<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, 1998
Commission file number:000-18816
GRANT GEOPHYSICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0548468
(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 No X
--- ---
As of May 15, 1998, 14,170,555 shares of common stock, par value $.001
per share, were issued and outstanding. As of such date, there was no public
purchase market for shares of Grant Geophysical common stock.
1
<PAGE> 2
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets of Grant Geophysical, Inc. ("Grant") as of
March 31, 1998 (Unaudited) and December 31, 1997................................................. 3
Consolidated Statements of Operations:
Grant Geophysical, Inc. for the Three Months Ended March 31, 1998 (Unaudited) ................... 5
GGI Liquidating Corporation ("GGI") for the Three Months Ended March 31, 1997 (Unaudited)........ 5
Consolidated Statements of Cash Flows:
Grant Geophysical, Inc. for the Three Months Ended March 31, 1998 (Unaudited).................... 6
GGI Liquidating Corporation for the Three Months Ended March 31, 1997 (Unaudited)................ 6
Notes to Consolidated Financial Statements (Unaudited)............................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................................... 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ......................................... 17
Item 6. Exhibits and Reports on Form 8-K............................................................. 17
PART III. SIGNATURES ............................................................................... 18
</TABLE>
2
<PAGE> 3
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,093 $ 24,991
Restricted cash 321 321
Accounts receivable:
Trade(net of allowance for doubtful accounts of $158 and $400 at
December 31, 1997 and March 31, 1998, respectively) 29,495 42,065
Other 2,487 1,751
Inventories 530 525
Prepaids 4,190 4,808
Work in process 2,779 2,320
--------- ---------
Total current assets 46,895 76,781
Property, plant and equipment 73,002 81,793
Accumulated depreciation (8,498) (13,222)
--------- ---------
Net property, plant and equipment 64,504 68,571
Multi-client data, net 5,736 5,284
Goodwill, net 36,304 35,954
Deferred issue costs, net -- 3,796
Other assets 2,265 1,636
--------- ---------
Total assets $ 155,704 $ 192,022
========= =========
</TABLE>
(Continued on next page)
3
<PAGE> 4
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt $ 1,158 $ 1,052
Accounts payable 16,422 23,554
Accrued expenses 10,318 10,322
Foreign income taxes payable 2,807 3,631
--------- ---------
Total current liabilities 30,705 38,559
Long-term debt and capital lease obligations 65,409 101,291
Unearned revenue 5,443 5,822
Other liabilities and deferred credits 2,369 3,238
Subordinated note 9,786 --
Stockholder's equity:
Cumulative pay-in-kind preferred stock, $.001 par
value. Authorized 20,000 shares; issued and
outstanding 10,000 shares at December 31, 1997,
and March 31, 1998 10,000 10,000
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and outstanding
14,152,555 shares at December 31, 1997 and
14,170,555 at March 31, 1998 14 14
Additional paid-in capital 41,278 41,278
Accumulated deficit (8,833) (8,100)
Accumulated other comprehensive income (467) (80)
--------- ---------
Total stockholders' equity 41,992 43,112
--------- ---------
Total liabilities and stockholders' equity $ 155,704 $ 192,022
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GGI GRANT
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1998
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> | <C>
Revenues $ 30,296 | $ 47,895
|
Expenses: |
Direct operating expenses 23,556 | 34,740
Other operating expenses 2,060 | 3,802
Depreciation and amortization 2,611 | 5,289
-------- | --------
Total costs and expenses 28,227 | 43,831
-------- | --------
|
Operating income 2,069 | 4,064
|
Other income (deductions): |
Interest expense (1,391) | (2,168)
Interest income 4 | 203
Reorganization costs (993) | --
Other 295 | (162)
-------- | --------
Total other deductions (2,085) | (2,127)
-------- | --------
|
Income (loss) before taxes (16) | 1,937
|
Income tax expense 260 | 1,204
-------- | --------
|
Net income (loss) (276) | 733
|
Preferred dividends -- | 264
-------- | --------
|
Net income (loss) applicable to common stock $ (276) | $ 469
======== | ========
|
INCOME PER COMMON SHARE - BASIC |
AND DILUTED: |
|
Net income | $ 0.05
Dividend requirement on pay-in-kind |
preferred stock | (0.02)
| --------
Net income per common share | $ 0.03
| ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 6
GRANT GEOPHYSICAL, INC AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GGI GRANT
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
---------------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
NET INCOME (LOSS) BEFORE DIVIDEND REQUIREMENT $ (276) | $ 733
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET |
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: |
Depreciation and amortization expense 2,611 | 5,289
Gain on sale of fixed assets 28 | (27)
Provision for doubtful accounts -- | 200
Exchange (gain) loss (146) | 247
Other non-cash items -- | 7
CHANGES IN ASSETS AND LIABILITIES: |
(INCREASE) DECREASE IN: |
Accounts receivable (1,535) | (12,034)
