FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______ .
COMMISSION FILE NUMBER 0-28422
GEOSCIENCE CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA 76-0497775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10500 WESTOFFICE DRIVE, SUITE 200, HOUSTON, TEXAS 77042
(Address of principal executive offices) Zip Code
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 780-1881
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON OUTSTANDING AT OCTOBER 29, 1999
Common Stock, $.01 par value 9,985,350
FORM 10-Q
GEOSCIENCE CORPORATION
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet September 30, 1999 (unaudited)
and December 31, 1998 1
Consolidated Statement of Operations for the quarter ended
September 30, 1999 and 1998 (unaudited) 2
Consolidated Statement of Operations for the nine months ended
September 30, 1999 and 1998 (unaudited) 3
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1999 and 1998 (unaudited) 4
Consolidated Statement of Changes in Shareholders' Investment for
the nine months ended September 30, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOSCIENCE CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)
SEPTEMBER 30, 1999 DECEMBER 31, 1998
-----------------------------------------
(unaudited)
-----------------------------------------
ASSETS
Current assets
Cash and cash equivalents ......................................... $ 1,423 $ 659
Receivables, net .................................................. 30,277 35,332
Inventories, net .................................................. 35,169 65,046
Deferred taxes on income .......................................... 13,695 5,023
Other ............................................................. 1,575 1,139
--------------------------------
Total current assets ........................................... 82,139 107,199
Property, plant and equipment, net ......................................... 23,860 28,334
Long-term receivables, net ................................................. 9,512 9,566
Deferred taxes on income ................................................... 302
Other assets ............................................................... 4,467 5,449
--------------------------------
Total assets ................................................... $ 119,978 $ 150,850
================================
LIABILITIES
Current liabilities
Notes payable and current maturities of long-term debt ............ $ 27,169 $ 29,883
Accounts payable .................................................. 7,030 14,471
Unearned revenue .................................................. 1,781 287
Taxes on income ................................................... 660 1,621
Payable to Tech-Sym Corporation ................................... 3,645 10,423
Other accrued liabilities ......................................... 12,236 8,382
--------------------------------
Total current liabilities ...................................... 52,521 65,067
Long-term debt ............................................................. 6,637 5,413
Other liabilities and deferred credits ..................................... 1,228 780
--------------------------------
Total liabilities .............................................. 60,386 71,260
SHAREHOLDERS' INVESTMENT
Common stock - authorized 35,000,000 shares,
$.01 par value; issued 10,504,350 shares ................................. 105 105
Additional capital ......................................................... 44,946 44,946
Accumulated earnings ....................................................... 21,100 40,956
Accumulated other comprehensive loss ....................................... (245) (103)
Common stock held in treasury,
at cost (519,000 shares) ................................................. (6,314) (6,314)
--------------------------------
Total shareholders' investment ................................. 59,592 79,590
--------------------------------
Total liabilities and shareholders' investment ................. $ 119,978 $ 150,850
================================
The accompanying notes are an integral part of these
consolidated financial statements.
1
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE QUARTER
ENDED SEPTEMBER 30,
------------------------
1999 1998
------------------------
Revenue ..................................................................... $ 11,107 $ 24,666
Cost of revenue ............................................................. 9,545 14,373
------------------------
Gross margin ...................................................... 1,562 10,293
Expenses
Company-sponsored product development ..................................... 1,933 2,264
Selling, general and administrative expense ............................... 4,242 5,134
Interest expense .......................................................... 787 621
Interest income and other expense, net .................................... 312 55
------------------------
(Loss) income from continuing operations before income taxes ...... (5,712) 2,219
(Benefit) provision for income taxes ........................................ (3,026) 687
------------------------
(Loss) income from continuing operations .......................... (2,686) 1,532
Discontinued operation
Gain on sale of CogniSeis, net of applicable
income tax expense of $273 ...................................... 614
------------------------
Net (loss) income ................................................. $ (2,686) $ 2,146
========================
(Loss) earnings per common share
Continuing operations
Basic ............................................................. $ (.27) $ .15
Diluted ........................................................... (.27) .15
Discontinued operation
Basic ............................................................. .06
Diluted ........................................................... .06
Net (loss) income
Basic ............................................................. (.27) .21
Diluted ........................................................... (.27) .21
Weighted average common shares outstanding
Basic ............................................................. 9,985 9,985
Diluted ........................................................... 9,985 9,994
The accompanying notes are an integral part of these
consolidated financial statements.
