<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1996
Commission file number
000-18816
GRANT GEOPHYSICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0766570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16850 PARK ROW
HOUSTON, TEXAS 77084
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 398-9503
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
----- -----
As of November 12, 1996, 19,219,953 shares of common stock, par value
$.002 per share, were issued and outstanding.
<PAGE> 2
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
INDEX
PAGE(S)
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30,
1996 (Unaudited) and December 31, 1995................... 3-4
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1996 (Unaudited)
and 1995 (Unaudited)..................................... 5
Consolidated Statements of Operations for the
Three Months Ended September 30, 1996 (Unaudited)
and 1995 (Unaudited)..................................... 6
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 (Unaudited)
and 1995 (Unaudited)..................................... 7
Notes to Consolidated Financial Statements (Unaudited)... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 12
PART II. OTHER INFORMATION
Item 5. Other Information.................................. 19
Item 6. Exhibits and Reports on Form 8-K................... 19
PART III. SIGNATURES............................................... 20
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ -- $ 1,047
Restricted cash .................................... 437 100
Accounts receivable:
Trade (net of allowance for doubtful accounts
of $2,668 and $2,344 at September 30, 1996
and December 31, 1995, respectively) ............ 32,898 37,069
Other ............................................. 1,677 1,826
Inventories ......................................... 1,238 1,417
Prepaids ............................................ 5,552 4,823
Mobilization costs .................................. 9,642 5,296
------------ ------------
Total current assets ............................. 51,444 51,578
------------ ------------
Property, plant and equipment, at cost .............. 116,656 92,502
Less accumulated depreciation ....................... 68,758 61,565
------------ ------------
Net property, plant and equipment ................ 47,898 30,937
------------ ------------
Deferred costs ...................................... 2,362 334
Restricted cash ..................................... 318 315
Other assets ........................................ 3,960 3,768
------------ ------------
Total assets ..................................... $ 105,982 $ 86,932
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable, current portion of long-term
debt and capital lease obligations ...................................... $ 56,199 $ 18,430
Accounts payable ........................................................... 20,265 19,241
Accrued expenses ........................................................... 7,066 5,643
Foreign income taxes payable ............................................... 366 231
------------ ------------
Total current liabilities ..................................................... 83,896 43,545
------------ ------------
Long-term debt and capital lease obligations,
excluding current portion ................................................... -- 8,789
Other liabilities and deferred credits ........................................ 6,394 4,883
Stockholders' equity:
$2.4375 Convertible exchangeable preferred stock, $.01 par value. Authorized
2,300,000 shares; issued and outstanding 2,300,000 and 2,157,000 shares at
September 30, 1996 and December 31, 1995, respectively (liquidating
preference
$25 per share, aggregating $57,500,000) .................................. 23 22
Series A Convertible preferred stock, $.01 par value ........................
Authorized 75,000 shares; issued and outstanding
2,715 shares and none at September 30, 1996 and
December 31, 1995, respectively ........................................... -- --
Junior preferred stock, $100 par value. Authorized 15,000
shares; issued and outstanding 14,904 shares .............................. 1,490 1,490
Serial preferred stock, $100 par value. Authorized 250,000
shares, none issued ....................................................... -- --
Common stock, $.002 par value. Authorized 40,000,000 shares;
issued and outstanding 17,945,623 and 12,234,151 shares
at September 30, 1996 and December 31, 1995, respectively ................. 36 24
Additional paid-in capital .................................................. 122,934 112,122
Accumulated deficit ......................................................... (108,791) (83,943)
------------ ------------
Total stockholders' equity ............................................. 15,692 29,715
Commitments and contingencies
Total liabilities and stockholders' equity ............................. $ 105,982 $ 86,932
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-----------------
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues ...................................................... $ 80,925 $ 63,881
Expenses:
Direct operating expense ................................... 83,243 47,178
Other operating expenses ................................... 8,948 5,908
Depreciation and amortization .............................. 8,237 6,978
-------- --------
Total costs and expenses ................................ 100,428 60,064
-------- --------
Operating income (loss) ................................. (19,503) 3,817
-------- --------
Other income (deductions):
Interest expense ........................................... (4,460) (2,488)
Interest income ............................................ 34 93
Other ...................................................... 26 1,640
-------- --------
Total other deductions .................................. (4,400) (755)
-------- --------
Income (loss) before income taxes ....................... (23,903) 3,062
Income tax expense ............................................ 945 226
-------- --------
Net income (loss) ....................................... (24,848) $ 2,836
-------- --------
Net loss applicable to common stock ..................... $(30,185) $ (1,108)
======== ========
INCOME (LOSS) PER COMMON SHARE - ASSUMING NO AND FULL DILUTION:
Net income (loss) .......................................... $ (1.85) $ 0.23
Dividend requirement on $2.4375 preferred stock ............ (0.39) (0.32)
-------- --------
Net loss per common share .................................. $ (2.24) $ (0.09)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary and Fully Diluted ................................... 13,455,767 12,528,674
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-------------------
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues ...................................................... $ 26,166 $ 24,763
Expenses:
Direct operating expense ................................... 40,207 18,807
Other operating expenses ................................... 4,226 2,159
Depreciation and amortization .............................. 3,251 2,313
--------- ---------
Total costs and expenses ................................ 47,684 23,279
--------- ---------
Operating income (loss) ................................. (21,518) 1,484
--------- ---------
Other income (deductions):
Interest expense ........................................... (1,942) (944)
Interest income ............................................ 14 28
Other ...................................................... 36 1,225
--------- ---------
Total other income (deductions) ......................... (1,892) 309
--------- ---------
Income (loss) before income taxes ....................... (23,410) 1,793
Income tax expense ............................................ 245 80
--------- ---------
Net income (loss) ....................................... $ (23,655) $ 1,713
--------- ---------
Net income (loss) applicable to common stock ............ $ (25,056) $ 398
========= =========
INCOME (LOSS) PER COMMON SHARE - ASSUMING NO AND FULL DILUTION:
Net income (loss) .......................................... $ (1.62) $ 0.14
Dividend requirement on $2.4375 preferred stock ............ (0.10) (0.11)
--------- ---------
Net income (loss) per common share ......................... $ (1.72) $ 0.03
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary and Fully Diluted ................................... 14,601,885 12,529,325
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
------------------
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) before dividend requirement ................................. $(24,848) $ 2,836
Adjustments to reconcile net income/(loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization expense ..................................... 8,237 6,978
Deferred costs amortization ............................................... 18,595 8,405
Gain on the sale of fixed assets .......................................... (13) (216)
Gain on insurance claim ................................................... -- (1,247)
Exchange gain ............................................................. (4) (116)
Other non-cash items ...................................................... 330 71
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable ....................................................... 4,320 (13,302)
Inventories ............................................................... 179 53
Prepaids .................................................................. (732) (1,656)
Deferred costs ............................................................ (24,969) (11,155)
Other assets .............................................................. (192) (9)
Increase (decrease) in:
Accounts payable .......................................................... 1,024 6,600
Accrued expenses .......................................................... 1,398 167
Foreign income taxes payable .............................................. 135 (31)
Other liabilities and deferred credits .................................... 1,511 1,486
-------- --------
Net cash provided by (used in) operating activities ..................... (15,029) (1,136)
-------- --------
Cash flows from (used in) investing activities:
Capital expenditures, net ..................................................... (9,546) (10,548)
Proceeds from the sale of assets .............................................. 13 255
Insurance proceeds from arson damage, net of losses incurred .................. -- 1,351
Restricted cash ............................................................... (340) 2,917
-------- --------
Net cash flows used in investing activities ............................. (9,873) (6,025)
-------- --------
Cash flows from (used in) financing activities:
Proceeds from exercise of stock options and warrants .......................... 295 11
Proceeds from issuance of $2.4375 Preferred Stock ............................. 1,573 --
Proceeds from issuance of Series A Convertible Preferred stock ................ 7,000 --
Borrowings made during the period ............................................. 95,439 66,708
Repayment on borrowings during the period ..................................... (80,401) (60,247)
-------- --------
Net cash from financing activities ...................................... 23,906 6,472
-------- --------
Effect of exchange rate changes on cash ......................................... (51) (115)
Net decrease in cash and cash equivalents ............................... (1,047) (804)
Cash and cash equivalents at beginning of period ................................ 1,047 804
-------- --------
Cash and cash equivalents at end of period...................................... $ -- $ --
======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES.
