2 0 1 1
A N N U A L
R E P O R T
Delivering.
2 0 1 1
A N N U A L
R E P O R T
It began with a vision – a promise
to change the economics of cableless
seismic for our customers.
And we delivered. Once again,
OYO Geospace is redefining
technology leadership.
FORWARD-LOOKING STATEMENTS: This Annual Report includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements other than statements of historical fact included herein including statements regarding
potential future products and markets, our potential future revenues, future financial position, business
strategy, future expectations and other plans and objectives for future operations, are forward-looking
statements. We believe our forward-looking statements are reasonable. However, they are based on certain
assumptions about our industry and our business that may in the future prove to be inaccurate. Important
factors that could cause actual results to differ materially from our expectations include the level of seismic
exploration worldwide, which is influenced primarily by prevailing prices for oil and gas, the extent to
which our new products are accepted in the market, the availability of competitive products that may be
more technologically advanced or otherwise preferable to our products, tensions in the Middle East and
other factors disclosed under the heading “Risk Factors” and elsewhere in our Form 10-K which is on file
with the Securities and Exchange Commission. Further, all written and verbal forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by such factors.
Dear Fellow Shareholder,
Twenty years ago, if you had approached people on the street and asked them if
they would like to have a phone that they could carry with them everywhere, so that
people could reach them anytime, anywhere, they probably would have thought you
were crazy. They may not even have wanted to have the ability to communicate that
frequently. This was demonstrated when Motorola did a market survey for the first
mobile phones. At that time, their survey estimated that the entire mobile phone
market would be about 100,000 people.
Twenty years ago, if you had surveyed the land seismic industry about its biggest
source of frustration, the responses would probably have revolved around cable issues.
Laying out cables, maintaining cables, picking up cables, repairing cables, storing
cables, maintaining an inventory of enough spare cables; but if you’d suggested a
system without cables – you would have been thought a bit crazy. Why that would be
shooting blind!
Today, every major seismic contractor and most of the smaller independent
contractors have at least tested cableless seismic acquisition systems and many have
found that the advantages far exceed their expectations. OYO Geospace has 150,000
channels of cableless Geospace Seismic Recorder (GSR) technology being used
by 22 seismic contractors. This includes sold and rental channels, with numerous
instances of repeat or multiple GSR system purchases. This gives us confidence that
this technology is one that will change the way our customers acquire seismic data.
Beyond just testing cableless acquisition systems, many contractors are now in the
process of not only expanding their cableless acquisition equipment inventories,
but are integrating cableless acquisition equipment into their planning for future
inventory allocations.
I open this letter with these illustrations for three important reasons:
1. They demonstrate what OYO Geospace and true innovators have long known:
that you have to think about what your customers truly need (not just about
incremental improvements) and develop those products if you truly want to
succeed in the marketplace;
2. The innovations that OYO Geospace has been introducing are having
a profound effect on our financial strength because our customers are
discovering that they are truly able to achieve appreciable cost and
productivity benefits that improve their own operations; and,
3. Although the GSR is perhaps the most prominent of our roster of new products,
it is just one of the many products emerging from our engineering labs.
Small, light and minimally
invasive cableless technologies
like the OYO Geospace GSR
system are transforming how
seismic data is acquired.
1
Frequently, investors ask me what OYO Geospace is “in a nutshell.” Here’s my definition:
“OYO Geospace is an incubator of new products for existing and new markets.” We think
about the products our customers truly need and set about to design and make them.
Revenues
Our engineering team has been
an extraordinary incubator of new
ideas since going public 14 years ago.
With all of the projects they have in
their pipeline it appears they will
continue on well into the future. Our
manufacturing group works hand-in-
hand with engineering and has the
in-house capabilities to develop and
produce new products as required.
With all that said, how is OYO
$40
$60
$80
$100 $120 $140 $160
Geospace performing? Today, I am
proud to report that OYO Geospace
ended Fiscal 2011 in the strongest
financial and operating position in its history. Revenues for the year were $173.0 million,
up 35% from $128.5 million in the prior year. The growth in our revenues largely reflects
increased orders for the GSR, but I’m also pleased to report that every product category
generated increased sales.
Our historical core business of seismic products – geophones, hydrophones, cables,
and connectors – continued to experience strong demand from a variety of traditional
seismic customers.
Industrial products, such as special-purpose cables or sensors, also continued to grow
as we continued to serve existing markets and penetrated new markets.
Seismic reservoir monitoring, in particular, is continuing to increase, albeit at
a modest pace, and our suite of borehole tools, the DS-250 and DS-150, are already
uniquely positioned to take advantage of this new industry activity. By developing a
OYO Geospace Offshore manufactures quality cable products
from either customer-submitted specifications or from our
own in-house engineering design teams.
20 07
20 08
20 09
20 10
20 11
0 $20
(in millions)
2
new fiber-optic based downhole configuration, our borehole tools can be extended to
480 survey levels of active data collection. They are capable of extremely high speed
data return, recording and returning ¼ millisecond data samples with no dead time
between shots. In the downhole reservoir monitoring market, we believe this is an
exceptional and sought after data acquisition capability.
Our thermal operations group managed to increase sales despite the ongoing
downturn in consumer demand, thereby contributing to our overall results.
As a result of the contributions from all segments, our net income for the year was
$29.7 million, up 111% from $14.1 million in Fiscal 2010. While the accompanying
graph shows only five years of history, it is critical to note that the majority of both our
revenues and our net income have been realized from products that did not exist
when we went public in 1997.
Net Income
20 07
20 08
20 09
20 10
20 11
0
$5
$10
$15
$20
$25
$30
(in millions)
OYO Geospace engineering
shepherds innovations like our
borehole data acquisition systems
from concept to reality.
“OYO Geospace is an incubator of new
products for existing and new markets.”
3
Importantly, our growth has not been at the expense of our balance sheet. In
December 2010, we repaid the last part of our long-term debt. We have a new $25 million
credit facility that expires in February 2014, under which we have no borrowings
currently outstanding.
Our new products and conservative operating policies have resulted in strong cash
generation in recent years. Strong cash generation coupled with new and innovative
products are the keys for continued growth of our company.
Shareholders’ Equity
20 07
20 08
20 09
20 10
20 11
0
$25
$50
$75
$100
$125
$150
$175
(in millions)
In December, the company
announced two new additions to our
senior staff. Effective January 1, 2012,
Mr. W. Richard “Rick” Wheeler was
promoted to Executive Vice-President
and Chief Operating Officer. Rick has
27 years of experience in designing
seismic equipment, including 14
years with our company and 13 years
with Input/Output, Inc., now called
ION Geophysical. Mr. Robbin C.
Adams was promoted to Executive Vice
President and Chief Project Manager.
Robbin has 14 years with the company,
and prior to joining OYO Geospace, worked 16 years for Input/Output, Inc. These
additions to our senior staff will assure an ongoing commitment to the company’s
vision and will further its growth plan.
From the beginning we said that our traditional seismic-based business would
contribute a baseline of about 50-60% of our business. Large project orders for our new
products, be they reservoir monitoring systems, land seismic data acquisition systems,
ocean bottom systems or borehole systems, can significantly impact our seismic
baseline business by creating an unpredictable “lumpiness” to our quarterly results.
Large orders for products like our successful GSR
cableless land seismic acquisition system, have created
a degree of “lumpiness” in our quarterly results.
4
Historically, as many of you have witnessed first hand,
this has indeed been true.
Today we have in place both the product lines and a
deeper management bench to continue to deliver strong
results going forward. Demand for the GSR is strong and
shows every sign of continuing to grow as we augment
its capabilities and respond to customers’ requests for
special purpose applications. Our other product lines are
also benefiting from either new product developments
or new manufacturing efficiencies. With our new COO
and EVP of Engineering we expect that bottlenecks in
any of our processes will be addressed more readily and
efficiently, thereby expediting already efficient processes.
Our goal as we move forward is to continue to incubate
products and deliver what the customer needs – even
before they recognize that we have the solution they’ve
been hoping for. This allows us to continue to carve out
sustainable market niches with robust margins. It’s what
we told you we would deliver when we went public and
it’s what we’re delivering today.
Chairman of the Board
President & Chief Executive Officer
(l to r) Mike Sheen, Rick Wheeler, Tom McEntire, Gary Owens
and Robbin Adams.
Pretax Return on
Shareholders’ Equity
2007
2008
2009
2010
2011
0 5 10 15 20 25 3 0 35 40
(percent)
5
Downhole Technology
Expanding Into New Global
Markets and Applications
From safety to carbon dioxide sequestration and from Sichuan, China to Saskatchewan,
Canada, OYO Geospace seismic monitoring technology offers the unique combination of
sensitivity and real-time data delivery customers need to enter new markets and create
new opportunities.
Shale Gas in China
Mirroring the growth of unconventional gas plays such as North America’s Bakken and
Marcellus regions, hydraulic fracturing (fracking) of shale gas formations is expanding
in China. The Chinese National Petroleum Company (CNPC) in partnership with Shell
Oil is developing shale gas in Sichuan Province, and the group has chosen OYO Geospace
borehole technology for monitoring the fracking process.
CNPC has acquired 105 levels of OYO Geospace downhole system tools to
monitor several multi-well projects. As fracturing fluid is injected into the formation,
OYO Geospace technology provides real-time data on how the formation is behaving
in response. The resulting data gives operators a clear map of the direction, scope and
progress of the fracking operation.
“We offer a monitoring solution that is well proven in shale gas applications,
provides superior sensitivity across multiple data levels, and delivers real-time data
as the project progresses. No other monitoring system delivers that combination of
advantages,” says Peter Zhang, OYO Geospace Manager of Technical Sales.
Mine Safety in Canada
Canada’s ESG Solutions provides passive microseismic monitoring software and
instrumentation for a broad array of applications, and it has been pairing its
solutions with OYO Geospace sensors on a number of projects, including mine
safety implementations.
Together, ESG software and OYO Geospace data acquisition technology provide
a solution for “listening” to a rock mass during underground and open pit mining
operations in order to monitor the movement of personnel and equipment in real time.
Because of their high
sensitivity across multiple
data levels and unique
real-time capabilities, our
borehole systems are
playing a significant role in
unconventional gas plays
around the world.
6
Once again, the sensitivity and real-time data transmission capabilities of OYO Geospace
technology make it ideal for this crucial application.
ESG is also using OYO Geospace downhole strings to serve Canada’s growing oil and
gas fracking markets.
Monitoring Carbon Sequestration in Japan
In the environmental world, carbon sequestration and storage is emerging as an
important tool for carbon net-producers to help reduce their carbon footprint. By
capturing carbon dioxide (CO2) gas securely within underground or subsea reservoirs
(often depleted oil and gas deposits), the gas is kept out of the atmosphere. The gas can
either remain stably stored in the reservoir indefinitely or can be harvested for use in
CO2 flooding applications, a tertiary recovery technique that uses CO2 to flush oil from
mature formations.
In Japan, RITE (Research Institute of Innovative Technology for the Earth) is
actively engaged in carbon sequestration in saline aquifers off the coast of Japan. It is
using OYO Geospace geophone and hydrophone technology to monitor both the injection
process and the ongoing status of the CO2 deposits and behavior of the gas within.
An outgrowth of our subsea
reservoir characterization systems
monitoring oil fields around the
world, OYO Geospace technology
is now used to monitor C02
sequestration projects.
7
Fault Mapping and Monitoring in Japan
The Hamaoka Nuclear Power Plant lies on Japan’s east coast about 120 miles southwest
of Tokyo. The facility is managed by the Chubu Electric Power Company, and even before
this year’s deadly earthquake and tsunami, Chubu had been looking for ways to better
map and monitor seismic activity around Hamaoka. That initiative is what brought
Hanshin Consultants and OYO Geospace together this past summer to study and map
the faults in the area. Hanshin Consultants chose OYO Geospace’s GSR and Downhole
DS-250/DS-150 equipment to help them image the complex geology around the plant.
In addition to fault mapping, OYO Geospace monitoring technology is being
deployed across Japan to provide real-time data about seismic events in this quake-
prone region.
OYO Geospace systems collect data
to create a geologic framework
and provide ongoing real-time
monitoring for tectonically active
geographies like those across Japan.
8
Financials
2 0 1 1
9
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
È Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Fiscal Year Ended September 30, 2011
OR
‘ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Commission file number 001-13601
OYO GEOSPACE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
76-0447780
(I.R.S. Employer
Identification No.)
7007 Pinemont Drive
Houston, Texas 77040-6601
(Address of Principal Executive Offices)
(713) 986-4444
(Registrant’s telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock
Name of Each Exchange on Which Registered
The NASDAQ Global Market
Securities Registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ‘ No È
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of the Act. Yes ‘ No È
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was
required to submit and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of
this chapter) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ‘
Indicate by check mark whether
is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
the Registrant
Large accelerated filer ‘ Accelerated filer È
Non-accelerated filer ‘ Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ‘ No È
There were 6,352,758 shares of the Registrant’s Common Stock outstanding as of the close of business on
December 5, 2011. As of March 31, 2011, the aggregate market value of the Registrant’s Common Stock held by
non-affiliates was approximately $454 million (based upon the closing price of $98.58 on March 31, 2011, as
reported by The NASDAQ Global Market).
Portions of the definitive proxy statement for the Registrant’s 2012 Annual Meeting of Stockholders are
incorporated by reference into Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
Item 1. Business
Overview
PART I
OYO Geospace Corporation is a Delaware corporation incorporated on September 13, 1997. Unless
otherwise specified, the discussion in this Annual Report on Form 10-K refers to OYO Geospace Corporation
and its subsidiaries. We design and manufacture instruments and equipment used in the acquisition and
processing of seismic data as well as in the characterization and monitoring of producing oil and gas reservoirs.
Demand for our products has been, and will likely continue to be, vulnerable to downturns in the economy and
the oil and gas industry in general. While natural gas prices have stabilized and crude oil prices have
strengthened during most of fiscal years 2010 and 2011, there was substantial volatility in oil and natural gas
prices during fiscal years 2008 and 2009. Please refer to the risks discussed under the heading “Risk Factors” for
more information.
We have engaged in the seismic instrument and equipment business since 1980 and market our products
primarily to the oil and gas industry. We also design, manufacture and distribute thermal imaging equipment and
thermal media products targeted at the screen print, point of sale, signage and textile market sectors. We have
been manufacturing thermal imaging products since 1995. We report and evaluate financial information for each
of these two segments: Seismic and Thermal Solutions.
Seismic Products
The seismic segment of our business accounts for the majority of our sales. Geoscientists use seismic data
primarily in connection with the exploration, development and production of oil and gas reserves to map
potential and known hydrocarbon bearing formations and the geologic structures that surround them.
Seismic Exploration Products
A seismic energy source and a seismic data recording system are combined to acquire seismic data. We
provide many of the components of seismic data recording systems, including data acquisition systems, geophones,
hydrophones, multi-component sensors, seismic leader wire, geophone strings, connectors, seismic telemetry cables
and other seismic related products. On land, our customers use our data acquisition systems, geophones, leader wire,
cables and connectors to receive and measure seismic reflections resulting from an energy source to data recording
units, which store information for processing and analysis. In the marine environment, large ocean-going vessels
tow long seismic cables known as “streamers” containing hydrophones which are used to detect pressure changes.
Hydrophones transmit electrical impulses back to the vessel’s data recording unit where the seismic data is stored
for subsequent processing and analysis. Our marine seismic products help steer streamers while being towed and
help recover streamers if they become disconnected from the vessel.
Our seismic sensor, cable and connector products are compatible with most major competitive seismic data
acquisition systems currently in use, and sales result primarily from seismic contractors purchasing our products
as components of new seismic data acquisition systems or to repair and replace components of seismic data
acquisition systems already in use.
During fiscal year 2008, we announced the development of a land-based wireless (or nodal) data acquisition
system. Each nodal station operates independently and therefore can be deployed in virtually unlimited channel
configurations. Rather than utilizing interconnecting cables as required by most traditional land data acquisition
systems, each nodal station operates as an independent data collection system. As a result, our nodal system
requires less maintenance, which we believe allows our customers to operate more effectively and efficiently
because of its reduced environmental impact, lower weight and ease of operation. Our nodal system is designed
into configurations ranging from one to four channels per station. Since its introduction, we have sold
approximately 91,000 channels of our land-based nodal acquisition system and currently have approximately
32,000 available for rent. We may increase our rental fleet further pending additional demand by our customers.
1
In October 2009, we introduced a marine-based nodal data acquisition system. Similar to our land nodal
system, the marine nodal system can be deployed in virtually unlimited channel configurations and does not
require interconnecting cables between each station. Our deepwater versions of this nodal system can be
deployed in depths of up to 3,000 meters.
Our wholly-owned subsidiary in the Russian Federation manufactures international standard geophones,
sensors, seismic leader wire, seismic telemetry cables and related seismic products for customers in the Russian
Federation and other international seismic marketplaces. Operating in foreign locations involves certain risks as
discussed under the heading “Risk Factors—Our Foreign Subsidiaries and Foreign Marketing Efforts Face
Additional Risks and Difficulties” in this Annual Report on Form 10-K.
Seismic Reservoir Products
We have developed permanently installed high-definition reservoir characterization products for ocean-
bottom applications in producing oil and gas fields. We also produce a retrievable version of this ocean-bottom
system for use on fields where permanently installed systems are not appropriate or economical. Seismic surveys
repeated over selected time intervals show dynamic changes within the reservoir and can be used to monitor the
effects of production. Utilizing these tools, producers can enhance the recovery of oil and gas deposits over the
life of a reservoir.
In addition, we produce seismic borehole acquisition systems which employ a fiber optic augmented
reservoir
wireline capable of very high data transmission rates. These systems are used for several
characterization applications, including an application pioneered by us allowing operators and service companies
to monitor and measure the results of fracturing operations.
Emerging Technology Products
Our products continue to develop and expand beyond seismic applications through the utilization of our
existing engineering experience and manufacturing capabilities. We design and manufacture power and
communication transmission cable products for offshore applications and market these products to the offshore
oil and gas and offshore construction industries. These products include a variety of specialized cables, primarily
used in deepwater applications, such as remotely operated vehicle (“ROV”) tethers, umbilicals and electrical
control cables. These products also include specially designed and manufactured cables, including armored
cables, engineered to withstand harsh offshore operating environments.
In addition, we design and manufacture industrial sensors for the vibration monitoring, security and
earthquake detection markets. We also design and manufacture other specialty cable and connector products,
such as those used in connection with global positioning products and water meter applications.
Thermal Solutions Products
Our thermal solutions product
technologies were originally developed for seismic data processing
applications. In 1995, we modified this technology for application in other markets. Our thermal printers include
both thermal imagesetters for graphics applications and thermal plotters for seismic applications. In addition, our
thermal solutions products include direct-to-screen systems, thermal printheads, dry thermal film, thermal
transfer ribbons and other thermal media. Our thermal imaging solutions produce images ranging in size from 12
to 54 inches wide and in resolution from 400 to 1,200 dots per inch. We market our thermal imaging solutions to
a variety of industries, including the screen printing, point-of-sale, signage, flexographic and textile markets. We
also continue to sell these products to our seismic customers.
The quality of thermal imaging is determined primarily by the interrelationship between a thermal printhead
and the thermal media, be it film, ribbon, or any other media. We manufacture thermal printheads and thermal
film, which we believe will enable us to more effectively match the characteristics of our thermal printers to
thermal film, thereby improving print quality, and make us more competitive in markets for these products.
