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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 333-48799*
GRANT GEOPHYSICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0548468
(state of 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by checkmark whether the registrant: (1) has filed all reports 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
requirement for the past 90 days. [X] Yes [ ] No
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 24, 2000, 14,547,055 shares of the Registrant's Common Stock,
$.001 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
* The Commission file number refers to a Form S-4 registration statement filed
by the Company under the Securities Act of 1933, which became effective May
13, 1998.
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GRANT GEOPHYSICAL, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 8
PART II
Item 5. Market for the Company's Common Equity and Related 8
Stockholder Matters.........................................
Item 6. Selected Financial Data..................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations...................................
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting 19
and Financial Disclosure....................................
PART III
Item 10. Directors and Executive Officers of the Company............. 19
Item 11. Executive Compensation...................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and 24
Management..................................................
Item 13. Certain Relationships and Related Transactions.............. 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 25
8-K.........................................................
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PART I
ITEM 1. BUSINESS.
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 and Canada. Grant also provides seismic
data acquisition services in Latin America, the Middle East and the Far East.
Through its predecessors, including GGI Liquidating Corporation ("GGI"), and its
acquired subsidiary, Solid State Geophysical, Inc. ("Solid State"), together
with their respective subsidiaries, 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, 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. Grant
also provides seismic data processing services through offices located in Dallas
and Houston, Texas.
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 two are equipped to
perform surveys in transition zone environments. Transition zone environments
are swamps, marshes and shallow water areas that require specialized equipment
and must be surveyed with minimal disruption to the natural environment.
The market for seismic land acquisition, both domestically and in certain
international regions, remains significantly depressed. Capital spending by oil
and gas companies on seismic data acquisition and processing has substantially
decreased from levels experienced in the past several years. The Company's
global seismic crew count decreased from an average of 18 to 20 during 1998 to
an average of 10 to 12 during 1999. As of March 24, 2000, the Company had nine
active crews. As a result, the Company 1999 operating results were materially
adversely affected.
As of March 24, 2000, the Company was operating or mobilizing a total of
two crews in the United States, one crew in Latin America, five crews in Canada
and one crew in the Far East. For the twelve months ended December 31, 1999, the
Company's total revenues were $66.0 million, with approximately 48.9% from the
United States, 22.8% from Latin America, 11.4% from the Far East and 17.0% from
Canada.
Grant's principal executive office is located at 16850 Park Row, Houston,
Texas 77084 and its telephone number is 281-398-9503.
THE INDUSTRY
Oil and gas companies regularly use seismic data acquisition services to
image and identify underground geological structures likely to trap
hydrocarbons, both to aid in the exploration for and development of new
hydrocarbon reservoirs and to enhance production from existing reservoirs.
Seismic data has been used in the exploration for oil and gas since the late
1920s.
Seismic data acquisition services companies acquire seismic data in land
and transition zone environments by deploying thousands of seismic sensors,
called geophones, over a portion of the area to be covered by the survey. An
energy source, such as a small explosive charge or mechanical vibrating unit, is
used to generate seismic energy that moves through the earth's subsurface and is
reflected by various underlying rock layers to the surface, where it is detected
by the geophones. As many as eight geophone strings are connected to a field
recording box, which collects the seismic data from those geophones. The
electrical output of each geophone string becomes the electrical input for one
recording channel, or "trace," of seismic data. Once the geophones and field
recording boxes are deployed over a portion of the survey area, an energy source
is activated, the reflected seismic energy is detected by the geophones, and the
signals from the geophones are collected and digitized by the field recording
boxes. These boxes in turn transmit the seismic data by cable,
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radio telemetry or through hand-held data collection units to a central
recording system. The geophones and field recording boxes from one end of the
single recording line in the case of 2D seismic data, or an area of multiple
recording lines in the case of 3D seismic data, are then removed and relocated
elsewhere in the survey area. The seismic energy source is again activated and
the entire process is repeated, moving a few hundred feet at a time, until the
entire survey area is covered.
Historically, the acquisition of 2D seismic data was the principal seismic
data acquisition technique. However, with the advancement and miniaturization of
seismic data recording equipment and the improvement of computer technology in
the past ten years, high-density surveys, or 3D seismic data, which provide a
much more comprehensive subsurface image, have become the industry standard.
Recent technical advances in seismic data acquisition and computer processing
have also resulted in the acquisition of higher-resolution surveys using
three-component geophones, known as 3C-3D.
LAND AND TRANSITION ZONE SEISMIC DATA ACQUISITION
A land or transition zone seismic data acquisition crew typically consists
of a surveying crew that lays out the lines to be recorded and marks the sites
for energy source or geophone placement and equipment location, an explosives or
mechanical vibrating or compressed air unit crew, and a recording crew that lays
out the geophones and field recording boxes, directs shooting operations and
records the seismic energy reflected from subsurface structures. A land seismic
data acquisition crew utilizing an explosives unit is supported by several drill
crews, generally furnished by third parties under short-term contracts. Drill
crews operate in advance of the seismic data acquisition crew and bore shallow
holes for small explosive charges that, when detonated, produce the necessary
seismic impulse. In locations where conditions dictate or where the use of
explosives is precluded due to regulatory, topographical or ecological factors,
a mechanical vibrating unit or compressed air unit is substituted for explosives
as the seismic energy source. The Company also employs specialized crew
mobilization equipment to improve productivity in certain applications,
including helicopters for rugged terrain or in agricultural areas, small
watercraft for transition zone applications, and man-portable equipment in
jungle and other environments where vehicular access is limited. Depending on
the size of the seismic survey, the location and other logistical factors, a
seismic data acquisition crew operated by the Company may involve from as few as
30 to as many as 1,500 employees.
One of the challenges inherent in land seismic data acquisition is
operating in difficult logistical environments without disrupting the sensitive
ecosystems in which surveys are frequently located. The Company currently
operates approximately 10,000 channels of remote digital seismic equipment,
which can be deployed without the use of conventional seismic cables, thereby
allowing access to such environments. Remote digital seismic equipment, which
uses radio signals to transmit data, is typically used in transition zone and
other logistically challenging environments such as highly populated regions
with numerous topographic obstructions and areas where conventional cable-based
recording systems are impractical. The Company has over 20 years of experience
operating in transition zone environments in the Gulf Coast region of the United
States, the Far East and Africa.
Once recorded by the seismic data acquisition crew, seismic data is
computer processed to enhance the recorded signal by reducing noise and
distortion and improving resolution to produce a representation of the survey
site's subsurface structures. The Company presently has two data processing
centers at which it performs seismic data processing services. These centers are
located in Houston and Dallas, Texas.
The Company markets its seismic data acquisition and processing services
from its Houston and Calgary corporate offices and its regional and
international administrative centers by personnel whose duties include
technical, supervisory or executive responsibilities. The Company generally
acquires seismic data on an exclusive contract basis for oil and gas companies
on:
- a turnkey basis, which provides a fixed fee for each project;
- a term basis, which provides for a periodic fee during the term of the
project; or,
- a cost-plus basis, which provides that the costs of a project, plus a
percentage fee, are borne by the customer.
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In addition, in the United States and Canada, the Company acquires and owns
certain multi-client seismic data that is marketed broadly on a non-exclusive
basis to oil and gas companies.
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 Brazil and Colombia. 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.
MARKET AREAS
In 1999, the Company conducted seismic operations in the United States,
Canada, Latin America and the Far East and has conducted activities in the
Middle East and West Africa within the last three years.
The following table sets forth the Company's revenues by geographic area,
on a pro forma basis for the year ended December 31,1997 and on an actual basis
for the years ended December 31, 1998 and 1999, for the periods shown:
YEAR ENDED DECEMBER 31,
-----------------------------
1997(1) 1998 1999
-------- -------- -------
(DOLLARS IN THOUSANDS)
United States......................................... $ 61,630 $ 78,659 $32,243
Canada................................................ 19,591 14,175 11,232
Latin America......................................... 69,877 52,604 15,057
Far East.............................................. 13,482 30,074 7,515
Africa and Middle East................................ 9,285 -- --
-------- -------- -------
$173,865 $175,512 $66,047
======== ======== =======
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(1) Solid State's fiscal year end was August 31 prior to the year ended December
31, 1998 when it was changed to a calendar year. For pro forma purposes,
revenues for Solid State have been adjusted to reflect the period December
1, 1996 through August 31, 1997 to combine with GGI's nine months ended
September 30, 1997 and the Company's three months ended December 31, 1997.
The revenues for the three months ended December 31, 1997 include the
combined operations of Solid State and Grant. See Notes 1 and 4 to the
Consolidated Financial Statements of the Company and GGI for additional
geographic information.
BACKLOG
The Company's backlog for seismic data acquisition services represents the
revenues anticipated to be received by the Company in connection with
commitments for contracted services received from its customers. As of December
31, 1999, the Company estimates that its total backlog was approximately $24.2
million, all of which is expected to be completed in 2000. This compares to the
Company's estimated total backlog of $38.2 million and $144.4 million at
December 31, 1998 and 1997, respectively. The decrease reflects the overall
decline in demand, as described above, for seismic data acquisition and
processing services on a worldwide basis that began during the last half of
1998. As of March 24, 2000, the Company estimates that its total backlog is
approximately $30.8 million. Most of the Company's contracts are terminable by
the customer upon relatively short notice and, in some cases, without penalty.
