------------------------------- ------------ ---- -------- -------- -------
<C> <S> <C> <C> <C> <C> <C>
10.4 -- Amended Form of Indemnification
Agreement between Registrant and
its directors and certain of its
officers........................ N/A S-1 07/12/89 33-23957 10.1
10.5 -- The 1989 Flexible Stock Option
Plan with form of stock option
agreement used thereunder....... N/A 10-K 06/30/89 0-17195 10.23
10.6 -- Amendment to the 1989 Flexible
stock option plan............... N/A 10-K 06/30/90 0-17195 10.12
10.7 -- The Directors' Stock Option Plan
with form of stock option
agreement used thereunder....... N/A 10-K 06/30/91 0-17195 10.11
10.8 -- Amendment to Stock Option
Agreement....................... N/A 10-K 06/30/92 0-17195 10.10
10.9 -- The Consultants' Stock Option
Plan with form of stock option
agreement used thereunder....... N/A S-8 03/11/91 33-39358 28.4
10.10 -- The 1990 Employee Stock Option
Plan with form of stock option
agreement used thereunder....... N/A S-8 03/11/91 33-39358 28.5
10.11 -- Severance Agreement dated August
7, 1992, between Company and its
officers........................ N/A 10-K 06/30/92 0-17195 10.17
10.12 -- Letter Loan Agreement dated
November 30, 1993 between
Company and NationsBank of
Texas, N.A...................... N/A 10-Q 12/31/93 0-17195 10.1
10.13 -- Letter Loan Agreement dated
October 31, 1994 between Company
and NationsBank of Texas,
N.A............................. N/A 10-Q 12/31/94 0-17195 10.1
10.14 -- Lease Agreement dated March 25,
1994 between Company and Alton-
S.G.P. Ltd. .................... N/A 10-Q 03/31/94 0-17195 10.1
10.15 -- Employment Agreement, dated
March 25, 1994, between the
Company and Samuel Rutt Bridges. N/A 10-K 06/30/94 0-17195 10.15
10.16 -- 1994 Flexible Incentive Plan.... N/A 10-Q 12/31/94 0-17195 10.2
10.17 -- Credit Agreement dated December
15, 1995 between the Company and
ABN Amro Bank, N.V., as Agent... N/A 10-Q 12/31/95 0-17195 10.2
10.18 -- Change in Control Agreement
between the Company and Senior
Executives of the Company....... N/A 10-Q 12/31/95 0-17195 10.2
(21) Subsidiaries of the Company
21.1 -- Subsidiaries of the Company..... N/A N/A N/A N/A
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
(IF APPLICABLE)
SEQUENTIALLY INCORPORATION BY REFERENCE
NUMBERED FROM
EXHIBIT NUMBER AND DESCRIPTION PAGE FORM DATE FILE NO. EXHIBIT
- ------------------------------ ------------ ---- -------- -------- -------
<S> <C> <C> <C> <C> <C>
(23) Consents of Experts and Counsel
23.1 -- Consent of Price Waterhouse
LLP............................. N/A N/A N/A N/A
(27) Financial Data Schedule
27 -- Financial Data Schedule-Fiscal
Year 1996....................... N/A N/A N/A N/A
(99) Additional Exhibits
99.1 -- Registration Rights Agreement
among Company, the former
Shareholders of Stratamodel,
Inc. and certain employees of
Stratamodel, Inc................ N/A 8-K 09/29/94 0-17195 99.1
99.2 -- Registration Rights Agreement
among Company, the former
Shareholders of GeoGraphix, Inc.