2
We also distribute private label high-quality dry thermal media for use in our thermal printers and
direct-to-screen systems. In addition, we are continuously engaged in efforts to develop new lines of dry thermal
film and ribbon in order to improve the image quality of our media for use with our printheads. In order to
achieve more than marginal growth in our thermal solutions product business in future periods, we believe that it
is important to continue our concentration of efforts on both our printhead and media improvements.
Products and Product Development
Seismic Products
Our seismic product lines currently consist of land and marine nodal seismic data acquisition systems, high-
definition reservoir characterization products and services, geophones and hydrophones,
including multi-
component geophones and hydrophones, seismic leader wire, geophone string and acquisition system connectors,
seismic telemetry cables, marine seismic cable retrieval and steering devices and specialized data acquisition
systems targeted at conventional and niche markets. Our seismic products are compatible with most major
seismic data acquisition systems currently in use. We believe that our seismic products are among the most
technologically advanced instruments and equipment available for seismic data acquisition.
In fiscal year 2008, we introduced “wireless” land and marine nodal seismic data acquisition systems which
allow our customers to deploy an unlimited quantity of autonomous nodal stations without the requirement to
deploy and maintain lengthy power/communication cables. Our nodal systems are designed into configurations
ranging from one to four channels per station. Since its introduction, we have sold approximately 85,000
channels of our land-based nodal acquisition system through September 30, 2011. At September 30, 2011, we
had approximately 20,000 channels in our rental fleet which were available for rent to our customers. We expect
to increase our rental fleet further pending additional demand by our customers.
Our high-definition reservoir characterization products include the HDSeis™ product line and a suite of
borehole and reservoir characterization products and services. Our HDSeis™ System is a high-definition seismic
data acquisition system with flexible architecture that allows it to be configured as a borehole seismic system or
as a subsurface system for both land and marine reservoir-monitoring projects. The scalable architecture of the
HDSeis™ System enables custom designed system configuration for applications ranging from low-channel
engineering and environmental-scale surveys requiring a minimum number of recording channels to high-
channel surveys required to efficiently conduct permanent
imaging and monitoring. Modular
architecture allows virtually unlimited channel expansion. In addition, multi-system synchronization features
make the HDSeis™ System well suited for multi-well or multi-site acquisition, simultaneous surface and
downhole acquisition and continuous reservoir monitoring projects.
reservoir
Reservoir characterization requires special purpose or custom designed systems in which portability
becomes less critical and functional reliability assumes greater importance. This reliability factor helps assure
successful operations in inaccessible locations over a considerable period of time. Additionally, reservoirs
located in deepwater or harsh environments require special instrumentation and new techniques to maximize
recovery. Reservoir characterization also requires high-bandwidth, high-resolution seismic data for engineering
project planning and reservoir management. We believe our HDSeis™ System and tools, designed for cost-
effective deployment and lifetime performance, will make borehole and seabed seismic acquisition a cost-
effective and reliable process for the challenges of reservoir characterization and monitoring.
Our multi-component seismic product developments include an omni-directional geophone for use in
reservoir monitoring, a compact marine three-component or four-component gimbaled sensor and special-
purpose connectors, connector arrays and cases.
Our products used in marine seismic data acquisition include our patented marine seismic streamer retrieval
devices (“SRDs”). Occasionally, streamer cables are severed and become disconnected from the vessel as a result
of obstacles, inclement weather, vessel traffic or human error. Our SRDs, which are attached to the streamer
cables, contain air bags which are designed to inflate automatically at a given depth, bringing the severed
3
streamer cables to the surface. These SRDs save the seismic contractors significant time and money compared to
the alternative of losing the streamer cable. We also produce seismic streamer steering devices, or “birds,” which
are finlike devices that attach to the streamer cable. These birds help maintain the streamer cable at a certain
desired depth as it is being towed through the water.
In order to take advantage of our existing cable manufacturing facilities and capabilities in Houston, we are
designing and selling cable products to the offshore oil and gas and offshore construction industries. The
production of offshore marine cables requires specialized design capabilities and manufacturing equipment. We
reservoir
also utilize these design capabilities and manufacturing equipment
characterization products. We are aggressively working to diversify our seismic product lines as well as utilizing
our manufacturing capabilities to develop and produce products for use in other industries.
to produce deepwater
Thermal Solutions Products
Our thermal solutions products include thermal imagesetters for graphics applications and thermal plotters
for seismic applications. In addition, our thermal solution products include thermal printheads and thermal media
products. We market these products to a variety of industries, including the screen print, point of sale, signage
and textile markets. We also sell these products to our seismic customers.
We design, manufacture and sell thermal printers with data images ranging in size from 12 to 54 inches
wide and resolution ranging from 400 to 1,200 dpi. We also manufacture our own line of thermal film products
as well as distribute another brand of thermal film to the users of our thermal printers. In our thermal solutions
segments, we derive revenue primarily from the sale of thermal solutions products to our commercial graphics
customers.
Competition
Seismic Products
We believe that we are one of the world’s largest manufacturers and distributors of seismic related products.
The principal competitors in our seismic business segment for data acquisition systems, geophones, hydrophones,
geophone string connectors, leader wire and telemetry cables are SERCEL (a division of CGGVeritas), ION
Geophysical (“ION”), INOVA (a joint venture formed in 2009 between ION and Bureau of Geophysical
Prospecting, a subsidiary of China National Petroleum Company) and Steward Cable (a division of Amphenol
Corporation). Furthermore, entities in China affiliated with SERCEL as well as other Chinese manufacturers
produce low-cost geophones meeting current industry standards.
We believe that the principal keys for success in the seismic instruments and equipment market are
technological superiority, product durability, reliability, and customer support. We also believe that price and
product delivery are always important considerations for our customers. In general, most customers prefer to
standardize data acquisition systems, geophones and hydrophones, particularly if they are used by seismic
companies which have multiple crews which are able to support each other. This standardization makes it
difficult for competitive manufacturers to gain market share from other manufacturers with existing customer
relationships.
As mentioned above, a key factor for seismic instruments and equipment manufacturers is durability under
harsh field conditions. Instruments and equipment must meet not only rigorous technical specifications regarding
signal integrity and sensitivity, but must also be extremely rugged and durable to withstand the rigors of field
use, often in harsh environments.
We believe our primary competitors for our “wireless” nodal seismic data acquisition systems are SERCEL,
Fairfield Industries and INOVA.
4
With respect
to our marine seismic products, we are not aware of any competing companies that
manufacture a product functionally similar to our patented seismic streamer retrieval device. We believe our
primary competitors in the manufacture of our streamer depth positioning device, or “birds,” are ION and
SERCEL.
We believe our primary competitors for our deepwater cabled reservoir characterization and monitoring
systems are SERCEL, ION and Petroleum Geo-Services ASA.
We believe our primary competitors for high-definition borehole seismic data acquisition systems are
Avalon and SERCEL.
We believe our primary competitors for rental of seismic equipment are Mitcham Industries, Inc. and
Seismic Equipment Solutions.
Thermal Solutions Products
We believe that the primary competitors to our thermal imaging business segments include emulsion
producers like KIWO USA, Inc. as a distributor of direct-to-screen technologies, Colour Scanned Technology as
a manufacturer of direct-to-screen technologies, iSys Group as a manufacturer of thermal technologies for oil and
gas exploration applications, as well as manufacturers of alternative technologies such as inkjet devices
distributed and used for film output. A key competitive factor in this market is producing equipment that is
technologically advanced, yet cost effective.
Suppliers
We produce our own brand of dry thermal film internally. We also purchase a substantial quantity of dry
thermal film manufactured by Agfa-Gevaert N.V. (AGFA”). For a discussion of the risks related to our reliance
on AGFA, see “Risk Factors—We Rely on a Key Supplier for a Significant Portion of Our Dry Thermal Film.”
We do not currently experience any significant difficulties in obtaining raw materials from our suppliers for
the production of our seismic or thermal imaging products.
Product Manufacturing and Assembly
Our manufacturing and product assembly operations consist of machining or molding the necessary
component parts, configuring these parts along with components received from various vendors and assembling a
final product. We manufacture seismic equipment to the specifications of our customers. For example, we can
armor cables for applications such as deepwater uses. We assemble geophone strings and seismic telemetry
cables based on a number of customer choices such as length, gauge, tolerance and color of molded parts. With
regard to dry thermal film, we mix and react various chemicals to formulate a reactive layer that is then coated
onto a clear polyester film. The film is then coated with a protective topcoat that produces the final product.
Upon completion of our manufacturing and assembly operations, we test our final products to the functional and,
in the case of seismic equipment, environmental extremes of product specifications and inspect the products for
quality assurance. We normally manufacture and ship our products based on customer orders and, therefore,
typically do not maintain significant inventories of finished goods held for sale.
Markets and Customers
Our principal seismic customers are seismic contractors and major independent and government-owned oil
and gas companies that either operate their own seismic crews or specify seismic instrument and equipment
preferences to contractors. For our deepwater reservoir characterization products, our customers are generally
large international oil and gas companies that operate long-term offshore oil and gas producing properties. Our
thermal imaging customers primarily consist of direct users of our equipment as well as specialized resellers that
focus on the newsprint, silkscreen and corrugated box printing industries. Two customers comprised 20.2% and
5
11.1% of our revenues during fiscal year 2011. One customer comprised 13.2% and 12.0% of our revenues
during the fiscal years 2010 and 2009, respectively. The following table describes our sales by customer type (in
thousands):
YEAR ENDED SEPTEMBER 30,
2011
2010
2009
Seismic exploration customers . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seismic reservoir customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thermal solutions customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$131,645
15,968
11,040
13,519
798
$ 89,777
14,600
10,397
12,955
804
$59,084
12,020
7,939
13,028
789
$172,970
$128,533
$92,860
During the last three years, there has been substantial uncertainty in the capital markets and access to credit
remains uncertain. Due to these conditions, certain of our customers may curtail their seismic contracting
activities which would result in a decrease in demand for our products. Furthermore, certain of our customers
could experience an inability to pay suppliers, including us, in the event they are unable to access the capital
markets to fund their business operations. These risks are more fully described under the heading “Risk Factors”
in this Annual Report on Form 10-K.
Intellectual Property
We seek to protect our intellectual property by means of patents, trademarks, trade secrets and other
measures. Although we do not consider any single patent essential to our success, we consider our patents
regarding our marine seismic cable retrieval devices to be of particular value to us. These patents are scheduled
to expire in 2013 and 2022.
Research and Development
We expect to incur significant future research and development expenditures aimed at the development of
additional seismic data acquisition products and thermal imaging technologies. We have incurred company-
sponsored research and development expenses of $11.5 million, $9.9 million and $8.1 million during the fiscal
years ended September 30, 2011, 2010 and 2009, respectively.
Employees
As of September 30, 2011, we employed approximately 1,008 people predominantly on a full-time basis, of
which 602 were employed in the United States and 361 in the Russian Federation. Our employees in the Russian
Federation belong to a national union for machine manufacturers. Our remaining employees are not unionized.
We have never experienced a work stoppage and consider our relationship with our employees to be satisfactory.
Financial Information by Segment and Geographic Area
For a discussion of financial information by segment and geographic area, see Note 17 to the consolidated
financial statements contained in this Annual Report on Form 10-K.
This Annual Report on Form 10-K, along with our Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (the “Exchange Act”), are available free of charge through our website as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange
Commission (“SEC”). Our website address is http://www.oyogeospace.com.
6
Item 1A. Risk Factors
Risk Factors
Commodity Price Levels May Affect Demand for Our Products
Demand for many of our products and the profitability of our operations depend primarily on the level of
worldwide oil and gas exploration activity. Prevailing oil and gas prices and market expectations regarding
potential changes in such prices significantly affect the level of worldwide oil and gas exploration activity.
During periods of improved energy commodity prices, the capital spending budgets of oil and natural gas
operators tend to expand, which results in increased demand for our products. Conversely, in periods when these
energy commodity prices deteriorate, capital spending budgets of oil and natural gas operators tend to contract
and the demand for our products generally weakens. Historically, the markets for oil and gas have been volatile
and are subject to wide fluctuation in response to changes in the supply of and demand for oil and gas, market
uncertainty and a variety of additional factors that are beyond our control. These factors include the level of
consumer demand, regional and international economic conditions, weather conditions, domestic and foreign
governmental regulations, price and availability of alternative fuels, political conditions and hostilities in the
Middle East and other significant oil-producing regions, increases and decreases in foreign supply of oil and gas,
and the ability of OPEC to set and maintain production levels and prices of foreign imports and overall economic
conditions.
Continued effects of the economic recession could lead to a decline in demand for crude oil and natural gas.
Further slowdowns in economic activity would likely reduce worldwide demand for energy and result in an
extended period of lower crude oil and natural gas prices. Any unexpected material changes in oil and gas prices
or other market trends that adversely impact seismic exploration activity would likely affect the demand for our
products and could materially and adversely affect our results of operations and liquidity.
Our New Products May Not Achieve Market Acceptance
Our outlook and assumptions are based on various macro-economic factors and internal assessments, and
actual market conditions could vary materially from those assumed. In recent years, we have incurred significant
expenditures to fund our research and development efforts, and we intend to continue those expenditures in the
future. However, research and development is by its nature speculative, and we cannot assure you that these
expenditures will result in the development of new products or services or that any new products and services we
have developed recently or may develop in the future will be commercially marketable or profitable to us. In
particular, we have incurred substantial expenditures to develop our wireless nodal seismic data acquisition
systems, as well as other seismic products for reservoir characterization applications. In addition, we try to use
some of our capabilities, particularly our cable manufacturing capabilities, to supply products to new markets.
Further, we have incurred substantial expense and expended significant effort to develop our thermal solutions
products. We cannot assure you that we will realize our expectations regarding acceptance of and revenues
generated by our new products and services in existing or new markets.
We May Experience Fluctuations in Quarterly Results of Operations
Historically, the rate of new orders for our products has varied substantially from quarter to quarter.
Moreover, we typically operate, and expect to continue to operate, on the basis of orders in-hand for our products
before we commence substantial manufacturing “runs.” The short-term nature of our order backlog generally
does not allow us to predict with any accuracy demand for our products more than approximately three months in
advance. Thus, our ability to replenish orders and the completion of orders, particularly large orders for
deepwater reservoir characterization projects, can significantly impact our operating results and cash flow for any
quarter, and results of operations for any one quarter may not be indicative of results of operations for future
quarters. These periodic fluctuations in our operating results could adversely affect our stock price.
7
Our Credit Risk Could Increase if Our Customers Face Difficult Economic Circumstances
We believe that our allowances for bad debts are adequate in light of known circumstances. However, we
cannot assure you that additional amounts attributable to uncollectible receivables and bad debt write-offs will
not have a material adverse effect on our future results of operations. Many of our seismic customers are not well
capitalized and as a result cannot always pay our invoices when due. We have in the past incurred write-offs in
our accounts receivable due to customer credit problems. We have found it necessary from time to time to extend
trade credit, including on promissory notes, to long-term customers and others where some risks of non-payment
exist. With the recent global financial crisis and tight commercial credit availability, some of our customers
relying on credit markets as the source of funds for their capital spending may experience significant liquidity
difficulties, which increase those credit risks. An increase in the level of bad debts and any deterioration in our
credit risk could adversely affect the price of our stock. In addition, we rent equipment to our customers that can
be utilized in various countries around the world. If our rental customers experienced financial difficulties, it
could be difficult or impossible to retrieve our rental equipment from foreign countries.
Our industry is characterized by rapid technological development and product obsolescence
Our instruments and equipment
in both of our business segments are constantly undergoing rapid
technological improvement. Our future success depends on our ability to continue to:
•
•
improve our existing product lines,
address the increasingly sophisticated needs of our customers,
• maintain a reputation for technological leadership,
• maintain market acceptance of our products,
•
•
•
anticipate changes in technology and industry standards,
respond to technological developments on a timely basis, and
develop new markets for our products and capabilities.
Current competitors or new market entrants may develop new technologies, products or standards that could
render our products obsolete. We cannot assure you that we will be successful in developing and marketing, on a
timely and cost effective basis, product enhancements or new products that
respond to technological
developments, that are accepted in the marketplace or that comply with new industry standards. Additionally, in
anticipation of customer product orders, from time to time we acquire substantial quantities of inventories, which
if not sold or integrated into products within a reasonable period of time, could become obsolete. We would be
required to impair the value of such inventories on our balance sheet.
We Operate in Highly Competitive Markets
The markets for most of our products are highly competitive. Many of our existing and potential
competitors have substantially greater marketing, financial and technical resources than we do. Some competitors
currently offer a broader range of instruments and equipment for sale than we do and may offer financing
arrangements to customers on terms that we may not be able to match. In addition, new competitors may enter
the market and competition could intensify. As to our thermal solutions products, we compete with other printing
solutions, including inkjet and laser printing technologies, many of which are provided by large companies with
significant resources.
We cannot assure you that sales of our products will continue at current volumes or prices if current
competitors or new market entrants introduce new products with better features, performance, price or other
characteristics than our products. Competitive pressures or other factors may also result in significant price
competition that could have a material adverse effect on our results of operations.
8
We Have a Limited Market for Our Seismic Products
In our seismic business segment, we market our traditional products to seismic service contractors and to
large, independent and government-owned oil and gas companies. We estimate that, based on published industry
sources, fewer than 50 seismic contracting companies are currently operating worldwide (excluding those
operating in the Russian Federation and the former Soviet Union, India, the People’s Republic of China and
certain Eastern European countries, where seismic data acquisition activity is difficult to verify). We estimate
that fewer than 20 seismic contractors are engaged in marine seismic exploration. Due to these market factors, a
relatively small number of customers, some of whom are experiencing financial difficulties, have accounted for
most of our sales. From time to time these seismic contractors have sought to vertically integrate and acquire our
competitors, which has influenced their supplier decisions before and after such transactions. The loss of a small
number of these customers could materially and adversely impact sales of our seismic products.
We Cannot Be Certain of the Effectiveness of Patent Protection
We hold and from time to time apply for certain patents relating to some of our seismic data acquisition and
other products. We also own several patents which relate to the development of dry thermal film. We cannot
assure you that our patents will prove enforceable or free of challenge, that any patents will be issued for which
we have applied or that competitors will not develop functionally similar technology outside the protection of
any patents we have or may obtain.
Our Foreign Subsidiaries and Foreign Marketing Efforts Face Additional Risks and Difficulties
Based on customer billing data, net sales outside the United States accounted for approximately 46.6% of
our net sales during fiscal year 2011; however, we believe the percentage of sales outside the United States is
much higher as many of our products are first delivered to a domestic location and ultimately shipped to a
foreign location. We again expect net sales outside of the United States to represent a substantial portion of our
net sales for fiscal year 2012 and subsequent years.
Foreign sales are subject to special risks inherent in doing business outside of the United States, including
the risk of war, terrorist activities, civil disturbances, embargo and government activities and foreign attitudes
about conducting business activities with the United States, restrictions of the movement and exchange of funds,
inhibitions of our ability to collect accounts receivable, international sanctions, expropriation and nationalization
of our assets or those of our customers, currency fluctuations, devaluations and conversion restrictions,
confiscatory taxation or other adverse tax policies and governmental actions that may result in the deprivation of
our contractual rights, all of which may disrupt markets or our operations.
A portion of our manufacturing is conducted through our subsidiary OYO-GEO Impulse, which is based in
the Russian Federation. Our business could be directly affected by political and economic conditions in the
Russian Federation. Boycotts, protests, governmental sanctions and other actions in the region could adversely
affect our ability to operate profitably. The risk of doing business in the Russian Federation and other
economically or politically volatile areas could adversely affect our operations and earnings. Foreign sales are
also generally subject to the risk of compliance with additional laws, including tariff regulations and import and
export restrictions. Sales in certain foreign countries require prior U.S. government approval in the form of an
export license. We cannot assure you that we will not experience difficulties in connection with future foreign
sales. Also due to foreign laws and restrictions, should we experience substantial growth in certain foreign
markets, for example in the Russian Federation, we may not be able to transfer cash balances to the United States
to assist with debt servicing or other obligations.