2
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
1999 1998
------------------------
Revenue .................................................................... $ 68,824 $ 91,178
Cost of revenue ............................................................ 75,546 53,863
------------------------
Gross margin ..................................................... (6,722) 37,315
Expenses
Company-sponsored product development .................................... 6,354 5,988
Selling, general and administrative expense .............................. 17,846 19,440
Interest expense ......................................................... 2,198 2,041
Interest and other income, net ........................................... (2,728) (94)
------------------------
(Loss) income from continuing operations before income taxes ..... (30,392) 9,940
(Benefit) provision for income taxes ....................................... (10,536) 3,081
------------------------
(Loss) income from continuing operations ......................... (19,856) 6,859
Discontinued operation
Gain on sale of CogniSeis, net of applicable
income tax expense of $2,186 ................................... 4,864
------------------------
Net (loss) income ................................................ $(19,856) $ 11,723
========================
(Loss) earnings per common share
Continuing operations
Basic ............................................................ $ (1.99) $ .69
Diluted .......................................................... (1.99) .69
Discontinued operation
Basic ............................................................ .49
Diluted .......................................................... .49
Net (loss) income
Basic ............................................................ (1.99) 1.17
Diluted .......................................................... (1.99) 1.17
Weighted average common shares outstanding
Basic ............................................................ 9,985 9,982
Diluted .......................................................... 9,985 10,013
The accompanying notes are an integral part of these
consolidated financial statements.
3
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1999 1998
---------------------------
Cash flows from operating activities
Net (loss) income ................................................ $(19,856) $ 11,723
Adjustments to reconcile net income to net
cash provided by (used for) operating activities
Provision for inventory write-down ........................... 23,900
Provision for bad debt ....................................... 1,500
Provision for warranty claims ................................ 1,700
Goodwill write-down .......................................... 200
Merger termination settlement ................................ (3,000)
Deferred income taxes ........................................ (7,922)
Depreciation and amortization ................................ 7,252 6,317
Loss on disposition of assets ................................ 44
Gain on sale of CogniSeis .................................... (4,864)
Change in operating assets and liabilities
Receivables .................................................. 3,555 (1,504)
Inventories .................................................. 9,322 (6,340)
Other current assets ......................................... (436) (1,239)
Long-term receivables ........................................ (2,308) 12,703
Other assets ................................................. (252) 103
Accounts payable ............................................. (7,441) 2,149
Unearned revenue ............................................. 1,494 2,083
Taxes on income .............................................. (961) 307
Payable to Tech-Sym .......................................... (3,558) 1,729
Other liabilities ............................................ 2,048 (4,236)
-------------------------
Net cash provided by operating activities .............. 5,237 18,975
-------------------------
Cash flows from investing activities
Capital expenditures ............................................. (5,189) (9,068)
Investment in joint ventures ..................................... (337)
Acquisition of a product line .................................... (474)
Other ............................................................ 20 66
-------------------------
Net cash used for investing activities .................. (5,169) (9,813)
-------------------------
Cash flows from financing activities
Net payments to Tech-Sym Corporation ............................. (3,220) (5,210)
Net payments under line of credit agreements ..................... (465) (3,390)
Proceeds from long-term debt ..................................... 3,152 856
Payments on long-term debt ....................................... (1,771) (1,466)
Proceeds from exercise of stock options .......................... 53
Merger termination proceeds (Note 6) ............................. 3,000
-------------------------
Net cash provided by (used for) financing activities .... 696 (9,157)
-------------------------
Net increase in cash and cash equivalents ........................... 764 5
Cash and cash equivalents at beginning of period ................. 659 799
-------------------------
Cash and cash equivalents at end of period ....................... $ 1,423 $ 804
==========================
Non Cash Transactions
Reduction in balance of notes receivable sold with recourse ...... $ 2,362 $ 1,712
The accompanying notes are an integral part of these
consolidated financial statements.
