<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ ] 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, 1999
Commission file number: 333-48799*
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 [ ]
As of May 14, 1999, 14,426,055 shares of common stock, par value $.001 per
share, were issued and outstanding. As of such date, there was no public market
for the common stock.
- --------------------------------------------------------------------------------
* The Commission file number refers to a Form S-4 registration statement filed
by the registrant under the Securities Act of 1933, which became effective May
14, 1998.
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE(S)
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and
March 31, 1999....................................................................................1
Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and 1999...........................................................................3
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1999...........................................................................4
Notes to Consolidated Financial Statements..........................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................................7
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds......................................................13
Item 4. Submission of Matters to a Vote of Security Holders............................................13
Item 6. Exhibits and Reports on Form 8-K...............................................................13
PART III. SIGNATURES...................................................................................14
</TABLE>
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................................. $ 7,921 $ 2,578
Restricted cash ....................................................................... 106 79
Accounts receivable:
Trade(net of allowance for doubtful accounts of $86 and $220 at December
31, 1998 and March 31, 1999,
respectively) ................................................................. 25,918 25,215
Other .............................................................................. 1,663 1,673
Inventories ........................................................................... 512 512
Prepaids .............................................................................. 4,639 3,296
Work in process ....................................................................... 4,062 3,809
------- --------
Total current assets ............................................................... 44,821 37,162
Property, plant and equipment ............................................................. 93,264 92,654
Less: accumulated depreciation ........................................................... 27,359 32,332
------- --------
Net property, plant and equipment .................................................. 65,905 60,322
Multi-client data, net .................................................................... 10,899 15,101
Goodwill, net ............................................................................. 36,592 36,393
Deferred issue costs, net ................................................................. 4,297 4,190
Other assets .............................................................................. 3,927 5,607
-------- --------
Total assets ....................................................................... $166,441 $158,775
======== ========
</TABLE>
(Continued on next page)
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
--------- ---------
(unaudited)
<S> .................................................................................................. <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations ..................................................................... 2,522 2,540
Accounts payable ................................................................................. 15,316 12,371
Accrued expenses ................................................................................. 6,621 5,301
Accrued interest ................................................................................. 3,798 1,380
Foreign income taxes payable ..................................................................... 2,191 2,012
--------- ---------
Total current liabilities ...................................................................... 30,448 23,604
Revolving line of credit-affiliate ................................................................... 8,000 13,000
Long-term debt and capital lease obligations ......................................................... 102,817 102,307
Unearned revenue ..................................................................................... 2,115 3,963
Other liabilities and deferred credits ............................................................... 1,059 549
Stockholders' equity:
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and outstanding
14,426,055 shares at December 31, 1998 and
March 31, 1999 ................................................................................ 14 14
Additional paid-in capital ....................................................................... 41,727 41,772
Accumulated deficit .............................................................................. (17,253) (24,124)
Accumulated other comprehensive income ........................................................... (2,486) (2,310)
--------- ---------
Total stockholders' equity ..................................................................... 22,002 15,352
--------- ---------
Total liabilities and stockholders' equity ................................................ $ 166,441 $ 158,775
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1999