Our subsidiaries in the Russian Federation and in Canada together reported operating losses of $1.3 million
and $3.3 million, respectively, for fiscal years 2010 and 2009 primarily due to difficult seismic market
conditions. These market conditions are influenced by macro-economic conditions such as the world-wide
economic crisis, credit availability, crude oil and natural gas commodity price volatility and other factors
9
impacting world-wide energy exploration activities. In addition, other factors contributed to these difficult
conditions such as high tax regimes, the over-supply of natural gas as recently seen in North America, intense
competitive pricing pressures, and reduced demand by our Houston-based operations for products manufactured
by our Russian subsidiary. We cannot assure you that these conditions will improve in the near term or that these
subsidiaries will not experience these difficult market conditions again in the future, and these subsidiaries may
generate future operating losses, asset impairments charges, or closure if we are unable to stabilize their
operations.
Unfavorable Currency Exchange Rate Fluctuations Could Adversely Affect Our Results of Operations
Substantially all of our sales from the United States are made in U.S. dollars, though from time to time we
may make sales in foreign currencies. As a result, we may be subject to foreign currency fluctuations on our
sales. The reporting currency for our financial statements is the U.S. dollar. However, the assets, liabilities,
revenues and costs of our Russian, Canadian and United Kingdom subsidiaries are denominated in currencies
other than U.S. dollars. To prepare our consolidated financial statements, we must translate those assets,
liabilities, revenues and expenses into U.S. dollars at then-applicable exchange rates. Consequently, increases
and decreases in the value of the U.S. dollar versus these other currencies will affect the amount of these items in
our consolidated financial statements, even if their value has not changed in their original currency. These
translations could result in significant changes to our results of operations from period to period. For the fiscal
year ended September 30, 2011, approximately 9.1% of our consolidated revenues related to the operations of
our foreign subsidiaries.
We Have a Relatively Small Public Float, and Our Stock Price May be Volatile
We have approximately 4.7 million shares outstanding held by non-affiliates. This small float results in a
relatively illiquid market for our common stock. Our daily trading volume for the year ended September 30, 2011
averaged approximately 55,000 shares. Our small float and daily trading volumes have in the past caused, and
may in the future result in, significant volatility in our stock price.
We Rely on a Key Supplier for a Significant Portion of Our Dry Thermal Film
While we currently manufacture dry thermal film, we also purchase a large quantity of dry thermal film
from a European manufacturer through its distributor in the United Kingdom. Except for the film produced by us
and sold to us by this manufacturer/distributor, we know of no other source for dry thermal film that performs
well in our thermal imaging equipment. If we are unable to economically manufacture dry thermal film internally
or the European manufacturer/distributor we rely on were to discontinue producing dry thermal film, were to
become unwilling to contract with us on competitive terms or were unable to supply dry thermal film in
sufficient quantities to meet our requirements, our ability to compete in the thermal imaging marketplace could
be impaired, which could adversely affect our financial performance.
Our Success Depends Upon a Limited Number of Key Personnel
Our success depends on attracting and retaining highly skilled professionals. A number of our employees
are highly skilled engineers and other professionals. In addition, our success depends to a significant extent upon
the abilities and efforts of the members of our senior management. If we fail to continue to attract and retain such
professionals, our ability to compete in the industry could be adversely affected.
A General Downturn in the Economy in Future Periods May Adversely Affect Our Business
The recent downturn in the economy, and any economic slowdown in future periods, could adversely affect
our business in ways that we cannot predict. During times of economic slowdown, our customers may reduce
their capital expenditures and defer or cancel pending projects. Such developments occur even among customers
that are not experiencing financial difficulties. Any economic downturn may adversely affect the demand for oil
and gas generally or cause volatility in oil and gas commodity prices and, therefore, adversely affect the demand
10
for our services to the oil and gas industry and related service and equipment. It could also adversely affect the
demand for consumer products, which could in turn adversely affect our thermal solutions business. To the extent
these factors adversely affect other seismic companies in the industry, there could be an oversupply of products
and services and downward pressure on pricing for seismic products and services, which could adversely affect
us. Additionally, bankruptcies or financial difficulties among our customers could reduce our cash flows and
adversely impact our liquidity and profitability.
Global Capital and Credit Market Issues Could Negatively Affect Our Liquidity and Increase Our Costs of
Borrowing
United States and global credit markets have recently experienced significant dislocations and liquidity
disruptions which have caused the spreads on prospective debt refinancings to widen considerably. These
circumstances materially impacted liquidity in the debt markets, making financing terms for borrowers less
attractive, and in certain cases have resulted in the unavailability of certain types of debt financing. Events
affecting the credit markets have also had an adverse effect on other financial markets in the United States, which
may make it more difficult or costly in the future for us to borrow additional funds. Our business could also be
negatively impacted if our suppliers or customers experience disruptions resulting from tighter capital and credit
markets or a slowdown in the general economy. Any of these risks could increase our interest expense, or impair
our ability to fund our operations or expand our business, which could have a material adverse effect on our
financial results.
We Have a Minimal Disaster Recovery Program at the Pinemont Facility
Due to its proximity to the Texas Gulf Coast, our Pinemont facility is annually subject to the threat of
hurricanes, and the aftermath that follows. Hurricanes may cause, among other types of damage, the loss of
electrical power for extended periods of time. If we lost electrical power at the Pinemont facility, or if a fire or
other natural disaster occurred, we would be unable to continue our manufacturing operations during the power
outage because we do not own a generator or any other back-up power source large enough to provide for our
manufacturing power consumption needs. We have a back-up generator to provide power for our information
technology operations. Although we store our back-up data offsite, we do not maintain an alternative facility to
run our information technology operations. Additionally, we do not have an alternative manufacturing or
operating location in the United States. A significant disruption in our manufacturing and information technology
operations could materially and adversely affect our business operations during an extended period of a power
outage, fire or other natural disaster.
The Credit Agreement Imposes Restrictions on Our Business
We and several of our subsidiaries are parties to a credit agreement with a bank. The credit agreement
contains covenants and requires maintenance of certain financial ratios and tests, which impose restrictions on
our business and on the business of our guarantor-subsidiaries. We currently believe that the most restrictive
covenant in the credit agreement is the consolidated cash flow coverage ratio. Our ability to comply with these
restrictions may be affected by events beyond our control, including, but not limited to, prevailing economic,
financial and industry conditions and continuing declines in our sales of products. The breach of any of these
covenants or restrictions, as well as any failure to make a payment of interest or principal when due, could result
in a default under the credit agreement. Such a default would permit our lender to declare amounts borrowed
from it to be due and payable, together with accrued and unpaid interest, and the ability to borrow under the
credit agreement could be terminated. If we are unable to repay debt to our lender, the lender could proceed
against the collateral securing that debt. While we intend to seek alternative sources of cash in such a situation,
there is no guarantee that any alternative cash source would be available, or would be available on terms
favorable to us.
11
We Have Been Subject to Control by a Principal Stockholder
At September 30, 2011, OYO Corporation owned indirectly in the aggregate approximately 20.3% of our
common stock. Accordingly, OYO Corporation, through its wholly owned subsidiary OYO Corporation U.S.A.,
is able to exercise substantial influence over our management, operations and affairs. In addition, we currently
have, and may continue to have, a variety of contractual relationships with OYO Corporation and its affiliates.
These relationships could further enable OYO Corporation to indirectly exert substantial influence on our
operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of September 30, 2011, our operations included the following locations:
Location
Owned/Leased
Approximate
Square Footage
Use
Houston, Texas . . . . . . . . . . . . . . . . . . . . . . . . .
Houston, Texas . . . . . . . . . . . . . . . . . . . . . . . . .
Ufa, Bashkortostan, Russia . . . . . . . . . . . . . . . .
Calgary, Alberta, Canada . . . . . . . . . . . . . . . . .
Luton, Bedfordshire, England . . . . . . . . . . . . . .
Beijing, China . . . . . . . . . . . . . . . . . . . . . . . . . .
Owned
Owned
Owned
Owned
Owned
Leased
387,000
77,000
120,000
45,000
8,000
1,000
See Note 1 below
See Note 2 below
Manufacturing, sales and service
Manufacturing, sales and service
Sales and service
Sales and service
We believe that our facilities are adequate for our current and immediately projected needs.
(1) This property is located at 7007 Pinemont Drive in Houston, Texas (the “Pinemont facility”). The Pinemont
facility contains all manufacturing, engineering, selling, marketing and administrative activities for both the
seismic and thermal solution segment of our company in the United States. The Pinemont facility also
serves as our company headquarters.
(2) This property, located at 7334 N. Gessner in Houston, Texas (the “Gessner facility”), previously contained a
manufacturing operation and certain support functions. In February 2006, we entered into a seven-year lease
with a tenant whereby the tenant agreed to lease portions of the building up to August 15, 2008, and to lease
the entire building from August 16, 2008 through February 14, 2013. The lease agreement was amended in
2009 to allow the tenant the option to lease the entire building through July 31, 2020.
Item 3. Legal Proceedings
From time to time we are a party to what we believe is routine litigation and proceedings that may be
considered as part of the ordinary course of our business.
On July 8, 2009, we received a complaint filed in the United States District Court in Nevada alleging that
the Geospace Seismic Recorder (“GSR”), our newly developed wireless data acquisition system, infringes a
patent held by Ascend Geo, LLC (“Ascend”). We requested and were granted a change in venue to the United
States District Court for the Southern District of Texas in Houston (the “Court”). In addition to monetary
damages, Ascend requested a preliminary injunction against future sales by us of the GSR nodal system. We filed
our response with the Court requesting that it deny Ascend’s request for a preliminary injunction and, on
November 4, 2009, the Court denied Ascend’s request for a preliminary injunction. On January 4, 2011, the
Court dismissed Ascend’s case with prejudice. On April 5, 2011, the U.S. Patent and Trademark Office cancelled
all claims of Ascend’s patent.
12
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
The following graphs compare the performance of the Company’s common stock with the performance of
the Russell 2000 index and the Standard & Poor’s Oil & Gas Equipment and Services index as of each of the
dates indicated.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among OYO Geospace Corporation, the Russell 2000 Index
and the S&P Oil & Gas Equipment & Services Index
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
9/06
9/07
9/08
9/09
9/10
9/11
OYO Geospace Corporation
Russell 2000
S&P Oil & Gas Equipment & Services
* $100 invested on 9/30/06 in stock or index,
including reinvestment of dividends. Fiscal year ending
September 30.
Copyright© 2011 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
The graph assumes $100 invested on September 30, 2006 (a) in the Company’s common stock, (b) in the
stocks comprising the Russell 2000 index on that day and (c) in the stocks comprising the Standard & Poor’s
Oil & Gas Equipment and Services index on that day. Reinvestment of all dividends on stocks comprising the
two indices is assumed. The foregoing graphs are based on historical data and are not necessarily indicative of
future performance. These graphs shall not be deemed to be “soliciting material” or to be “filed” with the
Securities and Exchange Commission or subject to the Regulations of 14A or 14C under the Exchange Act or to
the liabilities of Section 18 of the Exchange Act.
Our common stock is quoted on The NASDAQ Global Market under the symbol “OYOG”. On December 5,
2011, there were approximately 17 holders of record of our common stock, and the closing price per share on
such date was $87.22 as quoted by The NASDAQ Global Market.
13
The following table shows the high and low per share sales prices for our common stock reported on The
NASDAQ Global Market.
Year Ended September 30, 2011:
Low
High
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55.08
82.01
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84.33
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58.00
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter
$107.25
100.62
109.99
100.30
Year Ended September 30, 2010:
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $45.17
41.23
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33.85
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.02
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter
$ 58.40
55.47
50.47
43.70
Since our initial public offering in 1997, we have not paid dividends, and we do not intend to pay cash
dividends on our common stock in the foreseeable future. We presently intend to retain our earnings for use in
our business, with any future decision to pay cash dividends dependent upon our growth, profitability, financial
condition and other factors our Board of Directors may deem relevant. Our existing credit agreement also has
covenants that materially limit our ability to pay dividends. For a discussion of our credit agreement, see the
section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operation—
Liquidity and Capital Resources” contained in this Annual Report on Form 10-K.
The following equity plan information is provided as of September 30, 2011:
Equity Compensation Plan Information
Number of Securities to be
Issued upon Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted-average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c)
Plan Category
Equity Compensation Plans Approved by
Security Holders (1) . . . . . . . . . . . . . . . . .
172,400
Equity Compensation Plans Not Approved
by Security Holders . . . . . . . . . . . . . . . . .
400
$27.69
$39.22
137,896
19,000
(1) The securities are to be issued pursuant to the Company’s 1999 Broad-Based Option Plan. A description of
such plan is provided in Note 11 to the consolidated financial statements contained in this Annual Report on
Form 10-K.
14
Item 6. Selected Consolidated Financial Data
The following table sets forth certain selected historical financial data on a consolidated basis. We have
derived the selected consolidated financial information as of September 30, 2011 and 2010 and for fiscal years
2011, 2010 and 2009 from our audited consolidated financial statements appearing elsewhere in this Annual
Report on Form 10-K. We have derived the selected consolidated financial information as of September 30,
2009, 2008 and 2007 and for fiscal years 2008 and 2007 from audited consolidated formation not included
herein. The selected consolidated financial data should be read in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in item 7 and our consolidated financial
statements appearing elsewhere in this Annual Report on Form 10-K. When reviewing the table below, please
also note the recent
transactions and new accounting pronouncements described in the section entitled
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting
Policies”, contained in this Annual Report on Form 10-K.
Statement of Operations Data:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling, general and administrative . . . .
Research and development
. . . . . . . . . .
Bad debt expense (recovery) . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . .
. .
Gain (loss) on disposal of equipment
Income from operations . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding:
Year Ended September 30,
2011
2010
2009
2008
2007
(in thousands, except share and per share amounts)
$ 172,970
98,857
74,113
$ 128,533
81,177
47,356
$
92,860
66,287
26,573
$ 134,495
87,441
47,054
$ 138,106
87,587
50,519
18,051
11,529
128
29,708
—
44,405
214
44,619
14,908
29,711
4.78
4.73
$
$
$
16,618
9,925
(479)
26,064
(184)
21,108
(206)
20,902
6,820
14,082
2.33
2.27
$
$
$
14,572
8,062
318
22,952
(12)
3,609
(298)
3,311
1,551
1,760
0.30
0.29
$
$
$
16,913
8,945
1,615
27,473
604
20,185
233
20,418
6,266
14,152
2.40
2.31
$
$
$
16,492
7,327
236
24,055
1,655
28,119
118
28,237
8,638
19,599
3.38
3.23
$
$
$
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .
6,220,657
6,286,324
6,031,314
6,193,018
5,950,403
6,079,378
5,908,727
6,116,039
5,793,840
6,063,446
Other Financial Data:
Depreciation, amortization and stock-based
compensation . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . .
Balance Sheet Data:
Working capital . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . .
$
7,783
20,144
$
5,629
6,117
$
5,472
1,709
$
4,598
9,796
$
3,912
17,007
2011
2010
2009
2008
2007
As of September 30,
(in thousands)
$ 124,900
196,801
—
—
177,013
$
91,577
163,496
440
7,260
136,586
$
82,842
141,482
728
8,820
118,658
$
82,475
159,380
709
19,526
117,363
$
60,329
128,162
322
5,147
102,370
We did not declare or pay any dividends during any of the periods noted in the above tables.
15
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of the major elements of our consolidated financial
statements. You should read this discussion and analysis together with our consolidated financial statements,
including the accompanying notes, and other detailed information appearing elsewhere in this Annual Report on
Form 10-K, including under the heading “Risk Factors”. The discussion of our financial condition and results of
operations includes various forward-looking statements about our markets, the demand for our products and
services and our future plans and results. These statements are based on assumptions that we consider to be
reasonable, but that could prove to be incorrect. For more information regarding our assumptions, you should
refer to the section entitled “—Forward-Looking Statements and Assumptions” contained in this Item 7 in this
Annual Report on Form 10-K.
Background
We design and manufacture instruments and equipment used in the acquisition and processing of seismic
data as well as in the characterization and monitoring of producing oil and gas reservoirs. We have been in the
seismic instrument and equipment business since 1980 and market our products primarily to the oil and gas
industry. We also design, manufacture and distribute thermal imaging equipment and thermal media products
targeted at the screen print, point of sale, signage and textile market sectors. We have been manufacturing
thermal imaging products in our Thermal Solutions segment since 1995. For a more detailed discussion of our
business segments and products, see the information under the heading “Business” in this Annual Report on
Form 10-K.
Worldwide Economic Slowdown
Demand for many of our products depends primarily on the level of worldwide oil and gas exploration
activity. That activity, in turn, depends primarily on prevailing oil and gas prices and availability of seismic data.
Despite signs of economic recovery in 2010 and 2011, sovereign debt issues in Europe and slower economic
growth in the U.S. and China have renewed the uncertainty of the global economy and may, in turn, cause energy
commodity prices to decline.
We saw a strong recovery in the demand for some of our products in fiscal year 2011. However, we remain
cautious regarding the future and we continue to monitor the impact that these economic conditions may have on
our operations. We believe that our current cash balances, cash flow from operations and cash borrowings
available under our credit facility will provide sufficient resources to meet our working capital liquidity needs for
the next twelve months.
Consolidated Results of Operations
The economic slowdown adversely affected our product revenues in fiscal year 2009. In fiscal year 2009,
we experienced declines in almost every major product category in each of our business segments. In fiscal year
2010 and again in fiscal year 2011 product revenues increased from the previous year in most product categories.
We have not sold any large-scale seabed reservoir characterization systems since fiscal year 2007, although a
smaller seabed system was sold in fiscal year 2010. These reservoir characterization products generally have
higher profit margins than our traditional seismic exploration products.
As we have reported in the past, our sales and operating profits have varied significantly from
quarter-to-quarter, and even year-to-year, and are expected to continue that trend in the future, especially when
our quarterly financial results are impacted by the presence or absence of relatively large, but somewhat erratic,
shipments of seismic seabed, borehole reservoir characterization systems and/or wireless data acquisition
systems. At present, we do not have any large orders for seabed reservoir characterization products in our
backlog, although we remain optimistic about on-going discussions with customers concerning these products.
The quote-to-contract time for large permanent and retrievable seabed seismic data acquisition systems is
16
generally quite long, and since these sales are not recognized in our financial statements until the products are
shipped and/or accepted by our customer, the exact timing of any future sales can dramatically affect our
quarterly results.
In fiscal years 2010 and 2009, our subsidiaries located in the Russian Federation and in Canada experienced
significant declines in sales and,
together, generated operating losses of $1.3 million and $3.3 million,
respectively. The difficult seismic market conditions in the Russian Federation resulted from a decline in oil
exploration activities precipitated in part by the severe drop in crude oil commodity prices (relative to prices in
prior years) and a higher federal tax imposed upon Russian producers of crude oil for export. In addition, our
Houston-based manufacturing operation significantly reduced the purchase of products manufactured by our
Russian subsidiary in an effort to stabilize and eventually reduce our consolidated inventory levels. The resulting
low factory utilization, combined with intense competition for declining seismic product orders in the Russian
market, contributed to the poor financial results of our Russian subsidiary during fiscal years 2010 and 2009. In
regards to our subsidiary in Canada, high levels of natural gas storage and low natural gas demand in North
America significantly reduced natural gas-oriented seismic exploration activities both in the United States and in
Canada, resulting in low levels of product sales and the under-utilization of our seismic rental equipment. The
lower level of sales recorded by our Canadian subsidiary in 2010 and 2009 was not adequate to offset fixed costs
associated with rental equipment depreciation and facility utilization as well as general overhead costs. While
both the Russian and Canadian subsidiaries experienced significant revenue increases during fiscal year 2011, the
Russian subsidiary reported an operating loss of $0.4 million in fiscal year 2011 and continues to face intense
pricing competition for product sales to its Russian and CIS customers. We are working closely with the Russian
management team to address these issues in an effort to return this operation to profitability.
