SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 3, 1995
COMMISSION FILE NUMBER 0-15034
GEODYNAMICS CORPORATION
Exact name of registrant as specified in its charter
CALIFORNIA 95-2502865
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21171 WESTERN AVENUE, SUITE 110, Torrance, California 90501
(Address of principal executive offices)
(310) 782-7277
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ( X ) NO ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding as of March 31, 1995
Common Stock 2,593,770 shares
This document is comprised of 13 pages
<PAGE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 3, 1995
INDEX
Page
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of March 3, 1995
(unaudited) and June 3, 1994 3-4
Condensed Consolidated Statements of Income (unaudited) for
the three months and nine months ended March 3, 1995 and 5
March 4, 1994
Condensed Consolidated Statements of Cash Flows (unaudited) for
the six months ended March 3, 1995 and March 4, 1994 6-7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-11
Part II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 12-13
Item 6: Exhibits and Reports on Form 8-K 13
Signatures 13
-- Page 2 --
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000 omitted)
ASSETS
<CAPTION>
(Unaudited)
March 3 June 3
1995 1994
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash $1,665 $1,237
Short-term investments 7,259 7,546
Contract Receivables:
Billed 12,564 9,124
Unbilled 1,220 3,140
Prepaid expenses and other 807 973
--------- ---------
Total current assets 23,515 22,020
--------- ---------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost
Equipment and leasehold improvements 26,290 19,094
Less accumulated depreciation and amortization (15,835) (14,188)
--------- ---------
Net equipment and leasehold improvements 10,455 4,906
--------- ---------
OTHER ASSETS
Noncurrent unbilled contract receivables 1,041 1,041
Investments 1,443 2,812
Intangible Assets 2,224 0
Other Assets 956 1,077
--------- ---------
Total other assets 5,664 4,930
--------- ---------
$39,634 $31,856
========= =========
</TABLE>
-- Page 3 --
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000 omitted)
Continued
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
(Unaudited)
March 3 June 3
1995 1994
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $3,132 $1,692
Accrued Expenses 3,199 3,069
Other current liabilities 1,060 545
--------- ---------
Total current liabilities 7,391 5,306
--------- ---------
LONG TERM LIABILITIES
Deferred income taxes 1,716 0
Long term debt and other 325 142
--------- ---------
Total long term liabilities 2,041 142
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, without par value:
Authorized - 10,000,000 shares
Outstanding - 2,585,000 at March 3, 1995
and 2,230,000 shares at June 3, 1994 11,772 8,997
Retained Earnings 18,429 17,414
Foreign currency translation 1 0
Less: notes receivable from sale of stock 0 (3)
--------- ---------
Total shareholders' equity 30,202 26,408
--------- ---------
$39,634 $31,856
========= =========
<FN>
The accompanying notes are an integral part of these statements
</TABLE>
-- Page 4 --
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (000 omitted except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
March 3, March 4, March 3, March 4,
1995 1994 1995 1994
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $16,556 $14,007 $44,319 $41,363
COSTS AND EXPENSES 15,821 13,990 41,916 40,536
-------- -------- --------- ---------
Income from Operations 735 17 2,403 827
-------- -------- --------- ---------
OTHER INCOME/(EXPENSE):
Interest Income 120 88 292 248
Interest Expense (14) 0 (58) (2)
-------- -------- --------- ---------
Net Other 106 88 234 246
-------- -------- --------- ---------
INCOME BEFORE PROVISION
FOR INCOME TAXES 841 105 2,637 1,073
PROVISION FOR TAXES 324 48 1,015 416
-------- -------- --------- ---------
NET INCOME $517 $57 $1,622 $657
======== ======== ========= =========
EARNINGS PER COMMON SHARE $0.20 $0.02 $0.63 $0.28
======== ======== ========= =========
Weighted average number of
common shares outstanding
(Note 3) 2,643 2,316 2,585 2,337
======== ======== ========= =========
<FN>
The accompanying notes are an integral part of these statements
</TABLE>
-- Page 5 --
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (000 omitted)
<CAPTION>
Nine Months Ended:
March 3, March 4,
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,622 $657
Adjustments to reconcile net income to cash
provided by operating activities:
Cash effect of changes, net of the effects from
acquired company
Depreciation and amortization 1,853 1,787
Loss on retirement of capital assets 1 0
Nonqualified stock options, charged to operations 62 118
(Increase) decrease in:
Contract receivables (418) (867)
Refundable income taxes 469 (939)
Deferred expenses 0 (134)
Prepaid expenses (241) (313)
Other noncurrent assets 38 0
Increase (decrease) in:
Accounts payable 122 (840)
Accrued Expenses 130 242
Income tax liabilities 24 0
Other liabilities (283) 0
--------- ---------
Net cash provided by (used in) operating activities 3,379 (289)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to LCT, Inc. 0 (1,500)
Purchases of short-term investments (2,158) (6,712)
Sales of short-term investments 2,445 9,582
Purchase of LCT, net of acquired cash of $1,319 (1,419) 0
Employee loans, net 100 135
