-----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, E6Z+cAPBMJf1vxQlvz3NaQ5eq3ZoXYRHDlvjCzQHaZBpEJ6XUqc5Qez18BkAgnrn r+6iLfukLnTkf1IzgnfEJw== 0000950129-96-001976.txt : 19960928 0000950129-96-001976.hdr.sgml : 19960928 ACCESSION NUMBER: 0000950129-96-001976 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19960820 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGICON INC CENTRAL INDEX KEY: 0000028866 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 760343152 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-07427 FILM NUMBER: 96617924 BUSINESS ADDRESS: STREET 1: 3701 KIRBY DR STREET 2: STE 112 CITY: HOUSTON STATE: TX ZIP: 77098 BUSINESS PHONE: 7135265611 MAIL ADDRESS: STREET 1: 3701 KIRBY DRIVE SUITE 112 CITY: HOUSTON STATE: TX ZIP: 77098 10-K405/A 1 DIGICON INC. 10-K405/A3 PERIOD ENDED 7/31/95 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K/A-3 (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-7427 DIGICON INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0343152 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 3701 KIRBY DRIVE, SUITE #112 HOUSTON, TEXAS 77098 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 526-5611 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, $.01 Par Value American Stock Exchange Warrants to purchase Common Stock American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the registrant's voting stock held by nonaffiliates of the registrant was $44,462,000 as of September 29, 1995. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO --- --- The number of shares of the Company's common stock, $.01 par value, outstanding at September 29, 1995 was 11,134,939. The registrant's proxy statement to be filed in connection with the registrant's 1995 Annual Meeting of Stockholders is incorporated by reference into Part III of this report. =============================================================================== 2 TABLE OF CONTENTS FORM 10-K/A-3
PAGE ITEM NUMBER ------ PART IV 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 46 Signatures...................................................................... 49
3 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K CONSOLIDATED FINANCIAL STATEMENTS
PAGE NUMBER ------ Independent Auditors' Report........................................................... 18 Consolidated Statements of Operations For the Three Years Ended July 31, 1995.......... 19 Consolidated Balance Sheets -- July 31, 1995 and 1994.................................. 20 Consolidated Statements of Cash Flows For the Three Years Ended July 31, 1995.......... 21 Consolidated Statements of Changes in Stockholders' Equity For the Three Years Ended July 31, 1995........................................................................ 23 Notes to Consolidated Financial Statements............................................. 24
FINANCIAL STATEMENT SCHEDULES Separate audited Combined Financial Statements of DG Seis Overseas Limited, MD Seis Geophysical Co. Ltd. and Seismic Technology, Inc. as of December 31, 1994 and for the period from April 1, 1994 (date of inception) to December 31, 1994. Separate audited financial statements of P.T. Digicon Mega Pratama as of July 31, 1995 and 1994 and for the three years ended July 31, 1995. All other financial statement schedules are omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or the notes thereto. FORM 8-K REPORTS DURING THE QUARTER ENDED JULY 31, 1995 Form 8-K Report was filed as of June 6, 1995 with respect to the sale of the Company's joint venture interests in the former Soviet Union. 46 4 EXHIBIT INDEX
EXHIBIT - ----------- 3-A) -- Restated Certificate of Incorporation (with Amendments) of Digicon Inc. dated December 17, 1992. (Exhibit 3-A to Digicon's Annual Report on Form 10-K for the year ended July 31, 1994.) 3-B) -- Certificate of Ownership and Merger of New Digicon Inc. and Digicon Inc. (Exhibit 3-B to Digicon's Registration Statement No. 33-43873, dated November 12, 1991, is incorporated herein by reference). 3-C) -- By-laws of New Digicon Inc. dated June 24, 1991 (Exhibit 3-I to Digicon's Form 10-K Report for the year ended July 31, 1991, is incorporated herein by reference). 3-D) -- Certificate of Amendment of Certificate of Incorporation of Digicon Inc. dated February 6, 1992. (Exhibit 3-D to Digicon's Annual Report on Form 10-K for the year ended July 31, 1994.) 4-A) -- Specimen Digicon Inc. common stock certificate (Exhibit 4.1 to Digicon's Amendment No. 3 to Registration Statement No. 33-40197, dated June 7, 1991, is incorporated herein by reference). 10-A) -- Employment Agreement dated September 1, 1992, between Digicon Inc. and Edward R. Prince, Jr. (Exhibit 10-A to Digicon's Amendment No. 3 to Registration Statement No. 33-54384, dated December 17, 1992). 