0000950129-95-000980.txt : 19950815
0000950129-95-000980.hdr.sgml : 19950815
ACCESSION NUMBER: 0000950129-95-000980
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 19950810
ITEM INFORMATION: Other events
ITEM INFORMATION: Resignations of registrant's directors
ITEM INFORMATION: Financial statements and exhibits
FILED AS OF DATE: 19950814
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: LANDMARK GRAPHICS CORP
CENTRAL INDEX KEY: 0000749510
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373]
IRS NUMBER: 760029459
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-17195
FILM NUMBER: 95562219
BUSINESS ADDRESS:
STREET 1: 15150 MEMORIAL DRIVE
CITY: HOUSTON
STATE: TX
ZIP: 77079-4304
BUSINESS PHONE: 7135601000
MAIL ADDRESS:
STREET 1: 15150 MEMORIAL DRIVE
CITY: HOUSTON
STATE: TX
ZIP: 77079-4304
8-K
1
FORM 8-K
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
AUGUST 10, 1995
DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED)
LANDMARK GRAPHICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-17195 76-0029459
(STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NUMBER)
15150 MEMORIAL DRIVE
HOUSTON, TEXAS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
77079-4304
(ZIP CODE)
(713) 560-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
2
ITEM 5 OTHER EVENTS
ON SEPTEMBER 28, 1994 AND JUNE 5, 1995, THE REGISTRANT ACQUIRED (THE
"ACQUISITIONS") ALL OF THE EQUITY INTERESTS IN STRATAMODEL, INC.
("STRATAMODEL") AND GEOGRAPHIX, INC. ("GEOGRAPHIX"), RESPECTIVELY. THE
ACQUISITIONS HAVE BEEN ACCOUNTED FOR AS POOLINGS OF INTERESTS AND THE FINANCIAL
STATEMENTS AND OTHER RELATED INFORMATION INCLUDED IN THE REGISTRANT'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1994 (1994 FORM 10-K)
HAVE BEEN RESTATED TO REFLECT THE ACQUISITIONS. SET FORTH BELOW ARE REVISED
VERSIONS OF "ITEM 6. SELECTED FINANCIAL DATA", "ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", "ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA", AND THE FINANCIAL STATEMENT
SCHEDULES FILED IN RESPONSE TO "ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K" INCLUDED IN THE 1994 FORM 10-K.
3
ITEM 6 SELECTED FINANCIAL DATA:
4
SELECTED CONSOLIDATED FINANCIAL DATA - AS RESTATED
The following financial data for each of the years in the five year period
ended June 30, 1994 has been derived from the audited financial statements of
the Company. The statement of operations data for the years ended June 30,
1994, 1993 and 1992 and the balance sheet data as of June 30, 1994 and 1993
were derived from the audited restated consolidated financial statements
appearing elsewhere herein. The following financial data should be read in
conjunction with the restated consolidated financial statements and related
notes.
Years Ended June 30,
-----------------------------------------------------------------
(in thousands, except per share data) 1994 1993 1992 1991 1990 (1)
--------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: (Restated) (Restated) (Restated) (Restated) (Restated)
Revenues:
Software product sales $ 70,329 $ 53,212 $ 39,413 $ 33,849 $ 55,585
Hardware product sales 31,833 26,674 28,127 39,605 -
Maintenance and other 41,089 33,089 29,251 26,742 19,564
--------------------------------------------------------------------------------------------------------------
Total revenues 143,251 112,975 96,791 100,196 75,149
Cost of revenues:
Cost of software product sales 6,387 6,237 4,074 3,460 22,953
Cost of hardware product sales 26,424 20,576 19,725 25,576 -
Cost of maintenance and other 24,978 18,068 18,472 15,148 13,091
Bad debt expense 1,536 1,687 3,131 556 109
--------------------------------------------------------------------------------------------------------------
Total cost of revenues 59,325 46,568 45,402 44,740 36,153
--------------------------------------------------------------------------------------------------------------
Gross profit 83,926 66,407 51,389 55,456 38,996
--------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 18,360 15,198 15,250 12,334 10,844
Selling, marketing and administrative 45,364 41,996 35,419 28,621 18,788
Restructuring charges - - 8,300 - -
Merger costs 13,567 - - - -
--------------------------------------------------------------------------------------------------------------
Total operating expenses 77,291 57,194 58,969 40,955 29,632
--------------------------------------------------------------------------------------------------------------
Income (loss) from operations 6,635 9,213 (7,580) 14,501 9,364
Other, net 1,879 37 1,788 1,415 2,023
--------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 8,514 9,250 (5,792) 15,916 11,387
Provision (benefit) for income taxes 2,667 2,125 (72) 4,645 3,565
--------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,847 $ 7,125 $ (5,720) $ 11,271 $ 7,822
==============================================================================================================
Net income (loss) per common and common
equivalent share $ 0.36 $ 0.51 $ (0.42) $ 0.82 $ 0.59
==============================================================================================================
Weighted average common and common
equivalent shares outstanding 16,371 13,927 13,629 13,697 13,327
Pro forma information (unaudited):
Net income (loss) as reported 5,847 7,125 (5,720) 11,271 7,822
Pro forma charge in lieu of income taxes 1,256 554 434 532 124
--------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) $ 4,591 $ 6,571 $ (6,154) $ 10,739 $ 7,698
--------------------------------------------------------------------------------------------------------------
Pro forma income (loss) per share $ 0.28 $ 0.47 $ (0.45) $ 0.78 $ 0.58
==============================================================================================================
As of June 30,
------------------------------------------------------------------
(in thousands) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA: (Restated) (Restated) (Restated) (Restated) (Restated)
Working capital $ 106,601 $ 51,980 $ 47,158 $ 42,747 $ 26,374
Total assets 189,153 105,974 99,100 78,776 46,046
Bank debt 13,150 1,144 1,467 2,019 2,573
Retained earnings 22,957 22,308 16,838 23,536 12,869
Total stockholders' equity 142,604 80,752 73,530 78,660 65,535
(1) In 1990, the Company marketed software products and related hardware
products together as integrated packages. Accordingly, a breakdown between
software product sales, hardware product sales, cost of software product sales
and cost of hardware product sales is not available for 1990.
5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Management's Discussion and Analysis is the Company's analysis of its
financial performance and of significant trends which may impact future
performance. On March 25, 1994, the Company acquired all of the outstanding
common stock of Advance Geophysical Corporation ("Advance") in an acquisition
accounted for as a pooling of interests. On September 28, 1994, the Company
acquired all of the outstanding equity interests of Stratamodel, Inc.
("Stratamodel") in an acquisition accounted for as a pooling of interests. On
June 5, 1995, the Company acquired all of the outstanding common stock of
GeoGraphix, Inc. ("GeoGraphix") in an acquisition accounted for as a pooling of
interests. Accordingly, the Company's Consolidated Financial Statements
included elsewhere herein give effect to the acquisitions for all periods
presented. The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto.
The Company, incorporated in 1982, designs, markets and supports
software and systems which facilitate the exploration and production efforts of
oil and gas companies. The Company derives revenues from licensing software
products, providing related services and reselling hardware. Customers pay the
Company an initial license fee for the software, which is generally recognized
by the Company upon shipment. Customers have the option to pay an annual
maintenance fee, calculated as a percentage of current list price, which
entitles them to routine support and product updates. The Company generally
recognizes revenues related to customer support agreements ratably over the
contract period. See Note 1 to the Consolidated Financial Statements.
A significant portion of the Company's revenues is derived from sales
into certain geographic regions or market sectors which, due to regulatory
requirements and other constraints, may have lengthy sales cycles. Accordingly,
the timing of revenue recognition on these transactions may have a noticeable
effect on the Company's quarter-to-quarter and year-to-year financial
performance.
International revenues, which comprised approximately 53% and 58% of
fiscal 1994 and 1993 revenues, respectively, represent export sales to foreign
locations and maintenance and customer support services provided by the
Company's foreign offices. Maintenance and support revenues generated by the
foreign offices are generally denominated in foreign currencies. To mitigate
the effect of fluctuations in exchange rates on these foreign denominated
balances, the Company utilizes a protective hedge program. The program is
designed to hedge certain identifiable assets and obligations which expose the
Company to exchange rate risk, primarily foreign currency-based accounts
receivable. Although certain export sales are denominated in foreign
currencies, the majority of the Company's export sales are denominated in U.S.
dollars. These balances are not subject to remeasurement and do not expose the
Company to foreign exchange rate risk.
7
RESULTS OF OPERATIONS
The following table presents certain items in the Consolidated Statements of
Operations as a percentage of total revenues or of their respective revenue
components and the percentage change in the dollar amount of those items for
each of the years in the three year period ended June 30, 1994.
Years Ended June 30, Percentage Change
1994 1993 1992 1993-1994 1992-1993
(Restated) (Restated) (Restated)
Revenues:
Software product sales 49% 47% 41% 32% 35%
Hardware product sales 22 24 29 19 (5)
Maintenance and other 29 29 30 24 13
-----------------------------------------------------------------------------------------
Total revenues 100 100 100 27 17
Cost of revenues:
Cost of software product sales(1) 9 12 10 2 53
Cost of hardware product sales(1) 83 77 70 28 4
Cost of maintenance and other(1) 61 55 63 38 (2)
Bad debt expense 1 1 3 (9) (46)
-----------------------------------------------------------------------------------------
Total cost of revenues 41 41 47 27 3
-----------------------------------------------------------------------------------------
Gross profit 59 59 53 26 29
Operating expenses:
Research and development 13 14 16 21 0
Selling, marketing and administrative 32 37 36 8 19
Restructuring charges N/A N/A 9 N/A N/A
Merger costs 9 N/A N/A N/A N/A
-----------------------------------------------------------------------------------------
Total operating expenses 54 51 61 35 (3)
-----------------------------------------------------------------------------------------
Income (loss) from operations 5% 8% (8)% (28)% N/A
(1) This line item is expressed as a percentage of the corresponding
revenue line item and not as a percentage of total revenues.
FISCAL 1994 COMPARED TO FISCAL 1993
Total Revenues. Total revenues for fiscal 1994 increased approximately 27%
compared to the prior year. The increase in total revenues was primarily due to
the continued improvement in the domestic oil and gas market, as evidenced by
increased spending by major oil companies and small independents. Domestic
revenues increased approximately 44% from fiscal 1993 which caused domestic
revenues as a percentage of total revenues to shift from 42% for fiscal 1993 to
47% for fiscal 1994. International revenues improved approximately 15% over the
fiscal 1993 amounts primarily due to the Company's continued expansion into
developing markets in Europe, Asia and Latin America. International revenues
represented approximately 53% and 58% of total revenues in fiscal 1994 and
1993, respectively.
