-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q8Yubg7+jLU5xxkibiGw4iaVuxqnIfK/5IJIQ5pySasw7BIy6BYIHjFqgA45S1+a P0PxR9fx1SlObPYcjV2eIQ== 0000950134-97-003763.txt : 19970514 0000950134-97-003763.hdr.sgml : 19970514 ACCESSION NUMBER: 0000950134-97-003763 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3-D GEOPHYSICAL INC CENTRAL INDEX KEY: 0001003382 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 133841601 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27564 FILM NUMBER: 97602397 BUSINESS ADDRESS: STREET 1: 7076 S. ALTON WAY STREET 2: BUILDING H CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037413700 MAIL ADDRESS: STREET 1: 7076 SOUTH ALTON WAY STREET 2: BUILDING H CITY: ENGLEWOOD STATE: CO ZIP: 80112 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1997 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 1997 ( ) 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 0-27564 3-D GEOPHYSICAL, INC. (Exact name of Registrant as Specified in its Charter) Delaware 13-3841601 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 7076 South Alton Way, Building H Englewood, Colorado 80112 (Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (303) 290-0214 Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. The total number of shares of the registrant's Common Stock, $.01 par value per share, outstanding on May 2, 1997 was 11,625,000. 2 3-D GEOPHYSICAL, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
PART I. Financial Information Page Item 1 Financial Statements. Condensed Consolidated Balance Sheets at 3 - 4 December 31, 1996 and March 31, 1997 Condensed Consolidated Statements of Operations for the 5 Three Months Ended March 31, 1996 and March 31, 1997 Condensed Consolidated Statements of Cash Flows for the 6 Three Months Ended March 31, 1996 and March 31, 1997 Notes to Condensed Consolidated Financial Statements 7 - 11 Item 2 Management's Discussion and Analysis of Financial Condition and Results 12 - 15 of Operations. PART II. Other Information Item 1 Legal Proceedings. 16 Item 2 Changes in Securities. 16 Item 3 Defaults Upon Senior Securities. 16 Item 4 Submission of Matters to a Vote of Security Holders. 16 Item 5 Other Information. 16 Item 6 Exhibits and Reports on Form 8-K. 16 Financial Data Schedule 17 Signatures 18
2 3 3-D GEOPHYSICAL, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, March 31, 1996 1997 --------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 17,624 $ 6,556 Restricted cash 820 800 Accounts receivable billed, net of the allowance for doubtful accounts of $83 and $56 as of December 31, 1996 and March 31, 1997 11,268 17,401 Accounts receivable, unbilled 2,933 3,925 Other receivables 282 982 Deferred income taxes 108 68 Prepaid expenses and other 999 1,279 --------------- --------------- Total current assets 34,034 31,011 Property and equipment, net of accumulated depreciation of $5,525 and $6,580 as of December 31, 1996 and March 31, 1997 35,529 41,536 Goodwill, net of accumulated amortization of $362 and $490 as of December 31, 1996 and March 31, 1997 6,115 8,556 Other assets 1,588 1,641 --------------- --------------- Total assets $ 77,266 $ 82,744 =============== ===============
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 3-D GEOPHYSICAL, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
December 31, March 31, 1996 1997 --------------- --------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt and capital leases $ 7,559 $ 7,254 Accounts payable 12,912 9,784 Accrued liabilities 1,560 2,491 Deferred revenue 1,536 91 --------------- --------------- Total current liabilities 23,567 19,620 Long-term debt and capital leases, net of current maturities 4,597 6,107 Deferred income taxes 937 1,572 Stockholders' equity: Common stock, $.01 par value, 25,000,000 shares authorized, 11,100,000 and 11,625,000 shares issued and outstanding, respectively 111 116 Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding -- -- Additional paid in capital 51,426 57,581 Retained earnings 739 1,675 Cumulative foreign currency translation adjustment (4,111) (3,927) --------------- --------------- Total stockholders' equity 48,165 55,445 --------------- --------------- Total liabilities and stockholders' equity $ 77,266 $ 82,744 =============== ===============
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 3-D GEOPHYSICAL, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
For the Three Months Ended March 31, 1996 1997 --------------- --------------- Net revenues $ 7,052 $ 24,699 Expenses Cost of data acquisition 5,018 19,283 Depreciation and amortization 633 1,832 General and administrative expenses 859 2,051 --------------- --------------- 6,510 23,166 Operating income 542 1,533 Other income (expense) Miscellaneous 132 442 Interest expense (142) (338) Foreign currency transaction/ translation gains (losses) 68 (60) --------------- --------------- 58 44 Income before provision for income taxes and extraordinary item 600 1,577 Provision for income taxes 138 639 --------------- --------------- Income before extraordinary item 462 938 Extraordinary item, net of tax expense of $ 36 57 -- --------------- --------------- Net income $ 519 $ 938 =============== =============== Income per share before extraordinary $ .09 $ .08 item Extraordinary item per share, net of tax expense .01 -- --------------- --------------- Net earnings per share $ .10 $ .08 =============== =============== Weighted average common shares outstanding 5,163 11,934
