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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM JUNE 1, 2000 TO DECEMBER 31, 2000
COMMISSION FILE NUMBER 1-13402
INPUT/OUTPUT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2286646
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12300 C. E. SELECMAN DR., 77477
STAFFORD, TEXAS (Zip Code)
Registrant's telephone number, including area code:
(281) 933-3339
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value New York Stock Exchange
Rights to Purchase Series A Preferred Stock New York Stock Exchange
(Title of Class) (Name of each exchange on which registered)
Securities registered Pursuant to Section 12(g) of the Act:
NONE
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 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]
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at December 31, 2000 (for purposes of the
below-stated amount only, all directors, officers and 5% or more stockholders
are presumed to be affiliates):
$514,170,796
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date.
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS OF COMMON STOCK AT DECEMBER 31, 2000
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Common Stock, $0.01 par value 50,936,420
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PART I
PRELIMINARY NOTE: THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING
STATEMENTS AS DEFINED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
FORWARD-LOOKING STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE CAUTIONARY
STATEMENTS AND OTHER IMPORTANT FACTORS INCLUDED IN THIS FORM 10-K. SEE ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION -- CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS FOR
A DESCRIPTION OF IMPORTANT FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS.
ITEM 1. BUSINESS
The Company
Input/Output, Inc. and its subsidiaries (collectively referred to as the
"Company" or "I/O") is a leading designer and manufacturer of seismic data
acquisition systems and related products used on land, in transition zones (i.e.
marshes and shallow bays) and in marine environments. The Company's data
acquisition products are particularly well suited for advanced three-dimensional
("3-D") data collection techniques. Seismic data is used extensively in the oil
and gas industry as an exploration risk management tool and is also increasingly
employed in field development and reservoir management activities.
The Company offers a broad range of related products. These include central
electronics units, remote ground equipment, vibrators (a land energy source),
geophones, land geophysical survey planning software, marine streamers and
shipboard electronics (which collect and record seismic data in deep-water
environments), hydrophones, airguns, data telemetry quality control systems and
positioning systems (which control streamer cable depth during towing),
compasses, acoustical devices, and velocimeters. See Land Products and Marine
Products below. The Company also offers a rental program on selected equipment.
The Company believes that its future success will depend on its ability to
continually introduce technological innovations by enhancing existing products
and services to customers, as well as by developing new products. See Product
Research and Development below.
Recent Developments
In September 2000, the Company's Board of Directors approved the Company's
change of its fiscal year end to December 31 of each year. As a result, this
report covers the transition period of June 1, 2000 through December 31, 2000
(referred to as "the seven months ended December 31, 2000" or the "Transition
Period"). See Note 1 of Notes to Consolidated Financial Statements.
During the Transition Period and the years ended May 31, 2000 and 1999,
consistent with overall industry trends, demand for the Company's products
decreased significantly due to the continued deterioration in energy service
market conditions and, more specifically, in the seismic services sector. In
particular, the following factors adversely impacted the Company during these
periods:
- Financial condition of a number of customers deteriorated significantly.
- Principal customers -- seismic service contractors -- continued to reduce
their workforces and capital spending, resulting in decreased sales
opportunities.
- Consolidations and mergers occurred among energy producers.
- Excess seismic equipment remained in the field, and there was additional
pricing pressure on product offerings as a result of the weak demand for
new equipment.
- Unstable economies in developing markets forced customers in those
markets to reduce capital spending.
During the Transition Period, conditions marginally improved, but will
require further improvement for the Company to return to historical levels of
profitability. Continued equipment oversupply in marine seismic fleets should
result in continued weak demand in the marine seismic sector. Industry
conditions should
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continue to adversely impact demand for the Company's marine products through at
least the first six months of 2001. While overall demand for new seismic work
currently remains low by historical standards, demand for land seismic equipment
has shown signs of improvement. Overall net sales for the three months ending
March 31, 2001 should be comparable to net sales for the quarter ended November
30, 2000, with the improved demand for land seismic equipment to be reflected in
future results of operations.
As a result, the Company continues with its initiatives implemented in
response to the downturn. These include, but are not limited to:
- Taking steps to lower cost structure by closing certain facilities and
reducing workforce (since August 1998, when the workforce reached a peak
of 1,435 total full-time employees, the Company has reduced full-time
workforce to 683 at December 31, 2000).
- Eliminating obsolete products and ancillary parts due to reduced demand
for older generation products and the result of product revisions in
progress.
- Reorganizing into a more product-focused structure with the objective of
focusing appropriate sales, marketing and operating attention on each of
the Company's products.
- Seeking to commercialize VectorSeis(TM) technology during 2001.
- Creating a new division for the Micro-ElectroMechanical Systems ("MEMS")
facility in the Company's Stafford, Texas facility during 2001 to provide
for the production of MEMS components for VectorSeis(TM) products and to
also seek additional applications and revenue sources for MEMS capacity
and technology.
On January 3, 2001, subsequent to the Transition Period, the Company
acquired all of the outstanding capital stock of Pelton Company, Inc. ("Pelton")
for $6 million cash and a $3 million two-year unsecured promissory note bearing
interest at 8.5% per year. Pelton is based in Ponca City, Oklahoma and designs,
manufactures and sells seismic vibrator control systems, vibrator positioning
systems and explosive energy control systems.
Land Products
During the Transition Period, net sales of data acquisition products by the
Company's Land Division accounted for 77% of total Company revenues. Data
acquisition products for the Land Division primarily include the following:
Systems. A new central electronic recording system, the I/O Image
System(TM), was introduced during the Transition Period. The Image System
features a central electronics unit that enables a higher channel count and
mixed-mode (i.e., mixed radio and cable telemetry) data acquisition, and can be
sold as an upgrade to the Company's I/O System Two(R) land data acquisition
system. To enhance radio-based telemetry acquisition, the Transcriber 2(TM) can
organize, format and record seismic data to tape up to four times faster than
its predecessor, thereby decreasing acquisition time.
Central Electronics Unit. A land I/O system consists of a central
electronics unit containing a number of modular components, and multiple remote
ground equipment modules, including line taps and remote signal conditioners
(each designated as an MRX(TM), which typically acquires six channels of analog
seismic data). A typical system consists of a central electronics unit, 12 line
taps, approximately 200-500 MRX(TM)'s and various accessories. A customer can
purchase or lease additional line taps, MRX(TM)'s and accessory equipment to
expand and modify a system to fulfill specific requirements. The central
electronics unit, which acts as the control center of the I/O data acquisition
system, and its components are typically mounted within a vehicle or helicopter
transportable enclosure. The central electronics unit receives digitized data
from the MRX(TM), stores the data on magnetic tape for subsequent processing and
displays the data on optional monitoring devices. The central electronics unit
also provides calibration, status and test functionality.
Remote Ground Equipment. The remote ground equipment of the I/O system
consists of multiple remote MRX(TM)'s and line taps positioned over the survey
area. Seismic signals from geophones are collected
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by the MRX(TM), which collects multiple channels of analog seismic data. The
MRX(TM) filters and digitizes the data, which is then transmitted by the MRX(TM)
via cable to a line tap. The line taps manage the seismic data collection
process on each seismic line, organize the seismic data and transmit this data
and remote equipment operating status information via cable to the central
electronics unit. The Company's radio telemetry system ("RSR(TM)") records data
across a variety of environments, including transition zones, swamps, mountain
ranges, jungles and other seismic environments. RSR(TM)'s are radio controlled,
and do not require cables for data transmission since the information is stored
at the unit source and subsequently retrieved.
Vibrators. Vibrators are mechanical devices used as a source of seismic
energy on land and are controlled by vibrator control and positioning systems.
The Company's vibrators offer patented features which extend the life of the
vibrator and lower the distortion of the sound source. The Pelton acquisition
adds energy source control and positioning systems to the Company's vibrator
product offerings.
Geophones. Geophones are seismic sensor devices designed to detect
acoustical energy reflected from the earth's subsurface. The product line
includes low distortion seismic sensors designed for land and transition zone
environments. This product line also includes a geophone checking technology as
well as three-component geophones that may be used in three-component 3-D
seismic recording.
Applications Software. The Company offers a wide range of geophysical
software used in seismic planning and execution. MESA(R) is a 3-D seismic data
acquisition planning package. This product is used by energy producers and
seismic contractors to design and execute a 3-D program to meet specific
requirements. Alpine(TM) is used to track and manage 3-D programs from the
concept stage through data processing. Millenium(R) software performs the
initial data processing stages of geometry verification and refraction statics.
Marine Products
During the Transition Period, net sales of data acquisition products by the
Company's Marine Division accounted for 23% of total Company revenues. Data
acquisition products for the Marine Division primarily include the following:
Data Acquisition System. The marine data acquisition system, designated as
an MSX(TM), consists primarily of marine streamers and shipboard electronics
that collect seismic data in deep-water environments. Marine streamers, which
contain electronic modules and cabling, may measure up to 12,000 meters in
length and are towed behind a seismic acquisition vessel. Marine electronics
include seismic and data telemetry quality control systems and related software
products, as well as electronics for shipboard recording. The 24-bit digital
MSX(TM) modules each contain 16 channels of seismic data. The utilization of
fiber-optic data transmission and titanium connectors and inserts results in
reduced size and power consumption, higher quality and reliability of acquired
marine seismic data and permits a complete MSX(TM) system to have a recording
capacity of over 7,600 channels.
Hydrophones. Hydrophones are seismic sensor devices designed to detect
acoustical energy reflected from the earth's subsurface. The product line
includes low distortion seismic sensors designed for marine and transition zone
environments, and a three-component gimbaled geophone and hydrophone unit for
four-component ocean bottom surveys.
Airguns. Airguns are the primary energy source used to initiate the energy
transmitted through the earth's subsurface, which are subsequently recorded as
data signals in the marine environment. Additionally, the Company offers an
airgun source synchronizing system that can control up to 128 airguns
simultaneously.
Marine Positioning Systems. The Company's positioning systems include
birds (which control streamer cable depth during towing), compasses,
velocimeters and acoustical devices. The Pro2000(TM) line of positioning
equipment was successfully deployed in the fiscal year ended May 31, 2000 and
obviates the need for lithium batteries, long considered a health, safety and
environmental hazard in the marine environment. The CRX FSK(TM) repeater
production system was also deployed during the fiscal year ended May 31, 2000
and is a diagnostic repeater allowing streamer communications for compass birds
and acoustic pods for streamer lengths up to 12,000 meters.
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Product Research and Development
The strategic focus for research and development is driven by the desire to
improve the quality of the subsurface image and the overall acquisition
economics of the customer. Ability to compete effectively and maintain a leading
market position in the manufacture and sale of seismic instruments and data
acquisition systems depends upon continued technological innovation. Development
cycles, from initial conception through product introduction, may extend over
several years. Research and development expenditures have principally related to
the continued enhancement and evolution of the land and marine data acquisition
product lines and basic research and development on other emerging technologies
having potential applicability to the seismic industry.
The Company's primary research and development efforts are focused on field
testing a land-based seismic data acquisition recording system incorporating
VectorSeis(TM) digital sensors for multi-component recording and 4-D time lapse
imaging. The VectorSeis(TM) digital sensor uses three micro-machined
accelerometers configured to measure compression and shear waves. Information
from compression and shear waves can be used to create better structural images
of complex geological prospects and to infer physical properties of rock
structures to reduce exploration risk. Over the past 20 months, the Company has
completed over 15 field tests of its VectorSeis(TM) system. During the
Transition Period, the Company entered into a strategic marketing alliance to
commercialize advanced multi-component land seismic solutions in North America
utilizing the Company's proprietary VectorSeis(TM) technology. The Company is
currently manufacturing a limited inventory of VectorSeis(TM) sensor modules for
a pilot system. This pilot system is currently deployed with customers in
Canada. Additional commercialization refinements are anticipated before any
full-scale commercial marketing efforts will commence.
The Company continues to develop a lightweight land seismic system with a
view toward commercial introduction of such system during 2001 or early 2002.
The Company plans to create a new division for its MEMS facility in
Stafford, Texas during 2001 to provide for the production of MEMS components for
VectorSeis(TM) products and also to seek additional applications and revenue
sources for MEMS capacity and technology.
The Company also has a number of other products under development. Because
they are under development, their commercial feasibility or degree of commercial
acceptance, if any, is not yet known. No assurance can be given concerning the
successful development of any new products or enhancements, the specific timing
of their release or their level of acceptance in the market place.
Markets and Customers
Principal customers are seismic contractors, which operate seismic data
acquisition systems and related equipment to collect data in accordance with
their customers' specifications or for their own seismic data libraries. In
addition, the Company markets and sells products to oil and gas companies, who
may operate their own seismic crews. During the seven months ended December 31,
2000, four customers accounted for approximately 62% of consolidated net sales.
The loss of any one of these customers could have a material adverse effect on
the results of operations and financial condition. See ITEM 7. Management's
Discussion and Analysis of Results of Operations and Financial
Condition -- Cautionary Statement for Purposes of Forward Looking
Statements -- Loss of Significant Customers Will Adversely Affect the Company
and Note 10 of Notes to Consolidated Financial Statements.
A significant part of marketing efforts are focused on areas outside the
United States. Foreign sales are subject to special risks inherent in doing
business outside of the United States, including the risk of war, civil
disturbances, exchange rate fluctuations, embargo and government activities, as
well as risks of compliance with U.S. and foreign laws, including tariff
regulations and import/export restrictions. The Company sells products through a
direct sales force consisting of employees and through several international
third-party sales representatives responsible for key geographic areas. Sales
personnel generally have either oil and gas exploration or production expertise
or experience in selling advanced technology-based systems.
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During the seven months ended December 31, 2000, approximately 61% of net
sales were derived from sales to foreign customers. Further, systems sold to
domestic customers are frequently deployed internationally and, from time to
time, certain foreign sales require export licenses. See Note 10 of Notes to
Consolidated Financial Statements.
Sales to customers are normally on standard net 30-day terms. The Company
also provides financing arrangements to customers through long-term trade notes
receivable. Trade notes receivable are generally secured by the products sold,
bear interest at contractual rates up to 13% per year and are due at various
dates through 2004. See Note 1 and 7 of Notes to Consolidated Financial
Statements.
Suppliers
The Company purchases a substantial portion of the electronic components
used in systems and products from third-party vendors. Although the Company has
not experienced significant supply or vendor quality control problems, there can
be no assurance that these problems will not arise in the future. These
problems, if incurred, could significantly affect its ability to meet production
and sales commitments. Certain items, such as integrated circuits, printed
circuit assemblies, and analog-to-digital converters used in systems and
hydrophones having water depth limiting capabilities used with marine seismic
cables, are purchased from sole source vendors. Although the Company attempts to
maintain an adequate inventory of these single source items, the loss of ready
access to any of these items could temporarily disrupt its ability to
manufacture and sell certain products. Since components are designed for use
with these single source items, replacing the single source items with
functional equivalents could require a redesign of components and costly delays
could result.
Competition
The market for seismic data acquisition systems and seismic instrumentation
is highly competitive and is characterized by consolidation, as well as
continual and rapid changes in technology. Principal competitors for land and
marine seismic equipment are, among others, Fairfield Industries; Geo-X Systems,
Limited; JGI, Incorporated; OYO Geospace Corporation; Bolt Technology
Corporation; Teledyne Brown Engineering, an affiliate of Allegheny Teledyne
Company; Thomson Marconi Sonar P/L; Geoscience Corp. and Societe d'etudes
Recherches et Construction Electroniques ("Sercel"), both affiliates of
Compagnie General de Geophysique ("CGG"). Unlike I/O, companies such as Sercel
and Geoscience Corp. possess the advantage of selling to an affiliated seismic
contractor.
Intellectual Property
The Company relies on a combination of trade secrets, patents, copyrights
and technical measures to protect proprietary hardware and software
technologies. Although patents are considered important to operations, no one
patent is considered essential to the Company's success. Copyright and trade
secret protection may be unavailable in certain foreign countries in which the
Company sells products. In addition, the Company seeks to protect trade secrets
through confidentiality agreements with employees and agents and through
ownership of a number of trademarks.
Regulatory Matters
Operations are subject to numerous local, state and federal laws and
regulations in the United States and in foreign jurisdictions concerning the
containment and disposal of hazardous materials. The Company does not currently
foresee the need for significant expenditures to ensure continued compliance
with current environmental protection laws. Regulations in this area are subject
to change, and there can be no assurance that future laws or regulations will
not have a material adverse effect on the Company.
Export activities are subject to extensive and evolving trade regulations.
Certain countries in which products may be utilized are subject to trade
restrictions, embargoes and sanctions imposed by the US government. These
restrictions and sanctions, generally speaking, limit the Company from
participating in or approving certain business activities in those countries.
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Employees
At December 31, 2000, the Company had 683 full-time employees worldwide,
537 of which were employed in the United States. U.S. employees are not subject
to any collective bargaining agreement, and the Company has never experienced a
work stoppage. The Company considers its relations with its employees to be
satisfactory.
ITEM 2. PROPERTIES
Primary manufacturing facilities are as follows:
SQUARE
MANUFACTURING FACILITIES FOOTAGE
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Stafford, Texas*............................................ 110,000
Alvin, Texas*............................................... 240,000
New Orleans, Louisiana**.................................... 40,000
Norwich, England**.......................................... 31,000
Voorschoten, The Netherlands**.............................. 30,000
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* Owned
** Leased 451,000
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The Company's executive headquarters (utilizing approximately 25,000 square
feet) are located at 12300 C.E. Selecman Drive, Stafford, Texas. The machinery,
equipment, buildings and other facilities owned and leased are considered by
management to be sufficiently maintained and adequate for current operations.
The Stafford facilities are mortgaged to secure the long-term debt of the
Company. See Note 5 of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company has been named in various
lawsuits or threatened actions. While the final resolution of these matters may
have an impact on its consolidated financial results for a particular reporting
period, the Company believes that the ultimate resolution of these matters will
not have a material adverse impact on its financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
General
The Company's common stock trades on the New York Stock Exchange ("NYSE")
under the symbol "IO." The following table sets forth the high and low last
reported sales prices of the common stock for the periods indicated, as reported
on the NYSE composite tape.
PRICE RANGE
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PERIOD HIGH LOW
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Seven months ended December 31, 2000
December.................................................. $10 1/4 $7 1/2
Second Quarter............................................ 10 1/4 7 3/8
First Quarter............................................. 9 5/8 6 13/16
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PRICE RANGE
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PERIOD HIGH LOW
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Year ended May 31, 2000
Fourth Quarter............................................ $ 8 1/4 $5 1/2
Third Quarter............................................. 6 11/16 4 1/4
Second Quarter............................................ 8 3/8 4 15/16
First Quarter............................................. 8 15/16 7
Year ended May 31, 1999
Fourth Quarter............................................ $ 8 9/16 $5 5/16
Third Quarter............................................. 7 5/16 5 1/16
Second Quarter............................................ 11 6 3/16
First Quarter............................................. 21 11/16 9 3/8
The Company has not historically paid, and does not intend to pay in the
foreseeable future, cash dividends on its common stock. The Company presently
intends to retain cash from operations for use in its business, with any future
decision to pay cash dividends on its common stock dependent upon growth,
profitability, financial condition and other factors the Board of Directors may
deem relevant. The Company is permitted to pay dividends on its common stock, as
long as all dividends on its outstanding Series B and Series C Preferred Stock
are current. See Note 8 of Notes to Consolidated Financial Statements.
On December 31, 2000, there were 853 stockholders of record of common stock
and one stockholder of 55,000 shares of Series B and Series C Preferred Stock
outstanding. Except as discussed below or otherwise disclosed in Quarterly
Reports on Form 10-Q filed during the Transition Period, there were no
unregistered sales of equity securities during the Transition Period.
Repurchase Program
In July 2000, the Company announced that its Board of Directors had
authorized the repurchase of up to 1,000,000 shares of common stock in open
market and privately negotiated transactions. The shares repurchased will be
held as treasury stock available for grants under a restricted stock plan
adopted in March 2000, and for other employee benefits plans. As of December 31,
2000, the Company had repurchased 11,000 shares of its common stock under this
repurchase program for a total purchase price of $0.1 million. See Note 8 of
Notes to the Consolidated Financial Statements.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the consolidated statements of operations for the seven months ended December
31, 2000 and the five years ended May 31, 2000, 1999, 1998, 1997 and 1996, and
with respect to the consolidated balance sheets at December 31, 2000 and May 31,
2000, 1999, 1998, 1997 and 1996 have been derived from the audited consolidated
financial statements. Results of operations and financial condition have been
affected by acquisitions of businesses and significant charges during certain
periods presented, which may affect the comparability of the financial
information. This information should be read in conjunction with ITEM 7.
Management's Discussion and Analysis of Results of Operations and Financial
Condition and the consolidated financial statements and the notes thereto
included elsewhere in this Form 10-K.
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SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, -----------------------------------------------------
2000 2000 1999 1998 1997 1996
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ 78,317 $121,454 $ 197,415 $385,861 $281,845 $278,283
Cost of sales.................... 58,554 106,642 205,215 226,514 183,438 163,811
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Gross profit (loss)(1)......... 19,763 14,812 (7,800) 159,347 98,407 114,472
-------- -------- --------- -------- -------- --------
Operating expenses:
Research and development(2)...... 16,051 28,625 42,782 32,957 22,967 23,243
Marketing and sales.............. 5,934 10,284 14,193 14,646 13,288 12,027
General and administrative(3).... 8,127 21,885 80,932 28,295 36,186 19,096
Amortization and impairment of
intangibles(4)................. 2,757 39,488 16,247 6,008 4,551 4,305
-------- -------- --------- -------- -------- --------
Total operating
expenses............. 32,869 100,282 154,154 81,906 76,992 58,671
-------- -------- --------- -------- -------- --------
Earnings (loss) from
operations..................... (13,106) (85,470) (161,954) 77,441 21,415 55,801
Interest expense................. (627) (826) (897) (1,081) (793) (2,515)
Interest income.................. 4,583 4,930 7,981 7,517 3,942 3,124
Other income (expense)........... 176 1,306 (370) (202) (267) (33)
-------- -------- --------- -------- -------- --------
Earnings (loss) before income
taxes.......................... (8,974) (80,060) (155,240) 83,675 24,297 56,377
Income tax (benefit) expense..... 1,332 (6,097) (49,677) 26,776 7,700 17,700
-------- -------- --------- -------- -------- --------
Net earnings (loss).............. (10,306) (73,963) (105,563) 56,899 16,597 38,677
Preferred dividend............... 3,051 4,557 -- -- -- --
-------- -------- --------- -------- -------- --------
Net earnings (loss) applicable to
common stock................... $(13,357) $(78,520) $(105,563) $ 56,899 $ 16,597 $ 38,677
======== ======== ========= ======== ======== ========
Basic earnings (loss) per common
share.......................... $ (0.26) $ (1.55) $ (2.17) $ 1.29 $ 0.38 $ 0.98
======== ======== ========= ======== ======== ========
Weighted average number of common
share.......................... 50,840 50,716 48,540 43,962 43,181 39,631
======== ======== ========= ======== ======== ========
Diluted earnings (loss) per
common share................... $ (0.26) $ (1.55) $ (2.17) $ 1.28 $ 0.38 $ 0.95
======== ======== ========= ======== ======== ========
Weighted average number of
diluted common shares
outstanding.................... 50,840 50,716 48,540 44,430 43,820 40,609
======== ======== ========= ======== ======== ========
BALANCE SHEET DATA (END OF YEAR):
Working capital.................. $181,366 $183,412 $ 213,612 $245,870 $170,427 $165,225
Total assets........... 365,633 381,769 451,748 493,016 384,658 355,465
Short-term debt, including
current installments of
long-term debt(5).............. 1,207 1,154 1,067 986 912 --
Long-term debt(5)................ 7,077 7,886 8,947 10,011 11,000 --
Stockholders' equity(6).......... 325,403 335,015 396,974 415,700 338,614 317,204
OTHER DATA:
Capital expenditures............. $ 2,837 $ 3,077 $ 9,326 $ 6,960 $ 26,966 $ 10,240
Depreciation and amortization.... 11,488 22,835 20,776 16,816 12,558 10,152
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(1) Results for the year ended May 31, 2000 include charges of $12.0 million and
fiscal year 1999 includes charges of $77.0 million. See Note 15 of Notes to
Consolidated Financial Statements for further information with respect to
these charges.