Software Product Sales. Software product sales, which accounted for 49% of
total revenues in fiscal 1994, consist of license fees for the Company's
proprietary and third party software. The increase in software product sales of
approximately 32% over the prior fiscal year was attributable to new product
offerings, as well as stronger sales of the Company's core products. The
increase is also attributable to improved sales of Advance's seismic processing
applications, which significantly expanded the Company's product portfolio. The
Company's revenues also reflect a continuing shift away from sales of hardware
to sales of software. As a percentage of total revenues, software product sales
increased from 47% in fiscal 1993 to 49% in fiscal 1994, which had a positive
impact on gross profit. The Company's strategy of offering petroleum companies
a complete spectrum of software applications is expected to have a positive
impact on software product sales.
8
Hardware Product Sales. Hardware product sales relate to the resale of
third party computer hardware. Hardware product sales increased 19% from fiscal
1993 and represented approximately 22% of total revenues in fiscal 1994. The
increase in hardware product sales was due primarily to increased hardware
sales to small independents, who have historically purchased comprehensive
products and services.
Maintenance and Other. Maintenance and other revenues relate to
maintenance and support of the Company's hardware and software products as well
as revenues from other services, including consulting. Although maintenance and
other revenues remained constant as a percentage of total revenues,
maintenance and other revenues increased approximately $8,000,000 or 24% from
the previous year. The increase in absolute dollars was due to an increase
in software maintenance revenues and the higher demand for services offered by
the Company. This increase was offset by an ongoing reduction in hardware
maintenance revenues, resulting from increased cancellations of maintenance
contracts at the renewal dates. The Company's hardware maintenance revenues
have been adversely impacted by the presence of third party companies that
offer hardware maintenance at lower prices. In response to this trend, the
Company is outsourcing hardware maintenance business activities.
Cost of Software Product Sales. Cost of software product sales, as a
percentage of software product sales, decreased from 12% in fiscal 1993 to 9%
in fiscal 1994. This decrease was primarily attributable to the significant
increase in software product sales without a comparable increase in costs.
Cost of Hardware Product Sales. Cost of hardware product sales, as a
percentage of hardware product sales, increased from 77% in fiscal 1993 to 83%
in fiscal 1994. The increase is due to the Company lowering its hardware prices
without an equivalent decrease in its related costs and increasing the sales
discounts given in response to pressure on hardware prices. If this price
competition in the computer hardware industry continues, price reductions and
discounts and the resulting impact on hardware product margins can be expected
to continue. Although hardware has become less profitable as a result of price
competition, the Company will continue to offer hardware to accommodate sales
of software and services to customers who desire comprehensive solutions.
Cost of Maintenance and Other. Cost of maintenance and other increased
as a percentage of the related revenues from 55% in fiscal 1993 to 61% in
fiscal 1994. Lower hardware maintenance revenues, without a comparable decrease
in costs associated with providing these services, contributed to the increase.
The service margin was also negatively impacted by start-up costs associated
with expanding the Company's customized consulting services to include
comprehensive system integration and design services. While there can be no
assurance that these start-up expenditures will result in future revenue
growth, the Company believes that there is an increasing demand for such
services.
Bad Debt Expense. Bad debt expense as a percentage of total revenues
decreased slightly from fiscal 1993 to fiscal 1994. Management continues to
review the status of customer accounts and will attempt to make adequate
provisions as conditions change.
Research and Development. Research and development costs increased 21%
during fiscal 1994 over the prior year. Increased costs are primarily a result
of increased personnel costs and the addition of costs associated with the
Advance research and development function. The Company believes that continued
investments in research and development are important to its future growth and
competitive position in the marketplace. The increase in costs was partially
offset by a higher level of capitalized software costs during fiscal 1994. The
Company capitalized approximately $2,700,000 or 13% of total research and
development costs during fiscal 1994
9
as compared to approximately $1,900,000 or 11% in fiscal 1993. The Company
amortized $2,300,000 and $1,700,000 of capitalized software costs in fiscal
1994 and fiscal 1993, respectively.
Selling, Marketing and Administrative. Selling, marketing and
administrative expenses increased approximately $3,400,000 from the fiscal 1993
amount; however, as a percentage of revenue, these amounts decreased from 37%
in fiscal 1993 to 32% in fiscal 1994. The increase in absolute cost over fiscal
1993 is primarily attributable to increased selling expenses which related to
opening new sales offices in Europe and Asia. Marketing expenses also increased
from the prior fiscal year as a result of increased advertising and literature
costs. These increases were offset by the decreased rent expense experienced as
a result of the Houston facility purchase.
Merger Costs. As a percentage of fiscal 1994 revenues, merger costs
approximated 9%. These costs consist of a compensation charge related to the
common shares issued to Advance's Phantom Stock Plan participants and
professional and other fees related to the completion of the acquisition.
Other Income, Net. Other income, net increased approximately $1,800,000
from fiscal 1993 to fiscal 1994. This increase was primarily attributable to
increased interest income associated with the proceeds of the October 1993
public stock offering. The $900,000 decrease in the foreign exchange loss,
which was positively impacted by the protective hedge program implemented in
the second half of fiscal 1993, was offset by the increased interest expense
related to debt incurred in connection with the Houston facility purchase.
Taxes. During fiscal 1994, the effective tax rate was lower than the
statutory rate and higher than the prior year's rate. The effective rate
increased primarily due to the effect of nondeductible merger costs and
unrecognized deferred tax benefits of Advance. The effective rate was less than
the statutory rate primarily due to the application of pooling-of-interests
accounting to the acquisitions of Subchapter S Corporations (Advance and
GeoGraphix). Accordingly, because Advance and GeoGraphix were previously S
Corporations, the results of their operations for periods prior to the merger
have been included in income before income taxes, but the related income tax
expense has been excluded because it was the responsibility of the Advance and
GeoGraphix stockholders.
In connection with the adoption of Statement of Financial Accounting
Standards No. 109 the Company established a valuation allowance for deferred
tax assets which approximated $3,500,000 at June 30, 1994. The majority of the
year-end allowance relates to certain deferred assets associated with the
Advance acquisition. Recognition of these assets is uncertain due to the
unpredictability of Advance's future taxable income. Full realization of the
total benefit is dependent upon, among other things, Advance's and the
Company's ability to maintain the present level of earnings.
FISCAL 1993 COMPARED TO FISCAL 1992
Total Revenues. Total revenues for fiscal 1993 increased approximately
17% compared to the prior year. The increase in total revenues was primarily
due to growing acceptance of CAEX products and to a lesser extent to general
improvements in the domestic oil and gas industry and new product introductions
by the Company. Domestic revenues increased by approximately 48% from fiscal
1992 and represented approximately 42% of total revenues for fiscal 1993.
International revenues represented approximately 58% and 67% of total revenues
in fiscal 1993 and 1992, respectively.
Software Product Sales. Software product sales, which accounted for 47%
of total revenues in fiscal 1993, consist of license fees for the Company's
proprietary and third party software. The increase in software product sales of
approximately 35% over the prior fiscal year was attributable to the release of
several new products in the fourth quarter of fiscal 1993 and an improved North
American oil and gas market. Product revenues also reflected a continuing shift
away from hardware to software. As a percentage of total revenues, software
product sales increased from 41% in fiscal 1992 to 47% in fiscal 1993, which
had a positive impact on gross profit.
10
Hardware Product Sales. Hardware product sales relate to the resale of
third party computer hardware. Hardware product sales decreased 5% from fiscal
1992 and represented approximately 24% of total revenues in fiscal 1993. The
decrease in hardware product sales was due primarily to increased hardware
price competition, as the Company shipped a comparable number of hardware base
systems in each of the fiscal years.
Maintenance and Other. Maintenance and other revenues relate to
maintenance and support of the Company's hardware and software products as well
as revenues from other services, including consulting. Although maintenance and
other revenues remained relatively constant as a percentage of total revenues,
maintenance and other revenues increased approximately $3,800,000 or 13% from
the previous year. The increase in absolute dollars was due primarily to growth
in the installed base of systems under service contracts and the higher demand
for services offered by the Company.
Cost of Software Product Sales. Cost of software product sales, as a
percentage of software product sales, increased from 10% in fiscal 1992 to 12%
in fiscal 1993. This increase was primarily attributable to a significant
percentage increase in royalty costs during fiscal 1993, which was a result of
heightened sales of third party software. The Company has obtained licenses to
third party applications that are compatible with and complementary to existing
applications. The sale of third party software applications offers customers a
broader range of applications on the OpenWorks platform and is consistent with
the Company's strategy to increase software revenues.
Cost of Hardware Product Sales. Cost of hardware product sales, as a
percentage of hardware product sales, increased from 70% in fiscal 1992 to 77%
in fiscal 1993. The increase is due to the Company lowering its hardware prices
without an equivalent decrease in its related costs and increasing the sales
discounts given in response to pressure on hardware prices. Although hardware
has become less profitable as a result of price competition, the Company will
continue to offer hardware to accommodate sales of software and services to
customers who desire comprehensive CAEX solutions.
Cost of Maintenance and Other. Cost of maintenance and other decreased
as a percentage of the related revenues from 63% in fiscal 1992 to 55% in
fiscal 1993. The increase in service margins resulted primarily from the
reduction of expenses associated with certain subsidiaries which were downsized
in connection with the fiscal 1992 restructuring plan. The residual business
activities previously performed by these entities are now performed by the
Company.
Bad Debt Expense. Bad debt expense as a percentage of total revenues
decreased in fiscal 1993 from the previous fiscal year. The decrease is a
result of the aggressive receivables collection program implemented in late
fiscal 1992, which dedicated more resources to the effort and decentralized the
receivables collection process.
Research and Development. Research and development costs remained
constant during fiscal 1993 over the prior year. The Company capitalized
approximately $1,900,000 or 11% of total research and development costs during
fiscal 1993 as compared to approximately $2,400,000 or 13% in fiscal 1992. The
Company amortized $1,700,000 and $1,200,000 of capitalized software costs in
fiscal 1993 and fiscal 1992, respectively.
Selling, Marketing and Administrative. Selling, marketing and
administrative expenses increased 19% from the fiscal 1992 amount; however, as
a percentage of revenue, these expenses remained relatively constant. The
increase in absolute costs is primarily attributable to compensation costs
associated with Advance's Phantom Stock Plan.
11
Other Income, Net. Other income, net decreased approximately
$1,700,000 from fiscal 1992 to fiscal 1993. This decrease was due to the
combination of unfavorable fluctuations in currency exchange rates and lower
returns on funds invested. The unfavorable fluctuations in exchange rates
affecting the Company's foreign operations contributed approximately $1,300,000
of the total decrease of $1,700,000. In an attempt to mitigate the effect of
fluctuations in exchange rates on foreign operations, which had a significant
impact on the second quarter's results of operations, the Company instituted a
protective hedge program in the third quarter of fiscal 1993. The program is
designed to hedge certain identifiable assets and obligations which expose the
Company to exchange rate risk, primarily foreign currency based accounts
receivable. The majority of the Company's product revenues and the Company's
assets are denominated in U.S. dollars which do not expose the Company to
foreign exchange rate risk.