Inventories -- | 5
Prepaids 492 | (618)
Work in process (2,306) | 459
Other assets (305) | 613
INCREASE (DECREASE) IN: |
Accounts payable 2,616 | 2,632
Accrued expenses 2,705 | 4
Foreign income tax payable 351 | 824
Other liabilities and deferred credits 2,546 | 1,248
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 (USED IN) OPERATING ACTIVITIES 2,122 | (418)
|
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: |
Capital expenditures, net (1,243) | (4,166)
Proceeds from sale of assets 5 | 220
-------- | ---------
|
NET CASH USED IN INVESTING ACTIVITIES (1,238) | (3,946)
|
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: |
Debt issue costs | (3,796)
Borrowings made during the period -- | 100,279
Repayment on borrowings during the period (3) | (74,179)
Pre-petition liabilities subject to chapter 11 case: |
Borrowings under credit facility 12,943 | --
Repayment on borrowings (16,794) | --
-------- | ---------
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,854) | 22,304
-------- | ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 24 | (42)
-------- | ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,946) | 17,898
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,772 | 7,093
-------- | ---------
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,826 | $ 24,991
======== | =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<PAGE> 7
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
Effective September 30, 1997, in connection with a plan of reorganization
(the "Plan") for GGI Liquidating Corporation, a predecessor corporation ("GGI"),
Grant Geophysical, Inc. ("Grant" or the "Company") acquired substantially all of
the assets and assumed certain liabilities of GGI. Elliott Associates L.P.
("Elliott") and Westgate International, L.P. ("Westgate") (collectively known as
"the Principal Stockholders") own all of the issued and outstanding common and
preferred stock of Grant. The general partners of Elliott are Paul E. Singer and
Braxton Associates, L.P. The general partner of Westgate is Hambledon, Inc., a
corporation controlled by Braxton Associates, L.P. Elliott and Westgate are each
managed by Stonington Management Corporation, a corporation controlled by Mr.
Singer. For financial statement purposes, the purchase of GGI's assets by Grant
was accounted for as a purchase acquisition. The purchase price was allocated
between the fair value of the GGI assets purchased and liabilities assumed, and
Grant recorded goodwill of approximately $21.0 million. The effects of the
acquisition have been reflected in Grant's assets and liabilities at that date.
At September 30, 1997, Elliott held 5,888,565 shares or 40.7% and Westgate
held 3,291,544 shares, or 23.3% of the outstanding common shares of Solid State
Geophysical, Inc. ("Solid State Stock"). As of September 30, 1997, Elliott and
Westgate combined owned a controlling interest in both Solid State Geophysical,
Inc. ("Solid State") and Grant. As a result, as of that date, Elliott and
Westgate were deemed to have transferred their ownership in Solid State to Grant
in exchange for 4,590,055 shares of Grant common stock. This transaction was
accounted for as an exchange of ownership interests between entities under
common control and the assets and liabilities transferred were accounted for at
historical cost in a manner similar to a pooling-of-interests. In November 1997,
Grant initiated a tender offer for all of the outstanding common shares of Solid
State not held by Grant. In connection with the tender offer, Elliott and
Westgate transferred their ownership in Solid State to Grant in exchange for an
aggregate 4,652,555 shares of Grant common stock and agreed to loan Grant $15.8
million to pay for shares tendered in the tender offer and costs incurred in
connection with such tender offer. Upon the expiration of the Tender Offer on
December 19, 1997, Grant held approximately 99% of the outstanding shares of
Solid State Stock. On December 23, 1997, because Grant acquired over 90% of the
outstanding shares of Solid State Stock that it did not already own, Grant
qualified to exercise its statutory right under Canadian law to acquire the
remaining shares of Solid State Stock on the same terms and at the same price as
the Tender Offer. On December 23, 1997 after these statutory rights were
exercised, Solid State became an indirect wholly owned subsidiary of Grant. The
acquisition of the unaffiliated minority interest under the tender offer was
accounted for under the purchase method of accounting at the date of acceptance.
Grant recorded goodwill of approximately $15.3 million in connection with the
acquisition of the unaffiliated minority interest.
As a result, Grant's consolidated balance sheet as of December 31, 1997 and
March 31, 1998 and statement of operations and cash flows for the three months
ended March 31, 1998 are presented using Grant's new basis of accounting, while
the consolidated statements of operations and cash flows of GGI for the three
months ended March 31, 1997 are presented using GGI's historical cost basis of
accounting. Because of the recent acquisition and related adjustment of assets
and liabilities to fair value as of December 31, 1997, the carrying value of
Grant's financial assets and liabilities approximates fair value.
