<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarterly Period Ended June 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission File No. 0-27564
3-D Geophysical, Inc.
(Exact name of Registrant as a specified in its charter)
Delaware 13-3841601
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
7076 South Alton Way, Building H
Englewood, Colorado 80112
(Address/Zip Code of principal executive office)
Registrant's telephone number, including area code: (303) 290-0214
Indicate by check mark whether the Registrant (1) has filed all reports
required 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 the number of shares outstanding of each of the issuer's
classes of common stock as the latest practicable date.
The total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on August 7, 1996, was 7,600,000.
<PAGE>
2
3-D GEOPHYSICAL, INC.
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996
PART I. Financial Information Page
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1995 and June 30, 1996 3
Condensed Consolidated Statements of Operations
Three Months Ended June 30, 1995 and June 30,
1996 5
Six Months Ended June 30, 1995 and June 30, 1996
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995 and June 30, 1996 6
Notes to Condensed Consolidated Financial 7-11
Statements
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations 12-16
PART II. Other Information
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of 17
Security Holders
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
3
3-D GEOPHYSICAL, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December June
31, 1995 30, 1996
---------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 609 $ 2,873
Accounts receivable, net of the
allowance for doubtful accounts
of $0 and $49 as of December 1,786 12,302
31, 1995 and June 30, 1996
- Other 158 251
Notes receivable - 975
Deferred tax assets - 108
Prepaid expenses and other 239 948
---------- ---------
Total current assets $ 2,792 $ 17,457
Property and equipment, net of
accumulated depreciation of
$1,744 and $4,552 as of 1,746 25,283
December 31, 1995 and June
30, 1996
Goodwill, net of accumulated
amortization of $0 and $163 as - 5,985
of December 31, 1995 and June
30, 1996
Other assets
9 577
---------- ---------
Total assets $ 4,547 $ 49,302
========== =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
4
3-D GEOPHYSICAL, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December June
31, 1995 30, 1996
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term $ 182 $ 5,294
debt and capital leases
Accounts payable 1,004 5,924
Accrued liabilities 1,003 1,596
Income taxes payable - 293
---------- ---------
Total current liabilities $ 2,189 $ 13,107
Long-term debt and capital leases - 9,653
Deferred income taxes 530 601
Stockholders' equity:
Common stock-predecessor 321 -
Common stock, $.01 par value,
25,000,000 shares authorized, - 76
7,600,000 shares issued and
outstanding
Preferred stock, $.01 par value,
1,000,000 shares authorized, - -
none issued and outstanding
Additional paid in capital - 28,261
Retained earnings 4,363 618
Cumulative foreign currency (2,856) (3,014)
translation adjustments
---------- ---------
Total stockholders' equity $ 1,828 $ 25,941
---------- ---------
Total liabilities and
stockholders' equity $ 4,547 $ 49,302
========== =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
5
3-D GEOPHYSICAL, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1995 1996 1995 1996
------- ------- ------- ------
Net Sales $ 2,590 $ 12,487 $ 4,847 $ 19,539
Expenses
Cost of data acquistion 1,192 9,434 2,840 14,452
Depreciation and amortization 217 1,016 443 1,649
General and administrative
expenses 306 1,726 546 2,585
------- ------- ------- ------
Total operating expenses 1,715 12,176 3,829 18,686
Operating income 875 311 1,018 853
Other income (expense)
Miscellaneous 38 232 102 364
Interest expense (407) (154) (520) (296)
Foreign currency transaction
gains 8 13 12 81
------- ------- ------- ------
Other income (expense) (361) 91 (406) 149
Income before provision
