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<SEC-DOCUMENT>/in/edgar/work/20000817/0000950129-00-004266/0000950129-00-004266.txt : 20000922
<SEC-HEADER>0000950129-00-004266.hdr.sgml : 20000922
ACCESSION NUMBER: 0000950129-00-004266
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20000531
FILED AS OF DATE: 20000817
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: INPUT OUTPUT INC
CENTRAL INDEX KEY: 0000866609
STANDARD INDUSTRIAL CLASSIFICATION: [3829
] IRS NUMBER: 222286646
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0531
</COMPANY-DATA>
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-12691
FILM NUMBER: 705205
</FILING-VALUES>
BUSINESS ADDRESS:
STREET 1: 11104 W AIRPORT BLVD
STREET 2: SUITE 200
CITY: STAFFORD
STATE: TX
ZIP: 77477
BUSINESS PHONE: 2819333339
</BUSINESS-ADDRESS>
MAIL ADDRESS:
STREET 1: 11104 W AIRPORT BLVD
STREET 2: SUITE 200
CITY: STAFFORD
STATE: TX
ZIP: 77477
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>e10-k.txt
<DESCRIPTION>INPUT/OUTPUT, INC. - DATED MAY 31, 2000
<TEXT>
<PAGE> 1
================================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13402
INPUT/OUTPUT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2286646
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12300 C. E. SELECMAN DR., STAFFORD, TEXAS
(FORMERLY 11104 W. AIRPORT BLVD., STAFFORD, TEXAS) 77477
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 933-3339
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PREFERRED STOCK NEW YORK STOCK EXCHANGE
(Title of Class) (Name of each exchange on which registered)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: [X] No: [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at June 30, 2000 (for purposes of the
below-stated amount only, all directors, officers and 5% or more stockholders
are presumed to be affiliates):
$306,503,019
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date.
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING
OF COMMON STOCK AT JUNE 30, 2000
------------------- ----------------------------
<S> <C>
COMMON STOCK, $0.01 PAR VALUE 50,789,080
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Registrant's 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
<PAGE> 2
PART I
PRELIMINARY NOTE: IN THIS ANNUAL REPORT ON FORM 10-K, WE REFER TO INPUT/OUTPUT,
INC. AND ITS SUBSIDIARIES AS "WE", "OUR", "US", THE "COMPANY" OR "INPUT/OUTPUT",
UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE.
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED
BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING
STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE CAUTIONARY STATEMENTS AND
OTHER IMPORTANT FACTORS INCLUDED IN THIS FORM 10-K. SEE ITEM 7. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - -
CAUTIONARY STATEMENT FOR PURPOSE OF FORWARD-LOOKING STATEMENTS" FOR A
DESCRIPTION OF IMPORTANT FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS ABOUT PLANS, OBJECTIVES, GOALS,
STRATEGIES, FUTURE EVENTS OR PERFORMANCE AND ASSUMPTIONS UNDERLYING THOSE
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY WORDS SUCH AS
"ANTICIPATES," "ESTIMATES," "EXPECTS," "INTENDS," "PLANS," "PREDICTS,"
"PROJECTS," AND SIMILAR EXPRESSIONS. OUR EXPECTATIONS, BELIEFS AND PROJECTIONS
ARE EXPRESSED IN GOOD FAITH AND WE BELIEVE THEY HAVE A REASONABLE BASIS, THROUGH
OUR EXAMINATION OF HISTORICAL OPERATING TRENDS, DATA CONTAINED IN OUR RECORDS
AND OTHER DATA AVAILABLE FROM THIRD PARTIES, BUT THERE CAN BE NO ASSURANCE THAT
OUR EXPECTATIONS, BELIEFS OR PROJECTIONS WILL RESULT OR BE ACHIEVED OR
ACCOMPLISHED.
ITEM 1. BUSINESS
THE COMPANY
Input/Output (I/O) is a leading designer and manufacturer of seismic
data acquisition products used on land, in transition zones (i.e. marshes and
shallow bays) and in marine environments. We believe that our data acquisition
systems are technologically superior and are particularly well suited for
advanced three-dimensional ("3-D") data collection techniques. Our principal
customers are seismic contractors and major, independent and foreign oil and gas
companies around the world. See "-Markets and Customers". Seismic data is used
extensively in the oil and gas industry as an exploration risk management tool
and is also increasingly employed in field development and reservoir management
activities.
We are organized and report by segments consisting of Land and Marine
segments. For a further description of our segments, see Note 9 of the Notes to
Consolidated Financial Statements included herein.
We offer a broad range of seismic data acquisition systems and related
equipment. On land, we offer vibrators, a land energy source; and geophones,
acoustical receivers that transform vibrations from substrata within the earth
into electrical signals, that are recorded by our data acquisition systems. We
also offer transition zone systems in shallow water with marine versions of our
land-based recording systems.
Our marine data acquisition systems consist primarily of marine
streamers and shipboard electronics that collect and record seismic data in
deep-water environments. Other marine products manufactured and sold by us
include hydrophones, airguns, data telemetry quality control systems and
positioning systems (which control streamer cable depth during towing),
compasses, acoustical devices, and velocimeters.
1
<PAGE> 3
We believe that our future success will depend on our ability to
continue to introduce technological innovations by enhancing our existing
products and services to our customers, as well as by developing new products.
See "- Recent Developments" and "- Technology and Product Development" below.
RECENT DEVELOPMENTS
Industry Conditions. During fiscal year 2000, consistent with overall
industry trends, demand for our products decreased significantly due to the
continued deterioration in energy service market conditions and, more
specifically, in the seismic services sector. As a result, we recorded special
charges of $50.8 million during fiscal year 2000. See Item 7. "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
In particular, the following factors adversely impacted us in fiscal
year 2000:
o The financial condition of a certain number of our customers deteriorated
significantly;
o Our principal customers - seismic service contractors - continued to reduce
their workforces and capital spending, resulting in decreased sales
opportunities for us;
o Consolidations and mergers among energy producers;
o Considerable excess seismic equipment remaining in the field, and
additional pricing pressure on our product offerings as a result of the
weak demand for our new equipment; and
o Unstable economies in developing markets forced local customers to reduce
capital spending.
Our Response. We currently believe that industry conditions will
continue to adversely impact demand for our products during the next 12 months.
As a result, we began in fiscal year 1999 and continued in fiscal year 2000
implementing initiatives in response to the downturn.
o We have taken steps to lower our cost structure by closing certain
facilities and reducing our workforce. Since August 1998, when we reached a
peak of 1,435 total full-time employees, we have reduced our full-time
workforce to 736 as of June 30, 2000.
o We are eliminating obsolete products and ancillary parts due to reduced
demand for these older generation products and as a result of product
revisions in progress.
o We began reorganizing into a more product-focused structure in fiscal year
2000 with the objective of being able to better address the special and
often different needs of marine and land customers.
LAND
A new central electronic recording system, the I/O SYSTEM 2000(TM), was
introduced this year and offers enhancements to aid the efficiency of seismic
data acquisition. The system also incorporates embedded workflow design,
planning, quality control and pre-processing tools from our established Green
Mountain Geophysical (GMG) knowledgeware toolkit to improve crew productivity
and reduce geometry errors during acquisition. An enhancement of the I/O SYSTEM
2000(TM) to allow seamless integration of our cable and radio-based telemetry
products is undergoing field tests. To enhance our radio-based telemetry
acquisition, the Transcriber 2(TM) introduced this year can organize, format and
record seismic data to tape up to four times faster than its predecessor,
thereby decreasing acquisition time.
2
<PAGE> 4
Our primary land research and development efforts are focused on field
testing a land-based seismic data acquisition recording system incorporating
VectorSeis(TM) digital sensors for multi-component recording and 4-D time lapse
imaging. The VectorSeis(TM) digital sensor uses three micro-machined
accelerometers configured to measure compression and shear waves. Information
from compression and shear waves can be used to create better structural images
of complex geological prospects and to infer physical properties of rock
structures to reduce exploration risk.
We have expanded the data structure and interface of our survey design
software package, MESA(R), to accommodate multi-component data. The design and
quality control (QC) capacity of MESA(R) will handle survey designs that feature
mixed sources, mixed receiver types, and multiple components. Other programs
such as MESA(R) GRIP (3D subsurface modeling for survey design) and Alpine(TM)
(acquisition management and reporting) deal with the same types of advanced
designs.
See "- Products" below.
MARINE
The CRX FSK repeater production system was initially deployed in fiscal
year 2000. This new CRX module is a diagnostic repeater allowing streamer
communications for our compass birds and acoustic pods for streamer lengths up
to 12,000 meters.
We completed initial tests of our new marine energy source, Sleeve Gun
2000, which was designed to improve gun reliability, gun timing and time to
repair.
We launched our new MSX(TM) marine export recording system, which
complies with U.S. Department of Commerce export regulations and has been
awarded the commodity classification of 6A991. With the exception of U.S.
embargoed countries, this classification will permit the export to most
countries around the world with the license designation of No License Required
(NLR).
The MSX(TM) marine seismic recording system was revised to provide
customers with more robust and improved test and quality control features.
The Pro2000(TM) line of positioning equipment was initially deployed in
fiscal year 2000. The system obviates the need for lithium batteries, long
considered a health, safety and environmental hazard in the marine environment.
See "- Products" below.
E-BUSINESS
We introduced our Internet e-catalog in fiscal year 2000 which
interacts with certain of our customers' purchasing systems, in a secure
environment. Our customers can order from our parts list covering land and
marine products and have access to technical documentation and other features.
3
<PAGE> 5
PRODUCTS
LAND OPERATIONS
Data Acquisition Systems. A land I/O system consists of a central
electronics unit containing a number of modular components, and multiple remote
ground equipment modules, including line taps and remote signal conditioners
(each designated as an MRX(TM), which typically acquires six channels of analog
seismic data). A typical system consists of a central electronics unit, 12 line
taps, approximately 200-500 MRX(TM) and various accessories. A customer can
purchase or lease additional line taps, MRX(TM) and accessory equipment to
expand and modify a system to fulfill specific requirements.
In addition to standard I/O system components, several optional
components are available as accessory equipment.
Central Electronics Unit. The central electronics unit, which acts as
the control center of the I/O data acquisition system, and its components are
typically mounted within a vehicle or helicopter transportable enclosure. The
central electronics unit receives digitized data from the MRX(TM), stores the
data on magnetic tape for subsequent processing and displays the data on
optional monitoring devices. The central electronics unit also provides
calibration, status and test functionality.
Remote Ground Equipment. The remote ground equipment of the I/O system
consists of multiple remote MRX(TM) and line taps positioned over the survey
area. Seismic signals from geophones are collected by the MRX(TM), each of which
collects multiple channels of analog seismic data. The MRX(TM) filters and
digitizes the data, which is then transmitted by the MRX(TM) via cable to a line
tap. The line taps manage the seismic data collection process on each seismic
line, further organize the seismic data and transmit this data and remote
equipment operating status information via cable to the central electronics
unit.
Our radio telemetry system (RSR) records data across a variety of
environments, including transition zones, swamps, mountain ranges, jungles and
other seismic environments. Our RSR's are radio controlled, and do not require
cables for data transmission, since the information is stored at the unit source
and subsequently retrieved.
Geophones. Geophones are seismic sensor devices designed to detect
acoustical energy reflected from the earth's subsurface. The product line
includes low distortion seismic sensors designed for land and transition zone
environments. This product line includes a geophone checking technology as well
as three-component geophones that may be used in three-component 3-D seismic
recording. See "- Technology and Product Development" below.
Vibrators. Vibrators are controlled mechanical devices used as a source
of seismic energy on land. Our vibrators offer patented features which extend
the life of the vibrator and lower the distortion of the sound source.
Applications Software. We offer a wide range of geophysical software
used in seismic planning and execution. MESA(R) is a 3-D seismic data
acquisition planning package. This product is used by energy producers and
seismic contractors to design and execute a 3-D program to meet specific
requirements. Alpine(TM) is used to track and manage 3-D programs
4
<PAGE> 6
from the concept stage through data processing. Millenium(R) performs the
initial data processing stages of geometry verification and refraction statics.
Reservoir Products. Reservoir products and technologies are being
developed and deployed to create economical data acquisition solutions for
enhanced reservoir imaging. Our projects include field development and rock
velocity studies, reservoir management and enhanced oil recovery analysis.
MARINE OPERATIONS
Data Acquisition System. Our marine data acquisition system (MSX(TM))
consists primarily of marine streamers and shipboard electronics that collect
seismic data in deep-water environments. Marine streamers, which contain
electronic modules and cabling, may measure up to 12,000 meters in length and
are towed behind a seismic acquisition vessel. Marine electronics include
seismic and data telemetry quality control systems and related software
products, as well as electronics for shipboard recording.
The 24-bit digital MSX(TM) modules each contain 16 channels of seismic
data. The utilization of fiber-optic data transmission and titanium connectors
and inserts results in reduced size and power consumption, high quality and
reliability of acquired marine seismic data and permits a complete MSX(TM)
system to have a recording capacity of over 7,600 channels.
Hydrophones. Hydrophones are seismic sensor devices designed to detect
acoustical energy reflected from the earth's subsurface. The product line
includes low distortion seismic sensors designed for marine (hydrophones) and
transition zone environments, and a three-component gimbaled geophone and
hydrophone unit for four-component ocean bottom surveys.
Airguns. Airguns are the primary energy source used to initiate the
energy transmitted through the earth's subsurface, which are subsequently
recorded as data signals in the marine environment. Additionally, we offer an
airgun source synchronizing system that can control up to 128 airguns
simultaneously.
Marine Positioning Systems. Our positioning systems include birds
(which control streamer cable depth during towing), compasses, velocimeters and
acoustical devices.
In addition to sales of the products described above, we offer a rental
program to our customers for selected equipment. We have taken steps to expand
our land and marine products rental fleet and plan to spend approximately $4.0
million on this initiative in the coming year.
TECHNOLOGY AND PRODUCT DEVELOPMENT
Our strategic focus for research and development is driven by our
desire to improve the quality of the subsurface image and the overall
acquisition economics of our customers. Our ability to compete effectively and
maintain a leading market position in the manufacture and sale of seismic
instruments and data acquisition systems depends upon continued technological
innovation. Development cycles from initial conception through product
introduction may extend over several years. Research and development
expenditures have principally related to the continued enhancement and evolution
of the land and marine data acquisition product line and basic research and
development on other emerging technologies having potential applicability to the
seismic industry. See " - Products", Item 6. "Selected Consolidated Financial
5
<PAGE> 7
Data" and Item 7. "Management's Discussion and Analysis of Results of Operations
and Financial Condition." These efforts have resulted in the development of
numerous inventions, processes and techniques. See "- Intellectual Property"
below.
We have a number of products under development. Because they are under
development, their commercial feasibility or degree of commercial acceptance, if
any, is not yet known. No assurance can be given concerning the successful
development of new products or enhancements, the specific timing of their
release or their level of acceptance in the market place. See Item. 7
"Management's Discussion and Analysis of Results of Operations and Financial
Condition. - Cautionary Statement for Purposes of Forward-Looking Statements."
MARKETS AND CUSTOMERS
Our principal customers are seismic contractors, which operate seismic
data acquisition systems to collect data in accordance with their customers'
specifications or for their own seismic data libraries. In addition, we market
and sell our products to oil and gas companies, who may operate their own
seismic crews. During fiscal year 2000, four customers accounted for
approximately 51% of our net sales: Baker Hughes Incorporated and its
affiliates (17%), Schlumberger Limited and its affiliates (12%), Petroleum
Geo-Services ASA (12%) and China Petroleum Technology and Development Corp.
(11%). The loss of any one of these customers could have a material adverse
effect on our results of operation and financial condition. See Note 9 of Notes
to Consolidated Financial Statements.
A significant part of our marketing efforts are focused on areas
outside the United States. Foreign sales are subject to special risks inherent
in doing business outside of the United States, including the risk of war, civil
disturbances, embargo and government activities, as well as risks of compliance
with additional laws, including tariff regulations and import/export
restrictions. We sell our products through a direct sales force consisting of
employees and through several international third-party sales representatives
responsible for key geographic areas. Sales personnel generally have either oil
and gas exploration or production expertise or experience in selling advanced
technology-based systems.
During fiscal years 2000, 1999 and 1998, approximately 70%, 41% and
35%, respectively, of our net sales were derived from sales to foreign
customers. See Note 9 of Notes to Consolidated Financial Statements for
information concerning geographic distribution of our sales. Systems sold to
domestic customers are frequently deployed internationally. Our sales are
predominantly denominated in US dollars. From time to time, certain foreign
sales require export licenses.
We normally sell our systems and products to customers on standard net
30-day terms. We have also provided financing arrangements to customers by
installment sales contracts under which we typically retain a security interest
in the products sold. See Item 7.- "Management's Discussion and Analysis of
Results of Operations and Financial Condition - Liquidity and Capital
Resources". Our installment sales contracts have historically required a down
payment of approximately 15-30% of the purchase price, normally range in length
from 24 to 48 months and bear interest at rates ranging up to 13% per annum. See
Note 3 of Notes to Consolidated Financial Statements.
In addition, we have previously financed a portion of our sales through
third parties by assigning our installment sales contracts to the financing
sources and guaranteeing the customer's repayment obligations. During fiscal
year 2000, we were required to fulfill our
6
<PAGE> 8
obligations under certain of these arrangements as a result of payment defaults
by certain of our customers. For the foreseeable future, we expect to rely less
on these or similar third-party sales financing techniques. At May 31, 2000, no
guarantees of trade notes receivables sold with recourse, or third-party loans
to customers were outstanding. See Item 7.- "Management's Discussion and
Analysis of Results of Operations and Financial Condition - Liquidity and
Capital Resources" and Notes 3 and 13 of Notes to Consolidated Financial
Statements.
MANUFACTURING
Our 110,000 square foot manufacturing facility in Stafford, Texas
houses our electronics assembly process and enables us to manufacture additional
products and components assembled previously by outside vendors. Our 240,000
square foot facility in Alvin, Texas manufactures vibrators, sleeve guns, land
and marine cable and marine streamers. Our 40,000 square foot New Orleans,
Louisiana facility manufactures our positioning products. Our 30,000 square foot
Voorschoten, The Netherlands facility manufactures geophone products. Our 31,000
square foot Norwich, England facility manufactures seismic cable and leader
wire. See also Item 2. - "Properties". Upon completion of assembly, our products
undergo functional and environmental testing and final quality assurance
inspection.
SUPPLIERS
We purchase a substantial portion of the electronic components used in
our systems and products. Although we have not experienced supply or vendor
quality control problems, there can be no assurance that these problems will not
arise in the future. Such problems, if incurred, could significantly affect our
ability to meet production and sales commitments. Certain items, such as
integrated circuits, printed circuit assemblies, the 24-bit analog-to-digital
converters used in I/O systems and hydrophones having water depth limiting
capabilities used with marine seismic cables, are purchased from sole source
vendors. Although we attempt to maintain an adequate inventory of these single
source items, the loss of ready access to any of these items could temporarily
disrupt our ability to manufacture and sell certain products. Since our
components are designed for use with these single source items, replacing the
single source items with functional equivalents could require a redesign of our
components and costly delays could result.
COMPETITION
The market for seismic data acquisition systems and seismic
instrumentation is highly competitive and is characterized by continual and
rapid changes in technology. Our principal competitors for land seismic
equipment are, among others, Fairfield Industries; Geo-X Systems, Limited; JGI,
Incorporated; OYO Geospace Corporation; and Societe d'etudes Recherches et
Construction Electroniques ("Sercel"), an affiliate of Compagnie General de
Geophysique (CGG). Unlike us, Sercel possesses the advantage of being able to
sell to an affiliated seismic contractor. Our principal marine seismic
competitors are, among others, Bolt Technology Corporation; GeoScience
Corporation (GSI), an affiliate of CGG; Sercel; Teledyne Brown Engineering, an
affiliate of Allegheny Teledyne Company; and Thomson Marconi Sonar P/L.
We believe that in recent years technology and product pricing have
been the primary methods of competition in the industry, as oil and gas
exploration and production companies demand higher quality seismic data and
seismic contractors require improved productivity from their equipment and
crews. The remaining principal competitive factors in the industry include
customer support services. During fiscal year 2000, price and customer support
factors took precedence over technology as demand for new seismic
instrumentation substantially decreased. See "- Recent Developments".
7
<PAGE> 9
INTELLECTUAL PROPERTY
We rely on a combination of trade secrets, patents, copyrights and
technical measures to protect our proprietary hardware and software
technologies. Although our patents are considered important to our operations,
no one patent is considered essential to our success. Copyright and trade secret
protection may be unavailable in certain foreign countries in which we sell our
products. In addition, we seek to protect our trade secrets through
confidentiality agreements with our employees and agents. We also own a number
of trademarks.
REGULATORY MATTERS
Our operations are subject to numerous local, state and federal laws
and regulations in the United States and in foreign jurisdictions concerning the
containment and disposal of hazardous materials. We do not currently foresee the
need for significant expenditures to ensure continued compliance with current
environmental protection laws. Regulations in this area are subject to change,
and there can be no assurance that future laws or regulations will not have a
material adverse effect on us.
Additionally, our export activities are subject to extensive and
evolving trade regulation. Certain countries in which our products may be
utilized are subject to trade restrictions, embargoes and sanctions imposed by
the US government. These restrictions and sanctions, generally speaking, limit
us from participating in or approving certain business activities in those
countries.
EMPLOYEES
At June 30, 2000, we had 736 full-time employees worldwide, 586 of
which were employed in the United States. Our U.S. employees are not subject to
any collective bargaining agreement. We have never experienced a work stoppage,
and we consider our relations with our employees to be satisfactory.
ITEM 2. PROPERTIES
Our primary manufacturing facilities are as follows:
<TABLE>
<CAPTION>
Manufacturing Facility Square Footage
---------------------- --------------
<S> <C>
Stafford, Texas* 110,000
Alvin, Texas* 240,000
New Orleans** 40,000
Norwich, England** 31,000
Voorschoten, The Netherlands** 30,000
-------
451,000
=======
</TABLE>
* Owned
** Leased
Our executive headquarters (utilizing approximately 25,000 square feet)
are located at 12300 C.E. Selecman Drive, Stafford, Texas. We have combined
personnel from our previous
8
<PAGE> 10
headquarters facility (11104 W. Airport) into the adjacent Selecman Drive
facility, which now houses the executive headquarters, research & development,
sales and marketing and administrative support activities. Both facilities,
along with the adjacent Stafford manufacturing facility, are owned by us and are
mortgaged to secure long-term facility indebtedness. We intend to lease the
vacant space in the former executive headquarters to third parties. See Item 7.-
"Management's Discussion and Analysis of Results of Operations and Financial
Condition". We also lease an aggregate of 101,000 square feet of additional
warehouse and office space under short-term operating leases. The machinery,
equipment, buildings and other facilities owned and leased by us are considered
by management to be sufficiently maintained and adequate for our current
operations.
ITEM 3. LEGAL PROCEEDINGS
We were named, along with a former employee, as defendants in an action
filed on May 21, 1999, in State District Court in Harris County, Texas styled
Coastline Geophysical, Inc. v. Input/Output, Inc. et al. The plaintiffs'
petition alleged a number of claims arising out of a purchase of a marine
seismic system manufactured by us. While believing we had meritorious defenses
to this action, we settled this lawsuit in July 2000 for $5.0 million, after
giving consideration to the cost and distraction of protracted litigation. As a
result of the settlement, we recorded a $5.0 million charge to general and
administrative expense in the fourth quarter and year ended May 31, 2000. See
Item 7. "Management's Discussion and Analysis of Results of Operation and
Financial Condition."
In the ordinary course of business, we have been named in other various
lawsuits or threatened actions. While the final resolution of these matters may
have an impact on our consolidated financial results for a particular reporting
period, we believe that the ultimate resolution of these matters will not have a
material adverse impact on our financial position, results of operations or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
GENERAL
Our Common Stock trades on the New York Stock Exchange ("NYSE") under
the symbol "IO". The following table sets forth the high and low last reported
sales prices of the Common Stock for the periods indicated, as reported on the
NYSE composite tape.
<TABLE>
<CAPTION>
PRICE RANGE
----------------------------
PERIOD HIGH LOW
------ --------- ---------
<S> <C> <C>
Fiscal 2000
Fourth Quarter.......................................... $ 8 1/4 $ 5 1/2
Third Quarter........................................... 6 11/16 4 1/4
Second Quarter.......................................... 8 3/8 4 15/16
First Quarter........................................... 8 15/16 7
Fiscal 1999
Fourth Quarter.......................................... $ 8 9/16 $ 5 5/16
Third Quarter........................................... 7 15/16 5 1/16
Second Quarter.......................................... 11 6 3/16
First Quarter........................................... 21 11/16 9 3/8
</TABLE>
We have historically not paid, and do not intend to pay in the
foreseeable future, cash dividends on our Common Stock. We presently intend to
retain earnings, if any, for use in our business, with any future decision to
pay cash dividends on Common Stock dependent upon our growth, profitability,
financial condition and other factors our Board of Directors may deem relevant.
See Item 7.- "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources". We are permitted to pay
dividends on our Common Stock as long as all dividends on our outstanding Series
B and Series C Preferred Stock (See Note 7 of Notes to Consolidated Financial
Statements) are current.
On June 30, 2000, there were 951 stockholders of record of Common Stock
and one stockholder of 55,000 shares of Series B and Series C Preferred Stock
outstanding. Except as discussed below or otherwise disclosed in our Quarterly
Reports on Form 10-Q filed during fiscal year 2000, we made no unregistered
sales of our equity securities during fiscal year 2000.
During fiscal year 2000, we issued a total of 17,500 shares of Common
Stock to Sam K. Smith, Chief Executive Officer of the Company, under the terms
of his compensation agreement with the Company dated August 10, 1999. The shares
were issued to him in four installments on a quarterly basis during fiscal year
2000 as provided in the compensation agreement. The closing sales prices per
share of the Company's Common Stock as reported on the NYSE composite tape on
the dates of issuance ranged from $5.00 to $5.94 per share. Each issuance was
exempt from the registration requirements of the Securities Act of 1933 pursuant
to Section 4(2) of that Act, because the shares were issued under a privately
negotiated transaction and Mr. Smith agreed that he was acquiring the shares for
investment purposes only and without a view to resale or distribution.
REPURCHASE PROGRAMS
In March 2000, we announced that we had authorized the repurchase of up
to 200,000 shares of Common Stock in open market and privately negotiated
transactions. The shares
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<PAGE> 12
repurchased were to be held as treasury stock to be available for grants under a
restricted stock plan adopted in March 2000, and for other employee benefits
plans. A total of 150,000 shares were repurchased by us under this fourth
quarter fiscal year 2000 repurchase program. In July 2000, we announced that we
had authorized the repurchase of up to an additional 1,000,000 shares of our
Common Stock in open market and privately negotiated transactions, with
purchases to be made from time to time through May 31, 2001. Shares repurchased
will be held by us as treasury stock to be available for our stock option and
other equity compensation and benefits plans.
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<PAGE> 13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect
to our consolidated statements of operations for the five fiscal years ended May
31, 2000, 1999, 1998, 1997 and 1996 and with respect to our consolidated balance
sheets at May 31, 2000, 1999, 1998, 1997 and 1996 have been derived from our
audited consolidated financial statements. This information should be read in
conjunction with Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and our consolidated financial statements
and the notes thereto included elsewhere in this Form 10-K. Our results of
operations and financial condition have been affected by acquisitions of
businesses and special charges during certain of the periods presented which may
affect the comparability of the financial information contained below.
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales ............................................. $ 121,454 $ 197,415 $ 385,861 $ 281,845 $ 278,283
Cost of sales ......................................... 106,642 205,215 226,514 183,438 163,811
--------- --------- --------- --------- ---------
Gross profit (loss) (1) .......................... 14,812 (7,800) 159,347 98,407 114,472
--------- --------- --------- --------- ---------
Operating expenses:
Research and development (2) .......................... 28,625 42,782 32,957 22,967 23,243
Marketing and sales ................................... 10,284 14,193 14,646 13,288 12,027
General and administrative (3) ........................ 21,885 80,932 28,295 36,186 19,096
Amortization and impairment of intangibles (4) ........ 39,488 16,247 6,008 4,551 4,305
--------- --------- --------- --------- ---------
Total operating expenses ......................... 100,282 154,154 81,906 76,992 58,671
--------- --------- --------- --------- ---------
Earnings (loss) from operations ....................... (85,470) (161,954) 77,441 21,415 55,801
Interest expense ...................................... (826) (897) (1,081) (793) (2,515)
Interest income ....................................... 4,930 7,981 7,517 3,942 3,124
Other income (expense) ................................ 1,306 (370) (202) (267) (33)
--------- --------- --------- --------- ---------
Earnings (loss) before income taxes ................... (80,060) (155,240) 83,675 24,297 56,377
Income tax (benefit) expense .......................... (6,097) (49,677) 26,776 7,700 17,700
--------- --------- --------- --------- ---------
Net earnings (loss) ................................... (73,963) (105,563) 56,899 16,597 38,677
Preferred dividend .................................... 4,557 -- -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss) applicable to common stock ........ $ (78,520) $(105,563) $ 56,899 $ 16,597 $ 38,677
========= ========= ========= ========= =========
Basic earnings (loss) per common
share ............................................ $ (1.55) $ (2.17) $ 1.29 $ 0.38 $ 0.98
========= ========= ========= ========= =========
Weighted average number of common
shares outstanding ............................... 50,716 48,540 43,962 43,181 39,631
========= ========= ========= ========= =========
Diluted earnings (loss) per common
share ............................................ $ (1.55) $ (2.17) $ 1.28 $ 0.38 $ 0.95
========= ========= ========= ========= =========
Weighted average number of diluted common
shares outstanding ............................... 50,716 48,540 44,430 43,820 40,609
========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
As of May 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
BALANCE SHEET DATA (END OF YEAR): (In thousands)
<S> <C> <C> <C> <C> <C>
Working capital ............................. $183,412 $213,612 $245,870 $170,427 $165,225
Total assets ................................ 381,769 451,748 493,016 384,658 355,465
Short-term debt, including current
installments of long-term debt(5) ...... 1,154 1,067 986 912 --
Long-term debt(5) ........................... 7,886 8,947 10,011 11,000 --
Stockholders' equity(6) ..................... 335,015 396,974 415,700 338,614 317,204
OTHER DATA:
Capital expenditures......................... $ 3,077 $ 9,326 $ 6,960 $ 26,966 $ 10,240
Depreciation and amortization................ 22,835 20,776 16,816 12,558 10,152
</TABLE>
- ----------
1. Fiscal year 2000 includes charges of $12.0 million and fiscal year 1999
includes charges of $77.0 million. See Note 15 of Notes to Consolidated
Financial Statements for further information with respect to these charges.