Grant is a holding company with no independent operations other than its
investments in its subsidiaries. Advanced Seismic Technology, Inc., Grant
Geophysical Corp., Grant Geophysical do Brasil Ltda., Grant Geophysical
(Int'l), Inc., P.T. Grant Geophysical Indonesia, Recursos Engergeticos Ltda.,
Solid State Geophysical Inc., Solid State Internacional Ingenieria C.A., Solid
State Geophysical Corp., and SSGI Acquisition Corp. (the "Subsidiary
Guarantors") represent all of the indirect and direct wholly owned subsidiaries
of Grant other than one subsidiary, which is inconsequential to Grant on a
consolidated basis. Grant conducts all of its operations through its
subsidiaries. The Notes (see Notes 3 and 4) are fully, unconditionally, jointly
and severally guaranteed by the Subsidiary Guarantors, and therefore, separate
financial statements of the Subsidiary Guarantors will not be presented.
Management has determined that the information presented by such separate
financial statements of the Subsidiary Guarantors is not material to investors.
7
<PAGE> 8
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet of Grant as of March 31, 1998 and the related statements
of operations and cash flows for the three months ended March 31, 1998 and GGI's
statements of operations and cash flows for the three months ended March 31,
1997 are unaudited. In the opinion of management, the accompanying unaudited
condensed financial statements of Grant and its consolidated subsidiaries
contain all adjustments necessary to present fairly the financial position as of
March 31, 1998 and the results of operations for the three
months ended March 31, 1998. The consolidated financial statements of both Grant
and GGI should be read in conjunction with the audited financial statements and
footnotes for the year ended December 31, 1997, included in the Company's Form
10-K, as filed with the Securities and Exchange Commission (the "Commission").
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
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
specifies new measurement, presentation and disclosure requirements for earnings
per share and is required to be applied retroactively upon initial adoption.
Grant has adopted SFAS No. 128 effective December 31, 1997. Earnings per
share data have not been presented for GGI as this information is not
meaningful.
Basic income (loss) per common share is computed based upon the weighted
average number of common shares outstanding during each period without any
dilutive effects considered. Diluted income (loss) per common share reflects
dilution for all potentially dilutive securities including warrants and
convertible securities. The income (loss) is adjusted for by cumulative
preferred stock dividends in calculating net income (loss) attributable to the
common shareholder.
Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its components.
The components of comprehensive income refer to revenues, expenses, gains and
losses that are excluded from net income under current accounting standards,
including foreign currency translation items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. SFAS 130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed in equal prominence with other financial
statements; the total or other comprehensive income for a period is required to
be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of an accounting period. SFAS 130 is
effective for both interim and annual periods beginning after December 15, 1997.
The Company adopted SFAS 130 in the first quarter of 1998.
(3) NOTES PAYABLE
On February 18, 1998, Grant completed the sale of $100 million aggregate
principal amount of its 9 3/4% Senior Notes, Series A due 2008 (the "Original
Notes"). The Original Notes bear interest from February 18, at the rate per
annum set forth above payable semi-annually on February 15 and August 15 of each
year, commencing August 15, 1998. The net proceeds from the sale of the Original
Notes was approximately $95.2 million after
8
<PAGE> 9
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
deducting the discount on the sale and certain other fees and expenses. Grant
used the proceeds to repay approximately $74.5 million (approximately $73.0
million in principal and $1.5 million in interest) of the outstanding balance of
debt and interest existing at December 31, 1997.
(4) EXCHANGE OFFER
In connection with the sale of the Original Notes, the Company entered into
a Registration Rights Agreement pursuant to which the Company agreed to file
with the Commission an Exchange Offer Registration Statement (the "Registration
Statement"). The Registration Statement was filed on March 24, 1998, amended on
May 8, 1998 and became effective on May 13, 1998. Pursuant to the Registration
Statement, the Company has registered $100 million aggregate principal amount of
its 9 3/4 Senior Notes, Series B due 2008 (the "Exchange Notes" and together
with the Original Notes, the "Notes") for which the holders of all outstanding
Original Notes may exchange the aggregate principal amount of Original Notes for
the aggregate principal amount of Exchange Notes. This offer is valid until 5:00
p.m., New York City time on June 12, 1998 (unless extended).