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(2) Results for the year ended May 31, 1999 include charges of $1.1 million. See
Note 15 of Notes to Consolidated Financial Statements for information with
respect to these charges.
(3) Results for the year ended May 31, 2000 include charges of $7.2 million,
fiscal year 1999 includes charges of $53.2 million and fiscal year 1997
includes charges of $15.6 million. See Note 15 of Notes to Consolidated
Financial Statements for information with respect to these charges in 2000
and 1999.
(4) Results for the year ended May 31, 2000 includes charges for $31.6 million
and fiscal year 1999 includes charges of $7.7 million. See Note 15 of Notes
to Consolidated Financial Statements for information with respect to these
charges.
(5) See Note 5 of Notes to Consolidated Financial Statements.
(6) See Note 8 of Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Net sales have traditionally been directly related to the level of
worldwide oil and gas exploration activity and the profitability and cash flows
of oil and gas companies and seismic contractors. These are affected by
expectations regarding the supply and demand for oil and natural gas, energy
prices, and discovery and development costs. However, during the Transition
Period the seismic industry has been adversely affected by surplus seismic data,
principally marine "spec" data, used to generate exploration prospects.
Influential factors may include, but are not limited to, those described in
Cautionary Statement for Purposes of Forward-Looking Statements -- Continuation
of Downturn in Seismic Services Industry Will Adversely Affect Results of
Operations and Financial Condition and Risk From Significant Amount of Foreign
Sales Could Adversely Affect Results of Operations.
Results of operations and financial condition have been affected by
acquisitions of businesses and special charges during certain periods discussed
below, which may affect the comparability of the financial information below.
The following discussion and analysis of results of operations and financial
condition should be read in conjunction with the consolidated financial
statements and the notes thereto included elsewhere in this Form 10-K.
SUMMARY REVIEW AND OUTLOOK
In response to prevailing seismic industry conditions, the Company has
concentrated on lowering its cost structure, consolidating product offerings and
reorganizing into a products-based operating structure. The Company continues to
evaluate additional restructuring and cost control solutions with the goal of
returning to profitability as quickly as practicable. Implementing these
solutions could result in additional charges.
Continued equipment oversupply in the marine seismic fleets should result
in continued weak demand in the marine seismic sector. Industry conditions
should continue to adversely impact demand for the Company's marine products
through at least the first six months of 2001. While overall demand for new
seismic work currently remains low by historical standards, demand for land
seismic equipment has shown signs of improvement. Overall net sales for the
three months ending March 31, 2001 should be comparable to net sales for the
quarter ended November 30, 2000, with the improved demand for land seismic
equipment to be reflected in future results of operations.
The Company is continuing to invest resources and seek improvements in
seismic data acquisition technology. A few of the goals the Company is seeking
to achieve during 2001 include commercializing VectorSeis(TM) technology,
further development in land seismic ground electronics, and developing new
product offerings in hydrocarbon reservoir monitoring.
Over the past 20 months, the Company has completed over 15 field tests of
its VectorSeis(TM) system. During the Transition Period, the Company entered
into a strategic marketing alliance to commercialize advanced multi-component
land seismic solutions in North America utilizing the Company's proprietary
VectorSeis(TM) technology. The Company is currently manufacturing a limited
inventory of VectorSeis(TM) sensor modules for a pilot system. This pilot
systems is currently deployed with customers in Canada. Additional
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commercialization refinements are anticipated before any full-scale
manufacturing and sales efforts will commence.
The Company continues to develop a lightweight land seismic system, with a
view toward commercial introduction of such a system during 2001 or in early
2002.
The Company also plans to create a new business unit for its MEMS facility
in Stafford, Texas during 2001 to provide for the production of MEMS components
for VectorSeis(TM) products and also to seek additional applications and revenue
sources for MEMS capacity and technology.
The Company is not currently intending to invest its resources into
developing or producing a solid marine streamer product as an alternative to its
liquid-filled streamers. See Cautionary Statement for Purposes of
Forward-Looking Statements -- Pressure from Competitors Could Adversely Affect
Results of Operations.
No assurances can be made that the Company will implement any of these
potential actions, and if so, whether any of them will prove successful or the
degree of that success. However, Company management believes the initiatives
discussed above will better position the Company to return to profitability as
industry conditions improve.
FISCAL YEAR CHANGE
In September 2000, the Company's Board of Directors approved the Company's
changing of its fiscal year-end to December 31 of each year. The consolidated
statements of operations, stockholders' equity and comprehensive loss and cash
flows for the period from June 1, 2000 to December 31, 2000 represent a
transition period of seven months. The following is a comparative summary of the
operating results for the seven month periods ended December 31, 2000 and
December 31, 1999 (in thousands, except per share amounts).
SEVEN MONTHS ENDED
DECEMBER 31,
----------------------
2000 1999
-------- -----------
Net sales................................................... $ 78,317 $ 62,244
Cost of sales............................................... 58,554 47,703
-------- --------
Gross profit................................................ 19,763 14,541
Operating expenses:
Research and development.................................. 16,051 16,590
Marketing and sales....................................... 5,934 5,713
General and administrative................................ 8,127 12,396
Amortization and impairment of intangibles................ 2,757 4,471
-------- --------
Loss from operations........................................ (13,106) (24,629)
Interest expense............................................ (627) (480)
Interest and other income................................... 4,759 2,767
Income taxes expense (benefit).............................. 1,332 (6,702)
Preferred dividend.......................................... 3,051 2,608
-------- --------
Net loss applicable to common shares........................ $(13,357) $(18,248)
======== ========
Net loss per common share:
Basic..................................................... $ (0.26) $ (0.31)
======== ========
Diluted................................................... $ (0.26) $ (0.31)
======== ========
COMPARABILITY OF PERIODS
Results of operations and financial condition have been affected by
acquisitions of businesses and significant pre-tax charges during certain
periods discussed, which may affect the comparability of the financial
information. See Notes 9 and 15 of Notes to Consolidated Financial Statements.
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RESULTS OF OPERATIONS
Seven Months Ended December 31, 2000 Compared to Seven Months Ended December
31, 1999
Net Sales: Net sales of $78.3 million for the seven months ended December
31, 2000 increased $16.1 million, or 26%, compared to the corresponding period
one year prior. The increase is primarily due to increased demand for products
produced by the Land Division. Net sales of the Land Division were $60.6 million
and increased $18.7 million, or 45%, compared to the corresponding period one
year prior. Increased sales of the Land Division were partially offset by
decreased net sales of the Marine Division where continued equipment oversupply
in the marine seismic fleets adversely affected sales. Marine Division net sales
were $17.7 million, a decrease of $2.6 million, or 13%, compared to the
corresponding period one year prior.
Cost of Sales: Cost of sales of $58.6 million for the seven months ended
December 31, 2000 increased $10.9 million, or 23%, compared to the corresponding
period one year prior. The increase in cost of sales was the result of increased
revenues; however, better utilization of manufacturing facilities, higher profit
margins on sales, and $1.4 million of significant pre-tax charges for
product-related warranties in the prior period also resulted in increased gross
profits. Excluding significant pre-tax charges in the prior period, cost of
sales increased $12.3 million, or 26% compared to the corresponding period one
year prior. Cost of sales for the Land Division were $44.7 million and increased
$12.5 million, or 39%, compared to the corresponding period one year prior. Cost
of sales for the Marine Division were $13.9 million and decreased $1.6 million,
or 10%, compared to the corresponding period one year prior. Consolidated gross
profits of $19.8 million increased $5.2 million, or approximately 36%, compared
to the corresponding period one year prior.
Research and Development: Research and development expenses of $16.1
million for the seven months ended December 31, 2000 remained relatively
constant, decreasing $0.5 million, or 3%, compared to the corresponding period
one year prior. Research and development expenses continue to reflect the costs
of new product development and product enhancements described in ITEM 1.
Business.
Marketing and Sales: Marketing and sales expenses of $5.9 million for the
seven months ended December 31, 2000 remained relatively constant, increasing
$0.2 million, or 4%, compared to the corresponding period one year prior. The
increase reflects higher commissions attributable to increased sales, partially
offset by cost reduction initiatives implemented by the Company.
General and Administrative: General and administrative expenses of $8.1
million for the seven months ended December 31, 2000 decreased $4.3 million, or
34%, compared to the corresponding period one year prior. The decrease is
primarily due to $3.3 million included in prior period significant pre-tax
charges for employee severance and facility closings. Excluding significant
pre-tax charges in the prior period, general and administrative expenses
remained constant.
Amortization and Impairment of Intangibles: Amortization and impairment of
intangibles of $2.8 million for the seven months ended December 31, 2000
decreased $1.7 million, or 38%, compared to the corresponding period one year
prior. The decrease is due to the impairment of $31.6 million of goodwill during
the fourth quarter of the year ended May 31, 2000.
Total Other Income: Total other income of $4.8 million for the seven
months ended December 31, 2000 increased $2.0 million, or 72%, as a result of
increased interest earned on notes receivable and new treasury management.
Income Tax (Benefit) Expense: Income tax expense of $1.3 million for the
seven months ended December 31, 2000 increased $8.0 million, compared to a $6.7
million tax benefit in the corresponding period one year prior. The change in
income tax expense (benefit) is primarily the result of: (i) increased
profitability of operations in foreign tax jurisdictions, and (ii) no
recognition for benefit from domestic net operating losses. In assessing the
realizability of deferred income tax assets, the Company considered whether it
is more likely than not that some portion or all of the deferred income tax
assets will be realized. The ultimate realization of deferred income tax assets
is dependent upon the generation of future taxable income during the periods in
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which those deferred income tax assets become deductible. The Company considers
the scheduled reversal of deferred income tax liabilities and projected future
taxable income in making this assessment.
In order to fully realize the deferred income tax assets, the Company will
need to generate future taxable income of approximately $158 million over the
next 20 years. Although the Company has experienced significant losses in recent
fiscal years, taxable income for the years 1996 through 1998 aggregated
approximately $128 million. Regardless, the ultimate realization of the net
deferred tax assets, prior to the expiration of the net operating loss
carry-forward in the next 19-20 years, will require a return to levels of
profitability that existed prior to the year ended May 31, 1999. See Note 11 of
Notes to Consolidated Financial Statements.
Preferred Stock Dividends: Preferred stock dividends for the seven months
ended December 31, 2000 and 1999 are related to outstanding Series B and Series
C Preferred Stock. The dividends are recognized as a charge to retained earnings
at the rate of 8% per year, compounded quarterly (of which 7% is accounted for
as accrued dividends and 1% is paid as a quarterly cash dividend). The preferred
stock dividend charge for the seven months ended December 31, 2000 was $3.1
million, compared to $2.6 million for the corresponding period one year prior.
Year Ended May 31, 2000 Compared to Year Ended May 31, 1999
Net Sales: Net sales of $121.5 million for the year ended May 31, 2000
decreased $76.0 million, or 39%, compared to the corresponding period one year
prior. The Land Division net sales for the year ended May 31, 2000 decreased
$23.1 million, or 24%, to $73.2 million, as compared to the land division's net
sales of $96.3 million for the corresponding period one year prior. The Marine
Division net sales for the year ended May 31, 2000 decreased $52.9 million, or
52%, to $48.3 million, as compared to the Marine Division's net sales of $101.1
million for the corresponding period one year prior. The decline in both the
Land and Marine Division net sales is attributable to the deterioration in the
seismic service industry, resulting in weak demand for seismic data acquisition
equipment.
Cost of Sales: Cost of sales of $106.6 million for the year ended May 31,
2000 decreased $98.6 million, or 48%, compared to the corresponding period one
year prior. The Land Division gross profit and gross profit percentage for the
year ended May 31, 2000, compared to the year ended May 31, 1999, increased to a
gross profit of $6.4 million, or 8.7%, from a gross loss of $4.3 million, or
(4.5%). The Land Division's gross profit for the year ended May 31, 2000 was
adversely affected by $8.7 million of inventory charges. The Land Division's
gross profit for the year ended May 31, 1999 was adversely affected by $26.0
million in domestic land inventory write-downs and charges of $3.0 million,
relating to certain warranty reserves and other product related contingencies.
Excluding these charges, the Land Division's gross profit percentage for the
year ended May 31, 2000 and 1999 would have been 20.6% and 25.6%, respectively.
The Marine Division gross profit and gross profit percentage for the year ended
May 31, 2000, compared to the year ended May 31, 1999, increased to a gross
profit of $8.4 million, or 17.4%, from a gross loss of $3.5 million or (3.5%).
The Marine Division's gross profit for year ended May 31, 2000 included net
warranty recoveries of $2.6 million, charges of $2.0 million for product-related
warranties, and $3.6 million in charges for inventory write-downs for marine
streamers and related products. The Marine Division's gross loss for the year
ended May 31, 1999 included $31.0 million in domestic marine inventory
write-downs and charges of $17.0 million, relating to certain warranty reserves
and other product related contingencies. Excluding these charges and recoveries,
the Marine Division's gross profit percentage for the year ended May 31, 2000
and 1999 would have been 23.7% and 44.2%, respectively. This decline in margins
reflects both pricing pressures from competitors and a shift in the sales mix to
predominantly lower margin marine products.
Research and Development: Year ended May 31, 2000 research and development
expenses were $28.6 million, a decrease of $14.2 million, or 33%, compared to
the year ended May 31, 1999, primarily due to reduced costs and expenditures for
salaries and other payroll related items, contract labor, outside services, and
product development.
Marketing and Sales: Year ended May 31, 2000 marketing and sales expenses
were $10.3 million, a decrease of $3.9 million, or 28%, compared to the year
ended May 31, 1999, primarily due to reduced costs
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and expenditures for salaries, commissions and other payroll related items,
travel, advertising and conventions, and exhibits. This decrease was principally
attributable to cost reduction programs and reduced net sales.
General and Administrative: Year ended May 31, 2000 general and
administrative expenses were $21.9 million, a decrease of $59.0 million, or 73%,
compared to the year ended May 31, 1999. Year ended May 31, 1999 expenses
included special charges totaling $53.2 million. In the year ended May 31, 2000,
the Company recorded $23.6 million of loan loss recoveries and incurred lower
expenditures for salaries and other payroll related items, outside services,
insurance, and other taxes. This decrease was mitigated in part by the year
ended May 31, 2000 charges of $11.1 million, consisting of $5.0 million for
settlement of a lawsuit, $5.4 million related to employee severance
arrangements, and $0.7 million related to the closing of facilities. Excluding
the special charges for the year ended May 31, 2000 and 1999, general and
administrative expenditures were $14.7 million, a decrease of $13.0 million, or
47%, compared to the year ended May 31, 1999.
Amortization and Impairment of Intangibles: Year ended May 31, 2000
amortization and impairment of intangibles was $39.5 million, an increase of
$23.2 million, or 143%, compared to the year ended May 31, 1999. The increase
was principally the result of special charges for intangible asset impairment
totaling $31.6 million. Excluding the special charges for the years ended May
31, 2000 and 1999, amortization of identified intangibles decreased to $7.9
million, a decrease of $0.6 million or 7% from the year ended May 31, 1999.
Total Other Income: Year ended May 31, 2000 interest income was $4.9
million, a decrease of $3.1 million or 38%, compared to the year ended May 31,
1999. Interest income on customer notes receivable decreased by $5.1 million,
when compared to the year ended May 31, 1999, to $0.3 million due to impairments
and other reductions in notes receivable balances. Income from investments
increased $1.8 million to $4.7 million, as a result of higher average cash
balances on hand during the year. Interest expense was $0.8 million in the year
ended May 31, 2000, a decrease of $0.1 million, or 8%, from the year ended May
31, 1999. The interest expense is attributed to facility financing, and the
decrease is a result of amortization of the principal amount of this debt.
Income Tax (Benefit) Expense: Income tax benefit of $6.1 million for the
year ended May 31, 2000 decreased $43.6 million, or 88%, compared with the tax
benefit in the year ended May 31, 1999. The change in income tax expense
(benefit) is primarily the result of (i) lower pretax losses for year ended May
31, 2000 compared to year ended May 31, 1999, and (ii) reduced recognition for
benefit from domestic net operating losses (see discussion of Seven Months Ended
December 31, 2000 Compared to Seven Months Ended 1999.)
Preferred Stock Dividends: Preferred stock dividends for the year ended
May 31, 2000 are related to outstanding Series B and Series C Preferred Stock.
The dividends are recognized as a charge to retained earnings at the rate of 8%
per year, compounded quarterly (of which 7% is accounted for as accrued
dividends and 1% is paid as a quarterly cash dividend). The preferred stock
dividend charge for the year ended May 31, 2000 was $4.6 million.
Year Ended May 31, 1999 Compared to Year Ended May 31, 1998
Net Sales: Net sales for the Land Division for the year ended May 31, 1999
decreased $219.8 million, or 70%, to $96.3 million, as compared to the Land
Division's net sales of $316.1 million for the year ended May 31, 1999. The
decrease in Land Division net sales was primarily due to the significant
decrease in demand, which was attributable to low commodity prices, energy
industry consolidations, significant reductions in workforce and capital
spending by customers, destabilizing economies in developing markets, and the
deterioration of the financial condition of certain customers. The Marine
Division net sales for the year ended May 31, 1999 increased $31.3 million, or
45%, to $101.1 million, as compared to the marine division's net sales of $69.8
million for the corresponding period one year prior. The increase in Marine
Division net sales was attributed to the acquisition of DigiCourse, Inc. in
October 1998.
Gross Profits: The Land Division gross profit and gross profit percentage
for the year ended May 31, 1999, compared to the year ended May 31, 1998,
decreased to a gross loss of $4.3 million, or (4.5%), from a
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gross profit of $133.1 million, or 42.1%. The Land Division's gross profit for
the year ended May 31, 1999 was adversely affected by charges of $26.0 million
for inventory write-downs, and $3.0 million for warranty reserves and other
product related contingencies. Excluding these charges, land division's gross
profit would have been 25.6% for the year ended May 31, 1999, compared to 42.1%
in the corresponding period one year prior. The Marine Division gross profit for
the year ended May 31, 1999, compared to the year ended May 31, 1998, decreased
to a gross loss of $3.5 million, or (3.5%), from a gross profit of $26.2
million, or 37.7%. The Marine Division's gross profit for the year ended May 31,
1999 was adversely affected by charges of $31.0 million for inventory
write-downs, and $17.0 million for warranty reserves and other product-related
contingencies. Excluding these charges, the Marine Division's gross profit
percentage would have been 44.2% for the year ended May 31, 1999, compared to
37.7% in the corresponding period one year prior. The Land and Marine Division
gross profit percentages were adversely affected during the years ended May 31,
2000 and 1999 by pricing pressures, attributable to weak customer demand for our
products and manufacturing under-absorption, due to low production volumes as a
result of the prevailing industry conditions.
Research and Development: Year ended May 31, 1999 research and development
expenses were $42.8 million, an increase of $9.8 million, or 30%, over the year
ended May 31, 1998, primarily resulting from expenses related to acquisitions,
increased contract labor and outside engineering services related to advanced
systems design, and prototype development costs.
Marketing and Sales: Year ended May 31, 1999 marketing and sales expenses
were $14.2 million, a decrease of $0.5 million, or 3%, compared to fiscal 1998,
primarily resulting from decreased internal and third-party commissions
attributable to the significant decline in sales, offset in part by increased
expenses related to acquisitions.
General and Administrative: Year ended May 31, 1999 general and
administrative expenses were $80.9 million, an increase of $52.6 million, or
186%, over the year ended May 31, 1998, primarily due to charges of $53.2
million incurred in the year ended May 31, 1999 for accounts and notes
receivable allowance, impairment of long-lived assets, early termination of a
lease, restructuring costs and employee severances. Excluding year ended May 31,
1999 charges, the Company's general and administrative expenditures were $27.7
million, a decrease of $0.6 million, or 2%, compared to the year ended May 31,
1998.
Amortization and Impairment of Intangibles: Year ended May 31, 1999
amortization and impairment of intangibles was $16.2 million, an increase of
$10.2 million, or 170%, over the year ended May 31, 1998, primarily due to
charges of $7.7 million incurred in the year ended May 31, 1999, resulting from
impairment of intangibles. Excluding year ended May 31, 1999 charges,
amortization of intangibles was $8.5 million, an increase of $2.5 million, or
42%, over the year ended May 31, 1998, due to increased intangibles amortization
resulting from acquisitions.
Total Other Income: Year ended May 31, 1999 interest income was $8.0
million, an increase of $0.5 million or 6% compared to the year ended May 31,
1998. Interest income on customer notes receivable decreased by $1.2 million,
compared to the year ended May 31, 1998, to $5.1 million, due to impairments and
other reductions in notes receivable balances during the year. Income from
investments increased $1.7 million to $2.9 million, as a result of higher
average cash balances on hand during the year. Interest expense was $0.9 million
in the year ended May 31, 1999, a decrease of $.2 million, or 17%, from the year
ended May 31, 1998. The interest expense is attributed to our ten-year-term
facilities financing, and the decrease is a result of amortization of the
principal amount of this debt.
Income Tax (Benefit) Expense: There was an income tax benefit of $49.7
million for the year ended May 31, 1999 compared to the tax expense in the
corresponding period one year prior. The change in income tax (benefit) expense
is primarily the result of losses from operations, resulting in a deferred tax
asset in the form of net operating losses (see discussion of Seven Months Ended
December 31, 2000 Compared to Seven Months Ended December 31, 1999.)