SEE NOTE 6.
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
----------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet of Grant Geophysical, Inc. and subsidiaries (the
"Company") as of September 30, 1996, and the related statements of
operations and cash flows for the nine months ended September 30, 1996 and
1995 and for the three months ended September 30, 1996 and 1995 are
unaudited. The consolidated financial statements should be read in
conjunction with the audited financial statements and footnotes for the
year ended December 31, 1995, included in the Company's Form 10-K, as
filed with the Securities and Exchange Commission.
In the opinion of management, the unaudited consolidated financial
statements include normal recurring adjustments considered necessary to
present fairly the Company's consolidated financial position and results
of operations for the periods presented. The Company's operating results
for any particular interim period may not be indicative of results for a
full year.
Reclassifications
Certain amounts previously reported have been reclassified in order
to ensure comparability between the periods reported.
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 and
disclosure of contingent 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.
Income (Loss) Per Common Share
Income (loss) per common share is computed based upon the weighted
average number of common shares outstanding during the period. For
purposes of this calculation, outstanding stock options and warrants are
considered common stock equivalents. Fully diluted income (loss) per
common share is determined based upon the weighted average number of
common shares, calculated using the ending market price of the common
shares for the period if that market price is higher than the average
market price used in computing primary earnings per share. The income/loss
is decreased/increased by undeclared, unpaid cumulative preferred stock
dividends in calculating net income/loss attributable to the common
shareholder.
2. LIQUIDITY
The Company continues to experience severe constrained liquidity. The
factors driving these constraints are a result of the growth curve the
Company has undertaken which requires substantial immediate cash outflow
for startups, crew mobilizations and capital expenditures for new
equipment which are paid in cash. Additional cash constraints are being
experienced particularly in the third quarter of 1996 as North American
crews have been hampered by repetitive adverse weather conditions and
permitting delays and some Latin American crews have not been able to
perform contracted work efficiently.
8
<PAGE> 9
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
-----------------------------------------
Management anticipates that the Company will not be able to generate
sufficient cash flow from operations over the balance of 1996 to fulfill
most of its cash requirements including current operations and anticipated
new crew startups. The Company continues to explore additional sources of
working capital to help improve its liquidity position and may undertake
additional funding from external sources. The cost of these funds may be
higher than typical lending rates due to the Company's current outstanding
debt and equity structure. Issuance of additional equity is being
considered as well, and such a transaction, if consummated, would likely
result in substantial dilution to the Company's common stockholders.
Alternatively, the Company is considering initiation of reorganization
proceedings in the event that it is unable to satisfactorily resolve its
immediate liquidity situation.
3. NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
A summary of notes payable, long-term debt, and capital lease
obligations of the Company at September 30, 1996 and December 31, 1995
follows (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revolving lines of credit:
15.0% due February 20, 1996 ................................... $ -- $ 1,750
11.50% due February 17, 1997 .................................. 12,919 8,045
Convertible Debentures -- 8%, due 1999 ........................... 1,592 --
Equipment notes payable -- 7.35% - 12%, due 1996-2000 ............ 16,506 5,178
Other notes payable -- 6.0% to 34.0%, due 1996-2005 .............. 15,333 6,579
Capital lease obligations -- 9% to 37.0%, due 1996-2000 .......... 9,849 5,667
------------ ------------
56,199 27,219
Less current portion ............................................. 56,199 18,430
------------ ------------
Notes payable, long-term debt and capital lease obligations,
excluding current portion...................................... $ -- $ 8,789
============ ===========
</TABLE>
On July 28, 1994, the Company entered into a $3,000,000 credit
facility with a holder of the Company's $2.4375 preferred stock. The
credit facility was secured by certain foreign receivables. On April 17,
1995, the credit facility was amended to provide the Company with a
$1,000,000 short-term credit facility for substantially the same terms and
conditions. In June 1995, the short-term credit facility was increased by
$750,000 and the expiration date was succeedingly extended to February 20,
1996. The entire loan of $1,750,000 plus accrued interest was repaid on
the expiration date.
As of April 26, 1993, the Company entered into a $12,000,000
revolving credit facility (the "Credit Facility") with a credit
corporation. The Credit Facility is secured by domestic and certain
foreign U.S. dollar denominated accounts receivable, a first lien on all
unencumbered assets of the Company and a second lien on all other assets
as available. The terms of the Credit Facility permit the Company to
borrow up to the sum of (A) 80% of eligible domestic accounts receivable;
(B) 65% to 80% of eligible insured international accounts receivable (not
to exceed $8,000,000); (C) 45% of eligible uninsured international
accounts receivable; and (D) 10% of eligible other accounts receivable.
Nigerian U.S. dollar receivables are not eligible under the terms of the
Credit Facility. As of September 30, 1996, approximately $12,919,000 had
been borrowed and no letters of credit had been issued under the Credit
Facility. The lender granted a $2,000,000 temporary credit overline
expiring on October 31, 1996. The term of the Credit Facility is three
years with an option to terminate at its annual anniversary date with at
least 90 days notice by either party. The Credit Facility has been
extended through February 17, 1997.
9
<PAGE> 10
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
----------------------------------------
The Credit Facility contains a number of affirmative and negative
covenants, the most restrictive of which are financial covenants which
require maintenance of: (i) a minimum current ratio; (ii) a maximum ratio
of debt to tangible net worth; (iii) a minimum level of tangible net worth
and (iv) a minimum level of working capital. The Company is in default of
these covenants.