10-B) -- Employment Agreement dated September 1, 1992, between Digicon Inc. and Larry E. Lenig, Jr. (Exhibit 10-B to Digicon's Amendment No. 3 to Registration Statement No. 33-54384, dated December 17, 1992). 10-C) -- Employment Agreement dated as of May 19, 1988, by and between Digicon Inc. and David R. Steetle as supplemented by letter agreements dated January 5, 1990 and June 12, 1990. (Exhibit 10-C to Digicon's Registration Statement No. 33-43873, dated November 12, 1991). 10-D) -- Employment Agreement dated October 29, 1992, between Digicon Inc. and Stephen J. Ludlow (Exhibit 10-D to Digicon's Amendment No. 3 to Registration Statement No. 33-54384, dated December 17, 1992). 10-E) -- Salary Continuation Agreement executed by Nicholas A. C. Bright, Richard W. McNairy and Allan C. Pogach. (Exhibit 10-E to Digicon's Annual Report on Form 10-K for the year ended July 31, 1994.) 10-F) -- Registration Rights Agreement dated June 7, 1991, by and among Digicon, Quantum Fund N.V., Jupiter & Associates, ATID II Investors Limited Partnership and certain holders of common stock. (Exhibit 10-F to Digicon's Registration Statement No. 33-43873, dated November 12, 1991). 10-G) -- Warrant Agreement (Exhibit 10.20 to Digicon's Amendment No. 5 to Registration Statement No. 33-40197, dated June 21, 1991, is incorporated herein by reference). 10-H) -- Funding and Stockholders' Agreement dated as of April 9, 1991 (Exhibit 10.23 to Digicon's Amendment No. 3 to Registration Statement No. 33-40197, dated June 7, 1991, is incorporated herein by reference). 10-I) -- Note Purchase Agreement dated June 29, 1992, between Digicon and Hanseatic Corporation, as Agent. (Exhibit 10-O to Digicon's Annual Report on Form 10-K for the year ended July 31, 1992). 10-J) -- Warrant Agreement dated June 29, 1992, between Digicon and Hanseatic Corporation, as Agent. (Exhibit 10-P to Digicon's Annual Report on Form 10-K for the year ended July 31, 1992).
47 5
EXHIBIT - ----------- 10-K) -- Registration Rights Agreement dated June 29, 1992, between Digicon and Hanseatic Corporation, as Agent. (Exhibit 10-Q to Digicon's Annual Report on Form 10-K for the year ended July 31, 1992). 10-L) -- Memorandum of Agreement dated August 13, 1992, between Digicon and Mobil Tankships (U.S.A.) with respect to the purchase and sale of the M/V MOBIL SEARCH. (Exhibit 10-R to Digicon's Annual Report on Form 10-K for the year ended July 31, 1992). 10-M) -- Asset Purchase Agreement dated August 31, 1994, between Syntron, Inc. and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS Inc., and Digicon Inc. (Exhibit 10-M to Digicon's Annual Report on Form 10-K for the year ended July 31, 1994.) 10-N) -- Loan and Security Agreement dated April 11, 1994, between Foothill Capital Corporation and Digicon Inc., Digicon Geophysical Corp., Digicon/GFS Inc., Digital Exploration Ltd. and Digicon Exploration Ltd. (Exhibit 10-N to Digicon's Annual Report on Form 10-K for the year ended July 31, 1994.) 10-O) -- Loan and Security Agreement dated July 26, 1994, between Digicon Inc., Digicon Geophysical Corp., Digicon/GFS Inc., Digital Exploration Ltd. and Digicon Exploration, Ltd. and Soros Capital, L.P., CCF Jupiter L.P. and Jupiter Management Co., Inc. (Exhibit 10-O to Digicon's Annual Report on Form 10-K for the year ended July 31, 1994.) 10-P) -- Fixed Loan Agreement dated May 13, 1992, by and between P.T. Digicon Mega Pratama and Lippobank. (Exhibit 10-W to Digicon's Amendment No. 3 to Registration Statement No. 33-54384, dated December 17, 1992). 10-Q) -- 1992 Employee Nonqualified Stock Option Plan. (Exhibit 10-S to Digicon's Amendment No. 3 to Registration Statement No. 33-54384, dated December 17, 1992). 10-R) -- 1992 Non-Employee Director Stock Option Plan. (Exhibit 10-T to Digicon's Amendment No. 3 to Registration Statement No. 33-54384, dated December 17, 1992.) 10-S) -- Stock Purchase Agreement dated June 6, 1995 by and among Digicon Inc. and MD Seis International relating to the sale, by the Company, of its interests in certain joint ventures established to pursue business opportunities in the former Soviet Union. (Exhibit 10-a to Digicon's Quarterly Report on Form 10-Q for the quarter ended April 30, 1995.) 11) -- Computation of Income (Loss) Per Common and Common Equivalent Share. 21) -- Subsidiaries of Registrant. 27) -- Financial Data Schedule for the period ended July 31, 1995.