The Company's backlog as of any particular date is not indicative of the likely
operating results for any succeeding period, and there can be no assurance that
any amount of backlog will ultimately be realized as revenue.
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CAPITAL EXPENDITURES AND TECHNOLOGY
The Company's ability to compete and maintain a significant market position
in the land and transition zone seismic data acquisition business is partially
driven by its ability to provide technology comparable to that of its primary
competitors. Accordingly, the Company continually maintains and periodically
upgrades its seismic data acquisition equipment to maintain its competitive
position. The Company spent approximately $36.3 million on capital expenditures
for the fifteen-month period ending December 31, 1998. This included
approximately $12.4 million in the fourth quarter of 1997 and approximately
$23.9 million during 1998. These expenditures were used principally to upgrade
and expand the Company's seismic data acquisition equipment. Due to the downturn
in the seismic industry, the Company incurred $9.5 million in 1999 on capital
expenditures and has budgeted $5.1 million in capital expenditures for 2000. The
level of future capital expenditures will depend on the availability of funding
and market requirements as dictated by industry activity levels.
Over the past several years, the Company has focused its efforts on
developing operating procedures and acquiring equipment that will enhance the
efficiency of its seismic data acquisition crews and reduce the time required to
complete projects. The Company's strategy does not contemplate the development
of proprietary seismic data acquisition equipment, but instead relies on the use
of third-party equipment suppliers to provide such equipment, although certain
equipment will be customized to the Company's specifications to enhance
operating efficiency. Certain of the equipment, processes and techniques used by
the Company are subject to the patent rights of others, and the Company holds
non-exclusive licenses with respect to a number of such patents. While the
Company regards as beneficial its access to third-party technology through
licensing, the Company believes that substantially all presently licensed
technology could be replaced without significant disruption to its business.
LICENSING OF MULTI-CLIENT DATA
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. As of December 31, 1999, there were
$1.7 million of commitments from customers for multi-client data acquisition
projects.
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.
CUSTOMERS AND PROJECTS
The Company's customers consist of domestic and international oil and gas
companies and seismic data marketing companies. As is the case for many service
companies in the oil and gas industry, a relatively small number of customers or
a limited number of significant projects may account for a large percentage of
the Company's net revenues in any given year. Moreover, such customers and
projects may, and often do, vary from year to year. For 1999, the Company's five
largest customers accounted for approximately $21.3 million, or 32.3%, of
revenues and no single customer accounted for 10% or more of revenues. During
1998, the Company's five largest customers accounted for approximately 28.8% of
revenues, and no single customer accounted for 10% or more of revenues. In the
first nine months of 1997, GGI had revenues from a foreign national oil company
of approximately $14.0 million, or 15% of total revenues, and also from a U.S.
based exploration company of approximately $9.9 million, or 11% of total
revenues. During 1997, on a pro forma basis, the Company's five largest
customers accounted for approximately 31.9% of revenues. During 1997, on a pro
forma basis, no customer accounted for 10% or more of the Company's combined
revenues.
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COMPETITION
The acquisition and processing of proprietary and multi-client seismic data
for the oil and gas industry is highly competitive worldwide. However, as a
result of changing technology and increased capital requirements, the seismic
industry has consolidated substantially since the late 1980's, thereby reducing
the number of competitors. The Company's principal competitors in North America
are Baker Atlas, Inc., a subsidiary of Baker Hughes, Inc.; Veritas DGC, Inc.;
and Geco-Prakla Inc., a subsidiary of Schlumberger Limited. The Company competes
against these three companies for most of its seismic data acquisition and
processing contracts in North America. Although precise comparative figures are
not available, the Company believes that its principal competitors have
financial, operating and other resources in excess of its own. Also in North
America, the Company competes with approximately 20 smaller companies that
target narrow market segments. In Latin America and the Far East, the Company
competes with Baker Atlas, Compagnie General de Geophysique, Geco-Prakla and a
few smaller local competitors. Competition is based primarily on price, crew
availability, prior performance, technology, safety, quality, dependability and
the contractor's expertise in the particular area where the survey is to be
conducted.
EMPLOYEES
As of March 24, 2000, the Company employed approximately 455 full-time and
630 temporary contract personnel worldwide. None of the Company's employees is
subject to collective bargaining agreements. The Company considers its relations
with its employees to be good.
ENVIRONMENTAL MATTERS/GOVERNMENTAL REGULATION
The Company's domestic operations are subject to a variety of federal,
state and local laws and regulations relating to the protection of human health
and the environment, the violation of which may result in civil or criminal
penalties. The Company invests financial and managerial resources to comply with
such laws and regulations and management believes that it is in compliance in
all material respects with applicable environmental laws and regulations.
Although such environmental expenditures by the Company historically have not
been significant, there can be no assurance that these laws and regulations will
not change in the future or that the Company will not incur significant costs in
the future performance of its operations. The Company is not involved in any
legal proceedings concerning environmental matters and is not aware of any
claims or potential liability concerning environmental matters that could have a
material adverse impact on the Company's financial position, cash flows or
results of operations.
The Company's operations outside of the United States are subject to
similar environmental regulation in a number of foreign locations, including
Canada, Latin America, and the Far East. Management believes that the Company is
in material compliance with the existing environmental requirements of these
foreign governmental bodies. The Company has not incurred any significant
environmental costs in connection with the performance of its foreign
operations; however, any regulatory changes that impose additional environmental
restrictions or requirements on the Company or its customers could adversely
affect the Company through increased operating costs and decreased demand for
the Company's services.
CAUTIONARY STATEMENTS
Certain statements made in this Annual Report on Form 10-K that are not
historical facts are "forward-looking statements". Forward-looking statements
may include, without limitation, the following:
- statements regarding the Company's business strategy, plans and
objectives;
- statements expressing the beliefs and expectations of management of the
Company regarding future demand for the Company's seismic services and
other events and conditions that may influence demand for the Company's
services and its performance in the future; and
- statements concerning the Company's business strategy and expectations,
industry conditions, market position, backlog, future operations,
margins, profitability, liquidity and capital resources.
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Forward-looking statements can generally be identified by such terminology
as "may," "will," "expect," "believe," "anticipate," "project," "estimate" or
similar expressions. Such statements are based on certain assumptions and
analyses made by the Company's management in light of its experience and its
perception of historical trends, current conditions, expected future
developments and other factors that it believes to be appropriate. The Company
cautions that such statements are only predictions and not guarantees of future
performance and that actual results, developments and business decisions may
differ from those envisioned by the forward-looking statements.
All phases of the Company's operations are subject to a number of
uncertainties, risks and other influences, many of which are beyond the control
of the Company. Any one of such influences, or a combination, could materially
affect the accuracy of the forward-looking statements and the projections on
which the statements are based. Some important factors that could cause actual
results to differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements include the following:
Dependence on the Oil and Gas Industry; Industry Volatility.
The Company's business depends in large part on the conditions of the oil
and gas industry, and specifically on the capital expenditures of the Company's
customers. As a result of the decline in oil and gas prices beginning late in
the third quarter of 1998, the level of overall oil and gas industry activity
declined substantially from levels experienced in recent years. Decreases in the
Company's customers' capital spending in connection with industry downturns have
had and will likely result in decreased demand for the Company's services. The
Company's results of operations have varied and may continue to vary depending
on the demand for services. Unless demand increases, the Company will likely
continue to operate at a loss.
The Company's Business could be adversely affected by Intense Price
Competition in a Slack Market.
Competition among seismic contractors historically is, and will continue to
be, intense. Competitive factors have in recent years included price, crew
experience, equipment availability, technological expertise and reputation for
quality and dependability. Certain of the Company's competitors operate more
data acquisition crews than the Company does and have substantially greater
financial and other resources. These larger and better-financed operators could
enjoy an advantage over the Company if the competitive environment for contract
awards shifts to one characterized principally by intense price competition.
The Company's Multi-Client Data Library could become Impaired due to Weak
Demand or Technological Obsolescence.
The Company has invested significant amounts in acquiring and processing
multi-client data. Although the management of the Company expects to recover all
the costs of such surveys, there is no assurance that the Company will be able
to do so in the future. Technological, regulatory or other industry or general
economic developments could render all or portions of the Company's library of
multi-client data obsolete or otherwise impair its value. As of December 31,
1999 and 1998, the total value of the capitalized multi-client data library was
$27.4 million and $10.9 million, respectively.
Risks of High Levels of Fixed Costs.
The Company's business has high fixed costs, and downtime or low
productivity due to reduced demand, weather interruptions, equipment failures or
other causes could result in significant operating losses.
Technology Risks.
Seismic data acquisition and processing is a capital-intensive business.
The development of seismic data acquisition and processing equipment has been
characterized by rapid technological advancements in recent years and the
Company expects this trend to continue. Manufacturers of seismic equipment may
develop new systems that have competitive advantages over systems now in use
that could render the Company's current equipment obsolete or require the
Company to make significant unplanned capital expenditures to maintain its
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competitive position. Under such circumstances, there can be no assurance that
the Company would be able to obtain necessary financing on favorable terms.
Dependence upon Significant Customers.
The Company derives a significant amount of its revenue from a small number
of major and independent oil and gas companies. The inability of the Company to
continue to perform services for a number of its large existing customers, if
not offset by contracts with new or other existing customers, could have a
material adverse effect on the Company's business and operations.
Intense Competition
The Company competes in a highly competitive area of the oil field services
industry. The Company's services are sold in a highly competitive market and its
revenues and earnings may be affected by the following factors:
- changes in competitive prices;
- fluctuations in the level of activity and major markets;
- general economic conditions; and
- governmental regulation.