and certain employees of
GeoGraphix, Inc................. N/A 8-K 06/05/95 0-17195 99.1
99.3 -- Registration Rights Agreement
among Company, the former
Shareholders of Advance
Geophysical Corporation and
certain employees of Advance
Geophysical Corporation......... N/A 8-K 03/25/94 0-17195 99.1
99.4 -- Rights Agreement dated September
1, 1995 by and between the
Company and Chemical Bank....... N/A 8-K 09/21/95 0-17195 99.4
99.5 -- Stock Option Agreement dated
June 30, 1996, by and among
Landmark Graphics Corporation
and Halliburton Company......... N/A 8-K 06/30/96 0-17195 99.1
99.6 -- Voting Agreement, dated June 30,
1996, by and among Halliburton
Company, S. Rutt Bridges and
Barbara Ann Bridges............. N/A 8-K 06/30/96 0-17195 99.2
99.7 -- First Amendment to Rights
Agreement, date June 30, 1996,
by and between Landmark Graphics
Corporation and Chemical Bank... N/A 8-K 06/30/96 0-17195 99.3
99.8 -- Cautionary Statement for
Purposes of the "Safe Harbor"
Provision of the Private
Securities Reform Act of 1995... N/A 8-K 04/02/96 0-17195 99.1
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
GeoGraphix, Inc. (Colorado)
Landmark Graphics Europe/Africa, Inc. (Delaware)
Landmark Finance Corporation (Delaware)
Landmark Graphics International, Inc. (Texas)
Landmark American Latina, S.A. (Delaware)
Landmark Sales Corporation (FSC)(Barbados)
Landmark/TTA, Ltd. (Alberta)
LMK Land Company (Delaware)
CAEX Services, Inc. (Delaware)
Landmark/CAEX, Inc. (Delaware)
Stratamodel Limited (England)
Stratamodel (FSC)(Barbados)
MG Associates, Inc. (Holding Co. - Texas)
ETI Acquisition Corp. (Texas)
Tech Logic, Inc. (Washington)
SUBSIDIARIES OF LANDMARK GRAPHICS EUROPE/AFRICA, INC.
-----------------------------------------------------
Landmark Graphics (Nigeria) Ltd. (Nigeria)
Landmark EAME, Ltd. (England)
SUBSIDIARIES OF LANDMARK GRAPHICS INTERNATIONAL, INC.
-----------------------------------------------------
P.T. Landmark Concurrent Solusi Indonesia (Indonesia Joint Venture)
Landmark Graphics (Malaysia) Sdn. Bhd. (Malaysia)
SUBSIDIARIES OF LANDMARK AMERICA LATINA, S.A.
---------------------------------------------
Landmark Graphics Columbia S.A. (Columbia)
Landmark Graphics do Brasil Ltda. (Brazil)
Landmark Graphics Venezuala C.A. (Venezuela)
Landmark Graphics Argentina, S.A. (Argentina)
Landmark de Mexico, S.A. de C.V. (Mexico)
Landmark America Latina S.A. (Panama)
SUBSIDIARIES OF MGI ASSOCIATES, INC.
------------------------------------
Munro Garrett International, Inc.
SUBSIDIARIES OF MUNRO GARRET INTERNATIONAL, INC.
------------------------------------------------
Munro Garret (Asia Pacific) Pty. Ltd. (Australia)
Landmark Graphics Canada, Inc. (Alberta)
SUBSIDIARIES OF LANDMARK GRAPHICS CANADA, INC.
----------------------------------------------
Munro Garrett International Limited (Scotland)
Munro Engineering Intl. Pte. Ltd. (Singapore)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Numbers 33-26995, 33-28484, 33-38132, 33-39358, 33-44217
and 33-57989) and in the Prospectuses constituting part of the Registration
Statements on Form S-3 (Numbers 33-79226, 33-87216 and 33-61405) of our report
dated July 22, 1996 appearing on page 23 of Landmark Graphics Corporation's
Annual Report on Form 10-K for the year ended June 30, 1996.
PRICE WATERHOUSE LLP
Houston, Texas
July 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the annual
filing on Form 10-K for the period ended June 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> JUN-30-1996
<CASH> 58,294
<SECURITIES> 0
<RECEIVABLES> 60,952
<ALLOWANCES> 2,916
<INVENTORY> 3,314
<CURRENT-ASSETS> 141,306
<PP&E> 88,449
<DEPRECIATION> 40,975
<TOTAL-ASSETS> 231,134
<CURRENT-LIABILITIES> 61,985
<BONDS> 0
<COMMON> 875
0
0
<OTHER-SE> 164,521
<TOTAL-LIABILITY-AND-EQUITY> 231,134
<SALES> 112,540
<TOTAL-REVENUES> 187,312
<CGS> 36,360
<TOTAL-COSTS> 74,183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,044
<INTEREST-EXPENSE> 583
<INCOME-PRETAX> 7,260
<INCOME-TAX> 1,945
<INCOME-CONTINUING> 5,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,315
<EPS-PRIMARY> .3
<EPS-DILUTED> .3
</TABLE>