---- ----
(unaudited)
<S> <C> <C>
Revenues $ 47,895 $ 22,734
Expenses:
Direct operating expenses 34,740 17,201
Selling, general and administrative expenses 3,802 3,804
Depreciation and amortization 5,289 6,090
--------- ---------
Total costs and expenses 43,831 27,095
--------- ---------
Operating income (loss) 4,064 (4,361)
Other income (expense):
Interest, net (1,965) (2,752)
Other (162) 543
--------- ---------
Total other expense (2,127) (2,209)
--------- ---------
Income (loss) before taxes 1,937 (6,570)
Income tax expense 1,204 301
--------- ---------
Net income (loss) $ 733 $ (6,871)
========= =========
Net income (loss) applicable to common stock $ 469 $ (6,871)
========= =========
INCOME PER COMMON SHARE - BASIC
AND DILUTED:
Net income (loss) $ 0.05 $ (0.48)
Dividend requirement on pay-in-kind
preferred stock (0.02) --
--------- ---------
Net income (loss) per common share $ 0.03 $ (0.48)
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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GRANT GEOPHYSICAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1999
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 733 $ (6,871)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization expense 5,289 6,090
(Gain) loss on sale of fixed assets (27) 58
Provision for doubtful accounts 200 150
Exchange (gain) loss 247 (203)
Multi-client data amortization -- 74
Directors' stock compensation expense -- 45
Other non-cash items 7 20
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN:
Accounts receivable (12,034) 543
Inventories 5 --
Prepaids (618) 1,343
Work in process 459 253
Other assets 613 (1,562)
INCREASE (DECREASE) IN:
Accounts payable 2,632 (2,945)
Accrued expenses 4 (3,040)
Foreign income tax payable 824 (179)
Other liabilities and deferred credits 1,248 1,338
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (418) (4,886)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (4,166) (482)
Multi-client data -- (4,267)
Proceeds from sale of assets 220 10
Restricted cash -- 27
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (3,946) (4,712)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issue costs (3,796) (12)
Borrowings made 100,279 5,101
Repayment on borrowings (74,179) (877)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,304 4,212
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (42) 43
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17,898 (5,343)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,093 7,921
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,991 $ 2,578
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet of Grant Geophysical, Inc. and subsidiaries (the
"Company") as of March 31, 1999 and the related statements of operations and
cash flows for the three months ended March 31, 1998 and 1999 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, 1999 and the
results of operations for the three months ended March 31, 1999. The
consolidated financial statements should be read in conjunction with the audited
financial statements and footnotes for the year ended December 31, 1998,
included in the Company's Form 10-K, as filed with the Securities and Exchange
Commission (the "Commission").
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and all majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
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.
The more significant areas requiring the use of management estimates relate
to expected future sales associated with the Company's multi-client data
library, estimated future cash flows related to long-lived assets and valuation
allowances for deferred tax assets. Actual results could differ materially from
these estimates making it reasonably possible that a change in these estimates
could occur in the near future.
Income (Loss) Per Common Share
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share," 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 cumulative preferred
stock dividends in calculating net income (loss) applicable to the common
stockholders.
(2) DEBT
During the three months ended March 31, 1999, Grant maintained a revolving
credit facility with Elliott Associates, L.P. ("Elliott") that is due March 31,
2000. In April 1999, the credit facility was increased from $15 million to $20
million. The agreement evidencing the revolving credit facility contains
restrictions which, among other things, prohibit the Company from paying
dividends, borrowing money, purchasing fixed assets or engaging in certain type
of transactions without Elliott's consent.
On May 11, 1999, the Company entered into a Loan and Security Agreement
(the "Loan Agreement") with Foothill Capital Corporation, a California
corporation, Elliott and certain other entities as parties thereto
(collectively, the "Lenders"), pursuant to which the Lenders agreed to loan to
the Company up to $6.0 million through a revolving facility and up to $19.0
million through two term loans. Proceeds were used to repay all of the Company's
outstanding indebtedness to Elliott ($14.8 million) and will be used to provide
additional liquidity and working capital to support the Company's operations.
The Loan Agreement imposes certain limitations on the ability of the Company and
its subsidiaries to, among other things, incur additional indebtedness, incur
liens, pay dividends or make other distributions in cash or certain property,
consummate certain asset sales, enter into certain transactions with affiliates,
merge or
5
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consolidate with any other persons or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company or
its subsidiaries, make Investments (as defined in the Loan Agreement) and
maintain a minimum EBITDA (earnings before interest, tax, depreciation and
amortization) level.