Taxes. During fiscal 1993, the effective tax rate was lower than the
statutory rate and higher than the 1992 fiscal year rate. The effective rate
increased primarily due to the Company's return to profitability during fiscal
1993. The effective rate was less than the statutory rate due mainly to
benefits derived from financial statement carryforwards, the use of a Foreign
Sales Corporation, and deductions from abandonment of goodwill.
Liquidity and Capital Resources
The Company's financial condition remained strong during fiscal 1994. Cash and
cash equivalents increased approximately $53,700,000 from June 30, 1993. A
substantial amount of this increase relates to the proceeds from an
underwritten public offering of the Company's common stock. These proceeds
approximated $45,300,000, after deducting underwriting discounts, commissions
and offering expenses. In addition, for the fiscal year ended June 30, 1994
cash generated internally exceeded cash required to support the Company's
operations. This accounted for the remaining increase in cash and cash
equivalents.
Net trade receivables increased approximately $4,400,000 from fiscal 1993
to fiscal 1994, due to increased revenues which were partially offset by
improved collections. A significant reduction in days sales outstanding was
realized for fiscal 1994 as evidenced by the decrease from 121 days in fiscal
1993 to 106 days in fiscal 1994.
The Company invested approximately $25,900,000 in property and equipment
during fiscal 1994, primarily for the purchase of the Houston facility.
The Company's primary internal source of liquidity is cash flow generated
from operations. External sources of liquidity include debt and equity
financing. During fiscal 1994, the Company obtained a $25,000,000 revolving
credit facility and a $10,000,000 term loan. The term loan and $4,000,000 of
the revolving credit facility were drawn to acquire the assets of the Houston
facility. The Company believes funds generated from operations will be
sufficient to meet liquidity requirements in the foreseeable future.
Management continues to evaluate opportunities to acquire products,
technologies or businesses complementary to the Company's businesses. These
acquisition opportunities may involve the use of cash or, depending upon the
size and terms of the acquisition, may require debt or equity financing.
Expenses associated with these potential acquisitions may have an adverse
impact on the Company's results of operations in the period the transactions
are consummated.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
LANDMARK GRAPHICS CORPORATION
INDEX TO SUPPLEMENTAL RESTATED CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS........................................................
REPORT OF INDEPENDENT ACCOUNTANTS........................................................
REPORT OF INDEPENDENT AUDITORS...........................................................
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS...................................................
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................................................
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS - AS RESTATED.........................
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS - AS RESTATED...................................
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - AS RESTATED....
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS - AS RESTATED.........................
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - AS RESTATED....................
13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Landmark Graphics Corporation
In our opinion, the supplemental consolidated financial statements listed in
the index appearing under Item 7(a)(1) and (2), insofar as they relate to the
year ended June 30, 1994, present fairly, in all material respects, the
financial position of Landmark Graphics Corporation and its subsidiaries at
June 30, 1994, and the results of their operations and their cash flows for
the year in conformity with generally accepted accounting principles. These
supplemental consolidated financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
As discussed in Note 23, the Company consummated two acquisitions subsequent
to June 30, 1994 which were accounted for as poolings of interests. We did not
audit the financial statements of GeoGraphix, Inc. which statements reflect
total assets of $3,257,346 and $2,799,254 at December 31, 1994 and 1993,
respectively, and total revenues of $6,408,292 and $4,859,783 for the years
ended December 31, 1994 and 1993 and 1992, respectively. Those statements were
audited by other auditors whose report thereon has been furnished to us, and
our opinion expressed herein, insofar as it relates to GeoGraphix, Inc. is
based solely on the report of the other auditors. The supplemental consolidated
financial statements for the three years ended June 30, 1994 have been restated
to reflect the poolings of interests described in Note 23. We have audited the
GeoGraphix, Inc. financial data for the six months ended December 31, 1991 (not
presented separately herein) and the adjustments that were applied to restate
the 1994, 1993 and 1992 financial statements. In our opinion, such financial
data is fairly stated and such adjustments are appropriate and have been
properly applied to the 1994, 1993 and 1992 financial statements.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
July 27, 1994, except as to Note 23 which is
as of July 26, 1995
14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
of Stratamodel, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of income, of changes in shareholders' equity and of cash flows (not
presented separately herein) present fairly, in all material respects, the
financial position of Stratamodel, Inc. and its subsidiary at December 31, 1993
and 1992, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statement in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
--------------------------
PRICE WATERHOUSE LLP
Houston, Texas
August 29, 1994
15
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Landmark Graphics Corporation
We have audited the consolidated balance sheet of Landmark
Graphics Corporation and subsidiaries as of June 30, 1993, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the two years in the period ended June 30, 1993 prior to
their restatement for poolings subsequent to 1993 (not presented separately
herein). Our audits also included the financial statement schedules listed in
the Index at Item 14(a) prior to their restatement (not presented separately
herein). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits. We did not audit the
financial statements of Advance Geophysical Corporation, a wholly owned
subsidiary, which statements reflect total assets of $5,585,333 as of June 30,
1992 and total revenues of $9,854,224 for the year ended June 30, 1992. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to data included for Advance
Geophysical Corporation, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Landmark Graphics
Corporation at June 30, 1993, and the consolidated results of its operations
and its cash flows for each of the two years in the period ended June 30, 1993
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Houston, Texas
July 28, 1993
except for Note 21, as to which the date is
May 17, 1994
16
Report of Independent Certified Public Accountants
Stockholders
Advance Geophysical Corporation
Englewood, Colorado
We have audited the balance sheet of Advance Geophysical Corporation as of
September 30, 1992 and the related statements of income, stockholders' equity
and cash flows for the year ended September 30, 1992. 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 generally accepted auditing
standards. 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 previous report, dated December 16, 1992, we expressed an opinion that
the balance sheet as of September 30, 1992 and the statements of income,
stockholders' equity and cash flows for the year ended September 30, 1992 did
not fairly present financial position, results of operations and cash flows in
conformity with generally accepted accounting principles because the Company
had not recorded the deferred compensation related to a Phantom Stock Plan for
financial reporting purposes. As described in Note 3, the Company has restated
its balance sheet as of September 30, 1992 and the statements of income,
stockholders' equity and cash flows for the year ended September 30, 1992 to
conform with generally accepted accounting principles. Accordingly, our
present opinion on these financial statements, as presented herein, is
different from that expressed in our previous report.
In our opinion, the financial statements, referred to above, present fairly, in
all material respects, the financial position of Advance Geophysical
Corporation as of September 30, 1992 and the results of its operations and its
cash flows for the year ended September 30, 1992 in conformity with generally
accepted accounting principles.
/s/ Levine, Hughes & Mithuen, Inc.
Englewood, Colorado
December 16, 1992, except for Note 3
as to which the date is January 7, 1994.
17
[ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of GeoGraphix, Inc.:
We have audited the accompanying balance sheets (not presented separately
herein) of GEOGRAPHIX, INC. (a Colorado corporation), as of December 31, 1994,
1993 and 1992, and the related statements of income, stockholders' equity and
cash flows (not presented separately herein) for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GeoGraphix, Inc. as of
December 31, 1994, 1993 and 1992, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
April 7, 1995.
18
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30,
-----------------------------------------
(in thousands, except per share data) 1994 1993 1992
------------------------------------------------------------------------------------------------------------
(Restated) (Restated) (Restated)
Revenues:
Software product sales $ 70,329 $ 53,212 $ 39,413
Hardware product sales 31,833 26,674 28,127
Maintenance and other 41,089 33,089 29,251
------------------------------------------------------------------------------------------------------------
Total revenues 143,251 112,975 96,791
Cost of revenues:
Cost of software product sales 6,387 6,237 4,074
Cost of hardware product sales 26,424 20,576 19,725
Cost of maintenance and other 24,978 18,068 18,472
Bad debt expense 1,536 1,687 3,131
------------------------------------------------------------------------------------------------------------
Total cost of revenues 59,325 46,568 45,402
------------------------------------------------------------------------------------------------------------
Gross profit 83,926 66,407 51,389
------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 18,360 15,198 15,250
Selling, marketing and administrative 45,364 41,996 35,419
Restructuring charges - - 8,300
Merger costs 13,567 - -
------------------------------------------------------------------------------------------------------------
Total operating expenses 77,291 57,194 58,969
------------------------------------------------------------------------------------------------------------
Income (loss) from operations 6,635 9,213 (7,580)
Interest income 2,696 1,011 1,665
Interest expense (882) (167) (192)
Foreign exchange gain (loss) (189) (1,092) 192
Other income, net 254 285 122
------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 8,514 9,250 (5,792)
Provision (benefit) for income taxes
Current: 3,777 1,530 (202)
Deferred (1,110) 595 130
------------------------------------------------------------------------------------------------------------
2,667 2,125 (72)
------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,847 $ 7,125 $ (5,720)
============================================================================================================
Net income (loss) per common and common
equivalent shares $ 0.36 $ 0.51 $ (0.42)
============================================================================================================
Weighted average common and common
equivalent shares outstanding 16,371 13,927 13,629
Pro forma information (unaudited):
Net income (loss) as reported 5,847 7,125 (5,720)
Pro forma charge in lieu of income taxes 1,256 554 434
------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) $ 4,591 $ 6,571 $ (6,154)
------------------------------------------------------------------------------------------------------------
Pro forma income (loss) per share $ 0.28 $ 0.47 $ (0.45)
============================================================================================================
The accompanying notes are an integral part of these financial statements.
19
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
------------------------
(in thousands) 1994 1993
-----------------------------------------------------------------------------------------
(Restated) (Restated)
Current assets:
Cash, including cash equivalents of $72,173 and $17,340 in
1994 and 1993, respectively $ 74,695 $ 21,032
Receivables:
Trade accounts, less allowance for doubtful accounts of
$1,706 and $2,108 in 1994 and 1993, respectively 41,722 37,343
Current income tax receivable 1,003 873
Accrued revenue and other receivables 7,206 5,621
Inventory 3,444 4,480
Prepaid expenses 3,635 2,794
Deferred income taxes 5,094 973
-----------------------------------------------------------------------------------------
Total current assets 136,799 73,116
Investments 851 1,653
Property and equipment, net 40,936 21,062
Software development costs, net of accumulated amortization of
$7,528 and $5,597 in 1994 and 1993, respectively 5,864 5,141
Other assets, net 4,703 5,002
-----------------------------------------------------------------------------------------
$ 189,153 $ 105,974
=========================================================================================
The accompanying notes are an integral part of these financial statements.