We report and evaluate financial information for two segments: Seismic and Thermal Solutions. Summary
financial data by business segment follows (in thousands):
Year Ended September 30,
2011
2010
2009
Seismic
Exploration product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $131,645
15,968
Reservoir product sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,040
Industrial product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 89,777
14,600
10,397
Total seismic sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
158,653
53,477
114,774
28,955
$59,084
12,020
7,939
79,043
10,591
Thermal Solutions
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,519
(37)
12,955
397
13,028
370
Corporate
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
798
(9,035)
804
(8,244)
789
(7,352)
Consolidated Totals
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
172,970
44,405
128,533
21,108
92,860
3,609
Overview
Fiscal Year 2011 Compared to Fiscal Year 2010
Consolidated net sales for fiscal year 2011 increased $44.4 million, or 34.6%, from fiscal year 2010. The
higher level of sales resulted from increased customer demand for our seismic products and particularly robust
demand for sales and rentals of our land-based wireless (or nodal) data acquisition systems. The increased
demand for our seismic products is being driven by strong oil and gas exploration activities throughout the world.
17
Consolidated gross profits for fiscal year 2011 increased by $26.8 million, or 56.5%, from fiscal year 2010.
The increase in gross profits resulted from (i) increased sales and rentals of seismic products, (ii) a more
favorable product mix, and (iii) improved manufacturing productivity due to higher production output.
Consolidated operating expenses for fiscal year 2011 increased $3.6 million, or 14.0%, from fiscal year
2010. The increase in operating expenses resulted from (i) increased pretax earnings giving rise to $0.5 million of
increased incentive compensation expenses, (ii) increased product development expenditures of $1.2 million
relating to product enhancements and new product introductions, and (iii) a general increase in expenses
associated with increased sales activities.
The U.S. statutory tax rate applicable to us for fiscal years 2011 and 2010 was 35.0%; however, our effective
tax rate was 33.4% and 32.6% for fiscal years 2011 and 2010, respectively. The lower effective tax rate in fiscal
year 2011 resulted from (i) the impact of the manufacturers’/producers’ deduction available in the United States and
(ii) an increase in research and experimentation tax credits resulting from United States Congress’ renewal and
extension of the tax credit program during fiscal year 2011 through December 2012. The lower effective tax rate in
fiscal year 2010 resulted from (i) the impact of the manufacturers’/producers’ deduction available in the United
States, (ii) a revaluation of our United States net deferred tax assets from 34.0% to 35.0%, (iii) the revaluation of a
tax loss carryback for our Canadian subsidiary, and (iv) a reduction in our contingent tax expenses.
Fiscal Year 2010 Compared to Fiscal Year 2009
Consolidated net sales for fiscal year 2010 increased $35.7 million, or 38.4%, from fiscal year 2009. The
higher level of sales stems from the increase in customer demand for our seismic products and particularly robust
demand for our land-based wireless (or nodal) data acquisition systems. The increased demand for our seismic
products in fiscal year 2010 was driven by higher crude oil commodity prices and increased natural gas
exploration activities in North America.
Consolidated gross profits for fiscal year 2010 increased by $20.8 million, or 78.2%, from fiscal year 2009.
The increase in gross profits was caused by an increase in sales of our products, improved factory utilization and
a favorable product mix.
Consolidated operating expenses for fiscal year 2010 increased $3.1 million, or 13.6%, from fiscal year
2009. Increased operating expenses primarily resulted from a $2.3 million increase of incentive compensation
resulting from higher consolidated pretax profits, and general expense increases due to higher sales volume.
These operating expense increases were partially offset by lower bad debt expenses resulting from improved
collection of our outstanding accounts receivable.
The U.S. statutory tax rate applicable to us for fiscal years 2010 and 2009 was 35.0% and 34.0%, respectively;
however, our effective tax rate was 32.6% and 46.8% for fiscal years 2010 and 2009, respectively. The lower
effective tax rate in fiscal year 2010 resulted from (i) the impact of the manufacturers’/producers’ deduction
available in the United States, (ii) a revaluation of our United States net deferred tax assets from 34.0% to 35.0%,
(iii) the revaluation of a tax loss carryback for our Canadian subsidiary, and (iv) a reduction in our contingent tax
expenses. The United States Congress had not extended the provision for research and experimentation credits
beyond calendar year 2009; therefore, the Company had not recorded any related tax benefit of such credits beyond
its first quarter ended December 31, 2009. The higher effective tax rate for fiscal year 2009 resulted primarily from
pretax losses in foreign taxing jurisdictions having lower statutory tax rates than the U.S. statutory rate.
Segment Results of Operations
Seismic Products
Fiscal Year 2011 Compared to Fiscal Year 2010
Net Sales. Sales of our seismic products for fiscal year 2011 increased $43.9 million, or 38.2%, from fiscal
year 2010. The increase in our seismic product sales is due to (i) robust demand for sales and rentals of our
18
wireless data acquisition systems, (ii) increased demand for most of our other seismic products, including higher
margin marine and reservoir products, and (iii) improving market conditions in Canada and the Russian
Federation.
Operating Income. Operating income for fiscal year 2011 increased $24.5 million, or 84.7%, from fiscal
year 2010. The higher operating income resulted primarily from increased product sales and equipment rentals,
improved factory productivity, and a more favorable product mix. These improvements in our operating income
were partially offset by (i) additional charges for inventory obsolescence due to the aging of certain of our
inventories, (ii) increased incentive compensation expenses due to a higher level of pretax income, and
(iii) operating losses at our subsidiary in the Russian Federation due to competitive pricing pressures in its local
market.
Fiscal Year 2010 Compared to Fiscal Year 2009
Net Sales. Sales of our seismic products for fiscal year 2010 increased $35.7 million, or 45.2%, from fiscal
year 2009. The increase in sales is due to a higher demand for most of our seismic products caused by increased
oil and gas exploration activities worldwide. In addition, we experienced robust demand for our land-based
wireless (or nodal) data acquisition system.
Operating Income. Operating income from sales of our seismic products for fiscal year 2010 increased
$18.4 million, or 173.4%, from fiscal year 2009. The higher operating income is directly related to (i) improved
product sales and product mix, (ii) higher factory utilization resulting from increased manufacturing activities,
(iii) improved operating results from our subsidiary in the Russian Federation, and (iv) the leveraging of fixed
operating expenses over a greater volume of revenues.
Thermal Solutions Products
Fiscal Year 2011 Compared to Fiscal Year 2010
Net Sales. Sales of our thermal solutions products for fiscal year 2011 increased $0.6 million, or 4.4%, from
fiscal year 2010. Approximately $0.3 million of this increase resulted from growing sales to our Canadian
customers. We consider the remaining increase to be somewhat normal due to recurring fluctuations in product
sales volume and not associated with any long-term trend.
Operating Income. Our operating income from our thermal solutions products for fiscal year 2011 decreased
$0.4 million, or 109.3%, from fiscal year 2010. The decline in profitability resulted from (i) lower margins on
product sales due to higher material costs for our film products, (ii) additional charges for inventory obsolescence
expense due to the aging of certain inventories, and (iii) increased incentive compensation expenses relative to
the improvement in our consolidated financial results.
Fiscal Year 2010 Compared to Fiscal Year 2009
Net Sales. Sales of our thermal solutions products for fiscal year 2010 decreased $73,000, or 0.6%, from
fiscal year 2009. We consider this small decrease to be somewhat normal due to recurring fluctuations in product
sales volume and not associated with any long-term trend.
Operating Income. Our operating income from our thermal solutions products for fiscal year 2010 increased
$27,000, or 7.3%, from fiscal year 2009. The increase in operating income is caused by increased production
efficiencies.
Incentive Compensation Program
We adopted an incentive compensation program for fiscal year 2011 whereby most employees will be
eligible to begin earning incentive compensation if the Company reaches a five percent pretax return on
stockholders’ equity, determined as of September 30, 2010. To be eligible to participate in this incentive
19
compensation program, employees must participate in our Core Values Program. Based on our experience in
prior years, we expect one hundred percent of our eligible employees to participate in the Core Values Program.
The incentive compensation program does not apply to the employees of our subsidiary in the Russian Federation
since such employees participate in a locally administered bonus program. Certain non-executive employees are
required to achieve specific goals to earn a significant portion of their total incentive compensation award. Any
bonus awards earned under this program in fiscal year 2011 will be paid out to eligible employees after the end
of the fiscal year.
Upon reaching the five percent threshold under this proposed program, an incentive compensation accrual
will be established equal to 14.5 percent of the amount of any consolidated pretax profits above the five percent
pretax return threshold. The maximum aggregate bonus available under the program for fiscal year 2011 was
originally $3.5 million; however, our board of directors subsequently increased the maximum bonus pool to $4.2
million based on the record earnings of the Company in fiscal year 2011. Under this program as modified, for the
fiscal years ended September 30, 2011 and 2010, we had accrued $4.2 million and $3.3 million, respectively, of
incentive compensation expense.
Liquidity and Capital Resources
At September 30, 2011, we had $31.4 million in cash and cash equivalents. For fiscal year 2011, we
generated approximately $1.1 million of cash in operating activities. Sources of cash generated in our operating
activities resulted from net income of $29.7 million. Additional sources of cash included net non-cash charges of
$11.8 million for deferred income tax benefit, depreciation, amortization, stock-based compensation, inventory
obsolescence and bad debts. Other sources of cash included , (i) a $2.0 million decrease in trade accounts and
notes receivable primarily resulting from improved cash receipts from customers during fiscal year 2011, (ii) a
$1.8 million increase in accrued expenses and other primarily resulting from an increase of $0.8 million for
incentive compensation expenses due to increased consolidated pretax earnings, and a $0.7 million increase in
warranty accruals due to increased potential warranty exposure resulting from increased product sales, and (iii) a
$1.2 million increase in accounts payable due to increased purchases of raw materials. These sources of cash
were offset by (i) a $29.5 million increase in inventories due to the replenishment of low levels of our wireless
data acquisition system inventories, and increasing levels of work-in-process resulting from product orders and
anticipated demand for wireless data acquisition system sales and rentals, (ii) a $11.2 million adjustment to
transfer gross profits from rental equipment sales to investing activities since such transactions involve the sale
of long-lived assets, (iii) a $2.5 million increase in other current assets resulting from the advanced payment of
income taxes in certain tax jurisdictions, (iv) a $1.7 million decrease in income tax payable resulting from the
payment of income taxes owed on our pretax profits and (v) a $0.6 million decrease in deferred revenue resulting
from a reduction in the amount of advanced payments received from our customers.
Throughout fiscal years 2009 and 2010, we made substantial efforts to reduce our inventory levels in order
to meet declining levels of product demand for our traditional seismic products and to generate cash flows to
reduce our indebtedness. Due to the relatively low levels of inventories at the outset of fiscal year 2011 and the
significant demand for new products like our wireless data acquisition system and our intention to establish and
increase our rental fleet of wireless data acquisition equipment, we have strategically increased certain product
inventories to meet this demand. However, we continue to be subject to high levels of inventory obsolescence
expense for our older and slower moving products. We continue to give substantial attention to the management
of our inventories in this area.
For fiscal year 2011, we used approximately $5.2 million of cash in investing activities. The uses of cash
primarily resulted from (i) our investment of $15.4 million for rental equipment, (ii) $4.7 million of capital
expenditures for property and equipment, and (iii) a $4.9 million investment in short-term investments. In
addition, we transferred $0.2 million of inventories to our rental equipment during fiscal year 2011 which had a
non-cash impact. The uses of cash outlined above were partially offset by $19.9 million of proceeds from the sale
of used rental equipment. Due to strong customer demand for our wireless rental equipment, we estimate that our
capital expenditures for rental equipment in fiscal year 2012 could be approximately $16.0 million or more,
20
including non-cash additions to our used rental fleet. In addition, we estimate that other capital expenditures for
property and equipment could be approximately $5.0 million. Similar to fiscal year 2011, in fiscal year 2012 we
expect to sell a significant amount of our rental equipment to customers and, therefore, generate sales proceeds to
partially or fully offset such investments in rental equipment. For fiscal year 2012, we expect to finance our
capital expenditures in rental equipment and other property and equipment from our cash on hand, internal cash
flow, rental equipment sales proceeds and/or from borrowings under our Credit Agreement.
For fiscal year 2011, we generated approximately $2.0 million of cash in the financing activities of our
operations. During fiscal year 2011, we generated $9.7 million of proceeds from the exercise of stock options and
related tax benefits. Partially offsetting these proceeds was a $7.7 million cash payment to pay off a mortgage
loan obligation.
At September 30, 2010, we had $33.5 million in cash and cash equivalents. For fiscal year 2010, we
generated approximately $30.0 million of cash from our operating activities. Sources of cash generated in our
operating activities include net income of $14.1 million. Additional sources of cash include net non-cash charges
of $6.6 million for deferred income tax expense, depreciation, amortization, stock-based compensation, inventory
obsolescence and bad debts. Other sources of cash included (i) a $6.7 million decrease in inventories due to
improved management activities, (ii) a $5.0 million increase in accrued expenses primarily resulting from higher
incentive compensation costs resulting from higher levels of pretax income and (iii) a $1.9 million increase in
income taxes payable primarily resulting from the increase in taxable income. These sources of cash were offset
by (i) a $2.7 million increase in accounts and notes receivable resulting from higher levels of sales, (ii) a $0.9
million decrease in accounts payable due to increases in purchases of raw materials and (iii) a $0.9 million
decrease in prepaid expenses and other resulting from the timing of funding our payrolls.
For fiscal year 2010, we used approximately $6.1 million of cash in investing activities primarily resulting
from our capital expenditures for rental equipment. In addition, we transferred $0.3 million of inventories to our
rental equipment during fiscal year 2010 which had a non-cash impact.
For fiscal year 2010, we generated approximately $1.3 million of cash in the financing activities of our
operations. Sources of cash included $3.3 million of proceeds from the exercise of stock options and related tax
benefits. These sources of cash were offset by $1.8 million of principal payments under mortgage loans and a
$0.1 million payment as a penalty for early extinguishment of debt.
At September 30, 2009, we had $8.6 million in cash and cash equivalents. For fiscal year 2009, we
generated approximately $17.3 million of cash in operating activities. Sources of cash generated in our operating
activities resulted from net income of $1.8 million. Additional sources of cash include net non-cash charges of
$7.5 million for deferred income tax expense, depreciation, amortization, stock-based compensation, inventory
obsolescence and bad debts. Other sources of cash included a $14.3 million decrease in accounts and notes
receivable due to improved collections and lower levels of product sales, and a $3.2 million decrease in
inventories. These sources of cash were offset by (i) a $4.2 million decrease in accrued expenses primarily
resulting from a decline in payroll-related costs due to employee headcount reductions and lower incentive
compensation costs resulting from lower levels of pretax income, (ii) a $3.4 million decrease in accounts payable
due to declines in purchases of raw materials and other expense reductions and (iii) a $1.4 million decrease in
income taxes payable primarily resulting from the decrease in taxable income.
For fiscal year 2009, we used approximately $1.7 million of cash in investing activities resulting from our
capital expenditures.
For fiscal year 2009, we used approximately $9.7 million of cash in the financing activities of our
operations, resulting from $10.0 million of principal payments under the Credit Agreement and $0.7 million
principal payments for our mortgage loans. These uses of cash were offset by $1.0 million of proceeds from the
exercise of stock options and related tax benefits.
21
On March 2, 2011, we entered into a new credit agreement (as amended, the “New Credit Agreement”) with
a bank. Under the New Credit Agreement, we can borrow up to $25.0 million principally secured by our accounts
receivable, inventories and equipment. In addition, certain of our domestic subsidiaries have guaranteed our
obligations under the New Credit Agreement and such subsidiaries have secured the obligations by the pledge of
certain of the assets of such subsidiaries. The New Credit Agreement expires on March 2, 2014. The New Credit
Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial ratios,
restricts us and our subsidiaries’ ability to pay dividends and contains other covenants customary in agreements
of this type. The interest rate for borrowings under the New Credit Agreement is a LIBOR based rate with a
margin spread of 250-350 basis points depending upon the maintenance of certain ratios. At September 30, 2011,
the interest rate was 2.7%. At September 30, 2011, there were no borrowings outstanding under the New Credit
Agreement, standby letters of credit outstanding in the amount of $0.2 million and additional borrowings
available were $24.8 million. Please see “Risk Factors” for more information about the restrictive covenants
imposed on us by the New Credit Agreement.
Prior to entering into the New Credit Agreement, several of our subsidiaries were a party to a credit
agreement (the “Previous Credit Agreement”) with a bank, and could borrow up to $25.0 million secured
principally by the subsidiaries’ accounts receivable and inventories. The Previous Credit Agreement, as
amended, was scheduled to expire on April 30, 2011, however this agreement was terminated on March 2, 2011
and replaced by the New Credit Agreement. Borrowings under the Previous Credit Agreement were subject to
borrowing base restrictions based on levels of eligible accounts receivable and inventories. The Previous Credit
Agreement limited the incurrence of additional indebtedness, required the maintenance of certain financial
amounts, restricted the Company’s and the borrower subsidiaries’ ability to pay dividends and contained other
covenants customary in agreements of this type.
Off-Balance Sheet Arrangements
We do not have any obligations which meet the definition of an off-balance sheet arrangement and which
have or are reasonably likely to have a current or future effect on our financial statements or the items contained
therein that are material to investors.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires the use of estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. We consider many factors in selecting appropriate operational and financial
accounting policies and controls, and in developing the estimates and assumptions that are used in the
preparation of these financial statements. We continually evaluate our estimates, including those related to bad
debt reserves, inventory obsolescence reserves, self-insurance reserves for medical expenses, product warranty
reserves, intangible assets, stock-based compensation and deferred income tax assets. We base our estimates on
historical experience and various other factors, including the impact from the current economic conditions that
we believe to be reasonable under the circumstances. Actual results may differ from these estimates under
different conditions or assumptions.
Our normal credit terms for trade receivables are 30 days. In certain situations, credit terms for trade
receivables may be extended to 60 days or longer and such receivables generally do not require collateral.
Additionally, we provide long-term financing in the form of promissory notes when competitive conditions
require such financing and, in such cases, we may require collateral. We perform ongoing credit evaluations of
our customers’ accounts and notes receivable and allowances are recognized for potential credit losses.
Our long-lived assets are reviewed for impairment whenever an event or change in circumstances indicates
the carrying amount of an asset or group of assets may not be recoverable. The impairment review, if necessary,
includes a comparison of expected future cash flows (undiscounted and without interest charges) to be generated
by an asset group with the associated carrying value of the related assets. If the carrying value of the asset group
22
exceeds the expected future cash flows, an impairment loss is recognized to the extent that the carrying value of
the asset group exceeds its fair value.