2. Fiscal year 1999 includes charges of $1.1 million. See Note 15 of Notes to
Consolidated Financial Statements for information with respect to these
charges.
3. Fiscal year 2000 includes charges of $7.2 million, fiscal year 1999
includes charges of $53.2 million and fiscal year 1997 includes charges of
$15.6 million. See Note 15 of Notes to Consolidated Financial Statements
for information with respect to these charges in 2000 and 1999.
4. Fiscal year 2000 includes charges for $31.6 million and fiscal year 1999
includes charges of $7.7 million. See Note 15 of Notes to Consolidated
Financial Statements for information with respect to these charges.
5. See Notes 6 and 16 of Notes to Consolidated Financial Statements for
information with respect to this indebtedness and certain contingent
obligations.
6. See Note 7 of Notes to Consolidated Financial Statements for information
with respect to changes in capital structure.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis of our results of operations and
financial condition should be read in conjunction with our consolidated
financial statements and the notes thereto included elsewhere in this Form 10-K.
ANNUAL RESULTS OF OPERATIONS
INTRODUCTION
Our net sales are directly related to the level of worldwide oil and
gas exploration activity and the profitability and cash flows of oil and gas
companies and seismic contractors, which in turn are affected by expectations
regarding the supply and demand for oil and natural gas, energy prices and
finding and development costs. Oil and gas supply and demand and pricing, in
turn, are influenced by numerous factors including, but not limited to, those
described in "Cautionary Statement for Purposes of Forward-Looking Statements" -
"Continuation in Downturn in Seismic Services Industry Will Adversely Affect
Results of Operations", and "- Risk from Significant Amount of Foreign Sales
Could Adversely Affect Results of Operations".
During fiscal year 2000 and 1999, our financial performance was
adversely impacted by the deterioration in energy industry conditions and, more
specifically, in the seismic service sector. This deterioration resulted from,
among other things, a widespread downturn in
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<PAGE> 15
exploration activity due to a decline in energy prices from October 1997 to
February 1999 and consolidation among energy producers and oilfield service
firms. As a result of reduced exploration spending and a deterioration of energy
service sector conditions beginning in 1998, demand for our products has
continued to decline resulting in significantly reduced net sales, a significant
operating loss for the fiscal year ended May 31, 2000, and pretax charges
totaling $50.8 million in the first, third and fourth quarters of fiscal year
2000. Despite the recovery in commodity prices during 1999 and 2000, energy
producers' continued concerns over the sustainability of higher prices for
hydrocarbon production resulted in lower exploration budgets by energy
companies, which primarily has resulted in continued weak demand for our seismic
data acquisition equipment. Further contributing to this weak demand for new
equipment has been an industry-wide oversupply of seismic equipment in the field
and an excess inventory of seismic data in contractors' data libraries. This
weak demand coupled with pricing pressures from competitors in fiscal year 2000
have in turn weakened our margins.
INDUSTRY CONDITIONS
During fiscal year 2000, consistent with overall industry trends,
demand for our products decreased significantly due to the continued
deterioration in energy service market conditions and, more specifically, in the
seismic services sector. As a result, we recorded special charges of $50.8
million during fiscal year 2000.
In particular, the following factors adversely impacted us in fiscal
year 2000:
o The financial condition of a certain number of our customers deteriorated
significantly;
o Our principal customers - seismic service contractors - continued to reduce
their workforces and capital spending, resulting in decreased sales
opportunities for us;
o Consolidations and mergers among energy producers;
o Considerable excess seismic equipment remaining in the field, and
additional pricing pressure on our product offerings as a result of the
weak demand for our new equipment; and
o Unstable economies in developing markets forced local customers to reduce
capital spending.
Our Response. We currently believe that industry conditions will
continue to adversely impact demand for our products during the next 12 months.
As a result, we began in fiscal year 1999 and continued in fiscal year 2000
implementing initiatives in response to the downturn.
o We have taken steps to lower our cost structure by closing certain
facilities and reducing our workforce. Since August 1998, when we reached a
peak of 1,435 total full-time employees, we have reduced our full-time
workforce to 736 as of June 30, 2000.
o We are eliminating obsolete products and ancillary parts due to reduced
demand for these older generation products and as a result of product
revisions in progress.
o We began reorganizing into a more product-focused structure in fiscal year
2000 with the objective of being able to better address the special and
often different needs of marine and land customers.
FISCAL YEAR 2000 CHARGES
During the first quarter of fiscal year 2000, we recorded pretax
charges totaling $4.7 million, comprised of $3.3 million primarily related to
employee severance arrangements and the closing of our Ireland facility
(included in general and administrative expenses) and charges of
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<PAGE> 16
$1.4 million for product-related warranties (included in cost of sales). These
charges resulted from continued weak customer demand for our equipment. This
weak demand resulted from, among other things, a widespread downturn in
exploration activity due to the decline in energy prices from October 1997
through February 1999, and consolidation among energy producers.
During the third quarter of fiscal 2000, we recorded pretax charges and
recoveries totaling a net charge of $0.3 million, comprised of $8.7 million
of inventory charges (included in cost of sales) primarily related to our
decision to commercialize VectorSeis(TM) digital sensor products having higher
technical standards than the products we had previously produced. We had decided
to commercialize these earlier VectorSeis(TM) products which have since proven
not to be commercially feasible based on (1) data gathered from recent
VectorSeis(TM) digital sensor surveys, (2) the anticipated longer-term market
recovery for new seismic instrumentation and (3) current and expected market
conditions. Other charges were $2.4 million of bad debt expense related to a
marine customer (included in general and administrative expense); $1.3 million
of charges related to a 45-employee reduction in our workforce worldwide
(included in general and administrative expense); and $0.7 million of charges
related to legal settlements (included in cost of sales - $0.3 million, and in
general and administrative expense - $0.4 million). These charges were offset in
part by $12.8 million of recoveries attributable to a more favorable than
anticipated resolution of a customer's bankruptcy proceeding, consisting of a
$10.2 million reduction in our allowance for loan loss, resulting in a payment
received in March 2000 (recorded as a reduction to general and administrative
expense) and a $2.6 million reversal of warranty reserves based on the
bankruptcy settlement (recorded as a reduction to cost of sales).
During the fourth quarter of fiscal year 2000, we recorded pretax
charges totaling $45.8 million, comprised of $4.2 million of inventory and
warranty charges (included in cost of sales) primarily related to our write-down
of certain marine streamer and related products, reflecting the deterioration of
the marine towed array seismic sector. Additionally, $10.0 million was charged
to general and administrative expenses consisting of a $5.0 million charge for
settlement of the Coastline Geophysical litigation (see Item 3. - "Legal
Proceedings"); a $3.6 million loan loss expense, net of recoveries, primarily
relating to two of our land customers; $0.7 million related to the sale of
certain idle manufacturing capacity in Europe; and $0.7 million of charges
related to employee severance and continued cost reduction efforts worldwide.
Finally, $31.6 million was charged to amortization and impairment expense,
reflecting the impairment of certain goodwill recorded in conjunction with our
acquisition of: (1) the manufacturing assets of Western Geophysical in 1995 and
(2) the acquisition of CompuSeis, Inc. in 1998. The impairment of the Western
Geophysical goodwill principally reflects the diminished outlook for the marine
towed array seismic sector in general, evidenced by our customers' decisions to
reduce the size of their marine fleets, and changes in customers' preferences
and technology for certain products within that sector. The impairment of the
CompuSeis goodwill reflects the result of certain technological changes relating
to our land seismic systems. The resulting impairment charges will reduce future
goodwill amortization by an estimated $3.2 million annually.
We believe that the severance charges we have taken during fiscal year
2000 are expected to result in the following annual savings. Severance charges
in the first quarter of fiscal year 2000 are expected to result in annual
savings of approximately $3.0 million beginning with the second quarter of
fiscal year 2000. Severance charges in the third quarter of fiscal year 2000 are
expected to result in annual savings of approximately $1.7 million beginning
with the fourth quarter of fiscal year 2000.
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<PAGE> 17
Severance charges in the fourth quarter of fiscal year 2000 are expected to
result in annual savings of approximately $0.6 million beginning with the first
quarter of fiscal year 2001.
FISCAL YEAR 1999 CHARGES
During fiscal year 1999, we recorded pretax charges totaling $139.0
million in the third and fourth quarters of fiscal year 1999, resulting from
reduced customer demand for our equipment as a result of historically low
commodity prices, energy company combinations which delayed seismic data
acquisition projects and due to the continued deterioration of the financial
condition of certain customers. The reduced demand created excess capacity
within our installed base, accelerating the obsolescence of certain of our
seismic equipment.
Of the $139.0 million of pretax charges, $85.7 million was recorded in
the third quarter of fiscal year 1999 and included an impairment of long-lived
assets totaling $2.8 million included in general and administrative expenses; an
impairment of intangible assets totaling $1.4 million included in amortization
and impairment of intangibles; an inventory write-down of $47.3 million due to
the conditions described above and planned product revisions, included in cost
of sales; charges for the early termination of a facility lease and
restructuring costs totaling $2.6 million included in general and administrative
expenses; an accounts and notes receivable allowance of $17.6 million related to
a customer's vessel seizure followed by filing for creditor protection and our
assessment of business risk relating to three North American customer trade
notes receivable as a result of the depressed market environment, included in
general and administrative expenses; and a charge for warranty reserves and
other product related contingencies of $14.0 million, included in cost of sales.
The remaining pretax charges of $53.3 million were recorded in the
fourth quarter of fiscal year 1999, and included an accounts and trade notes
receivable allowance of $22.3 million, primarily related to business risk
resulting from the depressed market environment, and from political and currency
risks in certain developing countries, included in general and administrative
expenses; an inventory write-down of $9.7 million primarily due to further
reduction in customer demand for products rendered excess or obsolete as a
result of prevailing industry conditions and as a result of planned product
revisions, included in cost of sales; a charge of $6.0 million relating to
certain warranty reserves and other product-related contingencies, included in
cost of sales; an impairment of long-lived assets totaling $4.0 million related
to the downturn in business activity and our resizing efforts, included in
general and administrative expenses; an impairment of intangibles totaling $6.3
million related to the deterioration of certain product lines, included in
amortization and impairment of intangibles; a charge of $3.3 million related to
employee severances and a charge of $0.6 million for other expenses, included in
general and administrative expenses and a charge of $1.1 million primarily
related to prototype development costs, included in research and development
expenses.
We believe that the pre-tax charges taken during fiscal year 1999 are
expected to result in the following annual savings. Impairment charges for
long-lived assets and intangible assets taken in the third quarter of fiscal
year 1999 are expected to reduce annual depreciation and amortization by
approximately $1.4 million beginning with the fourth quarter of fiscal year
1999. Charges for the early termination of a lease and severance taken during
the third quarter of fiscal year 1999 are expected to reduce annual expenses by
approximately $3.2 million beginning with the fourth quarter of fiscal year
1999. Charges related to resizing the company to lower business levels in the
fourth quarter of fiscal year 1999 are expected to reduce annual expenses by
approximately $0.1 million beginning with the first quarter of fiscal year 2000.
Impairment
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<PAGE> 18
charges for intangible assets in the fourth quarter of fiscal year 1999 are
expected to reduce annual depreciation and amortization by approximately
$0.9 million beginning with the first quarter of fiscal year 2000. Severance
charges in the fourth quarter of fiscal year 1999 are expected to result in
annual savings of approximately $7.0 million beginning with the first quarter of
fiscal year 2000.
Our fiscal year 1999 inventory write-downs were determined by our
identification of obsolete and inventory part numbers for which we had
quantities in excess of a two-year supply based upon inventory usage reports and
estimated product life cycles. Our fiscal year 1999 inventory write-downs
included Marine and Land product inventories. Land inventory write-downs
included cables, vibrator trucks and other items. Marine inventory write-downs
included marine streamers, marine cables, modules, airguns and other items.
SUMMARY REVIEW AND OUTLOOK
In response to the prevailing industry conditions, we have concentrated
on lowering our cost structure, consolidating our product offerings and
reorganizing into a products-based divisional structure. During the first and
second quarters of fiscal year 2000, we closed our cable manufacturing facility
in Cork, Ireland and merged its operations into our U.K. and U.S. facilities,
allowing us to address some of our excess capacity issues. However, due to the
seismic services industry downturn being longer and more pervasive than
originally anticipated in the early part of fiscal year 2000, we have begun
evaluating additional restructuring and cost control solutions with the goal of
returning to profitability as quickly as practicable. Implementing these
solutions could result in additional charges in fiscal year 2001.
For fiscal year 2001, we foresee continued equipment oversupply in the
marine seismic fleets and continued weak demand in the marine seismic sector.
While overall demand for new seismic work currently remains low, land seismic
indicators in certain parts of the world are showing signs of recovery, which
could result in increased land seismic activity in the second half of fiscal
year 2001. We are continuing to seek improvements in our seismic data
acquisition technology. A few of the goals we are seeking to achieve during
fiscal year 2001 include commercializing our VectorSeis(TM) technology, further
development in our land seismic ground electronics, and developing product
offerings in hydrocarbon reservoir monitoring. We are also reviewing possible
alternatives to further strengthen our balance sheet, potential corporate
opportunities, and alternative applications for some of our technology. No
assurances can be made that we will implement any of these potential actions,
and if so, whether any of them will prove successful or the degree of that
success.
We presently believe that industry conditions will continue to
adversely impact demand for our products during the next 9 to 12 calendar
months. However, we also believe that the initiatives discussed above, both
previously implemented and those proposed, will better position us to return to
profitability as industry conditions improve.
NET SALES
Land division net sales for fiscal year 2000 decreased $23.1 million,
or 24%, to $73.2 million as compared to the land division's net sales of $96.3
million for the prior year. Marine division net sales for fiscal year 2000
decreased $52.8 million, or 52%, to $48.3 million as compared to the marine
division's net sales of $101.1 million for the prior year. The decline in both
the land and marine division net sales for fiscal year 2000 is attributable to
the deterioration
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<PAGE> 19
in the seismic service industry over the past 21 months, resulting in weak
demand for our seismic data acquisition equipment. See "Introduction" above.
Land division net sales for fiscal year 1999 decreased $219.8 million,
or 70% to $96.3 million as compared to Land division's net sales of $316.1
million for the prior year. Marine division net sales for fiscal year 1999
increased $31.3 million, or 45% to $101.1 million as compared to the marine
division's net sales of $69.8 million for the prior year. The decrease in Land
division net sales is primarily due to the significant decrease in demand
attributable to low commodity prices, energy industry consolidations,
significant reductions in workforce and capital spending by our customers,
destabilizing economies in developing markets and the continued deterioration of
the financial condition of certain customers. The increase in Marine division
net sales is attributed to the acquisition of DigiCourse, Inc. in October 1998.
DigiCourse, Inc. provided $33.8 million in fiscal year 1999 net sales.
GROSS PROFITS
Land division gross profit and gross profit margin for fiscal year 2000
compared to fiscal year 1999 increased to a gross profit of $6.4 million, or
8.7%, from a gross loss of $4.3 million, or (4.5%) in 1999. Land division's
gross margin for fiscal year 2000 was adversely affected by $8.7 million of
inventory charges. Land division's gross margin for fiscal year 1999 was
adversely affected by $26.0 million in domestic land inventory write-downs and
charges of $3.0 million relating to certain warranty reserves and other product
related contingencies. Excluding these charges, the land division's gross profit
margin for fiscal years 2000 and 1999 would have been 20.6% and 25.6%,
respectively.
Marine division gross profit and gross profit margin for fiscal year
2000 compared to fiscal year 1999 increased to a gross profit of $8.4 million,
or 17.4%, from a gross loss of $3.5 million or (3.5%). The marine division's
gross profit margin for fiscal year 2000 included net warranty recoveries of
$2.6 million, charges of $2.0 million for product-related warranties and $3.6
million in charges for inventory write-downs for marine streamers and related
products. The marine division's gross loss for fiscal year 1999 included $31.0
million in domestic marine inventory write-downs and charges of $17.0 million
relating to certain warranty reserves and other product related contingencies.
Excluding these charges and recoveries, the marine division's gross profit
margin for fiscal years 2000 and 1999 would have been 23.7% and 44.2%,
respectively. This decline in margins from 1999 reflects both pricing pressures
from competitors and a shift in the sales mix to predominantly lower margin
marine products.
Land division gross profit and gross profit margin for fiscal year 1999
compared to fiscal year 1998 decreased to a gross loss of $4.3 million, or
(4.5%) from a gross profit of $133.1 million, or 42.1% in 1998. Land division's
gross margin for fiscal year 1999 was adversely affected by charges of $26.0
million for inventory writedowns, and $3.0 million for warranty reserves and
other product related contingencies. Excluding these charges, land division's
gross profit would have been 25.6% for fiscal year 1999, compared to 42.1% in
1998.
Marine division gross profit and gross profit margin for fiscal year
1999 compared to fiscal year 1998 decreased to a gross loss of $3.5 million, or
(3.5%) from a gross profit of $26.2 million, or 37.7% in 1998. Marine division's
gross margin for fiscal year 1999 was adversely affected by charges of $31.0
million for inventory writedowns, and $17.0 million for warranty reserves and
other product related contingencies. Excluding these charges, marine division's
gross profit would have been 44.2% for fiscal year 1999, compared to 37.7% in
1998.
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<PAGE> 20
The land and marine division gross profit margins were adversely
affected during fiscal years 2000 and 1999 by pricing pressures attributable to
weak customer demand for our products and manufacturing under-absorption due to
low production volumes as a result of the prevailing industry conditions. Our
gross profit margin for any particular reporting period is dependent on the
product mix sold and the pricing scheme for the products sold for that period
and may vary materially from period to period.
RESEARCH AND DEVELOPMENT
Fiscal year 2000 research and development expenses were $28.6 million,
a decrease of $14.2 million, or 33%, compared to fiscal year 1999, primarily due
to reduced costs and expenditures for salaries and other payroll related items,
contract labor, outside services and product development.
Fiscal year 1999 research and development expenses were $42.8 million,
an increase of $9.8 million, or 30%, over fiscal year 1998, primarily resulting
from expenses related to acquisitions, increased contract labor and outside
engineering services related to advanced systems design, and prototype
development costs.
MARKETING AND SALES
Fiscal year 2000 marketing and sales expenses were $10.3 million, a
decrease of $3.9 million, or 28%, compared to fiscal year 1999 primarily due to
reduced costs and expenditures for salaries, commissions and other payroll
related items, travel, advertising and conventions and exhibits. This decrease
was principally attributable to our cost reduction program and reduced net
sales.
Fiscal year 1999 marketing and sales expenses were $14.2 million, a
decrease of $453,000, or 3%, compared to fiscal 1998 primarily resulting from
decreased internal and third party commissions attributable to the significant
decline in sales, offset in part by increased expenses related to acquisitions.
GENERAL AND ADMINISTRATIVE
Fiscal year 2000 general and administrative expenses were $21.9
million, a decrease of $59.0 million, or 73%, compared to fiscal year 1999.
Fiscal year 1999 expenses included special charges totaling $53.2 million. In
fiscal year 2000, we recorded $23.6 million of loan loss recoveries and recorded
lower expenditures for salaries and other payroll related items, outside
services, insurance and other taxes. This decrease was mitigated in part by
fiscal year 2000 charges of $11.1 million consisting of $5.0 million for
settlement of a lawsuit, $5.4 million related to employee severance
arrangements, and $0.7 million related to the closing of our Ireland facility.
Excluding the special charges for fiscal years 2000 and 1999, general and
administrative expenditures were $14.7 million, a decrease of $13.0 million, or
47% compared to fiscal year 1999.
Fiscal year 1999 general and administrative expenses were $80.9
million, an increase of $52.6 million, or 186%, over fiscal year 1998, primarily
due to charges of $53.2 million incurred in fiscal year 1999 for accounts and
notes receivable allowance, impairment of long-lived assets, early termination
of a lease, restructuring costs and employee severances. Excluding the fiscal
year 1999 charges, the Company's general and administrative expenditures were
$27.7 million, a decrease of $0.6 million, or 2%, compared to fiscal year 1998.
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<PAGE> 21
AMORTIZATION AND IMPAIRMENT OF IDENTIFIED INTANGIBLES
Fiscal year 2000 amortization and impairment of intangibles was $39.5
million, an increase of $23.2 million, or 143%, compared to fiscal year 1999.
The increase was principally the result of special charges for intangible asset
impairment totaling $31.6 million. Excluding the special charges for fiscal
years 2000 and 1999, amortization of identified intangibles decreased to $7.9
million, a decrease of $0.6 million or 7% from fiscal year 1999. The decrease
was attributed to intangibles that were impaired in 1999.
Fiscal year 1999 amortization and impairment of identified intangibles
was $16.2 million, an increase of $10.2 million, or 170%, over fiscal year 1998
primarily due to charges of $7.7 million incurred in fiscal year 1999 due to
impairment of intangibles. Excluding the fiscal year 1999 charges, our
amortization of identified intangibles was $8.5 million, an increase of $2.5
million, or 42%, over fiscal year 1998 due to increased intangibles amortization
resulting from acquisitions.
OPERATING INCOME
The fiscal year 2000 loss from operations was $85.5 million, an
improvement of $76.5 million, or 47%, compared to the loss in fiscal year 1999
primarily due to reductions in operating expenses and reductions in special
charges from $139.0 million in fiscal year 1999 to $50.8 million in fiscal year
2000. Excluding these special charges, our loss from operations in fiscal year
2000 was $34.7 million.
Fiscal year 1999 loss from operations was $162.0 million, a decrease of
$239.4 million, or 309%, compared to fiscal year 1998 results, primarily due to
$139.0 million of charges incurred in fiscal year 1999 discussed above.
Excluding fiscal year 1999 charges, our loss from operations was $23.0 million,
a decrease of $100.4 million, or 130%, compared to fiscal year 1998 earnings
from operations of $77.4 million, primarily due to decreased sales and gross
profit margins attributable to the decrease in demand for seismic equipment and
the increased operating expenses.
INTEREST EXPENSE
Interest expense was $826,000 in fiscal year 2000, a decrease of
$71,000, or 8% from fiscal year 1999. Interest expense was $897,000 in fiscal
year 1999, a decrease of $184,000, or 17% from the fiscal year 1998. The
interest expense is attributed to our ten-year-term facilities financing and the
decrease is a result of amortization of the principal amount of this debt.
INTEREST INCOME
Fiscal year 2000 interest income was $4.9 million, a decrease of $3.1
million or 38% compared to fiscal year 1999. Interest income on customer notes
receivable decreased by $5.1 million compared to fiscal year 1999 to $0.3
million due to impairments and other reductions in notes receivable balances.
Income from investments increased $1.8 million to $4.7 million as a result of
higher average cash balances on hand during the year.
Fiscal year 1999 interest income was $8.0 million, an increase of $0.5
million or 6% compared to fiscal year 1998. Interest income on customer notes
receivable decreased by $1.2 million compared to fiscal year 1998 to $5.1
million due to impairments and other reductions in notes receivable balances
during the year. Income from investments increased $1.7 million to $2.9 million
as a result of higher average cash balances on hand during the year.
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INCOME TAX EXPENSE
The effective tax rate for fiscal years 2000, 1999 and 1998 was
approximately 7.6%, 32.0% and 32.0%, respectively. See Note 10 of Notes to
Consolidated Financial Statements. In assessing the realizability of deferred
income tax assets, we consider whether it is more likely than not that some
portion or all of the deferred income tax assets will be realized. The ultimate
realization of deferred income tax assets is dependent upon the generation of
future taxable income during the periods in which those deferred income tax
assets become deductible. We consider the scheduled reversal of deferred income
tax liabilities and projected future taxable income in making this assessment.
In order to fully realize the deferred income tax assets, we will need to
generate future taxable income of approximately $165 million over the next 20
years. Although we experienced significant losses in fiscal years 2000 and 1999,
our taxable income for the years 1996 through 1998 aggregated approximately $128
million. Based on the level of historical income prior to fiscal year 1999 and
our projections of future taxable income over the periods that the deferred
income tax assets are deductible and the expiration date of the net operating
loss carry-forward, we believe it is more likely than not that we will realize
the benefits of the deferred income tax assets, net of the valuation allowance
at May 31, 2000. The ultimate realization of the net deferred tax asset, prior
to the expiration of the net operating loss carry-forward in the next 19-20
years, will require significant improvements in our results of operations from
fiscal years 1999 and 2000 levels and a return to levels of profitability that
existed prior to fiscal year 1999. The amount of deferred income tax assets
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carry-forward period are reduced. If a
reduction in the net deferred tax asset determined to be more likely than not
realizable occurs in the near term, it is likely that this adjustment will
have a material adverse effect on our results of operations. Finally, we do not
expect to be in a position to recognize any deferred tax benefits in fiscal year
2001 if we incur losses, which may result in a negative impact when comparing
quarterly results for fiscal year 2001 with fiscal year 2000.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends for fiscal year 2000 are related to our
outstanding Series B and Series C Preferred Stock. The dividends are recognized
as a charge to retained earnings at the rate of 8% per annum, compounded
quarterly (of which 7% is accounted for as accrued dividends and 1% is paid as a
quarterly cash dividend). The preferred stock dividend charge for fiscal year
2000 was $4.6 million. There were no preferred stock dividends for fiscal year
1999.
LIQUIDITY AND CAPITAL RESOURCES
General. We have traditionally financed our operations from internally
generated cash, working capital credit facilities and funds from equity
financings. Our cash and cash equivalents were $99.2 million at May 31, 2000, an
increase of $27.9 million, or 39%, as compared to fiscal year 1999. The increase
is due to the August 1999 sale of 15,000 shares of Series C Preferred Stock in a
privately negotiated transaction to SCF-IV L.P., for which we received net
proceeds of approximately $14.8 million, and positive cash flows from operating
activities for fiscal year 2000.
Cash flows from operating activities before changes in working capital
items were a negative $27.3 million for the year ended May 31, 2000. Cash flows
from operating activities after changes in working capital items were $18.4
million for the year ended May 31, 2000, primarily due to reductions in notes
receivable and inventories and collection of an income tax
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refund, offset in part by fiscal year 2000 operating losses and decreases in
levels of accounts payable and accrued expenses. Cash flows from operating
activities in fiscal year 1999 after changes in working capital items, were a
negative $24.8 million. Our various working capital accounts can vary in amount
substantially from period to period depending upon our levels of sales, product
mix sold, demand for our products, percentages of cash versus credit sales,
collection rates, inventory levels and general economic and industry factors.
Cash flows used in investing activities were $3.1 million for the year
ended May 31, 2000 compared to $15.6 million in the prior year. The decrease in
cash used in investing activities is due to the fact that no cash was used for
business acquisitions in fiscal year 2000, and reduced expenditures for
property, plant and equipment.
Cash flows from financing activities were $12.7 million for the year
ended May 31, 2000, compared to $39.7 million in fiscal year 1999. The decrease
in cash provided by financing activities is primarily due to the $14.8 million
of net proceeds we received from the sale of 15,000 shares of Series C Preferred
Stock to SCF-IV L. P. in August 1999. We received $39.5 million of net proceeds
from the sale of 40,000 shares of Series B Preferred Stock to SCF-IV L. P. in
May 1999.
Long Term Indebtedness. In 1996, we obtained a $12.5 million ten-year
term mortgage loan to finance the construction of our electronics manufacturing
facility in Stafford, Texas. The loan is secured by land, buildings and
improvements, including our executive and research and development headquarters
as well as the adjacent manufacturing facility. The mortgage loan bears interest
at the fixed rate of 7.875% per annum and is repayable in equal monthly
installments of principal and interest of $151,439. The promissory note contains
certain prepayment penalties. As of May 31, 2000, $9.0 million in indebtedness
was outstanding under this mortgage loan.
Capital Expenditures. Capital expenditures for property, plant and
equipment totaled $3.1 million for fiscal year 2000 and are expected to
aggregate $8.0 million for fiscal year 2001. The planned expenditures include
the purchase of advanced manufacturing machinery and additional equipment for
our rental fleet. We believe that the combination of our existing working
capital, current cash in place and access to other financing sources will be
adequate to meet our anticipated capital and liquidity requirements for the
foreseeable future.
Credit Agreement. We terminated our outstanding credit agreement during
the first quarter of fiscal year 2000. While we believe that we would be able to
negotiate a credit facility or facilities with similar lenders, we believe that
the terms currently available would not be as advantageous as future terms may
be when we may then require a facility. We do not anticipate the need for a
credit facility at the present time, but anticipate securing a facility or
facilities in the future at a time when the proposed terms are more likely to be
more advantageous for us.
YEAR 2000
We experienced no operational problems as a result of the change over
of the date 1999 to 2000. We have not incurred to date, and do not expect to
incur in the future, any material expenditures in connection with identifying,
evaluating or remediating Year 2000 compliance issues. Most of our expenditures
to date have related to the opportunity cost of time spent by our employees
evaluating and remediating our Year 2000 issues for the hardware and software
products sold by us, the information technology systems used in our operations
and our non-IT Systems or embedded technology, such as building security, voice
mail and other systems. We estimate that less than $250,000 was spent in the
aggregate on our Year 2000 compliance efforts.