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Liquidity and Capital Resources
The Company has typically financed operations from internally generated
cash and funds from equity financings. Cash and cash equivalents were $93.5
million at December 31, 2000, a decrease of $6.7 million, or 7%, compared to May
31, 2000. The decrease is due to negative cash flows from operating activities
and investing activities for the seven months ended December 31, 2000. Cash flow
from operating activities before changes in working capital items was a positive
$1.0 million for the seven months ended December 31, 2000. Cash flow from
operating activities after changes in working capital items was a negative $3.7
million, primarily due to the operating loss, net increases in accounts and
notes receivables and net decreases in accounts payable and accrued expenses.
The various working capital accounts can vary in amount substantially from
period to period, depending upon our levels of sales, product mix sold, demand
for products, percentages of cash versus credit sales, collection rates,
inventory levels, and general economic and industry factors.
Cash flow used in investing activities was $2.8 million for the seven
months ended December 31, 2000. The principal investing activities were capital
expenditure projects. Planned capital expenditures for 2001 of approximately
$8.0 million include the purchase of advanced manufacturing machinery and
additional equipment for the rental equipment fleet.
Cash flow used in financing activities was a negative $0.1 million for the
seven months ended December 31, 2000. The Company believes the combination of
existing working capital, current cash in place and access to other financing
sources will be adequate to meet anticipated capital and liquidity requirements
for the foreseeable future.
Recent Accounting Pronouncements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 summarizes the SEC staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. The
Company has adopted SAB No. 101, effective June 1, 2000, which has not had a
material impact on the Company's consolidated financial position or results of
operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation: an Interpretation of APB
Opinion No. 25. Among other issues, Interpretation No. 44 clarifies the
application of Accounting Principles Board Opinion ("APB") No. 25 regarding (a)
the definition of employee for purposes of applying APB No. 25, (b) the criteria
for determining whether a plan qualifies as a non-compensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
options in a business combination. The provisions of Interpretation No. 44 were
applied on a prospective basis effective July 1, 2000, and has not had a
material impact on the Company's consolidated financial position or results of
operations.
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities as amended by SFAS No. 137 and
SFAS No. 138, was issued by the Financial Accounting Standards Board in June
1998. SFAS 133 standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts. Under the standard,
entities are required to carry all derivative instruments in the statement of
financial position at fair value. The Company adopted SFAS 133 on January 1,
2001 and does not expect the adoption of SFAS 133 to have a material effect on
the financial condition or results of operation.
CONVERSION TO THE EURO CURRENCY
On January 1, 1999, certain members of the European Union established fixed
conversion rates between their existing currencies and the European Union's
common currency, the Euro. The Company owns facilities and manufactures
components for systems in one member country. The transition period for the
introduction of the Euro is between January 1, 1999 and June 30, 2002. The
Company continues to address the issues involved with the introduction of the
Euro. The more important issues include: converting information
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technology systems; reassessing currency risk; and processing tax and accounting
records. Based on progress to date in reviewing this matter, the Company
believes that the introduction of the Euro has not and will not have a
significant impact on its business affairs and its processing of business and
accounting records.
CREDIT RISK
A continuation of weak demand for the services of certain customers of the
Company will further strain their revenues and cash resources, thereby resulting
in lower sales levels and a higher likelihood of defaults in their timely
payment of their obligations under credit sales arrangements. Increased levels
of payment defaults with respect to credit sales arrangements could have a
material adverse effect on the Company's results of operations.
The combined gross trade accounts receivable and trade notes receivable
balance as of December 31, 2000, from customers in Russia and other former
Soviet Union countries was approximately $11.0 million and was approximately
$9.0 million from customers in Latin American countries. As of December 31, 2000
the total allowance for doubtful accounts (foreign and US) was $1.6 million and
the allowance for loan losses was $10.9 million. During the Transition Period,
there were $6.9 million of sales to customers in Russia and other former Soviet
Union countries (substantially all in the form of cash sales backed by
irrevocable letters of credit), $1.6 million of sales to customers in Latin
American countries and $3.7 million of sales to customers in China. All terms of
sale for these foreign receivables are denominated in US dollars. Russia and
certain Latin America countries have experienced economic problems and
uncertainties and devaluations of their currencies in recent years. To the
extent that economic conditions in the Former Soviet Union, Latin America, China
or elsewhere negatively affect future sales to customers in those regions or the
collectibility of existing receivables, future results of operations, liquidity
and financial condition may be adversely affected.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in this Transition Report on Form 10-K
(including statements contained in ITEM 1. Business, ITEM 3. Legal Proceedings
and ITEM 7. Management's Discussion and Analysis of Results of Operation and
Financial Condition), as well as other written and oral statements made or
incorporated by reference from time to time by the Company and its
representatives in other reports, filings with the Securities and Exchange
Commission, press releases, conferences, conference calls, or otherwise, may be
deemed to be forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 and are subject to the "Safe Harbor" provisions
of that section. This information includes, without limitation, statements
concerning future results of operation, future revenues, future costs and
expenses, future margins and write-downs and special charges and savings and
benefits therefrom; anticipated timing of commercialization of and capabilities
of products planned or under development, including lightweight land seismic
systems; products incorporating the Company's VectorSeis(TM) technology; further
applications and revenue sources for the Company's MEMS technology and facility
capacity; future demand for I/O products; anticipated product releases and
technological advances; the future mix of business and future asset recoveries;
the realization of deferred tax assets; the effects of and expected benefits
from acquisitions and strategic alliances; the effect of changes in accounting
standards on our results of operation and financial condition; the effect of the
Euro's introduction; the inherent unpredictability of adversarial proceedings
and other contingent liabilities; future capital expenditures and I/O's future
financial condition; future energy industry and seismic services industry
conditions; and world economic conditions, including those in the Former Soviet
Union, Latin America and Asian countries. These statements are based on current
expectations and involve a number of risks and uncertainties, including those
set forth below and elsewhere in this Transition Report on Form 10-K. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, there can be no assurance that such expectations will
prove correct.
When used in this report, the words "anticipate," "estimate," "expect,"
"may," "project" and similar expressions are intended to be among the statements
that identify forward-looking statements. Important factors which could affect
actual results and cause actual results to differ materially from those results
which
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might be projected, forecast, estimated or budgeted in such forward-looking
statements include, but are not limited to, the following:
Failure to Develop Products and Keep Pace with Technological Change Will
Adversely Affect Results of Operations. The markets for the Company's products
are characterized by rapidly changing technology and frequent product
introductions. Whether the Company can develop and produce successfully, on a
timely basis, new and enhanced products that embody new technology, meet
evolving industry standards and practices, and achieve levels of capability and
price that are acceptable to customers, will be significant factors in the
ability to compete in the future.
There can be no assurance that the Company will not encounter resource
constraints or technical or other difficulties that could delay introduction of
new products in the future. No assurances can be given as to whether any new
products incorporating the VectorSeis(TM) digital sensor (or any other of our
technology product introductions or enhancements) will be commercially feasible
or accepted in the marketplace by present or future customers. If the Company is
unable, for technological or other reasons, to develop competitive products in a
timely manner in response to changes in the seismic data acquisition industry or
other technological changes, business and operating results will be materially
and adversely affected. In addition, continuing development of new products
inherently carries the risk of inventory obsolescence with respect to older
products. Updates and upgrades in product offerings through newly introduced
products and product lines, whether internally developed or obtained through
acquisitions, carry with them the potential for customer concerns of product
reliability, which may have the effect of lessening customer demand for those
products.
Pressure from Competitors Could Adversely Affect Results of
Operations. The market for seismic data acquisition systems and seismic
instrumentation is highly competitive and is characterized by consolidation, as
well as continual and rapid changes in technology. Principal competitors for
land and marine seismic equipment are, among others, Fairfield Industries; Geo-X
Systems, Limited; JGI, Incorporated; OYO Geospace Corporation; Bolt Technology
Corporation; Teledyne Brown Engineering, an affiliate of Allegheny Teledyne
Company; Thomson Marconi Sonar P/L; Geoscience Corp. and Societe d'etudes
Recherches et Construction Electroniques ("Sercel"), both affiliates of
Compagnie General de Geophysique (CGG). Unlike I/O, companies such as Sercel and
Geoscience Corp. possess the advantage of selling to an affiliated seismic
contractor.
Competition in the industry is expected to intensify and could adversely
affect future results. Several competitors have greater name recognition, more
extensive engineering, manufacturing and marketing capabilities, and greater
financial, technological and personnel resources. In addition, certain companies
in the industry have expanded and improved their product lines or technologies
in recent years. Specifically, the recent introduction by a competitor of a
lightweight land seismic system has had an adverse effect on the Company's net
sales in recent periods. In addition, one of the Company's competitors has
introduced a marine solid streamer product, and the Company believes another
competitor is developing or has developed a similar product. Currently, the
Company does not have a competitive solid streamer product offering and does not
currently intend to develop or produce one. Consequently, the Company's net
sales of marine streamers have been, and will continue to be, adversely affected
to the extent customers prefer solid streamers over the Company's liquid filled
product. There can be no assurance that the Company will be able to compete
successfully in the future with existing or new competitors. Pressures from
competitors offering lower-priced products or products employing new
technologies could result in future price reductions and lower margins.
A continuing trend toward consolidation and concentrated buying power in
the oil field services industry will also have an adverse effect on the demand
for the Company's products and services.
Continuation of Downturn in Seismic Services Industry Will Adversely Affect
Results of Operations and Financial Condition. Demand for products is dependent
upon the level of worldwide oil and gas exploration and development activity and
the available inventory of seismic data used to generate exploration prospects.
This activity in turn is primarily dependent upon oil and gas prices, which have
been subject to wide fluctuation in recent years in response to changes in the
supply and demand for oil and natural gas, market uncertainty and a variety of
additional factors that are beyond our control. Worldwide oil prices declined
from
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October 1997, and remained at lower levels through February 1999. Despite the
recovery in commodity prices, energy producers' continuing concerns over the
sustainability of higher prices for hydrocarbon production resulted in lower
exploration budgets by energy companies, which has resulted in weak demand for
seismic data acquisition equipment. Other factors which have negatively impacted
demand for products have been the weakened financial condition of many
customers, consolidations among energy producers and oilfield service and
equipment providers, an oversupply in the marketplace of current-generation
seismic equipment, a current industry-wide oversupply of "spec" seismic data,
pricing pressures from competitors and customers, and the destabilized economies
in many developing countries. Despite higher prices for oil and natural gas
since February 1999, it is expected that any turnaround for the seismic
equipment market will occur later than for other sectors of the energy services
industry.
It is impossible to predict the length of the downturn for the seismic
equipment market with any certainty. A further prolonged downturn in market
demand for products will have a material adverse effect on results of operation
and financial condition. No assurances can be given as to future levels of
worldwide oil and natural gas prices, the future level of activity in worldwide
oil and gas exploration and development and their relationship(s) to the demand
for products. Additionally, no assurances can be given that efforts to reduce
and contain costs will be sufficient to offset the effect of the expected
continued lower levels of net sales until industry conditions improve.
Loss of Significant Customers Will Adversely Affect the Company. A
relatively small number of customers have accounted for a large portion of net
sales, although the degree of sales concentration with any one customer has
varied from fiscal year to year. During the seven months ended December 31,
2000, four customers (Petroleum Geo-Services, Schlumberger, Baker-Hughes, and
China Petroleum and Technology Development Company) accounted for approximately
62% of net sales. The loss of any one of these customers could have a material
adverse effect on net sales, the results of operation and financial condition of
the Company. See Note 10 of Notes to Consolidated Financial Statements.
Risk From Significant Amount of Foreign Sales Could Adversely Affect
Results of Operations. Sales outside the United States have historically
accounted for a significant part of the Company's net sales. Foreign sales are
subject to special risks inherent in doing business outside of the United
States, including the risk of war, civil disturbances, exchange rate
fluctuations, embargo, and government activities, as well as risks of compliance
with additional laws, including tariff regulations and import/export
restrictions. U.S. technology export restrictions may affect the types and
specifications of products exported. The Company may, from time to time, require
export licenses and there can be no assurance that the Company will not
experience difficulty in obtaining such licenses as required in connection with
export sales.
Demand for products from customers in developing countries (including
Russia and other Former Soviet Union countries as well as certain Latin American
and Asian countries, including China) is difficult to predict and can fluctuate
significantly from year to year. These changes in demand result primarily from
the instability of economies and governments in certain developing countries,
changes in internal laws and policies affecting trade and investment, and
because those markets are only beginning to adopt new technologies and establish
purchasing practices. These risks may adversely affect future operating results
and financial position. In addition, sales to customers in developing countries
on extended terms present heightened credit risks for the reasons discussed
above.
The Company is required to convert to the Euro currency at its facility
located in one of the European Union member countries, and although the Company
does not currently anticipate any problems with such conversion, there can be no
assurance that the problems actually encountered in the Euro conversion will not
be more pervasive than those currently anticipated by management.
Dependence on Key and Technical Personnel. Future success depends upon the
continued contributions of personnel, particularly management personnel, many of
whom would be difficult to replace. Success will also depend on the Company's
ability to attract and retain skilled employees. Changes in personnel,
particularly technical personnel, could adversely affect operating results and
continued changes in management personnel could have a disruptive effect on
employees which could, in turn, adversely affect operating results.
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Significant Payment Defaults under Sales Arrangements Could Adversely
Affect the Company. The Company sells to many customers on extended-term
arrangements. Significant payment defaults by customers could have a material
adverse effect on our financial position and results of operations. A
significant portion of trade notes and accounts receivable balance as of
December 31, 2000 was attributable to sales made in the former Soviet Union,
Latin American and Asian countries.
Risks Related to Gross Profit. Gross profit percentage is a function of
pricing pressures from Company customers and competitors and the product mix
sold in any period. Increased sales of lower margin equipment and related
components in the overall sales mix may result in lower gross profit. Other
factors, such as heightened price competition, unit volumes, inventory
obsolescence, increased warranty costs and other product related contingencies,
changes in sales and distribution channels, shortages in components due to
untimely supplies or inability to obtain items at reasonable prices, as well as
unavailability of skilled labor and manufacturing under-absorption due to low
production volumes, may also continue to affect the cost of sales and result in
fluctuations of gross profit percentages in future periods and results of
operations.
Risks Related to Acquisitions. The Company may make further acquisitions
in the future. Acquisitions require significant financial and management
resources both at the time of the transaction and during the process of
integrating the newly acquired business into our operations. Operating results
could be adversely affected if the Company is unable to successfully integrate
new companies into operations. Structural changes in internal organization,
which may result from acquisitions, may not always produce the desired financial
or operational results.
Certain acquisitions or strategic transactions may be subject to approval
by the other party's shareholders, United States or foreign governmental
agencies, or other third parties. Accordingly, there is a risk that important
acquisitions or transactions could fail to conclude as planned. Future
acquisitions could also result in issuance of equity securities or the rights
associated with the equity securities, which could potentially dilute earnings
per share. In addition, future acquisitions could result in the incurrence of
additional debt, taxes, or contingent liabilities, and amortization expenses
related to goodwill and other intangible assets. These factors could adversely
affect future operating results and financial position.
Failure to Protect Intellectual Property Will Adversely Affect
Operations. The Company believes that technology is a primary basis of
competition in the industry. Although the Company currently holds certain
intellectual property rights relating to its product lines, there can be no
assurance that these rights will not be challenged by third parties or that the
Company will obtain additional patents or other intellectual property rights in
the future. Additionally, there can be no assurance that efforts to protect
trade secrets will be successful or that others will not independently develop
similar products or design around any of the intellectual property rights owned
by the Company or that the Company will be precluded by others' patent claims.
Disruption in Vendor Supplies Will Affect Financial Results. The Company's
manufacturing process requires a high volume of quality components. Certain
components used by the Company are currently provided by only one supplier. The
Company may, from time to time, experience supply or quality control problems
with suppliers, and such problems could significantly affect ability to meet
production and sales commitments. Reliance on certain suppliers, as well as
industry supply conditions generally involve several risks, including the
possibility of a shortage or a lack of availability of key components and
increases in component costs and reduced control over delivery schedules; any of
which could adversely affect future financial results.
Risks Related to Government Regulations and Product Certification. The
Company's operations are subject to laws, regulations, government policies and
product certification requirements worldwide. Changes in such laws, regulations,
policies, or requirements could affect the demand for products or result in the
need to modify products, which may involve substantial costs or delays in sales
and could have an adverse effect on future operating results. Certain countries
are subject to restrictions, sanctions and embargoes imposed by the US
Government. These restrictions, sanctions and embargoes prohibit or limit the
Company from participating in certain business activities in those countries.
These constraints may adversely affect opportunities for business in those
countries.
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Risks Related to Timing of Product Shipments Could Result in Significant
Quarterly Fluctuations. Due to the relatively high sales price of many products
and relatively low unit sales volume, the timing in the shipment of systems and
the mix of products sold can produce fluctuations in quarter-to-quarter
financial performance. One of these factors, which may affect operating results
from time to time, is that a substantial portion of the Company's net sales in
any period may result from shipments during the latter part of a period. Because
the Company establishes its sales and operating expense levels based on
operational goals, if shipments in any period do not meet goals, net sales and
net earnings may be adversely affected.
Stock Volatility and Absence of Dividends May Adversely Affect Stock
Price. In recent years, the stock market in general, and the market for energy
and technology stocks in particular, including the Company's common stock, have
experienced extreme price fluctuations. There is a risk that future stock price
fluctuations could impact Company operations. Continued depressed prices for the
Company's common stock (and further price declines) could affect the Company's
ability to successfully attract and retain qualified personnel, complete
desirable business combinations or accomplish financing or similar transactions
in the future. The Company has historically not paid, and does not intend to pay
in the foreseeable future, cash dividends on common stock.
NOTE: THE FOREGOING REVIEW OF FACTORS PURSUANT TO THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 SHOULD NOT BE CONSTRUED AS EXHAUSTIVE. IN ADDITION
TO THE FOREGOING, THE COMPANY WISHES TO REFER READERS TO OTHER FACTORS DISCUSSED
ELSEWHERE IN THIS REPORT AS WELL AS OTHER FILINGS AND REPORTS WITH THE SEC FOR A
FURTHER DISCUSSION OF RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTAINED IN FORWARD-LOOKING STATEMENTS. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS
TO ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH MAY BE MADE TO REFLECT THE EVENTS
OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company may, from time to time, be exposed to market risk, which is the
potential loss arising from adverse changes in market prices and rates. The
Company traditionally has not entered into significant derivative or other
financial instruments. The Company is not currently a borrower under any
material credit arrangements which feature fluctuating interest rates. Market
risk could arise from changes in foreign currency exchange rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item begin at page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers of the Company
NAME AGE TITLE
- ---- --- -----
James M. Lapeyre, Jr. ................. 48 Director and Chairman of the Board
Timothy J. Probert..................... 49 Director, President and Chief Executive Officer
C. Robert Bunch........................ 46 Vice President, Chief Administrative Officer and
Secretary
Kenneth W. Pope........................ 44 Vice President -- Land Division
Rex K. Reavis.......................... 58 Vice President -- Marine Division
David C. Baldwin....................... 37 Director
Ernest E. Cook......................... 74 Director
Theodore H. Elliott, Jr. .............. 65 Director
Robert P. Peebler...................... 53 Director
Sam K. Smith........................... 68 Director
William F. Wallace..................... 61 Director
Set forth below are descriptions of the backgrounds of the executive
officers and directors of the Company and their principal occupations for the
past five years.
Executive Officers
James M. Lapeyre, Jr. was appointed to the Board in December 1998,
following the Company's acquisition of DigiCourse, Inc. from The Laitram
Corporation. He was elected Chairman of the Board in May 1999. The DigiCourse,
Inc. acquisition agreement dated September 30, 1998 provided that Mr. Lapeyre
would be elected as a director of the Company following the acquisition. Mr.
Lapeyre has held various positions at The Laitram Corporation since 1979, and
has served as its President since 1989. The Laitram Corporation is a
privately-owned, New Orleans-based manufacturer of food processing equipment and
modular conveyor belts, and was the previous owner of DigiCourse, Inc.
Timothy J. Probert was appointed a director and elected President and Chief
Executive Officer of the Company in March 2000. Mr. Probert spent the previous
27 years with various operating units of Baker Hughes Incorporated. Beginning
his career as a field geologist in 1972, he progressed through various
management roles in several Baker Hughes divisions. Mr. Probert was president of
Baker Hughes Process, Eastman Teleco, Eastman Christensen, and Milpark Drilling
fluids. Most recently, Mr. Probert was president of Baker Hughes' INTEQ
division, one of the leading providers of technical solutions to the drilling
and production sectors of the energy industry. Mr. Probert also serves as a
supervisory director of Core Laboratories N.V.
C. Robert Bunch became Vice President and Chief Administrative Officer
("CAO") in October 1999. As CAO, Mr. Bunch's duties encompass the traditional
roles of the chief financial officer and general counsel. Mr. Bunch's prior
experience includes operations, finance and law. From May 1997 to October 1999,
Mr. Bunch was a partner at King and Pennington, L.L.P. of Houston, where he
practiced in several areas of business law. His previous legal experience
includes serving as an attorney at Scott, Douglass & McConnico, L.L.P. from
December 1994 to May 1997 where he concentrated on oil and gas matters. His
operations and finance experience include serving as Executive Vice President
and Chief Financial Officer and, later, Chief Operating Officer of OYO Geospace
Corporation; Chief Financial Officer of Siberian American Oil Company; and Chief
Financial Officer, and, later, President and Chief Operating Officer of Tescorp,
Inc. Mr. Bunch also serves on the Board of Directors of Maverick Tube
Corporation.
Kenneth W. Pope became Vice President -- Land Division in June 2000, after
serving as Vice President -- Business Development. Mr. Pope has served as
President of Green Mountain Geophysics, Inc.
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since 1991. Green Mountain Geophysics became a wholly-owned subsidiary of the
Company in 1997. Prior to joining Green Mountain Geophysics, Mr. Pope held
various senior management positions at Solbourne Computer, Inc. and NBI, Inc.,
manufacturers and distributors of proprietary workstations and computer systems.
Mr. Pope began his career as a certified public accountant with Peat Marwick &
Mitchell.
Rex K. Reavis became Vice President -- Marine Division in June 2000. He was
formerly Vice President of the Company's Land Division since December 1998.
Prior to that, Mr. Reavis served in various management positions at Schlumberger
from 1991 to 1998 and also served as Chief Operating Officer of Terra Marine
Engineering from 1985 to 1991 and Chief Executive Officer of M&I Industries from
1979 to 1985.
David C. Baldwin was elected to the Company's Board of Directors in June
1999, and served as Vice President and Chief Financial Officer from June 1999 to
January 2000. Mr. Baldwin is a managing director of SCF Partners, a
Houston-based investment firm. He also currently serves on the board of Newpark
Resources, a NYSE-listed company. Mr. Baldwin serves on the Company's Board as
the designee of SCF-IV, L.P., the owner of the Company's Preferred Stock,
pursuant to the terms of Certificates of Designation for the Preferred Stock.
The designee of the Preferred Stockholder serves one-year terms; it is expected
that the holder of the Preferred Stock will nominate and elect Mr. Baldwin to
continue to serve as its designee.