48 6 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment be signed on its behalf by the undersigned, thereunto duly authorized, on the 19th day of August, 1996. DIGICON INC. By: /s/ Richard W. McNairy -------------------------------------- Richard W. McNairy (Vice President and Chief Financial Officer) 49 7 INDEPENDENT AUDITORS' REPORT P.T. Digicon Mega Pratama: We have audited the accompanying balance sheets of P.T. Digicon Mega Pratama (an 80% owned joint venture of Digicon Inc.) as of July 31, 1995 and 1994, and the related statements of operations, cash flows and changes in stockholders' deficit for each of the three years in the period ended July 31, 1995 (all expressed in U.S. dollars). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at July 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 1995 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Houston, Texas August 16, 1996 8 P.T. DIGICON MEGA PRATAMA STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993 (IN THOUSANDS OF DOLLARS)
1995 1994 1993 ------- ------- ------- REVENUES...................................................... $ 1,443 $ 2,518 $11,012 COSTS AND EXPENSES: Operating expenses: Cost of services......................................... 3,571 4,028 10,776 Restructuring charges.................................... 1,339 Loss on abandonment of seismic data processing operations... 1,797 Depreciation and amortization............................... 430 1,065 1,779 Interest.................................................... 192 206 167 Other....................................................... 4 (32) 351 ------- ------- ------- Total............................................... 5,994 6,606 13,073 ------- ------- ------- Loss before provision for (benefit from) income taxes......... (4,551) (4,088) (2,061) Provision for (benefit from) income taxes..................... 359 (36) ------- ------- ------- NET LOSS...................................................... $(4,910) $(4,088) $(2,025) ======= ======= =======
See Notes to Financial Statements 9 P.T. DIGICON MEGA PRATAMA BALANCE SHEETS JULY 31, 1995 AND 1994 (IN THOUSANDS, EXCEPT FOR PAR VALUE AND NUMBER OF SHARES)
1995 1994 -------- -------- ASSETS Current assets: Cash................................................................ $ 42 $ 342 Accounts receivable (net of allowance for doubtful accounts: 1995, $41; 1994, $48)....................................................... 1,412 2,236 Prepayments and other............................................... 38 156 -------- -------- Total current assets........................................ 1,492 2,734 Property and equipment: Data processing software............................................ 1,436 Data processing equipment........................................... 1,368 Leasehold improvements and other.................................... 318 -------- -------- Total....................................................... 3,122 Less accumulated depreciation and amortization................... 1,529 -------- -------- Property and equipment -- net............................... 1,593 Proprietary seismic data.............................................. 468 1,138 -------- -------- Total....................................................... $ 1,960 $ 5,465 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt................................ $ 894 Accounts payable -- trade........................................... 245 $ 1,577 Other accrued liabilities........................................... 53 279 Reserve for restructuring........................................... 391 -------- -------- Total current liabilities................................... 1,192 2,247 Non-current liabilities: Reserve for loss on abandonment of seismic data processing operations ...................................................... 635 Long-term debt...................................................... 922 Advances from Digicon............................................... 12,439 9,692 -------- -------- Total non-current liabilities............................... 13,074 10,614 Commitments and contingent liabilities (Note 11) Stockholders' deficit: Common stock, $10 par value; authorized and issued, 257,560 shares........................................................... 2,576 2,576 Accumulated deficit................................................. (14,882) (9,972) -------- -------- Total stockholders' deficit................................. (12,306) (7,396) -------- -------- Total....................................................... $ 1,960 $ 5,465 ======== ========
See Notes to Financial Statements 10 P.T. DIGICON MEGA PRATAMA STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993 (IN THOUSANDS OF DOLLARS)