The Company competes with the oil and gas industry's largest seismic
service providers. Management of the Company believes that the principal
competitive factors in the market areas served by the Company are product and
service quality and availability, technical proficiency and price.
Risks of International Operations.
The Company's international operations, which are expected to continue to
contribute materially to revenues for the foreseeable future, are subject to
risks inherent in doing business in foreign counties. These risks include, but
are not limited to:
- political changes;
- expropriation;
- currency restrictions and changes in currency exchange rates;
- taxes; and
- boycotts and other civil disturbances.
The risks associated with operating internationally are reflected in the
$60.1 million decrease in the Company's international revenues, excluding
Canada, in 1999 as compared with 1998. The decrease was primarily attributable
to general economic conditions and political events in South America, the
economic downturn in the Far East and the overall world market for oil and gas.
Although it is impossible to predict the likelihood of such occurrences or
their effect on the operations of the Company, the management of the Company
believes that these risks are acceptable. However, the occurrence of any one of
these events could have a material adverse effect on the Company's operations.
Dependence on Key Personnel.
The Company depends on the continued services of its executive officers and
other key management personnel. If the Company were to lose any of these
officers or other management personnel, this could adversely affect its
operations.
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ITEM 2. PROPERTIES.
The Company owns a 30,000 square foot building and storage yard in Houston,
Texas, which serves as its corporate headquarters, and leases a 60,000 square
foot building, also in Houston, Texas, which serves as a warehouse and staging
facility. The Company also owns an office, staging and repair facility located
on a two-acre tract in New Iberia, Louisiana. In Calgary, Alberta (Canada), the
Company owns an 18,000 square foot building and storage yard that serves as the
Company's Canadian headquarters. In addition, the Company leases office,
warehouse and storage space in areas throughout the world as may be required
from time to time to support the Company's operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in or threatened with other various legal
proceedings from time to time arising in the ordinary course of business.
Management of the Company does not believe that any liabilities resulting from
any such current proceedings will have a material adverse effect on the
Company's financial position, cash flows, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 25, 1999, holders of greater than a majority of the outstanding
common stock voting power of the Company acted, by written consent, to further
amend the Amended and Restated Certificate of Incorporation of the Company to
decrease the number of authorized aggregate shares of capital stock of the
Company from 60,000,000 to 55,000,000 shares thus decreasing the number of
authorized shares of the Company's preferred stock from 10,000,000 to 5,000,000
shares.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of March 24, 2000, there were 14,547,055 shares of the Company's common
stock, $.001 par value per share (the "Common Stock"), outstanding. See Item 12
for the number of shares of Common Stock owned by the Company's executive
officers, directors and each person known to the Company to own beneficially
more than 5% of the outstanding shares of Common Stock. The Common Stock is not
listed on any stock exchange or qualified for trading on any other market. The
Company does not anticipate paying cash dividends with respect to the common
stock in the future. In addition, the payment of cash dividends is currently
prohibited by the indenture governing the Company's 9 3/4% Senior Notes Due
2008 and credit agreements governing the Company's other indebtedness for
borrowed money.
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ITEM 6. SELECTED FINANCIAL DATA.
The statement of operations data of GGI presented below for each of the
years in the two-year period ended December 31, 1996, the nine-month period
ended September 30, 1997, and the balance sheet data of GGI at December 31, 1995
and 1996 are derived from the consolidated financial statements of GGI. The
statement of operations data for the three-month period ended December 31, 1997,
the year ended December 31, 1998 and the year ended December 31, 1999 and the
balance sheet data of the Company at December 31, 1997, 1998 and 1999 are
derived from the consolidated financial statements of the Company. The selected
historical financial data set forth below should be read in conjunction with the
consolidated financial statements and the notes thereto included in Item 8 of
this Form 10-K. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
GGI GRANT
---------------------------------- ---------------------------------
YEAR ENDED NINE MONTHS THREE MONTHS YEAR ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31,
------------------ SEPTEMBER 30, DECEMBER 31, ------------------
1995 1996 1997 1997 1998 1999
------- -------- ------------- ------------ -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues................................ $91,996 $105,523 $92,705 $37,868 $175,512 $66,047
Operating income (loss)................. 4,999 (65,970) 6,794 (5,033) 6,346 (33,113)
Other income (expense).................. (1,446) (8,436) (5,035) (2,624) (10,120) (11,404)
Income (loss) from continuing
operations............................ 3,162 (76,027) (425) (5,666) (7,698) (45,753)
Net loss applicable to Common stock... $(6,143) $ (8,138) (46,049)
======= ======== =======
LOSS PER COMMON SHARE -- BASIC AND
DILUTED:
Continuing operations................. $ (1.18) $ (.54) $ (3.16)
Dividend requirement on pay-in-kind
preferred stock..................... (.10) (.03) (.02)
------- -------- -------
Net loss per common share............. $ (1.28) $ (.57) $ (3.18)
======= ======== =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted..................... 4,798 14,257 14,458
CASH FLOW DATA:
Cash provided by (used in) operating
activities............................ $ 2,759 (9,346) $ 4,526 $ 5,386 $ 17,338 (977)
Cash used in investing activities....... (9,272) (10,181) (6,731) (19,715) (32,828) (31,495)
Cash provided by financing activities... 6,929 25,667 1,289 15,072 16,821 27,163
Capital expenditures.................... 14,921 25,799 4,154 12,400 23,866 9,496
BALANCE SHEET DATA
Working capital......................... $ 8,033 $ 22,421 $16,190 $ 14,373 $(4,929)
Total assets............................ 86,932 70,123 155,704 166,441 149,996
Pre-petition liabilities subject to
Chapter 11 case....................... -- 90,244 -- -- --
Notes payable, current portion of
long-term debt and capital lease
obligations........................... 18,430 589 1,158 2,522 8,247
Long-term debt, subordinated debt and
capital lease obligations, excluding
current portion....................... 8,789 -- 75,195 110,817 119,709
Total stockholders' equity..... 29,715 (34,213) 41,992 22,002 (7,360)
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ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company was formed in September 1997. On September 30, 1997, the
Company acquired substantially all of the assets and assumed certain liabilities
of GGI under GGI's Second Amended Plan of Reorganization (the "Plan"), which was
confirmed by The United States Bankruptcy Court for the District of Delaware on
September 15, 1997. On December 23, 1997, the Company, through a wholly owned
Canadian subsidiary, acquired all of the outstanding shares of Solid State.
The Company's business activities involve the performance of land and
transition zone seismic data acquisition services in selected markets worldwide,
including the United States, Canada, Latin America and the Far East. The Company
generally acquires seismic data on an exclusive contract basis for oil and gas
companies on:
- a turnkey basis, which provides a fixed fee for each project;
- a term basis, which provides for a periodic fee during the term of the
project; or,
- a cost-plus basis, which provides that the costs of a project, plus a
percentage fee, are borne by the customer.
In addition, in the United States and Canada, the Company acquires and owns
certain multi-client seismic data that is marketed broadly on a non-exclusive
basis to oil and gas companies.
In December 1996, GGI filed for protection under the United States
Bankruptcy Code and began its reorganization under the supervision of the
Bankruptcy Court. In connection with its reorganization, GGI replaced its senior
management, disposed of unprofitable operations, operated as
debtor-in-possession and developed the Plan, which was confirmed by the
Bankruptcy Court on September 15, 1997 and consummated on September 30, 1997
(the "Effective Date"), with the Company's purchase of substantially all of the
assets and assumption of certain liabilities of GGI.
As a result of the decline in oil and gas prices beginning late in the
third quarter of 1998, the level of overall oil and gas industry activity, both
domestically and in certain international regions, has declined substantially
from levels experienced in recent years. Decreases in exploration and production
companies' capital spending in connection with industry downturns have had and
will likely result in decreased demand for the Company's services. The Company's
global seismic crew count has decreased from average of eighteen to twenty
during 1998 to a total of nine active crews as of March 24, 2000.
The historical results of operations of the Company for the years ended
December 31, 1998 and 1999 are presented below. Such results are not directly
comparable to the results of operations of GGI or the combined results of GGI
and the Company for the twelve months ended December 31, 1997 due to the effects
of the purchase of Solid State in September 1997.