Management makes judgments regarding the interpretation of tax laws that might be challenged upon an
audit and causes changes to previous estimates of tax liability. In addition, we operate within multiple taxing
jurisdictions and are subject to audit in these jurisdictions as well as by the Internal Revenue Service. In
management’s opinion, adequate provisions for income taxes have been made for all open tax years. The
potential outcomes of examinations are regularly assessed in determining the adequacy of the provision for
income taxes and income tax liabilities. Management believes that adequate provisions have been made for
reasonable and foreseeable outcomes related to uncertain tax matters.
We record a write-down of our inventories when the cost basis of any manufactured product, including any
estimated future costs to complete the manufacturing process, exceeds its net realizable value. Inventories are
stated at the lower of cost or market value. Cost is determined on a first-in, first-out method, except that our
subsidiary in the Russian Federation uses an average cost method to value its inventories.
We periodically review the composition of our inventories to determine if market demand, product
modifications, technology changes, excessive quantities on-hand and other factors hinder our ability to recover
its investment in such inventories. Management’s assessment is based upon historical product demand, estimated
future product demand and various other judgments and estimates. Inventory obsolescence reserves are recorded
when such assessments reveal that portions or components of our inventory investment will not be realized in our
operating activities.
We primarily derive revenue from the sale, and short-term rental under operating leases, of seismic
instruments and equipment and thermal solutions products. We generally recognize sales revenues when our
products are shipped and title and risk of loss have passed to the customer. We recognize rental revenues as
earned over the rental period. Rentals of our equipment generally range from daily rentals to rental periods of up
to six months or longer. Except for certain of our reservoir characterization products, our products are generally
sold without any customer acceptance provisions and our standard terms of sale do not allow customers to return
products for credit. In instances where the customer requires a significant performance test for our new and
unproven products, we do not recognize the revenue attributable to the product as to which the performance test
applies until the performance test is satisfied. Collection of revenue from the sale of large-scale reservoir
characterization products may occur at various stages of production or after delivery of the product, and the
collected funds are generally not refundable to the customer.
Most of our products do not require installation assistance or sophisticated instruction. We offer a standard
product warranty, which obligates us to repair or replace equipment with manufacturing defects. We maintain a
reserve for future warranty costs based on historical experience or, in the absence of historical experience,
management estimates. We record a write-down of inventory when the cost basis of any item (including any
estimated future costs to complete the manufacturing process) exceeds its net realizable value.
We recognize revenue when all of the following criteria are met:
• Persuasive evidence of an arrangement exists. We operate under a purchase order/contract system for
goods sold to customers, and under rental/lease agreements for equipment rentals. These documents
evidence that an arrangement exists.
• Delivery has occurred or services have been rendered. For product sales, we do not recognize revenues
until delivery has occurred or performance tests are met. For rental revenue, we recognize revenue
when earned.
•
The seller’s price to the buyer is fixed or determinable. Sales prices are defined in writing in a
customer’s purchase order, purchase contract or equipment rental agreement.
• Collectibility is reasonably assured. We evaluate customer credit to ensure collectibility is reasonably
assured.
23
Occasionally, our seismic customers are not able to take immediate delivery of products which were
specifically manufactured to the customer’s specifications. These occasions generally occur when customers face
logistical issues such as project delays or with their seismic crew deployment. In these instances, our customers
have asked us to hold the equipment for a short period of time until they can take physical delivery of the product
(referred to as “bill and hold” arrangements). We consider the following criteria for recognizing revenue when
delivery has not occurred:
• Whether the risks of ownership have passed to the customer,
• Whether we have obtained a fixed commitment to purchase the goods in written documentation from
the customer,
• Whether the customer requested that the transaction be on a bill and hold basis and we received that
request in writing,
• Whether the customer has a substantial business purpose for ordering the goods on a bill and hold
basis,
• Whether there is a fixed schedule for delivery of the product,
• Whether we have any specific performance obligations such that the earning process is not complete,
• Whether the equipment is segregated from our other inventory and not subject to being used to fill
other orders, and
• Whether the equipment is complete and ready for shipment.
We do not modify our normal billing and credit terms for these types of sales. As of September 30, 2011
and 2010, we had no sales under bill and hold arrangements. As of September 30, 2009, we had recognized $0.6
million of sales under bill and hold arrangements.
Recent Accounting Pronouncements
See Note 1 of our Notes to Consolidated Financial Statements for information regarding the effect of new
accounting pronouncements on our financial statements.
Forward-Looking Statements and Assumptions
This Annual Report on Form 10-K and the documents incorporated by reference herein, if any, contain
“forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking
statements by terminology such as “may”, “will”, “should”, “intend”, “expect”, “plan”, “budget”, “forecast”,
“anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or similar words. You should read
statements that contain these words carefully because they discuss our future expectations, contain projections of
our future results of operations or of our financial position or state other forward-looking information. These
forward-looking statements reflect our best judgment about future events and trends based on the information
currently available to us. However, there may be events in the future that we are not able to predict or control.
The factors listed under the caption “Risk Factors”, as well as cautionary language in this Annual Report on
Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements. You should be aware that the
occurrence of the events described in these risk factors and elsewhere in this Annual Report on Form 10-K could
have a material adverse effect on our business, results of operations and financial position, and actual events and
results of operations may vary materially from our current expectations.
24
Management’s Current Outlook and Assumptions
Our estimates as to future results and industry trends, to the extent described in this document, are generally
based on assumptions regarding the future level of seismic exploration activity, seismic reservoir monitoring
projects, demand for offshore cable and other industrial products and demand for thermal imaging technologies,
and in turn, their effect on the demand and pricing of our products and services. Our analysis of the market and
its impact on us is based upon the following assumptions:
• Although crude oil prices have stabilized over the last two years, we believe the impact of the
sovereign debt issues in Europe, slower economic growth in the U.S. and China and the resulting
recessionary fears, combined with potentially volatile and unsteady energy commodity prices may
constrain oil and gas exploration activities in North America and also in certain international markets.
Furthermore, we believe many of our seismic customers relying on credit markets as the source of
funds for their capital spending could be prohibited from purchasing new equipment until financial
markets stabilize and demand for exploration activities increases. The uncertainty of these global
economic matters and their ultimate impact on energy exploration activities and on our customers’
ability to access credit markets may cause demand for our seismic exploration products to decrease.
•
In fiscal years 2010 and 2009, our Russian and Canadian seismic operations experienced low product
demand, excess manufacturing capacity, intense price competition, low rental equipment utilization
and certain asset write-downs resulting from these factors. Together, the seismic activities of these
subsidiaries generated operating losses of $1.3 million and $3.3 million in fiscal years 2010 and 2009,
respectively. While both the Russian and Canadian subsidiaries experienced significant revenue
increases during fiscal year 2011, the Russian subsidiary reported an operating loss of $0.4 million in
fiscal year 2011 and continues to face intense pricing competition for product sales to its Russian and
CIS customers. We do not expect our Russian subsidiary to emerge from these difficult conditions until
later in fiscal year 2012 and, therefore, we do not expect significant improvements in the operating
results of our Russian subsidiary in fiscal year 2012. We do, however, expect improving operating
results from our Canadian subsidiary throughout fiscal year 2012 due to expected increases in oil and
gas exploration activities in Canada, and from customer demand for purchases and rentals of our
wireless data acquisition system.
• We believe the impact of political conditions and hostilities around the world, including those in North
Africa and the Middle East, which may impact oil and gas commodity prices, will not cause a
significant increase or decrease in demand for our seismic products for the foreseeable future.
• Based upon our current backlog, we expect revenues from our borehole and seabed reservoir
characterization products and services to remain level with fiscal year 2011 revenues. Our current
product backlog does not contain any orders for large-scale seabed reservoir monitoring systems. If we
were to sell such a system in fiscal year 2012, we would expect our revenues for these products to
increase significantly.
• We expect revenues from the sale and rental of recent product introductions, such as our wireless nodal
seismic data recording systems, to improve during fiscal year 2012.
• We expect demand for our products used in the thermal solutions industry to remain level with fiscal
year 2011 revenues.
• We expect sales of our industrial products to remain level with our fiscal year 2011 sales.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We have some market risk relative to sensitive instruments entered into for trading purposes and have only
very limited risk as to arrangements entered into other than for trading purposes. We do not engage in
commodity or commodity derivative instrument purchasing or selling transactions. Because of the inherent
unpredictability of foreign currency rates and interest rates, as well as other factors, actual results could differ
materially from those projected in this Item.
25
Short-Term Investment Risk
Our short-term investments consisting of corporate bonds, government bonds and other similar investments
are classified for accounting purposes as available-for-sale. If these short-term investments are not held to
maturity, the proceeds obtained when the instruments are sold will be impacted by the current interest rates at the
time they are sold.
Foreign Currency and Operations Risk
One of our wholly-owned subsidiaries, OYO-GEO Impulse, is located in the Russian Federation. Therefore,
our financial results may be affected by factors such as changes in foreign currency exchange rates, weak
economic conditions in the Russian Federation or changes in its political climate. Our consolidated balance sheet
at September 30, 2011 reflected approximately $6.4 million of net working capital related to OYO-GEO Impulse.
For third-party transactions, OYO-GEO Impulse both receives its income and pays its expenses primarily in
rubles. To the extent that transactions of OYO-GEO Impulse are settled in rubles, a devaluation of the ruble
versus the U.S. dollar could reduce any contribution from OYO-GEO Impulse to our consolidated results of
operations and total comprehensive income as reported in U.S. dollars. We do not hedge the market risk with
respect to our operations in the Russian Federation; therefore, such risk is a general and unpredictable risk of
future disruptions in the valuation of rubles versus U.S. dollars to the extent such disruptions result in any
reduced valuation of OYO-GEO Impulse’s net working capital or future contributions to our consolidated results
of operations. At September 30, 2011, the foreign exchange rate of the U.S. dollar to the ruble was 1:28.9. If the
U.S. dollar versus ruble exchange rate were to decline by ten percent, our working capital could decline by $0.6
million.
Foreign Currency Intercompany Accounts and Notes Receivable
From time to time, we provide access to capital to our foreign subsidiaries through U.S. dollar denominated
interest bearing promissory notes. Such funds are generally used by our foreign subsidiaries to purchase capital
assets and for general working capital needs. In addition, we sell products to our foreign subsidiaries in U.S.
dollars on trade credit terms. Because U.S. dollar denominated intercompany debts are accounted for in the local
currency of our foreign subsidiaries, any appreciation or devaluation of such foreign currencies against the U.S.
dollar will result in a gain or loss, respectively, to our consolidated statement of operations. At September 30,
2011, we had outstanding accounts and notes receivable of $0.4 million from our subsidiary in the Russian
Federation. At September 30, 2011, the foreign exchange rate of the U.S. dollar to ruble was 1:28.9. If the U.S.
dollar exchange rate were to decline by ten percent, our intercompany accounts and notes receivable would
decline by $36,000 in the Russian Federation.
Floating Interest Rate Risk
The New Credit Agreement contains a floating interest rate, which subjects us to the risk of increased
interest costs associated with any upward movements in bank market interest rates. Under the New Credit
Agreement our borrowing interest rate is a LIBOR based rate plus 250-350 basis points. As of September 30,
2011, we had no borrowings under the New Credit Agreement.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements, including the reports thereon, the notes thereto and supplementary
data begin at page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
26
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and
procedures that are designed to ensure that information required to be disclosed in our reports filed under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified under SEC’s
rules and forms, and that such information is accumulated and communicated to our management, including our
Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Notwithstanding the foregoing, there can
be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of
persons within the Company and its consolidated subsidiaries to report material information otherwise required
to be set forth in the Company’s reports.
In connection with the preparation of this Annual Report on Form 10-K, the Company carried out an
evaluation under the supervision and with the participation of the Company’s management, including the CEO
and CFO, as of September 30, 2011 of the effectiveness of the Company’s disclosure controls and procedures, as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the
CEO and CFO concluded that our disclosure controls and procedures are effective as of September 30, 2011.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of
September 30, 2011. In making this assessment, we used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework. Based on this
assessment, our management concluded that, as of September 30, 2011, our internal control over financial
reporting is effective based on those criteria.
Our internal control over financial reporting as of September 30, 2011 has been audited by UHY LLP, an
independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the
Company’s fiscal quarter ending September 30, 2011 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
27
Item 10. Directors and Executive Officers of the Registrant
PART III
The information required by this Item is contained in our definitive Proxy Statement to be distributed in
connection with our 2012 Annual Meeting of Stockholders under the captions “Election of Directors”,
“Executive Officers and Compensation,” “Section 16(a) Beneficial Ownership Reporting Compliance” and
“Code of Ethics” and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item is contained in our definitive Proxy Statement to be distributed in
connection with our 2012 Annual Meeting of Stockholders under the caption “Executive Officers and
Compensation” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item is contained in our definitive Proxy Statement to be distributed in
connection with our 2012 Annual Meeting of Stockholders under the caption “Security Ownership of Certain
Beneficial Owners and Management” and is incorporated herein by reference, and in Item 5, “Market for
Registrant’s Common Equity and Related Stockholder Matters,” contained in Part II hereof.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this Item is contained in our definitive Proxy Statement to be distributed in
connection with our 2012 Annual Meeting of Stockholders under the caption “Certain Relationships and Related
Transactions” and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item is contained in our definitive Proxy Statement to be distributed in
connection with our 2012 Annual Meeting of Stockholders under the caption “Independent Public Accountants”
and is incorporated herein by reference.
28
Item 15. Exhibits, Financial Statement Schedules
Financial Statements and Financial Statement Schedules
PART IV
The financial statements and financial statement schedules listed on the accompanying Index to Financial
Statements (see page F-1) are filed as part of this Annual Report on Form 10-K.
29
Exhibits
Exhibit
Number
Description of Documents
3.1 (a) Restated Certificate of Incorporation of the Registrant.
3.2 (a) Restated Bylaws of the Registrant.
3.3 (p) Amendment No. 1 to OYO Geospace Corporation Amended and Restated Bylaws.
4.1 (a) Restated Certificate of Incorporation of the Registrant.
4.2 (a) Restated Bylaws of the Registrant.
4.3 (p) Amendment No. 1 to OYO Geospace Corporation Amended and Restated Bylaws.
10.1 (a) Employment Agreement dated as of August 1, 1997, between the Company and Gary D. Owens.*
10.2 (a) Employment Agreement dated as of August 1, 1997, between the Company and Michael J. Sheen.*
10.3 (b) OYO Geospace Corporation 1997 Key Employee Stock Option Plan.*
10.4 (c) Amendment No. 1 to OYO Geospace Corporation 1997 Key Employee Stock Option Plan, dated
February 2, 1998.*
10.5 (c) Amendment No. 2 to OYO Geospace Corporation 1997 Key Employee Stock Option Plan, dated
November 16, 1998.*
10.6 (g) Amendment No. 3 to OYO Geospace Corporation 1997 Key Employee Stock Option Plan, dated
November 10, 2000.*
10.7 (g) Amendment No. 4 to OYO Geospace Corporation 1997 Key Employee Stock Option Plan, dated
February 8, 2005.*
10.8 (b) OYO Geospace Corporation 1997 Non-Employee Director Plan.*
10.9 (g) Amendment No. 1 to OYO Geospace Corporation 1997 Non-Employee Director Plan, dated
February 8, 2005.*
10.10(a)
Printhead Purchase Agreement dated November 10, 1995 between the Company and
OYO Corporation.
10.11(a) Master Sales Agreement dated November 10, 1995, between the Company and OYO Corporation.
10.12(d)
Form of Director Indemnification Agreement.
10.13(f) Business Loan Agreement dated November 22, 2004, made by and between Union Planters Bank,
to Regions Bank), and Concord Technologies, LP, Geospace
N.A.
Technologies, LP, OYO Instruments, LP, Geospace Engineering Resources International, LP and
OYOG Operations, LP.
(predecessor
in interest
10.14(h)
First Amendment to Loan Agreement dated as of September 19, 2005, between Regions Bank
(F/K/A Union Planters Bank, N.A.) and Concord Technologies, LP, Geospace Technologies, LP,
OYO Instruments, LP, Geospace Engineering Resources
International, LP and OYOG
Operations, LP.
10.15(h)
Promissory Note dated September 19, 2005, made by Concord Technologies, LP, Geospace
Technologies, LP, OYO Instruments, LP, Geospace Engineering Resources International, LP and
OYOG Operations, LP for the benefit of Regions Bank (F/K/A Union Planters Bank, N.A.).
10.16(h) Guaranty Agreement dated September 19, 2005, made by and between the Company and Regions
Bank (F/K/A Union Planters Bank, N.A.). Each of OYOG, LLC and OYOG Limited Partner, LLC
has entered into a Guaranty Agreement with Regions Bank (F/K/A Union Planters Bank, N.A.)
which is substantially identical to the exhibited Guaranty Agreement.
30
Exhibit
Number
10.17(h)
Description of Documents
and Concord Technologies, LP. Each
Security Agreement dated as of September 19, 2005, between Regions Bank (F/K/A Union Planters
Bank, N.A.),
of Geospace Technologies, LP,
OYO Instruments, LP, Geospace Engineering Resources International, LP and OYOG Operations,
LP has entered into a Security Agreement with Regions Bank (F/K/A Union Planters Bank, N.A.)
which is substantially identical to the exhibited Security Agreement.
10.18(e) Deed of Trust, Security Agreement, Assignment of Rents and Financing Statement, dated
September 10, 2003, by and between OYOG Operations, LP and Compass Bank.
10.19(e)
Promissory Note dated September 10, 2003, made by OYOG Operations, LP payable to
Compass Bank.
10.20(e) Guaranty Agreement dated September 10, 2003, by and between the Company and Compass Bank.
10.21(e) Earnest Money Contract dated May 27, 2003, by and between Cooper Tools,
Inc. and
OYOG Operations, L.P.
10.22(e)
10.23(e)
First Amendment
Tools, Inc. and OYOG Operations, LP.
to Earnest Money Contract, dated July 14, 2003, by and between Cooper
Second Amendment to Earnest Money Contract, dated August 14, 2003, by and between Cooper
Tools, Inc. and OYOG Operations, LP.
10.24(e) Third Amendment to Earnest Money Contract, dated August 22, 2003, by and between Cooper
Tools, Inc. and OYOG Operations, LP.
10.25(i) OYO Geospace Corporation Fiscal Year 2009 Bonus Plan.*
10.26(j)
Second Amendment to Loan Agreement dated as of June 16, 2006, between Regions Bank (F/K/A
Union Planters Bank, N.A.) and Concord Technologies, LP, Geospace Technologies, LP,
OYO Instruments, LP, Geospace Engineering Resources International, LP and OYOG Operations,
LP.
10.27(k) Third Amendment to Loan Agreement dated as of January 10, 2007, between Regions Bank (F/K/A
Union Planters Bank, N.A.) and Concord Technologies, LP, Geospace Technologies, LP,
OYO Instruments, LP, Geospace Engineering Resources International, LP and OYOG Operations,
LP.
10.28(l)
Fourth Amendment to Loan Agreement dated as of October 12, 2007, between Regions Bank (F/K/A
Union Planters Bank, N.A.) and Concord Technologies, LP, Geospace Technologies, LP,
OYO Instruments, LP, Geospace Engineering Resources International, LP and OYOG Operations,
LP.
10.29(m) Fifth Amendment to Loan Agreement dated as of March 12, 2008, between Regions Bank (F/K/A
Union Planters Bank, N.A.) and Concord Technologies, LP, Geospace Technologies, LP,
OYO Instruments, LP, Geospace Engineering Resources
International, LP and OYOG
Operations, LP.
10.30(m) Promissory Note dated March 13, 2008, made by OYOG Operations, LP payable to Compass Bank.