for income taxes and 514 402 612 1,002
extraordinary item
Provision for income taxes 134 139 144 277
------- ------- ------- ------
Income before extraordinary 380 263 468 725
item
Extraordinary item, net
of tax expense of $36 - - - 57
------- ------- ------- ------
Net income $ 380 $ 263 $ 468 $ 782
======= ======= ======= ======
Income before extraordinary
item per share .03 .12
Extraordinary item, net
of tax expense per share - .01
------- ------
Net earnings per share .03 .13
======= ======
Weighted average common
shares outstanding 7,600,000 6,300,809
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
6
3-D GEOPHYSICAL, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Six Months Ended
June 30,
1995 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash flow provided (used) by $ 1,030 $ (3,527)
operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (250) (9,867)
Cash consideration paid to acquire seismic
data acquisition companies - (10,328)
Cash received from sale of property
and equipment - 41
-------- --------
Net cash used by investing activities (250) (20,154)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid in connection with the initial
public offering - (3,280)
Proceeds from initial public offering,
net of the underwriting discounts - 32,085
Cash paid to retire indebtedness of the
Founding Companies - (4,599)
Principal payments on notes payable
and capital leases (503) (7,016)
Cash proceeds of borrowings under notes
payable and capital leases - 12,257
Cash dividend paid to owners of
predecessor company - (3,510)
Net borrowings (payments) under
factor agreements (207) -
-------- --------
Net cash provided (used) by
financing activities (701) 25,937
Net increase (decrease) in cash 70 2,256
Cash at beginning of period 242 609
Effect of change in exchange rate on cash (49) 8
-------- --------
Cash at end of period $ 263 $ 2,873
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
7
3-D GEOPHYSICAL, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
On February 9, 1996, 3-D Geophysical, Inc. ("Company") consummated an initial
public offering (the "Offering") and simultaneously acquired in separate
transactions, in exchange for cash, notes and shares of common stock,
Geoevaluaciones, S.A. de C.V. ("GEO"), Processos Interactivos Avanzados,
S.A. de C.V. ("PIASA"), certain assets and liabilities of the land seismic
business of Northern Geophysical of America, Inc. ("Northern"), Paragon
Geophysical, Inc. ("Paragon") and Kemp Geophysical Corporation ("Kemp")
(collectively referred to as the "Founding Companies.")
For accounting purposes the acquisitions of GEO and PIASA have been treated as a
recapitalization of GEO and PIASA with GEO (combined with PIASA) as the acquirer
of the Company and considered the predecessor company. Accordingly, the
financial statements include the historical operating performance of GEO and
PIASA (the "Mexican Operations").
The acquisitions of the other Founding Companies have been treated as business
combinations accounted for by the purchase method of accounting as prescribed by
Accounting Principles Board Opinion No. 16 and Staff Accounting Bulletin No. 48.
Northern and Kemp are being valued at the fair market value of consideration
given. In connection with the acquisitions of Northern and Kemp, the excess of
consideration given over the fair market value of net assets acquired will be
amortized on a straight-line basis over 15 years. The acquisition of Paragon's
common stock in exchange for shares of the company's common stock is accounted
for at Paragon's historical costs. The accompanying condensed consolidated
financial statements include the accounts of Northern, Kemp and Paragon from
February 9, 1996, the effective date of the acquisitions. As a result, the
Company's statements of operations for the three and six months ended June 30,
1996 are not comparable to the statements of operations for the three and six
months ended June 30, 1995, and the Company's balance sheet as of June 30, 1996
is not comparable to its balance sheet as of December 31, 1995.