The terms of the Exchange Notes are substantially identical in all respects
to the terms of the Original Notes except that (i) the Exchange Notes will be
freely transferable by holders thereof (except in certain circumstances) and are
issued free of certain transfer restrictions and registration rights relating to
the Original Notes and (ii) holders of the Exchange Notes will not be entitled
to certain rights of holders of the Original Notes under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer (subject to certain limited exemptions). The Exchange Notes will evidence
the same debt as the Original Notes and will be issued under and be entitled to
the benefits of an Indenture dated as of February 18, 1998 governing the terms
of the Original Notes and the Exchange Notes.
(5) EMPLOYEE BENEFIT PLANS
The 1997 Equity and Performance Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors and approved by Grant's stockholders in
December 1997. The Plan was amended in February 1998 to increase the number of
shares reserved for issuance under the Incentive Plan from one million shares of
Grant Common Stock to 1,450,000 shares of Grant Common Stock. The Incentive Plan
provides for the grant to officers (including officers who are also directors),
employees, consultants and nonemployee directors of Grant and its subsidiaries,
of "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code"), nonstatutory stock options, stock
appreciation rights and restricted shares and deferred shares of Grant Common
Stock (collectively, the "Awards"). The Incentive Plan is not a qualified
deferred compensation plan under Section 401(a) of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974.
The Incentive Plan is required to be administered by the Board of Directors
or by a committee of the Board of Directors consisting of at least two
nonemployee directors. The Board of Directors or its designated committee will
select the employees and non-employee directors to whom Awards may be granted
and the type of Award to be granted and determine, as applicable, the number of
shares to be subject to each Award, the exercise price and the vesting. In
making such determinations, the Board of Directors or its designated committee
will take into account the employee's present and potential contributions to the
success of the Company and other relevant factors. As of May 15, 1998, Awards
covering 1,282,100 shares have been made by the Board of Directors. The Awards
consist of 1,264,100 nonstatutory stock options that will vest annually in equal
one-third increments beginning on December 31, 1998. All options have an average
exercise price of $6.07 per share (range of $5 to $7.20 per share), subject to
adjustment in certain circumstances. In addition, 3,000 restricted shares
(18,000 total restricted shares) were granted to each non-employee director and
will vest on August 18, 1998 provided that such director continues to serve on
the Board of Directors until such date.
9
<PAGE> 10
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(6) CONTINGENCIES
Grant is involved in various claims and legal actions arising in the
ordinary course of business. Management of Grant is of the opinion that none of
the claims and actions are likely to have a material impact on its financial
condition.
On December 11, 1997, certain persons, acting through an "ad hoc" committee
(the "Plaintiffs") commenced a lawsuit in the Bankruptcy Court against Grant,
GGI, Elliott, Westgate and a subsidiary of Grant. The lawsuit alleges that (i)
GGI and Elliott breached their obligations under the Plan by seeking to complete
the acquisition of Solid State prior to commencing a subscription offering to
purchase Grant Common Stock, (ii) the acquisition of Solid State and the
certain related transactions are unfair to the Plaintiffs because they dilute
the value of the Common Stock to be issued under such subscription offering and
impair Grant's equity value and (iii) the acquisition of Solid State and certain
related transactions could and should have been, but were not, adequately
disclosed in the disclosure statement filed with the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court") regarding the Plan.
The Plaintiffs have requested (i) compensatory and punitive damages in an
unstated amount and (ii) revocation of the Plan.
In addition, the Plaintiffs sought to enjoin completion of the acquisition
of Solid State and certain related transactions pending a trial on the merits.
This request for injunctive relief was denied by the Bankruptcy Court on
December 16, 1997, and was denied on appeal by the United States District Court
for the District of Delaware on December 19, 1997. A status conference was held
on this matter on January 21, 1998, at which time a discovery schedule was
established. Discovery in this matter is on-going. Grant believes that all
claims by the Plaintiffs are without merit and plans to vigorously defend the
lawsuit. In addition, Elliott has agreed to indemnify Grant and its subsidiary
against any liability that they may incur in connection with the lawsuit.
Nevertheless, if not resolved in Grant's favor, this lawsuit, and the potential
for other lawsuits related to the Plan, could have an adverse effect on Grant's
business, reputation, operating results and financial condition.
