-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BTIoLpWcOwkW/lN4PpMCvf1vKH1Fm3K8D6wfFbLmxpB5GwmTwDVSX+bHEdMzm2ZL Kbaujgf9S37ez8CRGfqdRQ== 0001193125-03-004714.txt : 20030513 0001193125-03-004714.hdr.sgml : 20030513 20030513160314 ACCESSION NUMBER: 0001193125-03-004714 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OYO GEOSPACE CORP CENTRAL INDEX KEY: 0001001115 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 760447780 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-36727 FILM NUMBER: 03695665 BUSINESS ADDRESS: STREET 1: 7334 N GESSNER RD CITY: HOUSTON STATE: TX ZIP: 77040 BUSINESS PHONE: 7139399700 MAIL ADDRESS: STREET 1: 9777 W GULF BANK ROAD SUITE 5 CITY: HOUSTON STATE: TX ZIP: 77040 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2003 OR [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 001-13601 OYO GEOSPACE CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 76-0447780 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 12750 South Kirkwood, Suite 200 Stafford, Texas 77477 (Address of Principal Executive Offices) (281) 494-8282 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes___ No X --- There were 5,552,299 shares of the Registrant's Common Stock outstanding as of the close of business on May 9, 2003. Table of Contents
PART I. FINANCIAL INFORMATION Page - ----------------------------- Number ------ Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risks 25 Item 4. Controls and Procedures 26 PART II. OTHER INFORMATION - -------------------------- Item 4. Submission of Matters to a Vote of Security Holders 27 Item 6. Exhibits and Reports on Form 8-K 27
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements OYO GEOSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
ASSETS March 31, 2003 September 30, 2002 -------------- ------------------ (unaudited) Current assets: Cash and cash equivalents ...................................... $ 201 $ 1,538 Trade accounts and notes receivable, net ....................... 13,278 12,585 Inventories .................................................... 24,513 21,801 Deferred income tax ............................................ 1,278 1,135 Prepaid expenses and other ..................................... 2,066 1,261 ---------- --------- Total current assets ...................................... 41,336 38,320 Rental equipment, net .............................................. 2,298 2,044 Property, plant and equipment, net ................................. 20,095 20,243 Goodwill, net ...................................................... 1,843 1,843 Other intangible assets, net ....................................... 4,209 4,556 Deferred income tax ................................................ 642 931 Other assets ....................................................... 179 189 ---------- --------- Total assets .............................................. $ 70,602 $ 68,126 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term debt ......... $ 5,868 $ 714 Accounts payable ............................................... 2,920 4,047 Accrued expenses and other ..................................... 4,295 4,162 Deferred revenue ............................................... 586 146 Income tax payable ............................................. 218 1,121 ---------- --------- Total current liabilities ................................. 13,887 10,190 Long-term debt ..................................................... 3,424 3,544 ---------- --------- Total liabilities ......................................... 17,311 13,734 ---------- --------- Minority interest in consolidated subsidiary ....................... 297 263 Stockholders' equity: Preferred stock ................................................ - - Common stock ................................................... 56 55 Additional paid-in capital ..................................... 30,601 30,566 Retained earnings .............................................. 23,052 24,332 Accumulated other comprehensive loss ........................... (710) (819) Unearned compensation-restricted stock awards .................. (5) (5) ---------- --------- Total stockholders' equity ................................ 52,994 54,129 ---------- --------- Total liabilities and stockholders' equity ................ $ 70,602 $ 68,126 ========== =========
The accompanying notes are an integral part of the consolidated financial statements. 3 OYO GEOSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited)
Three Months Ended Six Months Ended ---------------------------------- ---------------------------------- March 31, 2003 March 31, 2002 March 31, 2003 March 31, 2002 -------------- -------------- -------------- -------------- Sales ............................................... $ 16,517 $ 13,833 $ 26,578 $ 26,733 Cost of sales ....................................... 11,921 8,978 19,673 17,843 ----------- ----------- ----------- ----------- Gross profit ........................................ 4,596 4,855 6,905 8,890 Operating expenses: Selling, general and administrative ............... 3,123 3,163 5,959 6,039 Research and development .......................... 1,324 1,437 2,703 2,517 ----------- ----------- ----------- ----------- Total operating expenses ..................... 4,447 4,600 8,662 8,556 ----------- ----------- ----------- ----------- Income (loss) operations ............................ 149 255 (1,757) 334 Other income (expense): Interest expense .................................. (147) (163) (238) (314) Interest income ................................... 74 47 115 97 Other, net ........................................ 1 (281) 47 (276) ----------- ----------- ----------- ----------- Total other expense, net ..................... (72) (397) (76) (493) ----------- ----------- ----------- ----------- Income (loss) before income taxes, minority interest and extraordinary gain .......... 77 (142) (1,833) (159) Income tax expense (benefit) ........................ 24 (115) (587) (122) ----------- ----------- ----------- ----------- Income (loss) before minority interest and extraordinary gain ............................ 53 (27) (1,246) (37) Minority interest ................................... (15) (53) (34) (82) ----------- ----------- ----------- ----------- Income (loss) before extraordinary gain ............. 38 (80) (1,280) (119) Extraordinary gain, net of tax of $85 ............... -- -- -- 686 ----------- ----------- ----------- ----------- Net income (loss) ................................... $ 38 $ (80) $ (1,280) $ 567 =========== =========== =========== =========== Basic earnings per share: Income (loss) before extraordinary item ........... $ 0.01 $ (0.01) $ (0.23) $ (0.02) Extraordinary gain ................................ -- -- -- .012 ----------- ----------- ----------- ----------- Net income (loss) ................................ $ 0.01 $ (0.01) $ (0.23) $ 0.10 =========== =========== =========== =========== Diluted earnings per share: Income (loss) before extraordinary item .......... $ 0.01 $ (0.01) $ (0.23) $ (0.02) Extraordinary gain ............................... -- -- -- 0.12 ----------- ----------- ----------- ----------- Net income (loss) ................................ $ 0.01 $ (0.01) $ (0.23) $ 0.10 =========== =========== =========== =========== Weighted average shares outstanding - Basic ......... 5,548,411 5,537,409 5,547,482 5,526,406 =========== =========== =========== =========== Weighted average shares outstanding - Diluted ....... 5,551,634 5,537,409 5,547,482 5,539,824 =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 OYO GEOSPACE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Six Months Ended Ended March 31, 2003 March 31, 2002 -------------- -------------- Cash flows from operating activities: Net income (loss) ............................................... $ (1,280) $ 567 Adjustments to reconcile net income (loss) to net cash used in operating activities: Deferred income tax expense (benefit) ........................ 146 (308) Depreciation and amortization ................................ 2,051 2,231 Amortization of restricted stock awards ...................... -- 128 Extraordinary gain ........................................... -- (686) Minority interest ............................................ 34 82 (Gain) loss on disposal of property, plant and equipment ..... (31) 173 Bad debt expense ............................................. 210 429 Effects of changes in operating assets and liabilities: Trade accounts and notes receivable ........................ (904) 432 Inventories ................................................ (2,712) (2,581) Prepaid expenses and other assets .......................... (804) (357) Accounts payable ........................................... (1,128) (1,786) Accrued expenses and other ................................. 829 (1,948) Income tax payable ......................................... (903) (234) ----------- --------- Net cash used in operating activities .................... (4,492) (3,858) ----------- --------- Cash flows from investing activities: Capital expenditures ............................................ (1,999) (1,577) Investment in business acquisition, net of cash acquired ........ -- 913 Proceeds from sale of equipment ................................. -- 305 ----------- --------- Net cash used in investing activities .................... (1,999) (359) ----------- --------- Cash flows from financing activities: Borrowings under notes payable .................................. 20,901 15,601 Principal payments on notes payable ............................. (15,865) (11,065) Proceeds from exercise of stock options ......................... 9 76 ----------- --------- Net cash provided by financing activities ................ 5,045 4,612 ----------- --------- Effect of exchange rate changes on cash ............................. 109 (121) ----------- --------- Increase in cash and cash equivalents ............................... (1,337) 274 Cash and cash equivalents, beginning of period ...................... 1,538 882 ----------- --------- Cash and cash equivalents, end of period ............................ $ 201 $ 1,156 =========== =========