(3) TERMINATION OF EXECUTIVE OFFICER
On January 27, 1999, the Company's then President and CEO, resigned. The
former president's termination agreement provides for him to continue employment
through February 26, 1999 ("Termination Date"). The Company will pay him
severance payments from the Termination Date through December 31, 2001 (the
"Severance Period") at the rate of $7,500 per month plus benefits. From the
Termination Date through December 31, 2003 (the "Non-Compete Period") the
Company will pay him non-compete payments of $7,500 per month plus benefits. In
addition, the former president was paid a one-time cash bonus of $180,000 and
retained one-third (80,000) of the stock options awarded to him under the 1997
Equity and Performance Incentive Plan. The options are exercisable for a
three-year period after Termination Date. Expenses related to the severance have
been expensed in the quarter ended March 1999.
(4) SUPPLEMENTAL SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1999
---- ----
(dollars in thousands)
<S> <C> <C>
CASH PAID FOR INTEREST AND TAXES WAS AS FOLLOWS:
Taxes, net of refunds $ -- $ 395
Interest, net of amounts capitalized 1,417 5,225
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property, plant and equipment debt additions $ 4,500 $ --
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Grant Geophysical, Inc., a Delaware corporation (together with its
subsidiaries, "Grant," or the "Company"), is a leading provider of seismic data
acquisition services in land and transition zone environments in selected
markets, including the United States, Canada, Latin America and the Far East.
Through its predecessors, including GGI Liquidating Corporation ("GGI"), and its
acquired subsidiary, Solid State Geophysical Inc ("Solid State"), the Company
has participated in the seismic data acquisition services business in the United
States and Latin America since the 1940s, the Far East since the 1960s and
Canada since the 1970s. The Company has conducted operations in each of these
markets, as well as in the Middle East and Africa, in the past three years. The
Company's seismic data acquisition services typically are provided on an
exclusive contract basis to domestic and international oil and gas companies and
seismic data marketing companies. The Company also owns interests in certain
multi-client seismic data covering selected areas in the United States and
Canada that is marketed broadly on a non-exclusive basis to oil and gas
companies.
The Company utilizes sophisticated equipment to perform specialized 3D and
2D seismic surveys. All of the Company's seismic data acquisition crews are
capable of performing surveys in land environments, and four are equipped to
perform surveys in transition zone environments. Transition zone environments
include swamps, marshes and shallow water areas that require specialized
equipment and must be surveyed with minimal disruption to the natural
environment.
The Company owns a library of multi-client seismic data that is licensed to
oil and gas companies on a non-exclusive basis and has a small interest in
certain multi-client data that is owned by third parties. Over the past several
years, as oil and gas companies have moved toward multi-client surveys to reduce
finding costs, the Company has significantly increased its participation in the
activity and has expanded the library of multi-client data to include projects
located in Texas, California, Wyoming and Canada. Factors considered by the
Company when determining whether to undertake a multi-client survey include the
availability of customer commitments to offset a percentage of the survey cost,
the number of potential customers for the completed data, the location to be
surveyed, the probability and timing of future lease, concession, exploration
and development activity in the area, and the availability, quality and price of
competing data.
The Company also provides seismic data processing through offices located
in Midland, Dallas and Houston, Texas. Services are provided on an exclusive
contract basis to oil and gas companies and to the Company's own multi-client
projects.
Due to the volatility of the price of oil and gas over the past year,
capital spending by oil and gas companies on oilfield related activities,
including seismic data acquisition and processing, has substantially decreased.
As a result, beginning late in the third quarter of 1998, the Company's global
seismic crew count, which includes both U.S. and foreign contracts, has
decreased significantly. As of May 14, 1999 the Company was operating or
mobilizing seven seismic data acquisition crews utilizing approximately 18,100
seismic recording channels. The Company's current seismic recording channel
capacity is slightly more than 32,000. By contrast, as of May 14, 1998, the
Company was operating or mobilizing 19 seismic data acquisition crews utilizing
approximately 28,000 seismic recording channels.