(7) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Non-cash investing and financing activities consisted of the following
(amounts in thousands):
<TABLE>
<CAPTION>
GGI GRANT
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1998
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> | <C>
CASH PAID FOR INTEREST AND TAXES |
WAS AS FOLLOWS: |
Interest, net of amounts capitalized $ 1,402 | $ 1,417
|
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
Property, plant and equipment debt additions $ 173 | $ 4,500
Debenture conversion $ 60 | $ --
</TABLE>
(8) RELATED PARTY
The Company's Chairman of the Board ("Chairman") is an officer of an
affiliate of the Principal Stockholders of Grant. Elliott granted to the
Chairman, on April 28, 1998, options to purchase 100,000 shares of Common
Stock from Elliott. Additionally, the Chairman has entered into a consulting
agreement, dated April 28, 1998, with Grant (the "Consulting Agreement") which
provides for an annual consulting fee of $100,000 for as long as he
10
<PAGE> 11
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
remains Chairman. Under the consulting Agreement, the Chairman was also granted
options by the Company to purchase 50,000 shares of Common Stock under the
Incentive Plan. These options will vest annually in equal one-third increments
beginning on December 31, 1998, and have an average exercise price of $6.07 per
share.
(9) ADOPTION OF ACCOUNTING STANDARDS
Effective January 1, 1998, Grant adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. Comprehensive income includes all changes
in a company's equity, including, among other things, foreign currency
translation adjustments, notes receivable from employee stock ownership plans,
deferred gains (losses) on hedging activities, and unrealized gains (losses) on
marketable securities classified as available-for-sale. Grant's and GGI's total
comprehensive earnings are as follows for the periods presented.
<TABLE>
<CAPTION>
GGI GRANT
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
--------------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> | <C>
Net income (loss) $ (276) | $ 733
Gain on accumulated other comprehensive income -- | 387
-------- | --------
Total comprehensive earnings $ (276) | $ 1,120
======== | ========
</TABLE>
11
<PAGE> 12
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Grant was formed in September, 1997, and on September 30, 1997, acquired
substantially all of the assets and assumed certain liabilities of GGI. On
December 23, 1997, Grant, through a wholly owned Canadian subsidiary, acquired
all of the outstanding shares of Solid State.
The Company's business activities involve the performance of land and
transition zone seismic data acquisition services in selected markets worldwide,
including the United States, Canada, Latin America and the Far East. The Company
generally acquires seismic data on an exclusive contract basis for oil and gas
companies on (i) a turnkey basis, which provides a fixed fee for each project,
(ii) a term basis, which provides for a periodic fee during the term of the
project or (iii) a cost-plus basis, which provides that the costs of a project,
plus a percentage fee, are borne by the customer. In addition, the Company
acquires and owns certain multi-client seismic data that is marketed broadly on
a non-exclusive basis to oil and gas companies.
As of May 7, 1998, the Company was operating or mobilizing 19 seismic data
acquisition crews, consisting of 15 land and four transition zone crews,
utilizing approximately 35,000 seismic recording channels. According to industry
sources, as of May 7, 1998, the Company is the third largest land seismic data
acquisition company operating in the western hemisphere, based on the number of
seismic data acquisition crews in operation.
In December 1996, GGI filed for protection under the United States
Bankruptcy Code and began its reorganization under the supervision of the
Bankruptcy Court. The filing was precipitated by a number of factors, including
an overly rapid expansion in the United States and Latin American markets, which
contributed to poor operational results in these markets, the attempted
development of a proprietary data recording system, which did not meet operating
expectations and a lack of available capital, which led to a severe working
capital shortage. These factors impaired GGI's ability to service its
indebtedness, finance its existing capital expenditure requirements and meet its
working capital needs. In addition, GGI was unable to raise additional equity,
causing a disproportionate reliance on debt financing and equipment leasing. In
connection with its reorganization, GGI replaced its senior management, disposed
of unprofitable operations, operated as debtor in possession and developed the
Plan, which was confirmed by the Bankruptcy Court on September 15, 1997 and
consummated on September 30, 1997 (the "Effective Date"), with Grant's purchase
of substantially all of the assets and assumption of certain liabilities of GGI.
As part of the Plan, GGI will be dissolved and will cease to exist once the
remainder of its assets are distributed to its creditors.
The historical results of operations of the Company for the three months
ended March 31, 1998 are not directly comparable to the results of operations of
GGI for the three months ended March 31, 1997 due to the effects of the
acquisition of Solid State.
RESULTS OF OPERATIONS
The Company's First Quarter Ended March 31, 1998 Compared With GGI's First
Quarter Ended March 31, 1997
Revenues. Consolidated revenue increased $17.6 million, or 58%, from $30.3
million for GGI for the three months ended March 31, 1997 to $47.9 million in
revenue for the Company for the three months ended March 31, 1998. This increase
was the result of growth in revenues in the Far East, the United States and
Latin America and the inclusion of Solid State's results of operations. In the
aggregate, Solid State's operations added $14.0 million to revenue for the first
quarter of 1998.