The accompanying notes are an integral part of the consolidated financial statements. 5 OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation The consolidated balance sheet of OYO Geospace Corporation and its subsidiaries (the "Company") at September 30, 2002 was derived from the Company's audited consolidated financial statements at that date. The consolidated balance sheet at March 31, 2003 and the consolidated statements of operations for the six months ended March 31, 2003 and 2002, and the consolidated statements of cash flows for the six months ended March 31, 2003 and 2002, were prepared by the Company, without audit. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows were made. The results of operations for the six months ended March 31, 2003 are not necessarily indicative of the operating results for a full year or of future operations. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America were omitted. The accompanying consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended September 30, 2002. Revenue is primarily derived from the sale, and short-term rental under operating leases, of seismic instruments and equipment and commercial graphics products. Sales revenues are recognized when title and risk of loss have passed to the customer, which generally occurs when such products are shipped (when the revenue cycle is completed). Products are generally sold without any customer acceptance provisions and the Company's standard terms of sale do not allow its customers to return products except for manufacturing defects. The Company's products generally do not require installation assistance or sophisticated instruction. The Company offers a standard product warranty obligating it to repair or replace equipment with manufacturing defects. The Company maintains a reserve for future warranty costs based on historical experience. Rental revenues are recognized on a straight-line basis as earned over the rental period. Short-term rentals of the Company's equipment generally range from daily rentals to rental periods of up to six months. The Company expenses research and development costs as incurred. The Company records a write-down of its inventory when the cost basis of any manufactured product (including any estimated future costs to complete the manufacturing process) exceeds its net realizable value. Recent Accounting Pronouncements In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement revises the accounting and reporting for costs associated with exit or disposal activities so as to provide recognition of such costs when a liability is incurred rather than when the entity commits to an exit plan. SFAS No. 146 is effective for exit or disposal activities initiated after March 31, 2003. Management does not believe the adoption of SFAS No. 146 will have a material effect on the Company's financial position and results of operations. In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation and Disclosure - an amendment of FASB Statement No. 123". This statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative transition methods for a voluntary change to the fair value of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of FASB Statement No. 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. See Note 8 for additional disclosures required by SFAS No. 148. 6 OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 2. Earnings Per Common Share The following table summarizes the calculation of net earnings and weighted average common shares and common equivalent shares outstanding for purposes of the computation of earnings per share (in thousands, except per share data):
Three Months Ended Six Months Ended -------------------------------- ------------------------------- March 31, 2003 March 31, 2002 March 31, 2003 March 31, 2002 -------------- -------------- -------------- -------------- Income (loss) before extraordinary gain .......... $ 38 $ (80) $ (1,280) $ (119) Extraordinary gain ............................... -- -- -- 686 ---------- ---------- ---------- ---------- Net earnings (loss) available to common stockholders ................................... $ 38 $ (80) $ (1,280) $ 567 ========== ========== ========== ========== Weighted average common shares outstanding ....... 5,548,411 5,537,409 5,547,482 5,526,406 Weighted average common share equivalents outstanding .................................... 3,223 -- -- 13,418 ---------- ---------- ---------- ---------- Weighted average common shares and common share equivalents outstanding ................. 5,551,634 5,537,409 5,547,482 5,539,824 ========== ========== ========== ========== Basic Earnings Per Share: Income (loss) before extraordinary gain ...... $ 0.01 $ (0.01) $ (0.23) $ (0.02) Extraordinary gain ........................... -- -- -- 0.12 ---------- ---------- ---------- ---------- Net income (loss) ................................ $ 0.01 $ (0.01) $ (0.23) $ 0.10 ========== ========== ========== ========== Diluted earnings per common share: Income (loss) before extraordinary gain ...... $ 0.01 $ (0.01) $ (0.23) $ (0.02) Extraordinary gain ........................... -- -- -- 0.12 ---------- ---------- ---------- ---------- Net income (loss) ................................ $ 0.01 $ (0.01) $ (0.23) $ 0.10 ========== ========== ========== ==========
No common share equivalents have been included in the diluted earnings per share calculations because of the potential antidilutive effect as a result of the Company's net loss for the three months ended March 31, 2002 and six months ended March 31, 2003. 3. Comprehensive Income Comprehensive income includes all changes in a company's equity, except those resulting from investments by and distributions to owners. The following table summarizes the components of comprehensive income (in thousands):
Three Months Ended Six Months Ended -------------------------------- ------------------------------- March 31, 2003 March 31, 2002 March 31, 2003 March 31, 2002 -------------- -------------- -------------- -------------- Net income (loss) ................................ $ 38 $ (80) $ (1,280) $ 567 Foreign currency translation adjustments ......... 62 (55) 109 (121) ---------- ---------- ---------- ---------- Total comprehensive income (loss) ................ $ 100 $ (135) $ (1,171) $ 446 ========== ========== ========== ==========
7 OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 4. Trade Accounts and Notes Receivable Trade accounts and notes receivable consisted of the following (in thousands):
March 31, 2003 September 30, 2002 --------------- ------------------ Trade accounts receivable ................................. $ 11,218 $ 12,160 Trade notes receivable .................................... 2,702 899 Allowance for doubtful accounts and notes ................. (642) (474) ---------- ----------- $ 13,278 $ 12,585 ========== ===========
5. Inventories Inventories consisted of the following (in thousands):
March 31, 2003 September 30, 2002 --------------- ------------------ Finished goods ............................................ $ 6,011 $ 4,527 Work-in-process ........................................... 3,687 3,619 Raw materials ............................................. 15,923 14,586 Obsolescence reserve ...................................... (1,108) (931) ----------- ----------- $ 24,513 $ 21,801 =========== ===========
The Company's reserve for slow moving and obsolete inventories is analyzed and adjusted periodically to reflect the Company's best estimate of the net realizable value of such inventories. 6. Segment and Geographic Information The Company evaluates financial performance based on two business segments: Seismic and Commercial Graphics. The seismic product lines currently consist of geophones and hydrophones, including multi-component geophones and hydrophones, seismic leader wire, geophone string connectors, seismic telemetry cable, high definition reservoir characterization products and services, marine seismic cable retrieval devices and small data acquisition systems targeted at niche markets. Commercial graphics products include thermal imaging equipment and dry thermal film. 8 OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following tables summarize the Company's segment information:
Three Months Ended Six Months Ended -------------------------------- --------------------------------- March 31, 2003 March 31, 2002 March 31, 2003 March 31, 2002 -------------- -------------- -------------- -------------- Net sales: Seismic .......................... $ 13,616 $ 10,146 $ 20,678 $ 20,109 Commercial graphics .............. 2,950 3,710 5,966 6,711 Eliminations ..................... (49) (23) (66) (87) -------------- -------------- -------------- -------------- Total ............................ $ 16,517 $ 13,833 $ 26,578 $ 26,733 ============== ============== ============== ============== Income (loss) from operations: Seismic .......................... $ 1,289 $ 631 $ 271 $ 1,287 Commercial graphics .............. (227) 647 (317) 999 Corporate ........................ (913) (1,023) (1,711) (1,952) -------------- -------------- -------------- -------------- Total ............................ $ 149 $ 255 $ (1,757) $ 334 ============== ============== ============== ==============
March 31, 2003 September 30, 2002 -------------- ------------------ Total assets: Seismic .......................... $ 52,784 $ 51,308 Commercial graphics .............. 13,610 12,610 Corporate ........................ 4,208 4,208 -------------- -------------- $ 70,602 $ 68,126 ============== ==============
7. Line of Credit The Company has entered into a credit agreement pursuant to which it can borrow up to $10.0 million secured by its accounts receivable and inventory (the "Credit Agreement"). The Credit Agreement, as amended, expires in January 2004. Borrowings under the Credit Agreement are subject to borrowing base restrictions based on (i) consolidated net income plus consolidated interest expense, income taxes, depreciation and amortization and (ii) levels of eligible accounts receivable and inventories. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial amounts and contains other covenants customary in agreements of this type. As of March 31, 2003 there were borrowings of $5.7 million outstanding under the Credit Agreement, and additional borrowings available under the Credit Agreement of $4.3 million. The Company recently amended its Credit Agreement to expire in January 2004. In connection with this amendment, the Company's borrowing interest rate has become, at the Company's option, the bank's prime rate or a LIBOR based rate. In addition, the borrowing base restrictions were modified so the Company could incur additional borrowings up to the maximum limit of $10.0 million. The Company's borrowing interest rate at March 31, 2003 was 3.8% for its LIBOR-based borrowings and 4.3% for its prime-based borrowings. 9 OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 8. Accounting for Stock-Based Compensation At March 31, 2003, the Company had two stock-based employee compensation plans. The Company accounts for the plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