20
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
---------------------------
(in thousands, except par value data) 1994 1993
------------------------------------------------------------------------------------------------------------
(Restated) (Restated)
Current liabilities:
Accounts payable $ 7,943 $ 5,155
Accrued liabilities 8,319 8,151
Deferred maintenance fees 11,097 5,976
Income taxes payable 1,689 710
Current maturities of long-term debt 1,150 1,144
------------------------------------------------------------------------------------------------------------
Total current liabilities 30,198 21,136
Deferred income taxes 4,351 2,023
Deferred compensation - 2,063
Long-term debt 12,000 -
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 3,600 shares authorized, none issued or
outstanding in 1994 or 1993 - -
Common stock, $0.05 par value; 21,400 shares authorized, 16,923 shares issued
and outstanding in 1994 and 13,826 shares issued and outstanding in 1993 846 691
Paid-in capital 118,801 57,753
Retained earnings 22,957 22,308
------------------------------------------------------------------------------------------------------------
Total stockholders' equity 142,604 80,752
------------------------------------------------------------------------------------------------------------
$ 189,153 $ 105,974
============================================================================================================
The accompanying notes are an integral part of these financial statements.
21
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended June 30, 1994, 1993 and 1992
Common Stock Total
Paid-in Retained Stockholders'
(in thousands) Shares Amount Capital Earnings Equity
-----------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1991, as restated 13,478 $ 674 $ 54,450 $ 23,536 $ 78,660
Exercise of options for common stock 203 10 1,558 - 1,568
Distributions to S Corporation stockholders - - - (978) (978)
Net loss - - - (5,720) (5,720)
-----------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1992, as restated 13,681 684 56,008 16,838 73,530
Exercise of options for common stock 122 6 1,369 - 1,375
Common stock issued in connection with the acquisition of
certain assets of Oklahoma Seismic, net of expenses of $73 23 1 376 - 377
Distributions to S Corporation stockholders - - - (1,655) (1,655)
Net income - - - 7,125 7,125
-----------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1993, as restated 13,826 691 57,753 22,308 80,752
Exercise of options for common stock 307 16 3,922 - 3,938
Tax benefit associated with exercised options - - 1,062 - 1,062
Common stock issued in connection with the purchase of the
Houston facility, net of expenses of $60 80 4 1,446 - 1,450
Common stock issued, net of offering costs of $3,141 2,305 115 45,143 - 45,258
Common stock issued in exchange for performance units of an
acquired company, net of expenses of $79 405 20 8,572 - 8,592
Distributions to S Corporation stockholders - - - (3,902) (3,902)
Contribution of undistributed S Corporation earnings - - 903 (903) -
Adjustment to reduce acquired company's net income to a nine
month amount - - - (393) (393)
Net income - - - 5,847 5,847
-----------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1994, as restated 16,923 $ 846 $118,801 $ 22,957 $ 142,604
The accompanying notes are an integral part of these financial statements.
22
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
----------------------------------------
(in thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
(Restated) (Restated) (Restated)
Cash flows from:
Operating activities:
Net income (loss) $ 5,847 $ 7,125 $ (5,720)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 7,373 7,066 7,457
Adjustment to reduce acquired company's net income
included above to a nine month amount (393) - -
Amortization of intangible assets 136 122 482
Amortization of capitalized software development costs 2,284 1,708 1,196
Compensation related to performance units of acquired company 6,608 1,171 411
Write-off of goodwill from restructuring - - 1,276
Provision for doubtful accounts 1,536 1,687 3,131
Amortization of field service and lease inventory 915 721 819
Provision for inventory obsolescence 235 425 -
Provision for product upgrade costs 217 485 375
Deferred income taxes (1,110) 595 130
Other 322 551 226
Changes in assets and liabilities, net of the effects of purchased
businesses:
Receivables (7,630) (3,270) (1,490)
Inventory (114) (876) 57
Prepaid expenses (841) 267 (489)
Other assets (99) (474) (314)
Accounts payable and accrued liabilities 2,739 (2,171) 5,395
Deferred maintenance fees 5,121 268 2,155
Deferred income taxes/income taxes payable 1,359 900 (862)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 24,505 16,300 14,135
Investing activities:
Capital expenditures (25,886) (8,861) (9,998)
Payments for purchased businesses acquired net of cash acquired of $4 - (546) -
Investment in 3DX Technologies, Inc. 400 (240) -
Capitalized software development costs (2,745) (1,915) (2,401)
Proceeds from sale of property and equipment 229 - -
-------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (28,002) (11,562) (12,399)
Financing activities:
Additions to debt 14,150 27 -
Reductions of debt (2,144) (350) (552)
Proceeds from exercise of stock options 3,937 1,039 1,569
Proceeds from sale of common stock, net of offering costs 45,258 - -
Issuance costs related to stock-based financing activities (139) - -
Distributions to S Corporation stockholders (3,902) (1,655) (978)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 57,160 (939) 39
Net increase in cash and cash equivalents 53,663 3,799 1,775
Cash and cash equivalents at beginning of year 21,032 17,233 15,458
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 74,695 $ 21,032 $ 17,233
===================================================================================================================
The accompanying notes are an integral part of these financial statements.
23
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
___________________________________________
Years ended June 30, 1994, 1993 and 1992
(as restated)
Note 1 Basis of Presentation:
Landmark Graphics Corporation (the "Company") is engaged in the development,
marketing and support of interactive computer-aided exploration software and
systems. The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. The financial statements for the
years ended June 30, 1994, 1993 and 1992 have been restated to give effect to
acquisitions which have been accounted for as a pooling of interests (See Note
2 and Note 23). All significant inter-company balances and transactions have
been eliminated.
Accrued Revenue and Other Receivables Accrued revenue and other receivables
consist of the current portion of lease contracts receivable, notes receivable
and other miscellaneous receivables.
Inventory Inventory, which is stated at the lower of cost, as determined by
the first-in, first-out method, or market, is comprised of (in thousands):
June 30,
--------------------------
1994 1993
--------------------------------------------------
(Restated) (Restated)
--------------------------------------------------
Component parts $ 1,958 $ 1,823
Field service parts 775 1,395
Finished goods 180 715
Lease units 509 283
Work in Progress 22 264
--------------------------------------------------
$ 3,444 $ 4,480
--------------------------------------------------
Lease units represent systems at customer sites on either an evaluation basis
or as long-term operating leases. Lease units under long-term operating leases
are amortized over the lesser of the term of the lease or 12 months. The lease
units reflected above are net of depreciation of $165,000 and $187,000 as of
June 30, 1994 and 1993, respectively.
Property and Equipment Property and equipment are stated at cost. The cost
of repairs and maintenance is charged to operations as incurred. Depreciation
expense for financial statement purposes is computed using the straight-line
method over three years for computer equipment and purchased software, five
years for furniture, fixtures and equipment, the lesser of the lease term or
five years for leasehold improvements and twenty-five to forty years for
buildings. The accelerated cost recovery system and modified accelerated cost
recovery system of depreciation are used for income tax purposes.
Software Development Costs Costs of developing software for sale are
charged to expense when incurred as research and development until
technological feasibility has been established for the product. Thereafter,
software development costs are capitalized until the software is ready for
general release to customers. Once the software is ready for general release,
amortization of the software development costs begins. Amortization is
calculated as the greater of the amount computed by applying the ratio of
revenues generated during the current year to currently anticipated gross
revenues over the product life to the amount capitalized, or by applying the
straight-line method over the currently estimated remaining product life.
Capitalized software development costs are generally not amortized over periods
which exceed 36 months.
Costs of purchasing software for internal use are capitalized and
included in property and equipment in the accompanying financial statements.
Other Assets Other assets includes the long-term portion of lease payments
related to sales-type leases, goodwill and other intangible assets. The
long-term portion of lease payments relates to sales-type leases with lease
terms of one to three years. Goodwill represents the cost in excess of fair
value of the net assets of companies acquired and is being amortized on a
straight-line basis over eight years. Other intangible assets consist
primarily of patents and organizational costs and are being amortized on a
straight-line basis for a period of 3-5 years.
Revenue Recognition Revenues from the sale of hardware products and
software licenses are recognized at the time of shipment unless significant
future obligations remain. In these instances, revenue is not recognized until
obligations have been satisfied or are no longer significant. Maintenance and
other revenues are comprised of postcontract customer support agreements,
training and consulting services. Postcontract customer support agreements are
recorded as deferred maintenance fees and recognized as revenue ratably over
the contract period. Training and consulting service revenues are recognized
as the services are performed.
Foreign Currencies The accounts of the Company's foreign subsidiaries,
whose functional currency is the U.S. dollar, are translated into US dollars on
a monthly basis and the resulting gain or loss is included in the results of
operations. To mitigate the effect of fluctuations in exchange rates,
24
the Company utilizes a protective hedge program which is designed to hedge
certain identifiable assets and obligations, primarily accounts receivable.
Income Taxes On July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Under SFAS 109, deferred taxes are recognized using the liability method. This
method gives consideration to the future tax consequences associated with
differences between financial accounting and tax bases of assets and
liabilities. This method gives immediate effect to changes in income tax laws
upon enactment. Prior to the adoption of SFAS 109, the Company applied the
methods prescribed by Accounting Principles Board Opinion 11. The adoption of
SFAS 109 had no material effect on the Company's consolidated financial
position.
Pro Forma Charge in Lieu of Income Taxes Prior to the merger with the
Company, Advance Geophysical Corporation ("Advance") had elected S Corporation
status for U.S. federal income tax purposes. Prior to October, 1993,
GeoGraphix, Inc. ("GeoGraphix") elected S Corporation status for U.S. federal
income tax purposes. The tax liability associated with their income during
this time was the responsibility of their stockholders. To reflect the
earnings of these entities on an after-tax basis, an unaudited pro forma charge
in lieu of income taxes has been included in the accompanying Consolidated
Statements of Operations for the periods preceding the mergers. This provision
was computed as if these were C Corporations and responsible for their federal
and state income taxes. If the pro forma charge had been included in the
provision for income taxes in the accompanying financial statements, the
resulting effective rate would be greater than the statutory rate in fiscal
1992 and 1994 and less than the statutory rate in fiscal 1993. The difference
between the fiscal 1992 and 1993 effective and statutory rates was primarily
attributable to the effects of deferred tax benefits. In fiscal 1994,
nondeductible merger costs, along with the effect of unrecognized deferred tax
benefits, contributed to the higher effective rate.
Concentration of Credit Risk The Company invests its excess cash primarily
in high quality short-term liquid money market instruments. The Company's
policy is to invest in instruments with an investment-grade or higher credit
rating. The investments generally mature within ninety days and therefore are
subject to little risk. The Company has not incurred losses related to these
investments.
Trade receivables, which result from sales in numerous countries, also
subject the Company to concentrations of credit risk. The Company's policy is
to evaluate, prior to shipment, each customer's financial condition to
determine the credit terms to be extended. The Company extends credit to
various companies in the oil and gas industry. This concentration of credit
risk may be affected by changes in economic or other conditions and may,
accordingly, impact the Company's overall credit risk. However, a significant
portion of consolidated accounts receivable is due from large integrated oil
and gas companies which management believes reduces potential credit risk.
Cash and Cash Equivalents The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Reclassifications Certain prior year amounts have been reclassified to
conform to current year presentation.