12
<PAGE> 13
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenues from the United States data acquisition operations increased $3.8
million, or 36%, from $10.7 million for GGI for the quarter ended March 31, 1997
to $14.5 million for the Company for the quarter ended March 31, 1998. This
increase was attributable to the addition of one Solid State crew for the entire
first quarter of 1998, increased crew productivity as a result of a higher
channel count per crew and a more efficient use of both equipment and personnel
throughout the region. The Company operated six seismic data acquisition crews
continuously in the United States during the three months ended March 31, 1998
compared with a peak of seven crews operating from time to time for GGI during
the same period in 1997.
Revenues from Latin America increased $2.7 million, or 15%, from $17.1
million for GGI for the quarter ended March 31, 1997 to $19.8 million for the
Company for the quarter ended March 31, 1998. During the first quarter of 1997,
GGI's Latin American operations consisted of as many as seven land seismic data
acquisition crews operating in Colombia, Ecuador, Brazil, and Peru. GGI
completed operations in Peru and crews were withdrawn in January 1997. During
the first quarter of 1998, the Company operated as many as eight seismic crews
in the region, including three in Colombia, two in Bolivia and one each in
Guatemala, Brazil and Ecuador. The Company began operations in Guatemala in
September 1997 and acquired the Bolivian operations in the Solid State
acquisition in December 1997.
Revenues from the Far East increased $3.0 million, or 122%, from $2.5
million for GGI for the first quarter of 1997 to $5.5 million for the Company
for the first quarter of 1998. During the first quarter of 1997, GGI operated
one land crew in and began mobilizing one transition zone crew to Bangladesh.
The transition zone crew began operations in July 1997. During the first quarter
of 1998, the Company operated two crews in Bangladesh for the entire period and
began mobilizing two crews to Indonesia. The Indonesian crews will begin data
acquisition during the second quarter of 1998.
Revenues from Canadian data acquisition operations were $8.0 million for
the Company's quarter ended March 31, 1998 compared to zero for GGI for the same
period in 1997. The Company (through Solid State) operated as many as six land
seismic crews in Canada during the three month period ended March 31, 1998 while
GGI had no operations in Canada during the same period in 1997. The Canadian
seismic business is seasonal with most of the crew activity occurring during the
months of October through March. The Company completed the seasonal operations
of four crews on April 1, 1998. There are currently two crews active in Canada
with two crews mobilizing operations into the northern and western United
States.
Expenses. Operating expenses of the Company as a percentage of revenues
decreased to 73% for the three months ended March 31, 1998 from 78% for GGI for
the three months ended March 31, 1997. This percentage decrease can be
attributed to overall improved operating efficiency, and in particular, to the
Company's Canadian crews during that period. GGI had no Canadian operations
during the same three month period ending March 31, 1997. Operating expenses
during the first quarter of 1998 increased $11.2 million to $34.7 million for
the Company compared with $23.6 million for GGI's same period ended March 31,
1997. This increase is a result of the revenue increases experienced in the
United States, Latin America, the Far East and Canada which have previously been
discussed.
Other operating expenses increased $1.7 million, or 81%, to $3.8 million
for the Company for the quarter ended March 31, 1998 from $2.1 million for GGI
for the quarter ended March 31, 1997. Other operating expenses also increased as
a percentage of revenue to 8% in first quarter of 1998 from 7% in same period in
1997. The primary reason for these increases is the inclusion of Solid State
expenses during the Company's first quarter of 1998 with no corresponding
expense for GGI during the same period in 1997.
Depreciation and amortization increased $2.7 million, or 104%, to $5.3
million for the Company for the quarter ended March 31, 1998 from $2.6 million
for GGI for the quarter ended March 31, 1997. This increase is primarily
attributable to $1.3 million in depreciation on the acquired Solid State assets
and amortization of goodwill of
13
<PAGE> 14
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
$366,000, neither of which were incurred by GGI during the first quarter of
1997, and to depreciation on new assets purchased by the Company during the
quarters ending December 31, 1997 and March 31, 1998.
Other Income (Deductions). Interest expense, net, increased $578,000, or
42%, to $2.0 million for the Company for the quarter ended March 31, 1998 from
$1.4 million for GGI for the quarter ended March 31, 1997. This increase was the
result of interest on debt both incurred and assumed by the Company as a result
of the Solid State acquisition and the increase in debt resulting from the sale
on February 18, 1998 of $100 million of 9 3/4% senior notes due 2008. Proceeds
from the sale were used to retire substantially all of the Company's outstanding
indebtedness, to fund capital expenditures and provide working capital.
Reorganization costs of $993,000 for the quarter ended March 31, 1997
related to charges incurred in connection with GGI's reorganization, which began
in December 1996 and was completed in September 1997. No reorganization charges
were incurred by the Company in the three months ended March 31, 1998 and none
are expected to be incurred in the future.