Three Months Ended Six Months Ended -------------------------------- --------------------------------- March 31, 2003 March 31, 2002 March 31, 2003 March 31, 2002 -------------- -------------- -------------- -------------- Net income (loss), as reported .................. $ 38 $ (80) $ (1,280) $ 567 Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects ............................. (111) (106) (203) (235) -------------- -------------- -------------- -------------- Pro forma income (loss) ......................... $ (73) $ (186) $ (1,483) $ 332 ============== ============== ============== ============== Earnings per share: Basic-as reported ............................... $ 0.01 $ (0.01) $ (0.23) $ 0.10 Basic-pro forma ................................. $ (0.01) $ (0.03) $ (0.27) $ 0.06 Diluted-as reported ............................. $ 0.01 $ (0.01) $ (0.23) $ 0.10 Diluted-pro forma ............................... $ (0.01) $ (0.03) $ (0.27) $ 0.06
For a further discussion of the Company's stock-based employee compensation plans, see Note 11 to the audited Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended September 30, 2002. 9. Adoption of Accounting Pronouncements In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed for impairment. Intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives; however, no maximum life applies. The Company adopted the provisions of SFAS 142 effective October 1, 2002. At March 31, 2003, the Company had goodwill, net of accumulated amortization, of $1.8 million. The adoption of SFAS No. 142 did not have a material effect on the Company's financial position or results of operations. In August 2001, the Financial Accounting Standards Board issued SFAS No. 143 - "Accounting for Asset Retirement Obligations". This statement requires the Company to recognize the fair value of a liability associated with the cost the Company would be obligated to incur in order to retire an asset at some point in the future. The liability would be recognized in the period in which it is incurred and can be reasonably estimated. The standard is effective for fiscal years beginning after June 15, 2002. The Company adopted this standard effective October 1, 10 OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 2002. The adoption of SFAS No. 143 did not have a material effect on the Company's financial position or results of operations. In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets". SFAS No. 144 develops an accounting model, based upon the framework established in SFAS No. 121, for long-lived assets to be disposed of by sales. The accounting model applies to all long-lived assets, including discontinued operations, and it replaces the provisions of APB Opinion No. 30, "Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for disposal of segments of a business. SFAS No. 144 requires long-lived assets held for disposal to be measured at the lower of carrying amount or fair values less costs to sell, whether reported in continuing operations or in discontinued operations. The statement is effective for fiscal years beginning after December 15, 2001. The Company adopted this standard effective October 1, 2002. The adoption of SFAS No. 144 did not have a material effect on the Company's financial position or results of operations. In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement clarified guidance related to the reporting of gains and losses from extinguishment of debt and resolves inconsistencies related to the required accounting treatment of certain lease modifications. The provisions of this statement relating to extinguishment of debt became effective for financial statements issued for fiscal years beginning after May 15, 2002. The provisions of this statement relating to lease modification are effective for transactions occurring after May 15, 2002. The Company adopted this standard effective October 1, 2002. The adoption of SFAS No. 145 did not have a material effect on the Company's financial position or results of operations. On November 25, 2002, the Financial Accounting Standards Board ("FASB") issued FASB interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB interpretation No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies (FAS 5), relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. The Company is implementing the disclosure requirements of this standard this year and will disclose the measurement and other provisions of FIN 45 in its 2004 fiscal year financial statements. The Company offers a standard product warranty obligating it to repair or replace equipment with manufacturing defects. The Company maintains a reserve for future warranty costs based on historical experience. Changes in the warranty reserve are contained in the following table (in thousands): Balance at the beginning of the period (October 1, 2002) ...... $ 841 Accruals for warranties issued during the period .............. 341 Accruals related to pre-existing warranties (including changes in estimates) ............................ -- Settlements made (in cash or in kind) during the period ....... (338) ------ Balance at the end of the period .............................. $ 844 ====== 10. Film Supplier Developments In April 2002, the Company purchased certain intellectual property rights from its then primary supplier of film (the "Former Primary Film Supplier") for $2.3 million. Such purchase gave the Company exclusive ownership of all technology used by the Former Primary Film Supplier to manufacture dry thermal film used in the thermal imaging equipment the Company manufactures. Such purchase included technology then existing and any dry thermal film technology thereafter developed by the Former Primary Film Supplier for use in the Company's equipment. The 11 OYO GEOSPACE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Company also entered into an amended supply agreement pursuant to which the Former Primary Film Supplier agreed to provide the Company with the dry thermal film. In connection with the purchase, the Company agreed to license the technology to the Former Primary Film Supplier on a perpetual basis so long as it could meet predefined quality and delivery requirements. If the Former Primary Film Supplier could not meet such requirements, the Company has the right to use the technology itself or to license the technology to any third party to manufacture dry thermal film. On July 3, 2002, the Former Primary Film Supplier filed a Chapter 11 reorganization petition in Federal Bankruptcy Court for the Western District of New York. At the date of such bankruptcy filing, the Company had $3.4 million of long-term assets carried on its balance sheet as a result of the Company's prior transactions with the Former Primary Film Supplier (including the $2.3 million investment in intellectual property acquired from the Former Primary Film Supplier described above). Around that time, the Former Primary Film Supplier advised the Company that, in connection with its bankruptcy filing, it was seeking a buyer for its business that would assume its relationship and contracts with the Company, and it was the Company's intention to cooperate in such efforts to the extent its on-going interest could be served thereby. The Company is no longer optimistic that a buyer can be found to operate the Former Primary Film Supplier's business. Over the past six months, the Former Primary Film Supplier has failed to meet substantially all of the Company's purchase orders and has ceased to provide the Company with dry thermal film. As a result, the Company is currently purchasing a large quantity of dry thermal film from its alternate supplier of dry thermal film (the "Other Film Supplier") and the Company is using the technology it purchased from the Former Primary Film Supplier to manufacture dry thermal film internally. As a result of the bankruptcy filing by the Former Primary Film Supplier, the Company recorded a charge in its third quarter of fiscal year 2002 of approximately $1.2 million due to the ultimate uncertainty of realization of value on certain assets, particularly certain prepaid purchase benefits and similar benefits under the amended supply agreement with the Former Primary Film Supplier. The Company does not believe there has been any impairment in the value of the intellectual property it acquired from the Former Primary Film Supplier because of its ability to utilize the intellectual property to have thermal film manufactured internally or possibly elsewhere. No claims have been made against the Company or by the Company at present in connection with the Former Primary Film Supplier's bankruptcy, except that on December 10, 2002, the Company received a notice of claim for alleged preferential payments made by the Former Primary Film Supplier to the Company in the period before filing of the bankruptcy proceeding in the approximate amount of $260,000. The Company intends to vigorously defend against such claim under the overall circumstances of its relationship with the Former Primary Film Supplier. At present, the Company does not know whether it will make any claims against the Former Primary Film Supplier and it is unable to predict whether any additional claims will be made against the Company in connection with the Former Primary Film Supplier's bankruptcy proceeding as to any aspect of its relationship with the Former Primary Film Supplier. The Company is unable at this time to predict the outcome and effects of this still developing situation. The Company has, nevertheless, made provision for existing claims that it believes are adequate at this time, although it is unable to make such predictions with any certainty. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following analysis of the financial condition and results of operations of OYO Geospace Corporation should be read in conjunction with the Consolidated Financial Statements and Notes related thereto which are included elsewhere in this Form 10-Q. Industry Overview We design and manufacture instruments and equipment used in the acquisition and processing of seismic data. We have been in the seismic instrument and equipment business since 1980, marketing our products primarily to the oil and gas industry worldwide. We also design and manufacture thermal imaging equipment and distribute dry thermal film products to the commercial graphics industry. We have been serving the commercial graphics industry since 1995. Seismic Industry Geoscientists use seismic data to map potential or existing oil and gas bearing formations and the geologic structures that surround them. Seismic data is used primarily in connection with the exploration, development and production of oil and gas. Seismic data acquisition is conducted on land by combining a seismic energy source and a data recording system. The energy source imparts seismic waves into the earth, reflections of which are received and measured by geophones and hydrophones. Electrical signals generated by the geophones and hydrophones are simultaneously transmitted through leader wire, geophone and hydrophone string connectors and telemetric cable to data collection units, which store information for processing and analysis. Seismic thermal imaging output devices are used in the field or office to create a graphic representation of the seismic data after it has been acquired. Marine seismic data acquisition is conducted primarily by large ocean-going vessels that tow long seismic cables known as "streamers". Usually, the energy source in marine seismic data acquisition is an airgun, and the reflected seismic waves are received and measured by hydrophones, which are an integral part of the streamers. The streamers simultaneously transmit the electrical impulses back to the vessel via telemetric cable included within the streamers, and the seismic data is recorded and processed in much the same manner as it is on land. An estimated one to two-thirds of the reserves found with every oil and gas discovery will be left behind in the reservoir, not recoverable economically or at times even identified. Reservoir characterization and management programs, in which the reservoir is carefully imaged and monitored throughout its economic life by seismic instruments and equipment, are now seen as vital tools for improving production recovery rates. Seismic surveys repeated over selected time intervals show dynamic changes within the reservoir and can be used to monitor the effects of production. We expect to incur significant future research and development expenditures aimed at the development of additional seismic acquisition products and services used for high definition reservoir characterization for use in both land and marine environments. While orders for our products can vary substantially from quarter to quarter, reservoir characterization projects, especially deepwater projects, require the use of more equipment over a longer period of time than is required by conventional surface seismic systems. Revenue recognition in accordance with generally accepted accounting principles for these large-scale projects has the potential to result in substantial fluctuations in our quarterly performance. These variations may impact our operating results and cash flow, manufacturing capability and expense levels in any given quarter. Furthermore, because of the scale and nature of reservoir characterization projects, there may be delays in their implementation and uncertainties about their final course. As a result, we are unable at present to predict the impact of any such projects on our business, financial condition and results of operations. 13 Commercial Graphics Industry Our entry into the commercial graphics business segment occurred in 1995 as we leveraged our thermal imaging equipment technology, originally designed for seismic data processing applications, into new markets. With minor product modifications, we were successful in adapting these products for use in the commercial graphics industry. Our commercial graphics business segment manufactures and sells thermal imaging equipment and dry thermal film primarily to the screen print, point of sale, signage and textile market sectors. Our thermal imaging equipment is capable of producing data images ranging in size from 12 to 54 inches wide, with resolution ranging from 400 to 1,200 dpi (dots per inch). This business segment has some sales to customers in the seismic industry. In April 2002, we purchased certain intellectual property rights from our then primary supplier of film (the "Former Primary Film Supplier") for $2.3 million. Such purchase gave us exclusive ownership of all technology used by the Former Primary Film Supplier to manufacture dry thermal film used in the thermal imaging equipment we manufacture. Such purchase included technology then existing and any dry thermal film technology thereafter developed by the Former Primary Film Supplier for use in our equipment. We also entered into an amended supply agreement pursuant to which the Former Primary Film Supplier agreed to provide us with the dry thermal film. In connection with the purchase, we agreed to license the technology to the Former Primary Film Supplier on a perpetual basis so long as it could meet predefined quality and delivery requirements. If the Former Primary Film Supplier could not meet such requirements, the agreement provides us with the right to use the technology ourselves or to license the technology to any third party to manufacture dry thermal film. On July 3, 2002, the Former Primary Film Supplier filed a Chapter 11 reorganization petition in Federal Bankruptcy Court for the Western District of New York. At the date of such bankruptcy filing, we had $3.4 million of long-term assets carried on our balance sheet as a result of the prior transactions with the Former Primary Film Supplier (including the $2.3 million investment in intellectual property acquired from the Former Primary Film Supplier described above). The Former Primary Film Supplier advised us that, in connection with its bankruptcy filing, it was seeking a buyer for its business that would assume its relationship and contracts with us, and it was our intention to cooperate in such efforts to the extent our on-going interest could be served thereby. We are no longer optimistic that a buyer can be found to operate the Former Primary Film Supplier's business. Over the past six months, the Former Primary Film Supplier has failed to meet substantially all of our purchase orders and has ceased to provide us with film. As a result, we are currently purchasing a large quantity of dry thermal film from the Other Film Supplier and we are using the technology we purchased from the Former Primary Film Supplier to manufacture dry thermal film internally. As a result of the bankruptcy filing by the Former Primary Film Supplier, we recorded a charge in our third quarter of fiscal year 2002 of approximately $1.2 million due to the ultimate uncertainty of realization of value on certain assets, particularly certain prepaid purchase benefits and similar benefits under the amended supply agreement with the Former Primary Film Supplier. We do not believe there has been any impairment in the value of the intellectual property we acquired from the Former Primary Film Supplier because of our ability to utilize the intellectual property to have thermal film manufactured internally or possibly elsewhere. No claims have been made against us or by us at present in connection with the Former Primary Film Supplier's bankruptcy, except that on December 10, 2002, we received a notice of claim for alleged preferential payments made by the Former Primary Film Supplier to us in the period before filing of the bankruptcy proceeding in the approximate amount of $260,000. We intend to vigorously defend against such claim under the overall circumstances of our relationship with the Former Primary Film Supplier. At present we do not know whether we will make any claims against the Former Primary Film Supplier and we are unable to predict whether any additional claims will be made against us in connection with the Former Primary Film Supplier's bankruptcy proceeding as to any aspect of our relationship with such Former Primary Film Supplier. We are unable at this time to predict the outcome and effects of this still developing situation. We have, nevertheless, made provision for existing claims that we believe are adequate at this time, although we are unable to make such predictions with any certainty. 14 Results of Operations We report and evaluate financial information for two segments: Seismic and Commercial Graphics. Summary financial data by business segment follows:
Three Months Ended Six Months Ended -------------------------------- ------------------------------- March 31, 2003 March 31, 2002 March 31, 2003 March 31, 2002 -------------- -------------- -------------- -------------- Seismic Revenue ........................ $ 13,616 $ 10,146 $ 20,678 $ 20,109 Operating income ............... 1,289 631 271 1,287 Commercial Graphics Revenue ........................ 2,950 3,710 5,966 6,711 Operating income (loss) ........ (227) 647 (317) 999 Corporate Operating loss ................. (913) (1,023) (1,711) (1,952) Eliminations Revenue ........................ (49) (23) (66) (87) Consolidated Totals Revenue ........................ 16,517 13,833 26,578 26,733 Operating income (loss) ........ 149 255 (1,757) 334