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 3-D GEOPHYSICAL, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Three Months Ended March 31, 1996 1997 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash used by operating activities $ (1,862) $ (8,145) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (233) (1,497) Consideration paid to acquire seismic data acquisition companies (10,328) (2,664) Proceeds from sale of property and equipment 21 4 --------------- --------------- Net cash used by investing activities (10,540) (4,157) CASH FLOWS FROM FINANCING ACTIVITIES: Cash paid in connection with public offerings of common stock (3,268) -- Proceeds from public offerings, net of underwriting discounts 32,085 3,701 Retirement of indebtedness of acquired companies (4,599) (1,139) Principal payments on notes payable and capital leases (1,134) (3,626) Proceeds of borrowings under notes payable -- 2,300 Dividend paid to owners of predecessor company (2,510) -- --------------- --------------- Net cash provided by financing activities 20,574 1,236 Net increase (decrease) in cash 8,172 (11,066) Cash at beginning of period 609 17,624 Effect of change in exchange rate on cash 12 (2) --------------- --------------- Cash at end of period $ 8,793 $ 6,556 =============== ===============
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 7 3-D GEOPHYSICAL, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION On February 9, 1996, 3-D Geophysical, Inc. (the "Company") consummated an initial public offering (the "Offering") and simultaneously acquired in separate transactions, in exchange for cash, notes and shares of common stock, Geoevaluaciones, S.A. de C.V. ("GEO"), Processos Interactivos Avanzados, S.A. de C.V. ("PIASA"), certain assets and liabilities of the land seismic business of Northern Geophysical of America, Inc. ("Northern"), Paragon Geophysical, Inc. ("Paragon") and Kemp Geophysical Corporation ("Kemp") (collectively referred to as the "Operating Subsidiaries"). For accounting purposes the acquisitions of GEO and PIASA (the "Mexican Operations") were treated as a recapitalization of GEO and PIASA with GEO (combined with PIASA) deemed to be the acquirer of the Company and considered the predecessor company. The acquisitions of Northern, Paragon and Kemp were treated as business combinations accounted for by the purchase method of accounting as prescribed by Accounting Principles Board Opinion No. 16 ("APB 16") and SEC Staff Accounting Bulletin No. 48. Northern and Kemp are being valued at the fair market value of consideration given. In connection with the acquisitions of Northern and Kemp, the excess of consideration given over the fair market value of net assets acquired is being amortized on a straight-line basis over 15 years. The acquisition of Paragon's Common Stock in exchange for shares of the Company's common stock was accounted for at Paragon's historical costs. The accompanying condensed consolidated financial statements include the accounts of Northern, Kemp and Paragon from February 9, 1996, the effective date of the acquisitions. In December 1996, Paragon and Kemp were merged into Northern. ACQUISITION OF J.R.S. EXPLORATION On January 27, 1997 the Company consummated the purchase of J.R.S. Exploration Company, Limited ("J.R.S. Exploration"), a Canadian seismic data acquisition company, by acquiring all of the issued and outstanding stock of several intermediate holding companies which existed solely as holding companies for the stock of J.R.S. Exploration. On that same date, in a separate transaction, the Company purchased all of the issued and outstanding stock of Siegfried & Siegfried Resource Consultants, Limited ("Siegfried & Siegfried"), a Canadian company owned by a key employee of J.R.S. Exploration, which leased certain seismic data acquisition equipment to J.R.S. Exploration. These acquisitions were effected through a newly-formed subsidiary of the Company, 3-D Geophysical of Canada, Inc. ("3-D Canada") whereby shares of 3-D Canada, which are convertible into shares of the Company on a one-for-one basis, and cash were exchanged for the stock of the acquired companies. These acquisitions are being treated for accounting purposes as purchase business combinations under the provisions of APB 16, with the excess of consideration paid to acquire these companies over the fair market value of the assets acquired being accounted for as goodwill, which is being amortized over a 15-year life on a straight-line basis. The condensed consolidated financial statements of the Company include the operations of J.R.S. Exploration and Siegfried & Siegfried (the "Canadian Operations") from January 1, 1997, which is the date that management of the Company and the former shareholders of the acquired companies deem to be the date upon which the Company assumed effective control of the operations of the acquired companies. For accounting purposes, the shares of 3-D Canada are deemed to be outstanding shares of the Company. Due to the acquisition of the Canadian Operations and the acquisitions of Northern, Paragon and Kemp after the end of the first month in the quarter ended March 31, 1996, and due to the fact that the United States Operations contain a full quarter of performance during 1997, the Company's condensed consolidated financial statements as of and for the three months ended March 31, 1997 are not comparable to the financial statements of the Company as of and for the three months ended March 31, 1996. 