10.31(m) Deed of Trust, Security Agreement, Assignment of Rents and Financing Statement, dated
March 13, 2008, by and between OYOG Operations, LP and Compass Bank.
10.32(m) Guaranty Agreement dated March 13, 2008, by and between the Company and Compass Bank.
10.33(m) Guaranty Agreement dated March 13, 2008, by and between Geospace Technologies, LP and
Compass Bank.
10.34(n)
First Amendment effective October 1, 2008 to Employment Agreement dated as of August 1, 1997,
between the Company and Gary D. Owens.*
31
Exhibit
Number
10.35(n)
10.36(o)
Description of Documents
First Amendment effective October 1, 2008 to Employment Agreement dated as of August 1, 1997,
between the Company and Michael J. Sheen.*
Sixth Amendment to Loan Agreement dated as of April 30, 2009, between Regions Bank (f/k/a
Union Planters Bank, N.A.) and Concord Technologies, LP, Geospace Technologies, LP,
OYO Instruments, LP, Geospace Engineering Resources International, LP, and OYOG Operations,
LP.
10.37(q) OYO Geospace Corporation Fiscal Year 2011 Bonus Plan.*
10.38(r)
10.39(r)
Loan Agreement dated as of March 2, 2011, by and among the Company, as borrower, certain
subsidiaries of the Company, as guarantors, and The Frost National Bank, as lender.
First Amendment to Loan Agreement dated as of March 2, 2011, by and among the Company, as
borrower, certain subsidiaries of the Company, as guarantors, and The Frost National Bank, as
lender.
10.40(r)
Promissory Note dated March 2, 2011, made by OYO Geospace Corporation payable to The Frost
National Bank.
21.1
23.1
31.1
31.2
32.1
32.2
Subsidiaries of the Registrant.
Consent of UHY LLP, Independent Registered Public Accounting Firm.
Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of the Company’s Chief Executive Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Certification of the Company’s Chief Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
++101
Interactive Data Files
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Incorporated by reference to the Registrant’s Registration Statement on Form S-1 filed September 30, 1997
(Registration No. 333-36727).
Incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed
November 5, 1997 (Registration No. 333-36727).
Incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended September 30,
1998.
Incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S- 1
filed November 18, 1997 (Registration No. 333-36727).
Incorporated by reference to the Registrant’s Annual Report on Form 10-K for
September 30, 2003.
Incorporated by reference to the Registrant’s Annual Report on Form 10-K for
September 30, 2004.
Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed February 15, 2005.
(Registration No. 333-122835)
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed September 21, 2005.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
December 31, 2008, filed February 6, 2009.
the year ended
the year ended
32
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed July 3, 2006.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed January 11, 2007.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed November 26, 2007.
(j)
(k)
(l)
(m) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed March 17, 2008.
(n)
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
December 31, 2009, filed February 5, 2010.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed May 4, 2009.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2007, filed August 3, 2007.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
December 31, 2010, filed February 4, 2011.
Incorporated by reference to the registrant’s Current Report on Form 8-K filed March 8, 2011.
(o)
(p)
(q)
(r)
This exhibit is a management contract or a compensatory plan or arrangement.
*
++ Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or
Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
33
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
OYO GEOSPACE CORPORATION
By:
/s/ GARY D. OWENS
Gary D. Owens, Chairman of the Board
President and Chief Executive Officer
December 9, 2011
Pursuant to the requirements of the Securities Exchange Act, this Annual Report on Form 10-K has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature
Title
Date
/s/ GARY D. OWENS
Gary D. Owens
/s/ THOMAS T. MCENTIRE
Thomas T. McEntire
Chairman of the Board President
and Chief Executive Officer
(Principal Executive Officer)
Vice President Chief Financial
Officer (Principal Financial Officer
and Accounting Officer) and
Secretary
December 9, 2011
December 9, 2011
/s/ WILLIAM H. MOODY
Director
December 9, 2011
William H. Moody
/s/ TAKASHI KANEMORI
Director
December 9, 2011
Takashi Kanemori
/s/ RICHARD C. WHITE
Director
December 9, 2011
Richard C. White
/s/ MICHAEL J. SHEEN
Director
December 9, 2011
Michael J. Sheen
/s/ THOMAS L. DAVIS
Thomas L. Davis
Director
December 9, 2011
/s/ CHARLES H. STILL
Director
December 9, 2011
Charles H. Still
34
OYO GEOSPACE CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of September 30, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended September 30, 2011, 2010 and 2009 . . . . . . . .
F-2
F-4
F-5
Consolidated Statements of Comprehensive Income for the Years Ended September 30, 2011, 2010 and
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
Consolidated Statement of Stockholders’ Equity for the Years Ended September 30, 2011, 2010 and
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended September 30, 2011, 2010 and 2009 . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-7
F-8
F-9
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of OYO Geospace Corporation:
We have audited the accompanying consolidated balance sheets of OYO Geospace Corporation and
subsidiaries (“the Company”) as of September 30, 2011 and 2010, and the related consolidated statements of
operations, comprehensive income, stockholders’ equity and cash flows for each of the three fiscal years in the
period ended September 30, 2011. Our audits also included the financial statement schedule listed in the
accompanying index. These consolidated financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of OYO Geospace Corporation and subsidiaries as of September 30, 2011 and
2010, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the
period ended September 30, 2011, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of OYO Geospace Corporation and subsidiaries’ internal control over financial
reporting as of September 30, 2011, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated December 9, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.
/s/ UHY LLP
Houston, Texas
December 9, 2011
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of OYO Geospace Corporation:
We have audited OYO Geospace Corporation and subsidiaries’ (“the Company”) internal control over
financial reporting as of September 30, 2011, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in Part II, Item 9A of this
Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, OYO Geospace Corporation and subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2011, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States),
the consolidated balance sheets of OYO Geospace Corporation and subsidiaries as of
September 30, 2011 and 2010, and the related consolidated statements of operations, comprehensive income,
stockholders’ equity and cash flows for each of the three fiscal years in the period ended September 30, 2011,
and our report dated December 9, 2011, expressed an unqualified opinion on those consolidated financial
statements.
Houston, Texas
December 9, 2011
/s/ UHY LLP
F-3
OYO Geospace Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
AS OF
SEPTEMBER 30,
2011
2010
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts receivable, net of allowance of $411 and $334 . . . . . . . . . . . . . . . . . .
Current portion of notes receivable, net of allowance of $0 . . . . . . . . . . . . . . . . . . . . .
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 31,388
4,926
19,761
2,100
72,390
6,356
5,660
$ 33,453
—
19,107
2,400
47,395
4,542
3,089
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
142,581
109,986
Rental equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents, net of accumulated amortization of $5,534 and $5,295 . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Non-current deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current notes receivable, net of allowance of $0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,945
34,692
319
1,843
505
3,706
1,210
8,003
33,988
558
1,843
754
6,131
2,233
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $196,801
$163,496
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Notes payable and current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
5,042
11,384
774
82
399
17,681
—
2,107
19,788
440
3,809
10,793
1,311
—
2,056
18,409
7,260
1,241
26,910
Commitments and contingencies
Stockholders’ equity:
Preferred stock, 1,000,000 shares authorized, no shares issued and outstanding . . . . .
Common stock, $.01 par value, 20,000,000 shares authorized, 6,351,258 and
6,117,358 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss)
—
—
64
57,446
119,333
170
61
47,059
89,622
(156)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
177,013
136,586
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$196,801
$163,496
The accompanying notes are an integral part of the consolidated financial statements.
F-4
OYO Geospace Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
YEAR ENDED
SEPTEMBER 30,
2011
2010
2009
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 172,970
98,857
$ 128,533
81,177
$
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense (recovery) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74,113
47,356
18,051
11,529
128
29,708
—
16,618
9,925
(479)
26,064
(184)
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,405
21,108
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other income (expense), net . . . . . . . . . . . . . . . . . . .
(43)
267
80
(90)
214
(238)
254
(52)
(170)
(206)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,619
14,908
20,902
6,820
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
29,711
$
14,082
$
92,860
66,287
26,573
14,572
8,062
318
22,952
(12)
3,609
(602)
809
(414)
(91)
(298)
3,311
1,551
1,760
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
4.78
4.73
$
$
2.33
2.27
$
$
0.30
0.29
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,220,657
6,031,314
5,950,403
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,286,324
6,193,018
6,079,378
The accompanying notes are an integral part of the consolidated financial statements.
F-5
OYO Geospace Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,711
Other comprehensive income (loss):
$14,082
$ 1,760
Change in unrealized loss on available-for-sale securities . . . . . . . . . . . . . . . .
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12)
338
—
86
—
(1,736)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,037
$14,168
$
24
YEAR ENDED
SEPTEMBER 30,
2011
2010
2009
The accompanying notes are an integral part of the consolidated financial statements.
F-6
OYO Geospace Corporation and Subsidiaries
Consolidated Statement of Stockholders’ Equity
For the years ended September 30, 2011, 2010 and 2009
(In thousands, except share amounts)
Common Stock
Shares
Amount
5,936,508
—
—
58,400
—
5,994,908
—
—
$ 59
—
—
—
1
—
$ 60
—
—
Additional
Paid-In
Capital
$42,030
—
—
147
840
283
Accumulated
Other
Comprehensive
Income (Loss)
$ 1,494
—
(1,736)
Retained
Earnings
$ 73,780
1,760
—
Total
$117,363
1,760
(1,736)
—
—
—
—
—
—
147
841
283
$43,300
—
—
$ 75,540
14,082
—
$ (242)
—
86
$118,658
14,082
86
Balance at September 30, 2008 . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . .
Excess tax benefit from share—based
compensation . . . . . . . . . . . . . . . . . . .
Issuance of common stock pursuant to
exercise of options, net of tax . . . . . .
Stock-based compensation . . . . . . . . . . .
Balance at September 30, 2009 . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . .
Excess tax benefit from share—based
compensation . . . . . . . . . . . . . . . . . . .
Issuance of common stock pursuant to
exercise of options, net of tax . . . . . .
Stock-based compensation . . . . . . . . . . .
122,450
—
Balance at September 30, 2010 . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . .
Excess tax benefit from share—based
compensation . . . . . . . . . . . . . . . . . . .
Issuance of common stock pursuant to
6,117,358
—
—
exercise of options, net of tax . . . . . .
Stock-based compensation . . . . . . . . . . .
233,900
—
—
1,128
1
—
$ 61
—
—
—
3
—
2,186
445
$47,059
—
—
6,896
2,755
736
—
—
—
—
—
—
1,128
2,187
445
$ 89,622
29,711
—
$ (156)
—
326
$136,586
29,711
326
—
—
—
—
—
—
6,896
2,758
736
Balance at September 30, 2011 . . . . . . .
6,351,258
$ 64
$57,446
$119,333
$
170
$177,013
The accompanying notes are an integral part of the consolidated financial statements.
F-7
OYO Geospace Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
YEAR ENDED
SEPTEMBER 30,
2011
2010
2009
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by (used in)
$ 29,711
$14,082
$ 1,760
operating activities:
Deferred income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense (recovery) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory obsolescence expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit from sale of used rental equipment . . . . . . . . . . . . . . . . . . .
Loss on early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on disposal of property, plant and equipment
. . . . . . . . . . .
Realized loss on short-term investments . . . . . . . . . . . . . . . . . . . . . . . .
Effects of changes in operating assets and liabilities:
Trade accounts and notes receivable . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(718)
6,769
278
736
128
4,608
(11,165)
—
—
27
2,006
(29,528)
(2,539)
1,227
1,810
(558)
(1,656)
(1,416)
4,921
263
445
(479)
2,872
(385)
137
184
—
(2,678)
6,673
(855)
(879)
3,047
948
1,898
451
4,943
246
283
318
1,272
(277)
—
12
—
14,257
3,238
223
(3,382)
(4,348)
(550)
(1,382)
Net cash provided by operating activities . . . . . . . . . . . . . . . .
1,136
28,778
17,064
Cash flows from investing activities:
Proceeds from the sale of property, plant and equipment . . . . . . . . . . . . . . . .
Proceeds from the sale of used rental equipment . . . . . . . . . . . . . . . . . . . . . .
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of property and equipment
1
19,917
(4,926)
(15,414)
(4,730)
11
1,243
—
(3,893)
(2,224)
23
277
—
(1,319)
(390)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . .
(5,152)
(4,863)
(1,409)
Cash flows from financing activities:
Change in book overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net borrowings (principal payments) under line of credit . . . . . . . . . . . . . . .
Principal payments under mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Penalty for early extinguishment of debt
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options and other . . . . . . . . . . . . . . . . . . . . .
—
—
(7,700)
—
6,896
2,758
—
—
(1,848)
(137)
1,128
2,187
Net cash provided by (used in) financing activities . . . . . . . .
1,954
1,330
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
(363)
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of fiscal year
(2,065)
33,453
24,882
8,571
(35)
(9,978)
(709)
—
147
841
(9,734)
1,088
7,009
1,562
Cash and cash equivalents, end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 31,388
$33,453
$ 8,571
The accompanying notes are an integral part of the consolidated financial statements.
F-8
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
The Company
OYO Geospace Corporation (“OYO”) designs and manufactures instruments and equipment used in the
acquisition and processing of seismic data as well as in the characterization and monitoring of producing oil and
gas reservoirs. OYO also manufactures and distributes thermal imaging equipment and dry thermal film products
to a variety of markets including the screenprint, point of sale, signage and textile markets. As of September 30,
2011, OYO Corporation U.S.A. (“OYO USA”) owned approximately 20.3% of OYO’s common stock. OYO
USA is a wholly owned subsidiary of OYO Corporation, a Japanese corporation (“OYO Japan”).
OYO and its subsidiaries are referred to collectively as the “Company”. The significant accounting policies
followed by the Company are summarized below.
Basis of Presentation
The accompanying financial statements present the consolidated financial position, results of operations and
cash flows of the Company in accordance with U.S. generally accepted accounting principles. All intercompany
balances and transactions have been eliminated.
Reclassifications
Certain amounts previously presented in the consolidated financial statements have been reclassified to
conform to the current year presentation. Such reclassifications had no effect on net income, stockholders’ equity
or cash flows.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires the use of estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. The Company considers many factors in selecting appropriate
operational and financial accounting policies and controls, and in developing the estimates and assumptions that
are used in the preparation of these financial statements. The Company continually evaluates its estimates,
including those related to bad debt reserves, inventory obsolescence reserves, self-insurance reserves, product
warranty reserves, long-lived assets, intangible assets and deferred income tax assets. The Company bases its
estimates on historical experience and various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different conditions or assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original or remaining maturity at
the time of purchase of three months or less to be cash equivalents.
Short-term Investments
The Company classifies its investments consisting of corporate bonds, government bonds and other such
similar investments as available-for-sale securities. Available-for-sale securities are carried at fair market value
with net unrealized holding gains and losses reported each period as a component of comprehensive income in
stockholders’ equity. The Company’s short-term investments have contractual maturities ranging from December
2011 to December 2013. See note 2 for additional information.
F-9
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts that, at times, exceed federally insured limits.
Management of the Company believes that the financial strength of the financial institutions holding such
deposits minimizes the credit risk of such deposits.
The Company sells products to customers throughout the United States and various foreign countries. The
Company’s normal credit terms for trade receivables are 30 days. In certain situations, credit terms may be
extended to 60 days or longer. The Company performs ongoing credit evaluations of its customers and generally
does not require collateral for its trade receivables. Additionally, the Company provides long-term financing in
the form of promissory notes when competitive conditions require such financing. In such cases, the Company
may require collateral. Allowances are recognized for potential credit losses. At September 30, 2011, the
Company had two customers comprising 15.5% and 13.3%, respectively, of the Company’s trade accounts
receivable. At September 30, 2010, the Company had two customers comprising 22.3% and 11.1%, respectively,
of the Company’s trade accounts receivable. The Company had one customer comprising 88.3% of its notes
receivable balance at September 30, 2011. The Company had two customers comprising 75.9% and 15.0%,
respectively, of its notes receivable balance at September 30, 2010. Two customers comprised 20.2% and 11.1%
of the Company’s revenues during fiscal year 2011. One customer comprised 13.2% and 12.0% of the
Company’s revenues during the fiscal years 2010 and 2009, respectively.
The Company has a subsidiary located in the Russian Federation. Therefore, the Company’s financial
results may be affected by factors such as changes in foreign currency exchange rates, weak economic conditions
or changes in political climate within the Russian Federation. The Company’s consolidated balance sheet at
September 30, 2011 reflected approximately $6.4 million of net working capital related to this subsidiary. This
subsidiary receives a substantial portion of its revenues and pays its expenses primarily in rubles. During the
fiscal year ended September 30, 2011, this subsidiary received approximately $5.2 million of its income in U.S.
dollars as a result of intercompany sales to the Company’s subsidiary located in the United States. The
Company’s consolidated balance sheet at September 30, 2010 reflected approximately $5.1 million of net
working capital related to this subsidiary. During the fiscal year ended September 30, 2010, this subsidiary
received approximately $3.6 million of its income in U.S. dollars as a result of intercompany sales to the
Company’s subsidiary located in the United States. To the extent that transactions of this subsidiary are settled in
rubles, a devaluation of the ruble versus the United States dollar could reduce any contribution from this
subsidiary to its consolidated results of operations as reported in U.S. dollars. The Company does not hedge the
market risk with respect to its operations in the Russian Federation; therefore, such risk is a general and
unpredictable risk of future disruptions in the valuation of rubles versus U.S. dollars to the extent such
disruptions result in any reduced valuation of the subsidiary’s net working capital or future contributions to its
consolidated results of operations.
Inventories
The Company records a write-down of its inventories when the cost basis of any manufactured product,
including any estimated future costs to complete the manufacturing process, exceeds its net realizable value.
Inventories are stated at the lower of cost or market value. Cost is determined on the first-in, first-out method,
except that the Company’s subsidiary in the Russian Federation uses an average cost method to value its
inventories.
F-10
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Property, Plant and Equipment and Rental Equipment
Property, plant and equipment and rental equipment are stated at cost. Depreciation expense is calculated
using the straight-line method over the following estimated useful lives:
Rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Years
3-10
3-15
10-50
5-10
Expenditures for renewals and betterments are capitalized. Repairs and maintenance expenditures are
charged to expense as incurred. The cost and accumulated depreciation of assets sold or otherwise disposed of
are removed from the accounts and any gain or loss thereon is reflected in the statement of operations.
Patents
Patents are amortized over the legal life of the patent or the estimated useful life of the patent, whichever is
shorter. Patent amortization expense was approximately $0.2 million during each of fiscal years 2011, 2010 and
2009. Patent amortization expense is estimated to be approximately $0.2 million for the fiscal year ending
September 30, 2012 and approximately $80,000 during fiscal year 2013.
Impairment of Long-lived Assets
The Company’s long-lived assets are reviewed for
impairment whenever an event or change in
circumstances indicates the carrying amount of an asset or group of assets may not be recoverable. The
impairment review, if necessary, includes a comparison of expected future cash flows (undiscounted and without
interest charges) to be generated by an asset group with the associated carrying value of the related assets. If the
carrying value of the asset group exceeds the expected future cash flows, an impairment loss is recognized to the
extent that the carrying value of the asset group exceeds its fair value.