Overview Three and six months ended March 31, 2003 compared to three and six months ended March 31, 2002. Consolidated sales for the three months ended March 31, 2003 increased $2.7 million, or 19.4%, from the corresponding period of the prior fiscal year. The increase in sales was due to increased sales of our deepwater reservoir characterization products, increased demand for our Canadian rental products and new sales of our new offshore cable products targeted at non-seismic applications. These revenue increases were partially offset by a decline in demand for our marine-based seismic products and commercial graphics products. Consolidated sales for the six months ended March 31, 2003 decreased $0.2 million, or 0.6%, from the corresponding period of the prior fiscal year. The decline was primarily due to a decline in the demand for our traditional land-based and marine-based seismic products as well as our commercial graphic products. These declines were partially offset by increased revenues from our deepwater reservoir characterization products and from our Canadian rental products. We expect the market for our traditional land and marine-based seismic products to remain weak in the near term due to continued industry weakness, and as the Canadian winter equipment rental season comes to an end. However, we also expect continued growth and acceptance of our new deepwater reservoir characterization and offshore cable products, although we cannot predict the exact timing thereof or the periods in which we will specifically see growth and acceptance. Consolidated gross profits for the three and six months ended March 31, 2003 decreased by $0.3 million, or 5.3% and $2.0 million, or 22.3%, respectively, from the corresponding periods of the prior year. The lower gross profits and gross profit margins resulted from lower sales of our marine-based seismic products and commercial graphics products, both of which generally yield higher gross profit margins. These lower sales levels were partially offset by higher gross margins from sales of our new reservoir products. Competitive pricing pressures resulting from manufacturing over-capacity and the under-absorption of fixed manufacturing costs are expected to continue to have an unfavorable impact upon the gross profit margins we realize from sales of our land-based seismic products. Consolidated operating expenses for the three months ended March 31, 2003 decreased $0.2 million, or 3.3%, from the corresponding period of the prior fiscal year. Consolidated operating expenses for the six months ended 15 March 31, 2003 increased $0.1 million, or 1.2%, from the corresponding period of the prior fiscal year. The small decrease in operating expenses in the most recent quarter is the result of our initial action to reduce operating costs in response to current market conditions. We intend to undertake additional cost-cutting actions in the near future to reorganize our business operations in an effort to more efficiently serve our customers. The estimated effective tax rate for the three months and six months ended March 31, 2003 was 31.2% and 32.0%, respectively. The estimated effective tax rate for the three months and six months ended March 31, 2002 was an 81.0% and 76.7%, respectively. The tax provision for the prior year periods included a benefit of $60,000 and $57,000, respectively, related to a change in estimate of our fiscal 2001 year-end tax accrual to the subsequently filed United States tax return. Seismic Our seismic product lines currently consist of geophones and hydrophones, including multi-component geophones and hydrophones, seismic leader wire, geophone string connectors, seismic telemetry cable, high definition reservoir characterization products and services, marine seismic cable retrieval devices and small data acquisition systems targeted at niche markets. Revenue Sales of our seismic products for the three months ended March 31, 2003 increased $3.5 million, or 34.2%, from the corresponding period of the prior fiscal year due to strong demand for our reservoir and rental products, as well as increased sales of consumable land-based parts and accessories. These sales were offset by a significant decline in our marine-based products. Sales of our seismic products for the six months ended March 31, 2003 increased $0.6 million, or 2.8%, respectively, from the corresponding period of the prior fiscal year. The improvement was primarily due to increased sales of our reservoir and rental products offset by a decline in the demand for our marine-based products. Operating Income Operating income for the three months ended March 31, 2003 increased $0.7 million, or 104.3%, from the corresponding period of the previous fiscal year. The increase in operating income is generally attributable to the profits realized from the sale of our deepwater reservoir characterization products as well as additional profits earned from rental of our geophone products in Canada, partially offset by a decline in the profits earned from sales of our marine-based products. Operating income for the six months ended March 31, 2003 decreased $1.0 million, or 78.9%, from the corresponding period of the prior fiscal year. The decrease in operating income primarily resulted from decreased gross profits associated with lower sales levels of our marine-based products, partially offset by increased profits realized from the sale of our deepwater reservoir characterization products and rental revenues in Canada. Commercial Graphics Our commercial graphics business segment manufactures and sells thermal imaging equipment and dry thermal film primarily to the screen print, point of sale, signage and textile market sectors. This business segment has some sales to customers in the seismic industry. Revenue Sales of our commercial graphics products for the three months and six months ended March 31, 2003 decreased $0.8 million, or 20.5% and $0.7 million or 11.1%, respectively, from the corresponding period of the prior year. The decrease in sales primarily resulted from a decline in equipment and accessories sales. 16 Operating Income (Loss) Our operating loss for the three months ended March 31, 2003 was $0.2 million, a reduction of $0.9 million or 135.1%, from the corresponding period of the prior fiscal year. Our operating loss for six months ended March 31, 2003 was $0.3 million, a decrease of $1.3 million, or 131.7% from the corresponding period of the prior year. The reduction in operating income primarily resulted from (i) increased manufacturing and operating costs associated with the self-manufacture of dry thermal film, (ii) increased research and development expenses associated with a newly introduced 1200 dpi thermal imaging device, and (iii) increased amortization expenses resulting from the $2.3 million purchase of intellectual property in April 2002. Such intellectual property is being amortized on a straight basis over five years. Liquidity and Capital Resources At March 31, 2003, we had $0.2 million in cash and cash equivalents. For the six months ended March 31, 2003, we used approximately $4.5 million of cash in operating activities principally resulting from our net loss of $1.3 million, adding back depreciation and amortization of $2.1 million, less the impact of $2.7 million of increased inventories, $0.9 million of increased accounts and notes receivable, $1.1 million of decreased accounts payable, $0.9 million of decreased income taxes payable and $0.8 million of increased prepaid expenses. The increase in inventories was primarily as a result of manufacturing goods for shipment in future periods, including the build-up of thermal film stocks. Such uses of cash were partially offset by a $0.8 million increase in accrued expenses and other items. For the six months ended March 31, 2003, we used approximately $2.0 million of cash in investing activities resulting from capital expenditures. For the six months ended March 31, 2003, cash from financing activities increased approximately $5.0 million primarily due to borrowings under our credit facility. We have entered into a credit agreement pursuant to which we can borrow up to $10.0 million secured by our accounts receivable and inventory (the "Credit Agreement"). The Credit Agreement, as amended, expires in January 2004. Borrowings under the Credit Agreement are subject to borrowing base restrictions based on (i) consolidated net income plus consolidated interest expense, income taxes, depreciation and amortization and (ii) levels of eligible accounts receivable and inventories. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial amounts and contains other covenants customary in agreements of this type. As of March 31, 2003 there were borrowings of $5.7 million outstanding under the Credit Agreement, and additional borrowings available under the Credit Agreement of $4.3 million. We recently amended our Credit Agreement to expire in January 2004. In connection with this amendment, our borrowing interest rate has become, at our option, the bank's prime rate or a LIBOR based rate. In addition, the borrowing base restrictions were modified so the Company could incur additional borrowings up to the maximum limit of $10.0 million. Our borrowing interest rate at March 31, 2003 was 3.8% for our LIBOR-based borrowings and 4.3% for our prime-based borrowings. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We consider many factors in selecting appropriate operational and financial accounting policies and controls and in developing the estimates and assumptions that are used in the preparation of these financial statements. We continually evaluate our estimates, including those related to bad debts reserves, inventory obsolescence reserves, self-insurance reserves, product warranty reserves, intangible assets and deferred income tax assets. We base our estimates on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different conditions or assumptions. 17 Revenue is primarily derived from the sale, and short-term rental under operating leases, of seismic instruments and equipment and commercial graphics products. Sales revenues are generally recognized when our products are shipped and title and risk of loss have passed to the customer. Rental revenues are recognized as earned over the rental period. Short-term rentals of our equipment generally range from daily rentals to rental periods of up to six months. Products are generally sold without any customer acceptance provisions and our standard terms of sale do not allow customers to return products. Our products generally do not require installation assistance or sophisticated instruction. We offer a standard product warranty obligating us to repair or replace equipment with manufacturing defects. We maintain a reserve for future warranty costs based on historical experience. We record a write-down of inventory when the cost basis of any manufactured product (including any estimated future costs to complete the manufacturing process) exceeds its net realizable value. Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed for impairment. Intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives; however, no maximum life applies. We adopted the provisions of SFAS 142 effective October 1, 2002. At March 31, 2003, the Company had goodwill, net of accumulated amortization, of $1.8 million. The adoption of SFAS No. 142 did not have a material effect on our financial position or results of operations. In August 2001, the Financial Accounting Standards Board issued SFAS No. 143 - "Accounting for Asset Retirement Obligations". This statement requires us to recognize the fair value of a liability associated with the cost we would be obligated to incur in order to retire an asset at some point in the future. The liability would be recognized in the period in which it is incurred and can be reasonably estimated. The standard is effective for fiscal years beginning after June 15, 2002. We adopted this standard effective October 1, 2002. The adoption of SFAS No. 143 did not have a material effect on our financial position or results of operations. In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets". SFAS No. 144 develops an accounting model, based upon the framework established in SFAS No. 121, for long-lived assets to be disposed of by sales. The accounting model applies to all long-lived assets, including discontinued operations, and it replaces the provisions of APB Opinion No. 30, "Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for disposal of segments of a business. SFAS No. 144 requires long-lived assets held for disposal to be measured at the lower of carrying amount or fair values less costs to sell, whether reported in continuing operations or in discontinued operations. The statement is effective for fiscal years beginning after December 15, 2001. We adopted this standard effective October 1, 2002. The adoption of SFAS No. 144 did not have a material effect on our financial position or results of operations. In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement clarified guidance related to the reporting of gains and losses from extinguishment of debt and resolves inconsistencies related to the required accounting treatment of certain lease modifications. The provisions of this statement relating to extinguishment of debt became effective for financial statements issued for fiscal years beginning after May 15, 2002. The provisions of this statement relating to lease modification are effective for transactions occurring after May 15, 2002. We adopted this standard effective October 1, 2002. The adoption of SFAS No. 145 did not have a material effect on our financial position or results of operations. In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement revises the accounting and reporting for costs associated with exit or disposal activities so as to provide recognition of such costs when a liability is incurred rather than when the entity commits to an exit plan. SFAS No. 146 is effective for exit or disposal activities initiated after March 31, 2003. We do not believe the adoption of SFAS No. 146 will have a material effect on our financial position or results of operations. 18 In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation and Disclosure - an amendment of FASB Statement No. 123". This statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative transition methods for a voluntary change to the fair value of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of FASB Statement No. 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. See Note 8 to the Consolidated Financial Statements for additional disclosures under SFAS No. 148. On November 25, 2002, the Financial Accounting Standards Board ("FASB") issued FASB interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB interpretation No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies (FAS 5), relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. The Company is implementing the disclosure requirements of this standard this year and will disclose the measurement and other provisions of FIN 45 in its 2004 fiscal year financial statements; this disclosure has been included in Note 9 to the Consolidated Financial Statements. Our Company offers a standard product warranty obligating us to repair or replace equipment with manufacturing defects. We maintain a reserve for future warranty costs based on historical experience. Forward Looking Statements and Risks Certain of the statements we make in this document and in documents incorporated by reference herein, including those made under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements for purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such statements include projections of our expectations regarding our future capital expenditures, product lines, growth of product markets and other statements that relate to future events or circumstances. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied by such forward-looking statements, including the risks and factors described below. You are cautioned to consider the following factors and risks in connection with evaluating any such forward-looking statements or otherwise evaluating an investment in our company. Our New Products May Not Achieve Market Acceptance. In recent years, we have incurred significant expenditures to fund our research and development efforts and we intend to continue those expenditures in the future. However, research and development is by its nature speculative, and we cannot assure you that these expenditures will result in the development of new products or services or that any new products and services we have developed recently or may develop in the future will be commercially marketable or profitable to us. In particular, we have incurred substantial expenditures to develop our recently introduced HDSeis(TM) product line for borehole and reservoir characterization applications. We cannot assure you that we will realize our expectations regarding market acceptance and revenues from these products and services. A Decline in Industry Conditions Could Affect our Projected Results. Any unexpected material changes in oil and gas prices or other market trends that would impact seismic exploration activity would likely affect the forward-looking information contained in this document. In addition, the oil and gas industry is extremely volatile and seismic activity is subject to change based on political and economic factors outside of our control. In fact, our results for fiscal year 2002, and results from our land-based seismic activity in particular, were materially and adversely affected by the downturn in the industry particularly as the industry continues to limit exploration activities. 19 Our estimates as to future results and industry trends, to the extent described in this document, are generally based on assumptions regarding the future level of seismic exploration activity and seismic reservoir monitoring projects and, in turn, their effect on the demand and pricing of our products and services. In analyzing the market and its impact on us, we have the following outlook for fiscal year 2003: . The impact of political conditions and hostilities around the world including those of the Middle East, which may have a significant impact on the oil and gas prices, will not cause a significant increase or further significant decrease in demand for our seismic products during fiscal 2003. . On the other hand, political conditions and hostilities around the world, which have a significant impact on the oil and gas industry, will remain and present serious economic risks. . Customer consolidations, the ample supply of seismic data stored in libraries, and overall industry weakness will cause demand for our traditional land-based seismic products to remain at or below fiscal year 2002 levels. . Demand for our land and marine-based seismic products in Russia and China is expected to increase over fiscal year 2002 levels, although the spread of a contagious disease in China is adding significant uncertainty to the Chinese economy (and perhaps the world-wide economy) that we are unable to evaluate. . Deep-water marine seismic exploration activity will remain constrained and sales of our marine-based products are expected to decline significantly in fiscal year 2003. . Our new high definition reservoir characterization products and services are expected to become more widely accepted to the industry. Sales in fiscal year 2003 are expected to be lower than fiscal year 2002 levels because fiscal year 2002 included the sale of a $15.8 million system; a similar delivery of that magnitude is not expected based on current backlog and quotations. . Sales of our new offshore cable products are expected to increase in fiscal year 2003. . Pricing for many of our land-based seismic products will continue to be subject to pressures due to industry-wide manufacturing over-capacity. . We will be able to self-manufacture sufficient quantities of dry thermal film internally or be able to purchase sufficient quantities of dry thermal film from our Other Film Supplier. Demand for our products used in the commercial graphics industry is expected to increase with continued market acceptance of our dry thermal film and new product introductions. Our outlook is based on various macro-economic factors, and our internal assessments, and actual market conditions could vary materially from those assumed. We May Experience Fluctuations in Quarterly Results of Operations. Historically, the rate of new orders for our products has varied substantially from quarter to quarter. Moreover, we typically operate, and expect to continue to operate, on the basis of orders in hand for our products before we commence substantial manufacturing "runs"; hence, the completion of orders, particularly large orders for deepwater reservoir characterization projects, can significantly impact the operating results and cash flow for any quarter, and results of operations for any one quarter may not be indicative of results of operations for future quarters. 