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13
RESULTS OF OPERATIONS
GGI GRANT
------------- ------------ (UNAUDITED) GRANT
COMBINED -------------------
NINE MONTHS THREE MONTHS TWELVE MONTHS YEAR ENDED
ENDED ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, -------------------
1997 1997 1997 1998 1999
------------- ------------ ------------- -------- --------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues............................. $92,705 $37,868 $130,573 $175,512 $ 66,047
Expenses:
Direct operating expenses.......... 71,006 28,431 99,437 127,439 54,456
Selling, general and administrative
expenses........................ 6,473 3,507 9,980 14,156 13,529
Depreciation and amortization...... 8,432 4,594 13,026 23,809 26,147
Charge for asset impairment........ -- 6,369 6,369 3,762 5,028
------- ------- -------- -------- --------
Total costs and expenses... 85,911 42,901 128,812 169,166 99,160
------- ------- -------- -------- --------
Operating income (loss).... 6,794 (5,033) 1,761 6,346 (33,113)
Other income (expense):
Interest expense, net.............. (3,758) (1,362) (5,120) (9,300) (12,006)
Reorganization costs............... (3,543) -- (3,543) -- --
Other.............................. 2,266 (1,262) 1,004 (820) 602
------- ------- -------- -------- --------
Total other expenses....... (5,035) (2,624) (7,659) (10,120) (11,404)
------- ------- -------- -------- --------
Income (loss) before income
taxes........................... 1,759 (7,657) (5,898) (3,774) (44,517)
Income tax expense................... (2,184) (856) (3,040) (3,924) (1,236)
------- ------- -------- -------- --------
Loss from continuing operations
before minority interest........... (425) (8,513) (8,938) (7,698) (45,753)
Minority interest.................... -- 2,847 2,847 -- --
------- ------- -------- -------- --------
Net loss............................. (425) (5,666) (6,091) (7,698) (45,753)
------- ------- -------- -------- --------
Preferred dividends.................. -- (477) (477) (440) (296)
------- ------- -------- -------- --------
Net loss applicable to common
stock.............................. $ (425) $(6,143) $ (6,568) $ (8,138) $(46,049)
======= ======= ======== ======== ========
THE COMPANY FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1999 COMPARED WITH
THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1998
Revenues. Revenues for 1999 were $66.0 million, compared with $175.5
million for 1998. The decrease of $109.5 million, or 62.4%, was the result of
lower demand for the Company's seismic acquisition services in both the domestic
and international markets. 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.
Revenues from United States data acquisition operations decreased $49.4
million, or 63.5%, from $77.7 million in 1998 to $28.3 million in 1999. This
decrease was attributable to the Company operating six to eight contract seismic
data acquisition crews from time to time in the United States during 1998,
compared with only two to four crews in 1999. In addition, during 1999, two of
the crews were performing multi-client projects with average underwriting, or
pre-commitments, of approximately 39% of total project costs. This compares to
the same period in 1998 when the average underwriting for multi-client projects
was approximately 79% of total costs. The significance of the decrease in
underwriting affected 1999 sales because,
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14
pursuant to the Company's revenue recognition policy, a portion of project
underwriting is recognized as revenue during the current period. Firm backlog
for United States data acquisition projects at December 31, 1999 was $8.1
million.
Revenues from seismic data processing operations, purchased in July 1998,
were $1.5 million for 1999 compared to $957,000 for 1998. The Company operated
seismic data processing centers during 1999 in Midland, Dallas and Houston,
Texas. These centers process both third-party and Company-owned multi-client
data. In January 2000, the Company completed the consolidation of its Midland
center with operations in the Houston seismic data processing center.
Revenues from the Canadian data acquisition operations decreased $4.0
million, or 28.2%, from $14.2 million in 1998 to $10.2 million in 1999. This
decrease was due to a decline in activity experienced during the first three
quarters of 1999 when compared to first three quarters of 1998. This was
partially offset by increased seismic activity during the fourth quarter of 1999
when compared to fourth quarter 1998. The Company is encouraged by the recovery
of the Canadian market experienced at the end of 1999. During the first quarter
of 2000, four to five land seismic crews were operating in Canada as compared to
only 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 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 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 two multi-client projects, both
located in Canada. Estimated project costs are $1.3 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. Revenue from sales of the data library for
1999 was $3.5 million, compared to only $388,000 for 1998.
Revenues in Latin America decreased $37.5 million, or 71.4%, from $52.6
million in 1998 to $15.1 million in 1999. During 1998, the Company's Latin
American operations consisted of as many as eight seismic crews operating in
Bolivia, Brazil, Colombia, Ecuador and Guatemala. During 1999, four to five
crews operated in Mexico, Ecuador, Guatemala, Brazil and Colombia. There are
currently a total of three land seismic acquisition crews operating or
mobilizing in this region.
Revenues from the Far East decreased $22.6 million, or 75.0%, from $30.1
million in 1998 to $7.5 million in 1999. During 1998, the Company operated as
many as five crews in the region: one land and two transition zone crews in
Bangladesh, and one land and one transition zone crew in Indonesia. During 1999,
the Company operated one to two crews, primarily in Indonesia. The Indonesian
crew is currently the only crew operational in this region.
Expenses. Direct operating expenses as a percentage of revenues increased
to 82.5% in 1999 from 72.6% in 1998. This percentage increase can be attributed
to reduced operating margins on multi-client projects during the third and
fourth quarters of 1999 and unanticipated start-up and operating expenses on two
Latin American crews incurred during the second and third quarters of 1999.
Direct operating expenses for the twelve months ended December 31, 1999
decreased $72.9 million, or 57.2%, to $54.5 million, compared to $127.4 million
for the twelve months ended December 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 decreased $.7 million, or
4.9%, to $13.5 million in 1999 from $14.2 million in 1998. This reduction is the
result of the Company's effort throughout 1999 to reduce support
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15
and overhead personnel in all of its operating regions and at the corporate
office level. There have been limited increases in support and overhead
personnel, during the third and fourth quarters of 1999, in response to the
increase in demand for seismic services being experienced primarily in the
Company's international markets. Selling, general and administrative expenses
increased as a percentage of revenue to 20.5% in 1999 from 8.1% in 1998. This
increase is a result of the revenue decreases experienced throughout all the
Company's operating regions as described above.
Depreciation and amortization increased $2.3 million, or 9.7%, to $26.1
million in 1999 from $23.8 million for 1998. This increase reflects additional
amortization of the Company's multi-client projects, partially offset by a
reduction in capital expenditures during 1999 as compared to 1998. Capital
expenditures were $9.5 million and $23.9 million for 1999 and 1998,
respectively.
The Company recorded charges for asset impairment of $5.0 million and $3.8
million for 1999 and 1998, respectively. All of the 1999 charge and $3.2 million
of the 1998 impairment were special charges to reduce the carrying value of the
Company's multi-client data library to net realizable value, based on revised
future licensing prospects for such data due to the current downturn in the
industry and the Company's recent sales experience for such data. 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. Also
included in the 1998 charge was a $564,000 write-down in the carrying value of
certain non-operating depreciable fixed assets to salvage value.
Other Income (Expenses). Interest expense, net, increased $2.7 million to
$12.0 million in 1999 from $9.3 million in 1998. A portion of the increase can
be attributed to the Company's sale on February 18, 1998 of $100 million of 9
3/4% Senior Notes (the "Senior Notes") due 2008. Consequently, 1999 included an
additional month and a half of interest expense on the Senior Notes as well as
interest on increased borrowings under the Company's revolving credit facility.
These funds were used to finance multi-client data projects, to fund capital
expenditures and provide working capital for operations.
Tax Provision. The income tax provision consisted of income taxes in
foreign countries. For 1998 this includes provisions for taxes in Colombia,
Ecuador, Guatemala, Bangladesh and Indonesia; for 1999 this includes provisions
for taxes in Colombia, 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.
THE COMPANY FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1998 COMPARED WITH
THE COMPANY AND GGI COMBINED TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1997
The following analysis compares the operating results of the Company for
the twelve-month period ended December 31, 1998 with combined operating results
of the Company for the three-month period ended December 31, 1997 (including the
operating results of Solid State for such period) and the operating results of
GGI for the nine-month period ended September 30, 1997. As described above,
Grant began operations immediately following its acquisition of substantially
all of the assets and certain liabilities of GGI on September 30, 1997 and Grant
acquired Solid State in December 1997. Because of the significant changes in
Grant's control and management and scope of operations following the
consummation of the Plan, comparisons may not be meaningful.
Revenues. Revenues of the Company for the twelve months ended December 31,
1998 were $175.5 million, compared with $130.6 million of combined revenue for
GGI and the Company for the twelve months ended December 31, 1997. The increase
of $44.9 million, or 34.4%, was the result of growth in revenues in both the
United States and the Far East and the inclusion of a full year of Solid State's
results of operations in 1998 compared to only three months in 1997.
Revenues from the United States operations increased $25.0 million, or
46.4%, from $53.7 million to $78.7 million in 1998. Revenues from the United
States data acquisition operations increased $24.1 million, or 44.7%, from $53.7
million in 1997 to $77.8 million in 1998. This increase was due primarily to the
addition of two Solid State crews in the northern United States for the entire
year versus only one crew for three months
13
16
in 1997 and the addition of new and more efficient recording instrumentation.
Productivity was enhanced by increasing the seismic recording channel count per
crew and, whenever possible, utilizing a twenty-four hour recording schedule.
During 1998, there were as many as eight seismic crews operational in the United
States versus only six to seven crews operational in 1997. Beginning late in the
third quarter of 1998, due primarily to the low oil and gas prices, demand for
data acquisition recording services in the United States and elsewhere began to
decline. By the end of December 1998, there were six crews operating or
mobilizing in the U.S.
Revenues from seismic data processing were $957,000 for 1998. The Company
purchased its seismic data processing operations in July 1998; therefore, there
are no comparable results for 1997. The Company operated processing centers in
Midland and Dallas, Texas for the remaining six months and began operations in a
newly established Houston, Texas center during the fourth quarter of 1998.
Revenues from the Canadian data acquisition operations increased $9.7
million, or 215.6%, from $4.5 million in 1997 to $14.2 million in 1998. The
Company acquired these operations from Solid State effective September 30, 1997.
The increase in 1998 is the result, therefore, of including a full year of
operations in 1998 versus only three months in 1997. From time to time during
1998, the Company operated as many as six land seismic crews throughout Canada.