7 8 3-D GEOPHYSICAL, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The consideration paid to the former owners of the Canadian Operations and the allocation of such consideration to the acquired assets is as follows:
(in thousands) -------------- Cash paid for the stock and assets of the acquired companies $ 2,665 Stock issued to the former owners of the Canadian Operations at a price of $9.00 per share 2,625 Liabilities assumed: Bank overdraft 637 Accounts payable 2,019 Accrued and other current liabilities 420 Debt assumed: Current 1,139 ---------- Amounts allocated to acquired assets $ 9,505 ========== Allocation of the purchase price to the acquired assets: Cash $ 137 Accounts receivable: Trade 3,516 Prepaid expenses and other current assets 28 Property and equipment 3,082 Goodwill 2,742 ---------- $ 9,505 ==========
The 1996 year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosure required by generally accepted accounting principles. In the opinion of the Company, the accompanying condensed consolidated financial statements include all adjustments which are of a normal recurring nature necessary to present fairly the Company's financial position at March 31, 1997, the results of its operations for the three-month periods ended March 31, 1996 and 1997, and its cash flows for the three- month periods ended March 31, 1996 and 1997. All significant intercompany accounts have been eliminated. Although the Company believes that this disclosure is adequate to make the information presented not misleading, certain information and footnote disclosure normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, which was filed pursuant to the Securities Exchange Act of 1934, as amended. The results of operations for the three-month period ended March 31, 1997 are not necessarily indicative of the results to be expected for the full year. 8 9 3-D GEOPHYSICAL, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PRO FORMA INFORMATION The accompanying summary pro forma information for the Company for the three-month periods ended March 31, 1996 and 1997 represents the operations of the Company as if the acquisitions of the Operating Subsidiaries and the Canadian Operations, and the Company's public offerings had occurred on January 1, 1996.
For the Three Months Ended March 31, (in thousands, except per share data) 1996 1997 ---------------- ---------------- Net revenues $ 14,362 $ 24,699 ================ ================ Extraordinary item, net of tax expense $ 57 $ - ================ ================ Net income $ 821 $ 938 ================ ================ Income per share before extraordinary item .06 .08 Extraordinary item per share, net of tax expense .01 - ---------------- ---------------- Earnings per share .07 .08 ================ ================
The pro forma results described above assume a weighted average number of common shares outstanding of 11,934,000. The summary pro forma information is not necessarily indicative of the actual results that would have been achieved if the acquisitions of the Operating Subsidiaries and the Canadian Operations, and the Company's public offerings had occurred on the date indicated or which may be realized in the future. REVENUE RECOGNITION AND REVENUE ADJUSTMENTS The Company generates revenue through providing seismic data acquisition and geophysical services. Revenues from seismic data acquisition and geophysical services are recognized as the work progresses on the percentage of completion method. Net revenues may include contractual revenue adjustments from the Company's operations in Mexico, for which the related seismic data acquisition and geophysical services have been provided. These revenue adjustments are based on independent economic data, primarily the Mexican inflation rate as measured by the consumer price index. Contractual revenue adjustments for the three month periods ended March 31, 1996 and 1997 are not considered by the Company to be significant to the quarterly financial statements. 2. SECOND PUBLIC OFFERING OF COMMON STOCK On December 17, 1996, the Company completed a second public offering of 3,500,000 shares of common stock at a price to the public of $7.50 per share. Subsequently, on January 2, 1997, the underwriters exercised their overallotment option to purchase an additional 525,000 shares at a price to the public of $7.50 per share. Total proceeds to the Company, net of the underwriters' discounts and offering costs, were approximately $27.2 million. Of these net proceeds, $4.0 million was used to pay the cash portion of the purchase price for the Canadian Operations and to retire certain of their existing debt obligations, $3.0 million was used to retire certain debt obligations outstanding under a loan agreement with First Interstate Bank of Texas, N.A., a subsidiary of Wells Fargo Bank, $20.2 million has been and will be used to purchase additional seismic data acquisition equipment and for working capital purposes. 