<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 March 31, 1997
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: (281) 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 May 12, 1997, 21,845,660 shares of common stock, par value $.002
per share, were issued and outstanding.
<PAGE> 2
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
INDEX
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31,
1997 (Unaudited) and December 31, 1996 ...................................... 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 (Unaudited)
and 1996 (Unaudited)......................................................... 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 (Unaudited)
and 1996 (Unaudited)......................................................... 6
Notes to Consolidated Financial Statements (Unaudited)....................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................ 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................... 14
PART III. SIGNATURES................................................................... 15
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 3,826 $ 6,772
Accounts receivable:
Trade (net of allowance for doubtful accounts
of $5,408 and $5,711 at March 31,1997 and
December 31, 1996, respectively) ................. 20,078 19,471
Other ............................................ 1,924 996
Inventories ......................................... 503 503
Prepaids ............................................ 919 1,411
Mobilization costs .................................. 3,377 1,071
------- -------
Total current assets ............................. 30,627 30,224
------- -------
Property, plant and equipment, at cost .............. 94,181 94,223
Less accumulated depreciation ....................... 58,299 56,555
------- -------
Net property, plant and equipment ................ 35,882 37,668
------- -------
Restricted cash ........................................ 321 321
Other assets ........................................... 2,215 1,910
------- -------
Total assets ..................................... $69,045 $70,123
======= =======
</TABLE>
(Continued on next page)
3
<PAGE> 4
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
Current liabilities:
Accounts payable ................................................. $ 6,591 $ 3,975
Accrued expenses ................................................. 5,756 3,051
Foreign income taxes payable ..................................... 539 188
Notes payable .................................................... 572 589
--------- ---------
Total current liabilities ........................................... 13,458 7,803
--------- ---------
Pre-petition liabilities subject to chapter 11 case ................. 81,181 90,244
Unearned revenue .................................................... 7,984 6,031
Other liabilities and deferred credits .............................. 851 258
Commitments and contingencies
Stockholders' deficit:
$2.4375 Convertible exchangeable preferred stock, $.01 par
value. Authorized 2,300,000 shares; issued and outstanding
2,300,000 shares at March 31, 1997 and December 31, 1996 ....... 23 23
Series A convertible preferred stock, $.01 par value
Authorized 75,000 shares; none outstanding......................
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 21,845,660 and 20,641,765 shares
at March 31, 1997 and December 31, 1996, respectively ........... 43 41
Additional paid-in capital ........................................ 124,261 124,203
Accumulated deficit ............................................... (160,246) (159,970)
--------- ---------
Total stockholders' deficit .................................. (34,429) (34,213)
--------- ---------
Total liabilities and stockholders' deficit .................. $ 69,045 $ 70,123
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------------------
1997 1996
----------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues........................................................... $ 30,296 $ 27,808
Expenses:
Direct operating expense........................................ 23,556 22,112
Other operating expenses........................................ 2,060 2,266
Depreciation and amortization................................... 2,611 2,370
----------- ----------
Total costs and expenses..................................... 28,227 26,748
----------- ----------
Operating income............................................. 2,069 1,060
----------- ----------
Other income (deductions):
Interest expense................................................ (1,391) (1,330)
Interest income................................................. 4 8
Reorganization costs............................................ (993)
Other........................................................... 295 87
----------- ----------
Total other deductions....................................... (2,085) (1,235)
----------- ----------
Loss before income taxes..................................... (16) (175)
Income tax expense................................................. 260 397
----------- ----------
Net loss..................................................... (276) (572)
----------- ----------
Net loss applicable to common stock.......................... $ (276) $ (3,106)
=========== ==========
LOSS PER COMMON SHARE - ASSUMING NO AND FULL DILUTION:
Net loss........................................................ $ (0.01) $ (0.05)
Dividend requirement on $2.4375 preferred stock ................ (0.20)
----------- ----------
Net loss per common share....................................... $ (0.01) $ (0.25)
=========== ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary and fully diluted........................................ 21,227,963 12,672,082
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss before dividend requirement .............................. $ (276) $ (572)