Purchases of property and equipment (1,240) (1,483)
--------- ---------
Net cash provided by (used in) investing activities (2,272) 22
--------- ---------
</TABLE>
-- Page 6 --
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (000 omitted)
Continued
<CAPTION>
Nine Months Ended:
March 3, March 4,
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit borrowings 282 0
Proceeds from exercise of common stock options
and tax benefits related to stock options 117 21
Repurchase of common stock (103) (779)
Cash dividends paid (540) (479)
Foreign currency translation 1 0
Long term subordinated debt (605) 0
Payments on notes receivable from sale of stock 3 18
Proceeds from employee stock purchase plan 166 66
--------- ---------
Net cash (used in) financing activities (679) (1,153)
--------- ---------
Net increase (decrease) in cash 428 (1,420)
Cash at beginning of period 1,237 3,024
--------- ---------
Cash at end of period $1,665 $1,604
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period - income taxes $478 $1,290
Cash paid during the period - interest $58 $2
<FN>
The accompanying notes are an integral part of these statements
</TABLE>
-- Page 7 --
<PAGE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- Accounting Policies
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have either been condensed or omitted pursuant
to those rules and regulations. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations and cash flows for
the periods presented are not necessarily indicative of the results that may be
expected for the full fiscal year. For further information, refer to the
financial statements and notes thereto for the year ended June 3, 1994 included
in the 1994 Annual Report to Shareholders. The Condensed Balance Sheet at
June 3, 1994 has been taken from the audited financial statements at that date
and condensed.
Note 2 -- Investments
The Company's short-term investments are stated at the lower of aggregate
cost or market value and consist primarily of money market funds.
On June 9, 1994 the Company acquired 100% of the stock of LaFehr and Chan
Technologies, Inc, (LCT) for $5 million plus an earn-out amount to be determined
by LCT's financial performance through December 31, 1995. The $5 million price
was payable 1/2 in stock and 1/2 in cash, which resulted in the use of $2.5
million of cash and the issuance of 322,000 shares of common stock of
Geodynamics Corporation. As part of the agreement, Geodynamics' $1.5 million
loan to LCT was substantially repaid. The purchase price was allocated to the
assets acquired based on fair market values. This allocation resulted in the
recognition of $2.38 million of intangible assets, which are being amortized
over useful lives ranging from 5 to 20 years.
Pro-forma information regarding LCT's revenue, profit, and per share earnings is
not practicable because LCT's records were not maintained on a quarterly basis
during fiscal 1994. Pro-forma results for the full fiscal year 1994 were
presented in the Company's Report on Form 8-K, which was filed during the first
fiscal quarterly period ended September 2, 1994.
In addition to LCT, noncurrent investments primarily include $1.2 million
invested in ERDAS, Inc. In September 1993, the Company converted a portion of
its loan to ERDAS to equity, raising the Company's holdings in ERDAS common
stock from 14 percent to 19.5 percent. The remaining unconverted loan balance
of approximately $115,000, plus an option, give Geodynamics the right to acquire
up to a total of 25 percent of ERDAS common stock. This conversion does not
alter the value of the Company's investment in ERDAS.
-- Page 8 --
<PAGE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
NOTES (Continued)
(Unaudited)
Note 3 -- Earnings per Common Share
The following schedule summarizes the information used to compute earnings
per common share. Fully diluted earnings per share did not vary significantly
from primary earnings per share.
<TABLE>
<CAPTION>
(000 omitted)
Three months ended Nine months ended
March 3, March 4, March 3, March 4,
1995 1994 1995 1994
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net Income $517 $57 $1,622 $657
======== ======== ========= =========
Weighted average common
shares outstanding 2,582 2,253 2,539 2,275
Dilutive effect of stock options 107 63 67 62
Weighted average shares used
to compute earnings per -------- -------- --------- ---------
common share 2,689 2,316 2,606 2,337
======== ======== ========= =========
</TABLE>
-- Page 9 --
<PAGE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues were $16.6 million and $44.3 million in the third quarter and
first nine months, respectively, of fiscal 1995, compared with $14.0 million
and $41.4 million, respectively, in the comparable periods of fiscal 1994.
The revenue improvements are due primarily to the acquisition of LCT, Inc., at
the beginning of this fiscal year which contributed approximately $1.0 million
to the quarter and almost $3.6 million to the nine-month period and did not
exist in the prior year. Department of Defense (DOD) revenues also increased by
approximately $1.5 million in the current quarter over comparable activities a
year ago, due to a higher level of government contract activity. Largely as a
result of the LCT acquisition, commercial (i.e., non-DOD) revenues now account
for 10.4 percent of nine-month total revenues, compared with approximately
1.2 percent in the same period a year ago.