The consideration paid to the former owners of Northern, Kemp and Paragon and
the allocation of such consideration to the acquired assets is as follows:
Cash paid for the stock and assets of the
acquired companies $ 10,328,000
Debt payable to former owner of Northern 1,149,000
Stock issued to the former owners of Kemp
at offering price of $7.50 per share 294,000
Assumption of the liabilities in excess
of assets of Paragon (1,020,000)
Liabilities assumed:
Bank overdraft 162,000
Accounts payable 4,984,000
Accrued and other current liabilities 1,130,000
Debt assumed:
Current 8,007,000
Non-current 3,187,000
----------
Amounts allocated to acquired assets $ 28,221,000
==========
<PAGE>
8
3-D GEOPHYSICAL, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION (continued)
Allocation of the purchase price to the acquired assets:
Accounts receivable:
Trade $ 6,575,000
Other 123,000
Deferred tax assets 108,000
Prepaid expenses and other current assets 209,000
Property and equipment 14,106,000
Goodwill 6,147,000
Other assets 953,000
===========
$ 28,221,000
===========
In the opinion of the Company, the accompanying consolidated financial
statements include all adjustments which are of a normal recurring nature
necessary to present fairly the Company's financial position at June 30, 1996,
the results of its operations for the three and six month periods ended June 30,
1995 and 1996, and its cash flows for the six month periods ended June 30, 1995
and 1996. All significant intercompany accounts have been eliminated. Although
the Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities Exchange Commission. These consolidated
financial statements should be read in conjunction with the financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995 which was filed pursuant to Rule 15d-2 of the Securities Exchange Act
of 1934, as amended. The results of operations for the three and six month
periods ended June 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
PRO FORMA INFORMATION
The accompanying summarized pro forma information for the Company for the three
and six month periods ended June 30, 1995 and 1996 represents the operations of
the Company as if the acquisitions of the Founding Companies and the Company's
initial public offering had occurred on January 1, 1995.
<PAGE>
9
3-D GEOPHYSICAL, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION (continued)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(in thousands (in thousands
except per share data) except per share data)
1995 1996 1995 1996
-------- -------- --------- --------
Net sales $ 7,790 $ 12,487 $ 14,746 $ 23,241
======== ======== ========= ========
Extraordinary item, net of
tax expense $ - $ - $ - $ 57
======== ======== ========= ========
Net income (loss) $ 482 $ 263 $ (22) $ 533
======== ======== ========= ========
Income before extraordinary
item, per share .06 .06 (.00) .06
Extraordinary item, net of
tax expense, per share - - - .01
======== ======== ========= ========
Earnings (loss) per share .06 .03 (.00) .07
======== ======== ========= ========
The pro forma results described above assume weighted average common shares
outstanding of 7,600,000 shares.
The summarized pro forma information is not necessarily indicative of the actual
results that would have been achieved if the public offering and acquisitions
had occurred on the date indicated or which may be realized in the future.
Neither expected benefits and cost reductions anticipated by the Company, nor
future corporate costs of the Company, have been reflected in the above
summarized pro forma information.
2. INITIAL PUBLIC OFFERING OF COMMON STOCK
On February 9, 1996, the Company completed the offering of 4,000,000 shares of
common stock at $7.50 per share. The proceeds, net of the underwriters'
commissions and offering costs, were approximately $28,834,000. Of these net
proceeds, approximately $10,328,000 was used to pay the cash portion of the
purchase price for certain Founding Companies, $2,510,000 was paid to fund a
dividend to the former shareholders of GEO and approximately $4,599,000 was used
to retire certain indebtedness of the Founding Companies. The Company recognized
$57,000 of extraordinary gain, net of tax, from the retirement of a certain
portion of this debt.
3. CONCENTRATIONS OF CREDIT RISK
During the six months ended June 30, 1995, which included only the operations of
GEO, one customer accounted for 100% of net sales and during the six months
ended June 30, 1996, two customers accounted for 25.5% and 18.0% of net sales,
respectively.
As of December 31, 1995, which consisted only of the accounts of GEO, one
customer accounted for 99% of accounts receivable and as of June 30, 1996, three
customers accounted for 28.8%, 20.5% and 12.5% of accounts receivable,
respectively.
4. RECENT ACCOUNTING PRONOUNCEMENTS
During the fourth quarter of 1995, Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" (SFAS 123) was issued. The
Company will continue to account for future grants of common stock options using
the intrinsic value method under Accounting Principles Board Opinion NO. 25,
"Accounting for Stock issued to Employees" and will adopt the disclosure
requirements of SFAS 123.