The Company began its multi-client data acquisition activities in the
United States and Canada during 1998. Crew operations began in the second
quarter with significant activity occurring in both the third and fourth
quarters. The Company has completed or is conducting eleven data library
projects totaling approximately 1,234 square miles in Texas, California, Wyoming
and Canada. At December 31, 1998, 621 square miles had been completed and an
additional 246 square miles were scheduled for completion by March 31, 1999. The
Company and GGI had no multi-client data activity in 1997. Revenues associated
with the underwriters' 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 in Latin America decreased $6.0 million, or 10.2%, from $58.6
million in 1997 to $52.6 million in 1998. During 1998, the Company operated as
many as eight land seismic crews in Brazil, Guatemala, Colombia, Ecuador and
Bolivia. During 1997, combined Latin American operations for GGI and the
Company, while operating in the same countries, consisted of as many as ten land
seismic data acquisition crews. The Brazilian operations were completed in March
1998 and the equipment was moved to work in Guatemala. The Colombian operations
were completed in the third quarter of 1998 and both the Guatemalan and Bolivian
contracts were finished in the fourth quarter of 1998. Ecuadorian operations
were completed in February 1999.
Revenues from the Far East increased $16.6 million, or 123.1%, from $13.5
million in 1997 to $30.1 million in 1998. During 1998, the Company operated as
many as five crews in the region: one land and two transition zone crews in
Bangladesh and one land and one transition zone crew in Indonesia. During 1997,
in Bangladesh, GGI and the Company operated one crew for the entire year and
mobilized one additional transition zone crew that began operations in July
1997. By December 1998, there were three active crews in the region.
Expenses. Direct operating expenses for the twelve months ended December
31, 1998 increased $28.0 million, or 28.2%, to $127.4 million compared with
$99.4 million for the twelve months ended December 31, 1997. Direct operating
expenses as a percentage of revenues decreased to 73.5% in 1998 from 76.2% in
1997. The overall dollar increase was the result of increased crew activity in
the southern United States and the Far East and the inclusion of a full year of
Solid State's results in 1998 versus only three months in 1997. The percentage
decrease is the result of improvements in operating efficiencies primarily in
the United States. These improvements were the results of upgrading and
expanding the Company's seismic data recording equipment, careful and detailed
project cost analysis and management's ability to properly assess operating
risk.
Selling, general and administrative expenses for the twelve months ended
December 31, 1998 increased $4.2 million to $14.2 million from $10.0 million in
1997. Selling, general and administrative expenses as a percentage of revenue
increased only marginally to 8.1% in 1998 from 7.6% in 1997. The overall dollar
14
17
increase was primarily due to an approximate $1.5 million increase as a result
of the inclusion of Solid State for a full year in 1998 versus only three months
in 1997, $1.1 million of additional costs incurred to develop international and
domestic markets, $537,000 for corporate provisions for doubtful accounts and
incentive bonuses and the remainder related to a general increase in corporate
support services.
Depreciation and amortization increased $10.8 million to $23.8 million in
1998 from $13.0 million for 1997. The increase was due to an increase of
approximately $3.8 million due to the inclusion of Solid State for a full year
in 1998 versus only three months in 1997, $1.5 million for the amortization of
goodwill, $3.8 million of depreciation on newly purchased assets and $1.5
million for amortization of the multi-client data library.
The charge for asset impairment was $3.8 million for 1998 compared to $6.4
million in 1997. At December 31, 1998, the Company recorded a special charge of
$3.2 million to reduce the carrying value of its multi-client data, acquired
through the purchase of Solid State during the fourth quarter of 1997, to its
net realizable value based on revised estimates of future licensing prospects
for such data. The charge for asset impairment recorded in 1997 included a
special charge of $5.9 million to write down the acquired Solid State
multi-client data to its then-estimated net realizable value. The acquisition of
Solid State in 1997 occurred in two parts: the acquisition of the majority
interest and the acquisition of the minority interest. The 1997 impairment
charge relates only to certain assets of Solid State that were acquired during
the acquisition of the majority interest. These assets had been originally
recorded at historical cost. None of the $6.4 million impairment charge
recognized in 1997 related to the assets acquired as part of the acquisition of
the minority interest. Also included in 1998, was a charge of $564,000 relating
to the write-down in the carrying value of certain non-operating depreciable
fixed assets to salvage value. The remaining 1997 charge relates to a $247,000
write-down in the carrying value of certain non-operating depreciable fixed
assets to salvage value and a $253,000 write-down in the carrying value of
certain other investments and joint ventures.
Other Income (Expenses). Interest expense, net, increased $4.2 million to
$9.3 million in 1998 from $5.1 million in 1997. This increase was the result of
interest on debt both incurred and assumed by the Company as a result of the
Solid State acquisition and from the sale on February 18, 1998 of $100 million
of 9 3/4% senior notes due 2008 (the "Senior Notes"). Proceeds from the sale
were used to retire substantially all of the Company's outstanding indebtedness,
to fund capital expenditures and to provide working capital for general
corporate purposes.
Reorganization costs of $3.5 million in 1997 related to charges incurred in
connection with GGI's reorganization, which began in December 1996 and was
completed in September 1997. No comparable reorganization charges were incurred
by the Company in the three months ended December 1997 or for the year ended
December 31, 1998.
Other income of $1.0 million for 1997 was the result of settlement of a
long-standing dispute between one of GGI's Brazilian subsidiaries and a former
customer relating to services rendered on contracts dating back to 1983. In
settlement of all claims, GGI received payment, net of related costs and
expenses, of approximately $2.4 million in July 1997. Income from that
settlement was offset by approximately $767,000 in costs associated with the
Solid State acquisition and approximately $289,000 of foreign currency exchange
losses, primarily related to US dollar based loans owed by Solid State prior to
its acquisition by Grant. In 1998, the Company recorded $635,000 in litigation
expense associated with the settlement of litigation related to the Solid State
acquisition, representing the cash paid by Elliott Associates, L.P. ("Elliott")
and the $0.25 discount permitted the plaintiffs to purchase the Company's common
stock in the subscription offering (see Note 13 to the Consolidated Financial
Statements).
Tax Provision. The income tax provision in both periods consisted of income
taxes in foreign countries. The increase in 1998 compared with 1997 is a result
of higher taxable income in Indonesia and Guatemala. No provision for United
States federal income tax was made in 1997 as GGI and the Company each had
taxable losses for which no benefit was recorded under FAS 109. In 1998, the
Company provided for approximately $100,000 of alternative minimum tax in the
United States.
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18
LIQUIDITY AND CAPITAL RESOURCES
As discussed previously, demand for the Company's seismic acquisition
services has been and continues to be adversely affected by reduced industry
activity continuing through December 31, 1999. As a result, the Company has
required additional financing to continue operations, complete its capital
expenditure program, implement its business strategy and meet its principal and
interest obligations with respect to the Senior Notes and other indebtedness.
The Company's operating activities used $1.2 million in cash during 1999,
compared to cash generated of $17.3 million for the comparable period in 1998.
In 1999, cash used in operating activities was primarily due to the Company's
net loss of $45.8 million, partially offset by non-cash charges (impairment and
depreciation and amortization expense) and a decrease in accounts receivable.
Between August 16, 1999 and December 29, 1999, the Company issued a total
of 149,000 shares of 8% exchangeable preferred stock (the "Exchangeable
Preferred Stock") to Elliott at a price of $100 per share. This equity financing
was required to supplement available cash, cash flow generated from operations
and borrowings under the credit facility with Foothill Capital Corporation
("Foothill") to provide sufficient liquidity to fund the Company's cash
requirements. Additionally, the Company issued 677 shares, 2,252 shares and
1,265 shares of Exchangeable Preferred Stock to Elliott as of October 1, 1999,
January 1, 2000 and February 7, 2000, respectively, as payment-in-kind dividends
on the Exchangeable Preferred Stock payable on those dates. On February 7, 2000,
the Company exchanged all the outstanding Exchangeable Preferred Stock, 153,194
shares, for an equal number of shares of its new 8% convertible preferred stock
(the "Convertible Preferred Stock") with a liquidation preference of $100 per
share. This was a non-cash transaction for the Company.
In order to improve its liquidity and supplement its operating activities,
pursuant to a registration statement originally filed on October 28, 1999 and
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 for shares of its 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 Convertible Preferred Stock. The Senior Notes exchanged
represent all of the Senior Notes previously held by Elliott and Westgate
International, L.P. ("Westgate") No other Senior Notes were tendered and the
Exchange Offer expired on February 7, 2000. The consummation of the Exchange
Offer has increased the Company's liquidity by reducing its principal payment
obligations with respect to the Senior Notes and reducing the negative cash flow
impact of its interest payment obligations on the Senior Notes. 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
certain restrictive covenants in the indenture governing the Senior Notes. The
original indenture limited the Company's ability to incur additional
indebtedness, pay dividends or make certain other distributions, create liens,
sell assets or enter into certain mergers or acquisitions. The consent of
holders of a majority of the outstanding principal amount of the Senior Notes
held by holders other than the Company, its subsidiaries and affiliates was
required to approve the proposed amendments to the indenture. This required
majority was achieved by 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 under the
indenture governing the Senior Notes, dated January 19, 2000 that caused the
approved amendments to take effect. The First 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 and increased
additional indebtedness from $7.5 million to $10 million.