Costs and expenses were $15.8 million and $41.9 million in the
three-month and nine-month periods, respectively, of fiscal 1995. These
represented increases of 13.1 percent and 3.4 percent, respectively, over the
comparable periods of fiscal 1994. However, income from operations of $735,000
and $2.4 million, respectively, increased substantially from year-earlier totals
of $17,000 and $827,000, respectively. Primarily, this improvement in profit
margins is attributable to the near-elimination of operating losses from the
Company's internally developed commercial activities. These efforts showed
operating losses of approximately $100,000 in the nine months ended March 3,
1995, compared with operating losses of $1.6 million in the comparable period
of fiscal 1994. In addition, the Company's overhead cost structure has
improved significantly due to the reorganization from six operating units down
to three divisions.
Other income for the nine months of 1995 is down $12,000 from the prior
year, due primarily to interest expenses incurred by LCT.
Revenues for the remainder of fiscal 1995 are expected to be level or up
slightly compared with fiscal 1994. Profitability, however, is expected to be
significantly improved from the prior year. Backlog remains essentially
unchanged from the end of fiscal 1994.
The number of average shares outstanding during the first nine months of
1995 increased by 11.5 percent from the prior year. This increase represents
the issuance of approximately 322,000 shares of common stock for the
acquisition of LCT, Inc., partially offset by the net effect of common stock
repurchases during the year. More shares could be issued for LCT under an
earnout provision, based on higher revenues and profitability during the
two-year period ending in December, 1995.
As a result of the vote held for directors at the shareholders meeting on
February 16, 1995, three new directors have been elected to replace a like
number of previous incumbents. The change followed a proxy contest initiated
by a shareholder, Mr. Alney A. Baham (see Part II, Item 4, below). The Company
incurred expenses to defend against Mr. Baham's efforts which resulted in court
approved sanctions against Mr. Baham. The amount of related legal expenses to
-- Page 10 --
<PAGE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
date is in the moderate 6 figure amount. The amount of future such expenses
is indeterminate at this time. The company is attempting to reach a settlement
on open issues that would limit any ongoing financial impact.
CAPITAL RESOURCES AND LIQUIDITY
The consolidated balance sheet as of March 3, 1995 includes the Company's
LCT subsidiary acquired at the beginning of the current fiscal year, and is
compared with the June 3, 1994 fiscal year-end balance sheet without LCT.
Consolidated cash and short-term investments at March 3, 1995 were $8.9
million, up slightly from $8.8 million at June 3, 1994. These cash resources
are net of approximately $2.5 million which was paid in cash for the
acquisition of LCT during the year. Accounts receivable at the end of the
first nine months of fiscal 1995 were $14.8 million, representing an aging of
82 days, down from 87 days at June 3, 1994.
Current unbilled contract receivables have declined to $1.2 million from
$3.1 million at June 3, 1994. Billings throughout the first nine months of
the current year have been based on projected year-end overhead rates. These
projected rates are slightly higher than actual rates through the first nine
months, causing billings to be higher relative to revenue during this period.
Actual rates are increasing slightly, and the relative balance between
billings and revenues is expected to be more closely in balance by year-end.
At March 3, 1995, net equipment and leasehold improvements had risen to
$10.5 million from $4.9 million at the preceding year-end, reflecting the
acquisition of LCT. Deferred income taxes of $1.7 million included $1.5
million from the acquisition.
The balance sheet continues to be strong, with a current ratio of 3.2 to 1
as of March 3, 1995 and only $182,000 of long-term debt. The Company maintains
an $8 million unsecured bank line of credit. As of March 3, 1995, advances of
$282,000 were outstanding under this line, which was being used for working
capital by LCT.
-- Page 11 --
<PAGE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
Part II. OTHER INFORMATION
Items 1 through 5 have been omitted because the related information is
either inapplicable or has been previously reported.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of Geodynamics Corporation was held
on February 16, 1995. The following matters were voted upon:
(b) Election of Directors: Seven Directors were elected from among the
following nominated individuals, with cumulative votes as indicated:
(1) W. Richard Ellis 1,467,295
(1) Frederick K. Evans 1,455,575
(1) Donald L. Haas 1,455,575
Delbert H. Jacobs 12,420
(1) Thomas R. LaFehr 1,467,296
(1) Robert L. Paulson 1,467,295
(1) Richard P. Smith 1,467,295
Alney A. Baham -0-
(1) Michael E. Edleson 2,741,905
Bruce J. Gordon 17,900
James W. Montgomery -0-
Frederick Y. Pearson -0-
Will Stackhouse -0-
Thomas D. Taverney 17,900
(1) Elected to Board
As described in the press release attached as an exhibit to this Form 10-Q,
two of Geodynamics' slate of directors subsequently resigned and were
replaced by two of the Baham nominees, Bruce J. Gordon and Will
Stackhouse. Directors Edleson and Gordon had been named as additional
defendants in the proxy contest litigation initiated by the Company against
Messrs. Baham and Strong. The Company subsequently voluntarily dismissed
the litigation against Messrs. Edleson and Gordon, and the Company has
no claims against either of those persons with respect to the proxy contest.