On February 20, 1996, the Company entered into a two-year term loan
agreement with a subordinated lender for $3,843,750. The term loan
principal is payable beginning March 1, 1997 in eleven equal monthly
installments of $64,063 and a final installment of $3,139,063 due on
February 20, 1998. A mandatory prepayment provision requires the Company
to prepay the outstanding term loan balance with 50% of all U.S. Dollar
payments made on the Nigerian accounts receivable balance as of February
20, 1996. The term loan bears interest at 14% per annum payable monthly
beginning on March 1, 1996. The Company paid a non-refundable loan fee of
$93,750 and is subject to a quarterly administration fee of $75,000
commencing August 1996. The term loan contains a number of affirmative and
negative covenants, the most restrictive of which are financial covenants
which require maintenance of: (i) a minimum current ratio; (ii) a maximum
ratio of debt to tangible net worth; (iii) a minimum level of tangible net
worth and (iv) a minimum level of working capital. This term loan
agreement was amended on August 22, 1996 to reflect: (i) an increase in
the principal from $3,843,750 to $5,000,000; (ii) a shortening of the
maturity date from February 20, 1998 to August 18, 1997; (iii) an increase
in the interest rate from 14% to 15% per annum; (iv) a change in repayment
terms to monthly interest only payments with the entire unpaid principal
amount of the loan due on August 18, 1997; and (v) a non-refundable
administration fee of $100,000 per ninety (90) day period, payable in
arrears on November 16, 1996, February 4, 1997, May 5, 1997 and August 3,
1997. The Agreement has a stipulated maximum level of borrowing allowed
from its primary credit facility. The Company exceeded the $10,000,000
level by $2,919,000 at September 30, 1996. The lender has declared the
Company to be in default and increased the interest rate to 20% but has
elected not to seek any further remedies at this time.
On March 27, 1996, the Company issued $3,000,000 of its 8%
Convertible Debentures ("Debentures") due December 31, 1999. The
Debentures are convertible, at the option of the purchaser, into shares of
the Company's Common Stock at a conversion price of 80% of the five day
average low trading price prior to the conversion election of the Common
Stock, provided that such 80% figure is increased to 100% if the
Debentures are converted within 45 days of the Closing Date. Under certain
circumstances, the Company can redeem Debentures submitted for conversion
at 120% of the par value of the Debentures. Additionally, the Company may
redeem the Debentures on or after March 27, 1997 at a rate of 120% of the
par value of the Debenture, and on or after March 27, 1999, at a rate of
100% of the par value. Interest of 8% per annum is payable quarterly. As
of September 30, 1996, $1,500,000 of the Debentures had been converted
into 965,187 shares of the Company's Common Stock.
On November 13, 1996 the Company announced that it had signed an
agreement with Westgate International, L.P. ("Westgate") and The
Liverpool Limited Partnership ("Liverpool") for the issuance to such
entities of convertible debentures with a face value of up to $15,168,000.
The agreement between the Company and such entities has been terminated.
During negotiations of the previously proposed transaction, the Company
borrowed an aggregate of $3,149,000 from Westgate and Elliott Associates,
L.P., an affiliate of Liverpool for working capital purposes. The
borrowings are in the form of unsecured promissory notes and are payable on
demand of the lender, but in no event later than the date which is sixty
days from the date of the promissory note. Interest is payable at 15% per
annum. These promissory notes remain outstanding.
10
<PAGE> 11
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
----------------------------------------
At September 30, 1996, the Company was in default of certain covenants
related to delays in payment on its equipment notes payable, the Credit
Facility, and the term loan. Payment acceleration of these borrowings was
waived by some, but not all, of these creditors. Due to the liquidity
constraints and lender default situations, the Company has reclassified the
1996 long-term obligations to notes payable under current liabilities.
4. PREFERRED STOCK ISSUANCE
On March 20, 1996, the Company issued 143,000 shares of the Company's
$2.4375 Convertible Exchangeable Preferred Stock (the "$2.4375 Preferred
Stock"). The purchaser of the $2.4375 Preferred Stock is entitled to all
unpaid, undeclared dividends in arrears through March 31, 1996 totaling
$1,220,000. The net proceeds from the issuance was $1,573,000. The
cumulative adjustment for these prior unpaid, undeclared dividends is
shown in the results for the nine months ended September 30, 1996.
Also, during May, 1996 the Board of Directors of the Company
authorized the issuance of 75,000 shares of a new series of Series A
Convertible Preferred Stock. A total of 70,000 shares were issued
resulting in proceeds of $7,000,000. As of September 30, 1996 a total of
67,285 of those shares had been converted into 4,179,163 shares of the
Company's Common Stock.
5. DIVIDENDS IN ARREARS
The quarterly dividend payments for the first, second and third
quarters of 1996, the four quarters of 1995, 1994 and 1993 and one
quarterly dividend payment for 1992 on the $2.4375 Preferred Stock were
deferred by the Company's Board of Directors. As of September 30, 1996,
$2.4375 Preferred Stock dividends in arrears amounted to approximately
$22,425,000. This amount relates to the total of 2,300,000 shares now
outstanding.
6. SUPPLEMENTAL CASH FLOW INFORMATION
(a) During the nine months ended September 30, 1996, the Company entered
into new debt instruments for equipment totaling approximately
$18,901,000. Payments of approximately $3,386,000 on equipment debt
instruments have been included in the statement of cash flows.
(b) Cash paid during the periods for income taxes, net of refunds and
interest is as follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-----------------
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
Cash paid during the period for income taxes,
net of refunds ............................ $ 2,717 $ 226
Cash paid during the period for interest .... $ 4,849 $ 2,524
======== ========
</TABLE>
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the historical financial condition and results
of operations of the Company should be read in conjunction with the financial
statements and notes thereto, included elsewhere in this Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company's short-term and long-term liquidity position is
severely restricted. As of November 11, 1996, the Company's level of available
cash was approximately zero as compared to the December 31, 1995 balance of
approximately $1,047,000. Net cash used in operating activities during the
first nine months of 1996 was approximately $15,029,000 compared to net cash
used in operating activities of approximately $1,136,000 for the same period in
1995. The primary factors influencing this liquidity issue are the (i) lower
productivity of crews in the United States and South America; (ii) increases in
cash outflows for startups and crew mobilizations; (iii) increases in the level
of capital expenditures which are not financed; (iv) the level of investment
required for the development of the Company's proprietary seismic data
acquisition system; (v) the continued delays in receiving cash remittances from
a certain domestic customer. Additional cash constraints were experienced
particularly in the third quarter of 1996 as North American crews have been
hampered by repetitive adverse weather conditions and permitting delays and
some Latin American crews that were not able to perform contracted work
efficiently. These repetitive adverse circumstances and contract cost overruns
have increased significantly the operational use of cash during this period.
Since mid-1993, the Company has encountered additional delays in receiving
cash remittances from its Nigerian customers due to the political and social
turmoil experienced in that country. During the first quarter of 1995, these
delays increased. These delays caused the Company to intensify its collection
efforts. The net receivable balance from Nigerian customers has decreased from
$7,896,000 at December 31, 1994 to $199,000 at September 30, 1996 due primarily
to increased collection efforts and reduced crew operations. There have been
cash payments received during the nine months of 1996, and indications are that
payments will continue; however, management cannot predict the exact timing and
magnitude of such payments. Also, during the second quarter of 1995, the
Company was notified by one of its domestic customers that payment on services
performed primarily during the first quarter of 1995 would be delayed. Payments
totaling approximately $588,000 have been received during 1996, and the Company
is continuing to take steps to attempt to recover the balance of such
receivable, which totaled $1,723,000 on November 11, 1996. Although the Company
believes that such receivable balance is collectible, there can be no assurance
of the exact magnitude or timing of such recovery, or the success of any
recovery at all, with respect to such receivable.