4
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS)
ACCUMULATED
OTHER TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED COMPREHENSIVE TREASURY STOCK SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS SHARES AMOUNT INVESTMENT
-----------------------------------------------------------------------------------------------
Balance at December 31, 1998 ....... 10,504 $ 105 $44,946 $40,956 $ (103) 519 $(6,314) $79,590
Comprehensive loss for 1999
Net loss ........................ (19,856)
Other comprehensive
loss, net of tax
Foreign currency
translation adjustments .. (142)
Total comprehensive loss (19,998)
-----------------------------------------------------------------------------------------------
Balance at September 30, 1999 ...... 10,504 $ 105 $44,946 $21,100 $ (245) 519 $(6,314) $59,592
===============================================================================================
ACCUMULATED
OTHER TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED COMPREHENSIVE TREASURY STOCK SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) SHARES AMOUNT INVESTMENT
-----------------------------------------------------------------------------------------------
Balance at December 31, 1997 ...... 10,499 $ 105 $44,893 $33,447 $ (364) 519 $(6,314) $71,767
Comprehensive income for 1998
Net income ..................... 11,723
Other comprehensive
income, net of tax
Foreign currency
translation adjustments . 270
Total comprehensive
income 11,993
Exercise of stock options ......... 5 53 53
---------------------------------------------------------------------------------------------
Balance at September 30, 1998 ..... 10,504 $ 105 $44,946 $45,170 $ (94) 519 $(6,314) $83,813
=============================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
5
GEOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
GeoScience Corporation and its subsidiaries (the "Company") have been prepared
in accordance with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the financial statements and notes thereto appearing in the
Company's Form 10-K for the year ended December 31, 1998.
In the opinion of the Company's management ("Management") all
adjustments necessary for a fair presentation of the results of operations for
all periods reported have been included. Such adjustments consist of normal
recurring items, as well as unusual charges during the second quarter of 1999 to
reserves for inventory write-downs, doubtful accounts and warranty claims, and a
write-off of impaired goodwill (See Management's Discussion and Analysis).
The consolidated statements of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results expected for
the full year ending December 31, 1999.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2 - INVENTORIES
Inventories, which consist principally of electronic components, are
summarized as follows (in thousands):
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
Raw materials ............. $ 28,702 $ 33,819
Work in progress .......... 6,549 14,388
Finished goods ............ 24,122 26,426
-------- --------
59,373 74,633
Less reserve .............. (24,204) (9,587)
-------- --------
$ 35,169 $ 65,046
======== ========
NOTE 3 - PER SHARE DATA
Basic per share amounts are computed based on the average number of
common shares outstanding. Diluted per share amounts reflect the increase in
average common shares outstanding that would result from the exercise of
outstanding stock options computed using the treasury stock method. Stock
options are the only potentially dilutive shares the Company has outstanding.
Due to the Company's operational losses, diluted earnings per share presented on
the consolidated statement of operations for the quarter and nine months ended
September 30, 1999, do not reflect any effect from outstanding stock options
because to do so would have been anti-dilutive. Outstanding stock options for
the quarter and nine months ended September 30, 1999 were 937,425. The Company
had 564,000 outstanding options that were anti-dilutive and were excluded from
the computation of diluted earnings per share for the quarter and nine months
ended September 30, 1998.
NOTE 4 - RECENT PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137 ("FAS 137") ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES which delayed implementation and
the effective date of FAS 133 until after June 15, 2000.
