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UNITED STATES
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, 1998
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: 0-22863
EAGLE GEOPHYSICAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 76-0522659
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 BRIAR HOLLOW LANE
6TH FLOOR WEST
HOUSTON, TEXAS 77027
(Address of Principal Executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (713) 881-2800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 14 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 [ ]
The number of shares outstanding of the issuer's common stock, as of May
15, 1998: 8,587,360
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EAGLE GEOPHYSICAL, INC.
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
<TABLE>
<S> <C>
PART 1 -- FINANCIAL INFORMATION............................. 3
ITEM 1. FINANCIAL STATEMENTS................................ 3
Consolidated Balance Sheets -- March 31, 1998 (unaudited)
and December 31, 1997..................................... 3
Consolidated Statements of Operations for the three-month
periods ended March 31, 1998 and 1997 (unaudited)......... 4
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 1998 and 1997 (unaudited)......... 5
Consolidated Statement of Stockholders' Equity.............. 6
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 10
PART II -- OTHER INFORMATION
ITEM 6...................................................... 14
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
EAGLE GEOPHYSICAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of
$5,000 and $4,502 at March 31, 1998 and December 31,
1997 respectively....................................... $ 8,639 $ 19,482
Receivables:
Trade, billed, Net of Allowance for Doubtful Accounts of
$282 (unaudited) at March 31, 1998 and $132 at
December 31, 1997..................................... 11,120 11,291
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. 300 2,576
Other................................................... 1,072 546
Due from affiliate........................................ 14,860 12,500
Inventory................................................. 3,263 1,705
Prepaid expenses and other assets......................... 3,300 2,273
Deferred income taxes..................................... 515 515
-------- --------
Total current assets............................... 43,069 50,888
PROPERTY AND EQUIPMENT, AT COST:
Geophysical equipment..................................... 94,381 69,418
Furniture, fixtures and other............................. 636 652
-------- --------
95,017 70,070
Less: Accumulated depreciation............................ (17,568) (14,873)
-------- --------
Net property and equipment......................... 77,449 55,197
MULTI-CLIENT DATA LIBRARY................................... 2,729 --
GOODWILL, NET............................................... 20,573 17,990
OTHER LONG-TERM ASSETS...................................... 107 230
-------- --------
TOTAL ASSETS....................................... $143,927 $124,305
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations.............. $ 2,898 $ 2,816
Accounts payable.......................................... 20,022 15,671
Accrued liabilities....................................... 10,282 7,849
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 9,642 6,029
-------- --------
Total current liabilities.......................... 42,844 32,365
LONG-TERM DEBT.............................................. 7,000 --
CAPITAL LEASE OBLIGATIONS................................... 7,134 7,944
DEFERRED INCOME TAXES AND OTHER OBLIGATIONS................. 1,012 --
-------- --------
TOTAL LIABILITIES.................................. 57,990 40,309
-------- --------
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; authorized
25,000,000 shares; issued and outstanding 8,587,360
(unaudited) shares at March 31, 1998 and 8,489,000 at
December 31, 1997....................................... 86 85
Additional paid-in capital................................ 83,941 82,622
Retained earnings......................................... 2,335 1,714
Note receivable from Stockholder.......................... (425) (425)
-------- --------
TOTAL STOCKHOLDERS' EQUITY......................... 85,937 83,996
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $143,927 $124,305
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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EAGLE GEOPHYSICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTH
PERIODS ENDED
MARCH 31,
------------------
1998 1997
------- -------
(UNAUDITED)
<S> <C> <C>
REVENUES(1)................................................. $23,880 $12,981
EXPENSES
Operating expenses (exclusive of depreciation and
amortization shown below)(1)........................... 17,439 9,286
Depreciation and amortization............................. 2,888 1,302
Selling, general and administrative expenses.............. 2,496 450
Interest expense.......................................... 188 276
Interest income........................................... (221) (118)
Other, net................................................ 46 --
------- -------
22,836 11,196
------- -------
Income before provision for income taxes.................... 1,044 1,785
Provision for income taxes.................................. 423 655
------- -------
NET INCOME.................................................. $ 621 $ 1,130
======= =======