The Company has a revolving credit facility with its principal lender, a
credit corporation, for $12,000,000, secured by domestic and certain foreign
U.S. dollar denominated accounts receivable other than those originating from
Nigerian customers, a first lien on all unencumbered assets of the Company and
a second lien on all other assets as available. The Company entered into this
credit facility on February 17, 1993 for the portion secured by the domestic
receivables and on April 26, 1993 for the portion secured by the foreign U.S.
dollar denominated receivables. The credit facility has been extended through
February 17, 1997. As of September 30, 1996 approximately $12,919,000 had been
borrowed and no letters of credit had been issued under the credit facility.
The lender granted a $2,000,000 temporary credit overline expiring on October
31, 1996. The terms of the agreement permit the Company to borrow up to the sum
of (A) 80% of its eligible United States accounts receivable; (B) 65% to 80% of
the eligible insured international accounts receivable (not to exceed
$8,000,000); (C) 45% of the eligible uninsured international accounts
receivable; and (D) 10% of eligible other accounts receivable. The credit
facility contains a number of affirmative and negative covenants, the most
restrictive of which are financial covenants which require maintenance of: (i)
a minimum current ratio; (ii) a maximum ratio of debt to tangible net worth;
(iii) a minimum level of tangible net worth and (iv) a minimum level of working
capital. Subsequent to December 31, 1994, an amendment to the Credit Facility
was executed, which principally
12
<PAGE> 13
provided additional flexibility with respect to certain covenants. At November
11, 1996, approximately $11,360,000 had been borrowed under this credit
facility. Certain of the Company's eligible accounts receivable are currently
pledged to secure this line of credit and the Company's current level of cash
represents amounts borrowed under the Credit Facility. The Company is currently
in default on all of the financial covenants.
On March 1, 1995, the Company entered into a long-term financing agreement
with a credit company for $5,000,000. The facility contains a bargain purchase
option at the end of the lease term and is secured by the leased equipment. At
October 31, 1996, the Company had borrowed approximately $3,960,000 under the
facility for equipment purchases.
At September 30, 1996, the Company was in default of certain covenants for
this and other financing agreements related to delays in payment on its
equipment notes payable. Payment acceleration of these equipment notes was
waived by some, but not all, of these creditors.
On February 20, 1996, the Company entered into a two-year term loan
agreement with a subordinated lender for $3,843,750. The term loan principal is
payable beginning March 1, 1997 in eleven equal monthly installments of $64,063
and a final installment of $3,139,063 due on February 20, 1998. A mandatory
prepayment provision requires the Company to prepay the outstanding term loan
balance with 50% of all U.S. Dollar payments made on the Nigerian accounts
receivable balance as of February 20, 1996. The term loan bears interest at 14%
per annum payable monthly beginning on March 1, 1996. The Company paid a
non-refundable loan fee of $93,750 and is subject to a quarterly administration
fee of $75,000 commencing August 1996. The term loan contains a number of
affirmative and negative covenants, the most restrictive of which are financial
covenants which require maintenance of: (i) a minimum current ratio; (ii) a
maximum ratio of debt to tangible net worth; (iii) a minimum level of tangible
net worth and (iv) a minimum level of working capital. This term loan agreement
was amended on August 22, 1996 to reflect: (i) an increase in the principal
from $3,843,750 to $5,000,000; (ii) a shortening of the maturity date from
February 20, 1998 to August 18, 1997; (iii) an increase in the interest rate
from 14% to 15% per annum; (iv) a change in repayment terms to monthly interest
only payments with the entire unpaid principal amount of the loan due on August
18, 1997; and (v) a non-refundable administration fee of $100,000 per ninety
(90) day period, payable in arrears on November 16, 1996, February 4, 1997, May
5, 1997 and August 3, 1997. The agreement has a stipulated maximum level of
borrowing allowed from its primary credit facility. The Company exceeded the
$10,000,000 level by $2,919,000 at September 30, 1996. Additionally, the
Company has borrowed $3,149,000 from another lender in violation of the
covenants of this agreement. The lender has declared the Company to be in
default on both of these issues and increased the interest rate to 20% per
annum, but has elected not to proceed with any further remedies at this time.
On March 20, 1996, the Company issued 143,000 shares of the Company's
$2.4375 Convertible Exchangeable Preferred Stock. The purchaser of the
Preferred Stock is entitled to all undeclared, unpaid dividends in arrears
through March 20, 1996. The net proceeds from the issuance was $1,573,000.
Additionally on March 27, 1996, the Company issued $3,000,000 of its 8%
Convertible Debentures ("Debentures") due December 31, 1999. The Debentures are
convertible, at the option of the purchaser, into shares of the Company's
Common Stock at a conversion price of 80% of the five day average low trading
price prior to the conversion election of the Common Stock, provided that such
80% figure is increased to 100% if the Debentures are converted within 45 days
of the Closing Date. Under certain circumstances, the Company can redeem
Debentures submitted for conversion at 120% of the par value of the Debentures.
Additionally, the Company may redeem the Debentures on or after March 27, 1997
at a rate of 120% of the par value of the Debentures, and on or after March 27,
1999, at a rate of 100% of the par value. Interest of 8% per annum is payable
quarterly. As of September 30, 1996, $1,500,000 of the Debentures had been
converted into 965,187 shares of the Company's Common Stock, and as of November
11, 1996, $2,600,000 of the Debentures had been converted into 1,978,956 shares
of the Company's Common Stock.
In May 1996, the Company's Board of Directors authorized the issuance of
up to 75,000 shares of a new series of Series A Preferred Stock. A total of
70,000 shares of the Series A Preferred Stock have been issued by the Company
resulting in proceeds of $7,000,000. As of September 30, 1996 a total of 67,285
of these shares had been converted into 4,179,163 shares of the Company's
Common Stock, and as of November 11, 1996, all of the issued shares had been
converted into 4,428,404 shares of the Company's Common Stock.
13
<PAGE> 14
While the financing transactions entered into in the three quarters of
1996 provided funding for certain obligations, the Company continues to
experience severely constrained liquidity. Management anticipates that the
Company will not be able to generate sufficient cash flow from operations over
the balance of 1996 to fulfill most of its cash requirements including current
operations and anticipated new crew startups. The Company continues to explore
additional sources of working capital to help improve its liquidity position and
may undertake additional funding from external sources. The cost of these funds
may be higher than typical lending rates due to the Company's current
outstanding debt and equity structure. Issuance of additional equity is being
considered as well, and such a transaction, if consummated, would likely result
in substantial dilution to the Company's common stockholders. Alternatively, the
Company is considering initiation of reorganization proceedings in the event
that it is unable to satisfactorily resolve its immediate liquidity situation.