(c) Other matters voted upon at the meeting were :
- Approval of the Company's 1994 Employee Stock Bonus Plan
<TABLE>
<S> <C>
Votes for: 1,269,785
Votes Against: 238,325
Abstained: 173,911
</TABLE>
- Approval of the appointment of Arthur Andersen & Co. as
independent public accountants for 1995 :
<TABLE>
<S> <C>
Votes for: 1,642,204
Votes Against: 10,499
Abstained: 29,318
</TABLE>
-- Page 12 --
<PAGE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
(d) The Company has entered into settlement discussions with Alney A.
Baham and William Strong with respect to the resolution of matters
relating to Mr. Baham's proxy solicitation; these discussions and any
resulting agreement are subject to the approval of Geodynamics'
Board of Directors, which has not yet been secured.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Press release.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereto duly authorized.
GEODYNAMICS CORPORATION
DATE: 4/14/95 By: /s/ David P. Nelson
David P. Nelson, Vice President,
Chief Financial Officer, and duly
authorized to sign on behalf of registrant
DATE: 4/14/95 By: /s/ Robert G. Cook
Robert G. Cook, Corporate Controller
and Chief Accounting Officer
-- Page 13 --
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-02-1995
<PERIOD-END> MAR-03-1995
<CASH> 1,665
<SECURITIES> 7,259
<RECEIVABLES> 13,784
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,515
<PP&E> 26,290
<DEPRECIATION> (15,835)
<TOTAL-ASSETS> 39,634
<CURRENT-LIABILITIES> 7,391
<BONDS> 0
<COMMON> 11,772
0
0
<OTHER-SE> 18,430
<TOTAL-LIABILITY-AND-EQUITY> 39,634
<SALES> 44,319
<TOTAL-REVENUES> 44,319
<CGS> 41,916
<TOTAL-COSTS> 41,916
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> 2,637
<INCOME-TAX> 1,015
<INCOME-CONTINUING> 1,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,622
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
Geodynamics Corporation FOR IMMEDIATE RELEASE
21171 Western Avenue, Suite 120
Torrance, CA 90501
(310) 781-3612
Company Contact: Joanne M. Dunlap
GEODYNAMICS ANNOUNCES RESULTS OF THE ANNUAL MEETING
Torrance, California, March 6, 1995--Geodynamics
Corporation (NASDAQ GDYN) today announced that the Inspector of Elections with
respect to its Annual Meeting of Shareholders held on February 16, 1995 had
certified the results of the election for directors at the Meeting, finding
that six nominees from the slate of directors presented by the management of
Geodynamics had been elected and one nominee from the opposing slate presented
by Alney A. Baham had been elected. Accordingly, the Company announced that
the Inspector had certified that the Board of Directors elected at the Meeting
consists of Thomas R. LaFehr, Robert L. Paulson, W. Richard Ellis, Donald L.
Haas, Richard P. Smith, Frederick K. Evans, and Michael E. Edelson.
Although Mr. Baham's slate received only enough votes at the meeting to
elect one director, Mr. Baham did, apparently, obtain enough proxies to elect
three of the seven members of the Board. Mr. Baham, however, failed to vote
many of those proxies at the Annual Meeting. In order to carry out the desires
of the shareholders who tried to vote for Mr. Baham's nominees, the Company has
taken certain steps to place three of the Baham nominees on the Board. Prior
to certification by the Inspector of the new Board, the Board of Directors of
the Company determined to request the resignations of two of the newly-elected
members (from management's slate) in order that two new directors (from Mr.
Baham's slate) could be appointed to fill the vacancies. Accordingly, Messrs.
Smith and Evans have agreed to resign from the Board and the new Board,
consisting of four members of management's slate and Dr. Edleson, will vote to
fill the vacancies created by such resignations. It is expected that Bruce J.
Gordon and Will Stackhouse, will be appointed to fill the two vacancies.
The shareholders also approved the Company's 1994 Employee Stock Bonus Plan
and ratified the appointment of Arthur Andersen and Company as Geodynamics'
independent public accountants for the 1995 Corporate Fiscal Year.
Robert L. Paulson, Chairman of the Board and Chief Executive Officer of the
Company, stated that he and the other members of Geodynamics' management were
looking forward to working with the new Board of Directors in achieving
everyone's objective of maximization of the value of the shareholders'
investment in the Company.
For further information, contact Joanne M. Dunlap at (310) 781-3612.