9 10 3-D GEOPHYSICAL, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. CONCENTRATIONS OF CREDIT RISK During the three months ended March 31, 1997, one customer accounted for 25% of net revenues and during the three months ended March 31, 1996, two customers accounted for 28% and 23% of net revenues, respectively. As of December 31, 1996, two customers accounted for 33% and 13% of accounts receivable, respectively, and as of March 31, 1997, one customer accounted for 31% of accounts receivable. 4. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share", was issued. This statement, which is required to be adopted in the fourth quarter of fiscal 1997, establishes standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock. This statement simplifies the standards for computing EPS under existing accounting principles and makes it more comparable to international accounting standards. This statement requires restatement of all prior-period EPS data presented, however, management believes that the adoption of this standard will not have a significant impact on the financial statements. 5. EARNINGS PER SHARE The number of shares used in the EPS calculation is determined as follows:
For the Three Months Ended March 31, 1997 -------------- Shares outstanding at December 31, 1996 11,100,000 Shares sold in overallotment option relating to second public offering 519,167 Shares deemed issued to former owners of J.R.S. Exploration 291,666 Common stock equivalents, principally common stock options 22,698 ----------- Weighted average common shares outstanding 11,933,531 ===========
6. INCOME TAXES The effective income tax rates for the three months ended March 31, 1996 and 1997 are 23% and 41%, respectively. The differences between the statutory federal income tax rate on income before provision for income taxes and extraordinary item, and the Company's effective income tax rate, result primarily from the effects of the inflation component of Mexican tax law for the three months ended March 31, 1996 which caused the Company to realize inflation related deductions during that time, thereby lowering the effective tax rate. During the three months ended March 31, 1997, the Company's tax rate was slightly higher than the U.S. statutory tax rate due to the Company realizing taxable income due to the inflation component in Mexico, combined with the effect of the Company earning substantial taxable income in Canada, where the statutory tax rate is 45%. 10 11 3-D GEOPHYSICAL, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES GEO has a dispute, and may be threatened with litigation, in connection with certain agreements it entered into with Capilano International Inc., a Canadian company ("Capilano"). The dispute concerns a certain Letter of Intent and a certain Technical Assistance Agreement, dated June 3, 1991 and June 1, 1992, respectively (the "Capilano Agreements"). Capilano stated in its 1994 Annual Report to Shareholders that it has had difficulty in collecting amounts owing from a Mexican company (presumably, GEO) to which Capilano supplied technical assistance and stated in its 1995 Annual Report to Shareholders that it had written down accounts receivable in Mexico by approximately Canadian $1.9 million (approximately U.S. $1.4 million). GEO maintains that it is not obligated to compensate Capilano for certain services GEO believes were either inadequately provided or not provided at all by Capilano and the parties disagree upon how certain profits and losses should be allocated under the Capilano Agreements. Representatives of Capilano and GEO have had periodic discussions since May, 1996 in an effort to resolve this dispute. The Company is not currently able to estimate the effect, if any, on GEO's results of operations and financial position which may result from resolution of this matter. Accordingly, the Company's financial statements do not reflect any adjustment related to this matter. A portion of the amounts payable to the former stockholders of GEO in connection with the acquisition by the Company of the stock of GEO owned by such stockholders is held in escrow and available to pay amounts in settlement or otherwise in connection with the dispute with Capilano. 11 12 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For accounting purposes, GEO (together with PIASA) is considered the predecessor company and the financial performance of Northern, Kemp and Paragon are included as of February 9, 1996. In December 1996, Paragon and Kemp were merged into Northern. The financial performance of J.R.S. Exploration and Siegfried & Siegfried are included as of January 1, 1997. The Company's statements of operations and cash flows for the three months ended March 31, 1997 are not comparable to the statements of operations and cash flows for the three months ended March 31, 1996, and the Company's balance sheet as of March 31, 1997 is not comparable to its balance sheet as of December 31, 1996. The following discussion has been divided into two sections. The first section relates to the operating performance of the Company. The second section discusses the Company's liquidity and capital resources as of March 31, 1997. For the purposes of this discussion, the operations of GEO, PIASA and 3-D Geophysical of Latin America, Inc. are considered the "Latin American Operations", the operations of J.R.S. Exploration and Siegfried & Siegfried are considered the "Canadian Operations" and the operations of Northern Geophysical and 3-D Geophysical are considered the "United States Operations". RESULTS OF OPERATIONS These forward-looking statements reflect numerous assumptions, involve a number of risks and uncertainties, and actual results may vary materially. Among the factors that could cause actual results to differ materially are: unanticipated adverse weather conditions; the level of activity in the oil and gas industry; inflationary trends; interest and exchange rates, and the other risks detailed from time to time in the Company's filings with the SEC. Three Months Ended March 31, 1997 compared to March 31, 1996 Net revenues. Net revenues for the Company increased 250.2% to $24.7 million in the three months ended March 31, 1997 from $7.1 million in the three months ended March 31, 1996. The increase is primarily attributable to the inclusion of $5.0 million of net revenues of the Canadian Operations and a 259.2% increase to $17.6 million in the three months ended March 31, 1997, from $4.9 million in the three months ended March 31, 1996, for the United States Operations. These increases were partially offset by a 4.8% decrease to $2.0 million for the three months ended March 31, 1997 from $2.1 million for the three months ended March 31, 1996 for the Latin American Operations. The increase in net revenues for the United States Operations is primarily attributable to a large contract with a major customer in the North Slope region of Alaska as well as the 1997 period reflecting a full quarter of performance. The decrease in revenues for the Latin American Operations relates to delays in the start-up phases of the 3-D contract which began in December of 1996 near Poza Rica, Mexico and will be completed this year. Cost of Data Acquisition. Cost of data acquisition for the Company increased 284.3% to $19.3 million in the three months ended March 31, 1997 from $5.0 million in the three months ended March 31, 1996. The increase is primarily attributable to the inclusion of $3.3 million of cost of data acquisition of the Canadian Operations and a 305.7% increase to $14.2 million in the three months ended March 31, 1997, from $3.5 million in the three months ended March 31, 1996, for the United States Operations. The increase in cost of data acquisition for the United States Operations is primarily attributable to a large contract with a major customer in the North Slope region of Alaska as well as 1997 reflecting a full quarter of performance. Cost of data acquisition for the Latin American Operations increased 22.8% to $1.8 million for the three months ended March 31, 1997 from $1.5 million for the three months ended March 31, 1996. Gross margins for the United States Operations decreased to 20% from 29% primarily due to the North Slope project. This is due to the fact that much of the equipment utilized to complete that contract was leased instead of being owned. This situation resulted in large rental costs being realized in the completion of that project but did not result in a negative impact on the Company's return on assets. Gross margins for operations in the contiguous United States increased to 33% from 29% due to improved productivity in the Company's operations in Texas and California. Gross margins for the Latin American Operations decreased to 9% from 29% due to the Company not recognizing field margin on the 3-D contract which began in December of 1996 near Poza Rica, Mexico in order to comply with the Company's accounting 12 13 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (continued) policies. Such accounting policies do not allow for the recognition of margin on data acquisition contracts which are not at least 20% complete as measured by cost incurred to date. Depreciation and Amortization. Depreciation and amortization for the Company increased 189.4% to $1.8 million in the three months ended March 31, 1997 from $633,000 in the three months ended March 31, 1996. The increase is partially attributable to the inclusion of $180,000 of depreciation and amortization of the Canadian Operations and a 147.2% increase to $1.2 million in the three months ended March 31, 1997, from $500,000 in the three months ended March 31, 1996, for the United States Operations. Depreciation and amortization for the Latin American Operations increased 212.8% to $416,000 for the three months ended March 31, 1997 from $133,000 for the three months ended March 31, 1996. The increase in depreciation and amortization for the United States Operations and the Latin American Operations is primarily attributable to