On November 13, 1996, the Company announced that it had signed an agreement
with Westgate International, L.P. ("Westgate") and The Liverpool Limited
Partnership ("Liverpool") for the issuance to such entities of convertible
debentures with a face value of up to $15,168,000. The agreement between the
Company and such entities has been terminated.
During negotiations of the previously proposed transaction, the Company
borrowed an aggregate of $3,149,000 from Westgate and Elliott Associates, L.P.,
an affiliate of Liverpool for working capital purposes. The borrowings are in
the form of unsecured promissory notes and are payable on demand of the lender,
but in no event later than the date which is sixty days from the date of the
promissory note. Interest is payable at 15% per annum. These promissory notes
remain outstanding.
As a result of the continued short-term liquidity situation, the Company
has elected to defer the sixteenth quarterly dividend payment for September 30,
1996 on the $2.4375 preferred stock. See Note 5 of Notes to Consolidated
Financial Statements.
Capital Expenditures. Capital expenditures were approximately $25,284,000
and $12,040,000 for the nine months ended September 30, 1996 and 1995,
respectively. The expenditures in the first nine months of 1996 were for the
purchase of one complete seismic acquisition recording system and additional
equipment necessitated by the Company's increased seismic operations in Latin
America and the United States and other equipment necessary for the completion
of the Company's new seismic data acquisition system. The majority of these
purchases are being financed utilizing leases and long-term notes payable from
a credit corporation and equipment manufacturers.
The Company has assembled a new proprietary seismic data acquisition
system. This system is a radio frequency telemetry system specifically designed
to be used on large 3D surveys where cables are undesirable. The Company
completed the deployment phase of the first system as of July 1996 and is
currently working on a contracted job. Currently, there are no plans to market
or sell this technology to any third parties. This system cost has been financed
through internally generated funds or through third party company borrowings.
The Company's capital expenditures for the remainder of 1996, which are
estimated at amounts similar to the prior year, are contingent on the Company's
ability to obtain short-term and long-term financing and on the generation of
sufficient cash flows from operations.
Long-Term Obligations. The long-term obligations of the Company as of
September 30, 1996 consisted primarily of the 8% Convertible Debentures, notes
payable and capital lease obligations related to the acquisition of geophysical
equipment and the Corporate headquarters and notes payable to the former Tensor
shareholders related to the Settlement and Release Agreement effective January
1, 1994. Due to the liquidity constraints and lender default situations, the
Company has reclassified the 1996 long-term obligations to notes payable under
current liabilities.
14
<PAGE> 15
RESULTS OF OPERATIONS
The Company's operating profitability is dependent upon the mix of
contracts in effect during any given period.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's consolidated revenues increased 6% ($1,403,000) to
$26,166,000. This increase is primarily due to increased crew capacity and crew
months in Latin America, offset in part by decreased activity in Nigeria.
Revenues from United States operations decreased 16% ($2,051,000) to
$10,723,000. Crew capacity in the United States was increased to eight crews
from six crews in the prior year. These new crews consist of a Telseis
instrument shallow water transition zone crew, a Sercel 388 data acquisition
system, and a Citation(TM) data acquisition system. A second SGR Seismic Group
Recorder crew was combined into a single large crew in 1996. This consolidation
facilitated the expansion of the Citation(TM) crew. Total crew months for the
United States in 1996 were twenty-four as compared to seventeen for the same
period last year. Revenue per crew month in 1996 is approximately $447,000 as
compared to prior year of approximately $751,000. The decline in revenue per
crew month is primarily due to repetitive adverse weather conditions in 1996
impacting most crews and lower revenues from the new technology crews,
consisting of the Sercel 388 and Citation(TM) systems, as a startup learning
curve is being experienced. The Company has contracted work for the majority of
its crews in the region through the fourth quarter of 1996 with some crews
contracted into early 1997.
Revenues from international operations increased 29% ($3,454,000) to
$15,443,000. This increase is largely due to both increased crew capacity and
active crew months in Latin America. The Nigerian operations had no active crew
months in this period as compared to prior year since all contracted work was
completed by the end of the first quarter in this period. The Far East
experienced revenues comparable to prior year with one crew active in both
periods. The Middle East region had no activity as compared to last year when
there were minimal revenues from equipment rentals during the time the region
was being demobilized.
Latin America revenues increased 106% ($7,160,000) to $13,919,000. The
number of active crews increased to eight in 1996 as compared to four in the
prior year, and active crew months increased to 22 from 13, respectively.
During this period, the Company operated two crews in Colombia, four crews in
Peru, one 3D crew in Brazil and one crew in Ecuador. In the prior year's period
the Company operated one crew in Brazil and three crews in Peru. The Company
generally has contracted backlog in the region extending into the fourth
quarter of 1996 with Brazil backlog extending into early 1998.
Nigeria generated no revenues in the current period as compared to
$3,771,000 for the same period last year. The active crew months in 1996 are
zero and were seven in the prior year. This decrease is due to the completion
of contracted work as of the end of the first quarter of 1996. The Company
currently has no contracted work in the region in backlog, but the Company has
several bids currently outstanding, and current expectations are that the
Company will be awarded at least one of these contracts. The Company is
currently preparing for this anticipated work and is actively marketing its
services in the region; however, there is no assurance that the Company will be
awarded any of such work.
Revenues in the Far East were $1,548,000, comparable to the prior period,
and active crew months were three in both periods. The crew in Bangladesh was
active throughout the third quarter of 1996. The contracted work was expanded
and extended into the first quarter of 1997.
15
<PAGE> 16
Direct operating expenses as a percentage of revenue increased to 154%
from 76%. The increase is a result of higher operating costs on some crews in
the United States from adverse weather conditions, the introduction and
learning curve associated with two new crews outfitted with new technology
seismic data acquisition systems, and the recognition of anticipated losses
amounting to $2,445,000 on several United States crews as a result of the above
performance difficulties. South America crews, primarily in Peru, experienced
lower than expected production performance and increased crew costs
significantly higher than original projections. These projections show that the
Company will likely not recover these costs through future billings. The amount
of the write-off for the Peru crews is $5,929,000 and is all recognized in the
third quarter. In summary, $8,374,000 of the current period direct expense is
the result of anticipated contract losses.
Other operating expenses, which consist of general and administrative
expenses at corporate headquarters and in foreign locations, increased as a
percentage of revenues to 16% from 9%. The increase in the dollar amount of
other operating expenses is primarily due to increased Latin America regional
and country general and administrative expenses consistent with the
significantly increased operations. North America costs are increased due to
increased regional activities. The general bad debt reserve recorded at the
corporate headquarters was increased to maintain the doubtful allowances for
accounts receivable commensurate with the Company's experience.
Depreciation and amortization expense increased to $3,251,000 as compared
to the prior year of $2,313,000. The Company has purchased and mobilized
several new seismic data acquisition systems over the past year. In July 1996
the Company deployed its new proprietary seismic data acquisition system
resulting in a full quarter of depreciation.