The current industry downturn has prompted the Company to undertake
activities it believes will both preserve financial strength and position itself
to respond when market demand increases. Those activities include a worldwide
reduction in personnel, a corporate restructuring and a restricted capital
expenditure program. Personnel reductions began in the fourth quarter of 1998
and have continued throughout the first quarter of 1999. Overall personnel have
been reduced from 863 full-time and 2,162 temporary at September 30,1998 to 414
full-time and 329 temporary personnel at April 30, 1999. The corporate
restructuring is the result of changing market conditions and is designed to
better utilize all the Company's assets. The restructuring places a greater
emphasis on acquiring multi-client data in the United States and Canada and
refocuses the international marketing efforts on the Company's established
foreign markets. Capital expenditures in 1999 are expected to be limited
primarily to those required to maintain the Company's existing seismic
acquisition and processing equipment.
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As of May 14, 1999, the Company was operating or mobilizing a total of five
land crews in the United States, one land and one transition zone crew in Latin
America. For the three months ended March 31, 1999, the Company's total revenues
were $22.7 million, with approximately 51.6% from the United States, 7.8% from
Latin America, 19.1% from the Far East and 21.5% from Canada.
Grant's principal executive office is located at 16850 Park Row, Houston,
Texas 77084 and its telephone number is 281-398-9503.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1998
Revenues. Consolidated revenue decreased $25.2 million, or 52.5%, from
$47.9 million for the three months ended March 31, 1998 to $22.7 million in
revenue for the three months ended March 31, 1999. This decrease was the result
of lower demand for the Company's seismic acquisition services in both the
domestic and international markets. Demand for the Company's services has been
adversely affected by the significant decrease in the price of oil and gas that
occurred between the fourth quarter of 1997 and the first quarter of 1999.
Revenues from the United States data acquisition operations decreased $3.2
million, or 22.3%, from $14.5 million for the quarter ended March 31, 1998 to
$11.3 million for the quarter ended March 31, 1999. This decrease was
attributable to the Company operating six seismic data acquisition crews
continuously in the United States during the three months ended March 31, 1998
compared with only four to five crews operating the same period in 1999.
Revenues from data processing were $473,000 for the quarter ended March 31,
1999. The Company purchased the data processing operations in July 1998;
therefore, there are no comparable results for the quarter ended March 31, 1998.
The Company operated processing centers in Houston, Midland and Dallas, Texas
for the entire three month period ending March 31, 1999.
Revenues from Canadian data acquisition operations decreased $3.3 million,
or 40.1%, from $8.2 million for the quarter ended March 31, 1998, to $4.9
million for the quarter ended March 31, 1999. This decrease was due to the
Company operating, from time to time, six seismic data acquisition crews during
the three months ended March 31, 1998 compared with only four operating during
the same period in 1999.
The Company began its multi-client data acquisition activities in the
United States and Canada during the second quarter of 1998. At May 14, 1999, the
Company had completed or was conducting fourteen data library projects totaling
approximately 1,627 square miles in Texas, California, Wyoming and Canada. At
March 31, 1999, 876 square miles had been completed with approximately 233 of
those square miles being completed during the three months ended March 31, 1999.
The additional 751 square miles are scheduled to be completed by November 30,
1999. The Company continues to implement its strategy of building a strong
multi-client data library and has identified and is currently evaluating
projects totaling an additional 896 square miles for possible acquisition in
1999 and beyond. Revenues associated with the underwritten portion of
multi-client data programs are recognized as part of the data acquisition
revenues discussed above in the southern United States, northern United States
and Canada.
Revenues from Latin America data acquisition decreased $18.0 million, or
91.0%, from $19.8 million for the quarter ended March 31, 1998 to $1.8 million
for the quarter ended March 31, 1999. During the first quarter of 1998, Latin
American operations consisted of as many as eight seismic crews, including three
in Colombia, two in Bolivia and one each in Guatemala, Brazil and Ecuador.