The Company entered into a Loan and Security Agreement with Foothill and
Elliott dated May 11, 1999. Under the terms of the original credit facility, the
Company could borrow up to $25 million. The facility was comprised of a $6
million revolving credit facility and term loans of up to $11.5 million and $7.5
million. The credit facility has a three-year term and provides for borrowings
at an interest rate per annum of the prime rate plus 1 1/2%, secured by liens on
substantially all of the assets of the Company. On February 14, 2000,
significant
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19
modifications to the credit facility were completed. 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. In addition, the notional
$11.5 million term loan, which had been reduced through periodic principal
payments to $10.1 million, was increased to the original outstanding balance of
$11.5 million. The Company was in compliance with debt covenants included in the
Loan and Security Agreement as of December 31, 1999.
As of December 31, 1999, the Company's total indebtedness was approximately
$127.9 million. The total indebtedness was comprised of $99.4 million aggregate
principal amount of the Senior Notes, $23.1 million outstanding on the
Foothill/Elliott credit facility and $5.4 million of combined loans and
capitalized leases primarily incurred for the purpose of financing capital
expenditures. Subsequent to the Exchange Offer, on March 30, 2000, the Company's
total indebtedness has been reduced to approximately $73.3 million, comprised of
$43.4 million in Senior Notes, $25.4 million outstanding on the Foothill/Elliott
credit facility and $4.5 million of combined loans and capitalized leases.
The Company's ability to meet its debt service and other obligations will
depend on its future performance, which in turn is subject to economic
conditions (both general and within the oil and gas industry) 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 First Supplemental Indenture, the Foothill/Elliott credit facility or its
other debt instruments, it may be required to refinance all or a portion of its
existing debt or obtain additional financing/equity capital. There can be no
assurance that such refinancing or additional financing/equity capital will be
available on terms acceptable to the Company.
The Company's internal sources of liquidity are its working capital and
cash flow from operations. External sources include borrowings, to the extent
available, under the Company's credit facility with Foothill/Elliott, equipment
financing and trade credit. In addition, the Company periodically enters into
equipment financing agreements with sellers of seismic data acquisition
equipment to pay all or a portion of the purchase price of such equipment and
regularly utilizes normal trade credit in connection with certain of its
purchases of goods and services to support its ongoing field crew activities.
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 selective 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,
excluding Canada. These operations, excluding Canada, accounted for 34.2% of
total revenues for the twelve months ended December 31, 1999.
Capital expenditures for 1999 were approximately $9.5 million and were used
primarily to upgrade and expand the Company's seismic data acquisition and
recording equipment. The projected capital budget for the year 2000 is
approximately $5.1 million, primarily for the upgrade and replacement of the
Company's seismic data acquisition and recording equipment. Actual capital
expenditures may be reduced to a level consistent with funding availability.
In addition to the capital expenditures listed above, for the year ended
December 31, 1999 the Company spent approximately $24.7 million on eleven
multi-client data acquisition projects principally located in Texas, California,
Wyoming and Canada. Customer commitments for those projects were approximately
40% of the project costs.
Management believes that the completion of the Exchange Offer, together
with existing cash balances, available borrowing capacity and expected cash flow
from operations will allow the Company to meet capital and debt service
requirements for the next twelve months, based on expected operating levels. The
Company may require additional funds to support working capital requirements
associated with expanding its operations through internal growth or acquisitions
or for other purposes and may seek to raise additional funds through equity or
debt financing. There can be no assurance that additional financing will be
available on commercially reasonable terms, or that such financing will be
available at all.
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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 $351,000 for the year ended December 31, 1999,
negatively impacted by a foreign exchange loss of approximately $485,000 for the
year ended December 31, 1998, and positively impacted by $77,000 of foreign
exchange gains for the three months ended December 31, 1997.
EFFECT OF INFLATION
Current economic conditions indicate that the costs of exploration and
production for oil and gas are increasing. The oil and gas industry historically
has experienced periods of rapid cost increases within short periods of time as
demand for drilling rigs, drilling pipe and other materials and supplies
increases. Increases in exploration and production costs could lead to a
decrease in such activities by oil and gas companies, which would have an
adverse effect on the demand for the Company's services.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 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 READINESS DISCLOSURE
The Year 2000 ("Y2K") problem refers to the inability of certain computer
systems and other equipment with embedded chips or processors (collectively
"Business Systems") to correctly interpret the century from a date in which the
year is represented by only two digits. Business Systems which are not Y2K ready
may not be able to correctly process certain data, or in extreme situations, may
cause a system to be disabled or fail to function reliably. As of March 24,
2000, the Company has not experienced any Y2K disruptions or failures in its
Business Systems and is not aware of any disruptions or failures with its
significant customers, suppliers, and business partners. Total costs incurred
through December 31, 1999 by the Company in connection with the Y2K issue,
including costs incurred in connection with a major upgrade of its accounting
and financial reporting systems to meet Y2K requirements, were approximately
$1.6 million.
ITEM 7A. 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 earnings 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.
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The Company estimates that if prevailing market interest rates had been ten
percent higher throughout 1998 and 1999, and all other factors affecting the
company's debt remained the same, pretax earnings would have been lower by $1.0
million in 1998 and $1.3 million in 1999. With respect to the fair value of the
Company's fixed-interest rate debt, if prevailing market interest rates had been
ten percent higher at year-end 1998 and 1999, and all other factors affecting
the Company's debt remained the same, the 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 December 31, 1998 and 1999, respectively. Given the
composition of the Company's debt structure, the Company does not, for the most
part, actively manage its interest rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted in a separate section of this report
following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The name, age and current principal position of each director, executive
officer and significant employee of the Company at March 24, 2000 are as
follows:
NAME AGE POSITION
- ---- --- --------
Donald W. Wilson...................... 52 Chairman of the Board
Richard H. Ward....................... 56 President and Chief Executive Officer
Thomas L. Easley...................... 54 Executive Vice President -- Finance &
Administration
Stephen H. Wood....................... 59 Vice President and Chief Operating
Officer
G. Matt McCarroll..................... 42 Vice President -- Business Development
James R. Brock........................ 39 Director
J. Kelly Elliott...................... 68 Director
Michael R. Latina..................... 27 Director
Jonathan D. Pollock................... 35 Director
Donald G. Russell..................... 67 Director
Executive officers are elected by and serve at the discretion of the Board
of Directors until their successors are duly elected and qualified. There are no
family relationships between or among any directors or executive officers of the
Company. See "Certain Relationships and Related Transactions" for a description
of certain other relationships between or among directors and executive officers
of the Company.
Donald W. Wilson has served as Chairman of the Board of the Company since
April 28, 1998 and as a director of the Company since January 1998. Since
October 1998, Mr. Wilson has served as President and Chief Operating Officer of
Odyssea Marine, Inc. ("Odyssea"), a marine services and power generation company
controlled by Elliott and Westgate. Mr. Wilson served as President and Chief
Executive Officer of Prime Natural Resources, Inc. ("Prime Natural Resources"),
an oil and gas exploration and production company controlled by Elliott and
Westgate, from January 1996 until October 1998. From January 1995 through
December 1995, Mr. Wilson served as Executive Vice President -- Worldwide
Operations of J. Ray McDermott, S.A., a marine engineering and construction
company. From December 1992 through December 1994, Mr. Wilson served as
President of OPI International, Inc., a subsidiary of Offshore Pipelines, Inc.
("Offshore Pipelines"), an international marine construction company.
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Richard H. Ward has served as President and Chief Executive Officer of the
Company since February 1999. From October 1998 until January 1999, Mr. Ward was
General Manager of Canadian Hunter Argentina S.A., an oil and gas company
operating in Argentina, and was also a business consultant in Argentina from
January 1998 to September 1998. Mr. Ward served as Vice President -- Latin
America of Landmark Graphics, a computer graphics company specializing in
petroleum exploration, from June 1996 until December 1997 and served as
Manager -- Geophysical Department of YPF S.A., the former national oil company
of Argentina, from June 1994 to May 1996. He was also General Manager of Latin
American Operations of Veritas Geophysical from January 1994 until May 1994.
Previously, Mr. Ward held key management positions from 1989 to 1993 at Western
Atlas International, an international geophysical services company, and from
1970 to 1989 at Geosource, an oilfield services contractor that was acquired by
Halliburton in 1988.
Thomas L. Easley has served as Vice President -- Finance & Administration
of the Company since February 7, 2000. Mr. Easley served as Vice President &
Chief Financial Officer of Boots & Coots International Well Control, Inc., an
international well control and firefighting company from September 1996 to
February 7, 2000; Vice President & Chief Financial Officer of D. I. Industries,
Inc., a land drilling contractor, from May 1995 to August 1996; and, Vice
President -- Finance of Huthnance International, Inc., an offshore drilling
contractor, from June 1992 to May 1995. He is also a Certified Public
Accountant.
Stephen H. Wood has served as Vice President and Chief Operating Officer of
the Company since February 1999. From November 1997 to February 1998, Mr. Wood
was the President of Universal Seismic Acquisition and Technologies, Inc. and
Chief Operating Officer of its parent company, Universal Seismic Associates.
From 1993 through November 1997 Mr. Wood was President of Vortex Geophysical
Operations, a consulting company specializing in geophysical data and survey
processing. He was previously employed by Halliburton Geophysical Services, and
its predecessor companies, from 1965 until 1992.
G. Matt McCarroll has served as Vice President -- Business Development of
the Company since July 1999. Mr. McCarroll previously served as President of
Augusta Petroleum Partners, LLC., a petroleum exploration and acquisition
company, from 1997 until July 1999. He was employed by Plains Resources Inc., an
oil and gas exploration and production company, as Vice President -- Land and
Exploration, from 1988 to 1997.