Goodwill
For the fiscal year ended September 30, 2011, the Company adopted simplified procedures for analyzing
goodwill impairment. See Recent Accounting Pronouncements in this footnote for additional information. The
new guidance on the testing of goodwill for impairment provides the option to first assess qualitative factors to
determine if the annual two-step test of goodwill for impairment must be performed. If, based on the qualitative
assessment of events or circumstances, an entity determines it is more likely than not that the goodwill fair value
is more than its carrying amount then it is not necessary to perform the two-step impairment test. However, if an
entity concludes otherwise, then the two-step impairment test must be performed to identify potential impairment
and to measure the amount of goodwill impairment, if any. The Company determined that it is more likely than
not that the fair value of its goodwill was more than its carrying amount and the two-step process was not
necessary for the fiscal year ended September 30, 2011.
Revenue Recognition
The Company primarily derives revenue from the sale, and short-term rental under operating leases, of
seismic instruments and equipment and thermal solutions products. The Company generally recognizes sales
F-11
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
revenues when its products are shipped and title and risk of loss have passed to the customer. The Company
recognizes rental revenues as earned over the rental period. Rentals of the Company’s equipment generally range
from daily rentals to rental periods of up to six months or longer. Except for certain of the Company’s reservoir
characterization products, its products are generally sold without any customer acceptance provisions and its
standard terms of sale do not allow customers to return products for credit. In instances where the customer
requires a significant performance test for the Company’s new and unproven products, the Company does not
recognize the revenue attributable to the product as to which the performance test applies until the performance
test is satisfied. Collection of revenue from the sale of large-scale reservoir characterization products may occur
at various stages of production or after delivery of the product, and the collected funds are not refundable to the
customer. Most of the Company’s products do not require installation assistance or sophisticated instruction.
The Company recognizes revenue when all of the following criteria are met:
• Persuasive evidence of an arrangement exists. The Company operates under a purchase order/contract
system for goods sold to customers, and under rental/lease agreements for equipment rentals. These
documents evidence that an arrangement exists.
• Delivery has occurred or services have been rendered. For product sales, the Company does not
recognize revenues until delivery has occurred or performance measures are met. For rental revenue,
the Company recognizes revenue when earned.
•
The seller’s price to the buyer is fixed or determinable. Sales prices are defined in writing in a
customer’s purchase order, purchase contract or equipment rental agreement.
• Collectibility is reasonably assured. The Company evaluates customer credit
to ensure that
collectibility of revenue is reasonably assured.
Occasionally seismic customers are not able to take immediate delivery of products which were specifically
manufactured to the customer’s specifications. These occasions generally occur when customers face logistical
issues such as project delays or delays with their seismic crew deployment. In these instances, customers have
asked the Company to hold the equipment for a short period of time until they can take physical delivery of the
product (referred to as “bill and hold” arrangements). The Company considers the following criteria for
recognizing revenue when delivery has not occurred:
• Whether the risks of ownership have passed to the customer,
• Whether we have obtained a fixed commitment to purchase the goods in written documentation from
the customer,
• Whether the customer requested that the transaction be on a bill and hold basis and the Company
received that request in writing,
• Whether the customer has a substantial business purpose for ordering the goods on a bill and hold
basis,
• Whether there is a fixed schedule for delivery of the product,
• Whether the Company has any specific performance obligations such that the earning process is not
complete,
• Whether the equipment is segregated from its other inventory and not subject to being used to fill other
orders, and
• Whether the equipment is complete and ready for shipment.
F-12
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The Company does not modify its normal billing and credit
terms for these types of sales. As of
September 30, 2011 and 2010, there were no sales under bill and hold arrangements. As of September 30, 2009,
there were $0.6 million of sales under bill and hold arrangements.
Deferred Revenue
The Company records deferred revenue when funds are received prior to the recognition of the associated
revenue.
Research and Development Costs
The Company expenses research and development costs as incurred. Research and development costs
include salaries, employee benefit costs, department supplies, direct project costs and other related costs.
Product Warranties
The Company offers a standard product warranty obligating it
to repair or replace products with
manufacturing defects. The Company maintains a reserve for future warranty costs based on historical
experience or, in the absence of historical product experience, management’s estimates. Changes in the warranty
reserve are contained in the following table (in thousands):
Balance at the beginning of the period (October 1, 2009) . . . . . . . . . . . . . . . . . . . .
Accruals for warranties issued during the period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals related to pre-existing warranties (including changes in estimates) . . . . .
Settlements made (in cash or in kind) during the period . . . . . . . . . . . . . . . . . . . . .
Balance at the end of the period (September 30, 2010) . . . . . . . . . . . . . . . . . . . . . .
Accruals for warranties issued during the period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals related to pre-existing warranties (including changes in estimates) . . . . .
Settlements made (in cash or in kind) during the period . . . . . . . . . . . . . . . . . . . . .
$
832
3,219
—
(2,673)
1,378
2,675
—
(1,930)
Balance at the end of the period (September 30, 2011) . . . . . . . . . . . . . . . . . . . . . .
$ 2,123
Stock-Based Compensation
Under the FASB share-based payment framework, the Company expenses the grant date fair value of equity
awards over the requisite service period. The Company uses the Black-Scholes model to value its new stock
option grants. The share-based payment framework also requires the Company to estimate forfeitures in
calculating the expense related to stock-based compensation. In addition, the share-based payment framework
requires the Company to reflect the benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash inflow. The Company recorded stock-based compensation expenses of $0.7 million,
$0.4 million and $0.3 million for the fiscal years ended September 30, 2011, 2010 and 2009, respectively.
There were no stock options granted during fiscal year 2011 and 63,000 and 146,000 stock options granted
during fiscal years 2010 and 2009, respectively. The fair value of options granted during the fiscal year ended
September 30, 2010 and 2009 was estimated using the Black-Scholes option-pricing model using the following
data:
Dividend yield rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0%
2.4%
56.6%
0%
2.1%
51.4%
6.25 years
6.25 years
2010
2009
F-13
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The computation of expected volatility was based on the historical volatility. Historical volatility was
calculated from historical data for the time approximately equal to the expected term of the option award starting
from the date of grant. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve in effect
at the time of grant for the period corresponding with the expected life of the option. The expected term of
options granted is derived from the vesting period and historical information and represents the period of time
that options granted are expected to be outstanding.
Foreign Currency Gains and Losses
The assets and liabilities of the Company’s foreign subsidiaries have been translated into U.S. dollars using
the exchange rates in effect at the balance sheet date. Results of operations have been translated using the
average exchange rates during the year. Resulting translation adjustments have been recorded as a component of
accumulated other comprehensive income (loss) in stockholders’ equity. Foreign currency transaction gains and
losses are included in the statement of operations as they occur.
Shipping and Handling Costs
Amounts billed to a customer in a sales transaction related to reimbursable shipping and handling costs are
included in revenues and the associated costs incurred by the Company for reimbursable shipping and handling
costs are reported in cost of sales. The Company had shipping and handling costs of $0.7 million, $0.7 million
and $0.6 million for each of the fiscal years ended September 30, 2011, 2010 and 2009, respectively.
Income Taxes
Income taxes are presented in accordance with FASB guidance for accounting for income taxes. The
estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts
reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carrybacks and
carryforwards are recorded. Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities (temporary differences) and are measured using the
enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company
periodically reviews the recoverability of tax assets recorded on the balance sheet and provides valuation
allowances if it is more likely than not that such assets will not be realized.
Subsequent Events
The Company evaluates events and transactions that occur after the balance sheet date but before the
financial statements are issued. The Company evaluated such events and transactions through the date the
financial statements were filed electronically with the Securities and Exchange Commission.
Recent Accounting Pronouncements
In May 2011, the FASB issued guidance to amend certain measurement and disclosure requirements related
to fair value measurements to improve consistency with international reporting standards. This guidance is
effective prospectively for public entities for interim and annual reporting periods beginning after December 15,
2011, with early adoption by public entities prohibited, and is applicable to the Company’s fiscal quarter
beginning October 1, 2012. The Company is currently evaluating this guidance, but does not expect its adoption
will have a material effect on its consolidated financial statements.
In June 2011, the FASB issued new guidance on the presentation of comprehensive income that will require
a company to present components of net income and other comprehensive income in one continuous statement or
F-14
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
in two separate, but consecutive statements. There are no changes to the components that are recognized in net
income or other comprehensive income under current GAAP. This guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2011, with early adoption permitted. The
new guidance has been early adopted by the Company and the components of net
income and other
comprehensive income are presented in two separate, but consecutive statements for the Company’s fiscal years
ended September 30, 2011, 2010 and 2009.
In September 2011, the FASB issued new guidance on the testing of goodwill for impairment that provides
the option to first assess qualitative factors to determine if the annual two-step test of goodwill for impairment
must be performed. If, based on the qualitative assessment of events or circumstances, an entity determines it is
not more likely than not that the goodwill fair value is less than its carrying amount then it is not necessary to
perform the two-step impairment test. However, if an entity concludes otherwise, then the two-step impairment
test must be performed to identify potential impairment and to measure the amount of goodwill impairment, if
any. The new guidance was adopted for the annual goodwill impairment testing for the Company’s fiscal year
ended September 30, 2011. The Company determined that it is more likely than not that the fair value of its
goodwill was more than its carrying amount and the two-step process was not necessary for the fiscal year ended
September 30, 2011.
2. Short-term Investments
As of September 30, 2011 (in thousands)
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Short-term investments:
Corporate . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Government
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$3,890
1,054
$4,944
$—
—
$—
$ (18)
—
$ (18)
$3,872
1,054
$4,926
Accumulated other comprehensive income (loss) reflected on the balance sheet at September 30, 2011
includes unrealized losses (net of tax) of $12,000.
3. Fair Value of Financial Instruments
At June 30, 2011, the Company’s financial instruments included cash and cash equivalents, short-term
investments, trade and other receivables, other current assets, accounts payable and other current liabilities. Due
to the short-term maturities of cash and cash equivalents, trade and other receivables, other current assets,
accounts payable and other current liabilities, the carrying amounts approximate fair value on the respective
balance sheet dates.
F-15
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The Company measures short-term investments at fair value on a recurring basis. The fair value
measurement of the Company’s short-term investments was determined using the following inputs:
As of September 30, 2011 (in thousands)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
(Level 2)
Significant
Unobservable
(Level 3)
Total
Short-term investments:
Corporate bonds . . . . . . . . . .
Government bonds . . . . . . . .
$3,872
1,054
Total . . . . . . . . . . . . . . . . . . .
$4,926
$3,872
1,054
$4,926
$—
—
$—
$—
—
$—
Investments in corporate and government bonds classified as available-for-sale are measured using the
quoted market prices (Level 1) as of September 30, 2011.
4. Inventories:
Inventories consisted of the following (in thousands):
Finished goods and sub-assemblies . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obsolescence reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AS OF
SEPTEMBER 30,
2011
2010
$20,430
14,255
47,257
(9,552)
$11,211
7,166
35,663
(6,645)
$72,390
$47,395
Inventory obsolescence expense was approximately $4.6 million, $2.9 million and $1.3 million during fiscal
years 2011, 2010 and 2009, respectively.
5. Accounts and Notes Receivable:
The Company’s current trade accounts receivable consisted of the following (in thousands):
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,172
(411)
$19,441
(334)
$19,761
$19,107
AS OF
SEPTEMBER 30,
2011
2010
The allowance for doubtful accounts represents the Company’s best estimate of probable credit losses. The
Company determines the allowance based upon historical experience and a review of its balances. Accounts
receivable balances are charged off against the allowance whenever it is probable that the receivable will not be
recoverable. The Company does not have any off-balance-sheet credit exposure related to its customers.
F-16
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Current notes receivable are reflected in the following table (in thousands):
Current notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,100
—
$2,400
—
AS OF
SEPTEMBER 30,
2011
2010
Non-current notes receivable are reflected in the following table (in thousands):
$2,100
$2,400
AS OF
SEPTEMBER 30,
2010
2011
Non-current notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,706
—
$6,131
—
$3,706
$6,131
Notes receivable are generally collateralized by the products sold, and bear interest at rates ranging up to
14.5% per year. The annual maturities of notes receivable will be approximately $2.1 million, $1.6 million, $1.7
million and $0.3 million, respectively, at various times through December 2015. The Company has, on occasion,
extended or renewed notes receivable as they mature, but there is no obligation to do so.
6. Rental Equipment:
Rental equipment consisted of the following (in thousands):
Rental equipment, primarily geophones and related products . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,250
(9,305)
$ 19,421
(11,418)
$11,945
$ 8,003
AS OF
SEPTEMBER 30,
2011
2010
Rental equipment depreciation expense was $2.8 million, $1.1 million and $0.8 million in fiscal years 2011,
2010 and 2009, respectively. We transferred $0.3 million and $0.3 million of inventories to our rental equipment
during fiscal years 2011 and 2010 which had a non-cash impact.
F-17
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
7. Property, Plant and Equipment:
Property, plant and equipment consisted of the following (in thousands):
AS OF
SEPTEMBER 30,
2011
2010
Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and building improvements . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tools and molds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,230
24,520
33,723
1,059
30
359
3,595
$ 3,214
23,895
30,313
990
35
237
3,105
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66,516
(31,824)
61,789
(27,801)
$ 34,692
$ 33,988
Property, plant and equipment depreciation expense was $3.9 million, $3.8 million and $4.1 million in fiscal
years 2011, 2010 and 2009, respectively.
8. Notes Payable and Long-Term Debt:
Notes payable and long-term debt consisted of the following (in thousands):
Mortgage note payable, original mortgage was refinanced in March 2008
and is due in monthly installments of $37 with interest at LIBOR plus
150 basis points through February 2028, with remaining principal and
interest due March 2028, collateralized by certain land and building
having a net book value of $12.9 million . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AS OF
SEPTEMBER 30,
2011
2010
—
—
7,700
(440)
$—
$7,260
On December 15, 2010 the Company paid off a long-term mortgage note with a principal balance
outstanding of $7.7 million. The Company was not required to pay any additional fees as a result of the early
extinguishment of the mortgage note.
On March 2, 2011, the Company entered into a new credit agreement (as amended, the “New Credit
Agreement”) with a bank. Under the New Credit Agreement, the Company can borrow up to $25.0 million
inventories and equipment. In addition, certain domestic
principally secured by its accounts receivable,
subsidiaries of the Company have guaranteed the obligations of the Company under the New Credit Agreement
and such subsidiaries have secured the obligations by the pledge of certain of the assets of such subsidiaries. The
New Credit Agreement expires on March 2, 2014. The New Credit Agreement limits the incurrence of additional
indebtedness, requires the maintenance of certain financial ratios, restricts the Company and its subsidiaries’
ability to pay dividends and contains other covenants customary in agreements of this type. The interest rate for
borrowings under the New Credit Agreement is a LIBOR based rate with a margin spread of 250-350 basis
F-18
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
the Company was in
points depending upon the maintenance of certain ratios. At September 30, 2011,
compliance with all covenants. At September 30, 2011, there were no borrowings outstanding under the New
Credit Agreement, standby letters of credit outstanding in the amount of $0.2 million and additional borrowings
available were $24.8 million.
Prior to entering into the New Credit Agreement, several of the Company’s subsidiaries were a party to a
credit agreement (the “Previous Credit Agreement”) with a bank, and could borrow up to $25.0 million secured
principally by the subsidiaries’ accounts receivable and inventories. The Previous Credit Agreement, as
amended, was scheduled to expire on April 30, 2011; however, this agreement was terminated on March 2, 2011
and replaced by the New Credit Agreement. Borrowings under the Previous Credit Agreement were subject to
borrowing base restrictions based on levels of eligible accounts receivable and inventories. The Previous Credit
Agreement limited the incurrence of additional indebtedness, required the maintenance of certain financial
amounts, restricted the Company’s and the borrower subsidiaries’ ability to pay dividends and contained other
covenants customary in agreements of this type.
9. Accrued Expenses and Other Current Liabilities:
Accrued expenses and other current liabilities consisted of the following (in thousands):
Employee bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensated absences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AS OF
SEPTEMBER 30,
2011
2010
$ 4,167
2,123
1,206
475
198
1,215
372
1,628
$ 3,331
1,378
1,037
517
1,811
1,270
371
1,078
$11,384
$10,793
The Company is self-insured for certain losses related to employee medical claims. The Company has
purchased stop-loss coverage for individual claims in excess of $150,000 per claimant per year in order to limit
its exposure to any significant levels of employee medical claims. Self-insured losses are accrued based on the
Company’s historical experience and on estimates of aggregate liability for uninsured claims incurred using
certain actuarial assumptions followed in the insurance industry.
10. Employee Benefits:
The Company’s employees are participants in the OYO Geospace Corporation Employee’s 401(k)
Retirement Plan (the “Plan”), which covers substantially all eligible employees in the United States. The Plan is a
qualified salary reduction plan in which all eligible participants may elect to have a percentage of their
compensation contributed to the Plan, subject to certain guidelines issued by the Internal Revenue Service. The
Company’s share of discretionary matching contributions was approximately $0.6 million, $0.5 million and $0.5
million in fiscal years 2011, 2010 and 2009, respectively.
The Company’s stock incentive plans in which employees may participate are discussed in Note 11 to these
Consolidated Financial Statements.
F-19
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The Company’s employees are also participants in the OYO Geospace Corporation Fiscal Year 2011 Bonus
Plan (the “Bonus Plan”). Every employee of the Company is eligible to participate in Tier I of the Bonus Plan
except for its employees in the Russian Federation, who participate in a local plan. Under Tier I, employees share
proportionally in the Company’s profit based on each employee’s relative payroll. The Tier I bonus pool is
established by accruing 14.5% of consolidated pretax profits (before bonus) above a specified range. Selected
employees are eligible to participate in Tier II of the Bonus Plan, which applies after Tier I is fully funded. The
Tier II Bonus pool is established by accruing 14.5% of consolidated pretax profits (before bonus) within a
specified range. Under Tier II, participants share in the bonus pool based on their respective working groups
meeting predefined goals. The Company recorded bonus expense of $4.2 million, $3.3 million and zero for the
fiscal years 2011, 2010 and 2009, respectively.
11. Stockholders’ Equity:
In September 1997, the board of directors and stockholders approved the 1997 Key Employee Stock Option
Plan (the “Employee Plan”), and, following amendments thereto, there has been reserved an aggregate of
1,125,000 shares of common stock for issuance thereunder. In November 1997, the board of directors and
stockholders approved the Company’s 1997 Non-Employee Director Plan (the “Director Plan”) and following an
amendment thereto, there has been reserved an aggregate of 150,000 shares of common stock for issuance
thereunder. At September 30, 2011, the shares of common stock available for grant under the Employee Plan and
Director Plan were 92,175 and 45,721, respectively.
Under the Employee Plan, the Company is authorized to grant nonqualified and incentive stock options to
purchase common stock and restricted stock awards of common stock to key employees of the Company.
Options have a term not to exceed ten years, with the exception of incentive stock options granted to employees
owning ten percent or more of the outstanding shares of common stock, which have a term not to exceed five
years. The exercise price of any option may not be less than the fair market value of the common stock on the
date of grant. In the case of incentive stock options granted to an employee owning ten percent or more of the
outstanding shares of common stock, the exercise price of such option may not be less than 110% of the fair
market value of the common stock on the date of grant. Options vest over a four-year period commencing on the
date of grant in 25% annual increments. Under the Employee Plan, the Company may issue shares of restricted
stock to employees for no payment by the employee or for a payment below the fair market value on the date of
grant. The restricted stock is subject to certain restrictions described in the Employee Plan, with no restrictions
continuing for more than ten years from the date of the award.
The Company has not issued any shares of restricted stock under the Employee Plan since August 1, 2001.
All issued shares of restricted stock are fully vested; thus there are no outstanding shares of restricted stock. The
prior issuances by the Company of restricted stock were recorded at the fair value of the stock subject to those
awards and were recorded as a component of stockholders’ equity, with a credit to additional paid-in capital. The
Company recorded compensation expense based on the vesting criteria of the individual awards. The Company
will account for future issuances of restricted stock awards in accordance with applicable guidelines, which
require that stock-based awards be measured and recognized at fair value.