During the first quarter of 1999, the Company operated only one seismic crew in
each of Ecuador and Guatemala. In addition, during that same period the Company
was mobilizing one shallow water transition zone crew in Brazil.
Revenues from the Far East decreased $1.1 million, or 20.6%, from $5.5
million for the first quarter of 1998 to $4.3 million for the first quarter of
1999. 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 began data acquisition during the second quarter of 1998.
During the first quarter of 1999 the Company operated one crew in Bangladesh for
the entire period and one crew through the first week of February 1999. There
was no significant activity in Indonesia during the first quarter of 1999. As of
May 14, 1999 there was no crew activity in the region.
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Expenses. Direct operating expenses as a percentage of revenues increased
to 75.7% for the three months ended March 31, 1999 from 72.5% for the three
months ended March 31, 1998. This percentage increase can be attributed to an
overall decrease in operating efficiency that resulted from the completion of
contracts and the demobilization of crews in the international locations. Direct
operating expenses during the first quarter of 1999 decreased $17.5 million to
$17.2 million for the three months ended March 31, 1999 compared with $34.7
million for the quarter ended March 31, 1998. This decrease is a result of the
revenue decreases experienced throughout all the Company's operating regions as
described above.
Selling, general and administrative expenses were unchanged in the quarter
ended March 31, 1999. As a percentage of revenue, selling, general and
administrative expenses increased to 16.7% in the first quarter of 1999 from
7.9% in the same period in 1998. The primary reason for this increase is the
reduction in revenue during the first three months of 1999. Beginning in the
fourth quarter of 1998 and continuing through the first quarter of 1999, the
Company initiated a corporate restructuring which included a reduction in
support and overhead personnel in all its operating regions and corporate
office. The first quarter of 1999 includes approximately $470,000 for severance
cost associated with personnel reduction. The effects of these cost reductions
are expected to be realized in reduced expenses throughout the remainder of
1999.
Depreciation and amortization increased $801,000, or 15.1%, to $6.1 million
for the quarter ended March 31, 1999 from $5.3 million for the quarter ended
March 31, 1998. This increase is primarily attributable to depreciation on new
assets purchased by the Company in 1998.
Other Income (Expense). Net interest expense increased $787,000, or 40%, to
$3.0 million for the quarter ended March 31, 1999 from $2.2 million for the
quarter ended March 31, 1998. This increase was the result of the increase in
debt resulting from the sale in February 18, 1998 of $100 million of 9 3/4%
senior notes due 2008 (the "Senior Notes"). Proceeds from the sale of Senior
Notes were used to retire substantially all of the Company's outstanding
indebtedness, to fund capital expenditures and provide working capital.
Other income for the three months ended March 31, 1999 of $543,000 was
principally the result of the receipt of $285,000 from the settlement of a
dispute over a trade receivable and $181,000 of gains on foreign exchange
transactions incurred in connection with its Ecuadorian and Canadian operations.
Other expense of $162,000 for the same period in 1998 was principally the result
of losses on foreign exchange transactions incurred in connection with the
Company's Canadian operations.
Tax Provision. The income tax provision in both periods consisted of income
taxes in foreign countries. The decrease for the quarter ended March 31, 1999
compared with the quarter ended March 31, 1998 is a result of lower taxable
income in international locations. No provision for United States federal income
tax was made in either period as the Company had net loss carryforwards
available.
LIQUIDITY AND CAPITAL RESOURCES
The Company's internal sources of liquidity are its cash balances ($1.7
million at May 14, 1999) and cash flow from operations. On May 11, 1999, the
Company entered into a Loan and Security Agreement (the "Loan Agreement") with
Foothill Capital Corporation, a California corporation, Elliott and certain
other entities as parties thereto (collectively, the "Lenders"), pursuant to
which the Lenders agreed to loan to the Company up to $6.0 million through a
revolving facility and up to $19.0 million through two term loans. Proceeds were
used to repay all of the Company's outstanding indebtedness to Elliott ($14.8
million) and will be used to provide additional liquidity and working capital to
support the Company's operations.