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RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), as amended by SFAS
No. 137 and SFAS No. 138, was issued by the Financial Accounting Standards Board
in June 1998. SFAS 133 standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts. Under the
standard, entities are required to carry all derivative instruments in the
statement of financial position at fair value. We will adopt SFAS 133 beginning
in fiscal year 2002. We do not expect the adoption of SFAS 133 will have a
material effect on our financial condition or results of operation because we
historically have not entered into derivative or other financial instruments for
trading or speculative purposes nor do we use or intend to use derivative
financial instruments or derivative commodity instruments.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB No. 101"). SAB No. 101 summarizes the SEC staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
We understand that the SEC staff is preparing a document to address significant
implementation issues related to SAB No. 101. To the extent that SAB No. 101
ultimately changes our revenue recognition practices, we are required to adopt
SAB No. 101 no later than the quarter beginning March 1, 2001, with any
cumulative effect adjustment computed as of June 1, 2000. We cannot determine
the potential impact that SAB No. 101 may have on our consolidated financial
position or results of operations at this time. Additionally, we have not
determined if we will adopt SAB No. 101 early.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation: an Interpretation of APB
Opinion No. 25. Among other issues, Interpretation No. 44 clarifies the
application of Accounting Principles Board Opinion No. 25 (APB No. 25) regarding
(a) the definition of employee for purposes of applying APB No. 25, (b) the
criteria for determining whether a plan qualifies as a non-compensatory plan,
(c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock options in a business combination. The provisions of Interpretation No.
44 affecting us are to be applied on a prospective basis effective July 1, 2000.
OTHER FACTORS
Market Conditions. Demand for our products is dependent upon the level
of worldwide oil and gas exploration and development activity and the
availability of seismic information in seismic libraries. Exploration and
development activity is primarily dependent upon oil and gas prices, which have
been subject to wide fluctuation in recent years. During fiscal years 2000 and
1999, our financial performance was adversely impacted by the deterioration in
the seismic services industry. This deterioration resulted from, among other
things, a widespread downturn in exploration activity due to a decline in energy
prices from October 1997 to February 1999, consolidation among energy producers
and oilfield services firms and an oversupply of speculative seismic data and
current-generation seismic instrumentation in the field. Despite the recovery in
commodity prices, the factors of increased competition and pricing pressures and
the oversupply of seismic data and current-generation instrumentation have
resulted in continued weak demand for our seismic data acquisition equipment.
Credit Risk. A continuation of weak demand for the services of our
customers will further strain the revenues and cash resources of our customers,
thereby resulting in lower sales
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levels and a higher likelihood of defaults in the customers' timely payment of
their obligations under our credit sales arrangements. Increased levels of
payment defaults with respect to our credit sales arrangements could have a
material adverse effect on our results of operations.
Our combined gross trade accounts receivable and trade notes receivable
balance as of May 31, 2000 from customers in Russia and other former Soviet
Union countries was approximately $15.1 million and was approximately $9.5
million from customers in Latin American countries. As of May 31, 2000 the total
allowance for doubtful accounts (foreign and US) was $1.6 million and the
allowance for loan losses was $13.7 million. During fiscal year 2000, there were
$16.4 million of sales to customers in Russia and other former Soviet Union
countries (substantially all based on cash sales backed by irrevocable letters
of credit), $1.9 million of sales to customers in Latin American countries and
$19.8 million of sales to customers in China. All terms of sale for these
foreign receivables are denominated in US dollars. Russia and certain Latin
America countries have experienced economic problems and uncertainties and
devaluations of their currencies in recent years. To the extent that economic
conditions in the Former Soviet Union, Latin America, China or elsewhere
negatively affect future sales to our customers in those regions or the
collectibility of our existing receivables, our future results of operations,
liquidity and financial condition may be adversely affected.
See Note 3 and Note 9 of the Notes to Consolidated Financial Statements
and "- Cautionary Statement for Purposes of Forward-Looking Statements -
Continuation of Downturn in Seismic Services Industry Will Adversely Affect
Results of Operations and Financial Condition," "- Significant Payment Defaults
Under Sales Arrangements Could Adversely Affect the Company" and "- Risk from
Significant Amount of Foreign Sales Could Adversely Affect Results of
Operations".
Conversion to the Euro Currency. On January 1, 1999, certain members of
the European Union established fixed conversion rates between their existing
currencies and the European Union's common currency, the Euro. We own facilities
and manufacture components for our systems in one member country. The transition
period for the introduction of the Euro is between January 1, 1999 and June 30,
2002. We continue to address the issues involved with the introduction of the
Euro. The more important issues facing us include: converting information
technology systems; reassessing currency risk; and processing tax and accounting
records.
Based on our progress to date in reviewing this matter, and the fact
that our sales to customers are denominated in US dollars, we believe that the
introduction of the Euro has not and will not have a significant impact on the
manner in which we conduct our business affairs and process our business and
accounting records. Therefore, we anticipate that conversion to the Euro should
not have a material effect on our financial condition or results of operations.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in this Annual Report on Form 10-K
(including statements contained in Item 1. "Business", Item 3. "Legal
Proceedings" and Item 7. "Management's Discussion and Analysis of Results of
Operation and Financial Condition"), as well as other written and oral
statements made or incorporated by reference from time to time by us and our
representatives in other reports, filings with the Securities and Exchange
Commission, press releases, conferences, or otherwise, may be deemed to be
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 and are subject to the "Safe Harbor" provisions of that
section. This information includes, without limitation, statements concerning
future results of operation, future revenues, future costs and expenses, future
margins
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and write-downs and special charges and savings and benefits therefrom;
anticipated capabilities of products planned or under development; future demand
for our products; anticipated product releases and technological advances; the
future mix of business and future asset recoveries; the realization of deferred
tax assets; the effect of changes in accounting standards on our results of
operation and financial condition; the effect of the Euro's introduction; the
Company's Year 2000 issues; the inherent unpredictability of adversarial
proceedings and other contingent liabilities; future capital expenditures and
our future financial condition; future energy industry and seismic services
industry conditions; and world economic conditions, including that in Former
Soviet Union, Latin America and Asian countries. These statements are based on
current expectations and involve a number of risks and uncertainties, including
those set forth below and elsewhere in this Annual Report on Form 10-K. Although
we believe that the expectations reflected in such forward-looking statements
are reasonable, we can give no assurance that such expectations will prove to be
correct.
When used in this report, the words "anticipate," "estimate," "expect,"
"may," "project" and similar expressions are intended to be among the statements
that identify forward-looking statements. Important factors which could affect
our actual results and cause actual results to differ materially from those
results which might be projected, forecast, estimated or budgeted by us in such
forward-looking statements include, but are not limited to, the following:
CONTINUATION OF DOWNTURN IN SEISMIC SERVICES INDUSTRY WILL ADVERSELY
AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION. Demand for our products is
dependent upon the level of worldwide oil and gas exploration and development
activity. This activity in turn is primarily dependent upon oil and gas prices,
which have been subject to wide fluctuation in recent years in response to
changes in the supply and demand for oil and natural gas, market uncertainty and
a variety of additional factors that are beyond our control. Worldwide oil
prices declined from October 1997 and remained at lower levels through February
1999. Despite the recovery in commodity prices, energy producers' continuing
concerns over the sustainability of higher prices for hydrocarbon production
resulted in lower exploration budgets by energy companies, which has resulted in
weak demand for our seismic data acquisition equipment. Other factors which have
negatively impacted demand for our products have been the weakened financial
condition of many of our customers, consolidations among energy producers and
oilfield service and equipment providers, an oversupply in the marketplace of
current-generation seismic equipment, a current industry-wide oversupply of
"spec" seismic data, pricing pressures from our competitors and customers, and
the destabilized economies in many developing countries. Despite higher prices
for oil and natural gas since February 1999, it is expected that any turnaround
for the seismic equipment market will occur later than for other sectors of the
energy services industry.
It is impossible to predict the length of the downturn for the seismic
equipment market with any certainty. A further prolonged downturn in market
demand for our products will have a material adverse effect on our results of
operation and financial condition. No assurances can be given as to future
levels of worldwide oil and natural gas prices, the future level of activity in
worldwide oil and gas exploration and development and their relationship(s) to
the demand for our products. Additionally, no assurances can be given that our
efforts to reduce and contain costs will be sufficient to offset the effect of
the expected continued lower levels of our net sales until industry conditions
improve.
FAILURE TO DEVELOP PRODUCTS AND KEEP PACE WITH TECHNOLOGICAL CHANGE
WILL ADVERSELY AFFECT RESULTS OF OPERATIONS. The markets for our product lines
are characterized by rapidly changing technology and frequent product
introductions. Whether we can develop and
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produce successfully, on a timely basis, new and enhanced products that embody
new technology, meet evolving industry standards and practice, and achieve
levels of capability and price that are acceptable to our customers, will be
significant factors in our ability to compete in the future. During the third
quarter of fiscal year 2000, we recorded $8.7 million of inventory charges
primarily related to our decision then to commercialize VectorSeis(TM) digital
sensor products having higher technical standards than the products we had
previously produced. We had previously decided to commercialize earlier-stage
VectorSeis(TM) products, which subsequently were proven not to be commercially
feasible based on data gathered from VectorSeis(TM) digital sensor surveys, the
anticipated longer-term market recovery for new seismic instrumentation and
then-current and expected market conditions.
There can be no assurance that we will not encounter resource
constraints or technical or other difficulties that could delay introduction of
new products in the future. No assurances can be given as to whether any new
products incorporating the VectorSeis(TM) digital sensor (or any other of our
technology product introductions or enhancements) will be commercially feasible
or accepted in the marketplace by our present or future customers. If we are
unable, for technological or other reasons, to develop competitive products in a
timely manner in response to changes in the seismic data acquisition industry or
other technological changes, our business and operating results will be
materially and adversely affected. In addition, our continuing development of
new products inherently carries the risk of inventory obsolescence with respect
to our older products. Updates and upgrades in our product offerings through
newly introduced products and product lines, whether internally developed or
obtained through acquisitions, carry with them the potential for customer
concerns of product reliability, which may have the effect of lessening customer
demand for those products.
PRESSURE FROM COMPETITORS COULD ADVERSELY AFFECT RESULTS OF OPERATIONS.
The market for seismic data acquisition systems and seismic instrumentation is
highly competitive and is characterized by continual and rapid changes in
technology. Our principal competitors for land seismic equipment are, among
others: Fairfield Industries; Geo-X Systems, Limited; JGI Incorporated; OYO
Geospace Corporation; and Societe d'Etudes Recherches et Construction
Electroniques (Sercel), an affiliate of Compagnie General de Geophysique (CGG).
Our principal marine seismic competitors are, among others, Bolt Technology
Corporation; GeoScience Corporation (GSI), an affiliate of CGG; Teledyne Brown
Engineering, an affiliate of Allegheny Teledyne Company; and Thomson Marconi
Sonar P/L. Unlike us, Sercel and GSI possess the advantage of being able to sell
to an affiliated seismic contractor.
Competition in the industry is expected to intensify and could
adversely affect our future results. Several of our competitors have greater
name recognition, more extensive engineering, manufacturing and marketing
capabilities, and greater financial, technological and personnel resources than
those available to us. In addition, certain companies in the industry have
expanded and improved their product lines or technologies in recent years. There
can be no assurance that we will be able to compete successfully in the future
with existing or new competitors. Pressures from competitors offering
lower-priced products or products employing new technologies could result in
future price reductions and lower margins for our products.
A continuing trend toward consolidation, concentrating buying power in
the oil field services industry, will have the effect of adversely affecting the
demand for our products and services.
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RISK FROM SIGNIFICANT AMOUNT OF FOREIGN SALES COULD ADVERSELY AFFECT
RESULTS OF OPERATIONS. Sales outside the United States have historically
accounted for a significant part of our net sales. Foreign sales are subject to
special risks inherent in doing business outside of the United States, including
the risk of war, civil disturbances, embargo, and government activities, which
may disrupt markets and affect operating results. Foreign sales are also
generally subject to the risks of compliance with additional laws, including
tariff regulations and import/export restrictions. U.S. technology export
restrictions may affect the types and specifications of products we may export.
We are, from time to time, required to obtain export licenses and there can be
no assurance that we may not experience difficulty in obtaining such licenses as
may be required in connection with export sales.
Demand for our products from customers in developing countries
(including Russia and other Former Soviet Union countries as well as certain
Latin American and Asian countries, including China) is difficult to predict and
can fluctuate significantly from year to year. We believe that these changes in
demand result primarily from the instability of economies and governments in
certain developing countries, changes in internal laws and policies affecting
trade and investment, and because those markets are only beginning to adopt new
technologies and establish purchasing practices. These risks may adversely
affect our future operating results and financial position. In addition, sales
to customers in developing countries on extended terms present heightened credit
risks for us, for the reasons discussed above. See, in particular above,
"- Other Considerations" for further information concerning these risks in those
countries.
We are also required to convert to the Euro currency at our facility
located in one of the European Union member countries and although we do not
currently anticipate any problems with such conversion, there can be no
assurances that the problems actually encountered by us in the Euro conversion
will not be more pervasive than those anticipated by management.
DEPENDENCE ON KEY AND TECHNICAL PERSONNEL. Our success depends upon the
continued contributions of our personnel, particularly our management personnel,
many of whom would be difficult to replace. Our success will depend on our
abilities to attract and retain skilled employees. Changes in personnel,
particularly technical personnel, therefore, could adversely affect operating
results. In addition, continued changes in management personnel could have a
disruptive effect on employees which could, in turn, adversely affect operating
results.
LOSS OF SIGNIFICANT CUSTOMERS WILL ADVERSELY AFFECT US. A relatively
small number of customers have accounted for most of our net sales, although the
degree of sales concentration with any one customer has varied from fiscal year
to year. During fiscal years 2000, 1999 and 1998 the three largest customers in
each of those years accounted for 41%, 52% and 43%, respectively, of our net
sales. The loss of these customers or a significant reduction in their equipment
needs could have a material adverse effect on our net sales and results of
operations.
SIGNIFICANT PAYMENT DEFAULTS UNDER SALES ARRANGEMENTS COULD ADVERSELY
AFFECT THE COMPANY. We sell to many customers on extended-term arrangements.
Significant payment defaults by customers could have a material adverse effect
on our financial position and results of operations.
RISKS RELATED TO GROSS MARGIN. Our gross margin percentage is a
function of the product mix sold in any period. Increased sales of lower margin
equipment and related components in the overall sales mix may result in lower
gross margins. Other factors, such as heightened price competition, unit
volumes, inventory obsolescence, increased warranty costs
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and other product related contingencies, changes in sales and distribution
channels, shortages in components due to untimely supplies or inability to
obtain items at reasonable prices, unavailability of skilled labor and
manufacturing under-absorption due to low production volumes, may also continue
to affect the cost of sales and the fluctuation of gross margin percentages in
future periods and results of operations.
RISKS RELATED TO YEAR 2000 ISSUES. The problems actually encountered by
us with regards to Year 2000 issues may be more pervasive than those encountered
to date or anticipated by management, and if so, could have adverse effects on
our operations, results of operations or financial condition. See "- Year 2000."
FAILURE TO PROTECT INTELLECTUAL PROPERTY WILL ADVERSELY AFFECT OUR
OPERATIONS. We believe that technology is a primary basis of competition in the
industry. Although we currently hold certain intellectual property rights
relating to our product lines, there can be no assurance that these rights will
not be challenged by third parties or that we will obtain additional patents or
other intellectual property rights in the future. Additionally, there can be no
assurance that our efforts to protect our trade secrets will be successful or
that others will not independently develop products similar to our products or
design around any of the intellectual property rights owned by us, or that we
will be precluded by others' patent claims.
DISRUPTION IN VENDOR SUPPLIES WILL AFFECT FINANCIAL RESULTS. Our
manufacturing process requires a high volume of quality components. Certain
components used by us are currently provided by only one supplier. In the
future, we may, from time to time, experience supply or quality control problems
with our suppliers, and such problems could significantly affect our ability to
meet production and sales commitments. Our reliance on certain suppliers, as
well as industry supply conditions generally, involve several risks, including
the possibility of a shortage or a lack of availability of key components,
suppliers' Year 2000 non-compliance, increases in component costs and reduced
control over delivery schedules, any of which could adversely affect our future
financial results.
RISKS RELATED TO GOVERNMENT REGULATIONS AND PRODUCT CERTIFICATION. Our
operations are also subject to laws, regulations, government policies, and
product certification requirements worldwide. Changes in such laws, regulations,
policies, or requirements could affect the demand for our products or result in
the need to modify products, which may involve substantial costs or delays in
sales and could have an adverse effect on our future operating results. Certain
countries are subject to restrictions, sanctions and embargoes imposed by the US
Government. These restrictions, sanctions and embargoes prohibit or limit us and
our domestic subsidiaries from participating in certain business activities in
those countries. These constraints may adversely affect our opportunities for
business in those countries.
RISKS RELATED TO TIMING OF PRODUCT SHIPMENTS COULD RESULT IN
SIGNIFICANT QUARTERLY FLUCTUATIONS. Due to the relatively high sales price of
many of our products and relatively low unit sales volume, the timing in the
shipment of systems and the mix of products sold can produce fluctuations in
quarter-to-quarter financial performance. One of the factors, which may affect
our operating results from time to time, is that a substantial portion of our
net sales in any period may result from shipments during the latter part of a
period. Because we establish our sales and operating expense levels based on our
operational goals, if shipments in any period do not meet goals, net sales and
net earnings may be adversely affected.
STOCK VOLATILITY AND ABSENCE OF DIVIDENDS MAY ADVERSELY AFFECT OUR
STOCK PRICE. In recent years, the stock market in general and the market for
energy and technology stocks in
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particular, including our Common Stock, have experienced extreme price
fluctuations. The sales price for our Common Stock has declined from $22 per
share at May 29, 1998 to $7 7/8 per share at May 31, 2000 (based on New York
Stock Exchange composite tape closing sales prices). There is a risk that future
stock price fluctuations could impact our operations. Continued depressed prices
for our Common Stock (and further price declines) could affect our ability to
successfully attract and retain qualified personnel, complete desirable business
combinations or accomplish financing or similar transactions in the future. We
have historically not paid, and do not intend to pay in the foreseeable future,
cash dividends on our Common Stock.
RISKS RELATED TO ACQUISITIONS. We may make further acquisitions in the
future. Acquisitions require significant financial and management resources both
at the time of the transaction and during the process of integrating the newly
acquired business into our operations. Our operating results could be adversely
affected if we are unable to successfully integrate these new companies into our
operations. Structural changes in our internal organization, which may result
from acquisitions, may not always produce the desired financial or operational
results.
Certain acquisitions or strategic transactions may be subject to
approval by the other party's shareholders, United States or foreign
governmental agencies, or other third parties. Accordingly, there is a risk that
important acquisitions or transactions could fail to be concluded as planned.
Future acquisitions by us could also result in issuance of equity securities or
the rights associated with the equity securities, which could potentially dilute
our earnings per share. In addition, future acquisitions could result in the
incurrence of additional debt, taxes, or contingent liabilities, and
amortization expenses related to goodwill and other intangible assets. These
factors could adversely affect our future operating results and financial
position.
THE FOREGOING REVIEW OF FACTORS PURSUANT TO THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 SHOULD NOT BE CONSTRUED AS EXHAUSTIVE. IN ADDITION
TO THE FOREGOING, WE WISH TO REFER READERS TO OTHER FACTORS DISCUSSED ELSEWHERE
IN THIS REPORT AS WELL AS OUR OTHER FILINGS AND REPORTS WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR A FURTHER DISCUSSION OF RISKS AND UNCERTAINTIES WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN
FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE
RESULT OF ANY REVISIONS TO ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH MAY BE
MADE TO REFLECT THE EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT
THE OCCURRENCE OF UNANTICIPATED EVENTS.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may be, from time to time, exposed to market risk, which is the
potential loss arising from adverse changes in market prices and rates. We
traditionally have not entered into derivative or other financial instruments
for trading or speculative purposes nor do we use or intend to use derivative
financial instruments or derivative commodity instruments. We are not currently
a borrower under any material credit arrangements which feature fluctuating
interest rates. Our market risk could arise from changes in foreign currency
exchange rates. Our sales and financial instruments are principally denominated
in US dollars.
29
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item begin at page F-1
hereof.
Form 11-K Information. Pursuant to Rule 15d-21 promulgated under the
Securities Exchange Act of 1934, as amended, we will file as an amendment to
this Annual Report on Form 10-K the information, financial statements and
exhibits required by Form 11-K with respect to the Input/Output, Inc. Employee
Stock Purchase Plan.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is contained in our definitive
Proxy Statement to be distributed in connection with our 2000 Annual Meeting of
Stockholders under the captions "Management" and "Voting and Stock Ownership of
Management and Principal Stockholders" 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 2000 Annual Meeting of
Stockholders under the caption "Remuneration of Directors and Officers" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained in our definitive
Proxy Statement to be distributed in connection with our 2000 Annual Meeting of
Stockholders under the caption "Voting and Stock Ownership of Management and
Principal Stockholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is contained in our definitive
proxy statement to be distributed in connection with our 2000 Annual Meeting of
Stockholders under the captions "Remuneration of Directors and Officers -
Employment and Consulting Agreements" and "Certain Transactions" and is
incorporated herein by reference.
30
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED.
(1) Financial Statements:
The financial statements filed as part of this report are listed in
the "Index to Consolidated Financial Statements" on page F-1 hereof.
(2) Financial Statement Schedules:
The following financial statement schedule is included as part of this
Annual Report on Form 10-K:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements or noted
therein.
(3) Exhibits:
3.1 Amended and Restated Certificate of Incorporation, filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995 and incorporated herein by
reference.
3.2 Certificate of Amendment to the Amended and Restated
Certificate of Incorporation, dated October 11, 1996, filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1997 and incorporated herein
by reference.
3.3 Amended and Restated Bylaws, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1995 and incorporated herein by reference.
3.4 Amendment No. 1 to the Amended and Restated Bylaws of the
Company, dated September 13, 1999, filed as exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1999 and incorporated herein by reference.
4.1 Form of Certificate of Designation, Preferences and Rights of
Series A Preferred Stock of Input/Output, Inc., filed as
Exhibit 2 to the Company's Registration Statement on Form 8-A
dated January 27, 1997 (attached as Exhibit 1 to the Rights
Agreement referenced in Exhibit 10.24) and incorporated herein
by reference.
4.2 Form of Certificate of Designation, Preferences and Rights of
Series B Preferred Stock of Input/Output, Inc., filed as
Exhibit 4.1 to the Company's Form 8-K dated April 21, 1999 and
incorporated herein by reference.
31
<PAGE> 33
4.3 Form of Certificate of Designation, Preferences and Rights of
Series C Preferred Stock of Input/Output, Inc., filed as
Exhibit 4.2 to the Company's Form 8-K dated April 21, 1999 and
incorporated herein by reference.
10.2 Royalty Agreement, dated November 6, 1992, between I/O
Sensors, Inc., Triton and Triton Technologies, Inc., filed as
exhibit 10.2 to the Company's 10-K for fiscal year ended May
31, 1999 and incorporated herein by reference.
**10.3 1990 Restricted Stock Plan, filed as Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1995 and incorporated herein by reference.
**10.4 Amended and Restated 1990 Stock Option Plan, filed as Exhibit
4.2 to the Company's Registration Statement on Form S-8
(Registration No. 333-80299), filed with the Securities and
Exchange Commission on June 9, 1999 and incorporated herein by
reference.
**10.5 Input/Output, Inc. 1996 Management Incentive Program, filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1997 and incorporated herein by
reference.
10.6 Input/Output, Inc. 401(k) Plan, filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1995 and incorporated herein by reference.
**10.7 Amended Directors Retirement Plan, filed as Exhibit 10.7 to
the Company's Annual Report on form 10-K for the fiscal year
ended May 31, 1997 and incorporated herein by reference.
**10.8 Amended and Restated 1991 Directors Stock Option Plan, filed
as Exhibit 4.3 to the Company's Registration Statement on Form
S-8 (Registration No. 33-85304) filed with the Securities and
Exchange Commission on October 19, 1994, and incorporated
herein by reference.
**10.9 Amendment to the Amended and Restated 1991 Directors Stock
Option Plan, filed as Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1997 and
incorporated herein by reference.
**10.10 Supplemental Executive Retirement Plan, filed as Exhibit 10.10
to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1997 and incorporated herein by reference.
**10.11 Amendment No. 1 to the Company's Supplemental Executive
Retirement Plan, effective January 17, 1997, filed as Exhibit
10.11 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997 and incorporated herein by
reference.
**10.12 Supplemental Executive Retirement Trust, filed as Exhibit
10.12 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997 and incorporated herein by
reference.
32
<PAGE> 34
**10.13 Amendment No. 1 to the Company's Supplemental Executive
Retirement Trust, effective January 17, 1998, filed as Exhibit
10.13 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997 and incorporated herein by
reference.
10.20 Promissory Note dated August 29, 1996 executed by IPOP
Management, Inc. to the order of The Variable Annuity Life
Insurance Company, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1996 and incorporated herein by reference.
10.21 Master Commercial Lease Agreement dated August 29, 1996, by
and between IPOP Management, Inc. and The Variable Annuity
Life Insurance Company, filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1996 and incorporated herein by reference.
10.22 Limited Guaranty dated August 29, 1996, executed by
Input/Output, Inc., filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1996 and incorporated herein by reference.
**10.23 Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan, filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (Registration No.
333-80299), filed with the Securities and Exchange Commission
on June 9, 1999 and incorporated herein by reference.
10.24 Rights Agreement, dated as of January 17, 1997, by and between
Input/Output, Inc. and Harris Trust and Savings Bank, as
Rights Agent, including exhibits thereto, filed as Exhibit 4
to the Company's Form 8-A dated January 27, 1997 and
incorporated herein by reference.
10.25 Input/Output, Inc. Employee Stock Purchase Plan, filed as
Exhibit 4.4 to the Company's Registration Statement on Form
S-8 (Registration No. 333-24125) filed with the Securities and
Exchange Commission on March 18, 1997 and incorporated herein
by reference.
10.31 Purchase Agreement by and between the Company and SCF-IV, L.P.
dated April 21, 1999, filed as Exhibit 10.1 to the Company's
Form 8-K dated April 21, 1999 and incorporated herein by
reference.
10.32 Registration Rights Agreement by and between the Company and
SCF-IV, L.P. dated May 7, 1999, filed as Exhibit 10.2 to the
Company's Form 8-K dated April 21, 1999 and incorporated
herein by reference.
10.33 First Amendment to Rights Agreement by and between the Company
and Harris Trust and Savings Bank as Rights Agent, dated April
21, 1999, filed as Exhibit 10.3 to the Company's Form 8-K
dated April 21, 1999 and incorporated herein by reference.
10.35 Registration Rights Agreement by and among the Company and The
Laitram Corporation, dated November 16, 1998, filed as Exhibit
99.2 to the Company's Form 8-K dated November 16, 1998 and
incorporated herein by reference.
33
<PAGE> 35
10.36 Input/Output, Inc. 1998 Restricted Stock Plan, filed as
Exhibit 4.7 to the Company's Registration Statement on Form
S-8 (Registration No. 333-80297), filed with the Securities
and Exchange Commission on June 9, 1999 and incorporated
herein by reference.
10.37 Employee Agreement by and between the Company and Axel M.
Sigmar, dated August 17, 1999, filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1999, and incorporated herein by reference.
10.38 Amendment No. 3 to the Input/Output, Inc. Supplemental
Executive Retirement Plan, dated August 23, 1999, filed as
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended August 31, 1999, and incorporated
herein by reference.
10.39 Amendment No. 2 to the Input/Output, Inc. Amended and Restated
1991 Directors Stock Plan, dated September 13, 1999, filed as
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended August 31, 1999, and incorporated
herein by reference.
10.40 Amendment No. 1 to the Input/Output, Inc. Amended and Restated
1996 Non-Employee Director Stock Option Plan, dated September
13, 1999, filed as Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31,
1999, and incorporated herein by reference.
10.41 Consulting and Collection Agreement by and between the Company
and Robert P. Brindley, dated October 7, 1999, filed as
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended August 31, 1999, and incorporated
herein by reference.
10.42 Consulting Agreement by and between the Company and Sam K.
Smith, dated August 10, 1999, filed as Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1999, and incorporated herein by reference.
***10.43 Input/Output, Inc. Annual Incentive Plan, dated effective
November 3, 1999.
***10.44 Employment Agreement by and between the Company and Timothy J.
Probert dated effective as of March 1, 2000.
***10.45 Input/Output, Inc. 2000 Restricted Stock Plan, effective as of
March 13, 2000.
*21.1 Subsidiaries of the Company.
*23.1 Consent of KPMG LLP.
*24.1 The Power of Attorney is set forth on the signature page
hereof.
*27.1 Financial Data Schedule (included in EDGAR copy only).
34
<PAGE> 36
99.1 Information required by Form 11-K with respect to the
Input/Output, Inc. Employee Stock Purchase Plan will be filed
as an amendment to this Annual Report on Form 10-K within 120
days of the end of the fiscal year of the plan (i.e. June 30)
as permitted by Rule 15d-21 under the Securities Exchange Act
of 1934, as amended.
* Filed herewith.
** Management contract or compensatory plan or arrangement.
*** Management contract or compensatory plan or arrangement filed herewith.
(b) REPORTS ON FORM 8-K
There were no Current Reports on Form 8-K filed during the fiscal year
ended May 31, 2000.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
Reference is made to subparagraph (a) (3) of this Item 14 which is
incorporated herein by reference.
(d) NOT APPLICABLE.
35
<PAGE> 37
SIGNATURES
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 IN THE CITY OF
STAFFORD, STATE OF TEXAS, ON AUGUST 17, 2000.
Input/Output, Inc.
By /s/ Timothy J. Probert
- -----------------------------------
PRESIDENT & CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy J. Probert and C. Robert Bunch
and each of them, as his or her true and lawful attorneys-in-fact and agents
with full power of substitution and re-substitution for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
documents relating to the Annual Report on Form 10-K, including any and all
amendments and supplements thereto, for the fiscal year ended May 31, 2000, and
to file the same with all exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
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.