20 Our Credit Risks Could Increase as our Customers Continue to Face Difficult Economic Circumstances. We believe and have assumed that our allowance for bad debts at March 31, 2003 is adequate in light of known circumstances. However, we cannot assure you that additional amounts attributable to uncollectible receivables and bad debt write-offs will not have a material adverse effect on our future results of operations. Many of our customers, particularly seismic contractors, have suffered from lower revenues and experienced liquidity challenges resulting from the economic difficulties throughout our industry. We have in the past incurred significant write-offs in our accounts and notes receivable due to customer credit problems. We have found it necessary from time to time to extend trade credit to long-term customers and others where risks of non-payment or late payment exist. Given recent industry conditions, some of our customers are experiencing liquidity difficulties, which increases those credit risks. Demand for Our Products is Volatile. Demand for our products depends primarily on the level of worldwide oil and gas exploration activity. That activity, in turn, depends primarily on prevailing oil and gas prices and availability of seismic data. Historically, the markets for oil and gas have been volatile, and those markets are likely to continue to be volatile. Oil and gas prices are subject to wide fluctuation in response to relatively minor changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors that are beyond our control. These factors include the level of consumer demand, weather conditions, domestic and foreign governmental regulations, price and availability of alternative fuels, political conditions and hostilities in the Middle East and other significant oil-producing regions, foreign supply of oil and gas, price of foreign imports and overall economic conditions. Continued low demand for our products could materially and adversely affect our results of operations and liquidity. We Have a Relatively Small Public Float, and Our Stock Price May be Volatile. We have approximately 2.4 million shares outstanding held by non-affiliates. This small float results in a relatively illiquid market for our common stock. Our average daily trading volume during fiscal year 2002 was approximately 4,000 shares. Our small float and daily trading volumes has in the past caused, and may in the future result in, greater volatility of our stock price. Our Industry is Characterized by Rapid Technological Development and Product Obsolescence. Our instruments and equipment are constantly undergoing rapid technological improvement. Our future success depends on our ability to continue to: . improve our existing product lines; . address the increasingly sophisticated needs of our customers; . maintain a reputation for technological leadership; . maintain market acceptance; . anticipate changes in technology and industry standards; and . respond to technological developments on a timely basis. Current competitors or new market entrants may develop new technologies, products or standards that could render our products obsolete. We cannot assure you that we will be successful in developing and marketing, on a timely and cost effective basis, product enhancements or new products that respond to technological developments, that are accepted in the marketplace or that comply with industry standards. We Operate in Highly Competitive Markets. The markets for our products are highly competitive. Many of our existing and potential competitors have substantially greater marketing, financial and technical resources than we do. Additionally, two competitors in our seismic business segment currently offer a broader range of instruments and equipment for sale and market this 21 equipment as "packaged" data acquisition systems. We do not now offer for sale such a complete "packaged" data acquisition system. Further, certain of our competitors offer financing arrangements to customers on terms that we may not be able to match. In addition, new competitors may enter the market and competition could intensify. We cannot assure you that sales of our products will continue at current volumes or prices if current competitors or new market entrants introduce new products with better features, performance, price or other characteristics than our products. Competitive pressures or other factors also may result in significant price competition that could have a material adverse effect on our results of operations. We Have a Limited Market. In our seismic business segment, we market our products to contractors and large, independent and government-owned oil and gas companies. We estimate that, based on published industry sources, fewer than 30 seismic contracting companies are currently operating worldwide (excluding those operating in Russia and the former Soviet Union, India, the People's Republic of China and certain Eastern European countries, where seismic data acquisition activity is difficult to verify). We estimate that fewer than ten seismic contractors are engaged in marine seismic exploration. Due to these market factors, a relatively small number of customers, some of whom are experiencing financial difficulties, have accounted for most of our sales. From time to time these seismic contractors have sought to vertically integrate and acquire our competitors, which has influenced their supplier decisions before and after such transactions. The loss of a small number of these customers for whatever reason could materially and adversely impact our sales. We Cannot Be Certain of Patent Protection of Our Products. We have applied for and hold certain patents relating to our seismic data acquisition and other products. We also acquired several patents which relate to the development of dry thermal film from our Former Primary Film Supplier. We cannot assure you that our patents will prove enforceable, that any patents will be issued for which we have applied or that competitors will not develop functionally similar technology outside the protection of any patents we have or may obtain. Our Foreign Marketing Efforts Face Additional Risks and Difficulties. Net sales outside the United States accounted for approximately 54% of our net sales during fiscal year 2002. Substantially all of our sales from the United States are made in U.S. dollars, but from time to time we may make sales in foreign currencies and may, therefore, be subject to foreign currency fluctuations on our sales. In addition, net assets reflected on the balance sheets of our Russian, Canadian and U.K. subsidiaries are subject to currency fluctuations. Significant foreign currency fluctuations could adversely impact our results of operations. Foreign sales are subject to special risks inherent in doing business outside of the United States, including the risk of war, terrorist activities, civil disturbances, embargo and government activities and foreign attitudes about conducting business activities with United States or Japanese trading partners, all of which may disrupt markets. Foreign sales are also generally subject to the risk of compliance with additional laws, including tariff regulations and import and export restrictions. Sales in certain foreign countries require prior United States government approval in the form of an export license. We cannot assure you that we will not experience difficulties in connection with future foreign sales. Also, should we experience substantial growth in certain markets, for example Russia, we may not be able to transfer cash balances to the United States to assist with debt servicing obligations. We Rely on Key Suppliers for Significant Product Components. A Japanese manufacturer unaffiliated with us is currently the only supplier (the "Japanese Supplier") of wide format thermal printheads that we use to manufacture our wide format thermal imager equipment. Over the years we have experienced some quality control issues with such printheads and have returned significant quantities of these products to the Japanese Supplier for repair, testing and quality assurance review. We are also aware that the Japanese Supplier is experiencing financial difficulties and consider it possible that such supplier may be forced to dispose of or discontinue this line of business. In this regard, we have publicly available information as to the 22 Japanese manufacturer that it has incurred significant operating losses in recent periods. We are not presently experiencing any significant supply or quality control problems with the Japanese Supplier. However, unforeseen problems with the Japanese Supplier, if they develop, could have a significant effect on our ability to meet future production and sales commitments. If the Japanese Supplier were to discontinue supplying these printheads or was unable or unwilling to supply printheads in sufficient quantities to meet our requirements, our ability to compete in the thermal imaging marketplace could be severely damaged, which could adversely affect our financial performance. We are not able to evaluate the implications, if any, of that situation at present. We believe we maintain an adequate inventory of these printheads to continue production for two to six months. Our Former Primary Film Supplier had been the primary supplier of dry thermal film used by our customers in the thermal imaging equipment we manufacture. On July 3, 2002, our Primary Film Supplier filed a Chapter 11 reorganization petition in Federal Bankruptcy Court for the Western District of New York. Around that time, the Former Primary Film Supplier advised us that, in connection with its bankruptcy filing, it was seeking a buyer for its business that would assume its relationship and contracts with us. We are no longer optimistic that a buyer can be found to operate the Former Primary Film Supplier's business. Over the past six months, our Former Primary Film Supplier has failed to meet substantially all of our purchase orders and has ceased to provide us with dry thermal film. As a result, we are currently purchasing a large quantity of dry thermal film from our Other Film Supplier and we are using the technology we purchased from the Former Primary Film Supplier to manufacture dry thermal film internally. Except for our Other Film Supplier, we know of no other supplier of a dry thermal film that performs as well in our thermal imaging equipment. If we are unable to economically manufacture dry thermal film internally using the technology we purchased from our Former Primary Film Supplier or if our Other Film Supplier was to discontinue supplying dry thermal film or was unable to supply dry thermal film in sufficient quantities to meet our requirements, our ability to compete in the thermal imaging marketplace could be severely damaged, which could adversely affect our financial performance. We Are Subject to Control by a Principal Stockholder. OYO Corporation, a Japanese corporation, owns indirectly in the aggregate approximately 51.4% of our common stock. Accordingly, OYO Corporation, through its wholly owned subsidiary OYO Corporation U.S.A., is able to elect all of our directors and to control our management, operations and affairs. We currently have, and may continue to have, a variety of contractual relationships with OYO Corporation and its affiliates. Our Success Depends Upon A Limited Number of Key Personnel. Our success depends on attracting and retaining highly skilled professionals. A number of our employees are highly skilled engineers and other professionals. If we fail to continue to attract and retain such professionals, our ability to compete in the industry could be adversely effected. In addition, our success depends to a significant extent upon the abilities and efforts of several members of our senior management. A Continued General Downturn