6
GEOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("FAS 133") ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. FAS 133 is effective for fiscal
years beginning after June 15, 1999 and establishes accounting and reporting
standards for derivative instruments. The Company has historically not engaged
in significant derivative instrument activity. Adoption of FAS 133 is not
expected to have a material effect on the Company's financial position or
operational results.
NOTE 5 - SEGMENT INFORMATION
The Company manages its business primarily on a product basis; the
Company has one reportable segment. The Company's reportable segment is
comprised of operations in the United States, Europe and Asia. The reportable
segment provides products and services as described in the Company's Form 10-K
for the year ended December 31, 1998. The accounting policies of the segment are
those described in Note 1 to Notes to the Consolidated Financial Statements
included in that Form 10-K.
NOTE 6 - MERGER ACTIVITY
In December 1998, the Boards of Directors of the Company and Tech-Sym
Corporation (holder of 80.067% of outstanding common shares of the Company)
committed to a plan to seek a strategic merger partner for the Company. On
January 18, 1999, the Company and Tech-Sym signed an agreement to merge the
Company with a third party, subject to stockholder and regulatory approval.
The Company, Tech-Sym and the third party subsequently terminated the
proposed merger. During the quarter ended March 31, 1999, the third party paid
the Company $3,000,000 in connection with such termination. The merger
termination fee, net of transactional expenses, was recorded as other income.
The Company and Tech-Sym continue to pursue opportunities to combine the
Company's operations with a strategic partner.
In October 1999, the Company entered into a definitive agreement to
merge with Sercel, Inc., a wholly owned subsidiary of Compagnie Generale De
Geophysique (CGG). The agreement is a cash tender offer to purchase all of the
Company's issued and outstanding shares of common stock, par value $0.01 per
share for $6.71 per share. The merger agreement is subject to several conditions
including the successful completion of CGG's share capital increase that was
announced on September 9, 1999. Closing is targeted by year-end, but may be
extended to March 31, 2000, under certain conditions.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Budget reductions implemented at the end of 1998 by oil and gas
exploration companies hindered bookings for the first nine months of 1999. The
Company's backlog decreased from $37,500,000 at December 31, 1998 to
approximately $17,186,000 at September 30, 1999. The Company embarked on a major
cost reduction program in the first half of 1999 in response to the difficult
market conditions. The program included a reduction in personnel levels through
attrition and layoffs, planned reductions in levels of research and development
spending and additional cost controls in all departments. The continuing
softness of seismic market activity has created excess capacity, accelerated
obsolescence of certain products and increased the risk associated with
collecting on certain foreign receivables.
RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO THE QUARTER
ENDED SEPTEMBER 30, 1998
Revenue for the quarter ended September 30, 1999 decreased 55% to
$11,107,000 compared to $24,666,000 for the quarter ended September 30, 1998.
The decrease in revenue is attributable to the lower activity in the seismic
industry due to budget cutbacks for 1999 by oil and gas exploration companies in
response to depressed oil prices during 1998. The gross margin decreased to 14%
of revenue for the quarter ended September 30, 1999 compared to 42% for the same
quarter in the prior year. The decrease in the gross margin percentage reflects
unfavorable manufacturing costs due to excess capacity and a change in the mix
of products shipped during the period. Shipments of data collection modules,
which generally carry higher margins than the Company's other products,
decreased $7,344,000 to $1,274,000 in the current period from $8,618,000 in the
comparative period in 1998.
Research and development expenditures were $331,000 lower than the
same quarter last year. The Company, while reducing the level of expenditures
from that of the third and fourth quarters of 1998, continues to invest in
research and development projects such as solid streamer cables and next
generation recording systems and data collection modules that have reservoir
monitoring applications, all of which the Company believes are most opportune
for increasing future revenue and profit.
Selling, general and administrative expenses for the quarter
decreased $892,000 from the prior year quarter as a result of cost control
measures implemented in response to the seismic market conditions and lower
royalty expenses resulting from reduced shipments of data collection modules.