<TABLE>
<CAPTION>
NAME CAPACITIES DATE
---- ---------- ----
<S> <C> <C>
/s/ James M. Lapeyre, Jr. Director and Chairman of the Board August 17, 2000
- ---------------------------------------
JAMES M. LAPEYRE, JR.
/s/ Timothy J. Probert Director, President and August 17, 2000
- --------------------------------------- Chief Executive Officer
TIMOTHY J. PROBERT
/s/ C. Robert Bunch Vice President and August 17, 2000
- --------------------------------------- Chief Administrative Officer
C. ROBERT BUNCH (Principal Financial and
Accounting Officer)
/s/ Robert P. Brindley Director August 17, 2000
- ---------------------------------------
ROBERT P. BRINDLEY
/s/ Ernest E. Cook Director August 17, 2000
- ---------------------------------------
ERNEST E. COOK
/s/ Theodore H. Elliott, Jr. Director August 17, 2000
- ---------------------------------------
THEODORE H. ELLIOTT, JR.
/s/ David C. Baldwin Director August 17, 2000
- ---------------------------------------
DAVID C. BALDWIN
/s/ William F. Wallace Director August 17, 2000
- ---------------------------------------
WILLIAM F. WALLACE
/s/ Robert Peebler Director August 17, 2000
- ---------------------------------------
ROBERT P. PEEBLER
/s/ Sam K. Smith Director August 17, 2000
- ---------------------------------------
SAM K. SMITH
</TABLE>
36
<PAGE> 38
INPUT/OUTPUT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Input/Output, Inc. and Subsidiaries: Page
----
<S> <C>
Independent Auditors' Report..................................................... F-2
Consolidated Balance Sheets
- May 31, 2000 and 1999..................................................... F-3
Consolidated Statements of Operations
- Years Ended May 31, 2000, 1999 and 1998................................... F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
- Years Ended May 31, 2000, 1999 and 1998................................... F-5
Consolidated Statements of Cash Flows
- Years Ended May 31, 2000, 1999 and 1998................................... F-7
Notes to Consolidated Financial Statements....................................... F-8
Schedule II - Valuation and Qualifying Accounts.................................. F-29
</TABLE>
F-1
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Input/Output, Inc.:
We have audited the consolidated financial statements of Input/Output,
Inc. and subsidiaries and the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Input/Output, Inc. and subsidiaries as of May 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended May 31, 2000, 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.
KPMG LLP
Houston, Texas
July 17, 2000
F-2
<PAGE> 40
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
May 31,
------------------------
Current assets: 2000 1999
--------- ---------
<S> <C> <C>
Cash and cash equivalents ....................................................................... $ 99,210 $ 71,309
Restricted cash ................................................................................. 1,006 3,831
Trade accounts receivable, less allowance for doubtful accounts of
$1,566 and $20,916 in 2000 and 1999, respectively ............................................. 24,944 21,617
Trade notes receivable, less allowance for loan loss of $13,379 and $25,518 in
2000 and 1999, respectively ................................................................... 12,224 21,907
Income taxes receivable ......................................................................... 705 15,000
Inventories, net ................................................................................ 69,185 95,825
Deferred income tax asset, net .................................................................. 13,459 27,568
Prepaid expenses ................................................................................ 1,274 1,495
--------- ---------
Total current assets .................................................................... 222,007 258,552
Long-term trade notes receivable, less allowance for loan loss of $339 and $3,260 in
2000 and 1999, respectively ........................................................................ 6,013 17,616
Deferred income tax asset, net ..................................................................... 41,393 18,739
Property, plant and equipment, net ................................................................. 58,419 62,979
Goodwill, net of accumulated amortization of $27,531 and
$21,341 in 2000 and 1999, respectively .......................................................... 49,256 87,558
Other assets, net .................................................................................. 4,681 6,304
--------- ---------
Total assets ............................................................................ $ 381,769 $ 451,748
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, principally trade ............................................................. $ 8,011 $ 10,526
Current installments of long-term debt .......................................................... 1,154 1,067
Accrued expenses ................................................................................ 29,430 33,347
--------- ---------
Total current liabilities ............................................................... 38,595 44,940
Long-term debt ..................................................................................... 7,886 8,947
Other liabilities .................................................................................. 273 887
Commitments and contingencies
Stockholders' equity:
Cumulative convertible preferred stock, $.01 par value; authorized
5,000,000 shares; issued and outstanding 55,000 in 2000 (liquidation
value of $55.0 million) and 40,000 shares in 1999 .................................................. 1 --
Common stock, $.01 par value; authorized 100,000,000 shares;
outstanding 50,744,180 shares in 2000 and 50,663,358 shares in 1999 ................................ 510 507
Additional paid-in capital ......................................................................... 348,743 327,845
Retained earnings (deficit) ........................................................................ (6,065) 72,455
Accumulated other comprehensive loss ............................................................... (5,427) (3,549)
Treasury stock, at cost, 232,500 shares in 2000 .................................................... (1,651) --
Unamortized restricted stock compensation .......................................................... (1,096) (284)
--------- ---------
Total stockholders' equity ..................................................................... 335,015 396,974
--------- ---------
Total liabilities and stockholders' equity .............................................. $ 381,769 $ 451,748
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 41
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Years ended May 31,
------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales ....................................................... $ 121,454 $ 197,415 $ 385,861
Cost of sales ................................................... 106,642 205,215 226,514
------------ ------------ ------------
Gross profit (loss) .................................... 14,812 (7,800) 159,347
------------ ------------ ------------
Operating expenses:
Research and development ..................................... 28,625 42,782 32,957
Marketing and sales .......................................... 10,284 14,193 14,646
General and administrative ................................... 21,885 80,932 28,295
Amortization and impairment of intangibles ................... 39,488 16,247 6,008
------------ ------------ ------------
Total operating expenses ............................... 100,282 154,154 81,906
------------ ------------ ------------
Earnings (loss) from operations ................................. (85,470) (161,954) 77,441
Interest expense ................................................ (826) (897) (1,081)
Interest income ................................................. 4,930 7,981 7,517
Other income (expense) .......................................... 1,306 (370) (202)
------------ ------------ ------------
Earnings (loss) before income taxes ............................. (80,060) (155,240) 83,675
Income tax (benefit) expense .................................... (6,097) (49,677) 26,776
------------ ------------ ------------
Net earnings (loss) ............................................. (73,963) (105,563) 56,899
Preferred dividend .............................................. 4,557 -- --
------------ ------------ ------------
Net earnings (loss) applicable to common stock .................. $ (78,520) $ (105,563) $ 56,899
============ ============ ============
Basic earnings (loss) per common share .......................... $ (1.55) $ (2.17) $ 1.29
============ ============ ============
Weighted average number of common shares outstanding ............ 50,716,378 48,540,143 43,962,349
Diluted earnings (loss) per common share ........................ $ (1.55) $ (2.17) $ 1.28
============ ============ ============
Weighted average number of diluted common shares outstanding .... 50,716,378 48,540,143 44,430,109
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 42
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
-------------------------- ------------------------ paid-in
Shares Amount Shares Amount capital
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1997............................. 43,280,851 $ 433 -- $ -- $ 218,973
Comprehensive earnings:
Net earnings........................................ -- -- -- -- --
Other comprehensive earnings (loss):
Translation adjustment............................ -- -- -- -- --
Equity reduction for Outside
Directors Retirement Plan........................... -- -- -- -- --
Total comprehensive earnings........................
Amortization of restricted stock compensation....... -- -- -- -- --
Issuance of restricted stock awards................. 53,000 1 1,572
Issuance of stock in conjunction with
business acquisition................................ 320,555 3 -- -- 6,372
Exercise of stock options and related tax benefits.. 866,683 8 -- -- 12,858
Issuance of stock for the Employee
Stock Purchase Plan................................. 63,545 1 -- -- 971
----------- ----------- ----------- ----------- -----------
Balance at May 31, 1998............................. 44,584,634 446 -- -- 240,746
Comprehensive loss:
Net loss............................................ -- -- -- -- --
Other comprehensive loss:
Translation adjustment.............................. -- -- -- -- --
Equity reduction for Outside
Directors Retirement Plan........................... -- -- -- -- --
Total comprehensive loss
Amortization of restricted
stock compensation................................ -- -- -- -- --
Issuance of restricted stock awards................. 42,500 -- -- -- 329
Issuance of stock in conjunction with
business acquisition................................ 5,794,000 58 -- -- 45,715
Preferred stock offering............................ -- -- 40,000 -- 39,452
----------- ----------- ----------- ----------- -----------
<CAPTION>
Accumulated Unamortized
other restricted Total
Retained Comprehensive Treasury stock Stockholders'
earnings loss Stock compensation equity
----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1997............................ $ 121,119 $ (1,676) $ -- $ (235) $ 338,614
Comprehensive earnings:
Net earnings....................................... 56,899 -- -- -- 56,899
Other comprehensive earnings (loss):
Translation adjustment........................... -- (390) -- -- (390)
Equity reduction for Outside
Directors Retirement Plan.......................... -- (130) -- -- (130)
-----------
Total comprehensive earnings....................... 56,379
-----------
Amortization of restricted stock Compensation...... -- -- -- 494 494
Issuance of restricted stock awards................ -- -- -- (1,573) --
Issuance of stock in conjunction with
business acquisition............................... -- -- -- -- 6,375
Exercise of stock options and related tax benefit.. -- -- -- -- 12,866
Issuance of stock for the Employee
Stock Purchase Plan................................ -- -- -- -- 972
----------- ----------- ----------- ----------- -----------
Balance at May 31, 1998............................ 178,018 (2,196) -- (1,314) 415,700
Comprehensive loss:
Net loss........................................... (105,563) -- -- -- (105,563)
Other comprehensive loss:
Translation adjustment............................. -- (1,046) -- -- (1,046)
Equity reduction for Outside
Directors Retirement Plan.......................... -- (307) -- -- (307)
-----------
Total comprehensive loss (106,916)
-----------
Amortization of restricted
stock compensation............................... -- -- -- 1,359 1,359
Issuance of restricted stock awards................ -- -- -- (329) --
Issuance of stock in conjunction with
business acquisition............................... -- -- -- -- 45,773
Preferred stock offering........................... -- -- -- -- 39,452
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 43
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional Retained
-------------------------- ------------------------ paid-in earnings
Shares Amount Shares Amount capital (deficit)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Exercise of stock options and related
tax benefits ................................ 64,944 1 -- -- 157 --
Issuance of stock for the Employee Stock
Purchase Plan ............................... 177,280 2 -- -- 1,059 --
Stock compensation expense .................. -- -- -- -- 387 --
----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1999 ..................... 50,663,358 507 40,000 -- 327,845 72,455
Comprehensive loss:
Net loss .................................... -- -- -- -- -- (73,963)
Other comprehensive earnings (loss):
Translation adjustment ...................... -- -- -- -- -- --
Equity adjustment for Outside
Directors Retirement Plan ................... -- -- -- -- -- --
Total comprehensive loss ....................
Amortization of restricted stock
compensation ................................ -- -- -- -- -- --
Issuance of restricted stock award .......... 133,000 1 -- -- 1,028 --
Cancelation of restricted stock awards ...... (25,000) -- -- -- (193) --
Purchase treasury stock ..................... (250,000) -- -- -- -- --
Reissue treasury stock ...................... 17,500 -- -- -- (43) --
Preferred stock offering .................... -- -- 15,000 1 14,794 --
Preferred dividend .......................... -- -- -- -- 4,011 (4,557)
Exercise of stock options and related
tax benefits ................................ 8,473 -- -- -- 136 --
Issuance of stock for the Employee Stock
Purchase Plan ............................... 196,849 2 -- -- 972 --
Stock compensation expense .................. -- -- -- -- 193 --
----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 2000 ..................... 50,744,180 $ 510 55,000 $ 1 $ 348,743 $ (6,065)
=========== =========== =========== =========== =========== ===========
<CAPTION>
Accumulated Unamortized
other restricted Total
comprehensive Treasury Stock Stockholders'
loss Stock compensation equity
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Exercise of stock options and related
tax benefits ................................ -- -- -- 158
Issuance of stock for the Employee Stock
Purchase Plan ............................... -- -- -- 1,061
Stock compensation expense .................. -- -- -- 387
-------------- -------------- -------------- --------------
Balance at May 31, 1999 ..................... (3,549) (284) 396,974
Comprehensive loss:
Net loss .................................... -- -- -- (73,963)
Other comprehensive earnings (loss):
Translation adjustment ...................... (1,920) -- -- (1,920)
Equity adjustment for Outside
Directors Retirement Plan ................... 42 -- -- 42
-------------- -------------- -------------- --------------
Total comprehensive loss .................... (75,841)
--------------
Amortization of restricted stock
compensation ................................ -- -- 24 24
Issuance of restricted stock award .......... -- -- (1,029) --
Cancelation of restricted stock awards ...... -- 193 --
Purchase treasury stock ..................... -- (1,794) -- (1,794)
Reissue treasury stock ...................... -- 143 -- 100
Preferred stock offering .................... -- -- -- 14,795
Preferred ................................... -- -- -- (546)
dividend
Exercise of stock options and related
tax benefits ................................ -- -- -- 136
Issuance of stock for the Employee Stock
Purchase Plan ............................... -- -- -- 974
Stock compensation expense .................. -- -- -- 193
-------------- -------------- -------------- --------------
Balance at May 31, 2000 ..................... $ (5,427) $ (1,651) $ (1,096) $ 335,015
============== ============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 44
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended May 31,
---------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ................................................. $ (73,963) $(105,563) $ 56,899
Adjustments to reconcile net earnings (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization ....................................... 22,835 20,776 16,816
Amortization of restricted stock compensation ....................... 24 1,359 494
Stock compensation expense .......................................... 293 387 --
Deferred income tax (benefit) expense ............................... (8,545) (43,691) 201
Inventory obsolescence expense ...................................... 16,360 58,848 4,264
Bad debt expense and loan losses .................................... (17,106) 43,683 4,050
Loss on disposal of fixed assets .................................... 784 -- --
Impairment of fixed assets .......................................... 435 4,842 --
Impairment of intangibles and other assets .......................... 31,596 8,495 --
Changes in assets and liabilities, net of effect of acquisitions and above
provisions:
Accounts and notes receivable ....................................... 22,790 46,731 (26,201)
Inventories ......................................................... 13,097 (20,699) (17,624)
Leased equipment .................................................... -- 1,731 5,679
Accounts payable and accrued expenses ............................... (5,530) (13,684) 20,456
Income taxes payable/receivable ..................................... 14,295 (23,139) 10,696
Other ............................................................... 1,006 (4,912) (630)
--------- --------- ---------
Net cash (used in) provided by operating activities ........... 18,371 (24,836) 75,100
--------- --------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment ........................... (3,077) (9,326) (6,960)
Acquisition of net assets and business, net of cash acquired ........ -- (6,310) (10,845)
Net divestiture of (investments in) other assets .................... -- 7 (446)
--------- --------- ---------
Net cash used in investing activities ......................... (3,077) (15,629) (18,251)
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term debt .......................................... (974) (983) (915)
Payments of preferred dividends ..................................... (454) -- --
Purchase of treasury stock .......................................... (1,794) -- --
Proceeds from exercise of stock options ............................. 136 158 12,866
Proceeds from issuance of common stock to Employee .................. 974 1,061 972
Stock Purchase Plan
Net proceeds from preferred stock offering .......................... 14,795 39,452 --
--------- --------- ---------
Net cash provided by financing activities ..................... 12,683 39,688 12,923
--------- --------- ---------
Effect of change in foreign currency exchange rates on
cash and cash equivalents ........................................... (76) (189) (70)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ................ (27,901) (966) 69,702
Cash and cash equivalents at beginning of year ...................... 71,309 72,275 2,573
--------- --------- ---------
Cash and cash equivalents at end of year ...................... $ 99,210 $ 71,309 $ 72,275
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 45
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND GENERAL. The consolidated financial
statements include the accounts of Input/Output, Inc. and its wholly-owned
subsidiaries (the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
We design, manufacture and market seismic data acquisition systems and
peripheral seismic instruments for the oil and gas exploration and production
industry worldwide. Net sales consist primarily of sales of products.
CASH AND CASH EQUIVALENTS. We consider all highly liquid debt
instruments with an original maturity of three months or less to be cash
equivalents. As of May 31, 2000, we had approximately $1.0 million of
certificates of deposit with one month original maturities that were used to
secure standby and commercial letters of credit, and has been included in
restricted cash on the consolidated balance sheet.
INVENTORIES. Inventories are stated at the lower of cost (primarily
first-in, first-out) or market. The elements of cost include labor, materials
and manufacturing overhead. Our general obsolescence policy is to fully reserve
for components that have not been used in two years and components that are
determined to be obsolete due to current market conditions and planned product
revisions.
PROPERTY, PLANT AND EQUIPMENT. Plant and equipment are recorded at cost
and depreciated principally on a straight-line basis using estimated useful
lives as follows: building - 25 years, machinery and equipment - five to eight
years and other - three to eight years. Repairs and maintenance are expensed as
incurred. Gains and losses on sales and retirements are recognized on disposal.
Recoverability of assets to be held and used is measured by comparison
of the carrying amount of an asset to future net cash flows (undiscounted and
without interest charges) expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the asset exceeds the fair value of
the asset.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible
assets ("intangibles") result from business acquisitions and goodwill represents
the excess of acquisition costs over the fair value of the net assets of
businesses acquired. Intangibles are amortized on a straight-line basis over 5
to 20 years, the expected period to be benefited. At May 31, 2000, the weighted
average useful life of intangibles is 16.9 years. We assess intangibles annually
by determining whether the amortization of the intangible balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation. If the intangibles are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the intangible exceeds the fair value of the asset which is calculated
using the discounted future operating cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Fair value estimates are made at
discrete points in time based on relevant market information. These estimates
may be subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. We believe that the
carrying amounts of our trade notes receivable and long-term debt approximate
the fair value of such items.
F-8
<PAGE> 46
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESEARCH AND DEVELOPMENT. Research and development costs are expensed
as incurred.
REVENUE RECOGNITION. We recognize revenue at the shipment date. No
right of return exists regarding any product(s) sold by us.
PRODUCT WARRANTIES. We warrant that all equipment manufactured by us
will be free from defects in workmanship, in material and parts ranging from 90
days to three years from the date of original purchase, depending on the
product. We provide operator training, as well as start-up and on-site support
for customers. We provide for estimated training, installation and warranty
costs as a charge to cost of sales at the time of sale.
INCOME TAXES. Income taxes are accounted for under the asset and
liability method. Deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry-forwards. Deferred
income tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred income tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
EARNINGS (LOSS) PER COMMON SHARE. Basic earnings (loss) per share is
computed by dividing net earnings (loss) applicable to common stock 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 and other common stock equivalents have been exercised and the
aggregate proceeds as defined were used to reacquire our common stock using the
average price of such common stock for the period.
The following table summarizes the calculation of weighted average
number of common shares and weighted average number of diluted common shares
outstanding for purposes of the computation of basic earnings (loss) per common
share and diluted earnings (loss) per common share (in thousands, except share
and per share amounts):
<TABLE>
<CAPTION>
MAY 31,
------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net earnings (loss) applicable to common stock ........... $ (78,520) $ (105,563) $ 56,899
============ ============ ============
Weighted average number of common shares outstanding ..... 50,716,378 48,540,143 43,962,349
Stock options ............................................ -- -- 467,760
------------ ------------ ------------
Weighted average number of diluted common shares
outstanding ......................................... 50,716,378 48,540,143 44,430,109
============ ============ ============
Basic earnings (loss) per common share ................... $ (1.55) $ (2.17) $ 1.29
============ ============ ============
Diluted earnings (loss) per common share ................. $ (1.55) $ (2.17) $ 1.28
============ ============ ============
</TABLE>
F-9
<PAGE> 47
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal year 1999, no dividends on the convertible preferred stock
issued in May 1999 were declared; therefore, net loss and net loss applicable to
common stock are the same. At May 31, 2000, 1999 and 1998, 5,238,352, 4,550,463
and 1,480,303 respectively, of shares subject to stock options were not included
in the calculation of diluted earnings (loss) per common share because to do so
would have been anti-dilutive. In addition, the convertible preferred stock
issued in fiscal year 2000 and 1999 has not been considered in the computation
of diluted loss per common share because the effect would be anti-dilutive. See
Note 7.
STOCK-BASED COMPENSATION. Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") allows a
company to adopt a fair value based method of accounting for its stock-based
compensation plans, or to continue to follow the intrinsic value method of
accounting prescribed by Accounting Principles Board (APB) Opinion No. 25
"Accounting for Stock Issued to Employees". We have elected to continue to
follow APB Opinion No. 25. If we had adopted SFAS No. 123 our net earnings
(loss), basic earnings (loss) per share and diluted earnings (loss) per share
for the years ended May 31, 2000, 1999 and 1998 would have been reduced
(increased) as discussed in Note 7.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of foreign
subsidiaries are translated at current exchange rates in effect at the end of
the period reported and related translation adjustments are reported as a
component of accumulated other comprehensive loss in stockholders' equity.
Statements of operations are translated at the average rates during the period.
Any transaction gains or losses are included in net earnings (loss). For fiscal
years ended 2000, 1999, and 1998, those transaction gain and (losses) amounted
to $1,086,000, $(435,000), and $(109,000) respectively.
NOTES RECEIVABLE. Notes receivable ("notes") are recorded at cost, less
the related allowance for loan loss. We consider current information and events
regarding the borrowers' ability to repay their obligations, and consider a note
to be impaired when it is probable that we will be unable to collect all amounts
due according to the contractual terms of the note agreement. When a note is
considered to be impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the note's effective
interest rate, or the fair value of the note's collateral. Impairment losses
(recoveries) are included in the allowance for loan loss through an increase
(decrease) in loan loss expense. Cash receipts on impaired notes are applied to
reduce the principal amount of such notes until the principal has been recovered
and are recognized as interest income thereafter.
STATEMENTS OF CASH FLOWS. Supplemental disclosure of cash flow
information follows (in thousands except share amounts):
<TABLE>
<CAPTION>
Cash paid (refund) during the year for: 2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Interest ................................... $ 826 $ 897 $ 1,130
============= ============= =============
Income taxes .............................. $ (13,396) $ 16,966 $ 9,968
============= ============= =============
Non-cash investing and financing activities:
Restricted stock issued:
Increase in common stock ................. $ 1 $ -- $ 1
Increase in additional paid-in capital ... 1,028 329 1,572
</TABLE>
F-10
<PAGE> 48
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Increase in unamortized restricted stock compensation ........................ (1,029) (329) (1,573)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
Non-cash financing activities:
Dividends on preferred stocks ............................................. $ 4,011 $ -- $ --
=========== =========== ===========
Repossession of equipment due to customers' defaulting on trade notes receivable
and related placement of equipment fleet:
Decrease in trade notes receivable ........................................ $ 4,893 $ -- $ --
Increase in property, plant and equipment ................................. $ 4,893 $ -- $ --
=========== =========== ===========
Repossession of equipment due to a customer's default on a trade note receivable
and related placement of equipment in inventories:
Decrease in trade notes receivable ........................................ $ 3,571 $ -- $ --
Increase in inventories ................................................... $ 3,571 $ -- $ --
=========== =========== ===========
Issuance of note receivable in connection with sale of other assets:
Long-term trade notes receivable ............................................. $ -- $ 5,387 $ --
Other assets ................................................................. -- (5,387) --
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
Issuance of common stock in connection with business acquisitions:
Increase in common stock ..................................................... $ -- $ 58 $ 3
Increase in additional paid in capital ....................................... -- 45,715 6,372
Liabilities assumed in connection with
business acquisition ......................................................... -- 3,613 320
----------- ----------- -----------
$ -- $ 49,386 $ 6,695
=========== =========== ===========
Common Stock shares issued ................................................... -- 5,794,000 320,555
=========== =========== ===========
</TABLE>
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
COMPREHENSIVE EARNINGS (LOSS). SFAS No. 130 "Reporting Comprehensive
Income", establishes standards for reporting and presentation of comprehensive
earnings (loss) and its components. Comprehensive earnings (loss), consisting of
net earnings (loss), foreign currency translation adjustment and minimum pension
liabilities is presented in the consolidated statements of stockholders' equity
and comprehensive loss. SFAS No. 130 does not affect our financial position or
results of operations.
F-11
<PAGE> 49
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of accumulated other comprehensive loss are as follows (in
thousands):
<TABLE>
<CAPTION>
Foreign Minimum Accumulated Other
Currency Pension Comprehensive
Translation Liabilities Loss
--------------- --------------- ----------------
<S> <C> <C> <C>
Balance at May 31, 1997 ...... $ (1,673) $ (3) $ (1,676)
Fiscal 1998 change ........... (390) (130) (520)
--------------- --------------- ---------------
Balance at May 31, 1998 ...... (2,063) (133) (2,196)
Fiscal 1999 change ........... (1,046) (307) (1,353)
--------------- --------------- ---------------
Balance at May 31, 1999 ...... (3,109) (440) (3,549)
Fiscal 2000 change ........... (1,920) 42 (1,878)
--------------- --------------- ---------------
Balance at May 31, 2000 ...... $ (5,029) $ (398) $ (5,427)
=============== =============== ===============
</TABLE>
RECLASSIFICATION. Certain amounts previously reported in the
consolidated financial statements have been reclassified to conform to the
current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS. In December 1999, the Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements ("SAB No. 101"). SAB No. 101 summarizes the
SEC staff's views in applying generally accepted accounting principles to
selected revenue recognition issues. We understand that the SEC staff is
preparing a document to address significant implementation issues related to SAB
No. 101. To the extent that SAB No. 101 ultimately changes our revenue
recognition practices, we are required to adopt SAB No. 101 no later than the
quarter beginning March 1, 2001, with any cumulative effect adjustment computed
as of June 1, 2000. We cannot determine the potential impact that SAB No. 101
may have on our consolidated financial position or results of operations at this
time. Additionally, we have not determined if we will adopt SAB No. 101 early.
(2) INVENTORIES
A summary of inventories follows (in thousands):
<TABLE>
<CAPTION>
May 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Raw materials .............. $ 52,451 $ 58,309
Work-in-process ............ 7,979 10,366
Finished goods ............. 23,746 43,397
------------ ------------
84,176 112,072
Less inventory reserves .... 14,991 16,247
------------ ------------
$ 69,185 $ 95,825
============ ============
</TABLE>
(3) TRADE NOTES RECEIVABLE
Trade notes receivable at May 31, 2000 are generally secured by seismic
equipment sold by us, bearing interest at contractual rates up to 13% and are
due at various dates through 2001. The recorded investment in trade notes
receivable for which an impairment has been recognized was $24.3 million at May
31, 2000. The activity in the allowance for loan loss is as follows (in
thousands):
F-12
<PAGE> 50
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
May 31,
------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year ................... $ 28,778 $ 3,954 $ 7,078
Additions charged to costs and expenses ........ 7,057 25,903 2,280
Recoveries reducing costs and expenses ......... (23,558) -- --
Write-downs charged against the allowance ...... (10,799) (1,079) (5,404)
Reclassification of trade account receivable ... 12,240 -- --
-------- -------- --------
Balance at end of year ......................... $ 13,718 $ 28,778 $ 3,954
======== ======== ========
</TABLE>
Recoveries for fiscal year 2000 include a $10.2 million reduction in the
allowance for loan loss, attributable to a more favorable than anticipated
resolution of a customer's bankruptcy settlement for a trade note receivable
that had previously been reserved for, and $4.9 million, representing the fair
value of repossessed equipment, resulting from customers' defaults on payments
of trade notes receivable. The $12.2 million reclassification resulted from the
reclassification of a trade account receivable balance, which had been provided
for in the prior year, to trade notes receivable.
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
<TABLE>
<CAPTION>
May 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Land ............................ $ 2,782 $ 3,279
Buildings ....................... 26,413 27,277
Machinery and equipment ......... 65,450 68,590
Leased equipment ................ 12,219 1,707
Other ........................... 5,615 2,443
------------ ------------
112,479 103,296
Less accumulated depreciation ... 54,060 40,317
------------ ------------
$ 58,419 $ 62,979
============ ============
</TABLE>
(5) ACCRUED EXPENSES
A summary of accrued expenses follows (in thousands):
<TABLE>
<CAPTION>
May 31,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Compensation, including commissions and severance ... $ 6,321 $ 10,779
Warranty, training and installation ................. 6,470 13,875
Accrued legal settlement ............................ 5,000 --
Accrued taxes ....................................... 4,226 976
Other ............................................... 7,413 7,717
----------- -----------
$ 29,430 $ 33,347
=========== ===========
</TABLE>
F-13
<PAGE> 51
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) LONG-TERM DEBT
In August 1996, we obtained, through one of our wholly-owned
subsidiaries, a $12.5 million, ten-year term loan secured by certain of our land
and buildings located in Stafford, Texas which then included our executive
headquarters, research and development headquarters, and electronics
manufacturing building. The term loan, which we have guaranteed under a Limited
Guaranty, bears interest at a fixed rate of 7.875% per annum and is repayable in
equal monthly installments of principal and interest of $151,439. The total
installment payments for principal and interest in each of the next five years
would be $1.8 million with a balance thereafter of $2.2 million. We lease all of
the property from our subsidiary under a master lease, which lease has been
collaterally assigned to the lender as security for the term loan. The term loan
provides for penalties for pre-payment prior to maturity.
(7) STOCKHOLDERS' EQUITY
CHANGES IN CAPITAL STRUCTURE. On May 7, 1999, SCF-IV, L.P., a Delaware
limited partnership ("SCF-IV"), purchased, in a privately negotiated
transaction, 40,000 shares of our Series B Preferred Stock, par value $0.01 per
share (the "Series B Preferred Stock"). The consideration paid by SCF-IV for
this issuance was $40.0 million. The net cash proceeds of approximately $39.5
million were to be used to fund our research and development projects, to
provide additional working capital and for general corporate purposes. The
issuance of the Series B Preferred Stock and the underlying shares of Common
Stock was exempt from the registration requirements of Section 5 of the
Securities Act of 1933 in accordance with Section 4(2) of that Act.