James R. Brock has served as a director of the Company since January 1998.
Since October 1998, Mr. Brock has served as Executive Vice President and Chief
Financial Officer of Odyssea. From January 1995 through October 1998, Mr. Brock
served as Executive Vice President and Chief Financial Officer of Prime Natural
Resources and also served as a director of that Company through February 1998.
From January 1993 until January 1995, Mr. Brock served as Vice
President-Treasurer of Offshore Pipelines, an international marine construction
company and also as its Corporate Controller and Chief Accounting Officer from
1990. He was employed by Arthur Andersen & Co., from 1981 to 1990.
J. Kelly Elliott has served as a director of the Company since September
30, 1997. Until that time, Mr. Elliott was Chairman of the Board of GGI
beginning on November 20, 1996. He previously served as Chairman of the Board of
GGI from June 1993 through November 1995. Mr. Elliott has served as Chairman,
President, and Chief Executive Officer of Sigma Electronics, Inc., an
electronics and manufacturing company, since 1991. Mr. Elliott is also Chairman
of Seaboard International, a wellhead and valve manufacturing company. Mr.
Elliott has no affiliation with Elliott Associates or Westgate.
Michael R. Latina has served as a director of the Company since February
2000. Mr. Latina has been a Portfolio Manager of energy sector investments for
Stonington Management Corporation, the management company of Elliott and
Westgate, since 1998. Mr. Latina is also a director of Prime Natural Resources;
Odyssea; Intedyne LLC, a provider of drilling tools to the oil and gas and
roadboring industries; Baycorp Holdings, Inc. an independent wholesale generator
of electricity; and Houston Street Exchange, Inc., an internet based exchange
for trading wholesale electric power and other energy commodities. He served as
a Director of Solid State from 1996 to 1997 and from 1994 to 1996 was an
investment banker in the Media and Entertainment Group with Bear, Stearns & Co.,
Inc.
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Jonathan D. Pollock has served as a director of the Company since September
30, 1997 and as Chairman of the Board of the Company from September 30, 1997
until April 28, 1998. Mr. Pollock has served as a Portfolio Manager with
Stonington Management Corporation, since 1998. Mr. Pollock is also a director of
Tatham Offshore, Inc., an oil and gas exploration services company, Chairman of
Prime Natural Resources, Chairman of the Board of Horizon Offshore, Inc., an
offshore oil and gas pipeline construction company, and Chairman of the Board of
Odyssea.
Donald G. Russell has served as a director of the Company since September
30, 1997 and a director of GGI from February 1997 until September 30, 1997 and
from July 1993 through November 1995. Mr. Russell served as Chairman of the
Board and Chief Executive Officer of Sonat Exploration Company, an oil and gas
exploration company, from 1988 until May 1998, and a director of Sonat, Inc., a
diversified energy company, from 1994 until May 1998. He has been Chairman of
the Russell Companies since May 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes information concerning the compensation of
the Company's Chief Executive Officer and the other four most highly compensated
executive officers for 1999 (the "Named Executive Officers"). The Company was
organized in September 1997 and did not conduct any operations or have any
employees before the Effective Date. As a result, the Company does not have any
executive officers with respect to whom disclosure of executive compensation is
required under the Securities Act or the rules and regulations promulgated
thereunder for 1997.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ ------------
NAME AND OTHER ANNUAL AWARDS ALL OTHER
PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS COMPENSATION
- ------------------ ---- -------- ------------ ------------ ------------
Richard H. Ward(1)....................... 1999 $203,926 -- 600,000 --
President and Chief Executive Officer
Larry E. Lenig, Jr.(2)................... 1999 $360,000 -- 80,000(3) --
Former President and Chief Executive 1998 $180,000 -- 340,000 $8,708
Officer
Michael P. Keirnan(4).................... 1999 $105,024 -- -- --
Vice President, Chief Financial Officer 1998 $ 97,000 -- 36,000 $1,391
Stephen H. Wood(5)....................... 1999 $173,559 -- 200,000 --
Vice President, Chief Operating Officer
G. Matt. McCarroll(6).................... 1999 $ 94,456 -- -- --
Vice President, Business Development
Barry K. Burt(7)......................... 1999 $148,769 -- -- --
Vice President, International
Operations 1998 $112,600 -- 36,000 $7,667
- ---------------
(1) Mr. Ward became President and Chief Executive Officer effective February 3,
1999. In conjunction with his appointment, Mr. Ward was awarded 600,000
stock options.
(2) Mr. Lenig resigned as President and Chief Executive Officer effective
January 27, 1999.
(3) In connection with the separation agreement between Mr. Lenig and the
Company, Mr. Lenig retained 80,000 of the 340,000 stock options previously
granted to him.
(4) Mr. Keirnan was Assistant to the President through June 1999 when he became
Chief Financial Officer. Mr. Keirnan has resigned effective March 31, 2000.
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(5) Mr. Wood became Vice President and Chief Operating Officer effective
February 24, 1999. In conjunction with his appointment, Mr. Wood was awarded
200,000 stock options.
(6) Mr. McCarroll became Vice President -- Business Development in July 1999.
(7) Mr. Burt resigned effective July 29, 1999.
The following table sets forth additional information with respect to stock
options granted in 1999 under the Company's Incentive Plan to the Named
Executive Officers.
OPTION GRANTS IN 1999
INDIVIDUAL GRANTS
------------------------------------ POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR OPTION
GRANTED TO EXERCISE OR TERM
OPTIONS EMPLOYEES IN BASE PRICE ------------------------------
NAME GRANTED FISCAL YEAR ($/SH) EXPIRATION DATE 5% 10%
- ---- ------- ------------ ----------- --------------- ----------- -------------
Richard H. Ward........... 600,000 75% 4.25 2/3/2009 $977,000 $1,556,000
Stephen H. Wood........... 200,000 25% 4.25 2/24/2009 $326,000 $ 519,000
The following table sets forth information with respect to the unexercised
options to purchase shares of common stock which were granted in 1999 or a prior
year under the Company's 1997 Equity and Performance Incentive Plan to the Named
Executive Officers and held by them at December 31, 1999. None of the Named
Executive Officers exercised any stock options during 1999.
AGGREGATED OPTION EXERCISES IN 1999
AND 1999 YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTION
OPTIONS AT YEAR-END AT YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Richard H. Ward............................... -- 600,000 $ -- $ --
Stephen H. Wood............................... -- 200,000 -- --
Larry E. Lenig, Jr............................ 80,000 -- -- --
Michael P. Keirnan............................ 24,000 12,000.... -- --
- ---------------
(1) There is no trading market for the Common Stock.
EMPLOYMENT AGREEMENTS
On January 27, 1999, the Company entered into a Separation Agreement and
Release (the "Separation Agreement") with Larry E. Lenig, Jr. in connection with
his resignation as the Company's President and Chief Executive Officer. Under
the terms of the Separation Agreement, Mr. Lenig will receive $15,000 per month,
plus health benefits, from March 1999 through December 2001, and $7,500 per
month, plus health benefits, from January 2002 through December 2003. Mr. Lenig
also received a bonus of $180,000, which was earned pursuant to his employment
agreement with the Company based upon the Company's 1998 results, and was
allowed to retain one-third (80,000) of the stock options awarded to him under
the 1997 Equity and Performance Incentive Plan. The stock options retained by
Mr. Lenig are exercisable until February 28, 2002. Mr. Lenig agreed that, for a
five-year period, he would not (i) compete with the Company, (ii) contact the
Company's customers or (iii) solicit any of the Company's employees to leave the
Company. The Separation Agreement replaced and superseded the Restated and
Amended Employment Agreement between the Company and Mr. Lenig dated October 1,
1997.
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Effective February 3, 1999, the Company entered into an employment
agreement with Richard H. Ward, pursuant to which Mr. Ward agreed to serve as
President and Chief Executive Officer of the Company. Mr. Ward's employment
agreement has an initial term through February 3, 2002, and provides for an
annual base salary of $225,000. In the event Mr. Ward is terminated without
"cause" (as defined in his employment agreement), the Company must make base
salary payments for the remainder of the term of his agreement. In the event the
Company terminates Mr. Ward's employment because the Board of Directors
reasonably determines that Mr. Ward has failed to perform his obligations under
his employment agreement in a manner consistent with the Board's expectations,
the Company must make payments of 50% of the base salary for the remainder of
the term of his agreement. Mr. Ward also agreed not to compete against the
Company throughout the term of his employment and for two years thereafter, and
not to disclose any confidential information during and after the term of his
employment.
Effective February 24, 1999, the Company entered into an employment
agreement with Stephen H. Wood, pursuant to which Mr. Wood agreed to serve as
Chief Operating Officer of the Company. Mr. Wood's employment agreement has an
initial term through February 24, 2002, and provides for an annual base salary
of $200,000. In the event Mr. Wood is terminated without "cause" (as defined in
his employment agreement), the Company must make payments of 50% of the base
salary for the remainder of the term of his agreement. Mr. Wood also agreed not
to compete against the Company throughout the term of his employment and for two
years thereafter, and not to disclose any confidential information during and
after the term of his employment.
Effective February 7, 2000, the Company entered into an employment
agreement with Thomas L. Easley, pursuant to which Mr. Easley agreed to serve as
Executive Vice President -- Finance & Administration of the Company. Mr.