The Company's other expense for the three months ended March 31, 1998 of
$162,000 was principally the result of losses on foreign exchange transactions
incurred in connection with its Canadian operations. Other income for GGI of
$295,000 for that same period in 1997 relate to gains on foreign exchange
transactions in Colombia and miscellaneous other income.
Tax Provision. The income tax provision in both periods consisted of income
taxes in foreign countries. The increase for the Company for the quarter ended
March 31, 1998 compared with GGI's quarter ended March 31, 1997 is a result of
higher taxable income in Colombia, Ecuador, Guatemala and Bangladesh. No
provision for United States federal income tax was made in either period as GGI
and the Company each had net loss carryforwards available.
LIQUIDITY AND CAPITAL RESOURCES
The Company's internal sources of liquidity are its cash balances
(approximately $27.3 million at May 7, 1998) and cash flow from operations.
External sources include the unutilized portion ($5.0 million at May 7, 1998) of
a credit facility entered into with Elliott on October 1, 1997 (the "Credit
Facility"), equipment financing and trade credit. The Credit Facility contains a
$5 million revolving credit facility, which currently provides for borrowings at
an interest rate per annum of the prime rate plus 2%, secured by liens on
substantially all of the assets of the Company and certain of its subsidiaries.
The Company periodically enters into equipment financing agreements with sellers
of seismic data acquisition equipment to pay all or a portion of the purchase
price of such equipment and regularly utilizes normal trade credit in connection
with certain of its purchases of goods and services to support its ongoing field
crew activities.
On February 18, 1998, the Company issued $100 million aggregate principal
amount of Notes pursuant to exemptions from, or in transactions not subject to,
the registration requirements of the Securities Act. The Notes are governed by
an indenture, dated February 18, 1998, between the Company, the Subsidiary
Guarantors and LaSalle National Bank, as trustee (the "Indenture"). The Notes
bear interest at 9 3/4% per annum and were sold at a discount to yield 9 7/8%
per annum. The net proceeds from the sale of the Original Notes were used to
retire substantially all of Grant's then outstanding indebtedness, purchase
certain leased equipment and provide for working capital.
At May 7, 1998, the Company's total indebtedness was approximately $102.6
million (including approximately $300,000 under letters of credit). The
Company's total indebtedness is comprised of $99.2 million aggregate principal
amount of the Notes and $3.1 million of combined loans and capitalized leases
incurred for the purpose of financing capital expenditures.
14
<PAGE> 15
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Indenture imposes certain limitations on the ability of the Company and
its Restricted Subsidiaries (as defined in the Indenture) to, among other
things, incur additional indebtedness (including capital leases), incur liens,
pay dividends or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with affiliates, issue preferred
stock, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
the Company or any of its Restricted Subsidiaries. In addition, the Credit
Facility limits the Company from taking, without the consent of the lender,
certain actions, including creating indebtedness in excess of specified amounts
and declaring and paying dividends.
The Company's principal uses of liquidity will be to provide working
capital, finance capital expenditures, make principal and interest payments
required by the terms of its indebtedness and fund expenses associated with the
implementation of its business strategy. Because of the traditionally longer
period required to collect receivables and the high costs associated with
equipping and operating crews outside of the United States and Canada, the
Company requires significant levels of working capital to fund its international
operations. These operations accounted for 52.7% of total revenues for the three
months ended March 31, 1998.
Capital expenditures are made by the Company primarily to purchase seismic
data acquisition equipment. The Company made approximately $11.2 million of
capital expenditures during the fourth quarter of 1997 and budgeted
approximately $21 million of capital expenditures in 1998 to upgrade and expand
its seismic data acquisition capability and equipment. Capital expenditures for
the three months ended March 31, 1998 were $8.8 million. There remains $12.2
million of capital spending budgeted for 1998 of which approximately $5.6
million is job dependent.
The Company will require substantial cash flow to continue operations on a
satisfactory basis, complete its capital expenditure program, fully implement
its business strategy and meet its principal and interest obligations with
respect to the Notes and its other indebtedness. The Company anticipates that
available cash, cash flow generated from operations and borrowings under the
Credit Facility will provide sufficient liquidity to fund these requirements for
the foreseeable future.