<PAGE>
10
3-D GEOPHYSICAL, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. EARNINGS PER SHARE
The number of shares used in the earnings per share calculation is determined as
follows:
Shares issued to 3-D stockholders giving
effect to the 2,717.66 for 1 stock split 1,400,682
Shares deemed to have been issued to fund cash
portion of Geoevaluaciones dividend 468,000
Shares issued to acquire Founding companies 1,247,820
Shares sold in initial offering 2,755,736
Shares sold upon exercise of the over-allotment option 428,571
------------
Weighted average common shares outstanding 6,300,809
===========
6. INCOME TAXES
The effective income tax rates for the six months ended June 30, 1995 and 1996
are 24% and 28%, respectively. The differences between the statutory federal
income tax rate on income before provision for income taxes and extraordinary
item, and the Company's effective income tax rate, result primarily from the tax
benefits associated with inflation adjustments with respect to the operations of
GEO and PIASA and the anticipated change in the valuation allowance previously
established with respect to net operating loss carryforwards from Paragon.
7. COMMITMENTS AND CONTINGENCIES
GEO has a dispute, and may be threatened with litigation, in connection with
certain agreements it entered into with Capilano International Inc., a Canadian
company ("Capilano"). The dispute concerns a certain Letter of Intent and a
certain Technical Assistance Agreement, dated June 1, 1991 and June 3, 1992,
respectively (the "Capilano Agreements"). GEO maintains that it is not obligated
to compensate Capilano for certain services GEO believes were either
inadequately provided or not provided at all by Capilano and the parties
disagree upon how certain profits and losses should be allocated under the
Capilano Agreements. On May 13, 1996, a Capilano representative contacted the
Chairman of the Board of the Company expressing Capilano's interest in resolving
the dispute. The Company is not currently able to estimate the effect, if any,
on GEO's results of operations and financial position which may result from
resolution of this matter. Accordingly, the Company's financial statements do
not reflect any adjustment related to this matter.
8. COMMON STOCK - PREDECESSOR
Common stock of the Company at December 31, 1995 consisted solely of GEO common
stock of 1,200,000 shares of N$1 par value variable capital stock. In 1993, GEO
capitalized $229,582 of earnings by issuing 229,582 shares of common stock.
GEO and PIASA are required under Mexican law to establish a legal reserve equal
to 5% of each company's earnings until such time as the reserve equals 20% of
the minimum capital of GEO and PIASA.
<PAGE>
11
3-D GEOPHYSICAL, INC. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. SUBSEQUENT EVENTS
On July 12, 1996, the Company executed a letter of intent to acquire J.R.S.
Exploration Company Ltd. ("J.R.S."), a land seismic survey company headquartered
in Calgary, Alberta, Canada. Under the contemplated terms of the letter of
intent, the Company proposes to acquire J.R.S. for approximately 481,000 shares
of the Company's common stock. The acquisition is subject to certain conditions,
including the negotiation and execution of mutually satisfactory definitive
documentation and the completion of satisfactory due diligence by the Company.
On July 31, 1996, the stock purchase agreement dated as of October 24, 1995
among G.C.L. Kemp, his wife and the Company under which the Company purchased
all of the issued and outstanding shares of capital stock of Kemp was amended.
The amendment provides, in part, that the Company is not obligated to make any
contingent cash payment based on future earnings of Kemp, the maximum of which
was to be $725,000. Additionally, $25,000 of debt payable by the Company to
G.C.L. Kemp has been forgiven.
<PAGE>
12
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For accounting purposes, GEO is considered the predecessor company and the
financial performance of Northern, Kemp and Paragon (the "Purchased Companies")
are included as of their acquisition date, February 9,1996. As a result, the
Company's statements of operations for the three and six month periods ended
June 30, 1996 include the financial activities of the Purchased Companies after
February 8, 1996, and are not comparable to the statement of operations for the
three and six month periods ended June 30, 1995. The following discussion has
been divided into two sections. The first section relates to the Company and
includes the historical operating performance of GEO and PIASA (the Mexican
Operations). The second section discusses the Company's financial condition,
liquidity, and capital resources as of June 30, 1996.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 compared to Three Months Ended June 30, 1995
Net Sales.