Note 2 Acquisitions:
On June 21, 1993, the Company acquired certain assets of Oklahoma Seismic
Corporation ("Oklahoma Seismic") for $550,000 cash, 22,542 shares of common
stock valued at $450,000 and the assumption of certain liabilities. The
acquired assets consist primarily of software used in seismic and geological
exploration and interpretation activities. The acquisition was accounted for
using the purchase method and, accordingly, the purchase price has been
allocated to the assets acquired based on estimated fair values at the date of
acquisition. The acquired operations have been included in the results of
operations since the date of acquisition.
On March 25, 1994, the Company acquired Advance, a Denver, Colorado
based company which develops seismic processing software. In connection with
the acquisition, the Company issued a total of 2,626,746 of its shares in
exchange for all of the outstanding shares of common stock of Advance and all
of the outstanding performance units awarded under Advance's Phantom Stock
Plan. This acquisition has been accounted for as a pooling of interests, and
accordingly, the financial statements for the years ended June 30, 1993 and
1992 have been restated to include the accounts of Advance.
The Company reports its financial results on a June 30 fiscal year-end
basis, whereas Advance operated on a September 30 fiscal year-end basis. For
the purpose of applying pooling-of-interests accounting, the 1993 and 1992
financial statements have been restated by combining the Company's June 30
results with the September 30 results of Advance.
25
In the current year, Advance changed its fiscal year-end from
September 30 to June 30. As a result, the current year Consolidated Balance
Sheet and Consolidated Statement of Operations combine both entities' results
as of and for the year ended June 30, 1994. However, the Consolidated
Statement of Cash Flows combines the Company's cash flows for the year ended
June 30, 1994 with the cash flows of Advance for the nine months ended June 30,
1994. The Consolidated Statements of Operations for the years ended June 30,
1994 and 1993, both include the impact of Advance's three month period ended
September 30, 1993 for which Advance reported revenues of $4,354,000 and net
income of $393,000.
The revenues and net loss for Advance during 1994 prior to the
acquisition were $15,848 and ($6,272), respectively. The revenues and net
income for the Company during 1994 prior to the acquisition were $81,941 and
$4,580, respectively. The revenues and net income for Advance for 1993 and
1992 were $16,111 and $717, and $9,854 and $1,545, respectively.
In accordance with the pooling-of-interests method of accounting for S
Corporations, all undistributed retained earnings of Advance, as of the date of
the acquisition, are presented as an addition to paid-in capital of the
combined companies.
No adjustments were necessary in order to conform the accounting
policies of Advance to the Company's accounting policies.
Note 3 Customer Leases:
The Company leases products to customers under agreements with lease terms of
one to three years which qualify as Sales-type leases. The current portion of
the lease payments are included in Accrued revenue and other receivables, while
the long-term portion is included in Other assets as follows (in thousands):
June 30,
-------------------------
1994 1993
-----------------------------------------------------
(Restated) (Restated)
Lease contracts $ 9,145 $ 7,612
receivable:
Less current portion: (5,214) (4,135)
-------------------------
$ 3,931 $ 3,477
-----------------------------------------------------
Annual future lease payments to be received under sales-type leases
are $5,214,000, $3,577,000 and $354,000 for the years ended June 30, 1995, 1996
and 1997, respectively.
Note 4 Investments:
In September 1991, a subsidiary of the Company entered into a joint venture,
D/S Memorial, Ltd., relating to the construction and lease of a 150,000 square
foot building occupied by the Company. During fiscal 1994, the Company
purchased all of the assets of the joint venture in exchange for 80,000 shares
of common stock and $14,000,000 of cash borrowed under credit agreements (See
Note 9).
On January 27, 1993, the Company acquired 100,000 shares of 3DX
Technologies, Inc. ("3DX"), formerly Novera Energy Inc., Convertible Preferred
Stock in exchange for cash, certain assets and a line of credit guarantee of
$400,000. On November 9, 1993, the Company exchanged the 100,000 shares of
Convertible Preferred Stock for 63,637 shares of 3DX common stock.
Additionally, in connection with a 3DX equity financing transaction, the
Company paid 3DX $400,000 which was then used to repay amounts borrowed by 3DX
under the line of credit guaranteed by the Company. In exchange for that
payment, the Company was issued 4,000 units, which consist of 4,000 shares of
3DX Redeemable Preferred Stock (Redeemable stock) and 23,376 shares of 3DX
common stock. In connection with the above transaction, the line of credit
guarantee between the Company and 3DX's lender was terminated.
The Redeemable stock has a liquidation preference of $100 per share
and is mandatorily redeemable in two equal installments on November 9, 2002 and
2003. Each share of the Redeemable stock is noncumulative and entitles the
holder to ten votes. Commencing December 31, 1994 and continuing on that date
each year thereafter, dividends are payable on the Redeemable stock at the rate
of twelve dollars and fifty cents per share, if in cash, or 0.13276 shares of
Redeemable stock per share of Redeemable stock, if in stock.
One of the founders of 3DX, a company that obtains working interests
in oil and gas properties in return for providing interpretation services, is
the Company's former chairman and chief executive officer.
26
Note 5 Property and Equipment, Net:
Property and equipment consists of the following (in thousands):
June 30,
-------------------------
1994 1993
--------------------------------------------------------------
(Restated) (Restated)
Land $ 7,105 $ 4,539
Buildings and improvements 20,438 5,466
Furniture, fixtures and equipment 35,068 30,057
Computer software 4,637 3,070
---------------------------------------------------------------
67,248 43,132
Accumulated depreciation
and amortization (26,312) (22,070)
-------------------------
$ 40,936 $ 21,062
On July 1, 1993, the Company purchased all of the assets of the joint
venture which constructed and owned the Houston facility (See Note 4).
Note 6 Software Development Costs:
The Company capitalized software development costs of $2,700,000, $1,900,000
and $2,500,000 for the years ended June 30, 1994, 1993, 1992, respectively. In
addition to the amount capitalized in fiscal 1993, the Company recorded
$1,234,000 of software development costs in connection with the Oklahoma
Seismic acquisition (See Note 2). Amortization of capitalized software costs
of $2,300,000, $1,700,000 and $1,200,000 is included in the results of
operations for the years ended June 30, 1994, 1993 and 1992, respectively.
Note 7 Accrued Liabilities:
Accrued Liabilities consists of the following (in thousands):
June 30,
-------------------------
1994 1993
--------------------------------------------------------------
(Restated) (Restated)
Accrued commissions $ 1,586 $ 1,267
Accrued bonus and profit sharing 465 1,132
Accrued royalties 796 1,107
Real estate, sales and other
taxes 2,421 1,465
Other 3,063 3,180
-------------------------
$ 8,331 $ 8,151
===============================================================
Note 8 Phantom Stock Plan:
Advance adopted a Phantom Stock Plan (the "Plan") to provide deferred
compensation to certain key employees through the award of performance units.
The June 30, 1993 Consolidated Balance Sheet includes a deferred compensation
liability of $2,063,000 which relates to the 216,412 outstanding performance
units of which 189,950 units were vested. The Consolidated Statements of
Operations include compensation accrued and charged to operations under the
Plan of $12,754,000, $1,171,000 and $412,000 for the years ended June 30, 1994,
1993 and 1992, respectively. Under the provisions of the Plan, all performance
units granted and all commitments to grant additional performance units became
fully vested upon the acquisition of Advance. The Plan has been terminated and
all performance units were exchanged for 405,483 shares of the Company's common
stock.
Under Plan provisions, participants were also entitled to receive an
annual bonus based on adjusted net income, as defined, payable at the
discretion of the Board of Directors. The Consolidated Statements of
Operations include bonuses accrued and charged to operations under the Plan of
$1,343,000, $902,000 and $347,000 for the years ended June 30, 1994, 1993 and
1992, respectively. All bonuses have been paid as of June 30, 1994.
Note 9 Long Term Debt:
Long term debt consists of the following (in thousands):
June 30
-------------------------
1994 1993
---------------------------------------------------------------
(Restated) (Restated)
Term loan, interest
payable monthly at a base
rate or Eurodollar market
base rate, as defined
(5.27% at June 30, 1994),
principal due in quarterly
installments of $250
through September 30,
1998, remainder due
October 1998 $ 9,000 -
Revolving credit facility,
expiring October 1999,
interest payable monthly
at a base rate or
Eurodollar market base
rate, as defined (4.77% at
June 30, 1994), principal
due in forty-eight equal
monthly installments
beginning October 31, 1995 4,000 -
Revolving line of credit,
maturing April 15, 1995.
Interest payable monthly
at prime plus 3/4% (8.00%
at June 30, 1994). 150 $ 27
Bank note, retired
September 1993 - 1,100
Capital lease obligations,
retired September 1993 - 17
---------------------------------------------------------------
13,150 1,144
Less current maturities (1,150) $ (1,144)
---------------------------------------------------------------
$12,000 -
===============================================================
27
Principal payments of long-term debt in each of the next five fiscal
years are as follows (in thousands):
1996 $ 1,750
1997 2,000
1998 2,000
1999 6,000
Thereafter 250
---------------------------------------------------------------
$ 12,000
On July 1, 1993, the Company entered into two credit agreements
consisting of a $10,000,000 five year term loan and a $10,000,000 revolving
credit facility. The term loan and $4,000,000 of the revolving credit facility
were drawn in connection with the purchase of the Houston facility (See Notes 4
and 5). The agreement was amended on November 30, 1993 to increase the
revolving line of credit facility from $10,000,000 to $25,000,000. The
obligations are collateralized by the land and building.
The credit agreements provide for the Company to elect interest at
either a base rate stated by Lender or a Eurodollar rate, as defined. Interest
on the term loan accrues through October 31, 1994 at the base rate or LIBOR
plus 1.5%. Interest on the revolving credit facility accrues through October
31, 1994 at the base rate or LIBOR plus 1.0%. Commencing in November 1994
interest will accrue at the base rate or LIBOR plus 1.0% to LIBOR plus 2.0%,
dependent upon the Company's funded debt to cash flow ratio. The Company may
lock in LIBOR rates for both the term and revolving loans for up to 360 days.
Installment payments under the revolving credit agreement are
scheduled to begin in October 1995. The terms of the agreement allow the
Company to request an extension of the date installments commence by one year
increments. Additionally, the revolving credit agreement, as amended, requires
the payment of a quarterly commitment fee at 1/4% per annum of the average
initialized portion of the facility.
One-time fees of $120,000 and $19,000 paid in connection with the
original loan and subsequent amendment, respectively, are charged to interest
expense over the term of the loan. Both agreements require maintenance of
certain financial covenants, including a cash flow coverage ratio, a minimum
net worth test and a maximum ratio of total liabilities to tangle net worth.
As of June 30, 1994, management believes the Company is in compliance with all
covenants in the credit agreements.
At June 30, 1994, the Company had outstanding letters of credit of
approximately $1,339,000 and an available facility of approximately $3,793,000
remaining on a $5,000,000 uncommitted line of credit.