Operating loss is $21,518,000 as compared to prior year income of
$1,484,000. This decrease is mainly due to reduced margins in North America and
South America, the recognition of anticipated project losses in North America
and South America, reduced crew activity in Nigeria, and increased operating
expenses in regional areas and at corporate headquarters.
Interest expense increased from prior year by 106% to $1,942,000 as the
Company experienced increased levels of financing at higher interest rates,
particularly in the foreign areas of operation to support working capital
requirements. Also, the increased level of financed capital equipment
contributed to this increase.
The decrease in Other Income to $36,000 for the three months ended
September 30, 1996 compared to $1,225,000 for the same period in 1995 is
primarily due to the recording of a gain in 1995 of $1,247,000 from an
insurance settlement; specifically, the loss of instrumentation, suffered on a
domestic crew due to arson.
The income tax provision in both periods consisted of taxes owed to
foreign countries based on local tax laws. The level of foreign taxes has
increased from the prior year due to the increased activity of international
operations. No provision for U.S. Federal income taxes was made in either
period as the Company currently has net operating losses available for
carryforward.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's consolidated revenues increased 27% ($17,044,000) to
$80,925,000. This increase is primarily due to increased crew capacity and crew
months in Latin America and North America, reduced partially by decreased
activity in Nigeria.
Revenues from the United States increased 3% ($885,000) to $34,870,000 for
the nine months ended September 30, 1996 as compared to 1995. Beginning in
early 1994, the Company experienced a surge in demand for the Company's 3D land
seismic surveys. The 1996 period included $1,200,000 of revenues resulting from
a sale of the Company's interests under two specific revenue sharing
agreements. The impact of this transaction on operating income was $1,098,359.
Transactions of this nature may occur on a periodic basis as the Company
continues to grow and is able to capitalize on such opportunities. The Company
operated seven seismic crews during the first six months of 1996 and increased
to eight in the third quarter as compared to six in the prior period. Total
crew months during this period were sixty as compared to fifty-three in the
prior period. In addition
16
<PAGE> 17
to the increased crew count, the projects have become larger and more complex
since 1994 with the increased use of 3D data acquisition techniques. This
increased project size and complexity of operations tends to drive an increase
in revenues per crew month. This is particularly evident in the Louisiana Gulf
Coast region where access to these seismic projects is hampered by low
marshland and survey parameters which require the use of more instrumentation.
Revenues from international operations increased 54% ($16,159,000) to
$46,055,000. This increase is primarily due to increased crew capacity and
active crew months in Latin America partially reduced by decreased activity in
Nigeria.
Latin America revenues increased 203% ($28,083,000) to $41,909,000. The
number of active crews increased to eight during the first nine months of 1996
as compared to four during the same period in 1995. Total crew months in 1996
are fifty-five as compared to twenty-six in 1995.
Far East revenues increased 33% ($808,000) to $3,242,000. This increase
reflects one crew operating for ten crew months as compared to eight crew
months during the prior period.
Revenues from Nigeria decreased $11,938,000 to $904,000 for the nine
months ended September 30, 1996. This decrease is the result of the completion
of contracted work during the first quarter of 1996. Total crew months in 1996
were three as compared to twenty-three in 1995 for the nine month period.
Middle East revenues are zero for the period in 1996 as compared to
$791,000 in the prior period. The area was demobilized in 1995 and the revenues
generated were related to minimal equipment rental activities.
Direct operating expenses as a percentage of revenue are 103% compared to
74% for the same period last year. The increase is a result of significant
reduction in operating efficiency on some crews in the United States resulting
in part from adverse weather conditions, the introduction and learning curve
associated with two new crews outfitted with new technology seismic data
acquisition systems, and the recognition of anticipated losses amounting to
$2,445,000 on several United States crews as a result of the above mentioned
performance difficulties. South America experienced increased direct operating
expenses, primarily in Peru, due to lower than expected production performance
and crew costs significantly higher than original projections. These
projections show that the Company will likely not recover these costs through
future billings. The amount of the write-off for Peru contracts is $5,929,000
recognized in the third quarter. In summary $8,374,000 of the year to date
direct expense is the result of anticipated contract losses.
Other operating expenses, which consist of general and administrative
expenses at the corporate headquarters and foreign locations, increased as a
percentage of revenues to 11% from 9%. The dollar increase in other operating
expenses of $3,040,000 primarily represents added support operations in North
America and South America to match the increased crew capacity and operations,
along with an increase in the general allowance for doubtful accounts to
maintain the allowance at levels commensurate with the Company's experience.
Depreciation and amortization expense increased 18% to $8,237,000. The
increased expense is a result of the added equipment purchased since the prior
period.
Operating loss is $19,503,000 as compared to income of $3,817,000 for the
same period during the prior year. The decrease in operating income is mainly
due to reduced margins on crews in North America and South America, the
recognition of anticipated project losses on projects in North and South
America, reduced crew activity in Nigeria, and increased operating expenses in
regional areas and at corporate headquarters.
Interest expense increased 79% ($1,972,000) to $4,460,000. This increase
is mainly due to increased levels of borrowings to support working capital
required in domestic and international operations as a result of increased
activity. Additionally, the level of interest expense has increased as a result
of the acquisition by the Company of capital equipment which has been financed
mostly through capital leases and long-term equipment notes payable.
17
<PAGE> 18
Other income has decreased due the recording of a $1,247,000 gain from an
insurance settlement in the prior period, non-recurrence of a $225,000 gain on
the sale of fixed assets that occurred in the prior period, and reduced foreign
exchange gains of $111,000 mainly resulting from the favorable fluctuation of
the Nigerian Naira in the first nine months of 1995.
The income provision in both periods consisted of taxes owed to foreign
countries based on local tax laws. The level of foreign tax expense has
increased as a result of the increased foreign activity of international
operations. No provision for U.S. Federal income taxes was made in either
period as the Company has net operating losses available for carryforward.
OTHER
Foreign Exchange Gains and Losses. In order to mitigate foreign exchange
rate fluctuations, the Company attempts to structure the majority of its
international contracts to be billed and paid at a certain U.S. Dollar rate.
Additionally, the Company enters into same currency debt of a foreign
subsidiary to pay expenses incurred locally. Foreign currency
transaction/translation gains and losses resulting from these arrangements are
included in other income. Presently, the Company does not use derivatives or
forward foreign exchange hedging contracts.
18
<PAGE> 19
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
The Company's President, Chief Executive Officer and interim
Chairman of the Board, George W. Tilley, resigned effective November
4, 1996. Mr. Harvey Attra, a Director of Grant since 1993, was named
Acting Chairman of the Board and Mr. Thomas B. Portwood, Jr. was
named President and Chief Executive Officer and a Director of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits
Exhibit No.
10.01 Second Amendment, dated August 22, 1996, to the
Loan and Security Agreement dated February 20,
1996, by and between the Company and its
subordinated lender.
11.01 - Computation of Income (Loss) Per Common and
Common Equivalent Share for the Nine Months
Ended September 30, 1996 and 1995.