Easley's employment agreement has an initial term through February 7, 2002, and
provides for an annual base salary of $225,000. Mr. Easley also agreed not to
compete against the Company throughout the term of his employment and for two
years thereafter, and not to disclose any confidential information during and
after the term of his employment.
1997 EQUITY AND PERFORMANCE INCENTIVE PLAN
The 1997 Equity and Performance Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors and approved by Grant's stockholders in
December 1997. The Incentive Plan was amended on three occasions to increase the
numbers of shares reserved for issuance, which presently is 2,250,000 shares.
The Incentive Plan provides for the grant to officers (including officers who
are also directors), employees, consultants and non-employee directors of Grant
and its subsidiaries. These individuals may be granted awards of "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, non-statutory stock options, stock appreciation rights and restricted
shares and deferred shares of Grant common stock.
The Board of Directors, or a committee of the Board of Directors consisting
of at least two non-employee directors, is required to administer the Incentive
Plan. The Board of Directors currently administers the plan and decides to whom
awards may be granted, the type of award to be granted and determine, as
applicable, the number of shares to be subject to each award, the exercise price
and the vesting. In making such determinations, the Board of Directors will take
into account the employee's present and potential contributions to our success
and other relevant factors. As of December 31, 1999, the Board of Directors had
granted outstanding awards covering 1,766,400 shares. Options covering 800,000
shares awarded to Richard H. Ward and Stephen H. Wood have an average exercise
price of $4.25 and vest annually in equal one-third increments beginning on
February 1, 2000. All other options awarded have an average exercise price of
$5.76 per share, with a range of $4.75 to $6.84 per share. These options vest
annually in one-third increments, the first third having vested on December 31,
1998. In addition, as of March 24, 2000, a total of 57,000 restricted shares
were granted to non-employee directors, with 54,000 of such shares being
unrestricted, subject to the satisfaction of conditions set forth under the
Incentive Plan.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock at March 24, 2000 by (i) each person
known to the Company to own beneficially more than 5% of the outstanding shares
of the Common Stock, (ii) each director and executive officer and (iii) all
executive officers and directors as a group, including persons deemed to share
voting and investment power.
AMOUNT
AND PERCENT
NATURE OF OF
BENEFICIAL COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP STOCK
- ------------------------ ---------- -------
Elliott Associates, L.P.(1)................................. 6,154,667 42.3%
Westgate International, L.P.(2)............................. 6,154,666 42.3%
Donald W. Wilson(3)......................................... 42,333
Richard H. Ward(3).......................................... 200,000 1.4%
Thomas L. Easley............................................ -- *
Steven H. Wood(3)........................................... 66,666 *
Michael P. Keirnan(3)....................................... 24,000 *
James R. Brock.............................................. 9,000 *
J. Kelly Elliott............................................ 9,000 *
Michael R. Latina........................................... 3,000 *
Jonathan D. Pollock......................................... 9,000 *
Donald G. Russell........................................... 9,000 *
All executive officers and directors as a group (10
persons).................................................. 371,999 2.6%
- ---------------
* Less than 1%.
(1) Paul E. Singer and Braxton Associates L.P., which is controlled by Mr.
Singer, are the general partners of Elliott. The business address of Elliott
is 712 Fifth Avenue, 36th Floor, New York, New York 10019.
(2) Hambledon, Inc., which is controlled by Mr. Singer, is the sole general
partner of Westgate. Martley International, Inc. ("Martley"), which is
controlled by Mr. Singer, is the investment manager for Westgate. Martley
expressly disclaims equitable ownership of and pecuniary interest in any
shares of Common Stock. The business address of Westgate is Westgate
International, L.P. c/o Midland Bank Trust Corporation (Cayman) Limited,
P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands, British West
Indies.
(3) Includes stock options covering the following number of shares that are
exercisable by May 23, 2000: Mr. Ward 200,000, Mr. Wood 66,666, Mr. Wilson
33,333, and Mr. Keirnan 24,000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On May 11, 1999, the Company entered into a loan and security agreement
with Foothill and Elliott. Under the terms of that agreement, the Company may
borrow up to $6 million through a revolving credit facility and up to $19
million through two term loans. The Company must pay interest on any such
borrowing at annual rate equal to the prime rate plus 1 1/2%. Proceeds from the
loans made under this loan agreement were used to repay all the Company's $14.8
million outstanding indebtedness to Elliott under a previous credit facility and
to provide additional liquidity and working capital to support operations. On
August 12, 1999, the loan agreement was amended to modify components of the
Company's earnings calculations under the agreement and to allow interest
payments on portions subordinated indebtedness of the Company purchased by
Elliott. On September 23, 1999, the loan agreement was amended to increase the
maximum principal amount of indebtedness under the Foothill term loan to $11.67
million and to revise the repayment schedule of that loan. On February 14, 2000,
the credit facility was further increased to $29 million by increasing
commitments under the revolving facility to $10 million and increasing the term
loan back to the original outstanding balance of $11.5 million.
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Between August 16, 1999 and January 5, 2000 the Company issued a total of
149,000 shares of Exchangeable Preferred Stock to Elliott at a price of $100 per
share. The proceeds from the sale of the Exchangeable Preferred Stock totaled an
aggregate of $14,900,000 and were used to provide the Company with additional
working capital. Additionally, the Company issued 677 shares, 2,252 shares and
1,265 shares of Exchangeable Preferred Stock to Elliott as of October 1, 1999,
January 1, 2000 and February 7, 2000, respectively, as dividends on the
Company's Exchangeable Preferred Stock payable on those dates.
On January 19, 2000, pursuant to a registration statement originally filed
on October 28, 1999 and declared effective on January 12, 2000, $56,320,000 of
Senior Notes held by Elliott and Westgate, together with $2,364,000 of accrued
and unpaid interest thereon, were exchanged for 389,722 shares of Convertible
Preferred Stock.
On February 7, 2000, the Company exchanged all the outstanding Exchangeable
Preferred Stock owned by Elliott, 153,194 shares, for an equal number of shares
of Convertible Preferred Stock having a liquidation preference of $100 per
share.
During 1999, the Company performed data acquisition and processing services
for an affiliated oil and gas exploration and production company. Further, this
affiliated company has participated as an underwriter in one of the Company's
multi-client data library programs. Revenues for these services were
approximately $4,090,000 for 1999 and related accounts receivables outstanding
at December 31, 1999 was $1,600,000. Management of the Company believes such
operations were conducted under terms and conditions comparable to third-party
customers.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See "Index to Financial Statements and Financial Statement Schedule" set
forth on Page F-1.
No schedule or schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are required,
or such schedules are not applicable, and therefore, have been omitted.
(3) EXHIBITS
The exhibits filed as part of this Form 10-K are listed on the Index to
Exhibits immediately preceding such exhibits, which index is incorporated herein
by reference.
(b) REPORTS ON FORM 8-K
None.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy statement covering the Company's last fiscal year
has been or will be circulated to security holders.
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SIGNATURES
Pursuant to the requirements of Section 13 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 30th day of March 2000.
GRANT GEOPHYSICAL, INC.
By: /s/ RICHARD H. WARD
----------------------------------
Richard H. Ward
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of March 2000.
SIGNATURE TITLE
--------- -----
/s/ RICHARD H. WARD President, Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Richard H. Ward
/s/ THOMAS L. EASLEY Executive Vice President -- Finance &
- ----------------------------------------------------- Administration and Secretary (Chief
Thomas L. Easley Financial Officer)
/s/ JOHN S. SUTJAK Controller (Principal Accounting Officer)
- -----------------------------------------------------
John S. Sutjak
/s/ DONALD W. WILSON Chairman of the Board and Director
- -----------------------------------------------------
Donald W. Wilson
/s/ JAMES R. BROCK Director
- -----------------------------------------------------
James R. Brock
/s/ J. KELLY ELLIOTT Director
- -----------------------------------------------------
J. Kelly Elliott
/s/ MICHAEL R. LATINA Director
- -----------------------------------------------------
Michael R. Latina
/s/ JONATHAN D. POLLOCK Director
- -----------------------------------------------------
Jonathan D. Pollock
/s/ DONALD G. RUSSELL Director
- -----------------------------------------------------
Donald G. Russell
26
29
INDEX TO FINANCIAL STATEMENTS
PAGE
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GRANT GEOPHYSICAL, INC. AND GGI LIQUIDATING CORPORATION
Report of Independent Accountants:
Grant Geophysical, Inc. .................................. F-1
Independent Auditors' Report:
Grant Geophysical, Inc.................................... F-2
GGI Liquidating Corporation............................... F-3
Consolidated Balance Sheets:
Grant Geophysical, Inc. as of December 31, 1998 and
1999................................................... F-4
Consolidated Statements of Operations:
GGI Liquidating Corporation for the nine-month period
ended September 30, 1997............................... F-5
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997 and the years ended December 31, 1998
and 1999............................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit):
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997 and the years ended December 31, 1998
and 1999............................................... F-6
Consolidated Statements of Cash Flows:
GGI Liquidating Corporation for the nine-month period
ended September 30, 1997............................... F-8
Grant Geophysical, Inc. for the three-month period ended
December 31, 1997 and for the years ended December 31,
1998 and 1999.......................................... F-8
Notes to Consolidated Financial Statements.................. F-9
Supplementary Financial Information......................... F-35
30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Grant Geophysical, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Grant Geophysical, Inc. and its subsidiaries at December 31, 1999
and 1998, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant e