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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[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, 2000
Commission file number: 333-89863
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 [X] No [ ]
As of May 10, 2000, 14,547,055 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-1 registration statement filed
by the registrant under the Securities Act of 1933, which became effective
January 12, 2000.
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED MARCH 31, 2000
<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, 1999 and
March 31, 2000...........................................................1
Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 and 2000..................................................3
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 2000..................................................4
Notes to Consolidated Financial Statements..................................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..............................15
Item 4. Submission of Matters to a Vote of Security Holders....................15
Item 6. Exhibits and Reports on Form 8-K.......................................15
PART III. SIGNATURES...........................................................16
</TABLE>
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GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,703 $ 1,708
Restricted cash 17 17
Accounts receivable:
Trade (net of allowance for doubtful accounts of $352
and $426 at December 31, 1999 and March 31, 2000,
respectively) 18,345 17,279
Other 736 448
Inventories 446 443
Prepaids 4,392 3,924
Work in process 1,570 1,550
--------- ---------
Total current assets 28,209 25,369
Property, plant and equipment 95,656 94,794
Less: accumulated depreciation and amortization 42,136 46,230
--------- ---------
Net property, plant and equipment 53,520 48,564
Multi-client data library, net 27,430 23,642
Goodwill, net 35,387 34,946
Other assets 5,450 3,436
--------- ---------
Total assets $ 149,996 $ 135,957
========= =========
</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,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations $ 8,247 $ 7,744
Accounts payable 12,876 11,783
Accrued expenses 6,928 7,669
Accrued interest 3,832 735
Foreign income taxes payable 1,255 515
--------- ---------
Total current liabilities 33,138 28,446
Term loan-affiliate 7,500 7,500
Long-term debt and capital lease obligations 112,209 57,546
Unearned revenue 2,167 1,343
Other liabilities and deferred credits 2,342 1,030
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000 shares
8% convertible preferred series, liquidation value $100 per share
issued and outstanding -0- shares at December 31 1999 and
542,916 shares at March 31, 2000 -- 54,292
8% exchangeable preferred series, liquidation value $100 per share;
issued and outstanding 149,677 shares at December 31 1999 and
-0- shares at March 31, 2000 14,968 --
Common stock, $.001 par value. Authorized 50,000,000 shares;
issued and outstanding 14,544,055 and 14,547,055 shares at
December 31, 1999 and March 31, 2000 15 15
Additional paid-in capital 42,111 58,884
Accumulated deficit (63,074) (71,647)
Accumulated other comprehensive income (1,380) (1,452)
--------- ---------
Total stockholders' equity (7,360) 40,092
--------- ---------
Total liabilities and stockholders' equity $ 149,996 $ 135,957
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
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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,
----------------------
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues $ 22,734 $ 24,801
Expenses:
Direct operating expenses 17,127 15,131
Selling, general and administrative expenses 3,804 2,601
Depreciation and amortization 6,164 9,073
Cost of contractual rights purchase -- 3,770
-------- --------
Total costs and expenses 27,095 30,575
-------- --------
Operating loss (4,361) (5,774)
Other income (expense):
Interest, net (2,752) (2,081)
Other 543 (364)
-------- --------
Total other expense (2,209) (2,445)
-------- --------
Loss before taxes (6,570) (8,219)
Income tax expense 301 3
-------- --------
Net loss (6,871) (8,222)
Preferred dividend requirements -- 917
-------- --------
Net loss applicable to common stock $ (6,871) $ (9,139)
======== ========
INCOME PER COMMON SHARE - BASIC
AND DILUTED:
Net loss $ (0.48) $ (0.57)
Dividend requirements on pay-in-kind
preferred stock -- (0.06)
-------- --------
Net loss per common share $ (0.48) $ (0.63)
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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GRANT GEOPHYSICAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (6,871) $ (8,222)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expense 6,090 5,314
Multi-client data library amortization expense 74 3,759
Cost of contractual rights purchase represented by non-cash
consideration -- 1,470
Loss on sale of fixed assets 58 209
Provision for doubtful accounts 150 75
Exchange (gain) loss, net (203) 195
Directors' stock compensation expense 45 --
Other non-cash items 20 368
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN:
Accounts receivable 543 1,279
Inventories -- 3
Prepaids 1,343 468
Work in process 253 20
Other assets (1,562) (125)
INCREASE (DECREASE) IN:
Accounts payable (2,945) 240
Accrued interest and other expenses (3,040) (3,366)
Foreign income tax payable (179) (740)
Other liabilities and deferred credits 1,338 (2,136)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (4,886) (1,189)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (482) (669)
Multi-client data library (4,267) (744)
Proceeds from sale of assets 10 133
Restricted cash 27 --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,712) (1,280)
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock issue costs -- (435)
Debt issue costs (12) --
Borrowings made 5,101 18,577
Repayment on borrowings (877) (16,493)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,212 1,649
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 43 (175)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,343) (995)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,921 2,703
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,578 $ 1,708
======== ========
</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 consolidated balance sheets of Grant Geophysical, Inc. and subsidiaries
(the "Company") as of March 31, 2000 and the related consolidated statements of
operations and cash flows for the three months ended March 31, 1999 and 2000 are
unaudited. In the opinion of management, the accompanying unaudited condensed
financial statements of Grant and its consolidated subsidiaries contain all
adjustments (consisting only of normal, recurring adjustments) necessary to
present fairly the Company's financial position as of March 31, 2000 and the
results of its operations and cash flows for the three months ended March 31,
1999 and 2000, respectively. Results of operations for the interim periods
included herein are not necessarily indicative of results of operations for the
full year periods. The consolidated financial statements should be read in
conjunction with the audited financial statements and footnotes for the year
ended December 31, 1999, included in the Company's Annual Report on 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.
Multi-client Data Library
The costs incurred in acquiring and processing multi-client seismic data
owned by the Company are capitalized. During the twelve-month period beginning
at the completion of the acquisition and processing of each multi-client survey,
costs are amortized based on revenues from such survey as a percentage of total
estimated revenues to be realized from such survey. Thereafter, amortization of
remaining capitalized costs is provided at the greater of the percentage of
realized revenues to total estimated revenues or straight line over four years.
Amortization expense associated with the Company's multi-client data library was
$.1 million and $3.8 million for the three months ended March 31, 1999 and 2000,
respectively. As of December 31, 1999 and March 31, 2000, accumulated
amortization related to the Company's multi-client data library was $4.8 million
and $8.6 million, respectively.
On a quarterly basis, management estimates the residual value of each
survey, and additional amortization is provided if the remaining revenues
reasonably expected to be obtained from any survey are less than the carrying
value of such survey or group of surveys.
Asset Impairment
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
To be Disposed Of", long-lived assets and certain identifiable intangibles are
written down to their current fair value whenever events or changes in
circumstances indicate that the carrying amount of these assets are not
recoverable. These events or changes in circumstances may include but are not
limited to a significant change to the extent in which an asset is used, a
significant decrease in the market value of the asset, or a projection or
forecast that demonstrated continuing losses associated with an asset. If an
impairment is determined, the asset is written down to its current fair value
and a loss is recognized.
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
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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 term.
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.
Reclassifications
Certain amounts previously reported have been reclassified to conform to
current year financial statement presentations.
(2) DEBT
At December 31, 1999, the Company's primary secured credit facility was
represented by a Loan and Security Agreement (the "Loan Agreement") with
Foothill Capital Corporation ("Foothill") and Elliott Associates, L.P.
("Elliott"), a principal shareholder of the Company, pursuant to which the
Company could borrow up to $6,000,000 through a revolving facility and up to
$19,000,000 through two term loans. 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 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, as defined
in the Loan Agreement.
On February 14, 2000, the Company completed significant modifications to
the Loan and Security Agreement with Foothill and Elliott whereby the credit
facility was increased from $25 million to $29 million. This was accomplished by
increasing commitments under the revolving credit facility from $6 million to
$10 million, subject to borrowing base limitations. Additionally, the term loan,
which had been reduced through periodic payments to $10.1 million, was increased
to the original outstanding balance of $11.5 million. At March 31, 2000, $7.5
million and $11.5 million were outstanding under the Elliott term loan and the
Foothill term loan respectively. $5.8 million was outstanding at March 31, 2000
under the Foothill revolving credit line.
Pursuant to a registration statement declared effective on January 12,
2000, the Company offered to exchange (the "Exchange Offer") $100,000,000
aggregate principal amount of its then outstanding Senior Notes due 2008
("Senior Notes") for new shares of its 8% Convertible Preferred Stock
("Convertible Preferred Stock") with an aggregate liquidation value equal to 65%
of the aggregate principal amount of the Senior Notes tendered plus 100% of the
accrued and unpaid interest thereon through the date of the exchange. On January
19, 2000, a total of $56,320,000 of the Senior Notes, together with $2,364,000
of accrued and unpaid interest, were exchanged for 389,722 shares of the
Convertible Preferred Stock. The Senior Notes exchanged represented all of the
Senior Notes previously held by Elliott and Westgate International, L.P.
("Westgate"), the other affiliated principal stockholder of the Company. No
other Senior Notes were tendered and the Exchange Offer expired on February 7,
2000. The difference between the carrying value of the Senior Notes and the
Convertible Preferred Stock has been reflected as an increase to additional
paid-in capital due to the related party nature of the exchange. The Company
intends to pay dividends on the Convertible Preferred Stock in additional shares
of Convertible Preferred Stock until further notice.
In connection with the Exchange Offer, the Company solicited consents from
the holders of its Senior Notes in order to amend definitions and to modify some
restrictive covenants in the indenture governing the Senior Notes. The consent
of holders of a majority of the outstanding principal amount of the Senior Notes
held by holders other than Grant, its subsidiaries and affiliates was required
to approve the proposed amendments to the indenture. The consent was approved on
January 19, 2000. Following the tender of the Senior Notes by Elliott and
Westgate, the Company executed a First Supplemental Indenture with LaSalle Bank
National Association, the trustee, dated January 19, 2000 that caused the
approved amendments to take effect. The Supplemental Indenture, among other
things, amended the definition of permitted indebtedness to allow for the
increase of incurred debt from $25 million to $50 million, increased additional
indebtedness from $7.5 million to $10 million and allowed for the payment of
dividends on the Convertible Preferred Stock in additional shares of Convertible
Preferred Stock.
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(3) STOCKHOLDERS' EQUITY
On August 13, 1999, the board of directors of the Company created a series
of 120,000 shares of preferred stock, amended to 150,000 shares on October 13,
1999 and amended to 160,000 shares on January 1, 2000, designated as "8%
Exchangeable Preferred Stock". The shares of 8% Exchangeable Preferred Stock
have a liquidation preference of $100 per share. The 8% Exchangeable Preferred
Stock was entitled to receive cumulative dividends at the rate of 8% per annum
of the liquidation preference. The dividends were payable quarterly in cash or,
at the Company's option, in shares of 8% Exchangeable Preferred Stock. The
shares of 8% Exchangeable Preferred Stock could be exchanged at the option of
the holder into such new securities as the Company might from time to time
propose to sell or issue. Between August 13, 1999 and February 7, 2000, the
Company issued a total of 153,194 shares of 8% Exchangeable Preferred Stock to
Elliott at a price of $100 per share. Of these shares 4,194 were issued as
dividends in lieu of cash. The proceeds from the sale of the preferred stock
totaled an aggregate of $14,900,000, and were used to meet the Company's cash
needs.
In connection with the Exchange Offer, the Company issued 389,722 shares of
8% Convertible Preferred Stock in exchange for $56,320,000 of Senior Notes,
together with $2,364,000 of accrued unpaid interest. On February 7, 2000 the
Company issued 153,194 shares of 8% Convertible Preferred Stock in exchange for
all the outstanding shares of 8% Exchangeable Preferred Stock.
(4) CONTRACTUAL RIGHTS PURCHASE
On March 17, 2000, the Company completed the purchase of contractual rights
held by a broker having multiple-year marketing rights for certain of the
Company's multi-client data surveys. Further data sales and transfer fee
commissions will not be payable to this broker, except for two designated data
surveys. Consideration provided by the Company for the purchase of such
contractual interests included $2.3 million cash paid at closing; a $700,000 8%
promissory note payable in 12 quarterly installments; assignments to the broker
of interests held in certain of the Company's data surveys, partially offset by
assignment to the Company of the broker's interest in a data survey; and,
assignment of a portion of an overriding royalty interest held by the Company in
one designated data survey. For financial reporting purposes, the Company has
recorded a non-recurring charge to operations of $3.8 million, consisting of the
monetary consideration paid of $3 million and the net estimated fair value of
property interests exchanged of $.8 million.
(5) SUPPLEMENTAL SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 2000
------- -------
(DOLLARS IN THOUSANDS)
CASH PAID FOR INTEREST AND TAXES WAS AS FOLLOWS:
<S> <C> <C>
Taxes, net of refunds $ 395 $ 196
Interest, net 5,225 2,241
</TABLE>
As discussed in Note 2, on January 19, 2000 a total of $56,320,000 of the
Company's then outstanding Senior Notes, together with $2,364,000 of accrued and
unpaid interest, were exchanged for 389,722 shares of the Company's 8%
Convertible Preferred Stock. The difference between the carrying value of the
Senior Notes exchanged and the Convertible Preferred Stock has been reflected as
an increase in additional paid-in capital due to the related party nature of the
exchange.
(6) SEGMENT INFORMATION
Grant has determined that its reportable segments are those based on the
Company's method of internal reporting, which disaggregates its one
product/service line (geophysical services) into four geographic regions: the
United States, Canada, Latin America and the Far East.
The accounting policies of the segments are the same as those described in
Note 1 - Summary of Significant Accounting Policies for Segment Information.
Grant evaluates the performance of its segments and allocates resources to them
based on operating income (loss). There are no intersegment revenues.
The tables below present information about the Company's reported segments
for the periods indicated (dollars in thousands):
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<TABLE>
<CAPTION>
UNITED LATIN
STATES CANADA AMERICA FAR EAST TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 2000:
Revenues.......................... $ 11,216 $ 9,613 $ 2,197 $ 1,775 $ 24,801
Operating Income (Loss)........... (5,449)(1) 1,564 (704) (1,185) (5,774)
Depreciation and Amortization..... 6,076 1,694 602 701 9,073
FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Revenues.......................... $ 11,726 $ 4,887 $ 1,780 $ 4,341 $ 22,734
Operating Income (Loss)........... (3,366) 573 (1,051) (517) (4,361)
Depreciation and Amortization..... 3,587 998 539 1,040 6,164
(1) Includes $3,770 non-recurring charge to operations from contractual rights purchase (see Note 2).
</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 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.
The Company has conducted operations in each of these markets 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 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 acquires and processes seismic data for its own account by
conducting surveys either partially or wholly funded by multiple customers. In
this mode of operation, ownership of the data is retained by the Company and the
data is licensed on a non-exclusive basis. Factors considered when determining
whether to undertake a multi-client survey include the availability of customer
commitments to offset a percentage of the project 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. Although
the Company anticipates obtaining commitments for a substantial majority of the
cost of any future multi-client data survey and conducts market and cost
analyses to determine the market demand and necessary funding prior to
undertaking a project, it still may not be able to fully recoup its costs if it
substantially underestimates the cost or overestimates market demand for such
multi-client data survey.
The Company also provides seismic data processing services through offices
located in Dallas and Houston, Texas.
The decrease in the price of oil and gas that occurred between the fourth
quarter of 1998 and the first quarter of 1999 significantly reduced demand for
the Company's services. Although commodity prices have returned and are in fact
at historically high levels, demand for land and transition zone seismic
acquisition services remains severely depressed over levels experienced in
recent years. The Company is unable to predict with any certainty when the
market for seismic services is likely to recover and, until such time, will
continue to experience significant operating losses. The Company's global
seismic crew count has decreased from a high of twenty during 1998 to a high of
nine active crews for the quarter ended March 31, 2000. As a result, the
Company's first quarter 2000 operating results were adversely affected.
As of May 10, 2000, the Company was operating or mobilizing a total of
three crews in the United States, three crews in Latin America, one crew in
Canada and one crew in the Far East. For the three months ended March 31, 2000,
the Company's total revenues were $24.8 million, with approximately 45.2% from
the United States, 8.9% from Latin America, 7.2% from the Far East and 38.8%
from Canada.
Pursuant to a registration statement declared effective on January 12,
2000, the Company offered to exchange (the "Exchange Offer") $100,000,000
aggregate principal amount of its outstanding Senior Notes due 2008 ("Senior
Notes") for new shares of its 8% Convertible Preferred Stock ("Convertible
Preferred Stock") with an aggregate liquidation value equal to 65% of the
aggregate principal amount of the Senior Notes tendered plus 100% of the accrued
and unpaid interest thereon through the date of the exchange. On January 19,
2000, a total of $56,320,000 of the Senior Notes, together with $2,364,000 of
accrued and unpaid interest, were exchanged for 389,722 shares of the
Convertible Preferred Stock. The Senior Notes exchanged represented all of the
Senior Notes previously held by Elliott and Westgate. No other Senior Notes were
tendered and the Exchange Offer
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expired on February 7, 2000. The difference between the carrying value of the
Senior Notes and the Convertible Preferred Stock has been reflected as an
increase to additional paid-in capital due to the related party nature of the
exchange. The Company intends to pay dividends on the Convertible Preferred
Stock in additional shares of Convertible Preferred Stock until further notice.
In connection with the Exchange Offer, the Company solicited consents from
the holders of its Senior Notes in order to amend definitions and to modify some
restrictive covenants in the indenture governing the Senior Notes. The consent
of holders of a majority of the outstanding principal amount of the Senior Notes
held by holders other than Grant, its subsidiaries and affiliates was required
to approve the proposed amendments to the indenture. The consent was approved on
January 19, 2000. Following the tender of the Senior Notes by Elliott and
Westgate, the Company executed a First Supplemental Indenture with LaSalle Bank
National Association, the trustee, dated January 19, 2000 that caused the
approved amendments to take effect. The Supplemental Indenture, among other
things, amended the definition of permitted indebtedness to allow for the
increase of incurred debt from $25 million to $50 million, increased additional
indebtedness from $7.5 million to $10 million and allows for the payment of
dividends on the Convertible Preferred Stock in additional shares of Convertible
Preferred Stock.
On February 7, 2000 the Company issued 153,194 shares of Convertible
Preferred Stock in exchange for all the outstanding shares of 8% Exchangeable
Preferred Stock at that date.
On February 14, 2000, the Company completed significant modifications to
the Loan and Security Agreement dated May 11, 1999 with Foothill and Elliott.
The Foothill/Elliott credit facility was increased from $25 million to $29
million. This was accomplished by increasing commitments under the revolving
credit facility from $6 million to $10 million, subject to borrowing base
limitations. Additionally, the term loan, which had been reduced through
periodic payments to $10.1 million, was increased to the original outstanding
balance of $11.5 million.
RESULTS OF OPERATIONS
THE COMPANY FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000 COMPARED WITH THE
THREE-MONTH PERIOD ENDED MARCH 31, 1999
Revenues. Revenues for the three months ended March 31, 2000 were $24.8
million, compared with $22.7 million for the three months ended March 31, 1999.
The increase of $2.1 million, or 9.3%, was primarily the result of increased
sales from the Company's multi-client data library and increased Canadian data
acquisition revenues during the first quarter of 2000.
Revenues from United States data acquisition operations decreased $6.7
million, or 59.3%, from $11.2 million for the three months ended March 31, 1999
to $4.5 million for the three months ended March 31, 2000. This sharp decline in
data acquisition revenues is due to reduced industry demand discussed above.
During the first quarter of 2000, the Company performed $2.5 million of data
acquisition services for an affiliated oil and gas exploration and production
company.
Revenues from seismic data processing operations, purchased in July 1998,
were $182,000 for the first three months of 2000 compared to $473,000 for the
first three months of 1999. The Company operated seismic data processing centers
which processed both third-party and Company-owned multi-client data during 1999
in Midland, Dallas and Houston, Texas. In January 2000, the Company completed
the consolidation of its Midland center with operations in the Houston seismic
data processing center. The significant decline in revenues is due to reduced
data acquisition activities.
Revenues from the Canadian data acquisition operations increased $3.6
million, or 74%, from $4.8 million in the first three months of 1999 to $8.4
million in the first three months of 2000. This was a continuation of the
increased seismic activity which started during the fourth quarter of 1999.
During the first quarter of 2000, an average of four to five land seismic crews
were operating in Canada as compared to three during the first quarter of 1999.
The Company began its multi-client data acquisition activities in the United
States and Canada during 1998. Multi-client crew operations began in the second
quarter of 1998 and were continuous through December 1999. During that time, 17
projects were completed in Texas, California, Wyoming and Canada covering a
total of 1,648 square miles. There were 621 square miles completed in 1998. The
cost of these projects was $23.7 million with approximately $18.6 million, or
78.4%, underwritten by third parties. There were 1,027 square miles completed in
10
<PAGE> 13
1999. The cost of these projects was $41.3 million with approximately $18.4
million, or 44.5%, underwritten by third parties. Due to the continued depressed
demand for seismic services, an inability to secure adequate initial customer
underwriting and a lack of sufficient liquidity, the Company has substantially
curtailed its strategy of building a multi-client data library in the southern
United States. As long as these factors persist, the Company will be very
selective in its decision to participate in multi-client projects. For the year
2000, the Company has committed to only three multi-client projects, located in
Canada and the southern U.S. Estimated project costs are $2.5 million with 100%
of the costs underwritten by third parties. Revenues associated with the
underwritten portion of multi-client data programs are recognized as a component
of the data acquisition revenues discussed above. Revenues from sales of the
data library for the first three months of 2000 was $7.6 million, compared to
only $49,000 for the first three months of 1999. During the quarter ended March
31, 2000, the Company sold a license in one of its multi-client data surveys to
an affiliated oil and gas exploration and production company for approximately
$2.3 million.
Revenues for data acquisition operations in Latin America increased $.4
million, or 22%, from $1.8 million in the first three months of 1999 to $2.2
million in the first three months of 2000. These revenue fluctuations are
attributable to changes in working crew levels in the respective geographic
areas resulting from activity levels of customers' exploration operations.
Revenues for data acquisition operations in the Far East decreased $2.5
million, or 58.1%, from $4.3 million in the three months ended March 31, 1999 to
$1.8 million in the three months ended March 31, 2000. During the first three
months of 1999, the Company operated two crews in Bangladesh, and there was no
significant activity in Indonesia. During the first three months of 2000, the
Company operated one crew in Indonesia.
Expenses. Direct operating expenses for the three months ended March 31,
2000 decreased $2.0 million, or 11.7%, to $15.1 million, compared to $17.1
million for the three months ended March 31, 1999. This decrease is primarily a
result of decreased data acquisition activities in the first quarter.
Selling, general and administrative expenses decreased $1.2 million, or
31.6%, to $2.6 million for the three months ended March 31, 2000 from $3.8
million for the three months ended March 31, 1999. This reduction is the result
of the Company's ongoing efforts to reduce support and overhead personnel in all
of its operating regions and at the corporate office level.
Depreciation and amortization increased $2.9 million, or 46.8%, to $9.1
million in the first three months of 2000 from $6.2 million for the first three
months of 1999. This increase reflects additional amortization of the Company's
multi-client projects resulting from the $7.6 million increase in data library
sales in the first three months of 2000 over 1999. Capital expenditures were
$669,000 and $482,000 for the first three months of 2000 and the first three
months of 1999, respectively.
As discussed in Note 4 to the accompanying financial statements, on March
17, 2000 the Company completed the purchase of contractual rights held by a
broker having multiple-year marketing rights for certain of the Company's
multi-client data surveys. For financial reporting purposes, the Company has
recorded a non-recurring charge to operations of $3.8 million consisting of the
monetary consideration paid of $3 million and the net estimated fair value of
property interests exchanged of $.8 million. The Company expects to recoup the
contract rights purchase through increased future data sales with a reduced
brokerage commission structure.
Other Income (Expenses). Interest expense, net, decreased $.7 million to
$2.1 million in the first three months of 2000 from $2.8 million in the first
three months of 1999. This decrease is primarily related to Elliott and Westgate
exchanging $56,320,000 of Senior Notes for Convertible Preferred Stock,
effective January 19, 2000.
Tax Provision. The income tax provision consisted of foreign income taxes.
For the three months ended March 31, 2000 this includes a provision for taxes in
Canada; for the three months ended March 31, 1999 this includes provisions for
taxes in Guatemala, Ecuador, Bangladesh and Canada. No benefit for United States
federal income tax loss carryforwards was recorded in either period, given the
uncertainty of realization of such tax benefits.
11
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's internal sources of liquidity are its working capital and,
to the extent available, cash flow from operations. On February 14, 2000, the
Company completed significant modifications to its Loan and Security Agreement
with Foothill and Elliott dated May 11, 1999. Initial available borrowings under
this secured credit facility were increased from $25 million to $29 million.
This was accomplished by increasing commitments under the revolving credit
facility from $6 million to $10 million, subject to borrowing base limitations.
Additionally, the term loan, which had been reduced through periodic payments to
$10.1 million, was increased to the original outstanding balance of $11.5
million. Substantially all of available borrowings under the revolving credit
facility are drawn at the current time.
The Company used $1,189,000 of cash in operating activities during the three
months ended March 31, 2000 compared to $4,886,000 cash used in operating
activities during the three months ended March 31, 1999. Although operating cash
flows improved in the first quarter of 2000, the Company will need to attain
profitable operating levels in order to provide sufficient cash flow to fund
operating requirements and debt service obligations. During the first quarter of
2000, the Company had data acquisition service revenues of $2.5 million and a
multi-client data survey license sale of $2.3 million to an affiliated oil and
gas exploration company. The Company believes there will be ongoing business
opportunities with this customer; although there is no assurance such business
activities will be at the level experienced during the first quarter.
The Company's principal uses of liquidity will be to provide working
capital, finance capital expenditures, and to make principal and interest
payments required by the terms of its indebtedness. 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 54.8% of total revenues for
the three months ended March 31, 2000.
Capital expenditures for the three months ended March 31, 2000 were
$669,000. Capital expenditures are used primarily to maintain the Company's
seismic data acquisition and recording equipment. The original planned capital
budget for 2000 was $5.1 million and remains subject to future crew activity.
For the three months ended March 31, 2000, the Company committed approximately
$2.5 million to fund operations for three multi-client data acquisition projects
located in the Southern United States and Canada. Customer commitments for those
projects approximate 100% of the project costs.
The Company will require substantial cash flow to continue operations on a
satisfactory basis, fund essential capital expenditures, fully implement its
business strategy and meet its principal and interest obligations with respect
12
<PAGE> 15
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 or debt financing. There can be no assurance that
additional financing will be available on commercially acceptable terms or that
such financing will be available at all.
FOREIGN CURRENCY 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 international operations are subject to fluctuations in
foreign currency exchange rates. Accordingly, the Company's international
contracts could be significantly affected by fluctuations in exchange rates.
International contracts requiring payment in currency other than U.S. or
Canadian dollar 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 favorable U.S. dollar
conversion rate.
The Company's operating results were positively impacted by foreign exchange
gains of approximately $203,000 for the three months ended March 31, 1999, and
negatively impacted by $195,000 of foreign exchange losses for the three months
ended March 31, 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative financial
instrument be recorded in the balance sheet as either an asset or a liability
measured at its fair value, with changes in fair value recognized currently in
earnings. On July 7, 1999, the FASB delayed the effective date of SFAS No. 133
for one year. The delay, published as SFAS No. 137, applies to quarterly and
annual financial statements, SFAS No. 133, as revised by SFAS No. 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company has not yet determined the impact of adoption.
YEAR 2000 IMPACT
To date the Company has not experienced any Year 2000 ("Y2K") related
disruptions or failures in its Business Systems and is not aware of any Y2K
disruptions or failures with its significant customers, suppliers, and business
partners.
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
13
<PAGE> 16
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 under 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; 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's debt consists of both fixed-interest and variable-interest
rate debt; consequently, the Company's results of operations and cash flows, as
well as the fair values of its fixed-rate debt instruments, are subject to
interest-rate risk. The Company has performed sensitivity analyses to assess the
impact of this risk based on a hypothetical ten-percent increase in market
interest rates. Market rate volatility is dependent on many factors that are
impossible to forecast, and actual interest rate increases could be more severe
than the hypothetical ten-percent increase. The Company estimates that if
prevailing market interest rates had been ten percent higher throughout the
first three months of 2000 and all other factors affecting the Company's debt
remained the same, the Company's pretax loss would have been increased by
approximately $219,000 for the first three months of 2000. With respect to the
fair value of the Company's fixed-interest rate debt, if prevailing market
interest rates had been ten percent higher during first three month of 2000, and
all other factors affecting the Company's debt remained the same, fair value of
the Company's fixed-rate debt, as determined on a present-value basis, would
have been lower by approximately $1 million at March 31, 2000. Given the
composition of the Company's debt structure, the Company generally does not
actively manage its interest rate risk, the relative magnitude of which has not
changed materially since December 31, 1999.
Due to a significant portion of the Company's current international
operating activities being derived from Canada during the first quarter of 2000,
there has not been a material change in exposure to foreign currency rate
fluctuations since December 31, 1999.
14
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The sales of the following securities were deemed to be exempt
from registration under the Securities Act of 1933, as amended, in
reliance on Section 4(2) of the Securities Act, or Rule 506 or Rule 701
promulgated thereunder. In each such transaction, the recipients of
securities represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with
any distribution thereof and appropriate legends were affixed to the
securities issued in such transactions.
On January 27, 2000, the Company issued 3,000 shares of
restricted common stock to a new Director pursuant to the Company's
1997 Equity and Performance Incentive Plan.
On February 7, 2000 the Company issued 389,722 shares of its
8% Convertible Preferred Stock in exchange for $56,320,000 of Senior
Notes, together with $2,364,000 of accrued unpaid interest.
On February 7, 2000, Thomas L. Easley, Executive Vice
President - Finance & Administration of the Company, was granted an
option to purchase 400,000 shares of the Company's Common Stock at a
purchase price of $3.00 per share. The exercisability of the options
granted to Mr. Easley are subject to certain vesting requirements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On January 27, 2000 holders of greater than a majority of the
outstanding Common Stock voting power of the Company acted, by written
consent, to approve an increase to 2,500,000 in the number of shares of
Common Stock available under the Company's 1997 Equity and Performance
Incentive Plan.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
Exhibit No.
3.1 Amended and Restated Certificate of
Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 of
the Registrant's Current Report on Form 8-K
filed with the Commission on August 19,
1999).
3.2 Articles of Amendment to the Amended and
Restated Certificate of Incorporation of the
Registrant (incorporated by reference to
Exhibit 3.2 of the Registrant's Registration
Statement on Form S-1, File No. 333-89863,
originally filed with the Commission on
October 28, 1999).
3.3 Amended and Restated By-Laws of the
Registrant (incorporated by reference to
Exhibit 3.2 of the Registrant's Current
Report on Form 8-K filed with the Commission
on August 19, 1999).
4.1 Certificate of Designations of 8%
Exchangeable Preferred Stock of the
Registrant (incorporated by reference to
Exhibit 4.1 of the Registrant's Current
Report on Form 8-K filed with the Commission
on August 19, 1999).
4.2 Certificate of Designations of 8%
Convertible Preferred Stock of the
Registrant (incorporated by reference to
Exhibit 4.2 of the Registrant's Registration
Statement on Form S-1, File No. 333-89863,
originally filed with the Commission on
October 28, 1999).
4.3 Specimen Certificate for the Common Stock,
par value $.001 per share, of the Registrant
(incorporated by reference to Exhibit 4.1 of
the Registrant's Registration Statement on
Form S-1, File No. 333-43219, originally
filed with the Commission on December 24,
1997).
4.4 Specimen Certificate for the 8% Exchangeable
Preferred Stock, par value $.001 per share,
of the Registrant (incorporated by reference
to Exhibit 4.4 of the Registrant's
Registration Statement on Form S-1, File No.
333-89863, originally filed with the
Commission on October 28, 1999).
4.5 Specimen Certificate for the 8% Convertible
Preferred Stock, par value $.001 per share,
of the Registrant (incorporated by reference
to Exhibit 4.5 of the Registrant's
Registration Statement on Form S-1, File No.
333-89863, originally filed with the
Commission on October 28, 1999).
4.6 Indenture dated as of February 18, 1998, by
and among the Registrant, LaSalle National
Bank, as trustee, and the subsidiary
guarantors, as defined therein (incorporated
by reference to Exhibit 4.6 of the
Registrant's Registration Statement on Form
S-1, File No. 333-43219, originally filed
with the Commission on December 24, 1997).
27.01 Financial data schedule (filed herein)
(b) Reports on Form 8-K
None
15
<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, 2000.
GRANT GEOPHYSICAL, INC.
By: /s/ THOMAS L. EASLEY
----------------------------------
Thomas L. Easley
Executive Vice President - Finance & Administration
(Principal Financial Officer)
16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,708
<SECURITIES> 0
<RECEIVABLES> 18,153
<ALLOWANCES> 426
<INVENTORY> 443
<CURRENT-ASSETS> 25,369
<PP&E> 94,794
<DEPRECIATION> 46,230
<TOTAL-ASSETS> 135,957
<CURRENT-LIABILITIES> 28,446
<BONDS> 0
0
54,292
<COMMON> 15
<OTHER-SE> (14,215)
<TOTAL-LIABILITY-AND-EQUITY> 135,957
<SALES> 24,801
<TOTAL-REVENUES> 24,801
<CGS> 0
<TOTAL-COSTS> 30,575
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,193
<INCOME-PRETAX> (8,219)
<INCOME-TAX> 3
<INCOME-CONTINUING> (8,222)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,222)
<EPS-BASIC> (.57)
<EPS-DILUTED> (.57)
</TABLE>