Adjustments to reconcile net income/(loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization expense ......................... 2,611 2,370
Deferred costs amortization ................................... 1,682 1,799
Loss (gain) on the sale of fixed assets ....................... 28 (10)
Exchange gain ................................................. (146) (18)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable ........................................... (1,535) 3,023
Inventories ................................................... 322
Prepaids ...................................................... 492 66
Mobilization costs ............................................ (3,988) (5,262)
Other assets .................................................. (305) 174
Increase (decrease) in:
Accounts payable .............................................. 2,616 789
Accrued expenses .............................................. 2,705 (1,060)
Foreign income taxes payable .................................. 351 298
Other liabilities and deferred credits ........................ 2,546 (1,373)
Change in pre-petition liabilities subject to chapter 11 case:
Accounts payable ............................................... (636)
Accrued expenses ............................................... (2,236)
Foreign income tax payable ..................................... (150)
Other liabilities and deferred credits ......................... (1,637)
-------- --------
Net cash provided by operating activities ................... 2,122 546
-------- --------
Cash flows from (used in) investing activities:
Capital expenditures, net ...................................... (1,243) (3,744)
Proceeds from the sale of assets ............................... 5 10
Restricted cash ................................................ 92
-------- --------
Net cash flows used in investing activities ................. (1,238) (3,642)
-------- --------
Cash flows from (used in) financing activities:
Proceeds from exercise of stock options and warrants ............. 205
Proceeds from issuance of $2.4375 Preferred Stock ................ 1,573
Borrowings made during the period ................................ 29,667
Repayment on borrowings during the period ........................ (3) (28,650)
Other non-cash items ............................................. 154
Pre-petition liabilities subject to chapter 11 case:
Borrowings under credit facility .............................. 12,943
Repayment on borrowings ....................................... (16,794)
-------- --------
Net cash from (used in) financing activities ................ (3,854) 2,949
-------- --------
Effect of exchange rate changes on cash ............................. 24 (30)
Net decrease in cash and cash equivalents ................... (2,946) (177)
Cash and cash equivalents at beginning of period .................... 6,772 1,047
-------- --------
Cash and cash equivalents at end of period .......................... $ 3,826 $ 870
======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES.
SEE NOTE 5.
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Grant Geophysical, Inc. ("Grant") has several wholly-owned subsidiaries
incorporated in the United States and certain foreign jurisdictions (the
"Subsidiaries"). Grant and certain of the Subsidiaries have established
branch operations in various foreign jurisdictions (the "Branches").
Grant, the Subsidiaries and the Branches are collectively referred to as
the "Company".
The balance sheet of the Company as of March 31, 1997, and the related
statements of operations and cash flows for the three months ended March
31, 1997 and 1996 are unaudited. The consolidated financial statements
should be read in conjunction with the audited financial statements and
footnotes for the year ended December 31, 1996, included in the Company's
Form 10-K, as filed with the Securities and Exchange Commission.
On December 6, 1996 (the "Petition Date"), Grant filed a voluntary
petition in the United States Bankruptcy Court for the District of
Delaware (the "Court") for relief under chapter 11 of the United States
Bankruptcy Code ("Bankruptcy Code"). The case is in its preliminary
stages. Generally, upon the commencement of a bankruptcy proceeding, all
pre-petition litigation and other acts to enforce claims against the
debtor corporation are stayed. The debtor corporation may operate its
business and manage its assets in the ordinary course as
debtor-in-possession, but must obtain Court approval for transactions
outside the ordinary course of business. Based on these actions, all
liabilities of Grant outstanding at December 6, 1996 have been
reclassified from their respective current and non-current liability
categories to pre-petition liabilities subject to chapter 11 case.
The unaudited consolidated financial statements as of and for the
three-month period ended March 31, 1997 have been prepared in accordance
with generally accepted accounting principles applicable to a going
concern and do not purport to reflect or to provide for all the
consequences of the ongoing chapter 11 reorganization case. Specifically,
the unaudited consolidated financial statements as of and for the
three-month period ended March 31, 1997 do not present: (a) the
realizable value of assets on a liquidation basis or the availability of
such assets to satisfy liabilities, (b) the amount which will ultimately
be paid to settle liabilities and contingencies which may be allowed in
the chapter 11 case, or (c) the effect of any changes which may be made
in connection with the debtor corporation's capitalizations or operations
resulting from a plan of reorganization. Additionally, the Company's
operating results for any particular interim period may not be indicative
of results for a full year.