purchases of approximately $23.8 million of new seismic data acquisition and related equipment during 1996. General and Administrative Expenses. General and administrative expenses for the Company increased 138.8% to $2.1 million in the three months ended March 31, 1997 from $859,000 in the three months ended March 31, 1996. The increase is partially attributable to the inclusion of $343,000 of general and administrative expenses of the Canadian Operations. In addition, general and administrative expenses for the United States Operations increased 112.1% to $1.2 million for the three months ended March 31, 1997 from $581,000 for the three months ended March 31, 1996. General and administrative expenses of the Latin American Operations increased 71.3% to $476,000 for the three months ended March 31, 1997 from $278,000 for the three months ended March 31, 1996. General and administrative expenses increased in the United States due to the added costs associated with being a public company and increased marketing costs and due to 1997 reflecting a full quarter of performance. The increase in general and administrative expenses for the Latin American Operations is due to the opening of the Company's branch office in Peru and also due to the addition of support staff in Mexico City needed to complete this year's awarded contracts. Operating Income. Operating income for the Company increased 182.8% to $1.5 million in the three months ended March 31, 1997 from $542,000 for the three months ended March 31, 1996. The increase is primarily attributable to the inclusion of $1.2 million of operating income from the Canadian Operations and a 177.7% increase to $1.0 million for the three months ended March 31, 1997 from $365,000 for the three months ended March 31, 1996 for the Company's operations in the United States. These increases were partially offset by a 506.2% decrease due to an operating loss of $719,000 for the three months ended March 31, 1997 from operating income of $177,000 for the three months ended March 31, 1996 for the Latin American Operations. Operating income increased in the United States based on the growth in net revenues and the full quarter of income being reflected in 1997. Operating income for the Latin American Operations decreased due to the Company not recognizing field margin on the 3-D contract which began in December of 1996 near Poza Rica, Mexico in order to comply with the Company's accounting policies. Such accounting policies do not allow for the recognition of margin on data acquisition contracts which are not at least 20% complete as measured by costs incurred to date. Miscellaneous Income (Expense). The Company's miscellaneous income increased 234.8% to $442,000 for the three months ended March 31, 1997, from $132,000 for the three months ended March 31, 1996. The increase is primarily the result of larger amounts of interest income being earned from the unutilized proceeds of the company's second public offering. Interest Expense. The Company's interest expense increased 138.0% to $338,000 for the three months ended March 31, 1997 from $142,000 for the three months ended March 31, 1996. The increase is attributable to interest charges on borrowings of approximately $8.0 million of term debt and $2.0 million of revolving credit under a facility with the Company's principal lender during the three months ended March 31, 1997. This credit facility was entered into in May 1996. 13 14 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (continued) Foreign Currency Losses. The Company recognized a foreign currency loss of $60,000 in the three months ended March 31, 1997 compared to a foreign currency gain of $68,000 in the three months ended March 31, 1996. The loss is primarily attributable to the fluctuation of the Peso/Dollar exchange rate. The inflation rate in Mexico, as measured by the consumer price index, has exceeded 100% for the three years ended December 31, 1996. Accordingly, the Company has adopted the dollar as the functional currency for the Mexican Operations beginning January 1, 1997 as prescribed by Statement of Financial Accounting Standards No. 52 ("Statement 52"). Using the dollar as the functional currency results in adjustments to the consolidated statement of operations for foreign currency translation gains and losses. In 1996, these amounts were included in cumulative foreign currency translation adjustments, reflected in stockholders' equity, and were not charged to earnings. For the three months ended March 31, 1997, the adjustment resulting from the adoption of the dollar as the functional currency in accordance with Statement 52 did not have a significant impact on the financial statements. Income Tax Expense. The Company provided for income tax expense from operations of $639,000 in the three months ended March 31, 1997 compared to income tax expense of $138,000 in the three months ended March 31, 1996. The increase is primarily attributable to the United States Operations and Canadian Operations being taxed at 38% and 45% effective tax rates, respectively, partially offset by a 36% effective tax rate for losses of the Latin American Operations. LIQUIDITY AND CAPITAL RESOURCES