On August 17, 1999, SCF-IV, exercised its option to purchase 15,000
shares of Series C Preferred Stock, par value $0.01 per share (the "Series C
Preferred Stock"), which had been granted to SCF-IV by us in connection with
SCF-IV's purchase of 40,000 shares of Series B Preferred Stock in May 1999. The
purchase price paid for the Series C Preferred Stock was $1,000 per share,
resulting in net proceeds of approximately $14.8 million. The net cash proceeds
were used to fund our research and development projects, to provide additional
working capital and for general corporate purposes. The issuance of the Series C
Preferred Stock and the underlying shares of Common Stock were exempt from the
registration requirements of Section 5 of the Securities Act of 1933 in
accordance with Section 4(2) of that Act. The Series C Preferred Stock has
substantially the same terms and conditions as our Series B Preferred Stock
issued in May 1999, except that the fixed conversion price for the Series C
Preferred Stock is $8.50 per share, compared to $8.00 per share for the Series B
Preferred Stock.
The holders of Series B and C Preferred Stock are entitled to receive
cumulative cash dividends of $10.00 per share per annum (1% of the liquidation
preference) for each share of Series B and C Preferred Stock outstanding. Each
share of Series B and C Preferred Stock is entitled to a liquidation preference
of $1,000 per share, plus all accrued and unpaid dividends.
The Series B and C Preferred Stock are convertible at the holder's
option after the first to occur of any of the following (the "Initial Conversion
Date"): (i) May 7, 2002, (ii) the approval by our Board of Directors of an
agreement relating to a Business Combination (as defined) or the consummation of
a Business Combination, (iii) a tender offer for Common Stock is approved or
recommended by our Board of Directors or (iv) the redemption, repurchase or
reacquisition by us of rights issued pursuant to our Stockholder Rights Plan or
any waiver of the application of our Stockholder Rights Plan to any beneficial
owner other than SCF-IV or its affiliates (except as approved by SCF-IV's
representative on our Board of Directors). After the Initial Conversion Date and
prior to the Mandatory Conversion Date
F-14
<PAGE> 52
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(defined below), the holders of Series B and C Preferred Stock will be entitled
to convert their shares into a number of fully paid and nonassessable shares of
Common Stock per share equal to, at the option of the holder, one of, or if not
specified by the holder, at the greater of, the following (such amount being
referred to as the "Conversion Ratio Amount"): (a) the quotient of $1,000 (plus
any accrued and unpaid dividends through the record date for determining
stockholders entitled to vote) divided by the fixed conversion price of $8.50
(as adjusted from time to time in accordance with certain anti-dilution
provisions) or (b) the quotient of $1,000 increased at a rate of eight percent
per annum from August 17, 1999, compounded quarterly, less the amount of cash
dividends actually paid through the applicable conversion date (the "Adjusted
Stated Value"), divided by the average market price for our Common Stock during
the ten trading day period prior to the date of conversion.
On May 7, 2004 (the "Mandatory Conversion Date"), each outstanding
share of Series B and C Preferred Stock respectively shall, without any action
on the part of the holder, be converted automatically into a number of fully
paid and nonassessable shares of Common Stock equal to the Conversion Ratio
Amount, provided that a shelf registration statement to be filed with the
Securities and Exchange Commission covering those shares of Common Stock has
been declared effective.
In the event of a conversion of Series B and C Preferred Stock pursuant
to which the Conversion Ratio is determined using clause (b) above, then,
provided that full cumulative dividends have been paid or declared and set apart
for payment upon all outstanding shares of Series B and C Preferred Stock for
all past dividend periods, we may redeem for cash up to 50% (or such greater
percentage as the holders shall agree) of the shares of Series B and C Preferred
Stock submitted for conversion at a redemption price per share equal to the
Adjusted Stated Value , in lieu of conversion.
For financial accounting purposes, based on the terms of the Series B
and C Preferred Stock, dividends are recognized as a charge to retained earnings
at the rate of 8% per annum, compounded quarterly. Such preferred dividends
reduce net earnings applicable to common stock accordingly. We are permitted to
pay dividends on Common Stock as long as the Series B and C Preferred Stock
dividends are current. At May 31, 2000 there was $3,146,000 in deemed dividends
provided on the Series B Preferred Stock and $865,000 in deemed dividends
provided on the Series C Preferred Stock.
TREASURY STOCK. In September 1999, we purchased 100,000 shares of our
Common Stock from a former officer for $802,000. During April 2000 we acquired
150,000 shares of our Common Stock at a cost of $992,000. In July 2000, we
announced that we had authorized the repurchase of up to an additional 1,000,000
shares of our Common Stock in open market and privately negotiated transactions,
with purchases to be made from time to time through May 31, 2001. Shares
repurchased will be held by us as treasury stock to be available for our stock
option and other equity compensation and benefits plans.
F-15
<PAGE> 53
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK OPTION PLANS. We have adopted an employee stock option plan for
eligible employees which provides for the granting of options to purchase a
maximum of 8,500,000 shares of Common Stock. We have also adopted a directors
stock option plan which provides for the granting of options to purchase a
maximum of 1,714,000 shares of Common Stock by our non-employee directors.
Transactions under the stock option plans are summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
May 31, 1997 ...................... $2.03-$29.63 3,074,525 1,060,825 2,744,600
------------- ------------- ------------- -------------
Granted ........................... 17.50-30.38 2,606,168 -- (2,606,168)
Became exercisable ................ -- -- 918,593 --
Exercised ......................... 2.03-21.13 (927,675) (927,675) --
Canceled/forfeited ................ 2.03-29.69 (584,772) -- 584,772
------------- ------------- ------------- -------------
May 31, 1998 ...................... 2.03-30.38 4,168,246 1,051,743 723,204
------------- ------------- ------------- -------------
Increase in shares authorized ..... -- -- -- 1,800,000
Granted ........................... 6.38-24.50 2,449,732 -- (2,449,732)
Became exercisable ................ -- -- 513,563 --
Exercised ......................... 2.03-16.88 (39,700) (39,700) --
Canceled/forfeited ................ 9.38-30.38 (2,027,815) -- 2,027,815
------------- ------------- ------------- -------------
May 31, 1999 ...................... 2.03-30.00 4,550,463 1,525,606 2,101,287
------------- ------------- ------------- -------------
Granted ........................... 5.25-10.00 1,975,790 -- (1,975,790)
Became exercisable ................ -- -- 750,707 --
Exercised ......................... 2.03-8.19 (8,200) (8,200) --
Canceled/forfeited ................ 3.50-30.00 (1,279,701) (47,165) 1,279,701
------------- ------------- ------------- -------------
May 31, 2000 ...................... $2.03-$30.00 5,238,352 2,220,948 1,405,198
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average Weighted Average
Exercise Price Weighted Average Exercise Price
Option Price Of Outstanding Remaining Of Exercisable
Per Share Outstanding Options Contract Life Exercisable Options
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
$2.03- $3.91 87,675 $ 3.53 2.5 years 87,675 $ 3.53
4.81-10.00 3,149,497 6.46 9.3 years 639,099 7.89
11.00-11.94 142,000 11.84 4.1 years 142,000 11.84
14.00-24.63 1,484,180 19.92 7.0 years 1,052,174 19.70
29.00-30.00 375,000 29.58 6.9 years 300,000 29.56
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
$2.03-$30.00 5,238,352 $ 12.02 8.2 years 2,220,948 $ 16.49
===================== ================== ================== ================== ================== ==================
</TABLE>
F-16
<PAGE> 54
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have elected to continue to follow APB Opinion No. 25 to account for
our stock-based compensation plans; however, if we had adopted SFAS 123 our net
earnings (loss) applicable to Common Stock, basic earnings (loss) per share and
diluted earnings (loss) per share for the years ended May 31, 2000, 1999 and
1998 would have been reduced (increased) as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------- -------------------------- -------------------------
As Reported Proforma As Reported Proforma As Reported Proforma
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net earnings (loss) applicable
to Common Stock ................ $ (78,520) $ (74,926) $ (105,563) $ (112,186) $ 56,899 $ 50,580
=========== =========== =========== =========== =========== ===========
Basic earnings (loss)
per common share ............... $ (1.55) $ (1.48) $ (2.17) $ (2.31) $ 1.29 $ 1.15
=========== =========== =========== =========== =========== ===========
Diluted earnings (loss)
per common share ............... $ (1.55) $ (1.48) $ (2.17) $ (2.31) $ 1.28 $ 1.14
=========== =========== =========== =========== =========== ===========
</TABLE>
The weighted average fair value of options granted during 2000, 1999
and 1998 was $3.06, $4.24,and $11.58, respectively. The fair value of each
option was determined using the Black-Scholes option valuation model. The key
input variables used in valuating the options were as follows: average risk-free
interest rate based on 5-year Treasury bonds, expected stock price volatility of
49% in 2000, 51% in 1999, and 44% in 1998, and an estimated option term of five
years.
RESTRICTED STOCK PLANS. In 1990, we adopted the Input/Output, Inc. 1990
Restricted Stock Plan which provides for the award of up to 1,200,000 shares of
Common Stock to key officers and employees. Ownership of the Common Stock will
vest over a period of four years. The restriction is removed from 50% of the
shares after two years, 25% in the third year and 25% in the fourth year. Shares
awarded may not be sold, assigned, transferred, pledged or otherwise encumbered
by the grantee during the vesting period. Except for these restrictions, the
grantee of an award of shares has all the rights of a common stockholder,
including the right to receive dividends and the right to vote such shares. As
of May 31, 2000, we had no unvested restricted shares outstanding and 15,000
shares available for grant under this plan. In May 1999, a key employee with
53,000 unvested restricted shares resigned and as part of the employee's
separation agreement, the Compensation Committee of our Board of Directors
("Compensation Committee") removed all restrictions and vested all 53,000 shares
effective immediately. All amortization of restricted stock related to the
shares vesting immediately was recognized in fiscal year 1999.
Effective January 1, 1998 we adopted the Input/Output, Inc. 1998 Restricted
Stock Plan which provides for the award of up to 100,000 shares of Common Stock
to key officers and employees. Ownership of the Common Stock will vest over a
period as determined by the Compensation Committee in its sole discretion.
Shares awarded may not be sold, assigned, transferred, pledged or otherwise
encumbered by the grantee during the vesting period. Except for these
restrictions, the grantee of an award of shares has all the rights of a common
stockholder, including the right to receive dividends and the right to vote such
shares. As of May 31, 2000, we had 47,500 unvested shares outstanding, which are
scheduled to vest 100% on December 11, 2001, and 52,500 shares available for
grant under this plan.
F-17
<PAGE> 55
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective March 13, 2000 we adopted the Input/Output, Inc. 2000
Restricted Stock Plan which provides for the award of up to 200,000 shares of
common stock to key employees. Ownership of the Common Stock will vest over a
period as determined by the Compensation Committee in its sole discretion.
Shares awarded may not be sold, assigned, transferred, pledged or otherwise
encumbered by the grantee during the vesting period. Except for these
restrictions, the grantee of an award of shares has all the rights of a common
stockholder, including the right to receive dividends and the right to vote such
shares. As of May 31, 2000, we had 123,000 unvested shares outstanding, which
are scheduled to vest over a period of five years. The restriction is removed
from 33% of the shares after 3 years, 33% in the fourth year, and 33% in the
fifth year. At May 31, 2000 there were 77,000 shares available for grant.
The market value of shares of Common Stock granted under the restricted
stock plans were recorded as unamortized restricted stock compensation and
reported as a separate component of stockholders' equity. The restricted stock
compensation is amortized over the vesting period.
EMPLOYEE STOCK PURCHASE PLAN. We adopted an Employee Stock Purchase
Plan ("Plan") in which participation commenced April 1, 1997. The Plan allows
all eligible employees to authorize payroll deductions at the rate of 1% up to
15% of base compensation to be applied toward the purchase of our Common Stock.
The purchase price of the Common Stock will be the lesser of 85% of the closing
price on the first day of the applicable offering period or most recently
preceding trading day or 85% of the closing price on the last day of the
offering period or most recently preceding trading day. Under the Plan, separate
six-month offering periods commence on April 1st and October 1st of each year.
There were 196,849, 177,280 and 63,545 shares purchased by participants during
2000, 1999 and 1998, respectively.
(8) ACQUISITION
Effective October 1, 1998, we entered into a definitive merger
agreement with The Laitram Corporation for the acquisition of DigiCourse, Inc.,
a wholly-owned subsidiary of The Laitram Corporation. Under the terms of the
agreement, we acquired, in exchange for 5,794,000 shares of our Common Stock and
$5.6 million in cash, all of the capital stock of DigiCourse, Inc. The
transaction was accounted for as a purchase business combination with the assets
and liabilities allocated based on the fair value of assets purchased and
liabilities assumed. The amortization life of the resulting goodwill of $32.5
million is 17 years.
(9) SEGMENT AND GEOGRAPHIC INFORMATION
Late in fiscal year 1999, we initiated a fundamental reorganization of
our internal structure. As a part of this reorganization, our management now
evaluates and reviews results based on two segments, Land and Marine, to allow
for increased visibility and accountability of costs and more focused customer
service and product development. Prior to such time, our management made
business decisions using consolidated financial information. We determined that
it was impractable to obtain all of the applicable information for fiscal years
1999 and 1998 to report our operating segments in accordance with the new
internal reporting structure. Commencing in fiscal year 2000 we reported
operating segment information by the Land and Marine segments, and measure the
operating results of these segments based on a measure of income from
operations.
F-18
<PAGE> 56
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In order to provide meaningful and reliable information available for
fiscal years 1999 and 1998, we were able to disclose a measure of results of
operations utilizing a gross profit (loss) measure and are able to provide
assets at May 31, 1999 based on its current Land and Marine segments. The
following summarizes our segment information (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales:
Land ........................ $ 73,201 $ 96,276 $ 316,060
Marine ...................... 48,253 101,139 69,801
----------- ----------- -----------
$ 121,454 $ 197,415 $ 385,861
=========== =========== ===========
Gross profit (loss):
Land ........................ $ 6,397 $ (4,308) $ 133,065
Marine ...................... 8,415 (3,492) 26,282
----------- ----------- -----------
$ 14,812 $ (7,800) $ 159,347
=========== =========== ===========
Earnings (loss) from operations
Land ........................ $ (28,254)
Marine ...................... (34,466)
Corporate ................... (22,750)
-----------
$ (85,470)
===========
Depreciation and amortization
Land ........................ $ 10,106
Marine ...................... 7,117
Corporate ................... 5,612
-----------
$ 22,835
===========
Capital expenditures
Land ........................ $ 553
Marine ...................... 872
Corporate ................... 1,652
-----------
$ 3,077
===========
Total Assets:
Land ........................ $ 106,431 $ 141,510
Marine ...................... 77,411 116,203
Corporate ................... 197,927 194,035
----------- -----------
$ 381,769 $ 451,748
=========== ===========
</TABLE>
F-19
<PAGE> 57
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intersegment sales are insignificant for all periods presented.
Corporate assets include all assets specifically related to corporate personnel
and operations, substantially all cash and cash equivalents, all facilities and
manufacturing machinery and equipment that are jointly utilized by segments and
all income taxes receivable and deferred income tax assets. The depreciation
expense and facility expense related to all jointly utilized facilities and
machinery and equipment is allocated based on each segment's use of those
assets. A summary of net sales from foreign customers by geographic area follows
(in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Middle East ........ $ 22,156 $ 1,835 $ 9,877
China .............. 19,754 6,980 7,636
Russia ............. 16,388 10,192 32,100
Europe ............. 12,446 8,248 28,441
Canada ............. 3,731 14,446 14,767
Great Britain ...... 3,723 31,948 19,490
Other .............. 6,310 6,683 23,109
------------ ------------ ------------
$ 84,508 $ 80,332 $ 135,420
============ ============ ============
</TABLE>
Net sales are attributed to individual countries on the basis of the
ultimate destination of the equipment, if known; if the ultimate destination is
not known, it is based on the geographical location of initial shipment. Net
sales from individual customers representing 10% or more of net
sales were as follows:
<TABLE>
<CAPTION>
Customer 2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
A ........ 17% 33% 28%
B ........ 12% 5% 7%
C ........ 12% 6% 0%
D ........ 11% 2% 1%
E ........ 0% 11% 4%
</TABLE>
Revenues for customers B and C comprised 18% and 17% of Land segment
net sales for fiscal year 2000. In addition, there was a single customer not
listed above that accounted for 13% of Land segment net sales for fiscal year
2000. Revenues for customers A and D comprised 39% and 22%, respectively of
Marine segment net sales for fiscal year 2000.
(10) INCOME TAXES
<TABLE>
<CAPTION>
Components of income taxes follow (in thousands): 2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal ................................ $ -- $ (9,279) $ 20,963
Foreign ................................ 1,583 1,769 4,678
State and local ........................ 865 1,524 934
Deferred-Federal ............................ (8,545) (43,691) 201
------------ ------------ ------------
Total income tax (benefit) expense .......... $ (6,097) $ (49,677) $ 26,776
============ ============ ============
</TABLE>
A reconciliation of the expected income tax (benefit) expense on
earnings (loss) before income taxes using the statutory Federal income tax rate
of 35% for the years ended May 31, 2000, 1999 and 1998, to the income taxes
reported herein is as follows (in thousands):
F-20
<PAGE> 58
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Expected income tax (benefit) expense ................ $ (28,022) $ (54,334) $ 29,286
Tax benefit from use of foreign sales corporation .... -- -- (2,722)
Foreign tax credit ................................... (727) 46 (33)
Foreign taxes ........................................ 1,412 943 (303)
State and local taxes ................................ 556 991 607
Deferred tax asset valuation allowance ............... 19,632 2,421 --
Nondeductible amortization ........................... 919 1,254 446
Other ................................................ 133 (998) (505)
------------ ------------ ------------
Total income tax (benefit) expense .................. $ (6,097) $ (49,677) $ 26,776
============ ============ ============
</TABLE>
The tax effects of the cumulative temporary differences resulting in the net
deferred income tax assets (liability) follow (in thousands):
<TABLE>
<CAPTION>
May 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Current deferred:
Deferred income tax assets:
Accrued expenses ............................... $ 2,115 $ 4,245
Allowance accounts ............................. 10,798 22,625
Uniform capitalization ......................... 546 698
------------ ------------
Total current deferred income tax asset ... $ 13,459 $ 27,568
============ ============
Noncurrent deferred:
Deferred income tax assets:
Accrued expenses ............................... $ 96 $ 92
Unamortized restricted stock amortization ...... 24 567
Basis in identified intangibles ................ 11,941 670
Net operating loss carryforward ................ 47,862 17,828
Foreign tax credit carryforward ................ 3,812 2,602
Alternative minimum tax credit ................. 1,336 1,335
Other .......................................... 1,154 1,154
------------ ------------
Total deferred income tax asset ........... 66,225 24,248
Valuation allowance ....................... (22,053) (2,421)
------------ ------------
Net noncurrent deferred income tax asset .. 44,172 21,827
------------ ------------
Deferred income tax liabilities:
Basis in property, plant and equipment ......... (2,779) (3,088)
Basis in identified intangibles ................ -- --
------------ ------------
Total deferred income tax liability ....... (2,779) (3,088)
------------ ------------
Net noncurrent deferred income tax asset .. $ 41,393 $ 18,739
============ ============
</TABLE>
A tax valuation allowance has been established due to the uncertainty
of realizing certain foreign tax credit and net operating loss carry-forwards.
The valuation allowance increased $19,632,000 during fiscal year 2000 to
$22,053,000 at May 31, 2000.
At May 31, 2000, we had net operating loss carry-forwards of
approximately $136.7 million for federal income tax purposes, which ultimately
expire in fiscal year 2020 if not otherwise utilized. In addition, we have
foreign tax credit carry-forwards of $3.8 million, which expire between fiscal
years 2003 and 2004.
In assessing the realizability of deferred income tax assets, we
consider whether it is more likely than not that some portion or all of the
deferred income tax assets will be realized. The ultimate
F-21
<PAGE> 59
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
realization of deferred income tax assets is dependent upon the generation of
future taxable income during the periods in which those deferred income tax
assets become deductible. We consider the scheduled reversal of deferred income
tax liabilities and projected future taxable income in making this assessment.
In order to fully realize the deferred income tax assets, we will need to
generate future taxable income of approximately $165.0 million over the next 20
years. Although we experienced significant losses in fiscal years 2000 and 1999,
our taxable income for the years 1996 through 1998 aggregated approximately
$128.0 million. Based on the level of historical income prior to fiscal 1999 and
our projections of future taxable income over the periods that the deferred
income tax assets are deductible and the expiration date of the net operating
loss carry-forward, we believe it is more likely than not that we will realize
the benefits of the deferred income tax assets, net of the valuation allowance
at May 31, 2000. The ultimate realization of the net deferred tax asset, prior
to the expiration of the net operating loss carry-forward in the next 19-20
years, will require significant improvements in our results of operations from
fiscal years 1999 and 2000 levels and a return to levels of profitability that
existed prior to fiscal year 1999. The amount of deferred income tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carry-forward period are reduced. If a
reduction in the net deferred tax asset determined to be more likely than not
realizable occurs in the near term, it is likely that this adjustment will have
a material adverse effect on our results of operations.
(11) LEASES
We are a party to several leases as described below:
As Lessor: We have leased seismic equipment to customers under
operating leases with non-cancelable terms of less than one year. Rental
revenues relating to the operating leases were: $3,184,000 in 2000, $673,000 in
1999 and $10,112,000 in 1998. We entered into a Preferred Supplier Agreement
with Mitcham Industries, Inc. ("Mitcham") during 1998. The terms of this
agreement provided that Mitcham would purchase a minimum of $90 to $100 million
of our products over a five-year term ending May 31, 2003, which amounts
included a $15.0 million purchase by Mitcham of a substantial portion of our
equipment lease pool during 1998. In addition, we had agreed not to lease
products covered by the Preferred Supplier Agreement except in limited
circumstances, and to refer rental inquiries from our customers worldwide to
Mitcham during the term of the agreement. This agreement was terminated in the
fourth quarter of fiscal 1999. Due to the termination of this agreement, we are
evaluating potential future equipment leasing opportunities for current and
future products. We also own a building with tenants. The rental revenues
relating to those building leases were: $205,000 in 2000, $187,000 in 1999 and
$258,000 in 1998.
As Lessee: We had rental expense relating to operating leases for
warehouse and office space and various equipment of: $2,171,000 in 2000,
$1,297,000 in 1999 and $1,560,000 in 1998. At May 31, 2000, none of the
operating leases had non-cancelable lease terms in excess of one year.
(12) BENEFIT PLANS
We have a 401(k) retirement savings plan which covers substantially all
employees. Employees may voluntarily contribute up to 15% of their compensation,
as defined, to the plan and we may contribute additional amounts at our sole
discretion. Our contributions to the plan were: $0 in 2000, $1,728,000 in 1999
and $1,433,000 in 1998.
F-22
<PAGE> 60
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have adopted a non-qualified, supplemental executive retirement plan
(SERP Plan). The SERP Plan provides for certain compensation to become payable
on the participants' death, retirement or total disability as set forth in the
plan. During fiscal year 2000, the remaining participants in the plan left the
Company. Assets of this plan consist of the cash surrender value of life
insurance policies. We have also adopted a non-qualified, unfunded outside
directors retirement plan (Directors Plan). The Directors Plan provides for
certain compensation to become payable on the participants' death, retirement or
total disability as set forth in the plan. Both plans are accounted for under
Statement of Financial Accounting Standards No. 87, "Employers' Accounting for
Pensions."
With respect to the SERP Plan, the consolidated financial statements include
pension expense (benefit) of ($460,000), $67,000, and ($696,000) in fiscal years
2000, 1999, and 1998, respectively; accrued pension costs of $0 and $460,000 in
fiscal years 2000 and 1999, respectively; and an intangible asset for
unrecognized prior service cost of $0 and $138,000 at May 31, 2000 and 1999,
respectively.
With respect to the Directors Plan, the consolidated financial statements
include pension expense of $50,000, $77,000, and $48,000 in fiscal years 2000,
1999, and 1998, respectively; and accrued pension costs of $127,000 and $264,000
at May 31, 2000 and 1999, respectively.
(13) CREDIT RISK
We sell to many customers on extended-term arrangements. Moreover, in
connection with certain sales of our systems and equipment, we have guaranteed
loans from unaffiliated parties to purchasers of such systems and equipment. In
addition, we have sold contracts and leases to third-party financing sources,
the terms of which often obligate us to repurchase the contracts and leases in
the event of a customer default or upon certain other occurrences. At May 31,
2000 and 1999, we had guaranteed approximately $0 and $948,000, respectively, of
trade notes receivable sold with recourse and loans from unaffiliated parties to
purchasers of our seismic equipment. All loans guaranteed were collateralized by
the seismic equipment. Due to the inherent uncertainties of guaranty agreements,
we could not estimate the fair value of the guaranties as of May 31, 1999.
Sales outside the United States have historically accounted for a
significant part of our net sales. Foreign sales are subject to special risks
inherent in doing business outside of the United States, including the risk of
war, civil disturbances, embargo and government activities, which may disrupt
markets and affect operating results.
Demand for our products from customers in developing countries is
difficult to predict and can fluctuate significantly from year to year. We
believe that these changes in demand result primarily from the instability of
economies and governments in certain developing countries, changes in internal
laws and policies affecting trade and investment, and because those markets are
only beginning to adopt new technologies and establish purchasing practices.
These risks may adversely affect our future operating results and financial
position. In addition, sales to customers in developing countries on extended
terms can present heightened credit risks for us, for the reasons discussed
above.
F-23
<PAGE> 61
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) SELECTED QUARTERLY INFORMATION - (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------
2000 AUG. 31* NOV. 30 FEB. 29* MAY 31*
------------- ------------- ------------ ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales ......................... $ 29,979 $ 24,438 $ 33,424 $ 33,613
Gross profit ...................... 5,985 5,273 (389) 3,943
Loss from operations .............. (12,938) (9,792) (9,814) (52,926)
Interest expense .................. (212) (202) (197) (215)
Interest and other income ......... 1,034 1,220 1,761 2,221
Income tax expense (benefit) ...... (3,877) (2,389) 168 1
Net loss .......................... $ (9,320) $ (7,528) $ (9,574) $ (52,098)
============ ============ ============ ============
Basic loss per share .............. $ (0.18) $ (0.15) $ (0.19) $ (1.03)
============ ============ ============ ============
Diluted loss per share ............ $ (0.18) $ (0.15) $ (0.19) $ (1.03)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
1999 AUG. 31 NOV. 30 FEB. 28* MAY 31*
------------ ------------ ------------ ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales .......................... $ 66,995 $ 73,918 $ 37,755 $ 18,747
Gross profit (loss) ................ 21,963 27,982 (45,894) (11,851)
Earnings (loss) from operations .... 745 3,642 (95,368) (70,973)
Interest expense ................... (242) (217) (229) (209)
Interest and other income .......... 2,843 2,122 1,824 822
Income tax expense (benefit) ....... 1,071 1,775 (32,553) (19,970)
Net earnings (loss) ................ $ 2,275 $ 3,772 $ (61,220) $ (50,390)
============ ============ ============ ============
Basic earnings (loss) per share .... $ 0.05 $ 0.08 $ (1.21) $ (1.00)
============ ============ ============ ============
Diluted earnings (loss) per share .. $ 0.05 $ 0.08 $ (1.21) $ (1.00)
============ ============ ============ ============
</TABLE>
*See Note 15 concerning charges that occurred in the first, third, and fourth
quarter of fiscal year 2000, and charges that occurred in the third and fourth
quarter of fiscal year 1999.
F-24
<PAGE> 62
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) SPECIAL CHARGES AND RECOVERIES
Our special charges and recoveries consist of various transactions
resulting from industry downturns, cost reduction initiations and acquisitions
integration. The table below summarizes the fiscal year 2000 pretax expenses and
costs for special charges and the accrued amounts at May 31, 2000 for cash
liabilities (in thousands):
<TABLE>
<CAPTION>
Receivable Long-lived Personnel/
Inventory Related Asset Warranty Facility
Related Charges/ Related Product And Other
Charges Recoveries Charges Related Charges Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
2000 charges/recoveries to expense by
business segment:
Marine .................................... $ 3,607 $ 2,400 $ 25,200 $ 1,993 $ 1,700 $ 34,900
Land ...................................... $ 8,700 3,600 7,100 -- 1,400 20,800
Corporate ................................. -- -- -- -- 7,900 7,900
----------- ----------- ----------- ----------- ----------- -----------
Total ..................................... $ 12,307 $ 6,000 $ 32,300 $ 1,993 $ 11,000 $ 63,600
Adjustments to 1999
Changes recorded in 2000............... -- (10,200) -- (2,600) -- (12,800)
----------- ----------- ----------- ----------- ----------- -----------
$ 12,307 $ (4,200) $ 32,300 $ (607) $ 11,000 $ 50,800
=========== =========== =========== ===========
Balance at May 31, 1999 ................... 11,980 1,903
Settled in 2000 ........................... (8,079) (5,362)
----------- -----------
Balance at May 31, 2000 ................... $ 3,294 $ 7,541
=========== ===========
2000 charges/recoveries to expense by
category:
Cost of sales ............................. $ 12,307 $ -- $ -- $ (607) $ 300 $ 12,000
General and administrative expense ........ -- (4,200) 700 -- 10,700 7,200
Amortization and impairment of
intangibles ............................ -- -- 31,600 -- -- 31,600
----------- ----------- ----------- ----------- ----------- -----------
$ 12,307 $ (4,200) $ 32,300 $ (607) $ 11,000 $ 50,800
=========== =========== =========== =========== =========== ===========
</TABLE>
During the first quarter of fiscal year 2000, we recorded pretax
charges totaling $4.7 million, comprised of $3.3 million primarily related to
employee severance arrangements and the closing of our Ireland facility
(included in general and administrative expenses) and charges of $1.4 million
for product-related warranties (included in cost of sales). These charges
resulted from continued weak customer demand for our equipment. This weak demand
resulted from, among other things, a widespread downturn in exploration activity
due to a decline in energy prices from October 1997 through February 1999, and
consolidation among energy producers.
During the third quarter of fiscal 2000, we recorded pretax charges and
recoveries totaling a net charge of $0.3 million, comprised of $8.7 million of
inventory charges (included in cost of sales) primarily related to our decision
then to commercialize VectorSeis(TM) digital sensor products having higher
technical standards than the products we had previously produced. We had decided
to commercialize these earlier VectorSeis(TM) products which have since proven
not to be commercially feasible based on data gathered from recent
VectorSeis(TM) digital sensor surveys, the anticipated longer-term market
recovery for new seismic instrumentation and given current and expected market
conditions. Other charges were $2.4 million of bad debt expense related to a
marine customer (included in general and administrative expense); $1.3 million
of charges related to a 45-employee reduction in our workforce worldwide
(included in general and administrative expense); and $0.7 million of charges
F-25
<PAGE> 63
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
related to legal settlements (included in cost of sales - $0.3 million, and in
general and administrative expense - $0.4 million). These charges were offset in
part by $12.8 million of recoveries attributable to a more favorable than
anticipated resolution of a customer's bankruptcy settlement, consisting of a
$10.2 million reduction in our allowance for loan loss, resulting in a payment
received in March 2000 (recorded as a reduction to general and administrative
expense) and a $2.6 million reversal of warranty reserves based on the
bankruptcy settlement (recorded as a reduction to cost of sales).
During the fourth quarter of fiscal year 2000, we recorded pretax
charges totaling $45.8 million, comprised of $4.2 million of inventory and
warranty charges (included in cost of sales) primarily related to our write-down
of certain marine streamer and related products, reflecting the deterioration of
the marine towed array seismic sector. Additionally, $10.0 million was charged
to general and administrative expenses consisting of a $5.0 million charge for
settlement of the Coastline Geophysical litigation, a $3.6 million loan loss
expense, primarily relating to two of our land customers, $0.7 million related
to the sale of certain idle manufacturing capacity in Europe, and $0.7 million
of charges related to employee severance and continued cost reduction efforts
worldwide. Finally, $31.6 million was charged to amortization and impairment
expense, reflecting the impairment of certain goodwill recorded in conjunction
with our acquisition of: (1) the manufacturing assets of Western Geophysical in
1995 and (2) the acquisition of CompuSeis, Inc. in 1998. The impairment of the
Western Geophysical goodwill principally reflects the diminished outlook for the
marine towed array seismic sector in general, evidenced by our customers'
decisions to reduce the size of their marine fleets, and changes in customers'
preferences and technology for certain products within that sector. The
impairment of the CompuSeis goodwill reflects the result of certain
technological changes relating to our land seismic systems.
The table below summarizes the fiscal year 1999 pretax expenses and
costs for special charges and the accrued amounts at May 31, 1999 for cash
liabilities (in thousands).
<TABLE>
<CAPTION>
Long-lived Personnel/
Inventory Receivable Asset Warranty/ Facility
Related Related Related Product And Other
Charges Charges Charges Related Charges Total
--------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1999 charges to expense by business segment:
Marine ...................................... $ 30,986 $ 18,298 $ 729 $ 17,025 $ 775 $ 67,813
Land ........................................ 25,978 21,034 12,539 2,975 2,787 65,313
Corporate ................................... 1,136 568 1,232 -- 2,938 5,874
--------- --------- --------- --------- --------- ---------
Total ....................................... $ 58,100 $ 39,900 $ 14,500 20,000 6,500 $ 139,000
========= ========= ========= =========
Settled in 1999 ............................. (8,020) (4,597)
--------- ---------
Balance May 31, 1999 ........................ $ 11,980 $ 1,903
========= =========
1999 charges to expense by category:
Cost of sales ............................... $ 57,000 $ -- $ -- $ 20,000 $ -- $ 77,000
General and administrative expense .......... -- 39,900 6,800 -- 6,500 53,200
Research and development .................... 1,100 -- -- -- -- 1,100
Amortization and impairment of intangibles .. -- -- 7,700 -- -- 7,700
--------- --------- --------- --------- --------- ---------
$ 58,100 $ 39,900 $ 14,500 $ 20,000 $ 6,500 $ 139,000
========= ========= ========= ========= ========= =========
</TABLE>
F-26
<PAGE> 64
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We recorded pretax charges totaling $139.0 million in the third and
fourth quarters of fiscal 1999, resulting from reduced customer demand for our
equipment as a result of historically low commodity prices, energy company
combinations which have delayed seismic data acquisition projects and due to the
continued deterioration of the financial condition of certain customers. The
reduced demand has created excess capacity within our installed base,
accelerating the obsolescence of certain of our seismic equipment. Of the $139.0
million of pretax charges, $85.7 million was recorded in the third quarter of
fiscal 1999 and included an impairment of long-lived assets totaling $2.8
million included in general and administrative expenses; an impairment of
intangible assets totaling $1.4 million included in amortization and impairment
of intangibles; an inventory write-down of $47.3 million due to the conditions
described above and planned product revisions, included in cost of sales;
charges for the early termination of a facility lease and restructuring costs
totaling $2.6 million included in general and administrative expenses; an
accounts and notes receivable allowance of $17.6 million related to a customer's
vessel seizure followed by filing for creditor protection and management's
assessment of business risk relating to three North American customer trade
notes receivable as a result of the depressed market environment, included in
general and administrative expenses; and a charge for warranty reserves and
other product related contingencies of $14.0 million, included in cost of sales.
The remaining pretax charges of $53.3 million were recorded in the
fourth quarter of fiscal year 1999, and included an accounts and trade notes
receivable allowance of $22.3 million, primarily related to business risk
resulting from the depressed market environment, and from political and currency
risks in certain developing countries, included in general and administrative
expenses; an inventory write-down of $9.7 million primarily due to further
reduction in customer demand for products rendered excess or obsolete as a
result of prevailing industry conditions and as a result of planned product
revisions, included in cost of sales; a charge of $6.0 million relating to
certain warranty reserves and other product-related contingencies, included in
cost of sales; an impairment of long-lived assets totaling $4.0 million related
to the recent downturn in business activity and our resizing efforts, included
in general and administrative expenses; an impairment of intangibles totaling
$6.3 million related to the deterioration of certain product lines, included in
amortization and impairment of intangibles; a charge of $3.3 million related to
employee severances and a charge of $0.6 million for other expenses, included in
general and administrative expenses and a charge of $1.1 million primarily
related to prototype development costs, included in research and development
expenses.
(16) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we have been named in various
lawsuits. While the final resolution of these matters may have an impact on our
consolidated financial results for a particular reporting period, we believe
that the ultimate resolution of these matters will not have a material adverse
impact on our financial position, results of operations or liquidity.
(17) RELATED PARTIES
In connection with our acquisition of DigiCourse, Inc. in November
1998, we entered into a Continued Services Agreement with The Laitram
Corporation ("Laitram"), under which Laitram agreed to provide accounting,
software, manufacturing and maintenance services to us. Mr. Lapeyre, our
Chairman of the Board, is the chairman and principal stockholder of Laitram.
Under the terms of the Service Agreement, Laitram bills us for facility lease
and machine shop services rendered on a monthly
F-27
<PAGE> 65
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
basis. In the fiscal years ended May 31, 2000 and 1999, we paid Laitram an
aggregate of $1.5 million and $2.7 million, respectively under the Continued
Services Agreement. The facility lease portion of the Service Agreement has a
term of three years expiring September 30, 2001 and the machine shop agreement
had a term of one year ending on November 17, 1999.
A director and former company officer has an agreement with us to
assist in the collection efforts of certain accounts and notes receivable owed
to us. In return, he is paid a commission on actual amounts collected. During
fiscal year 2000, commissions earned amounted to $487,000.
We have guaranteed $325,000 of bank indebtedness for two of our
officers related to their purchases of company stock. The share purchases were
made in conjunction with shares issued in May 2000 under the Input/Output, Inc.
2000 Restricted Stock Plan and further discussed in Note 7.
(18) SUBSEQUENT EVENT
We were named, along with a former employee, as defendants in an action
filed on May 21, 1999, in State District Court in Harris County, Texas styled
Coastline Geophysical, Inc. v. Input/Output, Inc. et al. The plaintiffs'
petition alleged a number of claims arising out of a purchase of a marine
seismic system manufactured by us. While believing we had meritorious defenses
to this action, we settled the lawsuit in July 2000 for $5.0 million, after
giving consideration to the cost and distraction of protracted litigation. As a
result of the settlement, we have recorded a $5.0 million charge to general and
administrative expense in the fourth quarter and year ended May 31, 2000. See
Note 15.
F-28
<PAGE> 66
SCHEDULE II
INPUT/OUTPUT, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
YEAR ENDED BEGINNING COSTS AND BALANCE AT
MAY 31, 1998 OF YEAR EXPENSES DEDUCTIONS END OF YEAR
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 1,740 $ 1,770 $ 373 $ 3,137
Reserves for excess and
obsolete inventory 1,749 4,264 1,064 4,949
Warranty, training and
installation 3,856 5,162 4,773 4,245
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
YEAR ENDED BEGINNING COSTS AND BALANCE AT
MAY 31, 1999 OF YEAR EXPENSES DEDUCTIONS END OF YEAR
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 3,137 $ 17,780 $ 1 $ 20,916
Reserves for excess and
obsolete inventory 4,949 58,848 47,550 16,247
Warranty, training and
installation 4,245 19,280 9,650 13,875
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
YEAR ENDED BEGINNING COSTS AND BALANCE AT
MAY 31, 2000 OF YEAR EXPENSES DEDUCTIONS OTHER END OF YEAR
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 20,916 $ (1,107)(1) $ 6,003 $ (12,240)(3) $ 1,566
Reserves for excess and
obsolete inventory 16,247 16,360 17,616 -- 14,991
Warranty, training and
installation 13,875 (1,731)(2) 5,674 -- 6,470
</TABLE>
(1) Includes recoveries of $2.1 million.
(2) Includes reversal of $2.6 million based on bankruptcy settlement of a
customer.
(3) Represents transfer to loan loss allowance as a result of conversion of
trade receivable to a note receivable.
F-29
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 --Amended and Restated Certificate of Incorporation, filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995 and incorporated herein by
reference.
3.2 --Certificate of Amendment to the Amended and Restated
Certificate of Incorporation, dated October 11, 1996, filed
as Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1997 and incorporated
herein by reference.
3.3 Amended and Restated Bylaws, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
3.4 Amendment No. 1 to the Amended and Restated Bylaws of the
Company, dated September 13, 1999, filed as exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1999 and incorporated herein by
reference.
4.1 Form of Certificate of Designation, Preferences and Rights of
Series A Preferred Stock of Input/Output, Inc., filed as
Exhibit 2 to the Company's Registration Statement on Form 8-A
dated January 27, 1997 (attached as Exhibit 1 to the
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
Rights Agreement referenced in Exhibit 10.24) and
incorporated herein by reference.
4.2 Form of Certificate of Designation, Preferences and Rights of
Series B Preferred Stock of Input/Output, Inc., filed as
Exhibit 4.1 to the Company's Form 8-K dated April 21, 1999
and incorporated herein by reference.
4.3 Form of Certificate of Designation, Preferences and Rights of
Series C Preferred Stock of Input/Output, Inc., filed as
Exhibit 4.2 to the Company's Form 8-K dated April 21, 1999
and incorporated herein by reference.
10.2 Royalty Agreement, dated November 6, 1992, between I/O
Sensors, Inc., Triton and Triton Technologies, Inc., filed as
exhibit 10.2 to the Company's 10-K for fiscal year ended May
31, 1999 and incorporated herein by reference.
**10.3 1990 Restricted Stock Plan, filed as Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
**10.4 Amended and Restated 1990 Stock Option Plan, filed as Exhibit
4.2 to the Company's Registration Statement on Form S-8
(Registration No. 333-80299), filed with the Securities and
Exchange Commission on June 9, 1999 and incorporated herein
by reference.
**10.5 Input/Output, Inc. 1996 Management Incentive Program, filed
as Exhibit 10.5 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1997 and incorporated
herein by reference.
10.6 Input/Output, Inc. 401(k) Plan, filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
**10.7 Amended Directors Retirement Plan, filed as Exhibit 10.7 to
the Company's Annual Report on form 10-K for the fiscal year
ended May 31, 1997 and incorporated herein by reference.
**10.8 Amended and Restated 1991 Directors Stock Option Plan, filed
as Exhibit 4.3 to the Company's Registration Statement on
Form S-8 (Registration No. 33-85304) filed with the
Securities and Exchange Commission on October 19, 1994, and
incorporated herein by reference.
**10.9 Amendment to the Amended and Restated 1991 Directors Stock
Option Plan, filed as Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1997
and incorporated herein by reference.
**10.10 Supplemental Executive Retirement Plan, filed as Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997 and incorporated herein by
reference.
**10.11 Amendment No. 1 to the Company's Supplemental Executive
Retirement Plan, effective January 17, 1997, filed as Exhibit
10.11 to the Company's Annual
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
Report on Form 10-K for the fiscal year ended May 31, 1997
and incorporated herein by reference.
**10.12 Supplemental Executive Retirement Trust, filed as Exhibit
10.12 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997 and incorporated herein by
reference.
**10.13 Amendment No. 1 to the Company's Supplemental Executive
Retirement Trust, effective January 17, 1998, filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1997 and incorporated herein by
reference.
10.20 Promissory Note dated August 29, 1996 executed by IPOP
Management, Inc. to the order of The Variable Annuity Life
Insurance Company, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1996 and incorporated herein by reference.
10.21 Master Commercial Lease Agreement dated August 29, 1996, by
and between IPOP Management, Inc. and The Variable Annuity
Life Insurance Company, filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1996 and incorporated herein by
reference.
10.22 Limited Guaranty dated August 29, 1996, executed by
Input/Output, Inc., filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1996 and incorporated herein by reference.
**10.23 Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan, filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (Registration
No. 333-80299), filed with the Securities and Exchange
Commission on June 9, 1999 and incorporated herein by
reference.
10.24 Rights Agreement, dated as of January 17, 1997, by and
between Input/Output, Inc. and Harris Trust and Savings Bank,
as Rights Agent, including exhibits thereto, filed as Exhibit
4 to the Company's Form 8-A dated January 27, 1997 and
incorporated herein by reference.
10.25 Input/Output, Inc. Employee Stock Purchase Plan, filed as
Exhibit 4.4 to the Company's Registration Statement on Form
S-8 (Registration No. 333-24125) filed with the Securities
and Exchange Commission on March 18, 1997 and incorporated
herein by reference.
10.31 Purchase Agreement by and between the Company and SCF-IV,
L.P. dated April 21, 1999, filed as Exhibit 10.1 to the
Company's Form 8-K dated April 21, 1999 and incorporated
herein by reference.
10.32 Registration Rights Agreement by and between the Company and
SCF-IV, L.P. dated May 7, 1999, filed as Exhibit 10.2 to the
Company's Form 8-K dated April 21, 1999 and incorporated
herein by reference.
10.33 First Amendment to Rights Agreement by and between the
Company and Harris Trust and Savings Bank as Rights Agent,
dated April 21, 1999, filed as Exhibit
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.3 to the Company's Form 8-K dated April 21, 1999 and
incorporated herein by reference.
10.35 Registration Rights Agreement by and among the Company and
the Laitram Corporation, dated November 16, 1998, filed as
Exhibit 99.2 to the Company's Form 8-K dated November 16,
1998 and incorporated herein by reference.
10.36 Input/Output, Inc. 1998 Restricted Stock Plan, filed as
Exhibit 4.7 to the Company's Registration Statement on Form
S-8 (Registration No. 333-80297), filed with the Securities
and Exchange Commission on June 9, 1999 and incorporated
herein by reference.
10.37 Employee Agreement by and between the Company and Axel M.
Sigmar, dated August 17, 1999, filed as exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1999, and incorporated herein by
reference.
10.38 Amendment No. 3 to the Input/Output, Inc. Supplemental
Executive Retirement Plan, dated August 23, 1999, files as
exhibit 10.2 to the Company's Quarterly Report Form 10-Q for
the fiscal quarter ended August 31, 1999, and incorporated
herein by reference.
10.39 Amendment No. 2 to the Input/Output, Inc. Amended and
Restated 1991 Directors Stock Plan, dated September 13, 1999,
filed as exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 1999, and
incorporated herein by reference.
10.40 Amendment No. 1 to the Input/Output, Inc. Amended and
Restated 1996 Non-Employee Director Stock Option Plan, dated
September 13, 1999, filed as exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1999, and incorporated herein by reference.
10.41 Consulting and Collection Agreement by and between the
Company and Robert P. Brindley, dated October 7, 1999, filed
as exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended August 31, 1999, and
incorporated herein by reference.
10.42 Consulting Agreement by and between the Company and Sam K.
Smith, dated August 10, 1999, filed as exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 199, and incorporated herein by
reference.
***10.43 Input/Output, Inc. Annual Incentive Plan, dated effective
November 3, 1999.
***10.44 Employment Agreement by and between the Company and Timothy
J. Probert dated effective as of March 1, 2000.
***10.45 Input/Output, Inc. 2000 Restricted Stock Plan, effective as
of March 13, 2000.
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
*21.1 Subsidiaries of the Company.
*23.1 Consent of KPMG LLP.
*24.1 The Power of Attorney is set forth on the signature page
hereof.
*27.1 Financial Data Schedule (included in EDGAR copy only).
99.1 Information required by Form 11-K with respect to the
Input/Output, Inc. Employee Stock Purchase Plan will be filed
as an amendment to this Annual Report on Form 10-K within 120
days of the end of the fiscal year of the plan (i.e. June 30)
as permitted by Rule 15d-21 under the Securities Exchange Act
of 1934, as amended.
</TABLE>
* Filed herewith.
** Management contract or compensatory plan or arrangement.
*** Management contract or compensatory plan or arrangement filed herewith.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.43
<SEQUENCE>2
<FILENAME>ex10-43.txt
<DESCRIPTION>INPUT/OUTPUT, INC. ANNUAL INCENTIVE PLAN
<TEXT>
<PAGE> 1
EXHIBIT 10.43
INPUT/OUTPUT, INC.
ANNUAL INCENTIVE PLAN
Effective November 3, 1999
Purpose
The purpose of the Input/Output, Inc. ("I/O") Annual Incentive Plan
is to advance the interests of I/O and its stockholders by providing
employees with annual incentive compensation which is tied to the achievement
of preestablished and objective performance goals.
ARTICLE I
Definitions
For the purpose of this Plan, unless the context requires otherwise,
the following terms shall have the meanings indicated:
"Base Pay" means the gross annual base pay of a Participant
(exclusive of bonuses and Incentive Amounts and any compensation under any other
employee compensation or benefit plans of the Company) paid or to be paid, as
the case may be, to a Participant with respect to the Incentive Year in
question, according to the books and records of the Company and its
Subsidiaries.
"Board" means the board of directors of the Company.
"Book Equity" means an amount equal to the average Company
consolidated stockholders' equity for the Incentive Year, being the average of
the four quarters' stockholders equity amounts (each computed as beginning
stockholders' equity plus ending stockholders' equity for that quarter, divided
by two), where stockholders' equity shall include the amounts attributable to
common stock preferred stock, and retained earnings and shall be derived from
the Company's consolidated balance sheet as of the beginning and end of each
quarter during the Incentive Year, prepared in accordance with GAAP.
"Committee" has the meaning assigned to it in Article II.
"Company" means I/O, a Delaware corporation.
"Employee" shall mean any regular full-time hourly or salaried
domestic employee of the Company or one of its Subsidiaries, excluding employees
covered by a collective bargaining agreement or any individuals classified as
independent contractors (even if a governmental agency or other entity would
classify such individuals differently).
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through the Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods so as to
properly reflect the financial condition and the results of operations of the
Company and its
<PAGE> 2
Subsidiaries, except that any accounting principle or practice required to be
changed by such Financial Accounting Standards Board (or other appropriate board
or committee of such board) in order to continue as a generally accepted
accounting principle or practice may so be changed.
"Incentive Amount" means the amount payable to a Participant
calculated pursuant to Article IV of the Plan.
"Incentive Pool" means the amount calculated pursuant to Article IV
from which the Incentive Amounts shall be paid.
"Incentive Year" means the fiscal year of the Company and its
Subsidiaries with respect to which an Incentive Amount is calculated.
"Participant" means an Employee who is eligible for participation in
the Plan and who, on the particular Payment Date, is, subject to Article V, then
employed by the Company or any of its Subsidiaries.
"Payment Date" means the business day selected by the Committee upon
which the Committee shall make final Incentive Amount calculations in accordance
with Article IV, which shall be a date approximately sixty (60) days after the
end of the Incentive Year and, in any event, after the Company's independent
accounting firm issues its audit report on the Company's consolidated financial
statements with respect to the Incentive Year in question.
"Plan" means the I/O Annual Incentive Plan, as it may be amended
from time to time.
"Pool Percentage" shall be twenty percent (20%), unless otherwise
determined by the Committee in its sole discretion, or as otherwise provided
herein.
"Profits Before Taxes" or "PBT" means with respect to a Payment
Date, the sum of (i) the net income, before provision for income taxes and
preferred stock dividends, of the Company and its Subsidiaries for the Incentive
Year in question determined by reference to the Company's audited consolidated
statement of earnings for such Incentive Year prepared in accordance with GAAP,
plus (ii) the total of all direct Incentive Amounts for the Participants under
the Plan accrued in determining such amount for such Incentive Year. In
determining the annual PBT, gains or losses from certain non-recurring or
extraordinary transactions, such as sales of assets (excluding regular sales
from inventory), reorganizations, acquisitions, divestitures or other capital or
financial transactions (as determined by the Committee in its sole discretion),
shall be excluded.
"Return on Book Equity" means, unless otherwise specified herein or
determined by the Committee, an amount computed by multiplying the applicable
Return on Book Equity Percentage times Book Equity for the Incentive Year in
question.
"Return on Book Equity Percentage" shall be eight percent (8%),
unless otherwise determined by the Committee in its sole discretion, or as
otherwise provided herein.
"Subsidiary" means any corporation, 100% of the voting stock of
which is owned directly or indirectly (through other Subsidiaries) by the
Company.
<PAGE> 3
ARTICLE II
ADMINISTRATION
Subject to the terms of this Article II, the Plan shall be
administered by the Compensation Committee (the "Committee") of the Board.
Subject to the terms hereof; the Committee shall interpret the Plan, prescribe,
amend, and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, and make such other determinations and take such
other action as it deems necessary or advisable. In this regard, the Committee
may consider and give appropriate weight to input from representatives of
management of the Company regarding the contributions or potential contributions
to the Company or a Subsidiary of certain employees, or potential employees, of
the Company or any Subsidiary.
The Committee shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan and to
adopt such rules and regulations for administering the Plan as it may deem
necessary Except as provided below, any interpretation, determination, or other
action made or taken by the Committee shall be final, binding, and conclusive on
all interested parties, including the Company and all Participants.
During an Incentive Year, the Committee shall have discretion to
adjust Profits Before Taxes, Return on Book Equity Percentage, Pool Percentage
and percentage allocations of the Incentive Pool, provided that these
adjustments are made during the first six (6) months of an Incentive Year.
ARTICLE III
ELIGIBILITY
All Employees shall be eligible to become a Participant in this Plan
after the completion of six (6) months of consecutive service with the Company
or a Subsidiary. Any Employee who is hired after the commencement of a Incentive
Year shall participate in the Plan on a pro rata basis (based on such Employee's
total days of service with the Company or a Subsidiary divided by 365), provided
that such Employee has first completed six (6) consecutive months of service
with the Company or Subsidiary. Employees who participate in this Plan may also
participate in other incentive or benefit plans of the Company or any
Subsidiary.
ARTICLE IV
INCENTIVE AMOUNT
Subject to and in accordance with the terms of this Plan, on each
Payment Date, the Committee shall compute the Incentive Pool by reference to
(I) Profits Before Taxes and (ii} Return on Book Equity, for the particular
Incentive Year in question. The Incentive Amounts shall be calculated as
follows:
(a) First, Profits Before Taxes shall be reduced by the Return
on Book Equity amount
<PAGE> 4
(b) Second, the difference between Profits Before Taxes and
the Return on Book Equity amount shall be multiplied by the Pool
Percentage, with the resulting product being the Incentive Pool; the
Incentive Pool shall be reduced by the Company's or a Subsidiary's
portion of any FICA amounts required to be paid on the total Incentive
Amounts;
(c) Third, provided that the Incentive Pool exceeds $500,000,
each Participant shall be entitled to receive an Incentive Amount
calculated as his pro rata portion of an amount equal to fifty percent
(50%) of the Incentive Pool, with pro rata being computed on the basis
of a Participant's Base Pay for the Incentive Year in question compared
to the total Base Pay of all Participants for such Incentive Year;
(d) Fourth, the Committee shall allocate the remaining fifty
percent (50%) of the Incentive Pool to the Employees in such manner as
determined by the Committee in its sole discretion, or if Incentive
Pool does not exceed $500,000, then the Committee shall have discretion
to allocate the Incentive Pool to Employees in a manner determined in
its sole discretion; and
(e) Notwithstanding the foregoing, with respect to the
Incentive Years commencing on June 1, 1999 (Incentive Year 2000) and
June 1, 2000 (Incentive Year 2001), the following adjustments shall be
made for purposes of calculating the Incentive Pool: (i) for the
Incentive Year commencing in 1999, Profits Before Taxes (including
where Profits Before Taxes is a negative or loss amount) shall be
increased by $32,000,000 and the Return on Book Equity Percentage shall
be zero percent (0%); and (ii) for the Incentive Year commencing in
2000, Profits Before Taxes (including where Profits Before Taxes is a
negative or loss amount) shall be increased by $16,000,000 and the
Return on Book Equity Percentage shall be four percent (4%); provided
however that in any case, the minimum Incentive Pool amount with
respect to each of the 2000 and the 2001 Incentive Years shall be
$500,000.
ARTICLE V
PAYMENT OF INCENTIVE AMOUNTS AND GENERAL PROVISIONS
5.1 Payment Dales. As a condition to eligibility for receipt of an
Incentive Amount with respect to any particular Incentive Year, a Participant
shall be required to be in the employ of the Company or one of its Subsidiaries
through the applicable Payment Date, unless (i) such Participant terminated his
or her employment during such period due to retirement from the Company and its
Subsidiaries in accordance with the standard retirement policies of the Company
and its Subsidiaries then in effect, (ii) the Participant, while in the employ
of the Company or one of its Subsidiaries, became totally and permanently
disabled (as that term is defined in Section 22(e) of the Internal Revenue Code
of 1986, as amended) or (iii) the Participant dies while employed by the Company
or a Subsidiary. In such cases, the Participant or his estate, if applicable,
shall be entitled to a pro rata portion of the Incentive Amount payable with
respect to that Participant and the applicable Incentive Year.
<PAGE> 5
5.2 PARTIAL FISCAL YEARS. In the event that the Company and its
Subsidiaries adopt any different fiscal year which results in a fiscal year
having less than twelve months, the Committee shall, in its sole discretion,
award Incentive Amounts computed as provided in Article IV (but adjusted by the
Committee, based on its sole discretion, for such shortened fiscal year).
5.3 NO RIGHTS TO INCENTIVE AMOUNT. The prospective recipient of an
Incentive Amount shall not have any rights with respect to any Incentive Amount,
or any portion thereof, until the Payment Date and only then until such
Incentive Amount is actually granted by the Committee to such Participant in
accordance with the terms of the Plan. The Incentive Amounts will only be paid,
if after consideration of such payment, the Company is not in default of any
material provision on outstanding debt as determined by the Committee.
ARTICLE VI
AMENDMENT OR DISCONTINUANCE
The Board may at any time and from time to time, without the consent
of the Participants, alter, amend, revise, suspend, or discontinue the Plan in
whole or in part;
ARTICLE VII
TERM
The effective date of this Plan shall be November 3, 1999. Unless
sooner terminated by action of the Board, the Plan will terminate on May 31,
2010. Incentive Amounts under the Plan may not be granted after that date, but
Incentive Amounts granted before that date will continue to be effective in
accordance with their terms and conditions.
ARTICLE VIII
RECAPITALIZATION, MERGER AND CONSOLIDATION
The existence of this Plan and the Incentive Amounts granted
hereunder shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stocks ranking prior to or otherwise
affecting the Common Stock or the rights thereof (or any rights, options or
warrants to purchase same), or the dissolution or liquidation of the Company, or
any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 NON-ASSIGNABILITY. Subject to Section 5.1 hereof, no interest of
a Participant in any Incentive Amount awarded under the Plan may be transferred,
alienated, assigned or encumbered other than by will or pursuant to the laws of
descent and distribution.
<PAGE> 6
9.2 NO RIGHT TO CONTINUE EMPLOYMENT. Nothing in the Plan confers
upon any employee the right to continue in the employ of the Company or
interferes with or restricts in any way the right of the Company to discharge
any employee at any time (subject to any contract rights of such employee).
9.3 TAX REQUIREMENTS. The Company (and, where applicable, its
Subsidiaries) shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company an amount sufficient to satisfy
all applicable taxes required by law to be withheld with respect to any payment
of any Incentive Amount to a Participant.
9.4 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board
or the Committee, nor any officer, employee or agent of the Company acting on
behalf of the Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board or the Committee and each and every officer,
employee or agent of the Company acting on their behalf shall, to the fullest
extent permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation. Each member of the
Board and the Committee shall, in the performance of his or her duties under the
Plan, be fully protected in relying in good faith upon the audited and unaudited
financial statements of the Company as contemplated by the terms of the Plan.
9.5 EFFECT ON PARTICIPATION. The grant of an Incentive Amount to a
Participant shall not be deemed either to entitle the Participant to, or to
disqualify the Participant from, as the case may be, participation in any other
future grant of Incentive Amounts under the Plan or otherwise, or in any other
compensation or benefit plan of the Company or in any of its Subsidiaries
currently existing or hereafter established.
9.6 OTHER COMPENSATION AGREEMENTS. Nothing contained in this Plan
shall prevent the Board from adopting other or additional compensation
arrangements, subject to stockholder approval if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases.
9.7 GENDER AND NUMBER. Where the context permits, words in the
masculine gender shall include the feminine and neuter genders, the plural form
of a word shall include the singular form, and the singular form of a word shall
include the plural form.
ARTICLE X
UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any Incentive Amounts granted but not yet paid to
a Participant by the Company. nothing contained herein shall give any such
Participant any rights that are greater than those of a general unsecured
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of. trusts or other arrangements to satisfy the Plan provisions
concerning payments with respect to awards of Incentive Amounts; provided,
however, that the creation or existence of such trusts or other arrangements is
consistent with the unfunded status of the Plan.
<PAGE> 7
EXECUTED this day of , 1999
-------- ------------
INPUT/OUTPUT, INC
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Attest:
- -------------------------
Secretary
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.44
<SEQUENCE>3
<FILENAME>ex10-44.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT - MARCH 1, 2000
<TEXT>
<PAGE> 1
EXHIBIT 10.44
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into by and between INPUT/OUTPUT,
INC. (the "Company"), having a business address at 11104 West Airport
Boulevard, Stafford, Texas 77477-3016, and Timothy Probert (the "Executive"),
having a mailing address at 14842 Bramblewood Drive, Houston, Texas 77079.
WHEREAS, the Company wishes to employ the Executive and to assure
itself of the services of the Executive for the period provided in this
Agreement, and the Executive wishes to be employed by the Company for such
period on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. EMPLOYMENT. Upon the terms and subject to the conditions contained
in this Agreement, the Executive agrees to provide services as provided herein
for the Company during the term of this Agreement. The Executive agrees to
devote his best efforts and fulltime to the business of the Company, and shall
perform his duties in a diligent and business-like manner, all for the purpose
of advancing the business of the Company.
2. DUTIES. The duties of the Executive shall be those duties which can
reasonably be expected to be performed by a person with the title President and
Chief Executive Officer of Input/Output, Inc. The Executive shall report
directly to the Board of Directors of the Company.
3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the
Company agrees to employ the Executive for a term commencing as of March 1,
2000 (the "Effective Date") and continuing until February 28, 2004 (the
"Primary Term"), unless renewed in accordance with the terms of this Section 3.
Beginning February 28, 2004, this Agreement shall be automatically renewed each
February 28 for successive one-year terms, unless either the Company or the
Executive provides written notice of election not to renew, at least 60 days
before the applicable renewal date. The "term of this Agreement" includes the
Primary Term together with any renewal periods.
4. SALARY AND BENEFITS.
(a) Base Salary. The Company shall, during the Primary Term
of this Agreement, pay the Executive an annual base salary of $300,000
beginning on March 1, 2000. Such salary shall be paid in bi-monthly
installments, minus applicable withholding and authorized salary
deductions. The base salary will be reviewed annually by the Board of
Directors. The Company may not,
<PAGE> 2
however, reduce the Executive's base salary at any time during the
Primary Term.
(b) Bonus. The Executive shall be eligible to participate in
the Input/Output, Inc. Annual Incentive Plan (the "Plan") for the
Company's fiscal year commencing June 1, 2000. For the fiscal year
ending May 31, 2001, Executive shall be entitled to receive a minimum
bonus under the Plan in the amount of 50% of his annual base salary
reduced by the value of any restricted stock grants (valued for the
purposes of this subparagraph (b) at the closing price per share on
the New York Stock Exchange composite transactions tape on the date of
grant) provided that Executive is still so employed on the bonus
payment date, but in any case no later than July 31, 2001.
(c) Stock Options. The Executive shall be granted a
nonqualified stock option effective March 1, 2000, to purchase 150,000
shares of common stock of the Company under the Input/Output, Inc.
1990 Stock Option Plan (the "Option Plan") having an exercise price
equal to the fair market value of the stock on the date of grant. The
option grant will be evidenced by the Company's standard stock option
agreement. This option will vest in equal annual installments over a
four-year period beginning on the date of grant. This option will have
a term of ten years and will otherwise be subject to the standard
terms and conditions of the Option Plan and as follows: (i) if the
Executive's employment is terminated by the Company for any reason or
Executive resigns or otherwise terminates his employment for any
reason prior to a "change of control" (as defined in the Option Plan
as of the date hereof) the option shall be vested and exercisable in
accordance with the terms of the Option Plan as of the date hereof and
the option agreement to be entered into between Company and Executive;
(ii) if the Executive's employment is terminated by the Company for
any reason other than for "Cause," or Executive resigns for Good
Reason, in either event, within eighteen (18) months after a change of
control all unvested installments of option shares under such option
shall thereupon automatically accelerate and become fully vested
(provided, however, that if Executive resigns for a Good Reason as
defined in Section 5(b)(i)(A) below and has not remained employed with
the Company for a period of at least one (1) year after the change of
control date any unvested installment option shares shall vest in
accordance with the Option Plan and the option agreement between the
Company and Executive) ; and (iii) if Executive becomes entitled to an
Employment Payment as defined under Section 5(b), any unvested
installments of option shares under such option shall upon such
resignation of Executive automatically accelerate and become fully
vested; (iv) except as provided in (iii), if the Executive's
employment is not terminated within eighteen (18) months after such
change of control date, the terms of the Option Plan and option
agreement entered into
- 2 -
<PAGE> 3
between Company and Executive shall thereafter be controlling with
respect to vesting and the exercise of option rights.
(d) Stock Purchase Incentive. With respect to each share of
Company stock purchased by the Executive or a family trust (in which
Executive is a beneficiary or has investment control and discretion)
between March 22, 2000 and April 14, 2000 on the open market or
otherwise, but not pursuant to the Option Plan or any other equity
compensation or benefit plan of the Company, the Company shall grant
an option under the Option Plan effective April 14, 2000 pursuant to
an option agreement to be entered into between the Company and the
Executive to purchase three (3) shares of Company stock at an exercise
price which is equivalent to the closing sales price per share of the
Company's common stock on the New York Stock Exchange on April 14,
2000, as reported on the composite transactions tape for that date.
The maximum number of shares to be purchased by the Executive between
March 22, 2000 and April 14, 2000 that are eligible for this matching
option shall be 50,000. For example, if the Executive purchases 50,000
shares on March 30, 2000, the Company will grant the Executive an
option to purchase 150,000 shares of common stock and no more options
will be granted under this Section 4(d). In order to receive a grant
under this Section 4(d), the Executive must present written evidence
to the Company of the Executive's purchases of shares no later than
April 20, 2000 and the Executive must undertake to hold the shares so
purchased for a period of at least six (6) months. Any such purchases
shall be subject to the Executive's obtaining prior consent from the
Company's appropriate compliance officer with respect to securities
transactions by employees, and his compliance with all other
applicable laws and regulations. Any option shares granted under this
Section 4(d) shall vest in equal annual installments over a four-year
period beginning on the effective date of the grant. All options to be
granted in accordance with this Subsection (d) shall have identical
features respecting vesting and acceleration as defined in Subsection
(c) above.
(e) Reimbursement of Expenses. The Company shall reimburse
the Executive for all out-of-pocket expenses incurred by the Executive
in the course of his duties, in accordance with normal Company
policies.
(f) Employee Benefits. The Executive shall be entitled to
participate in all employee benefit programs generally available to
employees of the Company and to receive all normal perquisites
provided to senior executive officers of the Company subject to the
terms and conditions of the plans or programs. Executive shall be
entitled to a minimum of twenty (20) vacation days annually.
- 3 -
<PAGE> 4
5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company
may terminate the employment of the Executive at any time as it deems
appropriate.
(a) Termination Without Cause or Good Reason. If, during the
term of this Agreement, the Company terminates the Executive's
employment for any reason other than for Cause (as defined in Section
5(c) of this Agreement) or Executive terminates his employment for
Good Reason, in either event, prior to a "Change of Control" (as
defined in Section 5(b)(ii) hereof), the Company shall pay to the
Executive an amount (the "Severance Payment") equal to the sum of (i)
plus (ii), where (i) is the Executive's base salary as in effect on
his date of termination multiplied by two (2) and (ii) is two (2)
multiplied by Executive's average annual bonus payments for the three
(3) most recently completed fiscal years of the Company (or, in the
event that the Executive has not been employed by the Company for at
least three (3) fiscal years as of the date of his termination, the
average sum of Executive's annual bonus payments during Executive's
employment with the Company); in the event that the Executive is
employed less than one (1) year, this annual bonus amount shall be
deemed to be fifty percent (50%) of his annual base salary as in
effect on his termination date. For the purposes of this Section 5(a)
and Section 5(b) below, the bonus relating to any fiscal year shall be
deemed to have been paid in such fiscal year even if the bonus is
actually paid in a different fiscal year. If the Executive terminates
his employment for Good Reason pursuant to this Section 5(a), he must
notify the Board of Directors of the Company in writing of his intent
to terminate his employment for Good Reason describing the Good Reason
event within forty-five (45) days of the occurrence of the Good Reason
event in order to receive a Severance Payment hereunder. If no such
written notice is provided by Executive within forty-five (45) days of
a Good Reason event, the Executive's consent to the event shall be
presumed and no Severance Payment shall be payable on account of the
occurrence of the Good Reason event. The amount of any such Severance
Payment shall be paid in substantially equal bi-monthly amounts over a
period of two (2) years following his date of termination, less any
applicable withholding; provided however, that in the event that the
Executive becomes employed by any employer, whether as a consultant,
employee or otherwise, at any time during such two-year period
following his termination of employment, whether or not such
employment is comparable in duties and compensation to his position
with the Company, the amount payable to the Executive under this
Section 5(a) subsequent to any such employment shall be reduced by the
amount of salary and bonus payable to the Executive on account of such
employment on a dollar for dollar basis, but such reduction shall not
exceed 50% of the amount of the Severance Payment.
(b) Termination After a Change of Control. If, within
eighteen (18) months following the date of a "Change of Control" of
the Company (as defined
- 4 -
<PAGE> 5
below), the Company terminates the Executive's employment for any
reason other than for "Cause" (as defined in Section 5(c) of this
Agreement) or the Executive terminates his employment with the Company
for "Good Reason" (as defined below), the Company shall pay to the
Executive an amount (the "Change of Control Payment") equal to (i)
plus (ii) where (i) is three (3), multiplied by the Executive's annual
base salary as in effect on his termination date and where (ii) is
three (3) multiplied by the average of the annual bonus payments for
the three (3) most recently completed fiscal years of the Company (or,
in the event that the Executive has not been employed by the Company
for at least three (3) fiscal years as of the date of his termination,
the average of the sum of the Executive's annual bonus payments during
the Executive's employment with the Company); in the event that
Executive is employed less than one (1) year, this annual bonus amount
shall be deemed to be fifty (50%) percent of his base salary as in
effect on his termination date. In order to receive any Change in
Control Payment on account of a Good Reason resignation, Executive
must provide written notice to the Board of his intent to resign for
Good Reason within forty-five (45) days after the effective date of
his resignation. Notwithstanding the foregoing, if the Executive
terminates his employment for a Good Reason event described in Section
5(b)(i)(A) below and has not remained employed with the Company for a
period of at least one (1) year from and after the Change of Control
date, the number two (2) shall be substituted for the number three (3)
multiplier in the preceding formula contained in this subparagraph (b)
in order to calculate the Change of Control Payment that may become
payable to Executive upon his termination of employment. The amount of
any such Change of Control Payment shall be paid in a lump sum, less
applicable withholding, as soon as practicable following such
termination, and shall be paid in lieu of any Severance Payment
otherwise payable under Section 5(a) above. In lieu of the Change of
Control Payment in this Subsection (b) and the Severance Payment in
Section 5(a) payable on account of Good Reason termination, Executive
shall be entitled to an "Employment Payment" if Executive remains
employed for a period of at least twelve (12) months following the
date of a Change of Control and Executive resigns on account of a Good
Reason which occurs anytime after the date of a Change of Control,
calculated as an amount equal to (i) plus (ii) where (i) is three (3),
multiplied by the Executive's annual base salary as in effect on his
termination date and where (ii) is three (3) multiplied by the average
of the annual bonus payments for the three (3) most recently completed
fiscal years of the Company (or, in the event that the Executive has
not been employed by the Company for at least three (3) fiscal years
as of the date of his termination, the average of the sum of the
Executive's annual bonus payments during the Executive's employment
with the Company). Executive must provide written notice of his intent
to resign for Good Reason to the Board within 45 days after the
effective date of his
- 5 -
<PAGE> 6
resignation. The Employment Payment shall be paid in the same manner
as provided for the Change of Control Payment provided herein.
(i) For purposes of this Agreement, "Good Reason"
shall mean:
(A) Without his express written consent,
the assignment to the Executive of any duties
inconsistent with his positions, duties,
responsibilities and status with the Company
immediately prior to a Change of Control, or a
change in his reporting responsibilities, titles or
offices as in effect immediately prior to a Change
of Control, or any removal of the Executive from or
any failure to re-elect the Executive to any of such
positions, except in connection with the termination
of his employment for Cause, death, permanent and
total disability (as such term is defined in Section
22(e)(3) of the Internal Revenue Code of 1986, as
amended (the "Code")) or retirement in accordance
with normal Company policies or by the Executive
other than for Good Reason;
(B) A reduction by the Company in the
Executive's base salary as in effect on the date of
a Change of Control or as the same may be increased
from time to time thereafter;
(C) The Company's requiring the Executive
to be based anywhere other than either the Company's
offices at which he was based immediately prior to a
Change of Control or the Company's offices which are
no more than 50 miles from the offices at which the
Executive was based immediately prior to a Change of
Control, except for required travel on the Company's
business to an extent substantially consistent with
his business travel obligations immediately prior to
the Change of Control (excluding, however, any
travel obligations prior to the Change of Control
that are associated with or caused by the Change of
Control events or circumstances), or, in the event
the Executive consents to any relocation beyond such
50-mile radius, the failure by the Company to pay
(or reimburse the Executive) for all reasonable
moving expenses incurred by him relating to a change
of his principal residence in connection with such
relocation; or
(D) Any failure of the Company to obtain
the assumption of, or the agreement to perform, this
Agreement by any successor as contemplated in
Section 7(a).
- 6 -
<PAGE> 7
(ii) For purposes of this Section 5(b), a "Change of
Control" of the Company shall mean the occurrence of any of
the following events: (A) there shall be consummated any
merger or consolidation pursuant to which shares of the
Company's common stock would be converted into cash,
securities or other property, or any sale, lease, exchange or
other disposition (excluding disposition by way of mortgage,
pledge or hypothecation), in one transaction or a series of
related transactions, of all or substantially all of the
assets of the Company (a "Business Combination"), in each
case unless, following such Business Combination, the holders
of the outstanding common stock immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 51% of the outstanding common stock or
equivalent equity interests of the corporation or entity
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of
the outstanding common stock of the Company, (B) the
stockholders of the Company approve any plan or proposal for
the complete liquidation or dissolution of the Company, (C)
any "person" (as such term is defined in Section 3(a)(9) or
Section 13(d)(3) under the Securities Exchange Act of 1934
(the "1934 Act")) or any "group" (as such term is used in
Rule 13d-5 promulgated under the 1934 Act), other than the
Company, any successor of the Company or any subsidiary or
any employee benefit plan of the Company or any subsidiary
(including such plan's trustee), becomes a beneficial owner
for purposes of Rule 13d-3 promulgated under the 1934 Act,
directly or indirectly, of securities of the Company
representing 40% or more of the Company's then outstanding
securities having the right to vote in the election of
directors, or (D) during any period of two consecutive years,
individuals who, at the beginning of such period constituted
the entire Board, cease for any reason (other than death) to
constitute a majority of the directors, unless the election,
or the nomination for election by the Company's stockholders,
of each new director was approved by a vote of at least a
majority of the directors then still in office who were
directors at the beginning of the period.
(iii) Excise Taxes and Gross-Up Payments.
(1) The following benefits of this
Subsection 5(b)(iii) shall only
apply if the aggregate payments and
distributions to the Executive or
for the Executive's benefit
(whether paid or payable or
distributed or
- 7 -
<PAGE> 8
distributable) pursuant to the
terms of this Agreement (the
"Payment") exceeds 2.99 multiplied
by the Executive's "base amount"
(as defined under Section
280G(b)(3) of the Code) by 12.5% or
greater. Only if the Payment to the
Executive satisfies or exceeds such
threshold, then the Executive (i)
shall be entitled to the benefits
and payments set forth in this
Subsection, and (ii) shall be
referred to in this Subsection as
"Tax Eligible Executive."
(2) If it shall be determined that the
Executive is a Tax Eligible
Executive and any or all of the
Payment would be subject to the
excise tax imposed by Section 4999
of the Code (the "Excise Tax"),
then Tax Eligible Executive shall
be entitled to receive from the
Company an additional payment (the
"Gross-Up Payment") in an amount
such that the net amount of the
Payment and the Gross-Up Payment
retained by Tax Eligible Executive
shall be equal to the Payment after
the calculation and deduction of
all Excise Taxes (including any
interest or penalties imposed with
respect to such taxes) on the
Payment and all federal, state and
local income tax, employment tax
and Excise Tax (including any
interest or penalties imposed with
respect to such taxes) on the
Gross-Up Payment provided for in
this Subsection, and taking into
account any lost or reduced tax
deductions on account of the
Gross-Up Payment.
(3) All determinations required to be
made under this Subsection,
including whether the Executive is
a Tax Eligible Executive and
whether and when the Gross-Up
Payment is required and the amount
of such Gross-Up Payment, and the
assumptions to be utilized in
arriving at such determinations
(consistent with the provisions of
this Subsection), shall be made by
the Company's independent certified
public accountants (the
"Accountants"). The Accountants
shall provide Tax Eligible
Executive and the Company with
detailed supporting calculations
with respect to such Gross-Up
Payment within fifteen (15)
business days of the receipt of
notice from the Executive or the
Company that the Executive has
- 8 -
<PAGE> 9
received or will receive a Payment.
In the event that the Accountants
are also serving as accountant or
auditor for the individual, entity
or group effecting the Change of
Control, Tax Eligible Executive
shall appoint another nationally
recognized public accounting firm
to make the determination required
hereunder (which accounting firm
shall then be referred to as the
Accountants hereunder). All fees
and expenses of the Accountants
shall be borne solely by the
Company. All determinations by the
Accountants shall be binding upon
the Company and Tax Eligible
Executive.
(4) For the purposes of determining
whether any of the Payments will be
subject to the Excise Tax and the
amount of such Excise Tax, such
Payments will be treated as
"parachute payments" within the
meaning of Section 280G of the
Code, and all "parachute payments"
in excess of the "base amount" (as
defined under Section 280G(b)(3) of
the Code) shall be treated as
subject to the Excise Tax, unless
and except to the extent that in
the opinion of the Accountants such
Payments (in whole or in part)
either do not constitute "parachute
payments" or represent reasonable
compensation for services actually
rendered (within the meaning of
Section 280G(b)(4) of the Code) in
excess of the "base amount" or such
"parachute payments" are otherwise
not subject to such Excise Tax. For
purposes of determining the amount
of the Gross-Up Payment, Tax
Eligible Executive shall be deemed
to pay federal income taxes at the
highest applicable marginal rate of
federal income taxation for the
calendar year in which the Gross-Up
Payment is to be made and to pay
any applicable state and local
income taxes at the highest
applicable marginal rate of
taxation for the calendar year in
which the Gross-Up Payment is to be
made, net of the maximum reduction
in federal income taxes that could
be obtained from the deduction of
such state or local taxes if paid
in such year (determined without
regard to limitations on deductions
based upon the amount of Tax
Eligible Executive's adjusted gross
income); and to have
- 9 -
<PAGE> 10
otherwise allowable deductions for
federal, state and local income tax
purposes at least equal to those
disallowed because of the inclusion
of the Gross-Up Payment in Tax
Eligible Executive's adjusted gross
income.
(5) To the extent practicable, any
Gross-Up Payment with respect to
any Payment shall be paid by the
Company at the time Tax Eligible
Executive is entitled to receive
the Payment and in no event will
any Gross-Up Payment be paid later
than thirty (30) days after the
receipt by Tax Eligible Executive
of the Accountant's determination.
As a result of uncertainty in the
application of Section 4999 of the
Code at the time of the initial
determination by the Accountants
hereunder, it is possible that the
Gross-Up Payment made will have
been an amount less than the
Corporation should have paid
pursuant to this Subsection (the
"Underpayment"). In the event that
the Corporation exhausts its
remedies pursuant to this
Subsection and Tax Eligible
Executive is required to make a
payment of any Excise Tax, the
Underpayment shall be promptly paid
by the Company to or for the
benefit of Tax Eligible Executive.
(6) The Executive shall notify the
Company in writing of any claim by
the Internal Revenue Service that,
if successful, would require the
payment by the Company of the
Gross-Up Payment. Such notification
shall be given as soon as
practicable after the Executive is
informed in writing of such claim
and shall apprise the Company of
the nature of such claim and the
date on which such claim is
requested to be paid. Tax Eligible
Executive shall not pay such claim
prior to the expiration of the
thirty (30) day period following
the date on which Tax Eligible
Executive gives such notice to the
Company (or such shorter period
ending on the date that any payment
of taxes, interest and/or penalties
with respect to such claim is due).
If the Company notifies Tax
Eligible Executive in writing prior
to the expiration
- 10 -
<PAGE> 11
of such thirty (30) day period that
it desires to contest such claim,
Tax Eligible Executive shall:
(A) give the Company any
information reasonably
requested by the Company
relating to such claim;
(B) take such action in
connection with contesting
such claim as the Company
shall reasonably request
in writing from time to
time, including without
limitation, accepting
legal representation with
respect to such claim by
an attorney reasonably
selected by the Company;
(C) cooperate with the Company
in good faith in order to
effectively contest such
claim; and
(D) permit the Company to
participate in any
proceedings relating to
such claims; provided,
however, that the Company
shall bear and pay
directly all costs and
expenses (including
additional interest and
penalties) incurred in
connection with such
contest and shall
indemnify Tax Eligible
Executive for, advance
expenses to Tax Eligible
Executive for, defend Tax
Eligible Executive against
and hold him harmless
from, on an after-tax
basis, any Excise Tax or
income tax (including
interest and penalties
with respect thereto)
imposed as a result of
such representation and
payment of all related
costs and expenses.
Without limiting the
foregoing provisions of
this Subsection, the
Company shall control all
proceedings taken in
connection with such
contest and, at its sole
option, may pursue or
forego any and all
administrative appeals,
proceedings, hearings and
conferences with the
taxing authority in
respect of such claim and
may, at its sole option,
either direct Tax Eligible
Executive to pay the tax
claimed and sue for a
refund or contest the
claim in any permissible
manner, and Tax Eligible
- 11 -
<PAGE> 12
Executive agrees to
prosecute such contest to
a determination before any
administrative tribunal,
in a court of initial
jurisdiction and in one or
more appellate courts, as
the Company shall
determine; provided,
however, that if the
Company directs Tax
Eligible Executive to pay
such claim and sue for a
refund, the Company shall
advance the amount of such
payment to Tax Eligible
Executive, on an
interest-free basis, and
shall indemnify Tax
Eligible Executive for,
advance expenses to Tax
Eligible Executive for,
defend Tax Eligible
Executive against and hold
Tax Eligible Executive
harmless from, on an
after-tax basis, any
Excise Tax or income tax
(including interest or
penalties with respect
thereto) imposed with
respect to such advance or
with respect to any
imputed income with
respect to such advance
(including as a result of
any forgiveness by the
Company of such advance);
provided, further, that
any extension of the
statute of limitations
relating to the payment of
taxes for the taxable year
of Tax Eligible Executive
with respect to which such
contested amount is
claimed to be due is
limited solely to such
contested amount.
Furthermore, the Company's
control of the contest
shall be limited to issues
with respect to which a
Gross-Up Payment would be
payable hereunder and Tax
Eligible Executive shall
be entitled to settle or
contest, as the case may
be, any other issue raised
by the Internal Revenue
Service or any other
taxing authority.
(c) Termination for Cause; Termination by Executive. If (i)
the Company shall discharge the Executive for Cause at any time, or
(ii) the Executive's employment with the Company shall terminate as a
result of his death or permanent and total disability (as defined in
Section 5(b)(i) above) or (iii) the Executive shall terminate his
employment with the Company prior to or after a Change of Control for
any reason other than for Good Reason, the Executive shall be entitled
to receive only the amount of base salary accrued by but unpaid to the
Executive through the date of such termination of employment, plus the
amount of any contractual bonus earned and unpaid,
- 12 -
<PAGE> 13
prorated through the date of his termination of employment and the
Company shall have no further obligation to make any payment under
this Agreement, except as may otherwise be provided under the terms of
any employee benefit programs in which the Executive is then
participating.
For the purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder upon (i) the
willful and continued failure by the Executive to perform his duties
with the Company (other than any such failure resulting from permanent
and total disability as defined in Section 5(b)(i) above), after a
written demand for substantial performance is delivered to the
Executive by the Board which specifically identifies the manner in
which the Board believes that he has not substantially performed his
duties and if Executive does not cure such failure to the reasonable
satisfaction of the Board within two (2) weeks after such written
demand is delivered to Executive, or (ii) the willful engaging by the
Executive in gross misconduct materially and demonstrably injurious to
the Company. For purposes of this paragraph, no act, or failure to
act, on the Executive's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without
reasonable belief that his action or omission was not in the best
interest of the Company.
(d) Mitigation of Amounts Payable Hereunder. Except as
specifically provided in Section 5(a), the Executive shall not be
required to mitigate the amount of any payment provided for in this
Section 5 by seeking other employment or otherwise nor shall the
amount of any payment provided for in this Section 5 be reduced by any
compensation earned by the Executive as the result of employment by
another employer after the date of termination, or otherwise.
6. CONFIDENTIALITY; NON-SOLICITATION; NON-COMPETITION AND NON-
DISPARAGEMENT. In consideration of the stock options granted and to be granted
described in Sections 4(c) and (d), the Company's provision of knowledge and
Confidential Information (as defined in Section 6.1) initially and on an
ongoing basis to Executive, and the Company's provision of initial and ongoing
specialized training to Executive, the Executive acknowledges and agrees to the
following:
6.1 Confidential Information. Company will provide the
Executive with initial and on an ongoing basis specialized training,
confidential information, and knowledge regarding the Company, its affiliates
and its subsidiaries (the "Companies") and their business. The Executive
acknowledges that the Companies have incurred significant time and expense in
developing proprietary and confidential information related to their business
and operations. The Executive agrees that he will not divulge, communicate, use
to the detriment of the Companies or for the benefit of any other
- 13 -
<PAGE> 14
person, firm or entity, or misappropriate in any way, any confidential
information or trade secrets relating to the Companies or any of their
businesses, including, without limitation, business strategies, operating
plans, acquisition strategies (including the identities of and any other
information concerning possible acquisition candidates), pro forma financial
information, market analyses, acquisition terms and conditions, personnel
information, trade processes, manufacturing methods, know-how, customer lists
and relationships, supplier lists, all apparatus, products, processes,
compositions, samples, formulas, computer programs, computer hardware designs,
firmware designs, and servicing, marketing or manufacturing methods or
techniques at any time used, developed, investigated, made or sold by the
Companies, or other non-public proprietary and confidential information
relating to the Companies (collectively, "Confidential Information"). None of
the provisions of this Section 6.1 shall apply to disclosures of Confidential
Information which (i) was publicly known at the time of its disclosure to the
Executive, (ii) becomes publicly known or available thereafter other than by
means in violation of this Agreement or any other duty owed to the Companies by
the Executive or any other person or entity, or (iii) is lawfully disclosed to
the Executive by a third party not in violation of any obligation of any
confidentiality owed to any of the Companies. Notwithstanding the foregoing,
the Executive shall be permitted to disclose Confidential Information (i) if
required to do so to comply with any subpoena or other order issued by or in
connection with any legal or administrative proceeding or (ii) to the extent
required to enforce the Executive's rights hereunder in any litigation arising
under, or pertaining to, this Agreement, provided the Executive shall give
prior written notice to the Companies of any such disclosure so that the
Companies may have an opportunity to protect the confidentiality of such
Confidential Information. The Executive's obligations pursuant to this Section
6.1 are in addition to and cumulative of any other obligation of the Executive
to hold in confidence Confidential Information of the Companies and their
customers, suppliers or agents pursuant to contract or otherwise.
6.2 Non-solicitation. From and after the date hereof and
until twenty-four (24) months after the date of the Executive's termination
for any reason, including termination after a Change of Control, as defined
herein, the Executive shall not, directly or indirectly, for himself or on
behalf of any other person, firm or entity, solicit the employment, engagement
or retention of any person who at the time of the Executive's termination was
an employee of any of the Companies or at any time during the preceding three
(3) month period shall have been an employee of any of the Companies.
6.3 Non-competition. If the Executive's employment with the
Company is terminated by the Company for any reason, including termination
after a Change of Control then until that date which is twelve (12) months
after the date of the Executive's termination, the Executive shall not, as a
principal, partner, joint venturer, member, manager, trustee, agent,
stockholder, director, officer or employee of, or consultant or advisor to, or
in any manner own, control, manage, operate, or otherwise
- 14 -
<PAGE> 15
participate, invest, or have any interest in, any person, firm or
entity that engages, directly or indirectly, in the business of performing
services or developing, manufacturing or selling products or services
competitive with the proprietary business of the Company or the Companies (or
any of them) in connection with the development and use of seismic equipment
and/or technology within the United States of America and any other
geographical area served by the Companies during the twelve (12) month period
immediately preceding the Executive's date of termination, nor will the
Executive engage, within this time period and geographical area, in the design,
development, distribution, manufacture, assembly or sale of a product or
service in competition with any product or service currently marketed or
planned by the Companies, or any of them. The foregoing shall not pertain to
the mere ownership of securities in any such enterprise and the exercise of any
rights appurtenant solely to that ownership, so long as the Executive's
ownership interest is less than five percent (5%) of the outstanding voting
securities of such enterprise.