Because of the ongoing nature of the chapter 11 case, the discussions
and consolidated financial statements contained herein are subject to
material uncertainties.
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. The income/loss is decreased/increased by
undeclared, unpaid cumulative preferred stock dividends in calculating
net income/loss attributable to the common shareholder.
7
<PAGE> 8
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
------------------------------------------
2. PRE-PETITION LIABILITIES SUBJECT TO CHAPTER 11 CASE
As a result of Grant's Chapter 11 reorganization proceedings, all
pre-petition liabilities of Grant outstanding at March 31, 1997 have been
classified as pre-petition liabilities subject to chapter 11 case. The terms
and amounts due are subject to the outcome of the reorganization proceedings.
Grant's secured and unsecured debt is as follows (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------
PRE-PETITION
ACCRUED
AMOUNT INTEREST TOTAL
------- ----------- --------
<S> <C> <C> <C>
SECURED DEBT:
Revolving line of credit, 12.7%-14.7%(A) .... $ 9,377 $ 9,377
Equipment notes payable, 7.3%-12.0%(A) ...... 16,708 557 17,265
Other notes payable, 10.7%-15.0%(A) ......... 5,560 302 5,862
Capital lease obligations, 9.0%-27.0%(A) .... 8,918 27 8,945
Other claims ................................ 1,495 1,495
------- ------- -------
42,058 886 42,944
UNSECURED DEBT:
Convertible debentures, 8%(A) .............. 289 289
Other notes payable, 6%-22%(A) ............. 9,056 160 9,216
Capital lease obligations, 12%-37%(A) ...... 687 37 724
Trade accounts payable ..................... 23,694 23,694
Accrued expenses ........................... 952 952
Other liabilities and deferred credits ..... 3,362 3,362
------- ------- -------
38,040 197 38,237
TOTAL $80,098 $ 1,083 $81,181
======= ======= =======
</TABLE>
----------------
(A) Represents contractual stated interest rates.
On February 4, 1997, the Court approved a Financing Order that authorized
Grant to enter into an agreement to obtain secured post-petition financing with
its primary working capital lender (the "Lender") under which agreement the
Lender continued to advance funds to Grant for its operations. The Financing
Order was amended by order of the Court on April 9, 1997. Pursuant to the
Amended Financing Order, the Lender agreed to make revolving advances not to
exceed $12,500,000. The advances are not to exceed a borrowing base equal to a
percentage of certain trade accounts receivable and an overadvance amount. The
maximum permitted overadvance is $7,000,000 through September 30, 1997 when the
Amended Financing Order expires. A $125,000 fee was paid to the Lender.
Interest accrues at prime plus 3.75% on the advance funds and prime plus 7.25%
on the overadvance funds.
The Amended Financing Order also includes an approved budget, an internal
cash management and reporting system and contains certain restrictions in the
movement of cash from Grant's US operations to certain of the Company's foreign
locations.
Prior to the Petition Date, interest was accrued on all debt instruments
based on contractual rates. Interest has continued to accrue on all secured
equipment notes payable and capital leases based on renegotiated rates of 7% to
11.09% since December 7, 1996. All unsecured and undersecured debt have not
been entitled to accrue interest since the Petition Date. Interest expense,
based on contractual rates of debt instruments, would have been approximately
$1,749,000 for the period ended March 31, 1997.
8
<PAGE> 9
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
------------------------------------------
3. NOTE PAYABLE
Note payable of $572,000 and $589,000 at March 31, 1997 and December
31, 1996, respectively consists of a local currency revolving line of credit
maintained by a foreign subsidiary. The interest rate is 12.9% per quarter.
4. CONTINGENCIES
The Company is involved in various claims and legal actions arising in
the ordinary course of business.