Ernest E. Cook, a director of the Company since February 1987, is an
independent oil and gas consultant.
Theodore H. Elliott, Jr., a director of the Company since February 1987,
has been Chairman of Prime Capital Management Co. Inc, a Stamford, Connecticut
venture capital company, during the past five years.
Robert P. Peebler was elected to the Board in November 1999. Mr. Peebler
was appointed Vice President of e-Business Strategy and Ventures of the
Halliburton Company in May 2000, after serving since 1992 as President and Chief
Executive Officer of Landmark Graphics Corporation, a Houston-based provider of
workstation technical software for the petroleum industry. Prior to such time he
held a variety of executive positions at Landmark including Chief Operating
Officer and president of Landmark's seismic products division. Mr. Peebler is a
frequent author and speaker about information technology trends shaping the
exploration and production industry.
Sam K. Smith was elected to the Company's Board of Directors in June 1999,
and served as Chief Executive Officer from May 1999 to March 2000. Mr. Smith is
a former chairman of the board of Landmark Graphics Corporation, serving as a
director from 1989 to 1996. Prior to that time, he was a special limited partner
at Sevin-Rosen Management, a Texas-based venture capital firm from 1983 to 1993,
and spent 26 years prior to that at Texas Instruments, Inc.
William F. Wallace was elected to the Board in August 1998 and is currently
a director for Westport Oil and Gas Company Inc. Since 1996, Mr. Wallace has
served as a consultant to The Beacon Group, a New York-based venture capital
fund. From October 1994 to July 1995, Mr. Wallace served as director, President
and Chief Operating Officer of Plains Petroleum Company, a NYSE-listed oil and
gas production and exploration company based in Denver. Following Plains' merger
with Barrett Resources, a NYSE-listed oil and gas production and exploration
company, Mr. Wallace served as director and Vice Chairman of the Board of
Barrett from July 1995 to March 1996. Prior to joining Plains, Mr. Wallace
served from 1989 to 1994 as a regional vice president of Texaco Exploration and
Production, Inc.
No director is related to any other director or executive officer of the
Company or its subsidiaries and except as described above, there are no
arrangements or understandings between a director and any other person pursuant
to which such person was elected as director. Corporate officers are appointed
by the Board and serve at the discretion of the Board.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 (the 1934 Act) requires the Company's
directors, executive officers and persons who own more than 10% of the Company's
common stock to file with the Securities and Exchange Commission (SEC) initial
reports of ownership and reports of changes of ownership of common stock and
other equity securities of the Company. Such persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file.
Based solely upon management's review of Forms 3, 4 and 5 provided to the
Company during transition period, the Company believes that its officers and
directors and the persons who own more than 10% of the Company's common stock
had complied with all applicable Section 16 filing requirements.
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ITEM 11. EXECUTIVE COMPENSATION
Annual Compensation
The following table sets forth information regarding annual and long-term
compensation with respect to the seven months ended December 31, 2000, and the
years ended May 31, 2000, 1999 and 1998, paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer and certain other of the most
highly compensated executive officers of the Company (the Company's Chief
Executive Officer and the other officers named in the table below are referred
to as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE ENDING DECEMBER 31, 2000
LONG TERM COMPENSATION
ANNUAL COMPENSATION -----------------------
------------------------------ SHARES RESTRICTED
FISCAL UNDERLYING STOCK ALL OTHER
YEAR SALARY BONUS OPTIONS AWARDS $ COMP.**
------- -------- ------- ---------- ---------- ---------
Timothy J. Probert............. 2001 SY* $175,000 $ -- -- $ -- $5,250
Director, President and 2000 $ 75,000(1) $ -- 300,000 $393,750(4) $ --
Chief Executive Officer
Rex K. Reavis.................. 2001 SY* $116,667 $ -- -- $ -- $3,250
Vice President -- 2000 $199,993 $30,000 7,500 $157,500(4) $ --
Marine Division 1999 $183,329 $45,000 80,000 $ -- $ --
C. Robert Bunch................ 2001 SY* $110,833 $ -- -- $ -- $ --
Vice President and 2000 $110,833(2) $20,000 100,000 $259,875(4) $ --
Chief Administrative Officer
Kenneth W. Pope................ 2001 SY* $100,833 $ -- -- $ -- $1,650
Vice President -- Land 2000 $127,083 $ -- 22,500 $216,875(4)(5) $ --
Division 1999 $110,000 $10,000 5,000 $ -- $ 834
1998 $ 50,416(3) $27,019 -- $ -- $5,005
- ---------------
* "SY" refers to the seven months ended December 31, 2000.
** All other compensation consists primarily of employer matching contributions
to the 401(k) plan.
(1) Mr. Probert joined the Company on March 1, 2000, as President and Chief
Executive Officer.
(2) Mr. Bunch joined the Company on November 1, 1999, as Vice President and
Chief Administrative Officer.
(3) Mr. Pope joined the Company in connection with the purchase of Green
Mountain Geophysics, Inc. in December 1997.
(4) The Company is required to use the closing price of its common stock on the
date of grant of the restricted stock award for valuation purposes. The
restricted period with respect to each of the Company's restricted stock
awards issued under the I/O 2000 Restricted Stock Plan is three years for
vesting of 33.3% of the shares awarded, four years for an additional 33.3%
of the shares awarded and five years for the remaining 33.3% of the shares
awarded. Dividend and voting rights of restricted stock are the same as
those for all other shares of the Company's outstanding common stock. Based
on the last reported sales price on May 5, 2000 (the date of grant for these
awards) on the New York Stock Exchange ($7.875 per share), the value of the
restricted stock awards under this plan for Mr. Probert's holdings of 50,000
shares was $393,750, Mr. Reavis's holdings of 20,000 shares was $157,500,
Mr. Bunch's holdings of 33,000 shares was $259,875 and Mr. Pope's holdings
of 20,000 shares was $157,500.
(5) The restricted period with respect to restricted stock awards for 10,000
shares granted to Mr. Pope under the Company's 1998 Restricted Stock Plan is
two years for 50% of the shares awarded, three years for an additional 25%
of the shares awarded and four years for the remaining 25% of the shares
awarded. Dividend and voting rights of restricted stock are the same as
those for all other shares of the Company's outstanding common stock. The
value of the restricted stock award under this plan ($59,375) was
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determined based on the last reported sales price on March 1, 2000 (the date
of grant for Mr. Pope) on the New York Stock Exchange of $5.9375 per share.
Stock Options
There were no options granted to the named executive officers during the
Transition Period. The following table shows the number of shares covered by all
exercisable and non-exercisable stock options held by the Named Executive
Officers as of December 31, 2000. Also reported are the year-end values for
their unexercised "in-the-money" options, which represent the positive spread
between the exercise price of any option and the year-end market price of the
common stock.
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2000(#) DECEMBER 31, 2000($)
SHARES VALUE -------------------- -----------------------
NAME EXERCISED REALIZED VESTED UNVESTED VESTED UNVESTED
- ---- --------- -------- ------- --------- -------- -----------
Timothy J. Probert............... 0 0 0 300,000 $ 0 $1,246,875
C. Robert Bunch.................. 0 0 12,500 87,500 61,719 403,906
Rex K. Reavis.................... 0 0 27,500 60,000 47,656 175,781
Kenneth W. Pope.................. 0 0 10,000 27,500 20,938 95,625
On December 31, 2000, the last reported sale price of the common stock on
the New York Stock Exchange composite tape was $10.1875 per share. None of the
Named Executive Officers exercised Company stock options during the Transition
Period.
Employment and Consulting Agreements
In February 2000, the Company entered into an employment agreement with Mr.
Probert. The agreement expires on February 28, 2004, but is automatically
renewable for additional one-year terms, unless either party provides prior
written notice of termination. This agreement provides for an annual base salary
of $300,000.
If the employment agreement is terminated by the Company without cause (as
defined in the agreement), or Mr. Probert resigns for good reason (as defined),
in either case prior to a "change of control" (as defined), the Company will pay
Mr. Probert over a two-year period following termination the sum of two times
Mr. Probert's annual base salary in effect on his termination date, plus two
times the average of his annual bonus for the past three fiscal years. In
addition, if within 18 months after a change of control the Company terminates
Mr. Probert's employment for any reason other than for "cause" or if Mr. Probert
terminates his employment with the Company for good reason, the Company shall
pay Mr. Probert an amount equal to the sum of three times Mr. Probert's annual
base salary in effect on his termination date, plus three times the average of
his annual bonus payments for the three fiscal years prior to his termination.
This amount may be less, depending upon the specific "good reason" termination
event. Under certain circumstances, the Company will be obligated to pay certain
cash tax "gross-up" amounts to Mr. Probert in the event that he becomes subject
to the exercise tax imposed by Section 4999 of the Internal Revenue Code as the
result of a change in control under Section 280G of the Internal Revenue Code.
Under the employment agreement, Mr. Probert is entitled to receive bonuses
pursuant to the Company's Annual Incentive Plan, subject to a minimum bonus for
fiscal 2001 equal to 50% of Mr. Probert's annual base salary reduced by the
value of his restricted stock grants. In addition, under the agreement, Mr.
Probert was granted stock options in March 2000 covering a total of 150,000
shares of common stock, and a stock option in May 2000 for an additional 150,000
shares based upon the Company's obligation under the agreement to grant Mr.
Probert stock options covering shares in an amount equal to three times the
number of shares that he purchased in the open market in March and April 2000.
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Change of Control and Severance Agreements
The Company has entered into severance and change of control agreements
with Messrs. Bunch, Pope and Reavis. Under the terms of the severance and change
of control agreements, in the event of a termination of employment of a covered
executive officer during the 18-month period following a "change of control" of
the Company (as defined in the agreements) other than a voluntary resignation or
retirement by the officer (except as stated below) or a termination of
employment for "cause" (as defined in the agreements) or by reason of death or
disability, the officer will be entitled to receive certain severance payments
and other benefits. A voluntary resignation by the officer following a "change
of duties" (as defined in the agreements) of the officer will also entitle the
officer to the severance benefits and other benefits.
The severance payment amount, payable in one lump sum on or before the 30th
day following termination, shall be equal to two times the sum of (a) the
greater of such officer's annual base salary on the effective date of the change
of control or the date of the termination of employment plus (b) the amount of
the applicable "Target Bonus" for the officer as determined under the management
bonus or incentive program then in effect. In addition, the officer under those
circumstances will be entitled to receive continued medical, dental, vision and
group life coverage under the Company's applicable plans (to the extent
permitted by law or by the plan carriers) for a period of one year or until the
officer becomes eligible to obtain comparable coverage from a subsequent
employer. Furthermore, to the extent the officer's stock options and restricted
stock have not fully vested, such options and restricted stock shall thereupon
accelerate and immediately become fully vested. In the event that any payment
under any agreement would constitute an "excess parachute payment" under Section
280G of the Internal Revenue Code, the severance amounts and other benefits
would be reduced to an amount so that the present value of all amounts so
receivable would be less than the threshold amount of any excess parachute
payment.
The term of each agreement is for three years, but each agreement will
automatically renew for additional three-year terms absent prior written notice
from the officer or the Company. Each agreement also effectively amends the
terms of any stock option agreement or restricted stock award between the
Company and the officer to provide that in the event of a change of control of
the Company and the full assumption by the successor to the Company of the
Company's options or restricted stock or their replacement with equivalent
options or restricted stock awards, the Company's options and restricted stock
held by that officer will not be accelerated and become 100% vested upon the
change of control event.
2000 Restricted Stock Plan
In March 2000, the Company's Board of Directors adopted the Input/Output,
Inc. 2000 Restricted Stock Plan (the "2000 Restricted Plan") in order to afford
the Company another means to provide current and potential key management
employees of the Company with a proprietary interest in the Company. The 2000
Restricted Plan provides that the maximum number of shares of common stock that
may be delivered pursuant to awards under the 2000 Restricted Plan is 200,000,
subject to adjustment. No individual participant may receive, during any fiscal
year, awards covering an aggregate of more than 50,000 shares of common stock.
As of August 14, 2000, the Company had granted 123,000 shares of restricted
stock under the 2000 Restricted Plan. Unless sooner terminated by action of the
Board, the 2000 Restricted Plan will terminate on March 13, 2010.
During March 2000, the Company implemented an executive "matching" program
whereby the Company agreed to grant one share of restricted stock for each share
purchased by certain senior executives up to certain amounts specified by the
Compensation Committee of the Board of Directors, in open-market transactions in
March and April 2000. As a result, the Company issued in May 2000 a total of
123,000 shares of restricted stock under the 2000 Restricted Plan to these
executives. In connection with the repurchase program, Messrs. Bunch and Pope
incurred bank indebtedness in the original principal amount of $200,000 and
$125,000, respectively. The Company is a guarantor of this indebtedness and
would be liable for the entire amount of either loan in the event of a default
thereunder. The outstanding loan balances at December 31, 2000 were $170,000 and
$0, respectively.
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27
Pursuant to the terms of the 2000 Restricted Plan, the Company enters into
individual award agreements with plan participants designated by the
Compensation Committee, which agreements will provide the number of shares of
Restricted Stock granted pursuant to the award, the price, if any, to be paid by
the participant for the Restricted Stock, the time or times within which the
award is subject to forfeiture and the other terms, limitations and any
performance objectives as are specified by the Compensation Committee.
Certificates representing the Restricted Stock will bear appropriate legends
regarding the transfer restrictions, and participants will not be permitted to
sell, transfer, pledge, assign or otherwise dispose of their restricted Stock
during the restriction period. The plan is administered by the Compensation
Committee, and the Board may, from time to time, discontinue or further amend
the 2000 Restricted Plan without the consent of the participants.
Annual Incentive Plan
In November 1999, the Board adopted and approved the terms of the
Input/Output, Inc. Annual Incentive Plan (the "Incentive Plan"). The purpose of
the Incentive Plan is to advance the interests of the Company and its
stockholders by providing certain of the Company's employees with annual
incentive compensation which is tied to the achievement of preestablished and
objective performance goals. The Incentive Plan is designed to provide the
Company with flexibility in achieving those purposes and to implement
performance-based compensation strategies that will attract and retain officers
and employees who are important to the long-term success of the Company.
All employees of the Company are eligible to participate in the Incentive
Plan after six months of service. Approximately 60 days after the end of the
Company's fiscal year, the Compensation Committee will calculate a bonus pool
based on the difference between the Company's profits before taxes and the
Company's return on its book equity. One-half of the bonus pool is then
distributed pro rata to participants based on their base pay for the prior
fiscal year. The remaining 50% of the bonus pool is allocated by the
Compensation Committee, in its discretion, among the participants. The minimum
bonus pool for the Transition Period and for 2001 is $500,000, all of which is
distributable on a discretionary basis. The Incentive Plan is administered by
the Compensation Committee, and the Board may, from time to time, discontinue or
further amend the Incentive Plan without the consent of the participants.
2000 LONG-TERM INCENTIVE PLAN
In June 2000, the Company's Board of Directors adopted the Input/Output,
Inc. 2000 Long-Term Incentive Plan (the "2000 Plan"), which was subsequently
approved by the Company's stockholders in September 2000. The primary objective
of the 2000 Plan is to promote stockholder value by providing appropriate
incentives to key employees and certain other individuals who perform services
for the Company and its affiliates. The 2000 Plan provides for the granting of
stock options, stock appreciation rights, performance share awards and other
equity-based awards providing similar benefits. The terms of each award are set
forth in individual agreements with 2000 Plan participants, each of which is
approved by the Compensation Committee.
Pursuant to the 2000 Plan, the Compensation Committee may grant awards
covering at any one time up to 1,200,000 shares of common stock, plus an
additional 909,275 shares of common stock which were reserved but not subject to
grants awarded under the Company's 1990 Stock Option Plan (which expired on
September 1, 2000). The number of shares of common stock available under the
2000 Plan and outstanding awards are subject to adjustment to prevent the
dilution of plan participants resulting from stock dividends, stock splits,
recapitalizations or similar transactions. Unless sooner terminated, the 2000
Plan will terminate in June 2010.
Compensation of Directors
Each director who is not an employee of the Company receives $1,500 for
each meeting attended ($500 for telephonic meetings) and $1,000 for each
committee meeting attended. In addition, each non-employee
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director receives an annual stipend of $15,000, and each committee chairman will
receive an additional annual stipend of $3,000.
In 2001, the Board modified their retainer arrangements by adopting a plan
providing that directors may elect each year to receive all or a portion of
their annual retainer for Board and committee chair service in shares of the
Company's common stock. Shares issued in lieu of cash would be valued at the
closing price per share on the New York Stock Exchange on the date of issuance,
which the plan provides shall be the date of the Company's annual stockholders
meeting each year. Shares issued under the retainer plan shall be granted from
available treasury shares of the Company.
Directors Retirement Plan. In 1992, the Company adopted a Directors
Retirement Plan, which was discontinued in 1996. Participation under the plan
was limited to directors who served as outside directors for an aggregate of not
less than five years or whose service on the Board as an outside director
terminated due to death or disability or a change in control of the Company.
Payment of benefits commences at the beginning of the Company's fiscal quarter
next following the later of the dates on which a director (i) attains age
sixty-five and (ii) retires from the Board. Under the terms adopted by the Board
in 1996, all benefit accruals relating to years of service through the date of
discontinuation were frozen; in addition, participation by any individual not
then an outside director was prohibited. During 1998, the Board determined to
further amend the Plan to provide, in lieu of payments of benefits in quarterly
installments, a lump sum payment equivalent to the present value of the product
of the "Applicable Stipend" times the "Applicable Period." The "Applicable
Period" is a period of years equal to the lesser of (a) the actual number of
years and portions thereof, rounded upwards to the nearest six months, during
which such director served as an outside director, and (b) ten years. In June
1999, the "Annual Stipend" definition was amended to be $15,000. The present
value will be computed on the basis of the actuarial equivalent of the stream of
payments represented by the Applicable Stipend paid in quarterly installments
over a period of time equal to the Applicable Period.
Currently, Messrs. Cook and Elliott are the only directors entitled to
receive any benefits under the Directors Retirement Plan.
Non-Employee Directors Stock Option Plan. As a means to attract and
recruit qualified new directors and to retain capable directors in a manner that
promotes ownership of a proprietary interest in the Company, the Input/Output,
Inc. Amended and Restated 1996 Non-Employee Director Stock Option Plan (the
"Directors Plan") was adopted in 1996. In 1998, the Company's stockholders
approved certain amendments to the plan, increasing the total shares of common
stock authorized for issuance under the Directors Plan to 700,000 shares.
Under the terms of the Directors Plan, each non-employee director of the
Company is to be granted an option to purchase 20,000 shares of common stock on
the date that person commences serving as a non-employee director. Afterwards,
the non-employee director will be entitled to receive options to purchase 10,000
shares on the first business days of each November following such initial 20,000
share grant. The initial 20,000 share grant vests in 33.33% installments on the
first, second and third anniversary dates of the initial grant; the first 10,000
share grant after the initial grant vests in 50% installments on the first and
second anniversary dates of its grant; and the second 10,000 share grant after
the initial grant will be fully exercisable on and after the first anniversary
date of that grant. Any subsequent annual grants are each fully exercisable on
their dates of grant.
The Directors Plan also provides for discretionary grants of stock options
to non-employee directors as determined from time to time by the Board. As of
December 31, 2000, the Company had options covering 296,000 shares of common
stock available for future grant under the Directors Plan.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 2000, there were outstanding 50,936,420 shares of common
stock which were held of record by 853 stockholders, 40,000 shares of Series B
Preferred Stock and 15,000 shares of Series C Preferred Stock.
The following table sets forth certain information with regard to the
beneficial ownership as of December 31, 2000 of common stock by (i) all persons
known by the Company to be the beneficial owners of more than five percent of
the outstanding Common Stock or Preferred Stock, (ii) each director of the
Company, (iii) each Named Executive Officer of the Company and (iv) all
executive officers and directors as a group.
COMMON STOCK PREFERRED STOCK
----------------- --------------------------
NAME SHARES(1) % SHARES %
- ---- ---------- ---- ----------------- ----
The Laitram Corporation....................... 5,794,000 11.4
220 Latram Lane
Harahan, LA 70123
PrimeCap Management Company................... 5,280,162 10.4
225 South Lake Ave. Ste 400
Pasadena, CA 91101-3005
DFA Investment Dimensions Group............... 2,968,000 5.8
1299 Ocean Ave. Ste 650
Santa Monica, CA 90401
Vanguard Horizon Funds........................ 2,823,000 5.5
P.O. Box 2600
Valley Forge, PA 19482-2600
SCF-IV, L.P.(2)............................... -- 40,000 Series B 100%
600 Travis, Ste 6600 15,000 Series C 100%
Houston, TX 77002
James M. Lapeyre, Director(3)................. 5,950,833 11.7
Timothy J. Probert, Officer/Director(4)....... 150,000 0.3
C. Robert Bunch, Officer(5)................... 80,500 0.2
Kenneth W. Pope, Officer(6)................... 60,000 0.1
Rex K. Reavis, Officer(7)..................... 77,286 0.2
David C. Baldwin, Director(2)(8).............. 11,667 0.0 40,000 Series B 100%
15,000 Series C 100%
Ernest E. Cook, Director(9)................... 135,500 0.3
Theodore H. Elliott, Jr., Director(10)........ 158,000 0.3
Sam K. Smith, Director(11).................... 59,167 0.1
Robert P. Peebler, Director(12)............... 6,667 0.0
William F. Wallace, Director(13).............. 43,333 0.1
All officers and directors (11 persons)
- ---------------
(1) Except as otherwise indicated, the persons named in the table possess sole
voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. The table also includes shares of
common stock held by wives and minor children of such persons and
corporations and partnerships in which such persons hold a controlling
interest, but excludes any controlling interest which may be deemed solely
to exist by virtue of such person being a director of a corporation.
(2) David C. Baldwin, the designee of the holder of the Series B & C Preferred
Stock to the Company's Board of Directors, is a managing director of SCF
Partners, an affiliate of SCF-IV, L.P. Mr. Baldwin disclaims any beneficial
ownership of the Series B & C Preferred Stock or the common stock into
which it may be converted. Each share of Series B & C Preferred Stock is
currently entitled to 125 votes on
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each matter presented at a meeting of stockholders of the Company. See Note
8 of Notes to Consolidated Financial Statements.
(3) Includes 18,333 shares which are subject to currently exercisable options
granted under the 1996 Non-Employee Directors Stock Option Plan, 40,500
shares held as custodian or trustee for the benefit of his minor children
(of which Mr. Lapeyre disclaims any beneficial interest) and 5,794,000
shares held by The Laitram Corporation of which Mr. Lapeyre is an officer,
director and significant shareholder. Mr. Lapeyre disclaims any beneficial
ownership of shares held by The Laitram Corporation.
(4) Includes 50,000 shares subject to the 2000 Restricted Stock Plan.
(5) Includes 33,000 shares subject to the 2000 Restricted Stock Plan, and
12,500 shares which are subject to currently exercisable options granted
under the 1990 Stock Option Plan.