Note 10 Commitments and Contingencies:
Leases The Company has entered into operating leases for certain of its
facilities and equipment. In fiscal 1994, the Company terminated the lease
agreement on the Houston facility and purchased the building (See Note 5 and
9). Future minimum lease commitments under noncancelable operating leases with
initial or remaining terms of one year or more at June 30, 1994 are payable as
follows (in thousands):
Years ending June 30,
1995 $ 3,746
1996 2,997
1997 2,129
1998 2,014
1999 2,007
Thereafter 19,312
---------------------------------------------------------------
$32,205
===============================================================
Rental expense for fiscal 1994, 1993 and 1992 was approximately $2,511,000,
$4,025,000, and $3,822,000, respectively. Of the $3,721,000 paid in fiscal
1993, $1,416,000 was paid to D/S Memorial Ltd. (See Note 4).
In fiscal 1993, Advance's stockholders, of which the majority holder
is Advance's chief executive officer, formed a limited partnership,
Alton-S.G.P. Ltd. The limited partnership purchased the facility in which the
Company conducts its Colorado operations and was paid rent expense of $144,000
and $27,000 for the years ended June 30, 1994 and 1993, respectively.
Incentive Bonus Plans The Company has a performance bonus plan for all
employees of the Company not included in other incentive compensation plans.
Payments pursuant to the performance bonus plan are based on a percentage of
each participant's base salary if certain performance criteria are achieved by
the Company. For the year ended June 30, 1992, $241,000 was accrued and paid
to eligible employees under the plan. No amounts were accrued or paid under
the plan in fiscal 1993. Although the 1994 performance criteria was not
28
achieved, the Board of Directors approved a discretionary bonus of $359,000
which is included in the results of operations.
Employment Agreements In connection with the acquisition, the Company has
entered into employment, non-competition and retention agreements (for three to
five years) with certain officers and key employees of Advance. The total
remaining amount of future charges to income, if all such commitments are
fulfilled by all parties, approximated $4,651,000 at June 30, 1994.
Litigation The Company is involved in certain claims and litigation arising
in the course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Note 11 Preferred Stock:
The Board of Directors has the authority to issue shares of preferred stock in
one or more series and to fix the rights, qualifications, preferences,
privileges, limitations or restrictions of each such series.
Note 12 Public Offering:
On October 13, 1993, the Company completed an underwritten public offering of
2,000,000 shares of common stock at a price to the public of $21.00 per share.
In conjunction with the offering, the underwriters fully exercised an over-
allotment option of 304,749 shares. Proceeds to the Company after deducting
underwriting discounts, commissions and offering costs were approximately
$45,258,000. Such proceeds have and may continue to be used for general
corporate purposes, including acquisitions and working capital.
Note 13 Stock Option Plans:
The Company has several stock option plans whereby options to purchase shares
of common stock have been or can be granted to directors, officers, consultants
and employees. Grant prices are, in most instances, equal to the fair market
value at the date of grant; however, under the provisions of the plan, the
Company has the option to set grant prices at a defined percentage below fair
market value. Matters such as vesting periods and expiration of options are
determined on a plan by plan, or grant by grant basis.
The following is a summary of stock option activity for the years
ended June 30, 1994, 1993 and 1992:
Shares
Under
Option Price Range
---------------------------
Outstanding at
June 30, 1991 1,148,246 $ .60-22.75
Options granted 1,566,940 10.25-23.75
Options canceled (116,354) 6.20-22.75
Options exercised (202,906) 2.14-17.32
-----------------------------------------------------
Outstanding at
June 30, 1992 2,395,926 .60-23.75
Options granted 1,155,556 10.00-20.38
Options canceled (1,299,935) 4.88-23.75
Options exercised (122,553) .60-17.00
-----------------------------------------------------
Outstanding at
June 30, 1993 2,128,994 .60-23.75
Options granted 475,315 18.00-34.13
Options canceled (197,623) 10.25-28.13
Options exercised (307,354) .60-23.75
-----------------------------------------------------
Outstanding at June 30,
1994 2,099,332 $ .60-34.13
-----------------------------------------------------
Of the options outstanding at June 30, 1994, 652,522 options were
exercisable. At June 30, 1994 and 1993, there were 1,454,360 and 1,732,262
shares, respectively, reserved for future grants under existing plans. During
fiscal 1993, as an incentive program for employees, the Board of Directors
approved a plan to offer employees who are not officers or directors the
alternative of exchanging existing options for new options. As a result of
this plan 681,511 options at prices ranging from $14.00 to $23.75 were canceled
and new options at an exercise price of $12.75 were granted and began the
required vesting period.
Note 14 Profit Sharing Plan:
The Company established The Landmark Savings Plan (the "Plan") for the benefit
of all eligible employees. The Plan is qualified under sections 401(a) and 401
(k) of the Internal Revenue Code of 1986 and is subject to the provisions of
the Employee Retirement Income Security Act of 1974.
Employees may voluntarily contribute up to 16% of Compensation, as
defined, to the Plan. The participants' contributions are matched by the
Company at a rate of 50% of the first 8%, up to IRS limitations. For the years
ended June 30, 1994, 1993
29
and 1992, contributions by the Company were $623,000, $554,000 and $534,000,
respectively.
During fiscal 1994, 1993 and 1992, the Plan purchased 5,394, 22,000
and 14,815 shares, respectively, of the Company's common stock. At June 30,
1994, 1993 and 1992, the Plan owned 36,933, 49,529 and 29,029 shares
respectively, of the Company's common stock. Certain of the Company's
subsidiaries sponsor various defined contribution plans. These plans are
immaterial.
Note 15 Income (Loss) Per Common and Common
Equivalent Share:
Income (loss) per common and common equivalent share is computed using the
weighted average number of shares of common stock and common stock equivalents
outstanding during the year. Common stock equivalents include the number of
shares issuable upon exercise of stock options, less the number of shares that
could have been repurchased with the exercise proceeds using the treasury stock
method. In the case of a net loss, no shares are assumed to be issued upon
exercise of stock options because such shares would be antidilutive.
For purposes of the income (loss) per share computation, the shares
issued in exchange for the equity interests of pooled entities have been
treated as if they had been issued and outstanding for all periods presented.
The following is a reconciliation of the weighted average number of
shares outstanding with the number of shares used in the computations of income
(loss) per common and common equivalent share (in thousands):
June 30,
--------------------------------
1994 1993 1992
---------------------------------------------------------
(Restated) (Restated) (Restated)
Weighted average
number of shares
outstanding 15,771 13,706 13,629
Share equivalents 600 221 -
---------------------------------------------------------
Shares used in
computing income
(loss) per share 16,371 13,927 13,629
---------------------------------------------------------
Note 16 Income Taxes:
The provision (benefit) for income tax differs from the amounts computed based
upon the federal statutory rates for the reasons shown below:
Years ended June 30,
--------------------------------
1994 1993 1992
---------------------------------------------------------
(Restated) (Restated) (Restated)
Statutory federal income
tax rate 35% 34% (34)%
Amortization of goodwill 1 1 9
Nondeductible
merger costs 8 - -
Taxes related to
foreign income 3 2
Foreign Sales
Corporation benefit (1) (3) (5)
Abandonment of goodwill - (3) -
Deferred tax benefits not
recognized (recognized) 3 (5) 23
S Corporation earnings (14) (2) (1)
Tax-exempt income (3) - -
Other 3 (2) 4
---------------------------------------------------------
32% 23% (2)%
Income (loss) before income taxes was taxed under the following
jurisdictions (in thousands):
Years ended June 30,
--------------------------------
1994 1993 1992
---------------------------------------------------------
(Restated) (Restated) (Restated)
Domestic $ 7,894 $ 8,553 $(6,801)
Foreign 620 697 1,009
---------------------------------------------------------
$ 8,514 $ 9,250 $(5,792)
Provision (benefit) for income taxes included in the Consolidated
Statements of Operations are as follows (in thousands):
Years ended June 30,
--------------------------------
1994 1993 1992
---------------------------------------------------------
(Restated) (Restated) (Restated)
Current:
Federal $ 1,508 $ 295 $(1,458)
State 87 - -
Foreign 2,182 1,235 1,256
---------------------------------------------------------
Total current 3,777 1,530 (202)
Deferred:
Federal (968) 570 97
Foreign (142) 25 33
---------------------------------------------------------
Total deferred (1,110) 595 130
---------------------------------------------------------
Provision (benefit)
for income taxes $ 2,667 $ 2,125 $ (72)
---------------------------------------------------------
The foreign taxes withheld on export sales are included in the foreign
amount of the current provision shown above.
30
Deferred tax assets (liabilities) are comprised of the following
(in thousands):
FAS 109
Year ended adoption
June 30, at July 1,
1994 1993
---------------------------------------------------------------
(Restated) (Restated)
Stock compensation plan $ 1,643 -
Loss and credit carryforward 4,636 $ 1,915
Warranty, bad debt and
inventory reserves 1,255 1,552
Accrual-to-cash method adjustment 408 -
Restructuring reserve 21 219
Vacation reserve 212 177
Accrued expenses 1 177
Uniform capitalization 44 127
Other 337 56
-----------------------------------------------------------
Total - current 8,557 4,223
Depreciation 107 1,249
Capitalized R&D costs (1,724) (1,393)
Foreign subsidiary earnings (1,054) (659)
Foreign depreciation (275) (395)
Prepaid royalties (378) (237)
Other (1,027) (588)
-----------------------------------------------------------
Total - noncurrent (4,351) (2,023)
-----------------------------------------------------------
Net tax asset before
valuation allowance 4,206 2,200
Valuation allowance (3,463) (3,250)
-----------------------------------------------------------
Net deferred tax asset (liability) $ 743 $ (1,050)
===========================================================
Research and development credit carryforwards of $453,000, investment tax
credit carryforwards of $41,000 and net operating loss carryforwards of
$1,175,000 were used to reduce current taxes payable and the provision for
income taxes.
The net change in the valuation allowance for deferred tax assets during
the current year is an increase of $213,000. The change results from an
increase in deferred tax assets acquired in the Advance transaction for which
no benefit has been recognized, and from a decrease in deferred tax assets for
which benefit was taken during the current year.
The company increased its U.S. deferred tax assets in the current fiscal
year as a result of legislation enacted during 1993 which increased the
corporate tax rate from 34% to 35%.
For federal income tax purposes, the Company has net operating loss
carryforwards of $8,768,000 from the acquisitions of Advance and Stratamodel
which will expire in 2008 and which may be limited under the change of
ownership rules, foreign tax credit carryforwards of $598,000 expiring in 1999,
research and development credits of $851,000 expiring beginning in 2004 and
continuing through 2009, and minimum tax credits of $71,000. In fiscal 1994,
the Company recognized a deferred tax benefit of $1,578,000 relating to net
operating loss carryforwards and to the change in tax status of GeoGraphix.