in the U.S. Economy in 2003 May Adversely Affect our Business. An on-going downturn in the U.S. economy could adversely affect our business in ways that we cannot yet identify. The current economic downturn may continue to adversely affect the demand for oil and gas generally and, therefore, the demand for our services to the oil and gas industry and related service industry. It could also adversely affect the demand for consumer products, which could in turn adversely affect our commercial graphics business. To the extent these factors adversely affect other seismic companies in the industry, we could see an oversupply of products and services and downward pressure on pricing for seismic products and services that would adversely affect us. 23 Sarbanes-Oxley Act of 2002. In response to several high profile cases of accounting irregularities, the Sarbanes-Oxley Act of 2002 ("the Act") was enacted into law on July 30, 2002. The Act, and rules promulgated thereunder, as well as new Nasdaq listing standards addressing corporate governance issues, endeavor to provide greater accountability and promote investor confidence by requiring more stringent controls and certifications by corporate management and by impossing new auditor attestations. The Act affects how audit committees, corporate management and auditors of publicly traded companies carry out their respective responsibilities and interact with each other. The Act will likely result in higher expenses for publicly traded companies as a result of higher audit and review fees, higher director fees, higher internal costs to document and test internal controls, higher legal fees and higher director and officer liability insurance costs. These likely increased expenses may affect smaller public companies, like us, disporportiantly from their effects on companies with larger revenue and operating income bases with which to absorb such increased costs. 24 Item 3. Quantitative and Qualitative Disclosures about Market Risk The following discussion of our exposure to various market risks contains "forward looking statements" that involve risks and uncertainties. These projected results have been prepared utilizing certain assumptions considered reasonable in light of information currently available to us. Nevertheless, because of the inherent unpredictability of foreign currency rates, as well as other factors, actual results could differ materially from those projected in this forward looking information. We do not have any market risk as to market risk sensitive instruments entered into for trading purposes and have only very limited risk as to arrangements entered into other than for trading purposes. Further, we do not engage in commodity or commodity derivative instrument purchasing or selling transactions. Foreign Currency Exchange Rate Risk We purchase printheads from OYO Corporation pursuant to terms under which such purchases are denominated in Japanese yen. We routinely attempt to hedge our currency exposure on these purchases by entering into foreign currency forward contracts with a bank. The purpose of entering into these forward hedge contracts is to eliminate variability of cash flows associated with foreign currency exposure risk on amounts payable in Japanese yen. Under SFAS No. 133 and related interpretations, our forward contracts with the bank are considered derivatives. SFAS No. 133 requires that we record these foreign currency forward contracts on the balance sheet and mark them to fair value at each reporting date. Our aggregate dollar exposure to forward yen contracts usually does not exceeded $0.5 million and such contracts ordinarily are settled within 10 months. Resulting gains and losses are reflected in income and were not material for our fiscal quarter ended March 31, 2003. At March 31, 2003, we had $0.4 million of yen denominated foreign currency forward contracts, and we had $0.4 million of yen denominated accounts payable. Foreign Currency and Operations Risk We have a subsidiary located in Russia. Therefore, our financial results may be affected by factors such as changes in foreign currency exchange risks, weak economic conditions or changes in Russia's political climate. Our consolidated balance sheet at March 31, 2003 reflected approximately $1.4 million of net working capital related to our Russian subsidiary. This subsidiary both receives its income and pays its expenses primarily in Russian rubles. To the extent that transactions of this subsidiary are settled in rubles, a devaluation of the ruble versus the U.S. dollar could reduce any contribution from our Russian subsidiary to our consolidated results of operations as reported in U.S. dollars. We do not hedge the market risk with respect to our operations in Russia; therefore, such risk is a general and unpredictable risk of future disruptions in the valuation of Russian rubles versus U.S. dollars to the extent such disruptions result in any reduced valuation of the Russian subsidiary's net working capital or future contributions to our consolidated results of operations. Interest Rate Risk We have a revolving line of credit with a bank which subjects us to the risk of increased interest costs associated with any upward movements in bank market interest rates. Under the Credit Agreement, as amended, our borrowing interest rate is either the bank's prime rate or a LIBOR based rate, whichever we select. As of March 31, 2003, we had borrowed $5.7 million under this Credit Agreement at an average interest rate of 3.9%. Due to the amount of borrowings under this credit facility and its short term, we anticipate that any increased interest costs associated with movements in market interest rates will not be material to our financial condition, results of operations or cash flows. 25 Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Within the 90 day period prior to the date of filing this Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Changes in Internal Control There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of the evaluation of our disclosure controls and procedures referred to in the preceding paragraph. While the Company believes that its existing disclosure controls and procedures have been effective to accomplish these objectives, the Company intends to continue to examine, refine and formalize its disclosure controls and procedures and to monitor ongoing developments in this area. Further, while the Company has confidence in its current internal controls and procedures for financial reporting, it is continuing to examine such controls in light of recent a SEC initiative that will require in the future statements by management and attestation by the Company's independent auditors, as to such controls. 26 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On February 28, 2003, we held our Annual Meeting of Stockholders (the "Meeting"). At the Meeting, our stockholders approved the election of Katsuhiko Kobayashi, Michael J. Sheen and Charles H. Still, as directors, each holding office until the 2006 Annual Meeting of Stockholders or until his successor is duly elected and qualified. The results of the voting follows: For Against Withheld --- ------- -------- Katsuhiko Kobayashi 5,373,327 -- 52,118 Michael J. Sheen 5,398,110 -- 27,335 Charles H. Still 5,398,110 -- 27,335 The total voted shares represented by proxy and in person was 5,425,445. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed with this Quarterly Report. 3.1 Restated Certificate of Incorporation of the Company * 3.2 Restated Bylaws of the Company * 99.1 Certification of the Company's Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of the Company's Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. None. - --------------------- * Incorporated by reference to the Company's Registration Statement on Form S-1 filed September 30, 1997 (Registration No. 333-36727). 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OYO GEOSPACE CORPORATION Date: May 12, 2003 By: /s/ Gary D. Owens --------------------------------- Gary D. Owens, Chairman of the Board President and Chief Executive Officer (duly authorized officer) Date: May 12, 2003 By: /s/ Thomas T. McEntire --------------------------------- Thomas T. McEntire Chief Financial Officer (principal financial officer) 28 CERTIFICATIONS I, Gary D. Owens, certify that: 1. I have reviewed this quarterly report on Form 10-Q of OYO Geospace Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. May 12, 2003 /s/ Gary D. Owens ------------------------------------------- Name: Gary D. Owens Title: Chief Executive Officer 29 CERTIFICATIONS I, Thomas T. McEntire, certify that: 1. I have reviewed this quarterly report on Form 10-Q of OYO Geospace Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3 Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. May 12, 2003 /s/ Thomas T. McEntire ---------------------------------------------------- Name: Thomas T. McEntire Title: Chief Financial Officer 30 EX-99.1 3 dex991.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 99.1 Informational Addendum to Report on Form 10-K Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Not Filed Pursuant to the Securities Exchange Act of 1934 The undersigned Chief Executive Officer of OYO Geospace Corporation do hereby certify as follows: Solely for the purpose of meeting the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and solely to the extent this certification may be applicable to this Report on Form 10-Q, the undersigned hereby certify that this Report on Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of OYO Geospace Corporation. /s/ Gary D. Owens ------------------------------------------------- Name: Gary D. Owens Title: Chief Executive Officer May 12, 2003 EX-99.2 4 dex992.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 99.2 Informational Addendum to Report on Form 10-K Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Not Filed Pursuant to the Securities Exchange Act of 1934 The undersigned Chief Financial Officer of OYO Geospace Corporation do hereby certify as follows: Solely for the purpose of meeting the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and solely to the extent this certification may be applicable to this Report on Form 10-Q, the undersigned hereby certify that this Report on Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of OYO Geospace Corporation. /s/ Thomas T. McEntire ----------------------------------------------- Name: Thomas T. McEntire Title: Chief Financial Officer May 12, 2003 -----END PRIVACY-ENHANCED MESSAGE-----