(6) Includes 20,000 shares subject to the 2000 Restricted Stock Plan, 10,000
shares issued under the 1990 Restricted Stock Plan, and 10,000 shares which
are subject to currently exercisable options granted under the Amended and
Restated 1990 Stock Option Plan.
(7) Includes 20,000 shares subject to the 2000 Restricted Stock Plan, 27,500
shares which are subject to currently exercisable options granted under the
1990 Stock Option Plan, and 8,786 shares purchased through the Company's
Employee Stock Purchase Plan.
(8) Includes 11,667 shares which are subject to currently exercisable options
granted under the 1996 Non-Employee Directors Stock Option Plan.
(9) Includes 117,000 shares which are subject to currently exercisable options
granted under the 1991 Directors Stock Option Plan and the 1996
Non-Employee Directors Stock Option Plan.
(10) Includes 147,000 shares which are subject to currently exercisable options
granted under the 1991 Directors Stock Option Plan and the 1996
Non-Employee Directors Stock Option Plan.
(11) Includes 11,667 shares which are subject to currently exercisable options
granted under the 1996 Non-Employee Directors Stock Option Plan and 30,000
shares which are subject to currently exercisable options granted under the
1990 Stock Option Plan.
(12) Includes 6,667 shares which are subject to currently exercisable options
granted under the 1996 Non-Employee Directors Stock Option Plan.
(13) Includes 43,333 shares which are subject to currently exercisable options
granted under the 1996 Non-Employee Directors Stock Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company's acquisition of DigiCourse, Inc. in 1998
(see Note 9 of Notes to Consolidated Financial Statements), the Company entered
into a services agreement under which The Laitram Corporation, the former owner
of DigiCourse, agreed to provide accounting, software, manufacturing and
maintenance services to the Company with respect to the Company's DigiCourse New
Orleans facility. Mr. Lapeyre, the Company's Chairman of the Board, is the
chairman and principal stockholder of Laitram. Under the terms of the Service
Agreement, Laitram bills the Company for facility lease services rendered on a
monthly basis. For the seven months ended December 31, 2000, the Company paid
Laitram an aggregate of $800,000 under the Service Agreement. The Service
Agreement expires on September 30, 2001.
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During March 2000, the Company's Board of Directors implemented an
executive "matching" program whereby the Company agreed to grant one share of
restricted stock for each share purchased by certain senior executives in
open-market transactions in March and April 2000. As a result, the Company
issued in May 2000 a total of 123,000 shares of restricted stock under the 2000
Restricted Plan to these executives. In connection with the repurchase program,
Messrs. Bunch and Pope incurred bank indebtedness in the original principal
amount of $200,000 and $125,000, respectively. The Company is a guarantor of
this indebtedness and would be liable for the entire amount of either loan in
the event of a default thereunder. The outstanding loan balances at December 31,
2000 were $170,000 and $0, respectively.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents Filed.
(1) Financial Statements:
The financial statements filed as part of this report are listed in
the "Index to Consolidated Financial Statements" on page F-1 hereof.
(2) Financial Statement Schedules:
The following financial statement schedule is included as part of this
Annual Report on Form 10-K:
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements or noted
therein.
(3) Exhibits:
*3.1 -- Amended and Restated Certificate of Incorporation.
3.2 -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation, dated October 11, 1996,
filed as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997, and
incorporated herein by reference.
*3.3 -- Amended and Restated Bylaws.
3.4 -- Amendment No. 1 to the Amended and Restated Bylaws of the
Company, dated September 13, 1999, filed as exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1999, and incorporated
herein by reference.
3.5 -- Amendment No. 2 to the Amendment and Restated Bylaws of
the Company, dated September 25, 2000, filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal Quarter ended August 31, 2000, and
incorporated herein by reference.
4.1 -- Form of Certificate of Designation, Preferences and
Rights of Series A Preferred Stock of Input/Output, Inc.,
filed as Exhibit 2 to the Company's Registration
Statement on Form 8-A dated January 27, 1997, (attached
as Exhibit 1 to the Rights Agreement referenced in
Exhibit 10.24) and incorporated herein by reference.
4.2 -- Form of Certificate of Designation, Preferences and
Rights of Series B Preferred Stock of Input/Output, Inc.,
filed as Exhibit 4.1 to the Company's Form 8-K dated
April 21, 1999, and incorporated herein by reference.
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4.3 -- Form of Certificate of Designation, Preferences and
Rights of Series C Preferred Stock of Input/Output, Inc.,
filed as Exhibit 4.2 to the Company's Form 8-K dated
April 21, 1999, and incorporated herein by reference.
10.1 -- Royalty Agreement, dated November 6, 1992, between I/O
Sensors, Inc., Triton and Triton Technologies, Inc.,
filed as exhibit 10.2 to the Company's 10-K for fiscal
year ended May 31, 1999, and incorporated herein by
reference.
**10.2 -- Amended and Restated 1990 Stock Option Plan, filed as
Exhibit 4.2 to the Company's Registration Statement on
Form S-8 (Registration No. 333-80299), filed with the
Securities and Exchange Commission on June 9, 1999, and
incorporated herein by reference.
**10.3 -- Input/Output, Inc. 1996 Management Incentive Program,
filed as Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997, and
incorporated herein by reference.
**10.4 -- Amended Directors Retirement Plan, filed as Exhibit 10.7
to the Company's Annual Report on form 10-K for the
fiscal year ended May 31, 1997, and incorporated herein
by reference.
**10.5 -- Supplemental Executive Retirement Plan, filed as Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997, and incorporated herein
by reference.
**10.6 -- Amendment No. 1 to the Company's Supplemental Executive
Retirement Plan, effective January 17, 1997, filed as
Exhibit 10.11 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1997, and incorporated
herein by reference.
**10.7 -- Supplemental Executive Retirement Trust, filed as Exhibit
10.12 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997, and incorporated herein
by reference.
**10.8 -- Amendment No. 1 to the Company's Supplemental Executive
Retirement Trust, effective January 17, 1998, filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1997, and incorporated
herein by reference.
10.9 -- Promissory Note dated August 29, 1996, executed by IPOP
Management, Inc. to the order of The Variable Annuity
Life Insurance Company, filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1996, and incorporated herein by
reference.
10.10 -- Master Commercial Lease Agreement dated August 29, 1996,
by and between IPOP Management, Inc. and The Variable
Annuity Life Insurance Company, filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1996, and incorporated
herein by reference.
10.11 -- Limited Guaranty dated August 29, 1996, executed by
Input/Output, Inc., filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1996, and incorporated herein by
reference.
**10.12 -- Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan, filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8
(Registration No. 333-80299), filed with the Securities
and Exchange Commission on June 9, 1999, and incorporated
herein by reference.
10.13 -- Rights Agreement, dated as of January 17, 1997, by and
between Input/ Output, Inc. and Harris Trust and Savings
Bank, as Rights Agent, including exhibits thereto, filed
as Exhibit 4 to the Company's Form 8-A dated January 27,
1997, and incorporated herein by reference.
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33
10.14 -- Input/Output, Inc. Employee Stock Purchase Plan, filed as
Exhibit 4.4 to the Company's Registration Statement on
Form S-8 (Registration No. 333-24125) filed with the
Securities and Exchange Commission on March 18, 1997, and
incorporated herein by reference.
10.15 -- Purchase Agreement by and between the Company and SCF-IV,
L.P. dated April 21, 1999, filed as Exhibit 10.1 to the
Company's Form 8-K dated April 21, 1999, and incorporated
herein by reference.
10.16 -- Registration Rights Agreement by and between the Company
and SCF-IV, L.P. dated May 7, 1999, filed as Exhibit 10.2
to the Company's Form 8-K dated April 21, 1999, and
incorporated herein by reference.
10.17 -- First Amendment to Rights Agreement by and between the
Company and Harris Trust and Savings Bank as Rights
Agent, dated April 21, 1999, filed as Exhibit 10.3 to the
Company's Form 8-K dated April 21, 1999, and incorporated
herein by reference.
10.18 -- Registration Rights Agreement by and among the Company
and The Laitram Corporation, dated November 16, 1998,
filed as Exhibit 99.2 to the Company's Form 8-K dated
November 16, 1998, and incorporated herein by reference.
**10.19 -- Input/Output, Inc. 1998 Restricted Stock Plan, filed as
Exhibit 4.7 to the Company's Registration Statement on
Form S-8 (Registration No. 333-80297), filed with the
Securities and Exchange Commission on June 9, 1999, and
incorporated herein by reference.
10.20 -- Employee Agreement by and between the Company and Axel M.
Sigmar, dated August 17, 1999, filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1999, and incorporated
herein by reference.
10.21 -- Amendment No. 3 to the Input/Output, Inc. Supplemental
Executive Retirement Plan, dated August 23, 1999, filed
as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended August 31, 1999, and
incorporated herein by reference.
10.22 -- Amendment No. 1 to the Input/Output, Inc. Amended and
Restated 1996 Non-Employee Director Stock Option Plan,
dated September 13, 1999, filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1999, and incorporated herein by
reference.
10.23 -- Consulting and Collection Agreement by and between the
Company and Robert P. Brindley, dated October 7, 1999,
filed as Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 31,
1999, and incorporated herein by reference.
10.24 -- Consulting Agreement by and between the Company and Sam
K. Smith, dated August 10, 1999, filed as Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1999, and incorporated
herein by reference.
**10.25 -- Input/Output, Inc. Annual Incentive Plan, dated effective
November 3, 1999, filed as Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 2000, and incorporated herein by reference.
**10.26 -- Employment Agreement by and between the Company and
Timothy J. Probert dated effective as of March 1, 2000,
filed as Exhibit 10.44 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 2000, and
incorporated herein by reference.
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**10.27 -- Input/Output, Inc. 2000 Restricted Stock Plan, effective
as of March 13, 2000, filed as Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 2000, and incorporated herein by reference.
**10.28 -- Input/Output, Inc. 2000 Long-Term Stock Plan, filed as
Exhibit 4.7 to the Company's Registration Statement on
Form S-8 (No. 333-49382) dated November 6, 2000, and
incorporated by reference herein.
*21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of KPMG LLP.
*24.1 -- The Power of Attorney is set forth on the signature page
hereof.
99.1 -- Information required by Form 11-K with respect to the
Input/Output, Inc. Employee Stock Purchase Plan will be
filed as an amendment to this Annual Report on Form 10-K
within 120 days of the end of the fiscal year of the plan
(i.e. June 30) as permitted by Rule 15d-21 under the
Securities Exchange Act of 1934, as amended.
- ---------------
* Filed herewith.
** Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
None.
(c) Exhibits required by Item 601 of Regulation S-K.
Reference is made to subparagraph (a) (3) of this Item 14 which is
incorporated herein by reference.
(d) Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Stafford, State of Texas, on March 19, 2000.
INPUT/OUTPUT, INC.
By /s/ TIMOTHY J. PROBERT
-----------------------------------
President & Chief Executive Officer
(principal executive officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Timothy J. Probert and C. Robert Bunch and each
of them, as his or her true and lawful attorneys-in-fact and agents with full
power of substitution and re-substitution for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all documents
relating to the Transition Report on Form 10-K, including any and all amendments
and supplements thereto, for the seven months ended December 31, 2000, and to
file the same with all exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Transition Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
NAME CAPACITIES DATE
---- ---------- ----
/s/ JAMES M. LAPEYRE, JR. Director and Chairman of the March 19, 2001
- ----------------------------------------------------- Board
James M. Lapeyre, Jr.
/s/ TIMOTHY J. PROBERT Director, President and Chief March 19, 2001
- ----------------------------------------------------- Executive Officer (principal
Timothy J. Probert executive officer)
/s/ C. ROBERT BUNCH Vice President and Chief March 19, 2001
- ----------------------------------------------------- Administrative Officer
C. Robert Bunch (principal financial and
administrative officer)
/s/ ERNEST E. COOK Director March 19, 2001
- -----------------------------------------------------
Ernest E. Cook
/s/ THEODORE H. ELLIOTT, JR. Director March 19, 2001
- -----------------------------------------------------
Theodore H. Elliott, Jr.
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NAME CAPACITIES DATE
---- ---------- ----
/s/ DAVID C. BALDWIN Director March 19, 2001
- -----------------------------------------------------
David C. Baldwin
/s/ WILLIAM F. WALLACE Director March 19, 2001
- -----------------------------------------------------
William F. Wallace
/s/ ROBERT P. PEEBLER Director March 19, 2001
- -----------------------------------------------------
Robert P. Peebler
/s/ SAM K. SMITH Director March 19, 2001
- -----------------------------------------------------
Sam K. Smith
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INPUT/OUTPUT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Input/Output, Inc. and Subsidiaries:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets
December 31, 2000, May 31, 2000 and 1999............... F-3
Consolidated Statements of Operations
Seven months ended December 31, 2000 and Years ended
May 31, 2000, 1999 and 1998............................ F-4
Consolidated Statements of Stockholders' Equity and
Comprehensive Loss
Seven months ended December 31, 2000 and Years ended
May 31, 2000, 1999 and 1998............................ F-5
Consolidated Statements of Cash Flows
Seven months ended December 31, 2000 and Years ended
May 31, 2000, 1999 and 1998............................ F-6
Notes to Consolidated Financial Statements................ F-7
Schedule II -- Valuation and Qualifying Accounts.......... F-27
F-1
38
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Input/Output, Inc.:
We have audited the consolidated balance sheets of Input/Output, Inc. and
subsidiaries as of December 31, 2000, and May 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and comprehensive
loss and cash flows for the seven-month period ended December 31, 2000, and each
of the years in the three-year period ended May 31, 2000. We have also audited
the financial statement schedule for the seven-month period ended December 31,
2000, and each of the years in the three-year period ended May 31, 2000 as
listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Input/Output, Inc. and subsidiaries as of December 31, 2000, and May 31, 2000
and 1999, and the results of their operations and their cash flows for the
seven-month period ended December 31, 2000 and each of the years in the
three-year period ended May 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Houston, Texas
February 1, 2001
F-2
39
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MAY 31,
DECEMBER 31, -------------------
2000 2000 1999
------------ -------- --------
ASSETS
Current assets:
Cash and cash equivalents................................ $ 92,376 $ 99,210 $ 71,309
Restricted cash.......................................... 1,115 1,006 3,831
Accounts receivable, net................................. 30,920 24,944 21,617
Current portion trade notes receivable, net.............. 7,889 12,224 21,907
Income taxes receivable.................................. -- 705 15,000
Inventories.............................................. 67,646 69,185 95,825
Deferred income tax asset................................ 12,081 13,459 27,568
Prepaid expenses......................................... 2,217 1,274 1,495
-------- -------- --------
Total current assets............................. 214,244 222,007 258,552
Long-term trade notes receivable........................... 6,150 6,013 17,616
Deferred income tax asset.................................. 42,771 41,393 18,739
Property, plant and equipment, net......................... 51,267 58,419 62,979
Goodwill, net.............................................. 47,098 49,256 87,558
Other assets, net.......................................... 4,103 4,681 6,304
-------- -------- --------
Total assets..................................... $365,633 $381,769 $451,748
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 8,283 $ 8,011 $ 10,526
Current maturities of long-term debt..................... 1,207 1,154 1,067
Accrued expenses......................................... 23,388 29,430 33,347
-------- -------- --------
Total current liabilities........................ 32,878 38,595 44,940
Long-term debt, net of current maturities.................. 7,077 7,886 8,947
Other long-term liabilities................................ 275 273 887
Stockholders' equity:
Cumulative convertible preferred stock, $.01 par value;
authorized 5,000,000 shares; issued and outstanding
55,000 shares at December 31, 2000 and May 31, 2000 and
40,000 shares at May 31, 1999 (liquidation value of $55
million at December 31, 2000)............................ 1 1 --
Common stock, $.01 par value; authorized 100,000,000
shares; outstanding 50,936,420 shares at December 31,
2000, 50,744,180 shares at May 31, 2000 and 50,663,358
shares at May 31, 1999................................... 512 510 507
Additional paid-in capital................................. 352,294 348,743 327,845
Retained earnings (deficit)................................ (19,422) (6,065) 72,455
Accumulated other comprehensive loss....................... (5,353) (5,427) (3,549)
Treasury stock, at cost, 243,500 shares at December 31,
2000, 232,500 shares at May 31, 2000 and 0 shares at May
31, 1999................................................. (1,737) (1,651) --
Unamortized restricted stock compensation.................. (892) (1,096) (284)
-------- -------- --------
Total stockholders' equity....................... 325,403 335,015 396,974
-------- -------- --------
Total liabilities and stockholders' equity....... $365,633 $381,769 $451,748
======== ======== ========
See accompanying notes to consolidated financial statements.
F-3
40
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, ---------------------------------------
2000 2000 1999 1998
------------ ----------- ----------- -----------
Net sales................................... $ 78,317 $ 121,454 $ 197,415 $ 385,861
Cost of sales............................... 58,554 106,642 205,215 226,514
----------- ----------- ----------- -----------
Gross profit (loss)............... 19,763 14,812 (7,800) 159,347
Operating expenses:
Research and development.................. 16,051 28,625 42,782 32,957
Marketing and sales....................... 5,934 10,284 14,193 14,646
General and administrative................ 8,127 21,885 80,932 28,295
Amortization and impairment of
intangibles............................ 2,757 39,488 16,247 6,008
----------- ----------- ----------- -----------
Total operating expenses.......... 32,869 100,282 154,154 81,906
----------- ----------- ----------- -----------
Earnings (loss) from operations............. (13,106) (85,470) (161,954) 77,441
Interest expense............................ (627) (826) (897) (1,081)
Interest income............................. 4,583 4,930 7,981 7,517
Other income (expense)...................... 176 1,306 (370) (202)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes......... (8,974) (80,060) (155,240) 83,675
Income tax (benefit) expense................ 1,332 (6,097) (49,677) 26,776
----------- ----------- ----------- -----------
Net earnings (loss)......................... (10,306) (73,963) (105,563) 56,899
Preferred dividend.......................... 3,051 4,557 -- --
----------- ----------- ----------- -----------
Net earnings (loss) applicable to common
shares.................................... $ (13,357) $ (78,520) $ (105,563) $ 56,899
=========== =========== =========== ===========
Basic earnings (loss) per common share...... $ (0.26) $ (1.55) $ (2.17) $ 1.29
=========== =========== =========== ===========
Weighted average number of common shares
outstanding............................... 50,840,256 50,716,378 48,540,143 43,962,349
Diluted earnings (loss) per common share.... $ (0.26) $ (1.55) $ (2.17) $ 1.28
=========== =========== =========== ===========
Weighted average number of diluted common
shares outstanding........................ 50,840,256 50,716,378 48,540,143 44,430,109
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
41
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
SEVEN MONTHS ENDED DECEMBER 31, 2000 AND YEARS ENDED MAY 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED
COMMON STOCK PREFERRED STOCK ADDITIONAL RETAINED OTHER
------------------- ---------------- PAID-IN EARNINGS COMPREHENSIVE TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) LOSS STOCK
---------- ------ ------- ------ ---------- --------- ------------- --------
Balance at May 31, 1997.............. 43,280,851 $433 -- $-- $218,973 $ 121,119 $(1,676) $ --
Comprehensive earnings:
Net earnings......................... -- -- -- -- -- 56,899 -- --
Other comprehensive earnings (loss):
Translation adjustment............... -- -- -- -- -- -- (390) --
Equity reduction for Outside
Directors Retirement Plan.......... -- -- -- -- -- -- (130) --
Total comprehensive earnings.........
Amortization of restricted stock
compensation....................... -- -- -- -- -- -- -- --
Issuance of restricted stock
awards............................. 53,000 1 -- -- 1,572 -- -- --
Issuance of stock in conjunction with
business acquisition............... 320,555 3 -- -- 6,372 -- -- --
Exercise of stock options and related
tax benefits....................... 866,683 8 -- -- 12,858 -- -- --
Issuance of stock for the Employee
Stock Purchase Plan................ 63,545 1 -- -- 971 -- -- --
---------- ---- ------- --- -------- --------- ------- -------
Balance at May 31, 1998.............. 44,584,634 446 -- -- 240,746 178,018 (2,196) --
Comprehensive loss:
Net loss............................. -- -- -- -- -- (105,563) -- --
Other comprehensive loss:
Translation adjustment............... -- -- -- -- -- -- (1,046) --
Equity reduction for Outside
Directors Retirement Plan.......... -- -- -- -- -- -- (307) --
Total comprehensive loss.............
Amortization of restricted stock
compensation....................... -- -- -- -- -- -- -- --
Issuance of restricted stock
awards............................. 42,500 -- -- -- 329 -- -- --
Issuance of stock in conjunction with
business acquisition............... 5,794,000 58 -- -- 45,715 -- -- --
Preferred stock offering............. -- -- 40,000 -- 39,452 -- -- --
Exercise of stock options and related
tax benefits....................... 64,944 1 -- -- 157 -- -- --
Issuance of stock for the Employee
Stock Purchase Plan................ 177,280 2 -- -- 1,059 -- -- --
Stock compensation expense........... -- -- -- -- 387 -- -- --
---------- ---- ------- --- -------- --------- ------- -------
Balance at May 31, 1999.............. 50,663,358 507 40,000 -- 327,845 72,455 (3,549) --
Comprehensive loss:
Net loss............................. -- -- -- -- -- (73,963) -- --
Other comprehensive earnings (loss):
Translation adjustment............... -- -- -- -- -- -- (1,920) --
Equity adjustment for Outside
Directors Retirement Plan.......... -- -- -- -- -- -- 42 --
Total comprehensive loss.............
Amortization of restricted stock
compensation....................... -- -- -- -- -- -- -- --
Issuance of restricted stock award... 133,000 1 -- -- 1,028 -- -- --
Cancelation of restricted stock
awards............................. (25,000) -- -- -- (193) -- -- --
Purchase treasury stock.............. (250,000) -- -- -- -- -- -- (1,794)
Reissue treasury stock............... 17,500 -- -- -- (43) -- -- 143
Preferred stock offering............. -- -- 15,000 1 14,794 -- -- --
Preferred dividend................... -- -- -- -- 4,011 (4,557) -- --
Exercise of stock options and related
tax benefits....................... 8,473 -- -- -- 136 -- -- --
Issuance of stock for the Employee
Stock Purchase Plan................ 196,849 2 -- -- 972 -- -- --
Stock compensation expense........... -- -- -- -- 193 -- -- --
---------- ---- ------- --- -------- --------- ------- -------
Balance at May 31, 2000.............. 50,744,180 510 55,000 1 348,743 (6,065) (5,427) (1,651)
Comprehensive loss:
Net loss............................. -- -- -- -- -- (10,306) -- --
Other comprehensive earnings (loss):
Translation adjustment............... -- -- -- -- -- -- 74 --
Total comprehensive loss.............