From December 31, 1996 to March 31, 1997, total assets of the Company increased from $77.3 million to $82.7 million, total liabilities decreased from $29.1 million to $27.3 million and total stockholders' equity increased from $48.2 million to $55.4 million. These changes are principally due to the acquisition of the Canadian Operations, the exercise of the underwriters' overallotment option relating to the company's second public offering and the 1997 first quarter earnings of the Company. On December 17, 1996, the Company completed a second public offering of 3,500,000 shares of common stock at a price to the public of $7.50 per share. Subsequently, on January 2, 1997, the underwriters exercised their overallotment option to purchase an additional 525,000 shares at a price to the public of $7.50 per share. The proceeds, net of the underwriters' discounts and offering costs, were approximately $27.2 million. Of these net proceeds, $4.0 million was used to pay the cash portion of the purchase price for the Canadian Operations and to retire certain of their existing debt obligations, $3.0 million was used to retire certain debt obligations outstanding under a loan agreement with Wells Fargo Bank Texas, N. A., formerly First Interstate Bank of Texas, N. A., $20.2 million has been and will be used to purchase additional seismic data acquisition equipment and for working capital purposes. At March 31, 1997 the Company had $6.6 million of cash. The Company utilized $8.1 million net cash from operating activities in the three months ended March 31, 1997 compared with utilizing $1.9 million in the three months ended March 31, 1996. The increase in net cash utilized from operating activities is primarily due to increased revenues in the current year from the Company's operations in the United States and Canada, which led to growth in the Company's receivables. Net cash used in investing activities decreased to $4.2 million in the three months ended March 31, 1997 from $10.5 million in the same period in the prior year. The decrease is due to both periods including acquisitions of seismic data acquisition businesses with 1997 reflecting a smaller acquisition than for the three months ended March 31, 1996. This decrease was partially offset by equipment purchases of $1.5 million during the three months ended March 31, 1997 compared to $233,000 during the three months ended March 31, 1996. 14 15 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (continued) Net cash provided by financing activities decreased to $1.2 million for the three months ended March 31,1997 from $20.6 million in the three months ended March 31, 1996 due to the completion of the Company's initial public offering in February 1996. At November 1, 1996, the Company's estimated backlog of commitments for services totaled $54.6 million. The Company expects to complete substantially all of these commitments during 1997 and 1998; however, commitments are subject to cancellation at the option of the Company's customers on short notice and without penalty. The Company believes that its planned capital expenditures and operating requirements through the end of 1997 will be funded from cash from operations and proceeds from the second public offering and other equipment financing if required. If other financing is required, there can be no assurance that the Company will be able to obtain financing on terms favorable to the Company, or at all. If the financing sources described above are insufficient to fund the Company's planned capital expenditures and operating requirements and the Company is unable to obtain additional financing, the Company may be unable to complete its capital expenditure program and may be materially and adversely affected as a result. 15 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. (a) List of exhibits Financial Data Schedule (b) The Company filed a Current Report on Form 8-K (the "Form 8-K") on March 27, 1997, pursuant to Item 2 of Form 8-K, reporting the purchases of J.R.S. Exploration Company Limited and Siegfried & Siegfried Resource Consultants Limited (the "Canadian Operations") for an aggregate purchase price consisting of C$3,650,000 and 291,666 shares of the Company's Common Stock. The cash portion of the purchase price for the Canadian Operations was funded from the proceeds of the Company's December 1996 public offering. The Company filed Amendment No. 1 to the Form 8-K on April 10, 1997 for the purpose of reporting the financial statements required to be filed pursuant to Item 7 of Form 8-K. 16 17 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 3-D GEOPHYSICAL, INC. DATED: May 8, 1997 BY: /S/ RICHARD DAVIS Richard Davis President and Chief Executive Officer DATED: May 8, 1997 BY: /S/ RONALD L. KOONS Ronald L. Koons Treasurer and Chief Financial Officer (principal financial and accounting officer) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 0001003382 3-D GEOPHYSICAL, INC. 1,000 YEAR DEC-31-1997 JAN-01-1997 MAR-31-1997 7,356 0 21,382 56 29 31,011 48,116 6,580 82,744 19,620 6,107 0 0 116 55,329 82,744 0 24,699 0 19,283 3,883 0 338 1,577 639 938 0 0 0 938 0.08 0.08
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