11.02 - Computation of Income (Loss) Per Common and
Common Equivalent Share for the Three Months
Ended September 30, 1996 and 1995.
27.01 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
19
<PAGE> 21
SIGNATURES
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.
GRANT GEOPHYSICAL, INC.
(REGISTRANT)
Date November 19, 1996 By Thomas B. Portwood, Jr.
---------------------- -----------------------------
Thomas B. Portwood, Jr.
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date November 19, 1996 By William B. Cleveland
----------------------- ------------------------------
William B. Cleveland
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
20
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.01 Second Amendment, dated August 22, 1996, to the
Loan and Security Agreement dated February 20,
1996, by and between the Company and its
subordinated lender.
11.01 - Computation of Income (Loss) Per Common and
Common Equivalent Share for the Nine Months
Ended September 30, 1996 and 1995.
11.02 - Computation of Income (Loss) Per Common and
Common Equivalent Share for the Three Months
Ended September 30, 1996 and 1995.
27.01 - Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.01
SECOND AMENDMENT
TO THE
TERM LOAN AGREEMENT
SECOND AMENDMENT, dated as of August 22, 1996, to the Term Loan Agreement
dated as of February 20, 1996 (the "Loan Agreement"), by and among GRANT
GEOPHYSICAL, INC., a Delaware Corporation (the "Borrower"), UNITED GEOPHYSICAL
(NIGERIA) LTD., a corporation organized under the laws of Nigeria ("Guarantor")
and MADELEINE LLC, a New York limited company (f/k/a/ Madeline L.L.C.) (the
"Lender").
The Borrower, the Guarantor and the Lender desire to amend the Loan
Agreement to reflect (i) an increase in the Commitment from $3,843,750 to
$5,000,000, (ii) a shortening of the Maturity Date from February 20, 1998 to
August 18, 1997, (iii) an increase in the interest rate from fourteen (14%)
percent to fifteen (15%) percent per annum, (iv) a change in the repayment
terms of the Loan and (v) an increase in the administration fee payable by the
Borrower to the Lender. Accordingly, the Borrower, the Guarantor and the Lender
hereby agree as follows:
1. Definitions. All capitalized terms used herein and not otherwise
defined herein are used herein as defined in the Loan Agreement.
2. Existing Definitions. (a) The definitions of the terms "Borrowing
Base" and "Borrowing Base Certificate" in Section 1.01 of the Loan Agreement
are hereby deleted in their entirety.
(b) The definition of the term "Commitment" in Section 1.01 of the
Loan Agreement is hereby amended by deleting the reference to "$3,843,750" and
substituting in lieu thereof "$5,000,000."
(c) The definition of the term "Eligible Accounts Receivable" in
Section 1.01 of the Loan Agreement is hereby deleted in its entirety.
(d) The definition of the term "Intercreditor Agreement" in Section
1.01 of the Loan Agreement is hereby amended by adding the words "as the same
may be amended from time to time hereafter," after the word "hereof," on the
third line thereof.
(e) The definition of the term "Loan Documents" in Section 1.01 of the
Loan Agreement is hereby amended by adding the words "as each may be amended,
modified or amended and restated from time to time hereafter" at the end of
such definition.
<PAGE> 2
(f) The definition of the term "Maturity Date" in Section 1.01 of the
Loan Agreement is hereby amended by deleting the reference to "February 20,
1998" and substituting in lieu thereof "August 18, 1997."
3. Making the Loan. Section 2.02 of the Loan Agreement is hereby amended
by deleting the words "Borrowing Base" in the fourth sentence thereof and
substituting the word "Commitment" in lieu thereof.
4. Loan. Section 2.03(a) of the Loan Agreement is hereby amended by
deleting (i) "fourteen (14%)" and substituting in lieu thereof "fifteen (15%)"
and (ii) "Effective Date" and substituting in lieu thereof "Amended Effective
Date" (as defined hereinafter).
5. Repayment. Section 2.04 of the Loan Agreement is hereby amended in its
entirety to read as follows:
"2.04. Repayment. To the extent not due and payable earlier pursuant
to the terms of the Loan Agreement, the Loan shall be payable interest
only at the rates set forth herein, monthly and in arrears, and the
entire unpaid principal amount of the Loan shall be due and payable on
the Maturity Date, together with all such other amounts as may be
necessary to repay in full and in cash all unpaid Obligations to the
Lender."
6. Mandatory Prepayment of the Loan. Section 2.07(a) of the Loan
Agreement is hereby deleted in its entirety and shall be replaced with the
following:
"(a) [Intentionally Omitted]."
7. Administration Fee. Section 3.01(b) of the Loan Agreement is hereby
amended in its entirety to read as follows:
"(b) Administration Fee. The Borrower shall pay to the Lender a
non-refundable administration fee equal to $100,000 per ninety (90)
day period, payable in arrears on each of November 16, 1996, February
4, 1997, May 5, 1997 and August 3, 1997; provided, that if the
Borrower prepays the Loan in full prior to the Maturity Date, pursuant
to Section 2.06 or 2.07 of the Loan Agreement, the pro-rata portion of
such fee accruing as of the date of such prepayment shall be due and
payable on such date."
8. Exhibits. Exhibits A, B and E to the Loan Agreement are hereby amended
in their entirety to read as set forth in Exhibits A, B and C to this Second
Amendment.
-2-
<PAGE> 3
9. Representations and Warranties. The Borrower and the Guarantor
represent and warrant to the Lender as follows:
(a) Each of the Borrower and the Guarantor (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and (ii) has all requisite corporate power,
authority and legal right to execute, deliver and perform this Second Amendment
and the exhibits hereto and to perform the Loan Agreement, as amended hereby.
(b) The execution, delivery and performance by the Borrower and the
Guarantor of this Second Amendment and the exhibits hereto and the performance
by the Borrower and the Guarantor of the Loan Agreement as amended hereby (i)
have been duly authorized by all necessary corporate action, (ii) do not and
will not violate or create a default under the Borrower's or the Guarantor's
charter or by-laws, any applicable law or any contractual restriction binding
on or otherwise affecting the Borrower or the Guarantor or any of the
Borrower's or the Guarantor's properties, and (iii) except as provided in the
Loan Documents, do not and will not result in or require the creation of any
lien, security interest or other charge or encumbrance upon or with respect to
the Borrower's or the Guarantor's property.
(c) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority or other regulatory body is required
in connection with the due execution, delivery and performance by the Borrower
or the Guarantor of this Second Amendment and the performance by the Borrower
and the Guarantor of the Loan Agreement as amended hereby.
(d) This Second Amendment and the Loan Agreement, as amended hereby,
constitute the legal, valid and binding obligations of the Borrower and the
Guarantor, enforceable against the Borrower and the Guarantor in accordance
with their terms.
(e) Except for Schedule VI, which is amended in its entirety and
replaced with Schedule VI hereto, the representations and warranties contained
in Article V of the Loan Agreement are true and correct on and as of the
Amendment Effective Date (as defined in Section 10 below) as though made on and
as of the Amendment Effective Date (except to the extent such representations
and warranties expressly relate to an earlier date), and no Event of Default or
Potential Default has occurred and is continuing on and as of the Amendment
Effective Date.