Amortization of restricted stock
compensation....................... -- -- -- -- -- -- -- --
Purchase treasury stock.............. (11,000) -- -- -- -- -- -- (86)
Preferred dividend................... -- -- -- -- 2,730 (3,051) -- --
Exercise of stock options and related
tax benefits....................... 97,500 1 -- -- 395 -- -- --
Issuance of stock for the Employee
Stock Purchase Plan................ 105,740 1 -- -- 426 -- -- --
---------- ---- ------- --- -------- --------- ------- -------
Balance at December 31, 2000......... 50,936,420 $512 55,000 $ 1 $352,294 $ (19,422) $(5,353) $(1,737)
========== ==== ======= === ======== ========= ======= =======
UNAMORTIZED TOTAL
RESTRICTED STOCK STOCKHOLDERS'
COMPENSATION EQUITY
---------------- -------------
Balance at May 31, 1997.............. $ (235) $ 338,614
Comprehensive earnings:
Net earnings......................... -- 56,899
Other comprehensive earnings (loss):
Translation adjustment............... -- (390)
Equity reduction for Outside
Directors Retirement Plan.......... -- (130)
---------
Total comprehensive earnings......... 56,379
Amortization of restricted stock
compensation....................... 494 494
Issuance of restricted stock
awards............................. (1,573) --
Issuance of stock in conjunction with
business acquisition............... -- 6,375
Exercise of stock options and related
tax benefits....................... -- 12,866
Issuance of stock for the Employee
Stock Purchase Plan................ -- 972
------- ---------
Balance at May 31, 1998.............. (1,314) 415,700
Comprehensive loss:
Net loss............................. -- (105,563)
Other comprehensive loss:
Translation adjustment............... -- (1,046)
Equity reduction for Outside
Directors Retirement Plan.......... -- (307)
---------
Total comprehensive loss............. (106,916)
Amortization of restricted stock
compensation....................... 1,359 1,359
Issuance of restricted stock
awards............................. (329) --
Issuance of stock in conjunction with
business acquisition............... -- 45,773
Preferred stock offering............. -- 39,452
Exercise of stock options and related
tax benefits....................... -- 158
Issuance of stock for the Employee
Stock Purchase Plan................ -- 1,061
Stock compensation expense........... -- 387
------- ---------
Balance at May 31, 1999.............. (284) 396,974
Comprehensive loss:
Net loss............................. -- (73,963)
Other comprehensive earnings (loss):
Translation adjustment............... -- (1,920)
Equity adjustment for Outside
Directors Retirement Plan.......... -- 42
---------
Total comprehensive loss............. (75,841)
Amortization of restricted stock
compensation....................... 24 24
Issuance of restricted stock award... (1,029) --
Cancelation of restricted stock
awards............................. 193 --
Purchase treasury stock.............. -- (1,794)
Reissue treasury stock............... -- 100
Preferred stock offering............. -- 14,795
Preferred dividend................... -- (546)
Exercise of stock options and related
tax benefits....................... -- 136
Issuance of stock for the Employee
Stock Purchase Plan................ -- 974
Stock compensation expense........... -- 193
------- ---------
Balance at May 31, 2000.............. (1,096) 335,015
Comprehensive loss:
Net loss............................. -- (10,306)
Other comprehensive earnings (loss):
Translation adjustment............... -- 74
---------
Total comprehensive loss............. (10,232)
Amortization of restricted stock
compensation....................... 204 204
Purchase treasury stock.............. -- (86)
Preferred dividend................... -- (321)
Exercise of stock options and related
tax benefits....................... -- 396
Issuance of stock for the Employee
Stock Purchase Plan................ -- 427
------- ---------
Balance at December 31, 2000......... $ (892) $ 325,403
======= =========
See accompanying notes to consolidated financial statements.
F-5
42
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, -------------------------------
2000 2000 1999 1998
------------ -------- --------- --------
Cash flows from operating activities:
Net earnings (loss)........................... $(10,306) $(73,963) $(105,563) $ 56,899
Depreciation and amortization................. 11,448 22,835 20,776 16,816
Impairment of intangibles and other assets.... -- 31,596 8,495 --
Amortization of restricted stock and other
stock compensation......................... 204 317 1,746 494
Deferred income tax (benefit) expense......... -- (8,545) (43,691) 201
Bad debt expense (collections) and loan
losses..................................... (1,437) (17,106) 43,683 4,050
Loss on disposal or impairment of fixed assets
and lease equipment........................ 1,129 1,219 6,573 5,679
Accounts and notes receivable................. (341) 22,790 46,731 (26,201)
Inventories................................... 1,539 29,457 38,149 (13,360)
Accounts payable and accrued expenses......... (6,487) (5,530) (13,684) 20,456
Income taxes payable/receivable............... 1,420 14,295 (23,139) 10,696
Other assets and liabilities.................. (900) 1,006 (4,912) (630)
-------- -------- --------- --------
Net cash (used in) provided by
operating activities................ (3,731) 18,371 (24,836) 75,100
-------- -------- --------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment..... (2,837) (3,077) (9,326) (6,960)
Business acquisition, net of cash acquired.... -- -- (6,303) (10,845)
Investments in other assets................... -- -- -- (446)
-------- -------- --------- --------
Net cash used in investing
activities.......................... (2,837) (3,077) (15,629) (18,251)
-------- -------- --------- --------
Cash flows from financing activities:
Payments on long-term debt.................... (756) (974) (983) (915)
Payments of preferred dividends............... (321) (454) -- --
Purchase of treasury stock.................... (86) (1,794) -- --
Proceeds from exercise of stock options....... 396 136 158 12,866
Proceeds from issuance of common stock........ 427 974 1,061 972
Net proceeds from preferred stock offering.... -- 14,795 39,452 --
-------- -------- --------- --------
Net cash (used in) provided by
financing activities................ (340) 12,683 39,688 12,923
-------- -------- --------- --------
Effect of change in foreign currency exchange
rates on cash and cash equivalents......... 74 (76) (189) (70)
-------- -------- --------- --------
Net increase (decrease) in cash and cash
equivalents................................ (6,834) 27,901 (966) 69,702
Cash and cash equivalents at beginning of
period..................................... 99,210 71,309 72,275 2,573
-------- -------- --------- --------
Cash and cash equivalents at end of period.... $ 92,376 $ 99,210 $ 71,309 $ 72,275
======== ======== ========= ========
See accompanying notes to consolidated financial statements
F-6
43
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Description and Principles of Consolidation. Input/Output, Inc.
and its wholly-owned subsidiaries design, manufacture and market seismic data
acquisition systems and related seismic equipment for the oil and gas
exploration and production industry worldwide. The consolidated financial
statements include the accounts of Input/Output, Inc. and its wholly-owned
subsidiaries (collectively referred to as the "Company"). Significant
intercompany balances and transactions have been eliminated.
Fiscal Year Change. In September 2000, the Company's Board of Directors
approved the Company's changing of its fiscal year-end to December 31 of each
year. The consolidated statements of operations, stockholders' equity and
comprehensive loss and cash flows for the period from June 1, 2000 to December
31, 2000 represent a transition period of seven months.
The following is a comparative summary of the condensed and consolidated
operating results for the seven month periods ended December 31, 2000 and
December 31, 1999 (in thousands, except per share amounts).
SEVEN MONTHS ENDED
DECEMBER 31,
-----------------------
2000 1999
--------- -----------
(UNAUDITED)
-----------
Net sales................................................... $ 78,317 $ 62,244
Cost of sales............................................... 58,554 47,703
-------- --------
Gross profit................................................ 19,763 14,541
Operating expenses
Research and development.................................. 16,051 16,590
Marketing and sales....................................... 5,934 5,713
General and administrative................................ 8,127 12,396
Amortization and impairment of intangibles................ 2,757 4,471
-------- --------
Loss from operations........................................ (13,106) (24,629)
Interest expense............................................ (627) (480)
Interest and other income................................... 4,759 2,767
Income taxes expense (benefit).............................. 1,332 (6,702)
Preferred dividend.......................................... 3,051 2,608
-------- --------
Net loss applicable to common shares........................ $(13,357) $(18,248)
======== ========
Net loss per common share
Basic..................................................... $ (0.26) $ (0.31)
======== ========
Diluted................................................... $ (0.26) $ (0.31)
======== ========
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates are
made at discrete points in time based on relevant market information. These
estimates may be subjective in nature and involve uncertainties and matters of
judgment and therefore cannot be determined with exact precision. Areas
involving significant estimates include, but are not limited to, accounts and
notes receivable, inventory, deferred taxes, and accrued warranty costs. Actual
results could differ from those estimates.
F-7
44
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash
equivalents. At December 31, 2000, there was approximately $1.1 million of
restricted cash used to secure standby and commercial letters of credit.
Accounts and Notes Receivable. Accounts and trade notes receivable are
recorded at cost, less the related allowance for doubtful accounts and loan
loss. The Company considers current information and events regarding the
customers' ability to repay obligations, and considers an account or note to be
impaired when it is probable that the Company will be unable to collect all
amounts due according to the contractual terms. When an account or note is
considered impaired, the amount of the impairment is measured based on the
present value of expected future cash flows or the fair value of collateral.
Impairment losses (recoveries) are included in the allowance for doubtful
accounts and for loan loss through an increase (decrease) in bad debt expense.
Trade notes receivable are generally secured by the products sold, bear interest
at contractual rates up to 13% and are due at various dates through 2004. Cash
receipts on impaired notes are applied to reduce the principal amount of such
notes until the principal has been recovered and are recognized as interest
income thereafter.
Inventories. Inventories are stated at the lower of cost (primarily
first-in, first-out) or market.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Depreciation expense is provided straight-line over the following
estimated useful lives:
YEARS
-----
Machinery and equipment..................................... 5-8
Buildings................................................... 25
Leased equipment and other.................................. 3-10
Expenditures for renewals and betterments are capitalized; repairs and
maintenance are charged to expense as incurred. The cost and accumulated
depreciation of assets sold or otherwise disposed of are removed from the
accounts and any gain or loss is reflected in operations.
Goodwill and Other Intangible Assets. Goodwill results from business
acquisitions and represents the excess of acquisition costs over the fair value
of the net assets of businesses acquired. Goodwill and other intangibles are
amortized on a straight-line basis over 5 to 20 years.
Goodwill and other long-lived assets are reviewed for impairment whenever
an event or change in circumstances indicates that the carrying amount of the
assets may not be recoverable. The impairment review includes comparison of
future cash flows expected to be generated by the Company's operations with the
carrying value of goodwill and other long-lived assets. If the carrying value of
such assets exceeds the expected undiscounted future cash flows, an impairment
loss is recognized to the extent the carrying amount of the assets exceeds their
fair values which is calculated using the discounted cash flows.
Research and Development. Research and development costs are expensed as
incurred.
Revenue Recognition and Product Warranty. Revenue is primarily derived
from the sale of data acquisition systems and related equipment. Revenue is
recognized when products are shipped and risk of loss has passed to the
customer. The Company warrants that all manufactured equipment will be free from
defects in workmanship, material and parts. Warranty periods range from 90 days
to three years from the date of original purchase, depending on the product. The
Company provides for estimated warranty as a charge to cost of sales at time of
sale.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 summarizes the SEC staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. The
F-8
45
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has adopted SAB No. 101 effective June 1, 2000, which has not had a
material impact on the consolidated financial position or results of operations.
Income Taxes. Income taxes are accounted for under the asset and liability
method. Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry-forwards. Deferred income tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Comprehensive Earnings (Loss). The Statement of Financial Accounting
Standards ("SFAS") No. 130 Reporting Comprehensive Income, establishes standards
for reporting and presentation of comprehensive earnings (loss) and its
components. Comprehensive earnings (loss), consisting of net earnings (loss),
foreign currency translation adjustment and minimum pension liabilities is
presented in the consolidated statements of stockholders' equity and
comprehensive loss. SFAS No. 130 does not significantly affect the financial
position or results of operations of the Company. The balance in accumulated
other comprehensive loss consists primarily of foreign currency translation
adjustments.
Earnings (Loss) Per Common Share. Basic earnings (loss) per share is
computed by dividing net earnings (loss) applicable to common stock by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is determined on the assumption that outstanding dilutive
stock options and other common stock equivalents have been exercised and the
aggregate proceeds as defined were used to reacquire common stock using the
average price of such common stock for the period.
The following table summarizes the calculation of weighted average number
of common shares and weighted average number of diluted common shares
outstanding for purposes of the computation of basic earnings (loss) per common
share and diluted earnings (loss) per common share (in thousands, except share
and per share amounts):
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, ---------------------------------------
2000 2000 1999 1998
------------ ----------- ----------- -----------
Net earnings (loss) applicable to
common stock................... $ (13,357) $ (78,520) $ (105,563) $ 56,899
=========== =========== =========== ===========
Weighted average number of common
shares outstanding............. 50,840,256 50,716,378 48,540,143 43,962,349
Stock options.................... -- -- -- 467,760
----------- ----------- ----------- -----------
Weighted average number of
diluted common shares
outstanding.................... 50,840,256 50,716,378 48,540,143 44,430,109
=========== =========== =========== ===========
Basic earnings (loss) per common
share.......................... $ (0.26) $ (1.55) $ (2.17) $ 1.29
=========== =========== =========== ===========
Diluted earnings (loss) per
common share................... $ (0.26) $ (1.55) $ (2.17) $ 1.28
=========== =========== =========== ===========
At December 31, 2000 and May 31, 2000, 1999 and 1998, 4,778,478, 5,238,352,
4,550,463 and 1,480,303 respectively, of shares subject to stock options were
considered anti-dilutive and not included in the calculation of diluted earnings
(loss) per common share. In addition, the convertible preferred stock has not
F-9
46
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
been considered in the computation of diluted loss per common share because the
effect would be anti-dilutive. See Note 8.
Foreign Currency Gains and Losses. The foreign-owned assets and
liabilities of the Company have been translated to U.S. dollars using the
exchange rate in effect at the balance sheet date. Results of foreign operations
have been translated using the average exchange rate during the periods of
operation. Resulting translation adjustments have been recorded as a component
of "Accumulated Other Comprehensive Loss" in the Consolidated Statements of
Stockholders' Equity and Comprehensive Loss. Foreign currency transaction gains
and losses are included in the Consolidated Statements of Operations as they
occur.
Conditions Affecting Ongoing Operations. The Company's current business
and operations are substantially dependent upon conditions in the oil and gas
industry and, specifically, the exploration and production expenditures of oil
and gas companies. The demand for seismic equipment is influenced by oil and gas
prices, expectations about future prices, supply of seismic data and equipment
in the market place, the cost of producing and delivering oil and gas,
government regulations and local and international political and economic
conditions. There can be no assurance that current levels of exploration and
production expenditures of oil and gas companies will be maintained or that
demand for the Company's products will reflect the level of such activities.
Credit Risk. Sales outside the United States have historically accounted
for a significant part of our net sales. Foreign sales are subject to special
risks inherent in doing business outside of the United States, including the
risk of war, civil disturbances, embargo and government activities, which may
disrupt markets and affect operating results.
Demand for products from customers in developing countries is difficult to
predict and can fluctuate significantly from year to year. These changes in
demand result primarily from the instability of economies and governments in
certain developing countries, changes in internal laws and policies affecting
trade and investment, and because those markets are only beginning to adopt new
technologies and establish purchasing practices. These risks may adversely
affect future operating results and financial position. In addition, sales to
customers in developing countries on extended terms can present heightened
credit risks.
Stock-Based Compensation. SFAS No. 123, Accounting for Stock-Based
Compensation allows a company to adopt a fair value based method of accounting
for its stock-based compensation plans, or to continue to follow the intrinsic
value method of accounting prescribed by Accounting Principles Board ("APB")
Opinion No. 25 Accounting for Stock Issued to Employees. The Company has
elected to continue to follow APB Opinion No. 25. If the Company had adopted
SFAS No. 123, net earnings (loss), basic earnings (loss) per share and diluted
earnings (loss) per share for the periods presented would have been reduced
(increased) as discussed in Note 8.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation: an Interpretation of APB Opinion No. 25. Among other issues,
Interpretation No. 44 clarifies the application of Accounting Principles Board
Opinion ("APB") No. 25 regarding (a) the definition of employee for purposes of
applying APB No. 25, (b) the criteria for determining whether a plan qualifies
as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock options in a business combination. The
provisions of Interpretation No. 44 were applied on a prospective basis
effective July 1, 2000, and has not had a material impact on the consolidated
financial position or results of operations.
Reclassification. Certain amounts previously reported in the consolidated
financial statements have been reclassified to conform to the current year
presentation.
F-10
47
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Pronouncements. SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities as amended by SFAS No. 137 and SFAS No. 138,
was issued in June 1998. SFAS No. 133 standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts. Under the standard, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The Company
has adopted SFAS No. 133 beginning January 1, 2001 and does not expect the
adoption of SFAS No. 133 to have a material effect on the financial condition or
results of operation.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows (in
thousands):
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, ----------------------------
2000 2000 1999 1998
------------ -------- ------- -------
Cash paid (received) during the period for:
Interest................................. $ 627 $ 826 $ 897 $ 1,130
Income taxes............................. 642 (13,396) 16,966 9,968
Unamortized restricted stock
compensation............................. -- (1,029) (329) (1,573)
Dividends on preferred stocks.............. 2,730 4,011 -- --
Repossession of equipment due to customers'
default on trade notes receivable:
Decrease in trade notes receivable....... -- (8,464) -- --
Increase in property, plant and
equipment............................. -- 4,893 -- --
Increase in inventories.................. -- 3,571 -- --
Issuance of note receivable in connection
with sale of other assets:
Long-term trade notes receivable......... -- -- 5,387 --
Other assets............................. -- -- (5,387) --
Issuance of common stock in connection with
business acquisitions.................... -- -- 49,386 6,695
(3) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows (in thousands):
MAY 31,
DECEMBER 31, -------------------
2000 2000 1999
------------ -------- --------
Land............................................... $ 2,769 $ 2,782 $ 3,279
Buildings.......................................... 26,565 26,413 27,277
Machinery and equipment............................ 60,178 65,450 68,590
Leased equipment................................... 14,206 12,219 1,707
Other.............................................. 6,100 5,615 2,443
-------- -------- --------
109,818 112,479 103,296
Less accumulated depreciation...................... 58,551 54,060 40,317
-------- -------- --------
$ 51,267 $ 58,419 $ 62,979
======== ======== ========
F-11
48
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) ACCRUED EXPENSES
A summary of accrued expenses is as follows (in thousands):
MAY 31,
DECEMBER 31, -----------------
2000 2000 1999
------------ ------- -------
Compensation, including compensation-related taxes,
commissions and severance.......................... $ 3,970 $ 6,321 $10,779
Warranty............................................. 6,302 6,470 13,875
Accrued legal settlement............................. -- 5,000 --
Taxes payable........................................ 4,634 4,226 976
Other................................................ 8,482 7,413 7,717
------- ------- -------
$23,388 $29,430 $33,347
======= ======= =======
(5) LONG-TERM DEBT
In August, 1996, the Company obtained a $12.5 million, ten-year term loan
secured by certain land and buildings. The term loan bears interest at a fixed
rate of 7.875% per annum and is repayable in equal monthly installments of
principal and interest of $151,439. The total installment payments for principal
and interest in each of the next five years will be $1.8 million, with a balance
thereafter of $1.2 million. The term loan provides for penalties for pre-payment
prior to maturity.
(6) INVENTORIES
A summary of inventories is as follows (in thousands):
MAY 31,
DECEMBER 31, -----------------
2000 2000 1999
------------ ------- -------
Raw materials........................................ $39,988 $43,110 $49,856
Work-in-process...................................... 6,774 6,559 8,863
Finished goods....................................... 20,884 19,516 37,106
------- ------- -------
$67,646 $69,185 $95,825
======= ======= =======
(7) ACCOUNTS AND TRADE NOTES RECEIVABLE
A summary of accounts receivable is as follows (in thousands):
MAY 31,
DECEMBER 31, -----------------
2000 2000 1999
------------ ------- -------
Accounts receivable, principally trade............... $32,491 $26,510 42,533
Less allowance for doubtful accounts................. (1,571) (1,566) (20,916)
------- ------- -------
Accounts receivable, net............................. $30,920 $24,944 21,617
======= ======= =======
F-12
49
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The recorded investment in trade notes receivable for which an allowance
for loan loss has been recognized was $14.0 million at December 31, 2000. A
summary of trade notes receivable and allowance for loan-loss is as follows (in
thousands):
MAY 31,
DECEMBER 31, -------------------
2000 2000 1999
------------ -------- --------
Trade notes receivable............................. $ 24,986 $ 31,955 $ 68,301
Less allowance for loan loss....................... (10,947) (13,718) (28,778)
-------- -------- --------
Trade notes receivable, net........................ 14,039 18,237 39,523
Less current portion trade notes receivable, net... 7,889 12,224 21,907
-------- -------- --------
Long-term trade notes receivable................... $ 6,150 $ 6,013 $ 17,616
======== ======== ========
The activity in the allowance for loan loss is as follows (in thousands):
SEVEN MONTHS
ENDED MAY 31,
DECEMBER 31, --------------------------
2000 2000 1999 1998
------------ ------- ------- ------
Balance at beginning of period............... $13,718 $28,778 $ 3,954 $7,078
Additions charged to bad debt expenses....... 1,305 7,057 25,903 2,280
Recoveries reducing bad debt expenses........ (2,796) (23,558) -- --
Write-downs charged against the allowance.... (1,280) (10,799) (1,079) (5,404)
Reclassification of trade account
receivable................................. -- 12,240 -- --
------- ------- ------- ------
Balance at end of period..................... $10,947 $13,718 $28,778 $3,954
======= ======= ======= ======
Recoveries for the seven months ended December 31, 2000 include $2.8
million of various recoveries of previously non-performing trade notes
receivable. Recoveries for the year ended May 31, 2000 include $10.2 million
attributable to a more favorable than anticipated resolution of a customer's
bankruptcy settlement, $8.5 million of recoveries in the form of repossessed
equipment and inventories and $4.9 million of various recoveries of previously
non-performing trade notes receivable.
(8) STOCKHOLDERS' EQUITY
Series B and Series C Preferred Stock. In May, 1999, SCF-IV, L.P., a
Delaware limited partnership ("SCF-IV"), purchased, in a privately negotiated
transaction, 40,000 shares of Series B Preferred Stock, par value $0.01 per
share (the "Series B Preferred Stock"). The purchase price paid for the Series B
Preferred Stock was $1,000 per share, resulting in net proceeds of approximately
$39.5 million.
In August 1999, SCF-IV exercised its option to purchase 15,000 shares of
Series C Preferred Stock, par value $0.01 per share (the "Series C Preferred
Stock"). The option to purchase Series C Preferred Stock was granted to SCF-IV
by the Company in connection with SCF-IV's purchase of 40,000 shares of Series B
Preferred Stock in May 1999. The purchase price paid for the Series C Preferred
Stock was $1,000 per share, resulting in net proceeds of approximately $14.8
million.