The Company has outstanding $100 million aggregate principal amount of
Senior Notes. The Senior Notes are governed by an indenture, dated February 18,
1998, between the Company, its subsidiary guarantors and LaSalle National Bank,
as trustee. The Notes bear interest at 9 3/4% per annum, payable semiannually,
and were sold at a discount to yield 9 7/8% per annum. The net proceeds from the
sale of the Notes were used to retire substantially all of Grant's then
outstanding indebtedness, purchase certain leased equipment and provide for
working capital.
At May 14, 1999, the Company's total indebtedness was approximately $119.2
million. The Company's total indebtedness is comprised of $99.3 million
aggregate principal amount of the Senior Notes, $14.8 million outstanding on the
Loan Agreement and $5.1 million of combined loans and capitalized leases
incurred for the purpose of financing capital expenditures.
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<PAGE> 12
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, including the acquisition and
processing of multi-client data. 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.
International operations accounted for 48.4% of total revenues for the three
months ended March 31, 1999.
Capital expenditures for the three months ended March 31, 1999 were
$482,000. Capital expenditures are used primarily to maintain the Company's
seismic data acquisition and recording equipment. The remaining projected
capital budget for 1999 is estimated to be between $2.5 million and $5.0 million
and is dependent on future crew activity. For the three months ended March 31,
1999, the Company committed approximately $7.1 million of expenditures for five
multi-client data acquisition projects located in Texas, Wyoming and Canada.
Customer commitments for those projects were approximately 70% of the project
costs. Net investment by the Company for these projects was $2.1 million.
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 Senior Notes, the Loan Agreement and its other indebtedness. The
Company's ability to meet its debt service and other obligations depends on its
future performance, which in turn is subject to general economic conditions and
other factors beyond the Company's control. If the Company is unable to generate
sufficient cash flow from operations or otherwise comply with the terms of the
indenture, the Loan Agreement or its other debt instruments, it may be required
to obtain additional equity of debt financing. There can be no assurance that
such refinancing or additional financing will be available on terms acceptable
to the Company.
EFFECTS OF INFLATION
Current economic conditions indicate that the costs of exploration and
production for oil and gas are decreasing. The oil and gas industry historically
has experienced periods of cost decreases within short periods of time as demand
for drilling rigs, drilling pipe and other materials and supplies decreases. The
oil and gas industry is currently experiencing such decreases in demand, which
have historically led to decreases in costs. The Company does not anticipate any
immediate benefit from the decreases in exploration and production costs due to
the adverse effect resulting from the overall decrease in demand.
YEAR 2000 COMPLIANCE
The Company has developed a formal plan to address Year 2000 ("Y2K") issues
as they relate to the Company's business and its operations. In accordance with
that plan, the Company is taking inventory of, assessing, testing and
remediating where necessary, all hardware and software used in its business. The
Company is similarly identifying all external relationships, including vendors,
suppliers and customers, and will contact all of those entities considered
important or critical to its ongoing operations, to determine their own level of
Y2K readiness. In addition, the Company is preparing contingency plans to
address failures in unidentified systems or temporary disturbances in local
utilities and infrastructure. The Company estimates that it will complete its
plan, including remedial action, by the end of the third quarter of 1999.
Incremental out-of-pocket costs incurred to date to address the Y2K issue
amount to approximately $1.1 million. The Company anticipates that an additional
$900,000 will be expended during 1999 relating to this issue. These costs have
been, and are expected to continue to be, funded by cash flows from operations.