The Court generally has jurisdiction over all of Grant's property, as
defined in section 541 of the Bankruptcy Code, held on the Petition Date or
acquired thereafter. Under sections 1107 and 1108 of the Bankruptcy Code and by
order of the Court, Grant is operating its business and managing its assets in
the ordinary course of business as debtor-in-possession. Grant may not,
however, engage in transactions outside the ordinary course of business without
prior approval of the Court. Pursuant to section 362(a) of the Bankruptcy Code
and subject to the exceptions contained in section 362(b) thereof, the
commencement of a bankruptcy proceeding operates as an automatic stay
applicable to all persons and other entities, generally prohibiting absent
Court approval (i) the commencement or continuation of any judicial,
administrative or other proceeding against Grant, (ii) any act to obtain
possession of property of, or property from, Grant, and (iii) any act to
create, perfect or enforce any lien against property of Grant. While the
automatic stay applies to all of Grant's property wherever located, Grant
operates in several foreign jurisdictions, some of which may not give effect to
the automatic stay.
The Company is subjected to review by various taxing authorities for
the purpose of verifying compliance with numerous local tax laws and
regulations. As a result of one of these reviews, the Company was notified
that, during 1995, it had neglected to collect a certain tax from several
clients and remit those collections to the local government. The total amount
of the potential assessment, including penalties and interest, is approximately
$6,000,000. The Company believes the tax authority's claim is without merit
and, as such, has made no provision for payment. The Company intends to
vigorously protest enforcement of the claim within the local legal system.
However, there can be no assurances that the outcome of those protests will be
favorable.
5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1997 1996
------ ------
(UNAUDITED)
<S> <C> <C>
CASH PAID FOR INTEREST AND TAXES WAS AS FOLLOWS:
Taxes, net of refunds ............................ $ 700
Interest, net of amounts capitalized ............. $1,402 $ 985
NONCASH INVESTING AND FINANCING ACTIVITIES:
Property, plant and equipment debt additions ..... 173 7,027
Debenture conversion ............................. 60
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On December 6, 1996, Grant Geophysical, Inc. ("Grant") filed for
reorganization under chapter 11 of the Bankruptcy Code. Since filing the
petition, Grant has continued to operate its business in the ordinary course as
debtor-in-possession. Grant has several wholly-owned subsidiaries incorporated
in the United States and certain foreign jurisdictions (the "Subsidiaries").
Grant and certain of the Subsidiaries have branch operations in a number of
foreign jurisdictions (the "Branches"). Grant, the Subsidiaries and the
Branches are collectively referred to as the "Company." The following
discussions of the Company's financial condition should be viewed in the
context of the ongoing chapter 11 proceedings.
Since 1994, the Company has concentrated on providing contract land and
transition zone data acquisition services internationally. This coincided with
a surge in demand for 3D seismic services, particularly within the United
States. In addition, over this same period, the Company expanded its
international operations, particularly in Latin America. This rapid expansion
put a tremendous strain on the Company's capital resources. The need for
working capital to fuel this growth and to purchase new capital equipment
resulted in an ongoing liquidity problem.
In the first quarter of 1994, Grant's management began development of a
proprietary data recording system that became known as Citation. This system was
intended to replace an older recording's management system in use in marshy
areas along the Texas and Louisiana Gulf Coast. Grant's management initially
believed that an advantage of the system was its relatively low cost to develop
and manufacture when compared to the price of comparable third party equipment.
Original estimates ranged from savings of one-third to one-half of a purchased
system. The prototype system was planned to cost approximately $2,500,000 to
$3,000,000 with deployment in early 1996. However, software design problems and
unavailability of hardware resulted in numerous delays and cost overruns. The
ultimate cost of the system was approximately $6,000,000 and initial deployment
was not achieved until July 1996, several months behind schedule. While the
system was able to successfully acquire data, production performance was well
below expectation. Development and other costs associated with Citation
contributed significantly to destabilizing the Company's financial condition
during 1996.