The net cash proceeds of Series B and Series C Preferred Stock were used to
fund research and development projects, to provide additional working capital
and for general corporate purposes. The issuance of the Series B and Series C
Preferred Stock and the underlying shares of common stock were exempt from the
registration requirements of Section 5 of the Securities Act of 1933 in
accordance with Section 4(2) of that Act. Series C Preferred Stock has
substantially the same terms and conditions as Series B Preferred Stock, except
the fixed conversion price for the Series C Preferred Stock is $8.50 per share,
compared to $8.00 per share for the Series B Preferred Stock.
F-13
50
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The holders of Series B and C Preferred Stock are entitled to receive cumulative
cash dividends of $10.00 per share per annum (1% of the liquidation preference)
for each share of Series B and C Preferred Stock outstanding. Each share of
Series B and C Preferred Stock is entitled to a liquidation preference of $1,000
per share, plus all accrued and unpaid dividends.
On May 7, 2004 (the "Mandatory Conversion Date"), each outstanding share of
Series B and C Preferred Stock respectively shall, without any action on the
part of the holder, be converted automatically into a number of fully paid and
nonassessable shares of common stock equal to the Conversion Ratio Amount,
provided that a shelf registration statement to be filed with the Securities and
Exchange Commission covering those shares of common stock has been declared
effective.
The Series B and C Preferred Stock are convertible, at the holder's option
(the "Initial Conversion Date"), after the first to occur of any of the
following: (i) May 7, 2002, (ii) the approval by the Board of Directors of an
agreement relating to a Business Combination (as defined), (iii) the approval or
recommendation by the Board of Directors for a tender offer for common stock, or
(iv) the redemption, repurchase or reacquisition by the Company of rights issued
pursuant to its Stockholder Rights Plan or any waiver of the application of
Stockholder Rights Plan to any beneficial owner other than SCF-IV or its
affiliates (except as approved by SCF-IV's representative on the Board of
Directors). After the Initial Conversion Date and prior to the Mandatory
Conversion Date, the holders of Series B and C Preferred Stock will be entitled
to convert their shares into a number of fully paid and nonassessable shares of
common stock per share equal to, at the option of the holder, one of, or if not
specified by the holder, at the greater of, the following (such amount being
referred to as the "Conversion Ratio Amount"): (a) the quotient of $1,000 (plus
any accrued and unpaid dividends through the record date for determining
stockholders entitled to vote) divided by the fixed conversion price (as
adjusted from time to time in accordance with certain anti-dilution provisions)
or (b) the quotient of $1,000 increased at a rate of eight percent per annum
from August 17, 1999, compounded quarterly, less the amount of cash dividends
actually paid through the applicable conversion date (the "Adjusted Stated
Value"), divided by the average market price for our common stock during the ten
trading day period prior to the date of conversion.
In the event of a conversion of Series B and C Preferred Stock pursuant to
which the Conversion Ratio is determined using clause (b) above, then, provided
that full cumulative dividends have been paid or declared and set apart for
payment upon all outstanding shares of Series B and C Preferred Stock for all
past dividend periods, the Company may redeem for cash up to 50% (or such
greater percentage as the holders shall agree) of the shares of Series B and C
Preferred Stock submitted for conversion at a redemption price per share equal
to the Adjusted Stated Value in lieu of conversion.
Based on the terms of the Series B and C Preferred Stock, dividends are
recognized as a charge to retained earnings at the rate of 8% per annum,
compounded quarterly. Such preferred dividends reduce net earnings applicable to
common stock accordingly. The Company is permitted to pay dividends on common
stock as long as the Series B and C Preferred Stock dividends are current. At
December 31, 2000 there was $6.7 million in cumulative deemed dividends provided
on the Series B Preferred Stock and Series C Preferred Stock.
Treasury Stock. In September 1999, the Company purchased 100,000 shares of
common stock from a former officer for $0.8 million. In April 2000, the Company
purchased in open market transactions 150,000 shares of common stock for an
aggregate purchase price of $1.0 million. In July 2000, the Company announced
authorization by its Board of Directors to repurchase an additional 1,000,000
shares of common stock in open market and privately negotiated transactions,
with purchases to be made from time to time through May 31, 2001. Shares
repurchased will be held by the Company as treasury stock and remain available
for stock option and other equity compensation and benefit plans. 11,000 shares
of common stock were repurchased by the Company in open market transactions
during the seven months ended December 31, 2000, and at December 31, 2000, the
Company owned 243,500 shares of treasury stock.
F-14
51
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option Plans. The Company has adopted an employee stock option plan
for eligible employees which provides for the granting of options to purchase a
maximum of 9,700,000 shares of common stock. The Company has also adopted a
directors stock option plan which provides for the granting of options to
purchase a maximum of 700,000 shares of common stock by non-employee directors.
At December 31, 2000, 2,410,072 and 583,500 shares remained available for these
plans, respectively.
Transactions under the stock option plans are summarized as follows:
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING VESTED FOR GRANT
--------------- ----------- --------- ----------
May 31, 1997..................... $ 2.03- $29.63 3,074,525 1,060,825 2,744,600
Granted.......................... 17.50- 30.38 2,606,168 -- (2,606,168)
Vested........................... -- -- 918,593 --
Exercised........................ 2.03- 21.13 (927,675) (927,675) --
Canceled/forfeited............... 2.03- 29.69 (584,772) -- 584,772
--------------- ---------- --------- ----------
May 31, 1998..................... 2.03- 30.38 4,168,246 1,051,743 723,204
Increase in shares authorized.... -- -- -- 1,800,000
Granted.......................... 6.38- 24.50 2,449,732 -- (2,449,732)
Vested........................... -- -- 513,563 --
Exercised........................ 2.03- 16.88 (39,700) (39,700) --
Canceled/forfeited............... 9.38- 30.38 (2,027,815) -- 2,027,815
--------------- ---------- --------- ----------
May 31, 1999..................... 2.03- 30.00 4,550,463 1,525,606 2,101,287
Granted.......................... 5.25- 10.00 1,975,790 -- (1,975,790)
Vested........................... -- -- 750,707 --
Exercised........................ 2.03- 8.19 (8,200) (8,200) --
Canceled/forfeited............... 3.50- 30.00 (1,279,701) (47,165) 1,279,701
--------------- ---------- --------- ----------
May 31, 2000..................... 2.03- 30.00 5,238,352 2,220,948 1,405,198
Increase in shares authorized.... -- -- -- 1,200,000
Granted.......................... 7.69- 9.44 592,840 -- (592,840)
Vested........................... -- -- 677,400 --
Exercised........................ 2.03- 6.38 (71,500) (71,500) --
Canceled/forfeited............... 5.06- 29.82 (981,214) (504,289) 981,214
--------------- ---------- --------- ----------
December 31, 2000................ $ 2.03- $30.00 4,778,478 2,322,559 2,993,572
=============== ========== ========= ==========
Stock options outstanding at December 31, 2000 are summarized as follows:
WEIGHTED
AVERAGE WEIGHTED
EXERCISE PRICE WEIGHTED AVERAGE
OF AVERAGE EXERCISE PRICE
OPTION PRICE OUTSTANDING REMAINING OF VESTED
PER SHARE OUTSTANDING OPTIONS CONTRACT LIFE VESTED OPTIONS
- --------------- -------------- -------------- ------------- --------- --------------
$ 2.03- $ 3.91. 68,375 $ 3.61 2.0 68,375 $ 3.61
3.92- 10.00. 2,937,327 6.54 8.8 770,473 7.67
10.01- 11.94. 134,000 11.83 3.6 134,000 11.83
11.95- 24.63. 1,358,576 19.86 6.4 1,069,561 19.56
24.64- 30.00. 280,200 29.54 6.2 280,150 29.54
- --------------- --------- ------ --- --------- ------
$ 2.03- $30.00. 4,778,478 $11.78 7.7 2,322,559 $15.91
=============== ========= ====== === ========= ======
The Company has elected to continue to follow APB Opinion No. 25 to account
for stock-based compensation plans; however, if the Company had adopted SFAS No.
123, net earnings (loss) applicable to
F-15
52
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock, basic earnings (loss) per share and diluted earnings (loss) per
share for the seven months ended December 31, 2000 and years ended May 31, 2000,
1999 and 1998 would have been reduced (increased) as follows (in thousands,
except per share amounts):
YEARS ENDED MAY 31,
SEVEN MONTHS ENDED -----------------------------------------------------------------
DECEMBER 31, 2000 2000 1999 1998
------------------- ------------------- --------------------- -------------------
REPORTED PROFORMA REPORTED PROFORMA REPORTED PROFORMA REPORTED PROFORMA
-------- -------- -------- -------- --------- --------- -------- --------
Net earnings (loss)
applicable to common
stock.................... $(13,357) ($20,365) $(78,520) $(74,926) $(105,563) $(112,186) $56,899 $50,580
Basic earnings (loss) per
common share............. $ (0.26) $(0.41) $ (1.55) $ (1.48) $ (2.17) $ (2.31) $ 1.29 $ 1.15
Diluted earnings (loss) per
common share............. $ (0.26) $(0.41) $ (1.55) $ (1.48) $ (2.17) $ (2.31) $ 1.28 $ 1.14
The weighted average fair value of options granted during the seven months
ended December 31, 2000 and years ended May 31, 2000, 1999 and 1998 was $4.02,
$3.06, $4.24, and $11.58, respectively. The fair value of each option was
determined using the Black-Scholes option valuation model. The key input
variables used in valuating the options were as follows: average risk-free
interest rate based on 5-year Treasury bonds, an estimated option term of five
years and expected stock price volatility of 49% during the Transition Period
and 49%, 51% and 44% during the years ended May 31, 2000, 1999 and 1998,
respectively.
Restricted Stock Plans. In 1990, the Company adopted the Input/Output,
Inc. 1990 Restricted Stock Plan which provides for the award of up to 1,200,000
shares of common stock to key officers and employees. Ownership of common stock
will vest over a period of four years. The restriction is removed from 50% of
the shares after two years, 25% in the third year and 25% in the fourth year.
Shares awarded may not be sold, assigned, transferred, pledged or otherwise
encumbered by the grantee during the vesting period. Except for these
restrictions, the grantee of an award of shares has all the rights of a common
stockholder, including the right to receive dividends and the right to vote such
shares. In May 1999, a key employee with 53,000 unvested restricted shares
resigned and as part of the employee's separation agreement, the Company removed
all restrictions and vested all 53,000 shares effective immediately. All
amortization of restricted stock related to such vested shares was recognized in
fiscal year 1999. At December 31, 2000, there were no unvested restricted shares
outstanding, and under terms of the plan, no further restricted stock can be
granted.
In January, 1998, the Company adopted the Input/Output, Inc. 1998
Restricted Stock Plan which provides for the award of up to 100,000 shares of
common stock to key officers and employees. Ownership of the common stock will
vest over a period as determined by the Company in its sole discretion. Shares
awarded may not be sold, assigned, transferred, pledged or otherwise encumbered
by the grantee during the vesting period. Except for these restrictions, the
grantee of an award of shares has all the rights of a common stockholder,
including the right to receive dividends and the right to vote such shares. At
December 31, 2000, there were 27,500 unvested shares outstanding, 17,500
scheduled to vest 100% before December 31, 2001, and 10,000 scheduled to vest
over a period of five years with restrictions removed from 33% of shares after
three years, 33% of shares after four years and 33% of shares after five years.
At December 31, 2000 there are 72,500 shares available for grant under this
plan.
In March, 2000 the Company adopted the Input/Output, Inc. 2000 Restricted
Stock Plan which provides for the award of up to 200,000 shares of common stock
to key employees. Ownership of the common stock will vest over a period as
determined by the Company in its sole discretion. Shares awarded may not be
sold, assigned, transferred, pledged or otherwise encumbered by the grantee
during the vesting period. Except for these restrictions, the grantee of an
award of shares has all the rights of a common stockholder, including the right
to receive dividends and the right to vote such shares. At December 31, 2000,
the Company had 123,000 unvested shares outstanding, which are scheduled to vest
over a period of five years. The restriction is removed from 33% of the shares
after three years, 33% after fours years, and 33% after five years.
F-16
53
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The market value of shares of common stock granted under the restricted
stock plans were recorded as unamortized restricted stock compensation and
reported as a separate component of stockholders' equity. The restricted stock
compensation is amortized over the vesting period.
Employee Stock Purchase Plan. In April, 1997 the Company adopted the
Employee Stock Purchase Plan which allows all eligible employees to authorize
payroll deductions at a rate of 1% to 15% of base compensation for the purchase
of our common stock. The purchase price of the common stock will be the lesser
of 85% of the closing price on the first day of the applicable offering period
(or most recently preceding trading day) or 85% of the closing price on the last
day of the offering period (or most recently preceding trading day). Each
offering period is six months and commences on January 1 and July 1 of each
year. There were 105,740, 196,849, 177,280 and 63,545 shares purchased by
participants during the seven months ended December 31, 2000 and years ended May
31, 2000, 1999 and 1998, respectively.
(9) ACQUISITIONS
In October 1998, the Company entered into a definitive merger agreement
with The Laitram Corporation ("Laitram") for the acquisition of DigiCourse, Inc.
("DigiCourse"), formerly a wholly-owned subsidiary of Laitram. Under the terms
of the agreement, the Company acquired, in exchange for 5,794,000 shares of
common stock and $5.6 million in cash, all of the capital stock of DigiCourse.
The transaction was accounted for as a purchase business combination with the
assets and liabilities allocated based on the fair value of assets purchased and
liabilities assumed. The amortization life of the resulting goodwill of $32.5
million is 17 years.
On January 3, 2001, subsequent to the end of the Transition Period, the
Company acquired all of the outstanding capital stock of Pelton Company, Inc.
("Pelton") for $6 million cash and a $3 million two-year unsecured promissory
note bearing interest at 8.5% per year. Pelton is based in Ponca City, Oklahoma
and designs, manufactures and sells seismic vibrator control systems, vibrator
positioning systems and explosive energy control systems.
(10) SEGMENT AND GEOGRAPHIC INFORMATION
In May 1999, the Company initiated a fundamental reorganization of its
internal structure. As a part of this reorganization, management now evaluates
and reviews results based on two segments, Land and Marine, to allow for
increased visibility and accountability of costs and more focused customer
service and product development. Prior to such time, management made business
decisions using consolidated financial information. The Company determined that
it was impracticable to obtain all prior period applicable information for
operating segments in accordance with the new internal reporting structure.
However, in order to provide meaningful and reliable information available for
years ended May 31, 1999 and 1998, the Company was able to disclose a measure of
results of operations utilizing a gross profit (loss) measure and was able to
provide total assets at May 31, 1999 based on its current land and marine
segments. Commencing with the year ended May 31, 2000, the Company reported
operating segment information by the Land and Marine segments, and measures the
operating results of these segments based on a measure of income from
operations. A summary of segment information is as follows (in thousands):
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, ------------------------------
2000 2000 1999 1998
------------ -------- -------- --------
Net sales:
Land................................... $ 60,590 $ 73,201 $ 96,276 $316,060
Marine................................. 17,727 48,253 101,139 69,801
-------- -------- -------- --------
78,317 $121,454 $197,415 $385,861
======== ======== ======== ========
F-17
54
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, ------------------------------
2000 2000 1999 1998
------------ -------- -------- --------
Gross profit (loss):
Land................................... $ 15,930 $ 6,397 $ (4,308) $133,065
Marine................................. 3,833 8,415 (3,492) 26,282
-------- -------- -------- --------
$ 19,763 $ 14,812 $ (7,800) $159,347
======== ======== ======== ========
Earnings (loss) from operations
Land................................... $ 1,056 $(28,254)
Marine................................. (4,877) (34,466)
Corporate.............................. (9,285) (22,750)
-------- --------
$(13,106) $(85,470)
======== ========
Depreciation and amortization
Land................................... $ 4,210 $ 10,106
Marine................................. 2,504 7,117
Corporate.............................. 4,774 5,612
-------- --------
$ 11,488 $ 22,835
======== ========
DECEMBER 31, MAY 31, MAY 31,
2000 2000 1999
------------ -------- --------
Total assets:
Land................................... $116,554 $106,431 $141,510
Marine................................. 69,897 77,411 116,203
Corporate.............................. 179,182 197,927 194,035
-------- -------- --------
$365,633 $381,769 $451,748
======== ======== ========
Intersegment sales are insignificant for all periods presented. Corporate
assets include all assets specifically related to corporate personnel and
operations, substantially all cash and cash equivalents, all facilities and
manufacturing machinery and equipment that are jointly utilized by segments and
all income taxes receivable and deferred income tax assets. Depreciation and
amortization expense is allocated to segments based upon use of the underlying
assets.
F-18
55
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of net sales from foreign customers by geographic area follows
(in thousands):
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, ----------------------------
2000 2000 1999 1998
------------ ------- ------- --------
Middle East................................ $15,835 $22,156 $ 1,835 $ 9,877
Europe..................................... 11,193 16,169 40,196 47,931
Former Soviet Union........................ 6,892 16,388 10,192 32,100
Asia....................................... 6,047 19,754 6,980 7,636
Other...................................... 8,376 10,041 21,129 37,876
------- ------- ------- --------
$48,343 $84,508 $80,332 $135,420
======= ======= ======= ========
Net sales are attributed to individual countries on the basis of the
ultimate destination of the equipment, if known; if the ultimate destination is
not known, it is based on the geographical location of initial shipment. Net
sales from individual customers representing 10% or more of net sales were as
follows:
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, ---------------------
CUSTOMER 2000 2000 1999 1998
- -------- ------------ ----- ----- -----
A..................................................... 23% 12% 6% 0%
B..................................................... 20% 12% 5% 7%
C..................................................... 17% 17% 33% 28%
D..................................................... 2% 11% 2% 1%
E..................................................... 0% 0% 11% 4%
(11) INCOME TAXES
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, ----------------------------
2000 2000 1999 1998
------------ ------- -------- -------
Components of income taxes follows (in thousands):
Federal............................................ $ -- $ -- $ (9,279) $20,963
Foreign............................................ 877 1,583 1,769 4,678
State and local.................................... 455 865 1,524 934
Deferred-Federal................................... -- (8,545) (43,691) 201
------ ------- -------- -------
Total income tax (benefit) expense................. $1,332 $(6,097) $(49,677) $26,776
====== ======= ======== =======
F-19
56
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the expected income tax (benefit) expense on earnings
(loss) before income taxes using the statutory Federal income tax rate of 35%
for the seven months ended December 31, 2000 and years ended May 31, 2000, 1999
and 1998, to the income taxes reported herein is as follows (in thousands):
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, -----------------------------
2000 2000 1999 1998
------------ -------- -------- -------
Expected income tax (benefit) expense..... $(3,141) $(28,022) $(54,334) $29,286
Tax benefit from use of foreign sales
corporation............................. -- -- -- (2,722)
Foreign taxes, net........................ 467 685 989 (336)
State and local taxes..................... 296 556 991 607
Deferred tax asset valuation allowance.... 3,134 19,632 2,421 --
Nondeductible amortization................ 610 919 1,254 446
Other..................................... (34) 133 (998) (505)
------- -------- -------- -------
Total income tax (benefit)
expense....................... $ 1,332 $ (6,097) $(49,677) $26,776
======= ======== ======== =======
The tax effects of the cumulative temporary differences resulting in the
net deferred income tax assets (liability) is as follows (in thousands):
MAY 31,
DECEMBER 31, -----------------
2000 2000 1999
------------ ------- -------
Current deferred:
Deferred income tax assets:
Accrued expenses................................ $ 2,056 $ 2,115 $ 4,245
Allowance accounts.............................. 9,497 10,798 22,625
Inventory....................................... 528 546 698
------- ------- -------
Total current deferred income tax asset.... $12,081 $13,459 $27,568
======= ======= =======
Noncurrent deferred:
Deferred income tax assets:
Basis in identified intangibles................. 12,565 11,941 670
Net operating loss carryforward................. 51,226 47,862 17,828
Foreign tax credit carryforward................. 4,222 3,812 2,602
Alternative minimum tax credit.................. 1,336 1,336 1,335
Other........................................... 1,274 1,274 1,813
------- ------- -------
Total deferred income tax asset............ 70,623 66,225 24,248
Valuation allowance........................ (25,187) (22,053) (2,421)
------- ------- -------
Net noncurrent deferred income tax asset... 45,436 44,172 21,827
------- ------- -------
Deferred income tax liabilities:
Basis in property, plant and equipment.......... (2,665) (2,779) (3,088)
------- ------- -------
Total deferred income tax liability........ (2,665) (2,779) (3,088)
------- ------- -------
Net noncurrent deferred income tax asset... $42,771 $41,393 $18,739
======= ======= =======
In assessing the realizability of deferred income tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred income tax assets will be realized. The ultimate realization of
deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those deferred income tax assets become
deductible. The Company considers the scheduled
F-20
57
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reversal of deferred income tax liabilities and projected future taxable income
in making this assessment. In order to fully realize the deferred income tax
assets, the Company will need to generate future taxable income of approximately
$158.0 million over the next 20 years. Although the Company experienced
significant losses in fiscal years 2000 and 1999, taxable income for the years
1996 through 1998 aggregated approximately $128.0 million. Regardless, the
ultimate realization of the net deferred tax assets, prior to the expiration of
the net operating loss carry-forward in the next 19-20 years, will require a
return to levels of profitability that existed prior to fiscal year 1999. A tax
valuation allowance was established due to the uncertainty of realizing certain
foreign tax credits and net operating loss carry-forwards. The valuation
allowance increased $19.6 million during the year ended May 31, 2000 to $22.1
million; and increased $3.1 million during the seven months ended December 31,
2000 to $25.2 million. At December 31, 2000, the Company had net operating loss
carry-forwards of approximately $146.4 million for federal income tax purposes,
which ultimately expire in 2020 through 2021 if not otherwise utilized. In
addition, the Company has foreign tax credit carry-forwards of $4.2 million,
which expire in 2003 and 2004.
(12) LEASES
Leasee. The Company leases certain equipment, offices and warehouse space
under non-cancelable operating leases. Rental expense was $1.1 million, $2.2
million, $1.3 million and $1.6 million for the seven months ended December 31,
2000 and years ended May 31, 2000, 1999 and 1998, respectively. A summary of
future rental commitments under non-cancelable operating lease is as follows (in
thousands):
YEARS ENDED DECEMBER 31,
------------------------
2001........................................................ $2.0 million
2002........................................................ 1.5 million
2003........................................................ 1.3 million
2004........................................................ .9 million
2005........................................................ .3 million
Thereafter.................................................. .1 million
------------
$6.1 million
============
Lessor. The Company leases seismic equipment to customers under short-term
operating leases of less than one year. The Company also leases under-utilized
facilities under various lease and sub-lease agreements. A summary of lease
revenues is as follows (in thousands):
SEVEN MONTHS
ENDED YEARS ENDED MAY 31,
DECEMBER 31, -----------------------
2000 2000 1999 1998
------------ ------ ---- -------
Equipment rental............................... $2,195 $3,184 $673 $10,112
Facility rental................................ 529 205 187 258
------ ------ ---- -------
Total rentals........................ $2,724 $3,389 $860 $10,370
====== ====== ==== =======
(13) BENEFIT PLANS
401(k). The Company has a 401(k) retirement savings plan which covers
substantially all employees. Employees may voluntarily contribute up to 15% of
their compensation, as defined, to the plan. The Company, effective June 1,
2000, adopted a company matching contribution to the 401(k) plan. The Company
matches the employee contribution at a rate of 50% of the first 6% of
compensation contributed to the plan. The Company contributions to the plan were
$0.4 million, $0, $1.7 million and $1.4 million during the seven months ended
December 31, 2000 and years ended May 31, 2000, 1999, and 1998, respectively.