10. Conditions to Effectiveness. This Second Amendment shall become
effective only upon satisfaction in full of the following conditions precedent
(the first date upon which all such conditions have been satisfied being herein
called the "Amendment Effective Date"):
(a) The lender shall have received counterparts of this Second
Amendment which bear the signatures of each of the Borrower and the Guarantor.
-3-
<PAGE> 4
(b) The Lender shall have received counterparts of the First Amendment
to the Intercreditor Agreement bearing the signature of Foothill Capital
Corporation.
(c) The Borrower shall have paid to the Lender a non-refundable
amendment fee of $250,000 in immediately available funds.
(d) All legal matters incident to this Second Amendment shall be
satisfactory to the Lender in its sole discretion.
(e) The Borrower shall have executed and delivered to the Lender (i)
the Note, as amended and restated, in the form attached hereto as Exhibit A,
(ii) the Reaffirmation of Guaranty, in the form attached hereto as Exhibit B,
and (iii) an opinion of Hutcheson & Grundy, counsel to the Borrower and each of
the Guarantors, in the form attached hereto as Exhibit C, all of which shall be
dated the Amended Effective Date.
11. Continued Effectiveness of Loan Agreement. Each of the Borrower and
the Guarantor hereby (i) confirm and agree that each Loan Document to which it
is a party is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects except that on and after the Amendment
Effective Date all references in any such Loan Document to "the Loan Agreement,"
"thereto," "thereof," "thereunder" or words of like import referring to the
Loan Agreement shall mean the Loan Agreement as amended by this Second
Amendment, and (ii) confirms and agrees that to the extent that any such
Loan Document purports to assign or pledge to the Lender, or to grant a
security interest in or lien on, any Collateral as security for the Obligations
of the Borrower or Guarantor from time to time existing in respect of the Loan
Agreement and the Loan Documents, such pledge, assignment and/or grant of the
Loan Agreement and security interest or lien is hereby ratified and confirmed
in all respects.
12. No Waiver. Each of the Borrower and the Guarantor hereby agree that no
failure on the part of the Lender to exercise, and no delay in exercising, any
right under any Loan Document, including, but not limited to, the existence of
any Event of Default or Potential Default as of the date hereof; shall be
construed as, or deemed, waived by the Lender as a consequence of the
consummation of the transactions contemplated by this Second Amendment.
13. Miscellaneous.
(a) This Second Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which shall
be deemed to be an original, but all of which taken together shall constitute
one and the same agreement.
(b) Section and paragraph headings herein are included for convenience of
reference only and shall not constitute a part of this Second Amendment for any
other purpose.
-4-
<PAGE> 5
(c) This Second Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed by their respective officers or agents thereunto duly
authorized as of the day and year first above written.
GRANT GEOPHYSICAL, INC.
By: /s/ WILLIAM B. CLEVELAND
--------------------------------
Name: William B. Cleveland
Title: Vice Pres. Finance
Secretary & Treasurer
UNITED GEOPHYSICAL (NIGERIA) LTD.
By: /s/ WILLIAM B. CLEVELAND
--------------------------------
Name: William B. Cleveland
Title: Vice Pres. Finance
Secretary & Treasurer
MADELEINE LLC
By: /s/ KEVIN GENDA
--------------------------------
Name: KEVIN GENDA
Title: Attorney-in-fact
-5-
<PAGE> 1
EXHIBIT 11.01
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
---------------------
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE:
Net income (loss) ......................................... $ (24,848) $ 2,836
Dividend requirement on $2.4375 preferred stock* .......... (5,337) (3,944)
------------ ------------
Net loss applicable to common stock,
net of preferred dividends* ............................ $ (30,185) $ (1,108)
============ ============
INCOME (LOSS) PER COMMON SHARE--ASSUMING NO AND FULL DILUTION:
Net income (loss) ......................................... $ (1.85) $ 0.23
Dividend requirement on $2.4375 preferred stock* .......... (0.39) (0.32)
============ ============
Net loss per common share, net of preferred dividends* .... $ (2.24) $ (0.09)
============ ============
COMPUTATION OF WEIGHTED AVERAGE COMMON SHARES--PRIMARY AND
FULLY DILUTED:
Weighted average number of common shares outstanding ...... 13,140,259 12,185,356
Common shares issuable for warrants and under incentive
stock option plan ...................................... 740,250 828,750
Less shares assumed repurchased with proceeds ............. (424,742) (485,432)
------------ ------------
13,455,767 12,528,674
============ ============
</TABLE>
* The income/loss is decreased/increased by the undeclared, unpaid cumulative
preferred stock dividends in calculating net income/loss attributable to the
common shareholders.
<PAGE> 1
EXHIBIT 11.02
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
---------------------
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE:
Net income (loss) ....................................................... $ (23,655) $ 1,713
Dividend requirement on $2.4375 preferred stock* ........................ (1,401) (1,315)
------------ ------------
Net income/(loss) applicable to common stock, net of preferred dividends* $ (25,056) $ 398
============ ============
INCOME (LOSS) PER COMMON SHARE--ASSUMING NO AND FULL DILUTION:
Net income (loss) ....................................................... $ (1.62) $ 0.14
Dividend requirement on $2.4375 preferred stock* ........................ (0.10) (0.11)
------------ ------------
Net income/(loss) per common share, net of preferred dividends* ......... $ (1.72) $ 0.03
============ ============
COMPUTATION OF WEIGHTED AVERAGE COMMON SHARES--PRIMARY AND
FULLY DILUTED:
Weighted average number of common shares outstanding ..................... 14,445,400 12,197,889
Common shares issuable for warrants and under incentive stock option plan 740,250 828,750
Less shares assumed repurchased with proceeds ............................ (583,765) (497,314)
------------ ------------
14,601,885 12,529,325
============ ============
</TABLE>
* The income/loss is decreased/increased by the undeclared, unpaid cumulative
preferred stock dividends in calculating net income/loss attributable to
the common shareholders.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1996 (Unaudited) and the
Consolidated Statement of Operations for the Nine Months Ended September 30,
1996 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 437
<SECURITIES> 0
<RECEIVABLES> 37,243
<ALLOWANCES> 2,668
<INVENTORY> 1,238
<CURRENT-ASSETS> 51,444
<PP&E> 116,656
<DEPRECIATION> 68,758
<TOTAL-ASSETS> 105,982
<CURRENT-LIABILITIES> 83,896
<BONDS> 0
0
1,513
<COMMON> 36
<OTHER-SE> 14,143
<TOTAL-LIABILITY-AND-EQUITY> 105,982
<SALES> 0
<TOTAL-REVENUES> 80,925
<CGS> 0
<TOTAL-COSTS> 100,428
<OTHER-EXPENSES> 26
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,426)
<INCOME-PRETAX> (23,903)
<INCOME-TAX> 945
<INCOME-CONTINUING> (24,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,848)
<EPS-PRIMARY> (2.24)
<EPS-DILUTED> (2.24)
</TABLE>