Basic earnings per share.................................... $ .07 $ .33
======= =======
Weighted average number of common shares (basic)............ 8,498 3,400
======= =======
Diluted earnings per share.................................. $ .07 $ .33
======= =======
Weighted average number of common shares (diluted).......... 8,499 3,400
======= =======
</TABLE>
- ---------------
(1) Includes revenue from affiliates of $14,309 and 8,081 for the unaudited
three-month periods ended March 31, 1998 and 1997, respectively, and
operating expenses related to such affiliate revenue of $12,204 and $5,948
for the unaudited three month periods ended March 31, 1998 and 1997,
respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
4
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EAGLE GEOPHYSICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH PERIODS
ENDED MARCH 31,
-------------------
1998 1997
-------- -------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 621 $ 1,130
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,888 1,302
Gain on sale of property and equipment.................... -- (14)
Deferred income tax provision............................. 85 64
Bad debt expense.......................................... 150 --
(Increase) decrease in receivables........................ (821) 3,159
Increase in other assets.................................. (3,571) (119)
Increase in accounts payable and other liabilities........ 8,761 959
-------- -------
Total adjustments................................. 7,492 5,351
-------- -------
Net cash provided by operating activities......... 8,113 6,481
-------- -------
Cash flows from investing activities:
Purchase and upgrades of property and equipment........... (21,578) (6,737)
Cash received on disposal of property and equipment....... -- 27
Cash paid for shot-hole drilling company, net of cash
acquired............................................... (3,470) --
-------- -------
Net cash used in investing activities............. (25,048) (6,710)
-------- -------
Cash flows from financing activities:
Borrowings under credit facility.......................... 7,000 --
Borrowings under term loans............................... -- 7,564
Principal payments on term loans.......................... -- (620)
Principal payments on capital leases...................... (908) (346)
Payment to affiliate...................................... -- (6,369)
-------- -------
Net cash provided by financing activities......... 6,092 229
-------- -------
Net increase (decrease) in cash and cash equivalents........ (10,843) --
Cash and cash equivalents at beginning of period............ 19,482 --
-------- -------
Cash and cash equivalents at end of period.................. $ 8,639 $ --
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 194 $ 276
======== =======
Income taxes.............................................. $ 129 $ --
======== =======
Noncash investing activities:
Equipment purchased through capital leases................ $ -- $ 300
======== =======
Purchase of shot-hole drilling company for 98,360 shares
of common stock........................................ $ 1,500 $ --
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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EAGLE GEOPHYSICAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
--------------- PAID-IN RETAINED FROM STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDER EQUITY
------ ------ ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997........ 8,489 $85 $82,622 $1,714 $(425) $83,996
Unaudited:
Acquisition of shot hole drilling
company......................... 98 1 1,499 -- -- 1,500
Net Income........................ -- -- -- 621 -- 621
Other, net........................ -- -- (180) -- -- (180)
----- --- ------- ------ ----- -------
Balance, March 31, 1998........... 8,587 $86 $83,941 $2,335 $(425) $85,937
===== === ======= ====== ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
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EAGLE GEOPHYSICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1998
1. BASIS OF PRESENTATION AND SIGNIFICANT ACTIVITIES
The accompanying unaudited interim condensed financial statements of Eagle
Geophysical Inc. (the "Company") for the three months ended March 31, 1998 and
1997 have been prepared without an audit pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of management, all
adjustments, which consist of normal recurring adjustments, necessary to present
fairly the financial position, results of operations, and cash flows for all
periods presented have been made. Operating results for the interim period are
not necessarily indicative of the results that can be achieved for a full year.
It is suggested that these interim condensed financial statements be read in
conjunction with the audited financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K.
On March 24, 1998, the Company completed the acquisition of a shot-hole
drilling company for approximately $4.3 million in cash, 98,360 shares of the
Company's common stock and deferred compensation payable to the former owner of
$.5 million. This company was a privately held provider of seismic shot-hole
drilling and related front-end services for the seismic data acquisition
industry. The Company accounted for this acquisition under the purchase method
of accounting. The Company is currently evaluating the value of assets acquired
and liabilities assumed in order to determine the final purchase price
allocation related to this acquisition.
In April 1998, the Company entered into an agreement with British Linen
Bank for the financing of the Labrador Horizon upgrades and the purchase of the
vessel for a total commitment of approximately $31.3 million. The facility bears
interest at a rate of LIBOR plus 1.375% and requires the Company to enter into a
lease purchase agreement with British Linen Bank for a period of five years
commencing upon completion of the upgrades. The facility requires a security
deposit of approximately $5 million with scheduled amounts to be refunded based
upon a predetermined formula. Additionally, the Company has the option to
acquire the vessel at the end of the lease purchase agreement for a price of .1%
of the total facility commitment.
In April 1998, the Company obtained a term loan with Fleet Capital
Corporation for the financing of an Opseis system for approximately $5.9
million. The loan is for a period of five years and bears interest at a fixed
rate of 7.36%. Monthly payments of approximately $117,000 will be made under the
loan with the Opseis system pledged as security for the loan.
2. EARNINGS PER COMMON SHARE
Net income per share of common stock has been computed on the basis of the
weighted average number of common shares outstanding during the period and,
where dilutive, the effect of common stock contingently issuable, which arises
primarily from the exercise of stock options, in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS"), No. 128 "Earnings Per
Share". The weighted average shares of common stock outstanding for the
calculation of basic earnings per share was 8,498,000 and 3,400,000 for the
three months ending March 31, 1998 and 1997 respectively. The weighted average
shares of common stock outstanding for the calculation of diluted earnings per
share was 8,499,000 and 3,400,000 for the three months ending March 31, 1998 and
1997 respectively.
3. PRO FORMA RESULTS OF OPERATIONS
On August 11, 1997, the Company completed the acquisition of the remaining
81% interest in Energy Research International ("ERI") with the issuance of
600,000 shares of common stock for a purchase price valued at approximately $8.4
million. On August 11, 1997 and September 5, 1997, the Company completed the
offering and sale of a total of 6,524,000 shares of common stock to the public
at a price of $17 per share
7
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EAGLE GEOPHYSICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(including 1,880,000 shares sold by the Company's former parent, Seitel, Inc.
and 180,000 shares sold by the former owners of ERI) resulting in a net proceeds
of $69.1 million after deducting offering related expenses (the "Offering"). The
following table presents the unaudited pro-forma effects of the Offering and the
application of the net proceeds thereof to retire certain debt and capital
leases, and the purchase of ERI as if such transactions had occurred on January
1, 1997:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Pro Forma Revenues.......................................... $23,880 $23,179
Pro Forma Income Before Taxes............................... 1,044 2,640
Pro Forma Net Income........................................ 621 2,190
Pro Forma Weighted Average Common Shares
Outstanding -- Basic...................................... 8,498 8,489
Pro Forma Basic Earnings Per Common Share................... $ .07 $ .26
======= =======
Pro Forma Weighted Average Common Shares
Outstanding -- Diluted.................................... 8,499 8,489
Pro Forma Diluted Earnings Per Common Share................. $ .07 $ .26
======= =======
</TABLE>
4. LONG-TERM DEBT
The Company had the following debt outstanding as of March 31, 1998 and
December 31, 1997 (in thousands) :
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Base rate borrowings pursuant to a credit facility with Bank
One, Texas N.A............................................ $7,000 $ --
Less amounts due within one year............................ -- --
------ ----
Total long-term debt.............................. $7,000 $ --
====== ====
</TABLE>
The Company has an agreement with Bank One, Texas N.A. with respect to a
$20,000,000 revolving credit facility secured by the Company's accounts
receivable ("the Bank One Credit Facility"). The amount the Company may borrow
under the facility is limited to a borrowing base that is equal to 90% of the
eligible U.S. and U.K. investment grade accounts receivable, as defined, 100% of
receivables secured by acceptable letters of credit, and 80% of eligible
non-investment grade domestic and other foreign receivables. Interest only is
payable monthly or at the end of LIBOR interest periods, and the credit facility
is payable in full in three years. Mandatory prepayments are required if
borrowings exceed the borrowing base. Interest accrues under the credit facility
at the bank's base rate or LIBOR plus a spread of 1.375% if the Company's debt
to net worth ratio is less than 1 to 1, and 1.625% if such ratio is equal to or
greater than 1 to 1. As of March 31, 1998, the Company had a borrowing base of
approximately $20.0 million under this facility. As of March 31, 1998, the
Company was not in compliance with one of the financial covenants of the Bank
One Credit Facility, and has obtained a waiver from Bank One of such
non-compliance.
5. COMMITMENTS AND CONTINGENCIES
The Company is involved in or threatened with various legal proceedings
from time to time arising in the normal course of business. Management of the
Company does not believe that any liabilities resulting from such proceedings
will have a material adverse effect on its operations or financial position.
8
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EAGLE GEOPHYSICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
The Company generally provides services to a relatively small number of
customers, so that individual customers account for significant portions of the
Company's accounts receivable at any given time. Credit losses incurred on
receivables have historically been immaterial to the Company. The Company
currently has one receivable from a customer of $2,384,000 that is approximately
one year old. Management currently believes that this receivable is collectible,
although in light of the age of this receivable, the Company has increased its
reserve for doubtful accounts to $282,000 as of March 31, 1998.
6. RELATED PARTY TRANSACTIONS
Prior to the Offering, the Company was a wholly-owned subsidiary of Seitel,
Inc. Seitel currently owns approximately 17.7% of the outstanding common stock
of the Company. The Company enters into various types of transactions with
Seitel and its subsidiaries. The Company performs seismic data acquisition
services for Seitel's seismic data library subsidiary and its exploration and
production subsidiary. For the unaudited three-month periods ended March 31,
1998 and 1997, the Company recognized revenue of $14,309,000 and $8,081,000,
respectively, for seismic data acquisition services performed for Seitel's
subsidiaries. Prior to August 11, 1997 such revenues from affiliates were based
on prices charged to unaffiliated third parties for similar work. Gross margin
recognized on work for affiliates was limited in each reporting period to the
total margin percentage earned on work for unaffiliated parties. Subsequent to
August 11, 1997, revenues from affiliates were based on agreed upon contractual
amounts and terms similar to contracts with other third party customers.
Prior to the Offering the Company reimbursed Seitel for direct and indirect
costs of certain Seitel employees who provided services to the Company and for
other costs, primarily general and administrative expenses, related to the
Company's operations. Seitel allocated indirect costs to the Company using a
formula based upon the ratio of the Company's levels of revenue, number of
personnel or other factors, as applicable, to the total consolidated Seitel
levels for such factors. Management of the Company believes that the use of such
formula resulted in a reasonable allocation of indirect costs. During the
unaudited period from January 1, 1997 to March 31, 1997, the Company recorded
general and administrative costs allocated from Seitel of $271,000. Prior to
August 11, 1997, Seitel funded the Company's direct operating costs through
intercompany advances and was reimbursed for such advances as the Company had
available cash. Amounts payable to or receivable from Seitel and its
subsidiaries bore interest at the same rates which Seitel was charged or
received. During the unaudited period from January 1, 1997 to March 31, 1997,
the Company recorded net interest income of $97,000 related to the amounts
payable to or receivable from Seitel and its subsidiaries.
Prior to the Offering, the Company leased certain marine seismic equipment
to Horizon Exploration Limited, a marine seismic company wholly-owned by Energy
Research International, under a five-year operating rental agreement expiring
June 30, 2001. In connection with the Offering, the Company acquired all of the
outstanding stock of ERI. For the unaudited three month period ended March 31,
1997, the Company recognized revenue of $434,000 related to this lease.
Subsequent to the Offering, such rental income and expense has been eliminated
in the Company's consolidated results of operations.
7. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement requires the reporting of
comprehensive income which includes net income plus all other non owner changes
in equity during the period. This statement is effective for interim periods
beginning after December 15, 1997. For the quarters ended March 31, 1998 and
1997, there is no difference between the Company's "traditional" and
"comprehensive" net income.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded
9
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EAGLE GEOPHYSICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
information of a company's operating segments. It also expands the definition of
what constitutes an entity's operating segments. This statement is required to
be adopted for fiscal years beginning after December 15, 1997. The Company
intends to adopt this statement during its fiscal year ending December 31, 1998.
The Company is currently evaluating what effect, if any, this statement will
have on its operating segment financial statement disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities", which requires costs of start-up activities and organization costs
to be expensed as incurred. The provisions of the statement are effective for
fiscal years beginning after December 15, 1998 and encourages early adoption.
Management adopted this statement in January 1998 and does not believe the
adoption had a material effect on the Company's financial position and results
of operations.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's revenues are generated from the sale of onshore and offshore
seismic data acquisition services and, commencing in March 1998, the sale of
seismic shot-hole drilling and front end services. The Company focuses its
onshore operations and front end services in logistically difficult wetland
environments along the U.S. Gulf Coast, and focuses its offshore operations
through Energy Research International (ERI) in congested areas in the North Sea
and the U.S. Gulf of Mexico. The Company generally provides its onshore seismic
data acquisition services under fixed fee contracts with its customers. The
Company provides its offshore seismic data acquisition services under either
distance- or time-based contracts (or a combination of both methods) or turnkey
contracts that provide for a fixed fee. The Company generally does not retain
rights to the data acquired. Onshore operations including front end services
accounted for approximately 75% of the Company's consolidated revenues for the
three months ended March 31, 1998, with offshore operations accounting for the
remaining 25% of consolidated revenues.
Because the Company derives a portion of its offshore revenues from sales
internationally, the Company is subject to risks relating to fluctuations in
currency exchange rates. The Company's costs and revenues from offshore
operations have historically been evenly divided between the U.S. dollar and the
British pound. The Company's financial statements are prepared using the U.S.
dollar as the functional currency, and, therefore, fluctuations in the exchange
rate between the U.S. dollar and the British pound affect the Company's costs
and revenues. Historically, fluctuations in exchange rates have not had a
material impact on the Company's results of operations, and the Company does not
currently engage in any currency hedging activities. As the Company expands its
operations into new geographic markets, such as Latin America, Africa and
Southeast Asia, which may involve more extensive currency risks, the Company
intends to protect itself against foreign currency fluctuations by generally
attempting to match foreign currency revenues and expenses in order to balance
its net position of receivables and payables denominated in foreign currencies,
by endeavoring to require its customers to pay for services in U.S. dollars and,
to a lesser extent, by purchasing foreign exchange contracts and other foreign
exchange instruments to counteract currency fluctuations.
The Company generally provides services to a relatively small number of
customers, so that individual customers account for significant portions of the
Company's accounts receivable at any given time. Credit losses incurred on
receivables have historically been immaterial to the Company. The Company
currently has one receivable from a customer of $2,384,000 that is approximately
one year old. Management currently believes that this receivable is collectible,
although in light of the age of this receivable, the Company has increased its
reserve for doubtful accounts to $282,000 as of March 31, 1998.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following discussion of the results of operations is divided into a
discussion of the Company's onshore operations, which includes front end
services, and the Company's offshore operations. The discussions for the three
months ended March 31, 1997 are presented based on the unaudited proforma
revenues and expenses of the separate companies including periods prior to the
ERI Acquisition, which occurred contemporaneously with the Offering. The
revenues of the Company for the three months ended March 31, 1997 include
intercompany profits from work performed for Seitel, the Company's parent
corporation prior to the Offering, and its subsidiaries.
ONSHORE OPERATIONS
Quarter Ending March 31, 1998 Compared to March 31, 1997
Revenue increased 43% from $12.5 million in the first quarter of 1997 to
$17.8 million in the first quarter of 1998, primarily due to the Company's third
onshore crew, acquired during the first quarter of 1997, operating for the
entire quarter in 1998 as well as higher revenues derived from the increased
channel capacity of the Company's crews from 1,850 channels per crew in the 1997
period to 2,350 channels per crew in the 1998 period.
Operating costs (excluding depreciation) increased 43% from $9.3 million in
the first quarter of 1997 to $13.3 million in the first quarter of 1998,
primarily due to the operations of the third onshore crew for the entire 1998
period. Operating margin percentage was 25.5% for the first quarter of 1998
compared to an operating margin of 26.0% for the 1997 quarter.
Depreciation and amortization increased 46% from $1.3 million in the first
quarter of 1997 to $1.9 million in the first quarter of 1998, resulting from
operating three crews for the entire quarter in 1998 and the increased
depreciation associated with the upgrade to 2,350 channels per crew after the
1997 period. Selling, general and administrative expenses increased 129% from
$0.7 million in the first quarter of 1997 to $1.6 million in the first quarter
of 1998, primarily due to the addition of administrative staff to support the
expanded operations and additional corporate staff and corporate office
expenses. Net interest expense decreased from $0.15 million in the 1997 period
to $(0.08) million in the 1998 period due to the retirement of certain debt and
capital leases and higher cash balances as a result of proceeds from the
Offering.
OFFSHORE OPERATIONS
Quarter Ending March 31, 1998 Compared to March 31, 1997
Revenue decreased 43% from $10.6 million in the first quarter of 1997 to
$6.1 million in the first quarter of 1998, primarily due to decreased vessel
utilization. The Company's vessel the Labrador Horizon was in drydock for the
entire quarter completing a $20 million upgrade, the vessel Discoverer underwent
a bi-annual maintenance inspection, and the vessel Abshire Tide was
decommissioned and replaced by the Celtic Horizon, which required shipyard work
prior to commencing service. Additionally, the Discoverer and the Abshire Tide
worked for a portion of the 1998 quarter acquiring multi-client data, which
instead of generating current revenue will generate revenue in the future as
data is licensed to customers. Thus, the Company had only one vessel operating
for the entire first quarter of 1998 and two vessels operating for a partial
quarter as compared to all four vessels fully utilized in the first quarter of
1997.
Operating expenses (excluding depreciation) decreased 40% from $6.8 million
in the first quarter of 1997 to $4.1 million in the first quarter of 1998 due to
the decreased vessel utilization as previously discussed. Operating margins were
32% for both periods as a result of these changes in revenues and operating
costs.
Depreciation and amortization decreased 41% from $1.7 million in the first
quarter of 1997 to $1.0 million in the first quarter of 1998, resulting from the
upgrades to the Labrador Horizon performed during the 1998 quarter. Selling,
general and administrative expenses increased from $0.5 million in the first
quarter of 1997 to $0.8 million in the first quarter of 1998 due to increases in
personnel required for the expansion of the Company's vessel fleet as more fully
explained below.
11
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LIQUIDITY
The Company's working capital as of March 31, 1998 was $0.2 million. The
indebtedness of the Company as of such date consisted of borrowings from the
Bank One Credit Facility and capital lease obligations, totaling approximately
$17.0 million.
The Company has commenced expanding its existing data acquisition
capabilities through the expansion of the streamer towing capacity of its vessel
the Labrador Horizon. The upgrades to this vessel were initiated late in the
fourth quarter of 1997 and were completed at the end of the first quarter of
1998. The capital cost of these upgrades was approximately $20.0 million. As of
March 31, 1998, the Company operated the Labrador Horizon under a capital lease
with Simon-Horizon Limited ("Simon"), which in turn leased the vessel from the
Royal Bank of Scotland ("RBS") under a capital lease. Pursuant to the
arrangement between the Company and Simon, the Company was required to use its
best endeavors to obtain the release of Simon from all obligations in connection
with the lease of this vessel. In April 1998, the Company entered into a capital
lease with British Linen Bank, described below, which allowed the Company to
terminate the lease arrangement with Simon and RBS and provided funding for the
$20.0 million upgrade to the Labrador Horizon.