F-21
58
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental executive retirement plan. The Company has a non-qualified,
supplemental executive retirement ("SERP") plan. The SERP Plan provides for
certain compensation to become payable on the participants' death, retirement or
total disability as set forth in the plan. Assets of this plan consist of the
cash surrender value of life insurance policies. The consolidated financial
statements include pension expense (benefit) of $0, $(0.5) million, $0.1
million, and $(0.7) million for the seven months ended December 31, 2000 and
years ended May 31, 2000, 1999, and 1998, respectively.
Directors Plan. The Company has also adopted a non-qualified, unfunded
outside directors retirement plan. The plan provides for certain compensation to
become payable on the participants' death, retirement or total disability as set
forth in the plan. The consolidated financial statements include pension expense
of $0.1, $0.1 million, $0.1 million, and $0 for the seven months ended December
31, 2000 and years ended May 31, 2000, 1999, and 1998, respectively.
(14) SELECTED QUARTERLY INFORMATION -- (UNAUDITED)
A summary of selected quarterly information is as follows (in thousands,
except per share amounts):
THREE MONTHS THREE MONTHS
ENDED ENDED
TRANSITION PERIOD 2000 AUGUST 31 NOVEMBER 30
- ---------------------- ------------ ------------
Net sales................................................... $27,141 $40,880
Gross profit................................................ 6,361 12,105
Loss from operations........................................ (6,802) (2,781)
Interest expense............................................ (261) (259)
Interest and other income................................... 1,471 2,240
Income tax expense.......................................... 667 1,507
Net loss.................................................... $(7,474) $(3,682)
======= =======
Basic loss per share........................................ $ (0.15) $ (0.07)
======= =======
Diluted loss per share...................................... $ (0.15) $ (0.07)
======= =======
THREE MONTHS ENDED
----------------------------------------
YEAR ENDED MAY 31, 2000 AUG. 31* NOV. 30 FEB. 29* MAY 31*
- ----------------------- -------- ------- -------- --------
Net sales..................................... $29,979 $24,438 $33,424 $ 33,613
Gross profit.................................. 5,985 5,273 (389) 3,943
Loss from operations.......................... (12,938) (9,792) (9,814) (52,926)
Interest expense.............................. (212) (202) (197) (215)
Interest and other income..................... 1,034 1,220 1,761 2,221
Income tax expense (benefit).................. (3,877) (2,389) 168 1
Net loss...................................... $(9,320) $(7,528) $(9,574) $(52,098)
======= ======= ======= ========
Basic loss per share.......................... $ (0.18) $ (0.15) $ (0.19) $ (1.03)
======= ======= ======= ========
Diluted loss per share........................ $ (0.18) $ (0.15) $ (0.19) $ (1.03)
======= ======= ======= ========
F-22
59
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS ENDED
---------------------------------------
YEAR ENDED MAY 31, 1999 AUG. 31 NOV. 30 FEB. 28* MAY 31*
- ----------------------- ------- ------- -------- --------
Net sales.................................... $66,995 $73,918 $ 37,755 $ 18,747
Gross profit (loss).......................... 21,963 27,982 (45,894) (11,851)
Earnings (loss) from operations.............. 745 3,642 (95,368) (70,973)
Interest expense............................. (242) (217) (229) (209)
Interest and other income.................... 2,843 2,122 1,824 822
Income tax expense (benefit)................. 1,071 1,775 (32,553) (19,970)
Net earnings (loss).......................... $ 2,275 $ 3,772 $(61,220) $(50,390)
======= ======= ======== ========
Basic earnings (loss) per share.............. $ 0.05 $ 0.08 $ (1.21) $ (1.00)
======= ======= ======== ========
Diluted earnings (loss) per share............ $ 0.05 $ 0.08 $ (1.21) $ (1.00)
======= ======= ======== ========
- ---------------
* See Note 15 concerning charges occurring during the first, third, and fourth
quarters of the year ended May 31, 2000; and charges occurring during the
third and fourth quarter of the year ended May 31, 1999.
(15) SIGNIFICANT CHARGES AND RECOVERIES
Significant pre-tax charges of $85.7 million were recorded in the third
quarter of year ended May 31, 1999 and included an impairment of long-lived
assets totaling $2.8 million (included in general and administrative expenses);
an impairment of intangible assets totaling $1.4 million; an inventory
write-down of $47.3 million due to adverse industry conditions and planned
product revisions (included in cost of sales); charges for the early termination
of a facility lease and restructuring costs totaling $2.6 million (included in
general and administrative expenses); an accounts and notes receivable allowance
of $17.6 million related to a customer's vessel seizure followed by filing for
creditor protection and management's assessment of business risk relating to
three North American customer trade notes receivable as a result of the
depressed market environment (included in general and administrative expenses);
and a charge for warranty reserves and other product related contingencies of
$14.0 million (included in cost of sales).
Significant pre-tax charges of $53.3 million were recorded in the fourth
quarter of the year ended May 31, 1999, and included an accounts and trade notes
receivable allowance of $22.3 million, primarily related to business risk
resulting from the depressed market environment, and from political and currency
risks in certain developing countries (included in general and administrative
expenses); an inventory write-down of $9.7 million primarily due to further
reduction in customer demand for products rendered excess or obsolete as a
result of prevailing industry conditions and as a result of planned product
revisions (included in cost of sales); a charge of $6.0 million relating to
certain warranty reserves and other product-related contingencies (included in
cost of sales); an impairment of long-lived assets totaling $4.0 million related
to the downturn in business activity and resizing efforts (included in general
and administrative expenses); an impairment of intangibles totaling $6.3 million
related to the deterioration of certain product lines (included in amortization
and impairment of intangibles); a charge of $3.3 million related to employee
severances and a charge of $0.6 million for other expenses (included in general
and administrative expenses) and a charge of $1.1 million primarily related to
prototype development costs (included in research and development expenses).
Significant pre-tax charges of $4.7 million were recorded in the first
quarter of the year ended May 31, 2000 and included $3.3 million related to
employee severance arrangements and the closing of a facility (included in
general and administrative expenses) and charges of $1.4 million for
product-related warranties (included in cost of sales). These charges resulted
from continued weak customer demand for seismic equipment.
Significant pre-tax charges and recoveries of $0.3 million, net, were
recorded in the third quarter of the year ended May 31, 2000 and included $8.7
million of inventory charges (included in cost of sales) related to a
F-23
60
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
decision to commercialize VectorSeis(TM) digital sensor products having higher
technical standards than the products previously produced. The Company had
previously determined to commercialize these earlier VectorSeis(TM) products
which subsequently were proven not to be commercially feasible based on data
gathered from trial surveys, the anticipated longer-term market recovery for new
seismic instrumentation and given current and expected market conditions. Other
charges were $2.4 million of bad debt expense (included in general and
administrative expense); $1.3 million of charges related to the employee
reduction in workforce worldwide (included in general and administrative
expense); and $0.7 million of charges related to legal settlements (included in
cost of sales -- $0.3 million, and in general and administrative expense -- $0.4
million). These charges were offset in part by $12.8 million of recoveries
attributable to a more favorable than anticipated resolution of a customer's
bankruptcy settlement, consisting of a $10.2 million reduction in allowance for
loan loss (recorded as a reduction to general and administrative expense) and a
$2.6 million reversal of warranty reserves based on the bankruptcy settlement
(recorded as a reduction to cost of sales).
Significant pre-tax charges of $45.8 million were recorded in the fourth
quarter of the year ended May 31, 2000 and included $4.2 million of inventory
and warranty charges (included in cost of sales) primarily related to write-down
of certain marine streamer and related products, reflecting the deterioration of
the marine towed array seismic sector. Additionally, $10.0 million was charged
to general and administrative expenses consisting of a $5.0 million charge for
settlement of litigation, a $3.6 million loan loss expense, $0.7 million related
to the sale of certain idle manufacturing capacity in Europe, and $0.7 million
of charges related to employee severance and continued cost reduction efforts
worldwide. Finally, $31.6 million was charged to amortization and impairment of
intangibles, reflecting the impairment of certain goodwill recorded in
conjunction with the acquisition of manufacturing assets of Western Geophysical
in 1995 and the acquisition of CompuSeis, Inc. in 1998. The impairment of the
Western Geophysical goodwill principally reflects the diminished outlook for the
marine towed array seismic sector in general, evidenced by customers' decisions
to reduce the size of their marine fleets, and changes in customers' preferences
and technology for certain products within that sector. The impairment of the
CompuSeis goodwill reflects the result of certain technological changes relating
to land seismic systems.
F-24
61
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No significant pre-tax charges were recorded during the seven months ended
December 31, 2000. The table below summarizes the significant pre-tax charges
during the periods presented (in thousands):
LONG-LIVED PERSONNEL/
INVENTORY RECEIVABLE ASSET WARRANTY FACILITY
RELATED RELATED RELATED PRODUCT AND OTHER
CHARGES CHARGES CHARGES RELATED CHARGES TOTAL
--------- ---------- ---------- -------- ---------- --------
Charges for year ended May 31, 1999
by business segment:
Marine........................... $ 30,986 $ 18,298 $ 729 $ 17,025 $ 775 $ 67,813
Land............................. 25,978 21,034 12,539 2,975 2,787 65,313
Corporate........................ 1,136 568 1,232 -- 2,938 5,874
-------- -------- -------- -------- -------- --------
$ 58,100 $ 39,900 $ 14,500 $ 20,000 $ 6,500 $139,000
======== ======== ======== ======== ======== ========
Charges for year ended May 31, 1999
by category:
Cost of sales.................... $ 57,000 $ -- $ -- $ 20,000 $ -- $ 77,000
General and administrative....... -- 39,900 6,800 -- 6,500 53,200
Research and development......... 1,100 -- -- -- -- 1,100
Amortization and impairment of
intangibles................... -- -- 7,700 -- -- 7,700
-------- -------- -------- -------- -------- --------
$ 58,100 $ 39,900 $ 14,500 $ 20,000 $ 6,500 $139,000
======== ======== ======== ========
Settled during year ended May 31,
1999............................. (8,020) (4,597)
-------- --------
$ 11,980 $ 1,903
======== ========
Charges for year ended May 31, 2000
by business segment:
Marine........................... $ 3,607 $ 2,400 $ 25,200 $ 1,993 $ 1,700 $ 34,900
Land............................. 8,700 3,600 7,100 -- 1,400 20,800
Corporate........................ -- -- -- -- 7,900 7,900
-------- -------- -------- -------- -------- --------
$ 12,307 $ 6,000 $ 32,300 $ 1,993 $ 11,000 $ 63,600
======== ======== ======== ======== ======== ========
Adjustments to prior year during
year ended May 31, 2000.......... $ -- $(10,200) $ -- $ (2,600) $ -- $(12,800)
Charges for year ended May 31, 2000
by category:
Cost of sales.................... 12,307 -- -- 1,993 300 14,600
General and administrative....... -- 6,000 700 -- 10,700 17,400
Amortization and impairment of
intangibles................... -- -- 31,600 -- -- 31,600
-------- -------- -------- -------- -------- --------
$ 12,307 $ (4,200) $ 32,300 $ (607) 11,000 $ 50,800
======== ======== ======== ========
Balance at May 31, 1999............ 11,980 1,903
Settled during year ended May 31,
2000............................. (8,079) (5,362)
-------- --------
Balance at May 31, 2000............ 3,294 7,541
Settled during seven months ended
December 31, 2000................ (992) (6,544)
-------- --------
Balance at December 31, 2000....... $ 2,302 $ 997
======== ========
F-25
62
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) LEGAL MATTERS
In the ordinary course of business, the Company has been named in various
lawsuits. While the final resolution of these matters could have an impact on
the consolidated financial results for a particular reporting period, the
Company believes that the ultimate resolution of these matters will not have a
material adverse impact on the financial position, results of operations or
liquidity of the Company.
(17) RELATED PARTIES
In connection with the acquisition of DigiCourse in November 1998 (Note 9),
the Company entered into a service agreement under which Laitram agreed to
provide accounting, software, manufacturing and maintenance services. The
Company's chairman of the board, is the chairman and principal stockholder of
Laitram. The Company paid Laitram an aggregate $0.8 million, $1.5 million and
$2.7 million under the services agreement for the seven months ended December
31, 2000 and years ended May 31, 2000 and 1999, respectively. The services
agreement expires on September 30, 2001.
A former director and former company officer assisted in the collection
efforts of certain accounts and notes receivable. In return, he was paid a
commission on actual amounts collected. Commissions earned amounted to $0.1
million, $0.5 million and $0 for the seven months ended December 31, 2000 and
years ended May 31, 2000 and 1999, respectively.
The Company has guaranteed $0.3 million of bank indebtedness for two
officers related to their open market purchases of the Company's common stock.
The share purchases were made in conjunction with shares issued in May 2000
under the Input/Output, Inc. 2000 Restricted Plan. The outstanding loan balance
at December 31, 2000 was $0.2 million.
F-26
63
SCHEDULE II
INPUT/OUTPUT, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
YEAR ENDED MAY 31, 1998 OF YEAR EXPENSES DEDUCTIONS END OF YEAR
- ----------------------- ---------- ---------- ---------- -----------
Allowance for doubtful accounts................... $1,740 $1,770 $ 373 $3,137
Reserves for excess and obsolete inventory........ 1,749 4,264 1,064 4,949
Warranty.......................................... 3,856 5,162 4,773 4,245
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
YEAR ENDED MAY 31, 1999 OF YEAR EXPENSES DEDUCTIONS END OF YEAR
- ----------------------- ---------- ---------- ---------- -----------
Allowance for doubtful accounts................... $3,137 $17,780 $ 1 $20,916
Reserves for excess and obsolete inventory........ 4,949 58,848 47,550 16,247
Warranty.......................................... 4,245 19,280 9,650 13,875
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
YEAR ENDED MAY 31, 2000 OF YEAR EXPENSES DEDUCTIONS OTHER END OF YEAR
- ----------------------- ---------- ---------- ---------- -------- -----------
Allowance for doubtful accounts....... $20,916 $(1,107)(1) $ 6,003 $(12,240)(3) $ 1,566
Reserves for excess and obsolete
inventory........................... 16,247 16,360 17,616 -- 14,991
Warranty.............................. 13,875 (1,731)(2) 5,674 -- 6,470
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DECEMBER 31,
SEVEN MONTHS ENDED DECEMBER 31, 2000 OF PERIOD EXPENSES DEDUCTIONS OTHER 2000
- ------------------------------------ ---------- ---------- ---------- -------- ------------
Allowance for doubtful accounts..... $ 1,566 $ 54 $ 49 -- $ 1,571
Reserves for excess and obsolete
inventory......................... 14,991 1,599 2,549 -- 14,041
Warranty............................ 6,470 2,267 2,435 -- 6,302
- ---------------
(1) Includes recoveries of $2.1 million.
(2) Includes reversal of $2.6 million based on bankruptcy settlement of a
customer.
(3) Represents transfer to loan loss allowance as a result of conversion of
trade receivable to a note receivable.
F-27
64
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*3.1 -- Amended and Restated Certificate of Incorporation.
3.2 -- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation, dated October 11, 1996,
filed as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997, and
incorporated herein by reference.
*3.3 -- Amended and Restated Bylaws.
3.4 -- Amendment No. 1 to the Amended and Restated Bylaws of the
Company, dated September 13, 1999, filed as exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1999, and incorporated
herein by reference.
3.5 -- Amendment No. 2 to the Amendment and Restated Bylaws of
the Company, dated September 25, 2000, filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal Quarter ended August 31, 2000 and incorporated
herein by reference.
4.1 -- Form of Certificate of Designation, Preferences and
Rights of Series A Preferred Stock of Input/Output, Inc.,
filed as Exhibit 2 to the Company's Registration
Statement on Form 8-A dated January 27, 1997, (attached
as Exhibit 1 to the Rights Agreement referenced in
Exhibit 10.24) and incorporated herein by reference.
4.2 -- Form of Certificate of Designation, Preferences and
Rights of Series B Preferred Stock of Input/Output, Inc.,
filed as Exhibit 4.1 to the Company's Form 8-K dated
April 21, 1999, and incorporated herein by reference.
4.3 -- Form of Certificate of Designation, Preferences and
Rights of Series C Preferred Stock of Input/Output, Inc.,
filed as Exhibit 4.2 to the Company's Form 8-K dated
April 21, 1999, and incorporated herein by reference.
10.1 -- Royalty Agreement, dated November 6, 1992, between I/O
Sensors, Inc., Triton and Triton Technologies, Inc.,
filed as exhibit 10.2 to the Company's 10-K for fiscal
year ended May 31, 1999, and incorporated herein by
reference.
**10.2 -- Amended and Restated 1990 Stock Option Plan, filed as
Exhibit 4.2 to the Company's Registration Statement on
Form S-8 (Registration No. 333-80299), filed with the
Securities and Exchange Commission on June 9, 1999, and
incorporated herein by reference.
**10.3 -- Input/Output, Inc. 1996 Management Incentive Program,
filed as Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997, and
incorporated herein by reference.
**10.4 -- Amended Directors Retirement Plan, filed as Exhibit 10.7
to the Company's Annual Report on form 10-K for the
fiscal year ended May 31, 1997, and incorporated herein
by reference.
**10.5 -- Supplemental Executive Retirement Plan, filed as Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997, and incorporated herein
by reference.
**10.6 -- Amendment No. 1 to the Company's Supplemental Executive
Retirement Plan, effective January 17, 1997, filed as
Exhibit 10.11 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1997, and incorporated
herein by reference.
65
EXHIBIT
NUMBER DESCRIPTION
------- -----------
**10.7 -- Supplemental Executive Retirement Trust, filed as Exhibit
10.12 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997, and incorporated herein
by reference.
**10.8 -- Amendment No. 1 to the Company's Supplemental Executive
Retirement Trust, effective January 17, 1998, filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1997, and incorporated
herein by reference.
10.9 -- Promissory Note dated August 29, 1996, executed by IPOP
Management, Inc. to the order of The Variable Annuity
Life Insurance Company, filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1996, and incorporated herein by
reference.
10.10 -- Master Commercial Lease Agreement dated August 29, 1996,
by and between IPOP Management, Inc. and The Variable
Annuity Life Insurance Company, filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1996, and incorporated
herein by reference.
10.11 -- Limited Guaranty dated August 29, 1996, executed by
Input/Output, Inc., filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1996, and incorporated herein by
reference.
**10.12 -- Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan, filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8
(Registration No. 333-80299), filed with the Securities
and Exchange Commission on June 9, 1999, and incorporated
herein by reference.
10.13 -- Rights Agreement, dated as of January 17, 1997, by and
between Input/ Output, Inc. and Harris Trust and Savings
Bank, as Rights Agent, including exhibits thereto, filed
as Exhibit 4 to the Company's Form 8-A dated January 27,
1997, and incorporated herein by reference.
10.14 -- Input/Output, Inc. Employee Stock Purchase Plan, filed as
Exhibit 4.4 to the Company's Registration Statement on
Form S-8 (Registration No. 333-24125) filed with the
Securities and Exchange Commission on March 18, 1997, and
incorporated herein by reference.
10.15 -- Purchase Agreement by and between the Company and SCF-IV,
L.P. dated April 21, 1999, filed as Exhibit 10.1 to the
Company's Form 8-K dated April 21, 1999, and incorporated
herein by reference.
10.16 -- Registration Rights Agreement by and between the Company
and SCF-IV, L.P. dated May 7, 1999, filed as Exhibit 10.2
to the Company's Form 8-K dated April 21, 1999, and
incorporated herein by reference.
10.17 -- First Amendment to Rights Agreement by and between the
Company and Harris Trust and Savings Bank as Rights
Agent, dated April 21, 1999, filed as Exhibit 10.3 to the
Company's Form 8-K dated April 21, 1999, and incorporated
herein by reference.
10.18 -- Registration Rights Agreement by and among the Company
and The Laitram Corporation, dated November 16, 1998,
filed as Exhibit 99.2 to the Company's Form 8-K dated
November 16, 1998, and incorporated herein by reference.
**10.19 -- Input/Output, Inc. 1998 Restricted Stock Plan, filed as
Exhibit 4.7 to the Company's Registration Statement on
Form S-8 (Registration No. 333-80297), filed with the
Securities and Exchange Commission on June 9, 1999, and
incorporated herein by reference.
66
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.20 -- Employee Agreement by and between the Company and Axel M.
Sigmar, dated August 17, 1999, filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1999, and incorporated
herein by reference.
10.21 -- Amendment No. 3 to the Input/Output, Inc. Supplemental
Executive Retirement Plan, dated August 23, 1999, filed
as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended August 31, 1999, and
incorporated herein by reference.
10.22 -- Amendment No. 1 to the Input/Output, Inc. Amended and
Restated 1996 Non-Employee Director Stock Option Plan,
dated September 13, 1999, filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1999, and incorporated herein by
reference.
10.23 -- Consulting and Collection Agreement by and between the
Company and Robert P. Brindley, dated October 7, 1999,
filed as Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 31,
1999, and incorporated herein by reference.
10.24 -- Consulting Agreement by and between the Company and Sam
K. Smith, dated August 10, 1999, filed as Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1999, and incorporated
herein by reference.
**10.25 -- Input/Output, Inc. Annual Incentive Plan, dated effective
November 3, 1999 filed as Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 2000, and incorporated herein by reference.
**10.26 -- Employment Agreement by and between the Company and
Timothy J. Probert dated effective as of March 1, 2000
filed as Exhibit 10.44 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 2000, and
incorporated herein by reference.
**10.27 -- Input/Output, Inc. 2000 Restricted Stock Plan, effective
as of March 13, 2000 filed as Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 2000, and incorporated herein by reference.
**10.28 -- Input/Output, Inc. 2000 Long-Term Stock Plan, filed as
Exhibit 4.7 to the Company's Registration Statement on
Form S-8 (No. 333-49382) dated November 6, 2000 and
incorporated by reference herein.
*21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of KPMG LLP.
*24.1 -- The Power of Attorney is set forth on the signature page
hereof.
99.1 -- Information required by Form 11-K with respect to the
Input/Output, Inc. Employee Stock Purchase Plan will be
filed as an amendment to this Annual Report on Form 10-K
within 120 days of the end of the fiscal year of the plan
(i.e. June 30) as permitted by Rule 15d-21 under the
Securities Exchange Act of 1934, as amended.
- ---------------
* Filed herewith.
** Management contract or compensatory plan or arrangement.