The Company established the Director Plan pursuant to which options to purchase shares of common stock
are granted annually to non-employee directors and pursuant to which a portion of the annual fees paid for the
services of such non-employee directors is payable in shares of common stock based on the fair market value
thereof at the date of grant. However, as disclosed in our Current Report on Form 8-K filed with the Securities
and Exchange Commission, on February 21, 2007, the Board of Directors of the Company approved a new
compensation structure for non-employee directors, as recommended by the Board of Director’s Compensation
F-20
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Committee. Pursuant to an amendment to the Director Plan adopted at the same meeting, the annual options to
non-employee directors will no longer be granted. Options granted under the Director Plan prior to the adoption
of this amendment have a term of ten years. The exercise price of each option granted is the fair market value of
the common stock on the date of grant. Options vest over a one-year period commencing on the date of grant.
Effective November 5, 1999, the board of directors approved the OYO Geospace Corporation 1999 Broad-
Based Option Plan (the “Broad-Based Plan”) and reserved an aggregate of 50,000 shares for issuance thereunder.
Under the Broad-Based Plan, the Company is authorized to issue to all employees (except executive officers and
employee directors) nonqualified stock options to purchase common stock of the Company. These options have a
term not to exceed ten years. The exercise price of any broad-based option may not be less than the fair market
value of the common stock on the date of grant. These options vest over a one-year period commencing on the
date of grant. There were 19,000 shares available for grant under this plan at September 30, 2011.
A summary of the activity with respect to stock options is as follows:
Outstanding at September 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at September 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
380,750
146,000
(58,400)
(100)
—
468,250
63,000
(122,450)
(100)
—
408,700
—
(233,900)
(2,000)
—
Outstanding at September 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . .
172,800
Weighted
Average
Exercise
Price
12.81
17.56
14.39
11.25
—
14.10
50.08
17.85
11.25
—
18.53
—
11.79
17.56
—
21.35
The number of stock options vested during fiscal years 2011, 2010 and 2009 were 51,250, 37,750 and 2,000,
respectively. The fair values of stock options vested during fiscal years 2011, 2010 and 2009 were $0.7 million,
$0.3 million and $29,000, respectively.
F-21
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The following table summarizes information about stock options outstanding and exercisable at
September 30, 2011:
Range of Exercise Prices
$ 6.81 to $13.49 . . . . . . . . . . . .
$13.50 to $19.99 . . . . . . . . . . .
$20.00 to $53.95 . . . . . . . . . . .
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Term
(in years)
1.5
7.2
8.8
7.3
Weighted
Average
Exercise
Price
$ 8.43
17.56
50.20
27.65
Shares
14,650
29,650
10,250
54,550
Weighted
Average
Remaining
Term
(in years)
1.5
7.1
8.9
5.9
Weighted
Average
Exercise
Price
$ 8.43
17.58
50.75
21.35
Shares
14,650
100,650
57,500
172,800
As of September 30, 2011 total unvested compensation expense associated with stock options amounted to
$1.5 million and will be recognized over the next four fiscal years.
12. Income Taxes:
Components of income before income taxes were as follows (in thousands):
YEAR ENDED
SEPTEMBER 30,
2011
2010
2009
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$43,414
1,205
$21,404
(502)
$ 6,910
(3,599)
$44,619
$20,902
$ 3,311
The provision (benefit) for income taxes consisted of the following (in thousands):
YEAR ENDED
SEPTEMBER 30,
2011
2010
2009
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,281
66
279
$ 8,131
(109)
214
$ 958
47
95
15,626
8,236
1,100
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,228)
510
(1,394)
(22)
1,303
(852)
(718)
(1,416)
451
$14,908
$ 6,820
$1,551
F-22
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Actual income tax expense (benefit) differs from income tax expense computed by applying the statutory
federal tax rate of 35.0%, 35.0% and 34.0% for fiscal years ended September 30, 2011, 2010 and 2009,
respectively, as follows (in thousands):
Provision for U.S. federal income tax at statutory rate . . . . .
Effect of foreign income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturers’/producers’ deduction . . . . . . . . . . . . . . . . . .
Research and experimentation tax credits . . . . . . . . . . . . . . .
State income taxes, net of federal income tax benefit . . . . . .
Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resolution of prior years’ tax matters . . . . . . . . . . . . . . . . . .
Contingency for uncertainty in income taxes . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
YEAR ENDED
SEPTEMBER 30,
2011
2010
2009
$15,617
(244)
(921)
(750)
181
504
(116)
632
5
$7,313
(19)
(504)
(27)
139
197
(121)
(123)
(35)
$1,126
415
(89)
(181)
61
92
(45)
49
123
$14,908
$6,820
$1,551
33.4%
32.6%
46.8%
Deferred income taxes under the liability method reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Company’s net deferred income tax asset were as follows (in
thousands):
AS OF SEPTEMBER 30, 2011
AS OF SEPTEMBER 30, 2010
U. S.
Non U.S.
Total
U. S.
Non U.S.
Total
Deferred income tax assets:
Allowance for doubtful accounts . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized research and development costs . . .
Property, plant and equipment and other . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards, tax credits
and deferrals . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . .
Accrued product warranty . . . . . . . . . . . . . . . . .
Accrued compensated absences . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . .
Insurance and other reserves . . . . . . . . . . . . . . .
$
$
97
4,335
355
—
—
—
333
723
408
—
788
7,039
2
—
—
71
—
433
—
11
—
—
31
548
$
99
4,335
355
71
—
$
78
2,930
706
—
28
433
333
734
408
—
819
—
487
468
350
81
602
7,587
5,730
$
1
108
—
344
—
410
—
8
—
—
88
959
Deferred income tax liabilities:
Allowance for doubtful accounts . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . .
Property, plant and equipment and other . . . . . .
(120)
—
(58) —
(92) —
(2,645) —
(120)
(58)
(92)
(2,645)
—
—
—
(92)
—
—
(2,542) —
$
79
3,038
706
344
28
410
487
476
350
81
690
6,689
(92)
—
—
(2,542)
Net deferred income tax asset . . . . . . . . . . . . . . . . . .
$ 4,244
$ 428
$ 4,672
$ 3,188
$867
$ 4,055
F-23
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The Company has net operating losses at its Russian subsidiary that can be carried forward six years. Such
net operating losses will expire beginning after fiscal year 2015.
Deferred income taxes are reported as follows in the accompanying consolidated balance sheet (in
thousands):
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current deferred income tax asset
Noncurrent deferred income tax asset
. . . . . . . . . . . . . . . . . . . . . . . . . .
Current deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . .
AS OF
SEPTEMBER 30,
2011
2010
$ 6,356
505
(82)
(2,107)
$ 4,542
754
—
(1,241)
$ 4,672
$ 4,055
A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Based on the Company’s expectation that the deductible temporary differences will
reverse during periods in which the Company generates net taxable income or during periods in which losses can
be carried back to offset prior year taxes, management believes that the Company will realize the benefit of its
net deferred income tax assets.
The financial reporting bases of investments in foreign subsidiaries exceed their tax bases. A deferred tax
liability is not recorded for this temporary difference because the investment is essentially permanent. A reversal
of the Company’s plans to permanently invest in these foreign operations would cause the excess to become
taxable. At September 30, 2011 and 2010, the temporary difference related to undistributed earnings for which no
deferred taxes have been provided was approximately $14.6 million and $14.0 million, respectively. The
Company will need to reassess and reassert its ability and intent to indefinitely reinvest the remaining foreign
earnings in order to continue the application of the exception under FASB guidelines.
From time to time the Company is the subject of audits by various tax authorities that can result in claims
and assessments and additional tax payments, penalties and interest. The United States Internal Revenue Service
(“IRS”) is in the process of conducting an audit of the Company’s United States Federal income tax returns for
fiscal years 2009, 2008 and 2007. Management believes that the outcome of such audit will not have a material
effect on the Company’s financial position, results of operations or cash flows.
Effective October 1, 2007, the Company adopted the provisions of the FASB guidance for accounting for
uncertainty in income taxes. The Company classifies interest and penalties associated with the payment of
income taxes in the Other Income (Expense) section of its consolidated statement of operations. Tax return
filings, which are subject to review by local tax authorities by major jurisdiction, are as follows:
• United States—fiscal years ended September 2007, 2008, 2009, 2010 and 2011
•
State of Texas—fiscal years ended September 2007, 2008, 2009, 2010 and 2011
• Russian Federation—calendar years 2008, 2009, 2010 and 2011
• Canada—fiscal years ended September 2007, 2008, 2009, 2010 and 2011
• United Kingdom—fiscal years 2007, 2008, 2009, 2010 and 2011
F-24
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The following table is a reconciliation of the total amounts of unrecognized tax benefits (in thousands):
Balance at October 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$192
26
23
—
Balance at September 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
241
(73)
77
(25)
220
581
61
(10)
Balance at September 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$852
The Company believes that it is reasonably possible the unrecognized tax benefits could change within the
next 12 months based on the resolution of on-going income tax audits. At this time it is not possible to determine
the range of such changes.
These unrecognized tax benefits would favorably affect the Company’s effective tax rate in future periods if
they are favorably resolved.
Management believes that adequate provisions for income taxes have been reflected in the financial
statements and is not aware of any significant exposure items that have not been reflected in the financial
statements. Amounts considered probable of settlement within one year have been included in the accrued
expenses and other liabilities in the accompanying consolidated balance sheet.
13. Earnings Per Common Share:
Basic earnings per share is computed by dividing net earnings available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted earnings per share is
determined on the assumption that outstanding dilutive stock options have been exercised and the aggregate
proceeds as defined were used to reacquire common stock using the average price of such common stock for the
period.
F-25
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The following table summarizes the calculation of weighted average common shares and common
equivalent shares outstanding for purposes of basic and diluted earnings per share (in thousands, except share and
per share amounts):
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares and common share equivalents:
YEAR ENDED
SEPTEMBER 30,
2011
2010
2009
$
29,711
$
14,082
$
1,760
Common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common share equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,220,657
65,667
6,031,314
161,704
5,950,403
128,975
Total weighted average common shares and common share
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,286,324
6,193,018
6,079,378
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
4.78
4.73
$
$
2.33
2.27
$
$
0.30
0.29
Options totaling zero, 63,000 and 13,200 shares of common stock in fiscal years 2011, 2010 and 2009
respectively, were not included in the calculation of weighted average shares for diluted earnings per share
because their effects were antidilutive.
14. Related Party Transactions:
Sales to OYO Japan and other affiliated companies were approximately $1.3 million, $0.8 million and $1.1
million during fiscal years 2011, 2010 and 2009, respectively. Purchases of inventory from OYO Japan and other
affiliated companies were approximately $0.2 million in each of fiscal years 2011, 2010 and 2009, respectively.
15. Commitments and Contingencies:
Operating Leases
The Company only leases office space and certain equipment under short-term operating leases; therefore,
the Company does not have future minimum rental commitments under long-term noncancelable operating
leases. Rent expense was approximately $10,000, $18,000 and $0.1 million during fiscal years 2011, 2010 and
2009, respectively.
Legal Proceedings
From time to time the Company is a party to what it believes is routine litigation and proceedings that may
be considered as part of the ordinary course of its business. Legal expenses related to such matters are expensed
as incurred.
On July 8, 2009, the Company received a complaint filed in the United States District Court in Nevada
alleging that the Geospace Seismic Recorder (“GSR”), the Company’s newly developed wireless data acquisition
system, infringes a patent held by Ascend Geo, LLC (“Ascend”). The Company requested and was granted a
change in venue to the United States District Court for the Southern District of Texas in Houston (the “Court”).
In addition to monetary damages, Ascend requested a preliminary injunction against future sales by the Company
of the GSR nodal system. The Company filed its response with the Court requesting that it deny Ascend’s request
for a preliminary injunction and, on November 4, 2009, the Court denied Ascend’s request for a preliminary
injunction. On January 4, 2011, the Court dismissed Ascend’s case with prejudice. On April 5, 2011, the U.S.
Patent and Trademark Office cancelled all claims of Ascend’s patent.
F-26
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
16. Supplemental Cash Flow Information:
Supplemental cash flow information is as follows (in thousands):
YEAR ENDED
SEPTEMBER 30,
2011
2010
2009
Cash paid for:
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
44
12,966
$ 253
5,289
$ 336
4,121
Noncash investing and financing activities:
Accrued capital expenditures . . . . . . . . . . . . . . . . . . . . .
2
34
126
17. Segment and Geographic Information:
lines currently consist of geophones and hydrophones,
The Company evaluates financial performance based on two business segments: Seismic and Thermal
Solutions. The Seismic product
including multi-
component geophones and hydrophones, seismic leader wire, geophone string connectors, seismic telemetry
cables, high definition reservoir characterization products and services, marine seismic cable retrieval devices,
data acquisition systems, offshore cables and industrial products. Thermal Solutions products include thermal
printers, thermal printheads and dry thermal film and other media. The Company sells these products to a variety
of markets, including the screen print, point of sale, signage and textile markets. The Company also sells these
Thermal Solutions products to its seismic customers.
F-27
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The following tables summarize the Company’s segment information:
YEAR ENDED
SEPTEMBER 30,
2011
2010
2009
Net sales:
Seismic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thermal Solutions . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$158,653
13,519
798
$114,774
12,955
804
$79,043
13,028
789
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
172,970
128,533
92,860
Income (loss) from operations:
Seismic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thermal Solutions . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,477
(37)
(9,035)
44,405
28,955
397
(8,244)
21,108
10,591
370
(7,352)
3,609
Depreciation, amortization and stock-based
compensation:
Seismic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thermal Solutions . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income:
Seismic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thermal Solutions . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense:
Seismic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thermal Solutions . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,990
345
1,448
7,783
139
—
128
267
—
—
43
43
3,995
375
1,259
5,629
3,610
598
1,264
5,472
165
—
89
254
—
—
238
238
801
8
—
809
—
—
602
602
* The Company’s manufacturing operations for its Seismic and Thermal Solutions business segments are
combined. Therefore, the Company does not segregate and report separate balance sheet accounts for these
segments. As a result, the Company does not report business segment balance sheet information.
“Corporate” net sales consists of rental revenue earned from an operating lease of a surplus building located
in Houston, Texas. “Corporate” loss from operations primarily consists of the Company’s Houston headquarter
general and administrative expenses.
F-28
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The Company generates product sales and rentals from its subsidiaries in the United States, Canada, the
Russian Federation and the United Kingdom. Sales information for the Company is as follows (in thousands):
YEAR ENDED
SEPTEMBER 30,
2011
2010
2009
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Russian Federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$155,781
8,966
10,144
4,883
(6,804)
$127,972
3,706
7,973
3,432
(14,550)
$87,371
3,526
4,152
2,835
(5,024)
$172,970
$128,533
$92,860
Summaries of net sales by geographic area for fiscal years 2011, 2010 and 2009 are as follows (in
thousands):
Asia (excluding Japan and Middle East) . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Middle East
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
YEAR ENDED
SEPTEMBER 30,
2011
$ 18,542
13,158
34,278
4,230
6,588
92,368
3,806
$
2010
7,521
6,011
13,375
4,163
9,441
85,423
2,599
2009
$ 9,114
10,730
16,357
971
14,236
40,254
1,198
$172,970
$128,533
$92,860
Net sales are attributed to countries based on the ultimate destination of the product sold, if known. If the
ultimate destination is not known, net sales are attributed to countries based on the geographic location of the
initial shipment.
Long-lived assets were as follows (in thousands):
AS OF
SEPTEMBER 30,
2011
2010
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Russian Federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$43,992
5,135
4,108
471
8
$35,315
12,504
4,387
510
8
$53,714
$52,724
F-29
OYO Geospace Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
18. Selected Quarterly Information (Unaudited):
The following table represents summarized data for each of the quarters in fiscal years 2011 and 2010 (in
thousands, except per share amounts):
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . .
2011
Fourth
Quarter
$32,805
12,780
6,049
94
3,589
$ 0.57
Third
Quarter
$46,368
20,556
13,511
25
9,207
1.47
$
Second
Quarter
$50,696
21,684
13,048
(44)
8,702
1.41
$
First
Quarter
$43,101
19,093
11,797
139
8,213
1.34
$
Diluted earnings per share . . . . . . . . . . . . . . . .
$ 0.56
$
1.44
$
1.38
$
1.30
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . .
2010
Fourth
Quarter
Third
Quarter
$36,144
15,006
7,442
(6)
5,096
$ 0.84
$35,292
14,900
7,690
(103)
5,077
0.84
$
Second
Quarter
$30,781
10,289
4,240
60
2,808
0.47
$
First
Quarter
$26,316
7,161
1,736
(157)
1,101
0.18
$
Diluted earnings per share . . . . . . . . . . . . . . . .
$ 0.82
$
0.81
$
0.45
$
0.18
F-30
Schedule II
OYO Geospace Corporation and Subsidiaries
Valuation and Qualifying Accounts
(In Thousands)
Balance at
Beginning
of Period
Charged
to Costs
And
Expenses
Charged
to Other
Assets
(Deductions)
And
Additions
Balance at
End of
Period
Year ended September 30, 2011
Allowance for doubtful accounts on accounts and notes
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 334
$ 128
$—
$ (51)
$ 411
Year ended September 30, 2010
Allowance for doubtful accounts on accounts and notes
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
848
(479)
—
(35)
334
Year ended September 30, 2009
Allowance for doubtful accounts on accounts and notes
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,329
318
—
(799)
848
F-31
Officers and Directors
O F F I C E R S
D I R E C T O R S
Gary D. Owens
Chairman of the Board
Gary D. Owens
Chairman of the Board
President & Chief Executive Officer
President & Chief Executive Officer
Michael J. Sheen
Senior Vice President
Chief Technical Officer
Thomas T. McEntire
Vice President, Secretary &
Chief Financial Officer
W. Richard Wheeler
Executive Vice President &
Chief Operating Officer
Robbin C. Adams
Executive Vice President &
Chief Project Engineer
Thomas L. Davis, Ph.D.
Professor of Geophysics
Colorado School of Mines
Takashi Kanemori
Director & Senior Executive Officer
OYO Corporation
William H. Moody
Retired Partner
KPMG
Michael J. Sheen
Senior Vice President
Chief Technical Officer
Charles H. Still
Attorney at Law
Richard C. White
Consultant
Oil and Gas Industry
w w w . o y o g e o s p a c e . c o m
Corporate Headquarters
and Operating Facility
OYO Geospace Corporation
7007 Pinemont Drive
Houston, Texas 77040
(713) 986-4444
OYO-GEO Impulse
International, LLC
Kirovogradskaya, 36,
Ufa, Bashkortostan, Russia
450001
(7) 3472 25 3973
Geospace Technologies
OYO Geo Space Canada, Inc.
(713) 939-7093
Geospace Offshore
(713) 939-7093
OYO Instruments
(713) 986-4444
Geospace Engineering
Resources International
(713) 986-4444
2735-37 Avenue, N.E.
Calgary, Alberta, Canada T1Y 5R8
(403) 250-9600
w w w . o y o g s c a n a d a . c o m
OYO Geospace China
Room 700, 7th Floor, Lido Office Tower
Lido Place
Jichang Road
Beijing 100004, P. R. China
86 10 64378768
OYO Instruments, Europe Ltd.
F3 Bramingham Business Park
Enterprise Way, Luton,
Bedfordshire LU3 4BU,
England
44 (0) 1582 573 980
w w w . o y o . c o . u k