In April 1998, the Company entered into definitive agreements with British
Linen Bank for the financing of the Labrador Horizon upgrade. As part of this
financing, British Linen Bank purchased the vessel from the previous owner, is
funding the approximately $20.0 million upgrades to the vessel, and has entered
into a capital lease of the vessel to the Company for a five-year term
commencing upon completion of the upgrades, for a total commitment of
approximately $31.3 million. The facility bears interest at a rate of LIBOR plus
1.375% and required the Company to post a security deposit of approximately $5
million with scheduled amounts to be refunded based upon a predetermined
formula. Additionally, the Company has the option to acquire the vessel at the
end of the term of the capital lease for a price of 0.1% of the total facility
commitment.
The Company intends to upgrade and equip two additional offshore seismic
vessels, at an aggregate capital cost (including acquisition costs) of
approximately $97.2 million. The Company acquired the two vessels, the Austral
Horizon and the Atlantic Horizon, during the fourth quarter of 1997 for purchase
prices of approximately $1.6 million and $3.6 million, respectively. These
acquisitions were funded with cash flows from operations. The Company intends to
upgrade and equip the vessels during the second and third quarter of 1998. The
costs to upgrade and equip the two vessels will be approximately $33.0 million
for the Austral Horizon and approximately $59.0 million for the Atlantic
Horizon. The Company has currently expended $14.9 million (including acquisition
costs) and currently has $68.0 million of capital commitments outstanding
related to these projects. The Company intends to fund these capital costs with
a combination of cash from operations and additional debt financing.
In September 1997, the Company ordered a fourth Opseis seismic data
acquisition system at an estimated total cost of approximately $5.9 million as
part of the Company's addition of a fourth crew at a total cost of $8.6 million.
In April 1998, the Company entered into a $5.9 million term loan with Fleet
Capital Corporation for the financing of this Opseis system at a fixed rate of
7.36%. Monthly payments of approximately $117,000 will be made under the loan
with the Opseis system pledged as security for the loan.
The Company has an agreement with Bank One, Texas, N.A. with respect to a
$20.0 million revolving credit facility secured by the Company's accounts
receivable. The amount the Company may borrow under the revolving credit
facility is limited to a borrowing base that is equal to 90% of eligible U.S.
and U.K. investment grade accounts receivable, 100% of receivables secured by
acceptable letters of credit and 80% of non-graded U.S. or foreign receivables
and other eligible receivables approved by the bank. Interest only is payable
monthly or at the end of LIBOR interest periods, and the credit facility is
payable in full in three years. Mandatory prepayments are required if borrowings
exceed the borrowing base. Interest accrues under the credit facility at the
bank's base rate or at LIBOR plus a spread of 1.375% if the Company's debt to
net worth ratio is less than 1 to 1, and 1.625% if such ratio is equal to or
greater than 1 to 1. As of March 31, 1998, $20.0 million was available for
borrowing under the facility and $7.0 million of borrowings were outstanding.
12
<PAGE> 13
In March 1998, the Company acquired the common stock of a privately-held
company providing seismic shot-hole drilling and front-end services, for a price
of approximately $6.3 million consisting of approximately $4.3 million in cash,
98,360 shares of the Company's common stock and deferred compensation payable to
the former owner of $.5 million. The Company financed the cash portion of the
acquisition with a combination of cash flows from operations and borrowings from
the Company's revolving credit facility.
The Company believes that its planned capital expenditures and operating
requirements through the end of 1998 will be funded from the Bank One Revolving
Credit facility, additional equipment financing, the Company's cash flow from
operations and additional debt financing. The Company anticipates that its cash
flow from operations will be sufficient to fund its operating requirements for
the foreseeable future, and that any additional capital expenditures will be
funded from the Company's cash flow from operations and additional debt
financing. If the Company is not able to obtain additional financing, it will be
unable to make such capital expenditures and the Company's financial position
and results of operations may be materially and adversely affected as a result.
13
<PAGE> 14
PART II -- OTHER INFORMATION
ITEMS 1-5 -- NOT APPLICABLE
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<C> <S>
3.1 -- Amendments to Bylaws of Eagle Geophysical, Inc.