In addition to the Citation development, several operational factors
contributed to a sudden and dramatic deterioration of the Company's financial
condition in 1996. The most costly factor was losses incurred in Peru. The
Company began operations in Peru in 1995 by mobilizing three crews in March,
April and May of that year. Revenue and operating income for 1995 were
$13,719,000 and $1,205,000, respectively. Peruvian operations were expanded in
1996 by adding a fourth crew and increasing the equipment complement on
another. However, an inability to accurately estimate the crews' production
capabilities coupled with costs that were significantly higher than originally
estimated, resulted in material and continuing operating losses. During the
year ended 1996, Peruvian operations had revenues of $27,490,000 and an
operating loss of $19,804,000, including $2,700,000 related to the shutdown of
operations in and withdrawal of equipment and personnel from the country. The
Company's United States operations also experienced significant losses,
substantially all of which were directly or indirectly related to the slow
development and late deployment of the Citation system. Two shallow water
transition zone projects in particular incurred operating losses in excess of
$6,000,000. These projects were delayed while waiting on the deployment of the
Citation and were subsequently conducted utilizing other seismic recording
equipment. As a result, the crews experienced adverse weather due to the delays
and production was severely hampered. These operations were ultimately
suspended in November 1996.
All of these factors: (1) rapid expansion in the United States and Latin
American markets, (2) costly and unsuccessful deployment of a proprietary
recording system and (3) poor operational results in 1996, contributed to a
rapid deterioration of the Company's financial condition. Grant explored
various alternatives to improve its capital structure and increase its
liquidity. Discussions were conducted with prospective lenders and investors,
including certain creditors and stockholders of Grant. However, these
discussions were not successful in procuring sufficient capital to adequately
fund ongoing operations. By late 1996, it became apparent to Grant that the
only feasible recourse was to commence a reorganization under bankruptcy court
protection.
Since filing its voluntary petition on December 6, 1996, Grant has
continued to operate in the ordinary course of business as
debtor-in-possession. On February 4, 1997, the Court approved a Final Financing
Order authorizing Grant to enter into an agreement to obtain secured
post-petition financing with Foothill Financial Corporation (the "Lender")
under which agreement the Lender continued to advance funds to Grant for its
operations. The Lender agreed to make
10
<PAGE> 11
revolving advances not to exceed $12,500,000 through June 30, 1997. The
advances are not to exceed a borrowing base equal to a percentage of certain
trade accounts receivable and an overadvance amount. The maximum permitted
overadvance was $6,000,000 through March 30, 1997. The Final Financing Order
was amended by order of the Court on April 9, 1997 to revise the overadvance
amount to $7,000,000 and to extend the maturity date to September 30, 1997. The
Financing Order also includes an internal cash management and reporting system
containing certain requirements that Grant operate within an approved budget
and restrictions in the movement of cash from the Company's domestic operations
to most foreign locations. This latter restriction has not adversely affected
foreign operations.
Grant plans to file a plan of reorganization as soon as practicable. The
objective of the plan will be to achieve the highest possible recovery for all
parties at interest, consistent with its resources available for immediate
distribution and with anticipated cash flows. The plan will be structured
around the investor or buyer, if any, who best provides this objective.
The Company's indebtedness at March 31, 1997, totaled $103,474,000 and
included $81,181,000 of pre-petition liabilities subject to Grant's bankruptcy
proceeding. Grant's stockholders' deficit at that date totaled $34,429,000. The
ultimate recovery, if any, by Grant's various parties at interest will depend
on the resolution of the bankruptcy proceeding and the terms of a plan of
reorganization. Although no plan of reorganization has yet been filed, the
significant stockholders' deficit of Grant makes it unlikely that unsecured
creditors will realize full recovery of their claims or that shareholders will
realize any recovery.
Since the Petition Date, Grant has conducted discussions with several
parties who have indicated possible interest in funding a plan of
reorganization. On March 14, 1997, Grant announced that it had entered into a
term sheet ("Term Sheet") with Elliott to fund and jointly sponsor a plan of
reorganization. The Term Sheet calls for Elliott to invest up to $30,000,000 in
new equity capital in Grant and to provide $2,000,000 in expanded credit
facilities for the growth of the Company's international operations. In
addition, pending confirmation of the reorganization plan, Elliott has
purchased a $2,500,000 participation in Grant's current post-petition loan
facility with the Lender. The Term Sheet is subject to a number of material
conditions, including but not limited to, execution of a mutually agreeable
definitive agreement and the Court's approval of certain break-up fees and
bidding procedures. The Court approved the break-up fee and bidding procedures
on April 9, 1997. Pursuant to the Term Sheet, Grant and Elliott will file a
jointly proposed reorganization plan providing for specific recoveries to
Grant's secured and unsecured creditors. Secured creditors will be paid in full
in a combination of cash and/or new promissory notes. Unsecured creditors would
be able to select from a menu of recovery options that include cash and stock,
promissory notes or credits exchangeable for Grant services performed after
consummation of the plan. In addition, the plan is expected to provide for a
$33,000,000 rights offering, $30,000,000 of which will be guaranteed by
Elliott. Under the rights offering, Grant's unsecured creditors and its
preferred and common shareholders and employees will be granted the right to
purchase shares of Grant's new common stock at the same price per share as
Elliott's investment. New common stock to be offered pursuant to rights
offerings is subject to any required Securities and Exchange Commission
approvals. If the plan is consummated, Elliott will own a minimum of 51% of
Grant's common stock. Consummation of the plan contained in the Term Sheet is
subject to a number of conditions including the vote of Grant's creditors and
shareholders.
The Term Sheet, as modified by the Court's order on April 9, 1997, also
provides that the Elliott proposal is subject to any higher and better offer
which may be received by Grant. Grant has retained Simmons & Company
International as its investment banker to assist it in soliciting other offers
and Grant anticipates that additional offers and indications of interest may be
received. Final offers are due no later than the date set by the Court for the
filing of objections to the disclosure statement that Grant expects to file in
connection with the Elliott proposal. Grant will evaluate all valid offers, and
will select the proposal which, in its judgment, produces the highest and best
recovery to all parties in interest. Any valid offer must provide for the
immediate purchase of Elliott's participation in Grant's post-petition loan
facility.
Three months ended March 31, 1997 compared to three months ended March 31,
1996
The Company's consolidated revenues increased 9% ($2,488,000) to
$30,296,000. This was the result of increased activity in the international
operations in Latin America and the Far East that was partially offset by a
decrease in the United States.
Revenues from Latin America increased 29% ($3,842,000) to $17,148,000.
During the quarter, the Company operated five crews in the countries of
Colombia, Ecuador and Brazil and also wound down the operation of two crews in
Peru. In the first quarter of the prior year, the Company operated as many as
nine crews in Latin America, primarily in Colombia, Brazil, Peru and Bolivia.
The revenue increase for the current quarter compared with the first quarter of
11
<PAGE> 12
1996 is primarily due to a significant rise in operations in Colombia, Ecuador
and Brazil offset by lower revenues in Peru and the completion of operations in
Bolivia in 1996. The Peruvian operations contributed $2,696,000 of revenues to
the current year's first quarter compared with $5,987,000 of revenues in the
first quarter a year ago. These operations were completed and the crews
withdrawn from the country during the month of January 1997.
Far East revenues increased 172% ($1,559,000) to $2,467,000. The Company
operated one land seismic crew in Bangladesh during this period and was
mobilizing a shallow water transition zone crew that is expected to begin
operations offshore Bangladesh, in the Bay of Bengal, in May 1997. During the
same period in 1996, the Company was demobilizing a crew in Indonesia and was
experiencing some difficulty mobilizing the current land seismic crew in
Bangladesh due to civil unrest. In addition to the activity in Bangladesh, the
Company is exploring other opportunities in Indonesia and surrounding
countries.
The Company had no revenue from Nigeria during the first quarter of 1997
as compared to $938,000 in the first quarter of 1996. Due to several factors:
the risk of operating in Nigeria, the high cost of mobilizing a crew and
limited resources available, a decision to sell the Nigerian operations was
made in December 1996. The sale was completed in April 1997. The effect of the
sale was recorded in 1996 and, therefore, had no impact on the first quarter of
1997.
Revenues from United States data acquisition operations decreased 16%
($1,975,000) to $10,681,000. The Company operated five to six crews during 1997
compared to six to seven during 1996.
Direct operating expenses increased by $1,444,000 but decreased as a
percentage of revenue to 78% from 80%. The decrease is due to improved results
from certain crews operating in Colombia and Ecuador. The overall dollar
increase was the result of the increased revenue in both Latin America and the
Far East.
Other operating expenses, which consist of general and administrative
expenses at the corporate headquarters and in foreign locations, decreased as a
percentage of revenue to 7% from 8%. This was the result of cost reductions at
the corporate offices during the fourth quarter of 1996 and a reduction in
foreign overhead due to the sale of the Nigerian operations also in December of
1996.
Depreciation and amortization expense increased 10% ($241,000) to
$2,611,000 as the result of the purchase of three seismic acquisition systems
during 1996. Two of the systems are operating in Brazil and Colombia and the
third is being leased to a third party.
Interest expense increased only slightly to $1,391,000 from $1,330,000 in
the prior year. Pursuant to the Bankruptcy Code, under certain circumstances,
secured lenders may be entitled to adequate protection of their interest in
collateral pending confirmation of a reorganization plan. Grant has made
adequate protection payments to certain secured lenders.
Reorganization costs of $993,000 relate to charges incurred in connection
with the Company's reorganization process. There are no comparable charges in
the first quarter of 1996.
Other income of $295,000 was primarily the result of a gain on foreign
exchange transactions in Colombia of approximately $146,000 and miscellaneous
other income of $112,000.
The income tax provision in both periods consist of income taxes in
foreign locations. The level of foreign taxes has decreased from prior periods
due to the recognition of a net operating loss carryforward in Colombia. No
provision for U.S. Federal income tax was made in either period as the Company
currently has net losses available for carryforward.
LIQUIDITY AND CAPITAL RESOURCES
For more than a one year prior to filing for chapter 11, the Company as a
whole, and Grant in particular, experienced chronic liquidity problems. By the
second half of 1996 these problems had become severe. During this period,
payments were delayed to trade creditors, holders of Grant's secured and
unsecured note obligations and to lessors of capital equipment. In addition,
dividends on Grant's preferred stock had been omitted since December 1992.
Further, a lack of funding created delays in the startup of certain operations
and seriously affected the efficiency of other ongoing projects. Exacerbating
the crisis during the second half of 1996 were significant and continuing cash
flow losses on certain crews operating in Peru and in the United States coupled
with the continuation of investment in the Citation system.
12
<PAGE> 13
In an effort to resolve the liquidity crisis, Grant sought to obtain loans
and/or equity contributions from a number of sources. In connection with its
attempt to improve its liquidity and financial condition, Grant entered into
arrangements with a variety of lenders and investors pursuant to which loans
totaling approximately $11,000,000 (of which, about $6,000,000 was unsecured
debt) were advanced and an additional $1,573,000 of preferred stock was sold.
However, this financing was not sufficient to offset the Company's continuing
need for liquidity, and additional required financing was not available. As a
result, Grant was left with no alternative except to file the chapter 11
proceeding in December 1996.
Immediately prior to and following the chapter 11 filing, the Company took
a number of steps to substantially reduce its cash outflows. The most
significant of these were the renegotiation of certain contracts in Peru and
the subsequent withdrawal of all equipment and personnel from that country, the
cessation of certain transition zone operations in the United States and a
suspension of all work on the Citation system.
Grant's short-term liquidity remains restricted. The Company's primary
sources of liquidity since filing for chapter 11 are its cash, cash flow from
operations, advances from customers, available lines of credit in foreign
locations and Grant's post petition working capital line of credit.
At March 31, 1997 the Company had cash of $3,826,000, substantially all of
which was held by the Company's foreign operations. This cash balance
represents both contract prepayments by customers immediately following the
chapter 11 filing and payment for services rendered during the first quarter.
These balances are required to support the operations from which the
prepayments and the payments have been received.
On the Petition Date, Grant and the Lender entered into a Court approved
interim financing order which provided for the Lender to continue to make
certain working capital advances to Grant for its United States and certain
foreign operations. On February 4, 1997 this interim financing order became
final and such final order was thereafter amended on April 9, 1997. Under the
amended financing order, the Lender has made available the loans as discussed
earlier in this Management's Discussion. As of May 13, 1997, Grant had borrowed
$11,110,044 under the Amended Financing Order and there was $235,023 available
for borrowing.
For the quarter ended March 31, 1997, the Company's capital expenditures
totaled approximately $955,000. The Company believes that its capital spending
requirements for the remainder of 1997 will be approximately $2,000,000 and
that such amount will be adequate to support its operations.
Grant believes that its available liquidity is sufficient to support its
operations and capital spending for the near term. However, the Company's
liquidity is and is expected to remain very restricted for the foreseeable
future. Any material reduction in demand for the Company's services or any
significant operating losses would adversely affect Grant's ability to complete
any proposed plan of reorganization and would likely jeopardize the Company's
ability to continue to fund ongoing operations.
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 periodically 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.
Recent Accounting Pronouncements. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
Earnings per Share ("SFAS 128"). SFAS 128 specifies the compilation,
presentation and disclosure requirements for earnings per share for entities
with publicly held common stock or potential common stock. The requirements of
this statement will be effective for fiscal years beginning after December 15,
1997. Management does not believe that the implementation of SFAS 128 will have
a material effect on its financial statements.
13
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits
Exhibit No.
11.01 - Computation of Income (Loss) Per Common and
Common Equivalent Share for the Three Months
Ended March 31, 1997 and 1996.
27.01 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
14
<PAGE> 15
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 May 15, 1996 By LARRY E. LENIG, JR.
-------------------- -------------------------------
Larry E. Lenig, Jr.
Chief Operating Officer,
President
(Principal Executive Officer)
Date May 15, 1996 By MICHAEL P. KEIRNAN
-------------------- ------------------------------
Michael P. Keirnan
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
11.01 Computation of Income (Loss) Per Common and Common Equivalent
Share for the Three Months Ended March 31, 1997 and 1996.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.01
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION)
COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------------------
1997 1996
------------ -------------
UNAUDITED)
<S> <C> <C>
COMPUTATION OF LOSS PER COMMON SHARE:
Net loss ................................................... $ (276) $ (572)
Dividend requirement on $2.4375 preferred stock ............ (2,534)
------------ ------------
Net loss applicable to common stock ........................ $ (276) $ (3,106)
============ ============
LOSS PER COMMON SHARE--ASSUMING
NO AND FULL DILUTION:
Net loss ................................................... $ (0.01) $ (0.05)
Dividend requirement on $2.4375 preferred stock ............ (0.20)
------------ ------------
Net loss per common share .................................. $ (0.01) $ (0.25)
============ ============
COMPUTATION OF WEIGHTED AVERAGE COMMON SHARES--
PRIMARY AND FULLY DILUTED:
Weighted average number of common shares outstanding ....... 21,227,963 12,306,490
Common shares issuable for warrants and under incentive
stock option plan ....................................... 965,250
Less shares assumed repurchased with proceeds .............. (599,658)
------------ ------------
21,227,963 12,672,082
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,826
<SECURITIES> 0
<RECEIVABLES> 25,486
<ALLOWANCES> 5,408
<INVENTORY> 503
<CURRENT-ASSETS> 30,627<F1>
<PP&E> 94,181
<DEPRECIATION> 58,299
<TOTAL-ASSETS> 69,045
<CURRENT-LIABILITIES> 13,458
<BONDS> 0
0
1,513
<COMMON> 43
<OTHER-SE> (35,985)
<TOTAL-LIABILITY-AND-EQUITY> 69,045
<SALES> 0
<TOTAL-REVENUES> 30,296
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 28,227
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,391
<INCOME-PRETAX> 2,069
<INCOME-TAX> 260
<INCOME-CONTINUING> (276)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (276)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
<FN>
<F1>PRE-PETITION LIABILITIES - $81,181
</FN>
</TABLE>