To date, 90% of critical items have been inventoried and assessed,
primarily by third party vendors. Internal business units are expected to have
completed all inventory by the end of May 1999. Internal assessment, testing and
remediation of critical components is expected to be complete by the end of the
second quarter, with the exception of some business applications, which are
expected to be tested and deployed by the end of the third quarter 1999. It is
anticipated that contingency planning and change control procedures will
continue until the end of 1999. Inventory and assessment of critical
vendors/suppliers is underway and expected to be complete by the end of
May 1999.
10
<PAGE> 13
While the Company believes that it has a readiness plan that will mitigate
the risk that the Y2K issue will have a material adverse effect on its business,
the ultimate impact of this issue on the Company is uncertain. Long term
interruptions in suppliers' ability to deliver critical components, third
parties' ability to supply utilities or telecommunications to the Company's
offices or field locations; or the Company's failure to complete, in a timely
manner, the remediation of its non-compliant computer-controller equipment,
could result in delayed delivery of products to customers, resulting in a
material adverse effect on earnings and cash flow. Therefore, there can be no
assurance that the Y2K issue will not have a material effect on the Company's
financial position, results of operations or cash flows.
11
<PAGE> 14
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company conducts a substantial portion of its business in currencies
other than the U.S. or Canadian dollars, 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 Mexico. The Company's international contracts requiring payment in currency
other than U.S. or Canadian dollars 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. Grant is presently using a forward contract to hedge the
value of the U.S. dollar on a 30 to 60 day basis.
The notional amount hedged is approximately $300,000 at March 31, 1999.
The Company's operating results were positively impacted by foreign
exchange gains of approximately $203,000 during the three months ended March 31,
1999.
12
<PAGE> 15
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 3, 1999, Richard H. Ward, President and Chief
Executive Officer of the Company, was granted an option to purchase
600,000 shares of the Company's Common Stock at a purchase price of
$4.25 per share. The exercisability of the options granted to Mr. Ward
are subject to certain vesting requirements.
On February 24, 1999, Stephen H. Wood, Chief Operating Officer
of the Company, was granted an option to purchase 200,000 shares of the
Company's Common Stock at a purchase price of $4.25 per share. The
exercisability of the options granted to Mr. Wood are subject to
certain vesting requirements.
The options were granted in reliance on the exemption from
registration provided by Sections 4(2) and 4(6) of the Securities Act
of 1993.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 3, 1999, Elliott and Westgate, being all of the
holders of the Common Stock, and pursuant to a written consent without a
meeting, approved an increase of the number of shares of Common Stock available
under the Company's 1997 Equity and Performance Incentive Plan to 2,000,000.
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
On January 28, 1999, the Company filed a current report on
Form 8-K related to the resignation of Larry E. Lenig, Jr. as President
and Chief Executive Officer and a director of the Company.
13
<PAGE> 16
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 17th day of May, 1999.
GRANT GEOPHYSICAL, INC.
By /s/RICHARD H. WARD
-----------------------------------------
Richard H. Ward
Chief Executive Officer,
Director
(Principal Executive Officer)
By /s/ BEN L. ROBERTS
-----------------------------------------
Ben L. Roberts
Chief Financial Officer
(Principal Financial Officer)
14
<PAGE> 17
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.01 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,657
<SECURITIES> 0
<RECEIVABLES> 27,108
<ALLOWANCES> 220
<INVENTORY> 512
<CURRENT-ASSETS> 37,162
<PP&E> 92,654
<DEPRECIATION> 32,332
<TOTAL-ASSETS> 158,775
<CURRENT-LIABILITIES> 23,604
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 15,338
<TOTAL-LIABILITY-AND-EQUITY> 158,775
<SALES> 22,734
<TOTAL-REVENUES> 22,734
<CGS> 0
<TOTAL-COSTS> 27,095
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,992
<INCOME-PRETAX> (6,570)
<INCOME-TAX> 301
<INCOME-CONTINUING> (6,871)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,871)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> (.48)
</TABLE>