Interest expense was $787,000 for the quarter ended September 30,
1999 compared to $621,000 for the quarter ended September 30, 1998. The $166,000
or 27% increase relates to higher interest rates and greater borrowings on the
Company's credit facilities to support working capital requirements and capital
expenditures. Other expense was $257,000 greater for the quarter ended September
30, 1999 as compared to the same quarter in the prior year. The increase was
primarily a result of unfavorable foreign currency transactions in the current
quarter compared to the same quarter in the prior year.
The Company had a 53% tax benefit for the quarter ended September 30,
1999 as compared to the 31% tax expense for the third quarter of 1998. The
benefit reflects the increased activities within the Company's Foreign Sales
Corporation and the results of the actual U.S. tax return filings for the year
ended December 31, 1998 and the short period ended August 28, 1999.
There were no results from discontinued operations in the current
quarter, whereas during the third quarter of 1998, the Company realized and
recognized a net gain of $614,000 on the 1997 sale of CogniSeis
Development, Inc., which had been deferred from the fourth quarter of 1997.
Net loss for the quarter ended September 30, 1999 was $2,686,000 or
$.27 per diluted share as compared to net income of $2,146,000 or $.21 per
diluted share for the quarter ended September 30, 1998, reflecting the net
effect of the items discussed above.
8
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenue for the nine months ended September 30, 1999 decreased 25% to
$68,824,000 compared to $91,178,000 for the nine months ended September 30,
1998. The decrease in revenue is attributable to the lower activity in the
seismic industry due to budget cutbacks by oil and gas exploration companies as
discussed in the Results of Operations-Quarter Ended September 30, 1999. Revenue
for the current nine months included $3,500,000 for upward repricing of a
customer's order due to its failure to meet volume commitments. The gross margin
decreased to a negative 10% of revenue for the nine months ended September 30,
1999 compared to a positive 41% for the same period in the prior year. The
decrease in the gross margin percentage reflects the unusual charges of
$23,900,000 for inventory write-downs and $1,700,000 for warranty claims
recorded in the second quarter of 1999, as well as unfavorable manufacturing
costs due to excess capacity and a change in the mix of products shipped during
the period. Shipments of data collection modules, which generally carry higher
margins than the Company's other products, decreased $8,939,000 to $21,574,000
in the current nine month period from $30,513,000 in the comparative period in
1998.
Research and development expenditures increased $366,000 over the
same nine months of 1998 reflecting the Company's commitment to the development
of projects that it believes are most opportune for increasing future revenue
and profit as previously discussed in Results of Operations-Quarter Ended
September 30, 1999.
Selling, general and administrative expenses, while including unusual
charges for employee severance pay of $700,000, goodwill write-off of $200,000
and additional reserves for doubtful accounts of $1,500,000, decreased
$1,594,000 as a result of cost control measures introduced in the first half of
1999 in response to the current seismic market conditions and lower royalty
expenses due to reduced shipments of data collection modules.
Interest expense increased $157,000 for the nine months ended
September 30, 1999 compared to the nine months ended September 30, 1998 due to
higher interest rates and greater borrowings on the Company's credit
facilities during the period. Other income was $2,728,000 for the nine months
ended September 30, 1999 compared to $94,000 for the same nine months in the
prior year. The increase primarily resulted from the settlement received, net of
transactional expenses, related to the termination of the merger agreement
discussed in Note 6. Additionally, the Company's interest income from notes
receivable on products sold increased $646,000 from the comparative period in
1998 due to an increase in the balance of interest bearing notes receivable.
The Company had a 35% tax benefit for the nine months ended September
30, 1999 as compared to the 31% tax expense for the nine months of 1998. The
benefit reflects the increased activities within the Company's Foreign Sales
Corporation and the results of the actual U.S. tax return filings for the year
ended December 31, 1998 and the short period ended August 28, 1999.
There were no results from discontinued operations in the current
nine month period, whereas during the same period last year the Company realized
and recognized a net gain of $4,864,000 on the 1997 sale of CogniSeis
Development, Inc., which had been deferred from the fourth quarter of 1997.
Net loss for the nine months ended September 30, 1999 was $19,856,000
or $1.99 per diluted share as compared to net income of $11,723,000 or $1.17 per
diluted share for the nine months ended September 30, 1998, reflecting the net
effect of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the current nine month period, the Company satisfied its
working capital and capital expenditure requirements through collections on
receivables, proceeds from the settlement related to the terminated merger
agreement, and proceeds from the mortgage of a company owned building
constructed during 1998. Since December 31, 1998 the Company has reduced its
outstanding accounts receivable balances by $5,055,000 through improved
collections and its gross inventory by $15,260,000 through shipments during the
period. At September 30, 1999, the Company had working capital of $29,618,000
compared to $42,132,000 at December 31, 1998. This decrease reflects the unusual
charges for additional reserves for inventory and doubtful accounts as discussed
above and a reduction in accounts payable and payable to Tech-Sym. Cash provided
by operations was $5,237,000 and $18,975,000 for the nine months ended September
30, 1999 and 1998, respectively. Purchases of property, plant and equipment
totaled $5,189,000 for the nine months ended September 30, 1999 compared to
$9,068,000 for the same period in the prior year. At September 30, 1999, the
Company had short-term line
9
of credit facilities aggregating $29,181,000 of which $2,641,000 was available
for additional short-term borrowings. At September 30, 1999, the Company had a
working capital ratio of 1.6 to 1.0 and debt to total capitalization of 36%.
During the third quarter, the Company and Wells Fargo Bank agreed to
extend the Company's credit facilities through October 31, 1999. Effective
October 29, 1999, the credit facilities were extended through March 31, 2000.
However, the facilities are subject to early termination if there is a change of
control of the Company or 10 days after the termination of the merger agreement
with Sercel, Inc.
YEAR 2000 COMPLIANCE
As previously reported, the Company is continuing its efforts to
insure Y2K software failures, internally or externally, will not have an adverse
effect on its financial position or results of operations. Cross-functional
project teams, established during 1998 at each subsidiary, continue to review
and assess the various factors surrounding the Y2K issues. The Company estimates
the total cost of Y2K compliance activities will be less than $400,000 and the
amount expended to date is less than $300,000.
The Company expects to complete its Y2K project during 1999. Based on
available information, the Company believes that it has addressed all potential
areas of exposure and believes no material exposure to significant business
interruption exists as a result of Y2K compliance issues. Accordingly, the
Company has not adopted a formal contingency plan in the event its Y2K project
is not completed in a timely manner. These costs and the timing in which the
Company plans to complete its Y2K modification and testing processes are based
on management's best estimates. However, there can be no assurance that the
Company will identify and remediate all significant Y2K problems on a timely
basis, that remedial efforts will not involve significant time and expense or
that such problems will not have a material adverse effect on the Company's
business, results of operations or financial position.
Forward-looking statements in this document are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including, without limitation, risks associated with the
uncertainty of market acceptance of the Company's products, limited number of
customers, as well as risks of downturns in economic conditions generally, risks
associated with competition and competitive pricing pressures, risks associated
with the completion of the merger agreement, and other risks detailed in the
Company's filings with the Securities and Exchange Commission.
10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits to this report except for Exhibit 27 -
Financial Data Schedule, which is deemed not to be filed for
purposes of liability under the federal securities laws.
(b) Reports on Form 8-K.
Current report on Form 8-K dated August 31, 1999 Item 5. Other
Events, reported the information set forth in the press release
dated August 31, 1999.
No financial statements were filed as a part of these reports.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GEOSCIENCE CORPORATION
Registrant
Date: November 12, 1999 /s/ RICHARD F. MILES
Richard F. Miles, President
(principal executive officer)
Date: November 12, 1999 /s/ PAUL L. HARP
Paul L. Harp, Treasurer
(principal accounting officer)
11