1995 1994 1993 ------- ------- ------- OPERATING ACTIVITIES: Net loss....................................................... $(4,910) $(4,088) $(2,025) Non-cash items included in net loss: Restructuring charges....................................... 1,339 Loss on abandonment of seismic data processing operations... 1,797 Depreciation and amortization............................... 430 1,065 1,779 (Gain) loss on disposition of property and equipment........ (4) (35) 235 Write-down of proprietary seismic data...................... 440 Change in operating assets/liabilities: Accounts receivable......................................... 824 786 (296) Prepayments and other....................................... 118 168 178 Proprietary seismic data.................................... 230 (168) (960) Accounts payable -- trade................................... (1,332) (920) 1,017 Other accrued liabilities................................... (224) 261 (18) Income taxes payable........................................ (55) 785 Reserve for restructuring................................... (391) Other non-current liabilities............................... (175) ------- ------- ------- Total cash provided (used) by operating activities..... (3,022) (1,647) 520 FINANCING ACTIVITIES: Payment of long-term debt...................................... (28) (1,479) Borrowing of long-term debt ................................... 922 Advances from Digicon.......................................... 2,745 648 2,678 ------- ------- ------- Total cash provided by financing activities............ 2,717 1,570 1,199 INVESTING ACTIVITIES: Purchase of property and equipment............................. (14) (1,607) Sale of property and equipment................................. 5 76 ------- ------- ------- Total cash provided (used) by investing activities..... 5 62 (1,607) ------- ------- ------- Change in cash and cash equivalents............................ (300) (15) 112 Beginning cash and cash equivalents balance.................... 342 357 245 ------- ------- ------- Ending cash and cash equivalents balance....................... $ 42 $ 342 $ 357 ======= ======= ======= SUPPLEMENTAL INFORMATION: Cash paid for: Interest.................................................... 192 203 181 Income taxes................................................ 359 127 Non-cash financing and investing activities: Purchase (sale) of property and equipment by advances from Digicon.............................................. (1,580) 1,328
See Notes to Financial Statements 11 P.T. DIGICON MEGA PRATAMA STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993 (IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
COMMON STOCK ISSUED ----------------- PAR ACCUMULATED SHARES VALUE DEFICIT TOTAL ------- ------ -------- -------- BALANCE, AUGUST 1, 1992.............................. 257,560 $2,576 $ (3,859) (1,283) Net loss............................................. (2,025) (2,025) ------- ------ -------- -------- BALANCE, JULY 31, 1993............................... 257,560 2,576 (5,884) (3,308) Net loss............................................. (4,088) (4,088) ------- ------ -------- -------- BALANCE, JULY 31, 1994............................... 257,560 2,576 (9,972) (7,396) Net loss............................................. (4,910) (4,910) ------- ------ -------- -------- BALANCE, JULY 31, 1995............................... 257,560 $2,576 $(14,882) $(12,306) ======= ====== ======== ========
See Notes to Financial Statements 12 P.T. DIGICON MEGA PRATAMA NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993 1. ORGANIZATION AND OPERATION P.T. Digicon Mega Pratama ("the Company") was organized on June 7, 1984 as a joint venture enterprise under the framework of the Foreign Capital Investment Law No. 1 of 1967 of the Republic of Indonesia. The Company acquires and processes seismic data in Indonesia. The Company is indirectly owned 80% by Digicon Inc. (including its consolidated subsidiaries, "Digicon"), a publicly-held Delaware corporation, and 20% by P.T. Mega Pratama Citra ("Citra"), an Indonesian limited liability company. The board of directors, controlled by Digicon, and the board of commissioners, controlled by Citra, oversee the business activities of the Company. Digicon allocates the cost of certain general and administrative expenses and charges operating expenses to the Company. Accordingly, the accompanying financial statements of the Company may not necessarily reflect the results of operations and financial position that would have existed had the Company operated as an unaffiliated enterprise. (See Note 5). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. TRANSLATION OF FOREIGN CURRENCIES The Company has determined that the U.S. dollar is its functional currency. Property and equipment (and related depreciation) is translated into U.S. dollars at the exchange rates in effect at the time of its acquisition. Other assets and liabilities are translated at year-end rates. Operating results (other than depreciation) are translated at the average rates of exchange prevailing during the year. Remeasurement gains and losses are included in the determination of net income and are reflected as part of other costs and expenses. (See Note 10.) REVENUES Revenues from data acquisition and data processing services are recorded as revenues based on contractual rates set forth in the related contract if the contract provides a separate rate for each segment. If the contract only provides a rate for the overall service, revenue is recognized based on the percentage of the work effort completed compared with the total work effort involved in the contract. DEPRECIATION Provision for depreciation and amortization is computed using the straight-line method based on estimated useful lives as follows:
AVERAGE YEARS ---- Data processing software.............................. 5 Data processing equipment............................. 5 Leasehold improvements and other...................... 3-10
13 P.T. DIGICON MEGA PRATAMA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Expenditures for routine repairs and maintenance are charged to expense as incurred; expenditures for additions and improvements are capitalized and depreciated over the estimated remaining life of the related asset. The net gain or loss on items of property and equipment retired or disposed of is included as part of other costs and expenses. (See Note 10.) ACCOUNTS RECEIVABLE Included in accounts receivable at July 31, 1995 and 1994 are unbilled amounts of approximately $123,000 and $232,000, respectively. Such amounts are either not billable to the customer at July 31 in accordance with the provisions of the contract and generally will be billed in one to four months or are currently billable and will be invoiced in the next monthly statement cycle. PROPRIETARY SEISMIC DATA The Company collects and processes certain seismic data for its own account to which it retains all ownership rights and which it resells to clients on a non-transferable, non-exclusive basis. The Company may obtain precommitted sales contracts to help fund the cash requirements of these surveys which generally last from 5 to 7 months. The Company capitalizes the unfunded portion using an estimated sales method. Under that method the amount capitalized equals actual costs incurred less costs attributed to the precommitted sales contracts based on the percentage of total estimated costs to total estimated sales multiplied by actual sales. The cost of proprietary seismic data is charged to operations in the period sales occur based on the percentage of total estimated costs to total estimated sales multiplied by actual sales. The Company periodically reviews the carrying value of proprietary seismic data to assess whether there has been a permanent impairment of value and records losses in periods the total estimated costs exceeds total estimated sales or in periods that it is determined that sales would not be sufficient to cover the carrying value of the asset. In general, costs are expected to be recovered from sales over a period of less than 5 years. INCOME TAXES In February 1992, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes", which requires the use of the "liability method" in place of the previously required "deferred method". Under the liability method, deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. SFAS 109 allows recognition of all or a portion of benefits from the utilization of net operating loss carryforwards as deferred tax assets if realization is "more likely than not". In periods of changing income tax rates, the liability method will cause fluctuations in net income of companies with deferred taxes. The Company adopted SFAS 109 effective August 1, 1993. The adoption of this standard did not result in a cumulative effect adjustment to equity or income for the year ended July 31, 1994. Recognition is given in the accompanying balance sheets to the future income tax benefits of loss carryforwards only to the extent that they can be used to offset existing deferred taxes. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In March 1995, the FASB issued SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This statement is effective for financial statements with fiscal years beginning after December 15, 1995. The Company will be required to implement this statement for the fiscal year 1997. Implementation of this pronouncement is not expected to have a material effect on the Company's financial statements. 