31
The current income tax receivable represents the anticipated refund of
domestic taxes paid in prior years which are recoverable due to subsidiary
losses and carryback of foreign tax credits.
Note 17 Segment Information:
The Company operates exclusively in one industry segment, the supply of
computer-aided exploration systems and services to the petroleum industry. No
single customer represented in excess of 10% of total revenues during any of
the years presented.
Revenues and identifiable assets by geographic area, which reflect the
elimination of inter-geographic amounts, are presented below (in thousands).
----------------------------------------
1994 1993 1992
---------------------------------------------------------------------
(Restated) (Restated) (Restated)
Revenues:
United States:
Domestic $ 67,975 $ 47,236 $ 31,914
Export 49,762 41,898 46,417
Canada 2,907 2,742 3,843
Europe/Africa/
Middle East 15,296 14,173 9,364
Pacific Rim 5,004 4,910 3,153
Other 2,307 2,016 2,100
-------------------------------------------------------------------------
$143,251 $112,975 $ 96,791
=========================================================================
Export Sales from
United States to:
Canada $ 3,966 $ 2,585 $ 2,758
Europe/Africa
Middle East 25,822 23,902 23,608
Pacific Rim 10,957 9,496 15,182
Latin America 9,017 5,915 4,869
-------------------------------------------------------------------------
$ 49,762 $ 41,898 $ 46,417
=========================================================================
1994 1993 1992
-------------------------------------------------------------------------
(Restated) (Restated) (Restated)
Identifiable Assets:
United States $180,372 $ 94,382 $ 83,358
Canada 1,467 1,660 2,645
Europe/Africa
Middle East 4,408 6,354 7,634
Pacific Rim 2,197 2,634 3,275
Latin America 709 944 2,188
-------------------------------------------------------------------------
$189,153 $105,974 $ 99,100
=========================================================================
Revenues generated outside the United States primarily represent
maintenance and customer support services provided by the Company's foreign
offices.
The Company's foreign operations function as sales representatives and
customer support offices. Transactions with these foreign entities are
conducted through contracts which provide for reimbursement of certain costs
and fees for services performed. Products are provided to customers directly
from the U.S. parent organization. Geographical profit and loss information
has been omitted as it is not deemed to be useful in analyzing and
understanding the Company's worldwide operations.
Note 18 Restructuring Charges:
During fiscal 1992, the Company announced a restructuring plan developed in
response to the continuing downturn in the U.S. energy market. The plan was
designed to consolidate and downsize the Company's North and Latin American
operations as well as its consulting business. The plan included centralizing
the research and development function and redistributing and resizing the sales
and support functions. Restructuring charges and nonrecurring costs of
$8,300,000 were recorded during fiscal 1992, of which $4,900,000 was recorded
in the fourth quarter. The major components of the restructuring charges and
nonrecurring costs were severance costs, relocation expenses, cost of excess
facilities and estimated charges for the write-down of tangible and intangible
assets.
Note 19 Merger Costs:
For the year ended June 30, 1994, nonrecurring costs included in the
Consolidated Statements of Operations consist of a compensation charge related
to the common shares issued to Phantom Stock Plan participants and professional
and other fees and expenses related to the completion of the merger with
Advance. In connection with the acquisition, common stock was issued to
Advance's Phantom Stock performance unit holders in exchange for all of their
outstanding performance units. The fair value of the Company's stock was used
to measure the compensation costs relating to this Plan, which resulted in the
recognition of a nonrecurring charge of $11,126,000. Additionally, investment
banking, accounting and legal costs related to the merger of approximately
$2,441,000 were incurred and are included in merger costs.
Note 20 Cash Flow Information:
Net cash provided by operating activities reflects cash payments for interest
and income taxes as follows (in thousands):
Years ended June 30,
1994 1993 1992
-------------------------------------------------------------------------
(Restated) (Restated) (Restated)
Income taxes $ 2,349 $ 1,827 $ 2,094
Interest 742 168 232
During the years ended June 30, 1994 and 1993, there were noncash
financing activities of $1,062,000 and $263,000, respectively, relating to tax
benefits received from the exercise of nonqualified stock options by employees.
These benefits were recorded as a reduction of income taxes payable and an
increase in paid-in capital. No benefits were recorded in the year ended June
30, 1992.
32
There were noncash investing activities of approximately $1,510,000 for the
year ended June 30, 1994 which relates to stock issued in connection with the
purchase of the Houston facility. Additionally, there were approximately
$661,000 of noncash investing activities for the year ended June 30, 1993
which includes $211,000 of inventory and equipment contributed to 3DX and
$450,000 of common stock issued in connection with the acquisition of certain
assets of Oklahoma Seismic.
There were noncash operating activities during the year ended June 30,
1994 of approximately $8,671,000. This amount relates to common stock issued
to satisfy obligations due to Advance's Phantom Stock performance unit holders.
Note 21 Quarterly Financial Data (Unaudited):
Summarized quarterly financial data, as restated for the effects of the
acquisition accounted for as a pooling of interests, is as follows (in
thousands, except per share data):
-------------------------------------------------
First Second Third Fourth
----------------------------------------------------------------------
1994: (Restated) (Restated) (Restated) (Restated)
Revenues:
Company $22,667 $30,100 $34,516 $34,496
Advance 4,354 6,152 - -
Stratamodel 2,059 1,480 848 1,099
GeoGraphix 1,005 1,543 1,427 1,505
----------------------------------------------------------------------
Combined $30,085 $39,275 $36,791 $37,100
----------------------------------------------------------------------
Gross profit:
Company $13,195 $15,765 $20,190 $19,765
Advance 2,599 4,668 - -
Stratamodel 1,602 878 538 699
GeoGraphix 650 1,052 1,182 1,143
----------------------------------------------------------------------
Combined $18,046 $22,363 $21,910 $21,607
----------------------------------------------------------------------
Net income (loss):
Company $ 1,362 $ 3,113 $(8,587) $ 7,153
Advance 393 2,027 - -
Stratamodel 463 (122) (290) (389)
GeoGraphix (17) 289 312 140
----------------------------------------------------------------------
Combined $ 2,201 $ 5,307 $(8,565) $ 6,904
----------------------------------------------------------------------
Net income
(loss) per share:
Company $ 0.12 $ 0.24 $ (0.56) $ 0.43
Advance 0.01 0.10 - -
Stratamodel 0.03 (0.02) - (0.03)
GeoGraphix (0.01) - 0.04 (0.01)
----------------------------------------------------------------------
Combined $ 0.15 $ 0.32 $ (0.52) $ 0.39
----------------------------------------------------------------------
-------------------------------------------------
First Second Third Fourth
----------------------------------------------------------------------
1993: (Restated) (Restated) (Restated) (Restated)
Revenues:
Company $17,587 $20,504 $23,624 $25,858
Advance 4,217 3,923 3,617 4,354
Stratamodel 1,070 2,077 712 788
GeoGraphix 778 1,558 1,077 1,231
----------------------------------------------------------------------
Combined $23,652 $28,062 $29,030 $32,231
----------------------------------------------------------------------
Gross profit:
Company $ 9,737 $11,810 $12,899 $14,302
Advance 3,163 2,808 2,224 2,599
Stratamodel 772 1,843 514 428
GeoGraphix 526 1,015 803 964
----------------------------------------------------------------------
Combined $14,198 $17,476 $16,440 $18,293
----------------------------------------------------------------------
Net income (loss):
Company $ 164 $ 656 $ 1,878 $ 2,522
Advance 524 (184) (16) 393
Stratamodel 109 356 (69) (206)
GeoGraphix 30 432 223 313
----------------------------------------------------------------------
Combined $ 827 $ 1,260 $ 2,016 $ 3,022
----------------------------------------------------------------------
Net income
(loss) per share:
Company $ 0.02 $ 0.06 $ 0.18 $ 0.23
Advance 0.03 (0.02) (0.04) (0.01)
Stratamodel 0.01 0.02 (0.01) (0.02)
GeoGraphix - 0.03 0.01 0.01
----------------------------------------------------------------------
Combined $ 0.06 $ 0.09 $ 0.14 $ 0.21
----------------------------------------------------------------------
Note 22 Subsequent Events (Unaudited):
On September 29, 1994, the Company purchased all the issued and outstanding
capital stock of MGI Associates, Inc., ("MGA") in an acquisition using the
purchase method of accounting. MGA, based in Dallas, Texas, develops personal
computer-based economics and reservoir engineering software products designed
to aid geoscientists in oil and gas exploration. The Company acquired MGA for
consideration of approximately $13.3 million which consisted of cash of $10.5
million paid to acquire the stock, cash of $1.3 million paid to retire certain
related party debt and the payment of approximately $1.6 million of
acquisition-related costs.
Note 23 Stratamodel and GeoGraphix Acquisitions
Stratamodel
On September 28, 1994, the Company acquired all of the equity
interests of Stratamodel in a transaction accounted for as a pooling of
interests, and accordingly, the financial statements for all periods
presented have been restated to include the accounts of Stratamodel.
Stratamodel's reservoir characterization and modeling software
products are designed to aid geoscientists in oil and gas exploration
and production. In connection with the acquisition, the Company issued a total
of 413,911 shares of its common stock, in exchange for all of the equity
interests of Stratamodel, which included common stock, stock options and
warrants. In addition, the Company retired all of Stratamodel's outstanding
debt of approximately $510,000 and paid certain acquisition-related expenses of
Stratamodel of approximately $293,000.
Stratamodel previously reported its financial results on a December 31
fiscal year-end basis. In connection with
33
the acquisition, Stratamodel changed its fiscal year-end from December 31 to
June 30. As a result, the financial statements presented combine both
entities' financial results for the same periods. In addition to the
adjustments made to effect the change in fiscal years, certain adjustments
were made in order to conform Stratamodel's method of accounting for software
development costs and income taxes to the Company's method.
The Company capitalizes software development costs when an operative
version of the product is ready for initial testing, whereas Stratamodel
capitalized costs at points prior to initial testing. Additionally, the
Company accounted for income taxes under Accounting Principles Board Opinion
No. 11 until it was required to adopt SFAS 109. Stratamodel had applied
Statement of Financial Accounting Standards No. 96, "Accounting for Income
Taxes" until adopting SFAS 109. In connection with the acquisition,
Stratamodel conformed its accounting policies to those of the Company. The
effect of these conforming adjustments increased Stratamodel's historical net
income for the year ended June 30, 1994 by approximately $35,000 and decreased
net income for the years ended June 30, 1993 and 1992 by approximately $346,000
and $295,000, respectively.
The historical stockholders' equity amounts of Stratamodel included in
the Restated Condensed Balance Sheet reflect the exchange of 413,911 shares of
the Company's Common Stock under the pooling-of-interests method of accounting.
GeoGraphix, Inc.
On June 5, 1995, the Company acquired all of the outstanding common stock
of GeoGraphix, Inc. ("GeoGraphix"), a Denver, Colorado based company, in a
transaction accounted for as a pooling of interests, and accordingly, the
financial statements for all periods presented have been restated to include
the accounts of GeoGraphix.