FOREIGN EXCHANGE GAINS AND LOSSES
The Company conducts a substantial portion of its business in currencies
other than the U.S. dollar or Canadian dollar, particularly various Latin
American currencies, and its operations are subject to fluctuations in foreign
currency exchange rates. Accordingly, certain of the Company's international
contracts could be significantly affected by fluctuations in exchange rates,
particularly in Brazil and Colombia. The Company's international contracts
require payment in U.S. dollars, Canadian dollars, various local currencies or a
combination thereof. Payments in local currencies typically are indexed to
inflationary tables and generally are used for local expenses. The Company
attempts to structure the majority of its international contracts to be billed
and paid at a certain U.S. dollar conversion rate. Additionally, the Company's
foreign subsidiaries periodically enter into local currency debt to pay expenses
incurred locally. The Company presently does not use any derivatives or forward
foreign currency exchange rate hedging arrangements, but may elect to do so in
the future.
The Company's operating results were negatively impacted by foreign
exchange losses of approximately $247,000 during the three months ended March
31, 1998.
EFFECT OF INFLATION
Current economic conditions indicate that the costs of exploration and
production for oil and gas are increasing. The oil and gas industry historically
has experienced periods of rapid cost increases within short periods of time as
demand for drilling rigs, drilling pipe and other materials and supplies
increases. The oil and gas industry is
15
<PAGE> 16
GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
AND
GGI LIQUIDATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
currently experiencing such increases in demand, which have historically led to
rapid increases in costs. Increases in exploration and production costs could
lead to a decrease in such activities by oil and gas companies, which would have
an adverse effect on the demand for the Company's services.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to stockholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
The Company will adopt SFAS 131 in the fourth quarter of 1998.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
From time to time, information provided by the Company, statements by its
employees or information included in written material, such as press releases
and filings (including this Form 10-Q Quarterly Report) with the Commission
(including portions of the "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and certain other sections
contained in such filings) may contain "forward-looking" statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Such forward-looking statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should any of the underlying
assumptions prove incorrect, actual results of current and future operations may
vary materially from those anticipated, estimated or projected. Investors are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates.
Among the factors that will have a direct bearing on the Company's results
of operations and the oil and gas services industry in which it operates are the
effects of rapidly changing technology; the presence of competitors with greater
financial resources; risks associated with the acquisition of Solid State
including failure to successfully manage the Company's growth and integrate the
business operations of Solid State; operating risks inherent in the oil and gas
services industry; regulatory uncertainties; potential liability under the Plan;
worldwide political stability and economic conditions and other risks associated
with international operations, including foreign currency exchange risk; and the
Company's successful execution of its strategy and internal operating plans.
YEAR 2000 COMPLIANCE
The Company does not expect that the cost of converting its computer
systems to year 2000 compliance will be material to its financial condition. The
company believes that it will be able to achieve year 2000 compliance by the end
of 1999, and it does not currently anticipate any disruption in its operations
as the result of any failure by the Company to be in compliance. The Company
does not currently have any information concerning the year 2000 compliance
status of its customers and vendors.
16
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On January 8, 1998, Elliott and Westgate, being all the holders
of Common Stock and pursuant to a written consent without a meeting,
elected W. Richard Anderson to the Board of Directors of Grant.
On January 15, 1998, Elliott and Westgate, being all the holders
of Common Stock and pursuant to a written consent without a meeting,
elected Donald W. Wilson and James R. Brock to the Board of Directors
of Grant.
On February 18, 1998, Elliott and Westgate, being all the holders
of Common Stock and pursuant to a written consent without a meeting,
approved Amendment No. 1 to the Incentive Plan, which increased shares
of Common Stock available under the Incentive Plan to 1,450,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits
Exhibit No.
-----------
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, 1998.
17
<PAGE> 18
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 on the 15th day of May, 1998.
GRANT GEOPHYSICAL, INC.
(REGISTRANT)
By Larry E. Lenig, Jr.
-------------------------------------
Larry E. Lenig, Jr.
Chief Operating Officer,
President
(Principal Executive Officer)
By Michael P. Keirnan
-------------------------------------
Michael P. Keirnan
Chief Financial Officer
(Principal Financial Officer)
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.01 - Financial data schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000866722
<NAME> GRANT GEOPHYSICAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 25,312
<SECURITIES> 0
<RECEIVABLES> 44,216
<ALLOWANCES> 400
<INVENTORY> 525
<CURRENT-ASSETS> 76,781
<PP&E> 81,793
<DEPRECIATION> 13,222
<TOTAL-ASSETS> 192,022
<CURRENT-LIABILITIES> 38,559
<BONDS> 0
0
10,000
<COMMON> 14
<OTHER-SE> 43,098
<TOTAL-LIABILITY-AND-EQUITY> 192,022
<SALES> 47,895
<TOTAL-REVENUES> 47,895
<CGS> 0
<TOTAL-COSTS> 43,831
<OTHER-EXPENSES> (41)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,168
<INCOME-PRETAX> 1,937
<INCOME-TAX> 1,204
<INCOME-CONTINUING> 733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 733
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