- ----------
Net sales for the Company increased 382.1% to $12.5 million in the three
months ended June 30, 1996 from $2.6 million in the three months ended June 30,
1995. The increase is primarily attributable to the inclusion of $9.6 million of
net sales of the Purchased Companies and a 11.5% increase to $2.9 million in the
three months ended June 30, 1996, from $2.6 million in the three months ended
June 30, 1995, for the Mexican Operations. Net sales for the three month period
ended June 30, 1995 include $1.3 million of contractual adjustments related to
increased costs due to the devaluation of the of the Mexican peso which occurred
in December of 1994.
Cost of Data Acquisition.
- -----------------------------
Cost of data acquisition for the Company increased 691.4% to $9.4 million
in the three months ended June 30, 1996 from $1.2 million in the three months
ended June 30, 1995. The increase is primarily attributable to the inclusion of
$7.0 million of cost of data acquisition of the Purchased Companies and a 100%
increase to $2.4 million in the three months ended June 30, 1996, from $1.2
million in the three months ended June 30, 1995, for the Mexican Operations.
Depreciation and Amortization.
- --------------------------------
Depreciation and amortization for the Company increased 368.2% to $1.0
million in the three months ended June 30, 1996 from $217,000 in the three
months ended June 30, 1995. The increase is primarily attributable to the
inclusion of $827,000 of depreciation and amortization of the Purchased
Companies, including $59,000 of goodwill amortization attributable to the
acquisitions of the Purchased Companies and additional depreciation relating to
new equipment acquisitions. This increase was partially offset by a 12.9%
decrease to $189,000 in the three months ended June 30, 1996, from $217,000 in
the three months ended June 30, 1995, for the Mexican Operations. This decrease
is primarily the result of the devaluation of the peso.
General and Administrative Expenses.
- ------------------------------------
General and administrative expenses for the Company increased 464.1% to
$1.7 million in the three months ended June 30, 1996 from $306,000 in the three
months ended June 30, 1995. The increase is primarily attributable to the
inclusion of $1.4 million of general and administrative expenses of the
Purchased Companies and a 3.6% increase to $317,000 in the three months ended
June 30, 1996, from $306,000 in the three months ended June 30, 1995, for the
Mexican Operations.
Operating Income.
- ------------------
Operating income for the Company decreased 64.5% to $311,000 in the three
months ended June 30, 1996 from $875,000 in the three months ended June 30,
1995. The decrease is primarily attributable to a decrease of 102.5% to
$(22,000) in the three months ended June 30, 1996, from $875,000 in the three
months ended June 30, 1995, for the Mexican Operations. The decrease in the
operating income of the Mexican Operations for the three months ended June 30,
1996 compared to the three months ended June 30, 1995 is due to contractual
revenue adjustments of $1.3 million, which were realized during the second
quarter of 1995 and did not recur during 1996, attributable to increased costs
resulting from the devaluation of the Mexican peso during December of 1994. The
decrease in the operating income of the Mexican operations was partially offset
by the inclusion of $333,000 of operating income from the Purchased Companies.
<PAGE>
13
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
Miscellaneous Income (Expense).
- -------------------------------
The Company recognized miscellaneous income of $232,000 in the three months
ended June 30, 1996 compared to miscellaneous income of $38,000 in the three
months ended June 30, 1995. The increase is primarily the result of interest
income in Mexico due to the high interest rates available in Mexico, interest
income from the proceeds of the Company's initial public offering and interest
income from the conversion of a trade receivable to an interest-bearing note
receivable.
Interest Expense.
- -----------------
The Company's interest expense decreased 62.2% to $154,000 in the three
months ended June 30, 1996 from $407,000 in the three months ended June 30,
1995. The decrease is due to lower borrowing costs in the Mexican Operations
compared to the three month period ended June 30, 1995.