14 P.T. DIGICON MEGA PRATAMA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. WRITE-OFF OF ASSETS AND RESTRUCTURING CHARGES In response to continuing operating losses which adversely impacted the Company's liquidity, in April 1994 management made a decision to restructure its operations and revalue certain assets and, accordingly, incurred $1,339,000 in total expenses relating to such decision. Included in the $1,339,000 is $948,000 for the write-off for the impairment of data processing equipment and software ($858,000) and proprietary seismic data ($90,000) to their net realizable value. The remaining costs are restructuring charges of $391,000 which relate to severance costs for a reduction in the Company's workforce of 40 employees. Employees to be terminated are from the seismic data processing operation. As of July 31, 1995, all employees contemplated in the restructuring charge have been terminated and all related severance costs have been paid. 4. ABANDONMENT OF SEISMIC DATA PROCESSING OPERATIONS As a result of continuing operating losses subsequent to the restructuring (see Note 3) and continued decline in the demand for seismic data processing services in the Indonesian marketplace, during July 1995 management committed the Company to an abandonment of the Company's seismic data processing operations. In order to meet existing customer commitments and to provide for the orderly shutdown of the operation, the abandonment is expected to be completed by February 1997 which coincides with the expiration of the lease agreement for the Company's data processing facility. At that time the office will be vacated, all remaining data processing employees will be terminated and data processing and related equipment and software will be scrapped. Digicon will continue to provide financial support to the Company so that the Company can continue as a financially viable entity. Because the abandonment did not contemplate consummation within one year, the loss on abandonment has been estimated in accordance with the provisions of Accounting Principles Bulletin No. 30 "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" but has been reported as a separate component of continuing operations in the statement of operations. In connection with the abandonment, provision has been made for employee severance ($450,000), office restoration as required by the lease agreement ($130,000), estimated losses from operations until the date of abandonment ($55,000) and impairment of fixed assets ($1,162,000). Approximately $770,000 of the impairment relates to software sold by Digicon to the Company for which there was intercompany profit. Accordingly, impairment of $770,000 by the Company is eliminated by Digicon in the recognition of Digicon's equity in the loss of the Company. During the years ended July 31, 1995, 1994 and 1993, the seismic data processing operations generated revenues of $878,000, $1,941,000 and $1,752,000, respectively. 15 P.T. DIGICON MEGA PRATAMA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. RELATED PARTY TRANSACTIONS The Company is party to transactions with Digicon and Citra in the normal course of business. A summary of such transactions is as follows:
YEARS ENDED JULY 31, --------------------------- 1995 1994 1993 ---- ------- ------ (IN THOUSANDS OF DOLLARS) Digicon to (from) the Company: Administrative allocations(a)............................ $140 $ 539 $1,191 Managerial and operational support charges(b)............ (87) 108 1,332 Seismic data acquisition and processing personnel charges(b)............................................. 460 489 650 Risk management insurance allocations(c)................. 69 67 141 Seismic equipment repair and maintenance charges......... 7 9 209 Seismic equipment rentals................................ (234) (85) Seismic data processing services......................... 18 91 324 Seismic equipment sales(d)............................... (1,580) (108) Seismic data processing software purchase................ 1,436
- --------------- (a) Allocated based upon ratio of the Company's non-affiliate revenue to combined Digicon and Company non-affiliate revenue. (b) Charges based upon personnel salary cost. (c) Allocated on the basis of the Company's proportionate share of the total premium base. (d) Sales made at net book value. Advances from Digicon of $12,439,000 and $9,692,000 at July 31, 1995 and 1994, respectively, have no formal repayment terms and do not bear interest. The Company maintains its bank accounts with an institution controlled by one of the shareholders of Citra and borrowed funds from such institution. (See Note 7). Interest expense on such borrowings totaled $192,000, $206,000 and $167,000 for the years ended July 31, 1995, 1994 and 1993, respectively. The Company subleases office space to a company controlled by one of the shareholders of Citra. (See Note 11). 6. ACCOUNTS RECEIVABLE Accounts receivable consists of the following:
AS OF JULY 31, ------------------ 1995 1994 ------ ------ (IN THOUSANDS OF DOLLARS) Trade accounts receivable, net.................... $ 746 $ 591 Unbilled receivables.............................. 123 232 Employee receivables.............................. 34 87 Income tax refund receivable...................... 426 1,035 VAT tax receivable................................ 83 291 ----- ----- $1,412 $2,236 ===== =====
16 P.T. DIGICON MEGA PRATAMA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. LONG-TERM DEBT The Company has a 2 billion Indonesian rupiah floating rate loan with a commercial bank due September 15, 1995. Interest on the loan is payable monthly. At July 31, 1995, the interest rate was 19.5%. The loan was collateralized by all of the Company's accounts receivable and inventories and was guaranteed by Digicon. All amounts due under the loan were repaid during September 1995. 8. OTHER ACCRUED LIABILITIES Other accrued liabilities consist primarily of payroll tax withholdings. 9. INCOME TAXES The components of the provision for (benefit from) income tax expense is as follows:
YEARS ENDED JULY 31, ----------------------- 1995 1994 1993 ---- ---- ----- (IN THOUSANDS OF DOLLARS) Current............................................. $359 $ 120 Deferred............................................ (156) ---- ---- ----- Total..................................... $359 $ 0 $ (36) ==== ==== =====
At July 31, 1995 the Company had net operating loss carryforwards of approximately $3,600,000 which expire in the years 1998 through 1999. The provision for (benefit from) income taxes differs from the amount computed by applying the statutory income tax rate of 35% for each of the three years ended July 31, 1995 because no benefit has been recognized for the operating loss carryforwards and in 1995, the Company was assessed $359,000 of additional income taxes for its 1992 tax year. Deferred income taxes and benefits are provided for differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis. Significant deferred tax assets included net operating loss carryforwards and significant deferred tax liabilities included the book and tax basis differences of property and equipment. No financial statement recognition has been given to the net deferred tax asset at July 31, 1995 or 1994. 10. OTHER COSTS AND EXPENSES Other costs and expenses consist of the following:
YEARS ENDED JULY 31, ----------------------- 1995 1994 1993 --- ---- ---- (IN THOUSANDS OF DOLLARS) Net foreign currency exchange losses................ $ 8 $ 3 $116 Net loss (gain) on disposition of property and equipment......................................... (4) (35) 235 ---- ---- ----- Total..................................... $ 4 $(32) $351 ==== ==== =====
11. COMMITMENTS AND CONTINGENT LIABILITIES Total rentals of vessels, equipment and office facilities charged to operations amounted to $378,000, $558,000 and $2,073,000 for the years ended July 31, 1995, 1994 and 1993, respectively. 17 P.T. DIGICON MEGA PRATAMA NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Minimum rentals payable under the Company's operating lease for office space, net of sublease income of $76,000 and $76,000 for the years ended July 31, 1996 and 1997, respectively, is as follows:
FISCAL MINIMUM YEAR RENTALS ------ ------- (IN THOUSANDS OF DOLLARS) 1996................................................ $282 1997................................................ 119
12. EMPLOYEE BENEFITS Certain of the Company's employees are eligible to participate in the Digicon 401(k) plan. Such employees are permitted to make contributions of up to 10% of their salary to a maximum of $9,240 per year. Generally, Digicon will contribute an amount equal to one-half of the employees contribution up to $6,000 or 6% of the employee's salary (whichever is less); however if Digicon's consolidated pre-tax income for any fiscal year is less than the amount required to be contributed, Digicon may elect to reduce its contribution, but in no event may Digicon reduce the total contribution to less then 25% of the employee contribution. Employer matching contributions charged to the Company during the years ended July 31, 1995, 1994 and 1993 were approximately $17,000, $23,000 and $18,000, respectively. -----END PRIVACY-ENHANCED MESSAGE-----