27.1 -- Financial Data Schedule
</TABLE>
14
<PAGE> 1
EXHIBIT 3.1
AMENDMENT TO BYLAWS
EAGLE GEOPHYSICAL, INC.
Article II, Section 3 of the Bylaws of the Company is amended to read in
its entirety as follows:
Section 3. Annual Meetings. An annual meeting of the
stockholders, for the election of directors to succeed those
whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such
place, within or without the State of Delaware, on such date, and
at such time as the Board of Directors shall fix and set forth in
the notice of the meeting, which date shall be within thirteen
(13) months subsequent to the later of the date of incorporation
or the last annual meeting of the stockholders.
To be properly brought before an annual meeting, business
must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly
brought before the meeting by a stockholder. For business to be
properly brought before the meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than 60
days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must
be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, of the stockholder
proposing such business, (c) the class and number of shares of
the Corporation that are beneficially owned by the stockholder,
and (d) any material interest of the stockholder in such
business. Notwithstanding anything in the Bylaws to the
contrary, no business shall be conducted at the annual meeting
except in accordance with the procedures set forth in this
Section 3. The chairman of the annual meeting shall, if the
facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance
with the provisions of this Section 3, and if he should so
determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be
transacted.
<PAGE> 2
Only persons who are nominated in accordance with the
procedures set forth in this Section 3 shall be eligible for
election as Directors. Nominations of persons for election to
the Board of Directors of the Corporation may be made at a
meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to
vote for the election of Directors at the meeting who complies
with the notice procedures set forth in this Section 3. Such
nominations, other than those made by or at the direction of the
Board of Directors, shall be made at such meeting only after
timely notice in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the
Corporation, not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than
70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such
public disclosure was made. A stockholder's notice to the
Secretary shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a
Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or
employment of such persons, (iii) the class and number of shares
of the Corporation that are beneficially owned by such person and
(iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election
of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended (including without limitation such persons' written
consent to being named in the proxy statement as a nominee and to
serving as a Director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the
Corporation's books, of such stockholder, and (ii) the class and
number of shares of the Corporation that are beneficially owned
by such stockholder. At the request of the Board of Directors,
any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be
eligible for election as a Director of the Corporation unless
nominated in accordance with the procedures set forth in this
Section 3. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination
was not made in accordance with the procedures prescribed by the
Bylaws, and if he should so determine, he shall so declare to the
meeting that the defective nomination shall be disregarded.
Article II, Section 4 of the Bylaws of the Company is amended to read in
its entirety as follows:
Section 4. Special Meetings. Unless otherwise provided
in the Certificate of Incorporation, special meetings of the
stockholders for any purpose or purposes may be called at any
time by the Chairman of the Board (if any), by the President or
by a majority of the Board of Directors, or by a majority of the
executive committee (if any), and shall be called by the Chairman
of the Board (if any), by the President or the Secretary upon the
written request therefor, stating the purpose or purposes of
<PAGE> 3
the meeting, delivered to such officer, signed by the holder(s)
of at least fifty-one percent (51%) of the issued and outstanding
stock entitled to vote at such meeting.
Adopted as of January 27, 1998, by the Board of Directors of Eagle
Geophysical, Inc.
/s/ Richard W. McNairy
-------------------------------
Richard W. McNairy, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1.,
FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,639
<SECURITIES> 0
<RECEIVABLES> 12,492
<ALLOWANCES> (282)
<INVENTORY> 3,263
<CURRENT-ASSETS> 43,069
<PP&E> 95,017
<DEPRECIATION> (17,568)
<TOTAL-ASSETS> 143,927
<CURRENT-LIABILITIES> 42,844
<BONDS> 0
0
0
<COMMON> 86
<OTHER-SE> 85,851
<TOTAL-LIABILITY-AND-EQUITY> 143,927
<SALES> 23,880
<TOTAL-REVENUES> 23,880
<CGS> 17,439
<TOTAL-COSTS> 22,823
<OTHER-EXPENSES> 46
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (33)
<INCOME-PRETAX> 1,044
<INCOME-TAX> 423
<INCOME-CONTINUING> 621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 621
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