Foreign Currency Gains.
- -------------------------
The Company recognized a foreign currency gain of $13,000 in the three
months ended June 30, 1996 compared to a foreign currency gain of $8,000 in the
three months ended June 30, 1995. The gains are attributed to the reduction of
U.S. dollar liabilities of the Mexican Operations and the fluctuation of the
Peso/U.S. dollar exchange rate.
Income Tax Expense.
- -------------------
The Company recognized income tax expense from operations of $139,000 in
the three months ended June 30, 1996 compared to income tax expense of $134,000
in the three months ended June 30, 1995. The increase is primarily attributable
to earnings of the Purchased Companies taxed at a 34% rate, partially offset by
a 21% effective tax rate for earnings from the Mexican operations. The lower tax
rate in Mexico is due to inflation adjustments.
Six Months Ended June 30, 1996 compared to Six Months Ended June 30, 1995.
Net Sales.
- ----------
Net sales for the Company increased 303.1% to $19.5 million in the six
months ended June 30, 1996 from $4.8 million in the six months ended June 30,
1995. The increase is primarily attributable to the inclusion of $14.5 million
of net sales of the Purchased Companies and a 2.9% increase to $5.0 million in
the six months ended June 30, 1996, from $4.8 million in the six months ended
June 30, 1995, for the Mexican Operations. Net sales for the six month period
ended June 30, 1995 include $1.3 million of contractual adjustments related to
increased costs due to the devaluation of the Mexican peso which occurred in
December of 1994.
Cost of Data Acquisition.
- --------------------------
Cost of data acquisition for the Company increased 408.9% to $14.5 million
in the six months ended June 30, 1996, from $2.8 million in the six months ended
June 30, 1995. The increase is primarily attributable to the inclusion of $10.6
million of cost of data acquisition of the Purchased Companies and a 37.8%
increase to $3.9 million in the six months ended June 30, 1996 from $2.8
million in the six months ended June 30, 1995, for the Mexican Operations.
Depreciation and Amortization.
- --------------------------------
Depreciation and amortization for the Company increased 272.2% to $1.6
million in the six months ended June 30, 1996 from $443,000 in the six months
ended June 30, 1995. The increase is primarily attributable to the inclusion of
$1.3 million of depreciation and amortization of the Purchased Companies,
including $163,000 of goodwill amortization attributable to the acquisitions of
the Purchased Companies. This increase was partially offset by a 27.3% decrease
to $322,000 in the six months ended June 30, 1996, from $443,000 in the six
months ended June 30, 1995, for the Mexican Operations.
General and Administrative Expenses.
- ------------------------------------
General and administrative expenses for the Company increased 373.4% to
$2.6 million in the six months ended June 30, 1996 from $546,000 in the six
months ended June 30, 1995. The increase is primarily attributable to the
inclusion of $2.0 million of general and administrative expenses of the
Purchased Companies and a 9.0% increase to $595,000 in the six months ended June
30, 1996, from $546,000 in the six months ended June 30, 1995, for the Mexican
Operations.
<PAGE>
14
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
Operating Income.
- ------------------
Operating income for the Company decreased 16.2% to $853,000 in the six
months ended June 30, 1996 from $1.0 million in the six months ended June 30,
1995. The operating income of the Mexican Operations decreased 84.8% from $1.0
million in the six months ended June 30, 1995 to $155,000 in the six months
ended June 30, 1996. The decrease in the operating income of the Mexican
Operations for the six months ended June 30, 1996 compared to the six months
ended June 30, 1995 is due to contractual revenue adjustments of $1.3 million,
which were realized during the second quarter of 1995 and did not recur during
1996, attributable to increased costs resulting from the devaluation of the
Mexican peso during December of 1994. The decrease in the operating income of
the Mexican operations was partially offset by the inclusion of $698,000 of
operating income from the Purchased Companies.
Miscellaneous Income (Expense).
- -------------------------------
The Company recognized miscellaneous income of $364,000 in the six months
ended June 30, 1996 compared to miscellaneous income of $102,000 in the six
months ended June 30, 1995. The increase is primarily the result of interest
income in Mexico due to the high interest rates available in Mexico, interest
income from the offering proceeds of the Company's initial public offering and
interest income from the conversion of a trade receivable to an interest-bearing
note receivable.
Interest Expense.
- -----------------
The Company's interest expense decreased 43.1% to $296,000 in the six
months ended June 30, 1996 from $520,000 in the six months ended June 30, 1995.
The decrease is due to lower borrowing costs in the Mexican Operations compared
to the six month period ended June 30, 1995.
Foreign Currency Gains.
- -------------------------
The Company recognized a foreign currency gain of $81,000 in the six months
ended June 30, 1996 compared to a foreign currency gain of $12,000 in the six
months ended June 30, 1995. The gains are attributed to the reduction of U.S.
dollar liabilities of the Mexican Operations and the fluctuation of the
Peso/U.S. dollar exchange rate.
Income Tax Expense.
- -------------------
The Company recognized income tax expense from operations of $277,000 in
the six months ended June 30, 1996 compared to income tax expense of $144,000 in
the six months ended June 30, 1995. The increase is primarily attributable to
earnings of the Purchased Companies taxed at a 34% rate, partially offset by 21%
effective tax rate for earnings of the Mexican operations. The lower tax rate in
Mexico is due to inflation adjustments.
Extraordinary Item Net of Income Tax Expense.
- ---------------------------------------------
The Company recognized a $57,000 extraordinary item in the six months ended
June 30, 1996, net of tax expense of $36,000. The extraordinary item is due to a
gain recognized on the early extinguishment of debt. No extraordinary items were
recognized in the six months ended June 30, 1995.
<PAGE>
15
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
From December 31, 1995 to June 30, 1996, total assets of the Company increased
from $4.5 million to $49.3 million, total liabilities increased from $2.7
million to $23.4 million and total stockholders' equity increased from $1.8
million to $25.9 million. These increases resulted from the Company's initial
public offering, the acquisition of the Founding Companies and new capital
expenditures partially financed by a new credit line.
On February 9, 1996, the Company completed its initial public offering of
4,000,000 shares of common stock at $7.50 per share. Subsequently, on February
21, 1996, the underwriters exercised their over-allotment option to purchase an
additional 600,000 shares at $7.50 per share. The net proceeds to the Company
(after deducting underwriting discounts and commissions and offering expenses)
were approximately $28.8 million. Of this amount, approximately $2.5 million was
used to pay cash dividends to GEO and PIASA's stockholders, approximately $10.3
million was used to purchase the land seismic assets of Northern and 100% of
Kemp's equity, and approximately $4.6 million was used to repay indebtedness of
the Founding Companies. The net proceeds to the Company from the public
offering, after deducting underwriting discounts, offering expenses and the cash
required to purchase and repay debt of the Founding Companies, have and will be
used for working capital and capital expenditures, and may be used for strategic
acquisitions.
At June 30, 1996, the Company had $2.9 million of cash. The Company utilized
$3.5 million net cash from operating activities in the six months ended June 30,
1996 as compared to providing $1.0 million in the same period of the prior year.
The reduction in net cash provided by operating activities was primarily
attributable to a net increase in working capital.
Net cash used in investing activities increased to $20.1 million in the six
months ended June 30, 1996 from $250,000 in the same period of the prior year.
This amount was primarily due to the cash utilized to purchase Northern and Kemp
and for capital expenditures.
Net cash provided by financing activities increased to $25.9 million for the six
months ended June 30,1996 from a net cash utilized of $710,000 in the comparable
period in the prior year due to the completion of the Company's initial public
offering and the closing of the Company's credit agreement with First Interstate
Bank of Texas, N.A.
The Company used $9.9 million for capital expenditures in the six months ended
June 30, 1996 as compared to $250,000 in the same period of the prior year. In
addition, simultaneously with the acquisition of the Founding Companies,
Northern and Paragon exercised options to purchase equipment which had been
rented. These capital expenditures reduced the Company's reliance on rental
equipment and improved the Company's capacity to meet the demand for
technologically advanced 3-D data acquisition recording systems. On May 31,
1996, the Company purchased approximately $8.5 million of equipment from
Input/Output, Inc.. This purchase increased the Company's recording channel
capacity by over 50%. Simultaneously with the purchase of the equipment, the
Company entered into an $18 million credit facility with First Interstate Bank
of Texas, N.A. The credit facility is for three years and includes $7.5 million
of financing on the above equipment and refinances conditional sales agreements
totaling approximately $4.5 million incurred by the Founding Companies prior to
the Company's initial public offering. The credit facility also provides $3.0
million for future capital expenditures and a working capital facility of up to
$3.0 million. The new equipment will be utilized to meet the requirements of a
contract with a subsidiary of British Petroleum in Alaska, increase the capacity
of one of the Company's Mexican crews for a new 3-D contract with PEMEX and
increase the channel capacity of the Company's two crews in the Rocky Mountain
Region.
At August 1, 1996, the Company's estimated backlog of commitments for services
totaled $31.2 million. The Company expects to complete substantially all of
these commitments during 1996; however, commitments are subject to cancellation
at the option of the Company's customers, on short notice and without penalty.
<PAGE>
16
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (continued)
The Company believes that its planned capital expenditures and operating
requirements through the end of 1996 will be funded from the remaining proceeds
of its initial public offering, cash from operations and proceeds from the First
Interstate Bank of Texas, N.A. credit facility and other equipment financing if
required. If other financing is required, there can be no assurance that the
Company will be able to obtain financing at all, or on terms favorable to the
Company. If the financing sources described above are insufficient to fund the
Company's planned capital expenditures and operating requirements, and the
Company is unable to obtain additional financing, it will be unable to complete
its capital expenditure program and may be materially and adversely affected as
a result.
<PAGE>
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) List of exhibits
Financial Data Schedule
(b) The Registrant filed a Current Report on Form 8-K on May 31, 1996, pursuant
to Item 5 of Form 8-K, reporting the purchase of $8,500,000 of seismic data
acquisition equipment from Input/Output, Inc. ("Input/Output") and the
refinancing of $4,500,000 of conditional sales agreements with
Input/Output. A portion of the purchase price and the funding of the
refinancing were paid with the proceeds of a $15,000,000 term loan with
First Interstate Bank of Texas, N.A.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
3-D GEOPHYSICAL, INC.
Dated: August 13, 1996 By: /s/ Richard D. Davis
--------------------
Richard Davis
President and Chief Executive Officer
(principal executive officer)
Dated: August 13, 1996 By: /s/ John D. White, Jr.
----------------------
John D. White, Jr.
Treasurer and Chief Financial Officer
(principal financial and accounting
officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1003382
<MULTIPLIER> 1,000
<CURRENCY> us dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,873
<SECURITIES> 0
<RECEIVABLES> 13,528
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,457
<PP&E> 29,835
<DEPRECIATION> 4,552
<TOTAL-ASSETS> 49,302
<CURRENT-LIABILITIES> 13,107
<BONDS> 9,653
0
0
<COMMON> 76
<OTHER-SE> 25,865
<TOTAL-LIABILITY-AND-EQUITY> 49,302
<SALES> 0
<TOTAL-REVENUES> 19,539
<CGS> 0
<TOTAL-COSTS> 14,452
<OTHER-EXPENSES> 4,234
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> 1,002
<INCOME-TAX> 277
<INCOME-CONTINUING> 725
<DISCONTINUED> 0
<EXTRAORDINARY> 57
<CHANGES> 0
<NET-INCOME> 782
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
