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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
- -----
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
OR
- -----
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period to .
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Commission File Number 0-14488
SEITEL, INC.
(Exact name of registrant as specified in charter)
DELAWARE 76-0025431
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
50 Briar Hollow Lane
West Building, 7th Floor
HOUSTON, TEXAS 77027
-------------- -----
(Address of principal (Zip Code)
executive offices)
(713) 881-8900
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
---- ----
Yes X No
---- ----
As of November 13, 1997 there were 11,076,069 shares of the Company's common
stock, par value $.01 per share, outstanding.
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- --------------------------------------------------------------------------------
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
--------
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 (Unaudited)
and December 31, 1996..........................................3
Consolidated Statements of Operations
(Unaudited) for the Three Months Ended
September 30, 1997 and 1996....................................4
Consolidated Statements of Operations
(Unaudited) for the Nine Months Ended
September 30, 1997 and 1996....................................5
Consolidated Statements of Stockholders'
Equity (Unaudited) for the Nine Months
Ended September 30, 1997.......................................6
Consolidated Statements of Cash Flows
(Unaudited) for the Nine Months Ended
September 30, 1997 and 1996....................................7
Notes to Consolidated Interim
Financial Statements...........................................9
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations.........................................11
PART II. OTHER INFORMATION.............................................15
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 14,187 $ 3,340
Receivables
Trade 43,462 52,509
Notes and other 1,348 6,618
Net data bank 164,855 126,998
Net oil and gas properties 113,647 86,572
Net geophysical and other property and equipment 2,283 14,022
Investment in affiliate 14,840 914
Advances to oil and gas operators 1,677 1,235
Prepaid expenses, deferred charges and other assets 2,244 2,471
--------- ---------
TOTAL ASSETS $ 358,543 $ 294,679
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 51,950 $ 25,130
Income taxes payable 3,058 302
Debt
Senior Notes 75,000 75,000
Term Loans 566 9,025
Obligations under capital leases 106 2,463
Contingent payables 274 274
Deferred income taxes 17,567 9,793
Deferred revenue 7,524 17,051
--------- ---------
TOTAL LIABILITIES 156,045 139,038
--------- ---------
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; authorized -- --
5,000,000 shares; none issued
Common stock, par value $.01 per share;
authorized 20,000,000 shares; issued
and outstanding 11,015,730 and 10,362,102 at
September 30, 1997 and December 31, 1996,
respectively 110 104
Additional paid-in capital 121,169 105,544
Retained earnings 82,369 51,185
Treasury stock, 409 shares at cost at September
30, 1997 and December 31, 1996 (4) (4)
Notes receivable from officers and employees (1,109) (1,205)
Cumulative translation adjustment (37) 17
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 202,498 155,641
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 358,543 $ 294,679
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
------------ -----------
<S> <C> <C>
REVENUE $ 30,793 $ 30,307
EXPENSES:
Depreciation, depletion and amortization 12,653 10,824
Cost of sales 3,382 5,873
Selling, general and administrative expenses 5,377 5,187
-------- --------
21,412 21,884
-------- --------
INCOME FROM OPERATIONS 9,381 8,423
Interest expense, net (691) (761)
Equity in earnings (loss) of affiliates (58) 3
Gain on sale of subsidiary stock 18,449 --
Gain on increase in underlying equity of affiliate 10,750 --
Extinguishment of volumetric production payment (4,133) --
-------- --------
Income before provision for income taxes 33,698 7,665
Provision for income taxes 12,002 2,836
-------- --------
NET INCOME $ 21,696 $ 4,829
======== ========
Earnings per share:
Primary $ 1.95 $ .45
======== ========
Assuming full dilution $ 1.94 $ .44
======== ========
Weighted average number of common and common
equivalent shares:
Primary 11,103 10,825
======== ========
Assuming full dilution 11,166 10,893
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUE $ 92,685 $ 77,753
EXPENSES:
Depreciation, depletion and amortization 34,321 28,981
Cost of sales 15,813 13,542
Selling, general and administrative expenses 16,391 14,036
-------- --------
66,525 56,559
-------- --------
INCOME FROM OPERATIONS 26,160 21,194
Interest expense, net (2,714) (2,072)
Equity in earnings (loss) of affiliates (58) 3
Gain on sale of subsidiary stock 18,449 --
Gain on increase in underlying equity of affiliate 10,750 --
Extinguishment of volumetric production payment (4,133) --
-------- --------
Income from continuing operations before provision for
income taxes 48,454 19,125
Provision for income taxes 17,270 7,076
-------- --------
Income from continuing operations 31,184 12,049
Loss on disposal of discontinued operations, net
of income tax benefit of $580 -- (988)
-------- --------
NET INCOME $ 31,184 $ 11,061
======== ========
Earnings per share:
Primary
Income from continuing operations $ 2.86 $ 1.16
Loss on disposal of discontinued operations -- (.09)
-------- --------
Net income $ 2.86 $ 1.07
======== ========
Assuming full dilution
Income from continuing operations $ 2.82 $ 1.12
Loss on disposal of discontinued operations -- (.09)
-------- --------
Net income $ 2.82 $ 1.03
======== ========
Weighted average number of common and common
equivalent shares:
Primary 10,911 10,382
======== ========
Assuming full dilution 11,061 10,705
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<CAPTION>
Notes
Common Stock Additional Treasury Stock Receivable Cumulative
----------------- Paid-In Retained -------------- from Officers Translation
Shares Amount Capital Earnings Shares Amount & Employees Adjustments
--------- ------ ------- -------- ------ ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 9,436,854 $ 94 $ 85,821 $ 35,936 (414) $ (4) $ (1,395) $ (74)
Net proceeds from issuance of common stock 578,869 7 11,142 - 5 - - -
Acquisition of equity interest in affiliate 132,075 1 3,499 - - - - -
Tax reduction from exercise of stock options - - 3,204 - - - - -
Conversions and exchanges of subordinated 214,304 2 1,878 - - - - -
debentures
Payments received on notes receivable from
officers and employees - - - - - - 190 -
Foreign currency translation adjustment - - - - - - - 91
Net income - - - 15,249 - - - -
---------- ---- ------- ------- ---- ---- ------- ----
Balance, December 31, 1996 10,362,102 104 105,544 51,185 (409) (4) (1,205) 17
Net proceeds from issuance of common stock 653,628 6 11,152 - - - - -
Tax reduction from exercise of stock options - - 4,473 - - - - -
Payments received on notes receivable
from officers and employees - - - - - - 96 -
Foreign currency translation adjustment - - - - - - - (54)
Net income - - - 31,184 - - - -
---------- ---- ------- ------- ---- ---- ------- ----
Balance, September 30, 1997 (unaudited) 11,015,730 $ 110 $121,169 $ 82,369 (409) $ (4) $ (1,109) $ (37)
========== ==== ======= ======= ==== ==== ======= ====
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 90,783 $ 75,366
Proceeds from volumetric production payment -- 19,000
Cash paid to suppliers and employees (31,378) (30,590)
Extinguishment of volumetric production payment (11,720) --
Interest paid (2,936) (2,031)
Interest received 863 810
Income taxes paid (40) (1,500)
-------- --------
Net cash provided by operating activities 45,572 61,055
-------- --------
Cash flows from investing activities:
Cash invested in seismic data (42,979) (28,420)
Cash invested in oil and gas properties (31,189) (41,215)
Cash paid to acquire property and equipment (8,500) (8,070)
Cash from disposal of property and equipment 28 59
Proceeds from sale of stock of subsidiary 29,723 --
Costs related to sale of stock subsidiary (5,435) --
Cash received from affiliate for advances 2,094 --
Loan made to unconsolidated affiliate -- (2,000)
Cost of investment made in unconsolidated affiliate -- (109)
Collections on loans made 5,385 208
-------- --------
Net cash used in investing activities (50,873) (79,547)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit agreements 41,500 --
Principal payments under line of credit (41,500) --
Borrowings under term loans 7,925 7,697
Principal payments on term loans (2,212) (1,044)
Principal payments on capital lease obligations (811) (970)
Proceeds from issuance of senior notes -- 22,500
Proceeds from issuance of common stock 11,164 4,134
Costs of debt and equity transactions (6) (851)
Payments on receivables from officers and employees 96 190
-------- --------
Net cash provided by financing activities 16,156 31,656
-------- --------
Effect of exchange rate changes (8) 81
-------- --------
Net increase in cash and equivalents 10,847 13,245
Cash and cash equivalents at beginning of period:
Continuing operations 3,340 6,242
Discontinued operations -- 234
-------- --------
Total cash and equivalents at beginning of period 3,340 6,476
-------- --------
Cash and cash equivalents at end of period:
Continuing operations 14,187 19,721
Discontinued operations -- --
-------- --------
Total cash and equivalents at end of period $ 14,187 $ 19,721
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued
(In thousands)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
-------------- ------------
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income $31,184 $11,061
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on sale of subsidiary stock (18,449) --
Gain on increase in underlying equity of affiliate (10,750) --
Loss from discontinued operations, net of tax -- 988
Equity in loss (earnings) of affiliate 58 (3)
Depreciation, depletion and amortization 35,346 29,713
Deferred income tax provision 8,635 3,538
Amortization of deferred revenue (4,079) (2,925)
Discount on note receivable (198) --
Gain on sale of property and equipment (16) (22)
Increase in receivables (778) (3,000)
Decrease (increase) in other assets (1,986) 378
Proceeds from volumetric production payment -- 19,000
Increase in other liabilities 6,605 5,818
------- -------
Total adjustments 14,388 53,485
Net cash provided by (used in) operating activities of:
Continuing operations 45,572 64,546
Discontinued operations -- (3,491)
------- -------
$45,572 $61,055
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions of Regulation S-X. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Certain reclassifications
have been made to the amounts in the prior year's financial statements to
conform to the current year's presentation. Operating results for the nine
months ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. For further
information, refer to the financial statements and notes thereto for the year
ended December 31, 1996.
NOTE B-EARNINGS PER SHARE
Earnings per share is based on the weighted average number of
outstanding shares of common stock during the respective periods, including
common equivalent shares applicable to assumed exercise of stock options and
warrants when such common stock equivalents are dilutive, and the Company's
other potentially dilutive securities. The following is a reconciliation of the
weighted average number of shares used in the earnings per share computation (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 10,829 9,960 10,547 9,717
Common stock equivalents 274 865 364 665
------ ------ ------ ------
Weighted average shares used
for earnings per share 11,103 10,825 10,911 10,382
====== ====== ====== ======
Fully Diluted:
Weighted average shares outstanding 10,829 9,960 10,547 9,717
Common stock equivalents 337 933 514 988
------ ------ ------ ------
Weighted average shares used
for earnings per share 11,166 10,893 11,061 10,705
====== ====== ====== ======
</TABLE>
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128 - "Earnings
per Share" effective for interim and annual periods after December 15, 1997.
This statement replaces primary earnings per share ("EPS") with a newly defined
basic EPS and modifies the computation of diluted EPS. Basic earnings per common
share is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per
common share is computed by dividing net income by the weighted average number
of shares of common stock during the period plus the effect of dilutive
potential common shares. If the provisions of SFAS No. 128 had been adopted in
the third quarter of 1997 and 1996, the pro forma EPS would have been $2.00 and
$2.96 per share for basic and $1.95 and $2.86 per share for diluted for the
three-month and nine-month periods ended September 30, 1997, respectively, and
$.48 and $1.14 per share for basic and $.45 and $1.07 per share for diluted for
the three-month and nine-month periods ended September 30, 1996, respectively.
<PAGE>
NOTE C-DATA BANK
Costs incurred in the creation of proprietary seismic data, including
the direct and incremental costs of Company personnel engaged in project
management and design, are capitalized. Seismic data costs are amortized for
each project in the proportion that its revenue for a period relates to
management's estimate of ultimate revenue. Since inception, management has
established guidelines regarding its annual charge for amortization. Under these
guidelines, 90% of the cost incurred in the creation of proprietary seismic data
is amortized within five years of inception for two-dimensional seismic data and
within seven years of inception for three-dimensional seismic data, and the
final 10% is amortized on a straight-line basis over the next fifteen years.
Costs of existing seismic data libraries purchased by the Company are fully
amortized within ten years from date of purchase. On a periodic basis, the
carrying value of seismic data is compared to its estimated future revenue and,
if appropriate, is reduced to its estimated net realizable value.
NOTE D-OIL AND GAS PROPERTIES
The Company accounts for its oil and gas exploration and production
activities using the full-cost method of accounting. Under this method, all
costs associated with acquisition, exploration and development of oil and gas
reserves, including directly related overhead costs and interest costs related
to its unevaluated properties and certain properties under development which are
not currently being amortized, are capitalized. For the nine months ended
September 30, 1997 and 1996, general and administrative costs of $1,017,000 and
$800,000, respectively, have been capitalized to oil and gas properties. For the
nine months ended September 30, 1997 and 1996, interest costs of $1,535,000 and
$1,074,000, respectively, have been capitalized to oil and gas properties.
NOTE E-VOLUMETRIC PRODUCTION PAYMENT
During the third quarter of 1997, the Company entered into an agreement
to extinguish its volumetric production payment which was effective July 1,
1997. The cost to acquire the production payment liability exceeded its book
value. As a result of this transaction, the Company recorded a pre-tax loss of
$4,133,000 in the accompanying consolidated statement of operations for the
three and nine months ended September 30, 1997.
NOTE F-USE OF DERIVATIVES
The Company has a price risk management program that utilizes
derivative financial instruments, principally natural gas swaps, to reduce the
price risks associated with fluctuations in natural gas prices. These financial
instruments are designated as hedges and accounted for on the accrual basis with
gains and losses being recognized based on the type of contract and exposure
being hedged. Realized gains or losses on natural gas swaps designated as hedges
of anticipated transactions related to anticipated production are treated as
deferred credits or charges and are included in other liabilities or other
assets on the balance sheet. Net gains and losses on natural gas swaps
designated as hedges of anticipated transactions, including accrued gains or
losses upon maturity or termination of the contract, are deferred and recognized
in income when the associated hedged commodities are produced.
In order for natural gas swaps to qualify as a hedge of an anticipated
transaction, the derivative contract must identify the expected date of the
transaction, the commodity involved, and the expected quantity to be purchased
or sold. In the event that a hedged transaction does not occur, future gains and
losses, including termination gains or losses, are included in the income
statement when incurred.
In the statement of cash flows, cash receipts or payment related to
financial instruments are classified consistent with the cash flows from the
transaction being hedged.
NOTE G-ACCOUNTING FOR SALES OF STOCK BY SUBSIDIARY COMPANIES
The Company recognizes gains or losses on sales of stock by its
subsidiary companies when such sales are not made as part of a larger plan of
corporate reorganization. Such gains or losses are based upon the difference
between the book value of the Company's investment in the subsidiary immediately
after the sale and the historical book value of the Company's investment
immediately prior to the sale.
On August 11, 1997 and September 5, 1997, the Company's wholly-owned
seismic data acquisition crew subsidiary, Eagle Geophysical, Inc. ("Eagle"),
<PAGE>
completed an initial public offering of 4,644,000 shares of its common stock to
the public at a price of $17 per share (including 180,000 shares sold by certain
selling stockholders) resulting in net proceeds of $69,208,000 to Eagle after
deducting offering related expenses. The Company also sold 1,880,000 of its
3,400,000 shares of Eagle common stock in the offering as a selling stockholder.
As a result of the offering, the Company now owns 1,520,000 shares of Eagle
common stock, or 17.9% of the outstanding shares of Eagle. In addition to
certain debt repayments by Eagle, the Company received net proceeds of
$29,722,800 from its participation in the offering, resulting in a pre-tax gain,
net of costs, on the sale of Eagle common stock of $18,449,000. Additionally,
the Company recorded a pre-tax gain, net of costs, of $10,750,000 representing
an increase in the Company's underlying equity of Eagle as a result of Eagle's
issuance of stock in connection with the offering.
In connection with the Eagle offering, in May 1997, the Company
contributed its 19% ownership interest in Energy Research International to
Eagle. Contemporaneously with the offering, Eagle acquired the remaining 81% of
Energy Research International in exchange for 600,000 shares of Eagle common
stock.
NOTE H-SUPPLEMENTAL CASH FLOW INFORMATION
Significant non-cash investing and financing activities are as follows:
1. During the first nine months of 1997, the Company recorded an increase
in the underlying equity of Eagle of $13,031,000 as a result of
Eagle's issuance of stock in connection with their offering.
2. During the first nine months of 1997, capital lease obligations
totaling $374,000 were incurred when the Company entered into leases
for property and equipment.
3. During the first nine months of 1996, the Company issued 214,304
shares of its common stock upon the conversion and exchange of
$1,989,000 of its 9% convertible subordinated debentures. In
connection with these conversions and exchanges, unamortized bond
issue costs totaling $109,000 during the first nine months of 1996
were charged to additional paid-in-capital.
4. During the first nine months of 1996, the Company issued 132,075
shares of its common stock in exchange for a 50% equity interest in a
marine seismic company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
OVERVIEW
- --------
The Company's income after taxes, before a gain related to the spin-off
of its seismic crew subsidiary and a charge related to the extinguishment of its
volumetric production payment (see discussion below), was $5,553,000 and
$15,041,000 for the three and nine months ended September 30, 1997,
respectively, as compared to income from continuing operations of $4,829,000 and
$12,049,000 for the three and nine months ended September 30, 1996,
respectively.
During the third quarter of 1997, the Company's wholly-owned seismic
crew subsidiary, Eagle Geophysical, Inc. ("Eagle"), completed an initial public
offering of its stock, leaving the Company with a 17.9% equity ownership in
Eagle. As a result of this transaction, the financial results of Eagle are no
longer consolidated in the Company's financial statements beginning August 11,
1997; however, the Company's equity interest in Eagle is included in the
Company's consolidated financial statements.
RESULTS OF OPERATIONS
- ---------------------
Total revenue increased from $30,307,000 during the third quarter of
1996 to $30,793,000 during the third quarter of 1997. During the first nine
months total revenue increased from $77,753,000 in 1996 to $92,685,000 in 1997.
Revenue primarily consists of revenue generated from the marketing of seismic
data, proprietary seismic data acquisition (until August 11, 1997) and oil and
gas production.
<PAGE>
Revenue from the marketing of seismic data increased from $17,827,000
during the third quarter of 1996 to $21,955,000 during the third quarter of 1997
and increased from $50,986,000 during the first nine months of 1996 to
$57,013,000 during the first nine months of 1997. These increases are primarily
attributable to an increase in demand for high-resolution seismic data which is
being used increasingly in oil and gas development as well as exploration
efforts.
Revenue from the acquisition of proprietary seismic data performed by
Eagle was $2,762,000 during the third quarter of 1997 as compared to $6,263,000
during the third quarter of 1996. This decrease is primarily a result of Eagle's
revenue no longer being consolidated with the Company's revenue beginning August
11, 1997, due to the spin-off of Eagle. Revenue from Eagle was $16,316,000 for
the nine months ended September 30, 1997, as compared to $14,404,000 for the
nine months ended September 30, 1996.
Oil and gas revenue was $6,076,000 during the third quarter of 1997
compared to $6,217,000 during the third quarter of 1996. The 1997 quarter had
higher natural gas production and lower crude oil and condensate production.
Both gas and oil production were affected by new wells not yet reaching
anticipated production rates. Oil and gas revenue increased from $12,363,000
during the first nine months of 1996 to $19,356,000 during the first nine months
of 1997. This increase is primarily due to higher production resulting from more
wells being on line in the 1997 period (124 wells at September 30, 1997) as
compared to the 1996 period (87 wells at September 30, 1996). Net volume and
price information for the Company's oil and gas production for the third quarter
and first nine months of 1997 and 1996 is summarized in the following table:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Natural gas volumes (mmcf) 1,918 1,813 5,551 3,310
Average natural gas price ($/mcf) $2.18 $2.13 $2.49 $2.16
Crude oil/condensate volumes (mbbl) 98 129 313 261
Average crude oil/condensate price ($/bbl) $18.27 $17.49 $16.62 $18.91
</TABLE>
Depreciation, depletion and amortization consists primarily of data
bank amortization. Refer to Note C for a description of the Company's
amortization policy. Data bank amortization increased from $8,220,000 during the
third quarter of 1996 to $9,268,000 during the third quarter of 1997 and
decreased from $23,708,000 to $23,452,000 for the first nine months of 1996 and
1997, respectively. As a percentage of revenue from licensing seismic data, data
bank amortization was 47% and 43% for the third quarters of 1996 and 1997,
respectively, and 48% and 42% for the first nine months of 1996 and 1997,
respectively. These changes are primarily due to the mix of sales of 2D and 3D
data amortized at varying percentages based on each data program's current and
expected future revenue stream. The remaining depreciation, depletion and
amortization of $2,604,000 and $3,385,000 for the third quarters of 1996 and
1997, respectively, and $5,273,000 and $10,869,000 for the first nine months of
1996 and 1997, respectively, relates to depletion of oil and gas property costs
and depreciation of fixed assets. The increases between the periods are due to
increased oil and gas production and property and equipment additions.
Cost of sales consists of expenses associated with the acquisition of
seismic data for non-affiliated parties through August 11, 1997, seismic resale
support services, and oil and gas production. Cost of sales decreased from
$5,873,000 to $3,382,000 for the third quarters of 1996 and 1997, respectively,
and increased from $13,542,000 to $15,813,000 for the first nine months of 1996
and 1997, respectively. These fluctuations are due to the corresponding
fluctuation in revenue from these areas primarily due to the Eagle spin-off.
Revenue from these areas decreased from $12,511,000 to $9,046,000 during the
third quarters of 1996 and 1997, respectively, and increased from $27,547,000 to
$35,582,000 during the first nine months of 1996 and 1997, respectively.
The Company's selling, general and administrative expenses increased
during the 1997 periods as compared to the 1996 periods primarily as a result of
variable expenses related to the increased volume of business. As a percentage
of total revenue, these expenses were 17% for the third quarters of 1996 and
1997, and were 18% for the first nine months of 1996 and 1997.
<PAGE>
Net interest expense increased from $2,072,000 during the first nine
months of 1996 to $2,714,000 during the first nine months of 1997 primarily due
to borrowings made under the Company's revolving line of credit during 1997.
Additionally, $75 million was outstanding on the Company's Senior Notes for all
of the first nine months of 1997, whereas in 1996, $52.5 million was outstanding
until April 9, 1996 when the amount increased to $75 million.
On August 11, 1997 and September 5, 1997, Eagle Geophysical, Inc.
completed an initial public offering of 4,644,000 shares of its common stock
(including 180,000 shares sold by certain selling stockholders). The Company
also sold 1,880,000 of its 3,400,000 shares of Eagle common stock in the
offering as a selling stockholder. As a result of the offering, the Company now
owns 1,520,000 shares of Eagle common stock, or 17.9% of the outstanding shares
of Eagle. The Company received net proceeds of $29,722,800 from its
participation in the offering, resulting in a pre-tax gain, net of costs, on the
sale of Eagle common stock of $18,449,000 Additionally, the Company recorded a
pre-tax gain, net of costs, of $10,750,000 representing an increase in the
Company's underlying equity of Eagle as a result of Eagle's issuance of stock in
connection with the offering. The Company's equity interest in Eagle amounted to
a loss of $58,000 for the period from August 11, 1997 to September 30, 1997.
During the third quarter of 1997, the Company entered into an agreement
to extinguish its volumetric production payment which was effective July 1,
1997. The cost to acquire the production payment liability exceeded its book
value. As a result of this transaction, the Company recorded a pre-tax loss of
$4,133,000 for the three and nine months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As a result of its sale of 1,880,000 shares of Eagle common stock on
August 11, 1997 (see above), the Company received net proceeds of $29,722,800.
The value of the Company's remaining equity interest in Eagle is $30,020,000,
based on 1,520,000 shares at the September 30, 1997 closing price of $19.75 per
share as quoted by NASDAQ. These shares are subject to certain trading
restrictions.
Because Eagle is no longer consolidated in the Company's consolidated
financial statements, the amount of the Company's term loans ($14,889,000 at
June 30, 1997) was reduced to $516,000 as of November 13, 1997, and the amount
of the Company's capital lease obligations ($2,465,000 at June 30, 1997) was
reduced to $95,000 as of November 13, 1997. The Company also received repayment
of debts owed directly to it by Eagle, plus advances, amounting to $2,094,000.
From July 1995 to April 1997, the Company and two of its wholly-owned
subsidiaries obtained four separate three-year term loans totaling $1,077,000.
Two of the loans bear interest at the rate of 8.413%, and two at the rate of
7.9%. The proceeds were used for the purchase of certain property and equipment
which secures the debt. Monthly principal and interest payments total
approximately $34,000. The balance outstanding on the loans at November 13,
1997, was $516,000.
During 1994, the Company entered into a five year capital lease for the
purchase of seismic data processing equipment. Monthly principal and interest
payments total approximately $6,000. The balance outstanding under this capital
lease obligation was $95,000 at November 13, 1997.
On December 28, 1995, the Company completed a private placement of
three series of unsecured Senior Notes totaling $75 million. The Company
contemporaneously issued its Series A Notes and Series B Notes, which total
$52.5 million and bear interest at a fixed rate of 7.17%. On April 9, 1996, the
Company issued its Series C Notes, which total $22.5 million and bear interest
at a fixed rate of 7.48%. The Series A Notes mature on December 30, 2001, and
require annual principal payments of $8.333 million beginning December 30, 1999.
The Series B and Series C Notes mature on December 30, 2002, and require
combined annual principal payments of $10 million beginning December 30, 1998.
Interest on all series of the notes is payable semi-annually on June 30 and
December 30.
The Company filed a registration statement on Form S-3 (the "Shelf
Registration Statement") in June 1994 to offer from time to time in one or more
series (i) unsecured debt securities, which may be senior or subordinated, (ii)
<PAGE>
preferred stock, par value $0.01 per share, and (iii) common stock, par value
$.01 per share, or any combination of the foregoing, at an aggregate initial
offering price not to exceed $75,000,000. The Shelf Registration Statement was
declared effective by the Securities and Exchange Commission on June 30, 1994.
In August 1994, the Company completed a public offering of 1,061,200 shares of
its common stock priced at $32 per share pursuant to the Shelf Registration
Statement. The net proceeds from the offering (after underwriting commission and
offering expenses) totaled $31,917,000. After this sale of common stock at an
initial aggregate offering price of $33,958,400, the Company may offer
additional securities in the future for up to an aggregate initial offering
price of $41,041,600 pursuant to the Shelf Registration Statement.
On May 1, 1997, the Company increased its $25,000,000 unsecured
revolving line of credit facility to $50,000,000. The facility bears interest at
a rate determined by the ratio of the Company's debt to cash flow from
operations. Pursuant to the interest rate pricing structure, funds can currently
be borrowed at LIBOR plus 3/4%, the bank's prevailing prime rate, or the sum of
the Federal Funds effective rate for such day plus 1/2%. The facility matures on
July 22, 1999. As of November 13, 1997, the balance outstanding on the revolving
line of credit amounted to $500,000 bearing an interest rate of 8.5%.
In June 1996, a wholly-owned subsidiary of the Company sold a
volumetric production payment for $19 million to certain limited partnerships.
During the third quarter of 1997, the subsidiary extinguished its volumetric
production payment at a cost of $12,684,000.
From January 1, 1997 through November 13, 1997, the Company received
$12,973,000 from the exercise of common stock purchase warrants and options and
the Company's 401(k) stock purchases. In connection with these exercises, the
Company will also receive approximately $4,826,000 in tax savings.
In February 1996, the Company called for the March 31, 1996 redemption
of its 9% convertible subordinated debentures, thereby eliminating future
interest and sinking fund payments. All remaining outstanding debentures
converted to common stock.
During the nine months of 1997, gross seismic data bank additions and
capitalized oil and gas exploration and development costs amounted to
$61,256,000 and $36,309,000 respectively. These capital expenditures, as well as
bank debt repayment, taxes, interest expenses, cost of sales and general and
administrative expenses, were funded by operations, the sale of Eagle stock
discussed above, and proceeds received from the exercise of common stock
purchase warrants and options.
Currently, the Company anticipates capital expenditures for the
remainder of 1997 to total approximately $32 million. Such expenditures include
approximately $24 million for the creation of proprietary seismic data, and
approximately $8 million for oil and gas exploration and development efforts.
The Company believes its current cash balances, revenues from operating sources
and proceeds from the exercise of common stock purchase warrants and options,
combined with its available revolving line of credit, should be sufficient to
fund the remaining 1997 capital expenditures, along with expenditures for
operating and general and administrative expenses. Additionally, the Company
could arrange for additional debt or equity financing; however, there can be no
assurance that the Company would be able to accomplish any such debt or equity
financing on terms satisfactory to it.
Information Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Although the Company believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals will be achieved. Important factors that could cause actual results to
differ materially from those in the forward looking statements herein include,
but are not limited to, changes in the exploration budgets of the Company's
seismic data and related services customers, actual customer demand for the
Company's seismic data and related services, the extent of the Company's success
in acquiring oil and gas properties and in discovering, developing and producing
reserves, the timing and extent of changes in commodity prices for natural gas,
crude oil and condensate and natural gas liquids and conditions in the capital
markets and equity markets during the periods covered by the forward looking
statements.
<PAGE>
PART II - OTHER INFORMATION
Items 1., 2., 3., 4., and 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Not applicable.
(b) Reports on Form 8-K
The Registrant filed a Form 8-K on June 3, 1997, disclosing the
offering of stock of Eagle Geophysical, Inc., a wholly-owned subsidiary
of the Registrant, in an initial public offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEITEL, INC.
Dated: November 13, 1997 /s/ Paul A. Frame
-----------------------------------
Paul A. Frame
President
Dated: November 13, 1997 /s/ Debra D. Valice
-----------------------------------
Debra D. Valice
Chief Financial Officer
Dated: November 13, 1997 /s/ Marcia H. Kendrick
-----------------------------------
Marcia H. Kendrick
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,187
<SECURITIES> 0
<RECEIVABLES> 45,296
<ALLOWANCES> 486
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 137,916<F2>
<DEPRECIATION> 21,986
<TOTAL-ASSETS> 358,543
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 75,672
0
0
<COMMON> 110
<OTHER-SE> 202,388
<TOTAL-LIABILITY-AND-EQUITY> 358,543
<SALES> 92,685
<TOTAL-REVENUES> 92,685
<CGS> 15,813
<TOTAL-COSTS> 15,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,714
<INCOME-PRETAX> 48,454
<INCOME-TAX> 17,270
<INCOME-CONTINUING> 31,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,184
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 2.82
<FN>
<F1> The Company does not present a classified balance sheet; therefore, current
assets and current liabilities are not reflected in the Company's financial
statement.
<F2> PP&E does not include seismic data bank assets with a cost of $346,103,000
and related accumulated amortization of $181,248,000.
</FN>
</TABLE>
