OYO Geospace Corp. Reports Operating Results (10-Q)

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Aug 06, 2010
OYO Geospace Corp. (OYOG, Financial) filed Quarterly Report for the period ended 2010-06-30.

Oyo Geospace Corp. has a market cap of $315 million; its shares were traded at around $52.23 with a P/E ratio of 100.5 and P/S ratio of 3.4. Oyo Geospace Corp. had an annual average earning growth of 8.8% over the past 5 years.OYOG is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Consolidated sales for the three months ended June 30, 2010 increased by $14.5 million, or 69.8%, from the corresponding period of the prior fiscal year. Consolidated sales for the nine months ended June 30, 2010 increased by $22.2 million, or 31.7%, from the corresponding period of the prior fiscal year. These increases primarily reflect increased sales of our seismic products, primarily sales of our land nodal acquisition system.

Consolidated gross profits for the three months ended June 30, 2010 increased by $7.8 million, or 110.6%, from the corresponding period of the prior fiscal year. Consolidated gross profits for the nine months ended June 30, 2010 increased by $10.1 million, or 45.5%, from the corresponding period of the prior fiscal year. The increases in gross profits resulted from increased product sales, improved factory utilization and a favorable seismic product mix. Partially offsetting these gross profit increases were higher charges for product warranty, inventory obsolescence and incentive compensation expenses.

Consolidated operating expenses for the three months ended June 30, 2010 increased by $1.3 million, or 22.9%, from the corresponding period of the prior fiscal year. Consolidated operating expenses for the nine months ended June 30, 2010 increased by $1.8 million, or 10.7%, from the corresponding period of the prior fiscal year. The increased operating expenses primarily resulted from (i) increased expenditures for legal fees for defense against a lawsuit, (ii) increased incentive compensation expenses resulting from improved pretax earnings, and (iii) general expense increases due to higher sales volume. These increases in expenditures were partially offset by reduced bad debt expenses resulting from the improved collection of outstanding receivables.

At June 30, 2010, we had $23.8 million in cash and cash equivalents. For the nine months ended June 30, 2010, we generated approximately $17.0 million of cash in operating activities. Sources of cash generated in our operating activities resulted from net income of $9.0 million. Additional sources of cash included net non-cash charges of $4.6 million for deferred income tax expense, depreciation, amortization, stock-based compensation, inventory obsolescence and bad debts. Other sources of cash included (i) a $5.0 million increase in deferred revenue resulting from billings to customers in advance of order deliveries, (ii) a $2.5 million increase in accounts payable due to the timing of our vendor payments which can fluctuate quarter-to-quarter, (iii) a $1.9 million increase in accrued expenses and other primarily reflecting increases in our incentive compensation liabilities, (iv) a $1.7 million decrease in inventories, and (v) a $1.1 million increase in income tax payable resulting from increased taxable income. These sources of cash were offset by a $9.6 million increase in trade accounts and notes receivable primarily resulting from increased sales.

For the nine months ended June 30, 2010, we used approximately $1.0 million of cash in financing activities. These uses of cash included $1.7 million of principal payments on our mortgage loans, including a $1.3 million early pay-off of a mortgage, and a $0.1 million payment as a penalty for early extinguishment of debt. These uses of cash were offset by $0.6 million of cash proceeds received from the exercise of stock options and $0.2 million of income tax benefits related to such exercised stock options.

On November 22, 2004, several of our subsidiaries entered into a credit agreement (the Original Credit Agreement) with a bank. The Original Credit Agreement has been amended periodically since 2004, and most recently on April 30, 2009 (as so amended, the Credit Agreement). Under the Credit Agreement, our borrower subsidiaries can borrow up to $25.0 million principally secured by their accounts receivable, inventories and equipment. The Credit Agreement expires on April 30, 2011. The Credit Agreement limits the incurrence of additional indebtedness, requires the maintenance of certain financial ratios, restricts our and our subsidiaries ability to pay dividends and contains other covenants customary in agreements of this type. We believe the most restrictive covenants in the Credit Agreement are (i) the fixed charge coverage ratio of EBITDA to certain charges, and (ii) the cash flow leverage ratio of total borrowings (excluding real estate borrowings) to adjusted EBITDA. We believe these covenants are more restrictive than covenants contained in the Credit Agreement as in effect prior to the April 30, 2009 amendment, and future borrowings available under the Credit Agreement could be limited or completely restricted if future operating results deteriorate. The interest rate for borrowings under the Credit Agreement is a LIBOR based rate with a margin spread of 300-400 basis points depending upon the maintenance of certain ratios. At June 30, 2010, there were no borrowings outstanding under the Credit Agreement, standby letters of credit outstanding in the amount of $0.4 million and additional borrowings available of $24.6 million.

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