6.4 Non-disparagement. The Executive agrees that he will not
disclose, communicate or publish any disparaging information concerning the
Company or any of the Companies or any of their affiliates, subsidiaries,
successors, assigns or their employees, officers or directors.
6.5 Consideration. The Executive acknowledges that his
agreements contained in this Section 6 are reasonable as to time, geographical
area and scope of activities to be restrained and do not impose a greater
restraint than is necessary to protect the Companies' goodwill, proprietary
information and other business interests and are a material inducement to the
Company's entering into this Agreement. In addition, the Executive agrees that
the amounts payable under Sections 4(c) and (d), Section 5, and the Companies'
provision of initial and ongoing confidential information and specialized
training to the Executive are sufficient consideration to support the covenants
in this Section 6. The Executive shall be bound by the provisions of this
Section 6 to the maximum extent permitted by law, it being the intent and
spirit of the parties that the foregoing shall be fully enforceable. However,
the parties further agree that, if any of the provisions hereof shall for any
reason be held to be excessively broad as to duration, geographical scope,
property or subject matter, such provision shall be construed by limiting and
reducing it so as to be enforceable to the extent compatible with applicable
law as it shall herein pertain.
6.6 Remedies. The Executive acknowledges that if he violates
any of the provisions of this Section 6, the Company, in addition to any other
rights and remedies available under this Agreement or otherwise, shall be
entitled to an injunction to be issued or specific enforcement to be required
(without the necessity of any bond) restricting the Executive from committing
or continuing any such violation.
- 15 -
<PAGE> 16
6.7 Survival. The provisions of this Section 6 shall survive
termination of this Agreement.
7. MISCELLANEOUS PROVISIONS.
(a) Successors of the Company. The Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and
substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement prior
to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive
would be entitled hereunder if the Company terminated the Executive's
employment without Cause, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the date of Executive's termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 7(a)
or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) Special Representations of Executive. The Executive may
not assign his rights or delegate his duties or obligations hereunder
without the written consent of the Company. The Executive represents
to the Company that no previous employer has imposed any contractual
restriction which would, if enforced, have a material adverse effect
on the Company. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If the Executive should die while any amounts would
still be payable to him hereunder if he had continued to live, all
such amounts, unless other provided herein, shall be paid in
accordance with the terms of this Agreement to his designee or, if
there be no such designee, to his estate.
(c) Notice. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered or
mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices
to the Company shall be directed to the attention of the Executive
Vice President of the Company with a copy to the Secretary of the
- 16 -
<PAGE> 17
Company, or to such other person in writing in accordance herewith,
except that notices of change of address shall be effective only upon
receipt.
(d) Amendment; Waiver. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Executive and such
officer as may be designated by the Board of Directors of the Company.
No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. Except as provided in Section 6,
no agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.
(e) Invalid Provisions. Should any portion of this Agreement
be adjudged or held to be invalid, unenforceable or void, such holding
shall not have the effect of invalidating or voiding the remainder of
this Agreement and the parties hereby agree that the portion so held
invalid, unenforceable or void shall, if possible, be deemed amended
or reduced in scope, or otherwise be stricken from this Agreement to
the extent required for the purposes of validity and enforcement
thereof.
(f) Survival of the Parties' Obligations. The obligations of
the Company and the Executive under this Agreement shall survive
regardless of whether the Executive's employment by the Company is
terminated, voluntarily or involuntarily, by the Company or the
Executive, with or without Cause or Good Reason.
(g) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same instrument.
(h) Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Texas.
(i) Captions. The use of captions and Section headings herein
is for purposes of convenience only and shall not effect the
interpretation or substance of any provisions contained herein.
- 17 -
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have signed this Agreement on
the _____ day of February, 2000, but except as otherwise set forth in this
Agreement, effective as of March 1, 2000.
INPUT/OUTPUT, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
-----------------------------------------
Timothy Probert
- 18 -
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.45
<SEQUENCE>4
<FILENAME>ex10-45.txt
<DESCRIPTION>INPUT/OUTPUT, INC. 2000 RESTRICTED STOCK PLAN
<TEXT>
<PAGE> 1
EXHIBIT 10.45
INPUT/OUTPUT, INC.
2000 RESTRICTED STOCK PLAN
The Input/Output, Inc. 2000 Restricted Stock Plan (hereinafter called
the "Plan") was adopted by the Board of Directors of Input/Output, Inc., a
Delaware corporation (hereinafter called the "Sponsoring Company"), effective
as of March 13, 2000.
ARTICLE 1
PURPOSE
The purpose of the Plan is to attract and retain the services of key
management employees of the Company and its Subsidiaries and to provide such
persons with a proprietary interest in the Company through the granting of
restricted stock that will
(a) increase the interest of such persons in the
Company's welfare;
(b) furnish an incentive to such persons to continue
their services for the Company;
(c) provide a means through which the Company may
attract able persons as employees; and
(d) in instances where authorized by the Committee,
provide certain key employees additional incentives
to make substantial contributions to the Company's
growth measured by the attainment of performance
goals.
ARTICLE 2
DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise,
the following terms shall have the meanings indicated:
2.1 "Award" means a grant of Restricted Stock under the Plan.
2.2 "Award Agreement" means a written agreement between a Participant
and the Company which sets out the terms of the grant of an Award.
2.3 "Board" means the board of directors of the Company.
2.4 "Change of Control" means the occurrence of any of the following
events: (i) there shall be consummated any merger or consolidation pursuant to
which shares of the Company's Common Stock would be converted into cash,
securities or other property, or any sale, lease, exchange or other disposition
(excluding disposition by way of mortgage, pledge or hypothecation), in one
transaction or a series of related transactions, of all or substantially all
the assets of the Company (a "Business Combination"), in each case unless,
following such Business Combination, the holders of the outstanding Common
Stock of the Company immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 51% of the outstanding
common stock or equivalent equity interests of the corporation or entity
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the outstanding common
stock, (ii) the stockholders of the Company approve any plan or proposal for
the complete liquidation or dissolution of the Company, (iii) any "person" (as
such term is defined in Section 3(a)(9) or Section 13(d)(3) under the
Securities
<PAGE> 2
Exchange Act of 1934 (the "1934 Act") or any "group" (as such term is used in
Rule 13d-5 promulgated under the 1934 Act) other than an Employer or a
successor of an Employer, or any employee benefit plan of an Employer
(including such plan's trustee), becomes a beneficial owner for purposes of
Rule 13d-3 promulgated under the 1934 Act, directly or indirectly, of
securities of the Company representing 40% or more of the Company's then
outstanding common securities having the right to vote in the election of
directors, or (iv) during any period of two consecutive years, individuals who,
at the beginning of such period constituted the entire Board, cease for any
reason (other than death) to constitute a majority of the directors, unless the
elections, or the nomination for election by the Company's stockholders, of
each new director was approved by a vote of at least a majority of the
directors then still in office who were directors at the beginning of the
period. For purposes of this definition, the term "Company" shall include any
successor or assignee of such corporation, which successor or assignee assumes
such status other than pursuant to an event or occurrence constituting a
"Change of Control."
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
2.6 "Committee" means the committee appointed or designated by the
Board to administer the Plan in accordance with Article 3 of this Plan.
2.7 "Common Stock" means the common stock, par value $0.01 per share,
which the Company is currently authorized to issue or may in the future be
authorized to issue.
2.8 "Date of Grant" means the effective date on which an Award is made
to a Participant as set forth in the applicable Award Agreement.
2.9 "Employee" means common law employee (as defined in accordance
with the Regulations and Revenue Rulings then applicable under Section 3401(c)
of the Code) of the Company or any Subsidiary of the Company.
2.10 "Employer" shall mean the Company or any affiliated company or
Subsidiary of the Company that adopts the Plan.
2.11 "Fair Market Value" of a share of Common Stock is the closing
sales price per share on the New York Stock Exchange Consolidated Tape, or such
reporting service as the Committee may select, on the appropriate date, or in
the absence of reported sales on such day, the most recent previous day for
which sales were reported.
2.12 "Participant" shall mean an Employee of the Company or a
Subsidiary to whom an Award is granted under this Plan.
2.13 "Plan" means this Input/Output, Inc. 2000 Restricted Stock Plan,
as amended from time to time.
2.14 "Restricted Stock" means shares of Common Stock issued or
transferred to a Participant pursuant to this Plan which are subject to
restrictions or limitations set forth in this Plan and in a related Award
Agreement.
2.15 "Restriction Period" shall have the meaning set forth in Section
6.5(a) hereof.
2.16 "Retirement" means any Termination of Service solely due to
retirement after attaining age 65, or permitted early retirement as determined
by the Committee.
2.17 "Subsidiary" means (i) any corporation in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing a majority of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, (ii) any limited partnership, if the Company or any
corporation described in item (i) above owns a majority of the general partner
interests and a majority of the limited partners' interests entitled to vote on
the removal and
<PAGE> 3
replacement of the general partner, and (iii) any general partnership or
limited liability company, if the partners or members thereof are composed only
of the Company, any corporation listed in item (i) above or any limited
partnership listed in item (ii) above. "Subsidiaries" means more than one of
any such corporations, limited partnerships, general partnerships or limited
liability companies.
2.18 "Termination of Service" occurs when a Participant who is an
Employee of the Company or any Subsidiary shall cease to serve as an Employee
of the Company and its Subsidiaries, for any reason.
2.19 "Total and Permanent Disability" means the Participant's total
and permanent disability, as that term is described in Section 22(e) of the
Code.
ARTICLE 3
ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the
Board or another committee appointed by the Board (the "Committee"). The
Committee shall consist of not fewer than two persons. Any member of the
Committee may be removed at any time, with or without cause, by resolution of
the Board. Any vacancy occurring in the membership of the Committee may be
filled by appointment by the Board.
The Committee shall select one of its members to act as its Chairman.
A majority of the Committee shall constitute a quorum, and the act of a
majority of the members of the Committee present at a meeting at which a quorum
is present shall be the act of the Committee.
The Committee shall determine and designate from time to time the
eligible persons to whom Awards will be granted and shall set forth in each
related Award Agreement, the Date of Grant and such other terms, provisions,
limitations, and performance requirements (if any), as are approved by the
Committee, but not inconsistent with the Plan.
The Committee, in its discretion, shall (i) interpret the Plan, (ii)
prescribe, amend, and rescind any rules and regulations necessary or
appropriate for the administration of the Plan, and (iii) make such other
determinations and take such other action as it deems necessary or advisable in
the administration of the Plan. Any interpretation, determination, or other
action made or taken by the Committee shall be final, binding, and conclusive
on all interested parties.
ARTICLE 4
ELIGIBILITY
Employees who are eligible to participate in the Plan (including an
Employee who is also a director or an officer) are those Employees whom the
Committee determines are key Employees. The Committee, upon its own action, may
grant, but shall not be required to grant, an Award to any Employee or
potential Employee of the Company or any Subsidiary. Awards may be granted by
the Committee at any time and from time to time to new Participants, or to
existing Participants, or to a greater or lesser number of Participants, and
may include or exclude previous Participants, as the Committee shall determine.
Except as required by this Plan, all Awards shall not be required to contain
the same or similar provisions. The Committee's determinations under the Plan
(including without limitation determinations of which Employees or potential
Employees, if any, are to receive Awards, the form, amount and timing of such
Awards, the terms and provisions of such Awards and the agreements evidencing
same) need not be uniform and may be made by it selectively among Employees who
receive, or are eligible to receive, Awards under the Plan.
<PAGE> 4
ARTICLE 5
SHARES SUBJECT TO PLAN
Subject to adjustment as provided in Articles 9 and 10, the maximum
number of shares of Common Stock that may be delivered pursuant to Awards
granted under the Plan is (a) Two Hundred Thousand (200,000) shares; plus (b)
any shares of Common Stock previously subject to Awards which are forfeited,
terminated, settled in cash in lieu of Common Stock, or exchanged for other
awards that do not involve Common Stock. Shares to be issued or delivered may
be made available from authorized but unissued Common Stock, Common Stock held
by the Company in its treasury, or Common Stock purchased by the Company on the
open market or otherwise; provided however, that shares to be delivered with
regards to the initial grant of Awards under this Plan shall be made available
only from Company treasury shares or Common Stock repurchased by the Company.
ARTICLE 6
GRANT OF AWARDS
6.1 IN GENERAL. The grant of an Award shall be authorized by the
Committee and shall be evidenced by an Award Agreement setting forth the Award
being granted, the total number of shares of Common Stock subject to the Award,
the Date of Grant, and such other terms, provisions, limitations, and
performance objectives, as are approved by the Committee, but not inconsistent
with the Plan. The Company shall execute an Award Agreement with a Participant
after the Committee approves the issuance of an Award. Any Award granted
pursuant to this Plan must be granted within ten (10) years of the date of
adoption of this Plan. The grant of an Award to a Participant shall not be
deemed either to entitle the Participant to, or to disqualify the Participant
from, receipt of any other Award under the Plan.
If the Committee establishes a purchase price for an Award, the
Participant must accept such Award within a period of 30 days (or such shorter
period as the Committee may specify) after the Date of Grant by executing the
applicable Award Agreement and paying such purchase price.
6.2 MAXIMUM INDIVIDUAL GRANTS. No Participant may receive, during any
fiscal year of the Company, Awards covering an aggregate of more than Fifty
Thousand (50,000) shares of Common Stock.
6.3 AWARD AGREEMENT. The Committee shall set forth in the related
Award Agreement: (i) the number of shares of Common Stock awarded, (ii) the
price, if any, to be paid by the Participant for such Restricted Stock, (iii)
the time or times within which such Award may be subject to forfeiture, (iv)
specified performance goals (if applicable) of the Company, a Subsidiary, any
division thereof or any group of Employees of the Company, or any other
criteria, which the Committee determines must be met in order to remove any
restrictions (including vesting) on such Award, and (v) all other terms,
limitations, restrictions, and conditions of the Restricted Stock, which shall
be consistent with this Plan. The provisions of a Restricted Stock Award need
not be the same with respect to each Participant.
6.4 CUSTODY OF SHARES; LEGEND ON SHARES. Each Participant who is
awarded Restricted Stock shall be issued a stock certificate or certificates in
respect of such shares of Common Stock. Such certificate(s) shall be registered
in the name of the Participant, and shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Restricted Stock,
substantially as provided in Section 13.8 of the Plan. The Committee may
require that the stock certificates evidencing shares of Restricted Stock be
held in custody by the Company until the restrictions thereon shall have
lapsed, and that the Participant deliver to the Committee a stock power or
stock powers, endorsed in blank, relating to the shares of Restricted Stock.
6.5 RESTRICTIONS AND CONDITIONS. Shares of Restricted Stock shall be
subject to the following restrictions and conditions:
<PAGE> 5
(a) No Disposition During Restriction Period. Subject to the
other provisions of this Plan and the terms of the particular Award
Agreements, during such period as may be determined by the Committee
commencing on the Date of Grant (the "Restriction Period"), the
Participant shall not be permitted to sell, transfer, pledge, assign,
or otherwise dispose of shares of Restricted Stock. The Restriction
Period for shares of Restricted Stock shall commence on the Date of
Grant of such shares and, subject to Article 10 of the Plan, shall
expire upon satisfaction of the conditions set forth in the Award
Agreement; such conditions may provide for vesting based on (i) length
of continuous service, (ii) achievement of specific business
objectives, (iii) increases in specified indices, (iv) attainment of
specified growth rates, or (v) other comparable measurements of
Company performance (or that of any Subsidiary or division thereof),
as may be determined by the Committee in its sole discretion. If the
Committee imposes conditions upon vesting, then subsequent to the Date
of Grant, the Committee may, in its sole discretion, accelerate the
date on which all or any portion of the Award may be vested.
(b) Rights During Restriction Period. Except as provided in
paragraph (a) above, the Participant shall have, with respect to his
or her Restricted Stock, all of the rights of a stockholder of the
Company, including the right to vote the shares, and the right to
receive any dividends thereon.
(c) Lapse of Restrictions. Certificates for shares of Common
Stock free of restriction under this Plan shall be delivered to the
Participant promptly after, and only after, the particular Restriction
Period shall expire as a result of satisfaction of the conditions set
forth in the Award Agreement.
(d) Forfeiture. Subject to the provisions of the particular
Award Agreement, upon Termination of Service for any reason other than
the Participant's death, Total and Permanent Disability, or Retirement
during the Restriction Period, the nonvested shares of Restricted
Stock shall be forfeited by the Participant. In addition, an Award
Agreement may provide for forfeiture of shares of Restricted Stock
upon the occurrence of other events, including failure to achieve
certain goals or objectives during a specified period of time. In the
event a Participant has paid any consideration to the Company for such
forfeited Restricted Stock, the Company shall, as soon as practicable
after the event causing forfeiture (but in any event within five (5)
business days), pay to the Participant, in cash, an amount equal to
the total consideration paid by the Participant for such forfeited
shares. Upon any forfeiture, all rights of a Participant with respect
to the forfeited shares of the Restricted Stock shall cease and
terminate, without any further obligation on the part of the Company.
Certificates for the shares of Common Stock forfeited under the
provisions of the Plan and the applicable Award Agreement shall be
promptly returned to the Company by the forfeiting Participant. Each
Award Agreement shall require that (i) each Participant, by his or her
acceptance of Restricted Stock, irrevocably grants to the Company a
power of attorney to transfer to the Company any shares so forfeited,
and agrees to execute any documents requested by the Company in
connection with such forfeiture and transfer, and (ii) such provisions
regarding returns and transfers of stock certificates with respect to
forfeited shares of Common Stock shall be specifically performable by
the Company in a court of equity or law.
ARTICLE 7
AMENDMENT OR DISCONTINUANCE
Subject to the limitations set forth in this Article 7, the Board may
at any time and from time to time, without the consent of the Participants,
alter, amend, revise, suspend, or discontinue the Plan in whole or in part. Any
such amendment shall, to the extent deemed necessary or advisable by the
Committee, be applicable to any outstanding Awards theretofore granted under
the Plan, notwithstanding any contrary provisions contained in any Award
Agreement. In the event of any such amendment to the Plan, the holder of any
Award outstanding under the Plan shall, upon request of the Committee and as a
condition to the vesting thereof, execute a conforming amendment to his
applicable Award Agreement in the form prescribed by the Committee.
Notwithstanding anything contained in this Plan to the contrary, unless
required by law, no action contemplated or permitted by this
<PAGE> 6
Article 7 shall adversely affect any rights of Participants or obligations of
the Company to Participants with respect to any Award theretofore granted under
the Plan without the consent of the affected Participant.
ARTICLE 8
TERM
The Plan shall be effective from the date that this Plan is approved
by the Board. Unless sooner terminated by action of the Board, the Plan will
terminate on March 13, 2010, but Awards granted before that date will continue
to be effective in accordance with their terms and conditions.
ARTICLE 9
CAPITAL ADJUSTMENTS
If at any time while the Plan is in effect, or Awards are outstanding,
there shall be any increase or decrease in the number of issued and outstanding
shares of Common Stock resulting from (a) the declaration or payment of a stock
dividend, (b) any recapitalization resulting in a stock split-up, combination,
or exchange of shares of Common Stock, or (c) other increase or decrease in
such shares of Common Stock effected without receipt of any consideration by
the Company, then and in such event:
(i) An appropriate adjustment shall be made in the maximum
number of shares of Common Stock then subject to being awarded under
the Plan and in the maximum number of shares of Common Stock that may
be awarded to a Participant to the end that the same proportion of the
Company's issued and outstanding shares of Common Stock shall continue
to be subject to being so awarded; and
(ii) Appropriate adjustments shall be made in the number of
outstanding shares of Restricted Stock with respect to which the
applicable Restriction Period has not expired prior to any such
change.
Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with direct
sale or upon the exercise of rights, options, or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of
outstanding shares of Restricted Stock.
Upon the occurrence of each event requiring an adjustment with respect
to any Award, the Company shall mail to each affected Participant its
computation of such adjustment which shall be conclusive and shall be binding
upon each such Participant.
ARTICLE 10
RECAPITALIZATION, MERGER AND
CONSOLIDATION; CHANGE IN CONTROL
10.1 RIGHT OF THE COMPANY. The existence of this Plan and Awards
granted hereunder shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company's capital
structure and its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or preference stocks ranking prior to
or otherwise affecting the Common Stock or the rights thereof (or any rights,
options, or warrants to purchase same), or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
<PAGE> 7
10.2 MERGER, CONSOLIDATION IF THE COMPANY IS SURVIVOR. Subject to any
required action by the stockholders (and except as otherwise provided in
Section 10.3 below), if the Company shall be the surviving or resulting
corporation in any merger, consolidation or share exchange, any Award granted
hereunder shall pertain to and apply to the securities or rights (including
cash, property, or assets) to which a holder of the number of shares of Common
Stock subject to the Award would have been entitled.
10.3 MERGER, CONSOLIDATION IF THE COMPANY IS NOT SURVIVOR. In the
event of any merger, consolidation or share exchange pursuant to which the
Company is not the surviving or resulting corporation, (or the Company is the
surviving entity but the Common Stock of the Company is exchanged for cash,
property, securities or other consideration of or from any other entity) there
shall be substituted for each share of Common Stock subject to the unexercised
portions of such outstanding Awards, (i) that number of shares of each class of
stock or other securities or that amount of cash, property, or assets of the
surviving, resulting or consolidated entity which were distributed or
distributable to the stockholders of the Company in respect of each share of
Common Stock held by them, or (ii) such number of shares of stock, or other
securities, or such amount of cash, property or assets (or any combination
thereof) as proportionate in value as reasonably practicable to the
consideration distributed or distributable to the stockholders of the Company
with respect to each share of Common Stock held by them.
10.4 CHANGE OF CONTROL. In the event of a Change of Control, the
acceleration of vesting of nonvested shares of Restricted Stock and the
expiration of the Restriction Period(s) with respect thereto shall be governed
by the provisions of the applicable Award Agreement.
ARTICLE 11
LIQUIDATION OR DISSOLUTION
In case the Company shall, at any time while any Award under this Plan
shall be in force and its Restriction Period remains unexpired, (i) sell all or
substantially all of its property, or (ii) dissolve, liquidate, or wind up its
affairs, then each Participant shall be thereafter entitled to receive, in lieu
of each share of Common Stock of the Company which such Participant would have
been entitled to receive under the Award, the same kind and amount of any
securities or assets as may be issuable, distributable, or payable upon any
such sale, dissolution, liquidation, or winding up with respect to each share
of Common Stock of the Company.
ARTICLE 12
AWARDS IN SUBSTITUTION FOR
AWARDS GRANTED BY OTHER CORPORATIONS
Awards may be granted under the Plan from time to time in substitution
for similar instruments held by employees of a corporation who become or are
about to become key Employees of the Company or any Subsidiary as a result of a
merger or consolidation of the employing corporation with the Company or the
acquisition by the Company of stock of the employing corporation. The terms and
conditions of the substitute Awards so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Committee at the time
of grant may deem appropriate to conform, in whole or in part, to the
provisions of the Awards in substitution for which they are granted.
<PAGE> 8
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 INVESTMENT INTENT. The Company may require that there be
presented to and filed with it by any Participant under the Plan, such evidence
as it may deem necessary to establish that the Award granted or the shares of
Common Stock to be transferred to the Participants are being acquired for
investment and not with a view to their distribution.
13.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Award
granted under the Plan shall confer upon any Participant any right with respect
to continuance of employment by the Company or any Subsidiary.
13.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or
the Committee, nor any officer or Employee of the Company acting on behalf of
the Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to
the Plan, and all members of the Board or the Committee, and each officer or
employee of the Company acting on their behalf shall, to the extent permitted
by law, be fully indemnified and protected by the Company in respect of any
such action, determination, or interpretation.
13.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any
action of the Board or the Committee shall be deemed to give any person any
right to be granted an Award or any other rights except as may be evidenced by
an Award Agreement, or any amendment thereto, duly authorized by the Committee
and executed on behalf of the Company, and then only to the extent and upon the
terms and conditions expressly set forth therein.
13.5 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. Notwithstanding
anything contained herein to the contrary, the Company shall not be required to
issue or deliver shares of Common Stock under any Award if the issuance or
delivery thereof would constitute a violation by the Participant or the Company
of any provisions of any law or regulation of any governmental authority or the
rules of any national securities exchange or inter-dealer quotation system or
other forum in which shares of Common Stock are quoted or traded; and, as a
condition of any sale or issuance of shares of Common Stock under an Award, the
Committee may require such agreements or undertakings, if any, as the Committee
may deem necessary or advisable to assure compliance with any such law or
regulation. The Plan, the grant of Awards hereunder, and the obligation of the
Company to deliver shares of Common Stock, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
government or regulatory agency as may be required.
13.6 TAX REQUIREMENTS. The Company shall have the right to deduct from
all amounts hereunder paid in cash or other form, any Federal, state, or local
taxes required by law to be withheld with respect to such payments. The
Participant receiving shares of Common Stock issued under the Plan shall be
required to pay the Company the amount of any taxes which the Company is
required to withhold with respect to such shares of Common Stock.
13.7 USE OF PROCEEDS. Proceeds from any sale of shares of Common Stock
pursuant to Awards granted under this Plan shall constitute general funds of
the Company.
13.8 LEGEND. Each certificate representing shares of Restricted Stock
issued to a Participant shall bear the following legend, or a similar legend
deemed by the Company to constitute an appropriate notice of the provisions
hereof (any such certificate not having such legend shall be surrendered upon
demand by the Company and so endorsed):
<PAGE> 9
On the face of the certificate:
"Transfer of this stock is restricted in accordance with
conditions printed on the reverse of this certificate."
On the reverse:
"The shares of stock evidenced by this certificate are
subject to and transferrable only in accordance with the
terms of the Input/Output, Inc. 2000 Restricted Stock Plan, a
copy of which is on file at the principal executive offices
of the Company in Stafford, Texas. No transfer or pledge of
the shares evidenced hereby may be made except in accordance
with and subject to the provisions of said Plan. By
acceptance of this certificate, any holder, transferee or
pledgee hereof agrees to be bound by all of the provisions of
said Plan."
The following legend shall be inserted on each certificate evidencing
Common Stock issued under the Plan if the shares were not issued in a
transaction registered under the applicable federal and state securities laws:
"Shares of stock represented by this certificate have been
acquired by the holder for investment and not for resale,
transfer or distribution, have been issued pursuant to
exemptions from the registration requirements of applicable
state and federal securities laws, and may not be offered for
sale, sold or transferred other than pursuant to effective
registration under such laws, or in transactions otherwise in
compliance with such laws, and upon evidence satisfactory to
the Company of compliance with such laws, as to which the
Company may rely upon an opinion of counsel satisfactory to
the Company."
A copy of this Plan shall be kept on file in the principal executive
offices of the Company in Stafford, Texas.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed pursuant to action taken by the Board.
INPUT/OUTPUT, INC.
By:
----------------------------------
Name:
-------------------------
Title:
------------------------
August 9, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>5
<FILENAME>ex21-1.txt
<DESCRIPTION>SUBSIDIARIES OF THE COMPANY
<TEXT>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Jurisdiction Of
Organization
---------------
<S> <C>
Input/Output of Canada, Inc. Delaware
I/O International, Inc. Delaware
I/O Eastern, Inc. Delaware
I/O Holdings, Inc.. Delaware
IPOP Management, Inc. Delaware
Global Charter Corporation Delaware
I/O Sensors, Inc. Delaware
Microflow Analytical, Inc. Delaware
Tescorp Seismic Products, Inc. Delaware
I/O Cable, Inc. Delaware
I/O Exploration Products (U.S.A.), Inc. Delaware
Sensor Nederland B.V. Netherlands
INCO Gravenhage, B.V. Netherlands
HGS (India) Ltd. India
I/O Exploration Products (U.K.), Inc. Delaware
I/O of Austin, Inc. Delaware
I/O Green Mountain, Inc. Delaware
Global Charter S.A. Argentina
I/O Marine Systems, Inc. Louisiana
I/O Marine Systems Ltd. United Kingdom
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>ex23-1.txt
<DESCRIPTION>CONSENT OF KPMG LLP
<TEXT>
<PAGE> 1
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
Input/Output, Inc.:
We consent to incorporation by reference in the registration statements (
No. 33-54394, No. 33-46386, No. 33-50620, No. 33-85304, No. 333-14231,
No. 333-24125, No. 333-80927, No. 333-80299 and No. 333-36264) on Form S-8 of
Input/Output, Inc. of our report dated July 17, 2000, relating to the
consolidated balance sheets of Input/Output, Inc. and subsidiaries as of May 31,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and comprehensive loss, and cash flows for each of the
years in the three-year period ended May 31, 2000, and the related financial
statement schedule, which report appears in the May 31, 2000 annual report on
Form 10-K of Input/Output, Inc.
Houston, Texas
August 17, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.1
<SEQUENCE>7
<FILENAME>ex27-1.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> MAY-31-2000
<CASH> 100,216
<SECURITIES> 0
<RECEIVABLES> 58,465
<ALLOWANCES> (15,284)
<INVENTORY> 69,185
<CURRENT-ASSETS> 222,007
<PP&E> 112,479
<DEPRECIATION> (54,060)
<TOTAL-ASSETS> 381,769
<CURRENT-LIABILITIES> 38,595
<BONDS> 9,040
<PREFERRED-MANDATORY> 0
<PREFERRED> 1
<COMMON> 510
<OTHER-SE> 334,504
<TOTAL-LIABILITY-AND-EQUITY> 381,769
<SALES> 121,454
<TOTAL-REVENUES> 121,454
<CGS> 106,642
<TOTAL-COSTS> 100,282
<OTHER-EXPENSES> (6,236)
<LOSS-PROVISION> (17,608)
<INTEREST-EXPENSE> 826
<INCOME-PRETAX> (80,060)
<INCOME-TAX> (6,097)
<INCOME-CONTINUING> (73,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (78,520)
<EPS-BASIC> (1.55)
<EPS-DILUTED> (1.55)
</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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