GeoGraphix previously reported its financial results on a December 31
fiscal year-end basis. In connection with the acquisition, GeoGraphix changed
its fiscal year-end from December 31 to June 30. As a result, the financial
statements presented combine both entities' financial results for the same
periods. In addition to the adjustments made to effect the change in fiscal
years, certain adjustments were made in order to conform GeoGraphix's method of
accounting for software development costs to the Company's method.
The Company capitalizes software development costs when an operative
version of the product is ready for initial testing, whereas GeoGraphix
capitalized costs at points prior to initial testing. In connection with the
acquisition, GeoGraphix conformed its accounting policies to those of the
Company. The provision (benefit) for income taxes has been adjusted to conform
the provision for income taxes to that which would have been recorded had the
acquired company operated on a June 30 fiscal year end and had applied the same
method of accounting for capitalized software development costs as the Company.
The effect of these conforming adjustments increased GeoGraphix's historical
net income for the year ended June 30, 1994 by approximately $65,000, and
decreased net income for the years ended June 30, 1993 and 1992 by
approximately $35,000 and $80,000, respectively.
The historical stockholders' equity amounts of GeoGraphix included in the
Restated Condensed Balance Sheet reflect the exchange of 653,718 shares of the
Company's Common Stock under the pooling-of-interests method of accounting.
The following table summarizes the revenue and net income for the
Company, as restated for Advance, Stratamodel and GeoGraphix (in thousands):
----------------------------------
1994 1993 1992
--------------------------------------------------------------
(Restated) (Restated) (Restated)
Revenues:
Company $132,285 $103,684 $91,713
(restated for
Advance)
Stratamodel 5,486 4,647 2,589
GeoGraphix 5,480 4,644 2,489
--------------------------------------------------------------
$143,251 $112,975 $96,791
Net Income:
Company $ 5,461 $ 5,937 $(5,640)
(restated for
Advance)
Stratamodel (338) 190 9
GeoGraphix 724 998 (89)
--------------------------------------------------------------
$ 5,847 $ 7,125 $(5,720)
34
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(1994 FORM 10-K)
(a) (2) Financial Statement Schedules
Schedule Number Description of Schedule
--------------- -----------------------
VIII Valuation and Qualifying Accounts
V Supplementary Income Statement Information
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
35
Schedule VIII - Valuation and Qualifying Accounts - as restated
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and ------------------------- End
of Period Expenses Write-offs Conversions of Period
--------- -------- ---------- ----------- ---------
(restated) (restated) (restated) (restated) (restated)
Inventory reserves:
June 30, 1992.............. $ 2,898,000 $ 726,000 $(1,008,000) - $2,616,000
June 30, 1993.............. 2,616,000 984,000 (1,122,000) - 2,478,000
June 30, 1994.............. 2,478,000 973,000 (1,932,000) - 1,519,000
Lease inventory
accumulated amortization:
June 30, 1992............... $ 503,000 $ 150,000 - $ (128,000) $ 525,000
June 30, 1993............... 525,000 162,000 - (500,000) 187,000
June 30, 1994............... 187,000 180,000 - (202,000) 165,000
Allowance for doubtful accounts:
June 30, 1992............... $ 891,000 $ 3,131,000 $ (310,000) - $3,712,000
June 30, 1993............... 3,712,000 1,687,000 (3,291,000) - 2,108,000
June 30, 1994............... 2,108,000 1,536,000 (1,938,000) - 1,706,000
Deferred income taxes valuation allowance:
Balance at Balance at
Beginning End
of Period Additions Deductions of Period
--------- --------- ---------- ---------
June 30, 1994............... *$3,250,000 $3,767,000 $(3,554,000) $3,463,000
*At date of adoption of Statement of Financial Standards No. 109. No valuation
allowance existed for any periods prior to the adoption.
36
Schedule X - Supplementary Income Statement Information - as restated
Charged to Costs and Expenses
Years Ended
---------------------------------------------------
1994 1993 1992
-------------------------------------------------------------------------
(restated) (restated) (restated)
Taxes, other than
payroll and income
taxes $ 1,173,000 $ 1,096,000 $ 1,075,000
Royalties 2,398,000 2,629,000 1,322,000
Maintenance and repairs, depreciation and amortizarion of intangible
assets, and advertising costs have been disclosed elsewhere in the financial
statements or are less than 1% of total revenues. Accordingly, such amounts
have been excluded from this schedule.
37
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits (1994 Form 10-k)
(a)(1) Financial Statements.
The following financial statements of the Registrant are
included in Item 5 above under the heading "Item 8.
Financial Statements and Supplementary Data" (1994
Form 10-K):
Report of Independent Accountants
Report of Independent Auditors
Report of Independent Certified Public
Accountants
Statements of Operations for the years ended
June 30, 1994, 1993 and 1992
Balance Sheets as of June 30, 1994 and 1993
Statements of Stockholders' Equity for the
years ended June 30, 1994, 1993 and 1992
Statements of Cash Flows for the years ended
June 30, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules.
The following financial statement schedules of the
Registrant are included in Item 5 above under the heading
"Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K" (1994 Form 10-K):
Schedule Number Description of Schedule
--------------- -----------------------
VIII Valuation and Qualifying Accounts
X Supplementary Income Statement Information
All other schedules are omitted since the required
information is not present or is not present in amounts
sufficient to require submission of the schedule, or
because the information required is included in the
consolidated financial statements and notes thereto.
(c) Exhibits.
(23) Consent of Experts and Counsel
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Levine, Hughes and Mithuen,
Inc.
23.4 Consent of Arthur Andersen LLP
38
SIGNATURE
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.
LANDMARK GRAPHICS CORPORATION
BY: /S/ WILLIAM H. SEIPPEL
--------------------------------------------
WILLIAM H. SEIPPEL
VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
39
INDEX TO EXHIBITS
23.1 Consent of Price Waterhouse
23.2 Consent of Ernst & Young
23.3 Consent of Levine, Hughes and Mithuen, Inc.
23.4 Consent of Arthur Andersen LLP
EX-23.1
2
CONSENT OF INDEPENDENT ACCOUNTANTS
1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Numbers 33-26995, 33-28484, 33-38132, 33-39358,
33-44217 and 33-57989) and in the Prospectuses constituting part of the
Registration Statements on Form S-3 (Numbers 33-79226, 33-87216 and 33-61405)
of Landmark Graphics Corporation of our report dated July 27, 1994, except as
to Note 23 which is as of July 26, 1995, relating to the financial statements
of Landmark Graphics Corporation and of our report dated August 29, 1994
related to the financial statements of Stratamodel, Inc. which appear in the
Current Report on Form 8-K of Landmark Graphics Corporation dated August 10,
1995.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
August 8, 1995
EX-23.2
3
CONSENT OF INDEPENDENT AUDITORS
1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the (a) the Registration
Statement (Form S-8 Number 33-26995) pertaining to The 1984 Incentive Stock
Option Plan, The 1985 Incentive Stock Option Plan, and The Non-Qualified Stock
Option Plan, (b) the Registration Statement (Form S-8 Number 33-28484)
pertaining to The Landmark Savings Plan, (c) the Registration Statement (Form
S-8 Number 33-38132) pertaining to The Zycor, Inc. 1988 Employee Incentive
Stock Option Plan, (d) the Registration Statement (Form S-8 Number 33-39358)
pertaining to The 1989 Flexible Stock Option Plan, Consultant's Stock Option
Plan, and the 1990 Employee Stock Option Plan, (e) the Registration Statement
(Form S-8 Number 33-44217) pertaining to The Director's Stock Option Plan, (f)
the Registration Statement (Form S-8 Number 33-57989) pertaining to The 1994
Flexible Incentive Plan, (g) the Registration Statement (Form S-3 Number
33-26995) pertaining to the registration of 2,626,746 shares of stock, (h) the
Registration Statement (Form S-3 Number 33-87216) pertaining to the
registration of 413,911 shares of stock, (I) the Registration Statement (Form
S-3 Number 33-61405) pertaining to the registration of 653,718 shares of stock
and the related Prospectuses, of our report dated July 28, 1993, except for
Note 21, as to which the date is May 17, 1994, with respect to the consolidated
financial statements of Landmark Graphics Corporation prior to their
restatement for poolings subsequent to 1993 included in the Annual
Report (Form 10-K) for the fiscal year ended June 30, 1994.
/s/ ERNST & YOUNG LLP
Houston, Texas
August 10, 1995
EX-23.3
4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACC.
1
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the (a) the Registration
Statement (Form S-8 Number 33-26995) pertaining to The 1984 Incentive Stock
Option Plan, The 1985 Incentive Stock Option Plan, and The Non-Qualified Stock
Option Plan, (b) the Registration Statement (Form S-8 Number 33-28484)
pertaining to The Landmark Savings Plan, (c) the Registration Statement (Form
S-8 Number 33-38132) pertaining to The Zycor, Inc. 1988 Employee Incentive
Stock Option Plan, (d) the Registration Statement (Form S-8 Number 33-39358)
pertaining to The 1989 Flexible Stock Option Plan, Consultant's Stock Option
Plan, and the 1990 Employee Stock Option Plan, (e) the Registration Statement
(Form S-8 Number 33-44217) pertaining to The Director's Stock Option Plan, (f)
the Registration Statement (Form S-8 Number 33-57989) pertaining to The 1994
Flexible Incentive Plan, (g) the Registration Statement (Form S-3 Number
33-26995) pertaining to the registration of 2,626,746 shares of stock, (h) the
Registration Statement (Form S-3 Number 33-87216) pertaining to the
registration of 413,911 shares of stock, (I) the Registration Statement (Form
S-3 Number 33-61405) pertaining to the registration of 653,718 shares of stock
and the related Prospectuses, of our report dated December 16, with respect to
the consolidated financial statements and schedules of Landmark Graphics
Corporation included in the Annual Report on Form 10-K for the fiscal year
ended June 30, 1994.
/s/ LEVINE, HUGHES & MITHUEN, INC.
Englewood, Colorado
August 10, 1995
EX-23.4
5
CONSENT OF ARTHUR ANDERSEN
1
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Prospectuses constituting part of the Registration Statements
on Form S-8 (Numbers 33-26995, 33-28484, 33-38132, 33-39358, 33-44217 and
33-57989) and on Form S-3 (numbers 33-79226, 33-87216 and 33-61405) of Landmark
Graphics Corporation of our report dated April 7, 1995 relating to the
financial statements of GeoGraphix, Inc. as of and for the years ended December
31, 1994, 1993 and 1992, which report appears in the Current Report on Form 8-K
of Landmark Graphics Corporation dated August 10, 1995. It should be noted that
we have not audited any financial statements of GeoGraphix, Inc. subsequent to
December 31, 1994 or performed any audit procedures subsequent to the date of
our report.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
August 8, 1995