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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
OR
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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
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
50 Briar Hollow Lane
West Building, 7th Floor
HOUSTON, TEXAS 77027
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(Address of principal (Zip Code)
executive offices)
(713) 881-8900
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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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.
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Yes X No
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As of August 12, 1997 there were 10,812,938 shares of the Company's common
stock, par value $.01 per share, outstanding.
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<PAGE>
INDEX
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1997 (Unaudited) and December 31, 1996.................3
Consolidated Statements of Operations (Unaudited)
for the Three Months Ended June 30, 1997 and 1996...............4
Consolidated Statements of Operations (Unaudited)
for the Six Months Ended June 30, 1997 and 1996.................5
Consolidated Statements of Stockholders' Equity (Unaudited)
for the Three Months Ended June 30, 1997........................6
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended June 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...................................................14
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
Cash and equivalents $ 3,795 $ 3,340
Receivables
Trade 57,164 52,509
Notes and other 5,429 6,618
Net data bank 146,574 126,998
Net oil and gas properties 95,250 86,572
Net geophysical and other property and equipment 19,858 14,022
Investment in affiliate 914 914
Advances to oil and gas operators 4,540 1,235
Prepaid expenses, deferred charges and other assets 3,077 2,471
----------- ----------
TOTAL ASSETS $ 336,601 $ 294,679
=========== ==========
LIABILITIES AND STOCKHOLDERS'EQUITY
Accounts payable and accrued liabilities $ 32,087 $ 25,130
Income taxes payable 156 302
Debt
Senior Notes 75,000 75,000
Line of credit 11,000 -
Term Loans 14,889 9,025
Obligations under capital leases 2,465 2,463
Contingent payables 274 274
Deferred income taxes 12,427 9,793
Deferred revenue 18,004 17,051
----------- ----------
TOTAL LIABILITIES 166,302 139,038
----------- ----------
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 10,627,446
and 10,362,102 at June 30, 1997 and December 31,
1996, respectively 106 104
Additional paid-in capital 110,739 105,544
Retained earnings 60,673 51,185
Treasury stock, 409 shares at cost at
June 30, 1997 and December 31, 1996 (4) (4)
Notes receivable from officers and employees (1,205) (1,205)
Cumulative translation adjustment (10) 17
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 170,299 155,641
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 336,601 $ 294,679
=========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
REVENUE $ 34,673 $ 27,180
EXPENSES:
Depreciation, depletion and amortization 11,560 10,111
Cost of sales 7,389 4,399
Selling, general and administrative expenses 6,296 5,346
Net interest expense 984 727
--------- ---------
26,229 20,583
--------- ---------
Income from continuing operations before provision
for income taxes 8,444 6,597
Provision for income taxes 3,040 2,441
--------- ---------
Income from continuing operations 5,404 4,156
Loss on disposal of discontinued operations, net of
income tax benefit of $580 - (988)
--------- ---------
NET INCOME $ 5,404 $ 3,168
========= =========
Earnings per share:
Primary
Income from continuing operations $ .50 $ .41
Loss on disposal of discontinued operations - (.10)
--------- ---------
Net income $ .50 $ .31
========= =========
Assuming full dilution
Income from continuing operations $ .49 $ .41
Loss on disposal of discontinued operations - (.10)
--------- ---------
Net income $ .49 $ .31
========= =========
Weighted average number of common and common
equivalent shares:
Primary 10,891 10,258
========= =========
Assuming full dilution 10,923 10,273
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUE $ 61,892 $ 47,446
EXPENSES:
Depreciation, depletion and amortization 21,668 18,157
Cost of sales 12,431 7,669
Selling, general and administrative expenses 11,014 8,849
Net interest expense 2,023 1,311
--------- ---------
47,136 35,986
--------- ---------
Income from continuing operations before provision
for income taxes 14,756 11,460
Provision for income taxes 5,268 4,240
--------- ---------
Income from continuing operations 9,488 7,220
Loss on disposal of discontinued operations, net
of income tax benefit of $580 - (988)
--------- ---------
NET INCOME $ 9,488 $ 6,232
========= =========
Earnings per share:
Primary
Income from continuing operations $ .88 $ .72
Loss on disposal of discontinued operations - (.10)
--------- ---------
Net income $ .88 $ .62
========= =========
Assuming full dilution
Income from continuing operations $ .87 $ .71
Loss on disposal of discontinued operations - (.10)
--------- ---------
Net income $ .87 $ .61
========= =========
Weighted average number of common and common
equivalent shares:
Primary 10,839 10,131
========= =========
Assuming full dilution 10,888 10,248
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<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, 1993 5,987,388 $ 60 $ 25,709 $ 17,942 (414) $ (4) $ (2,039) $ (85)
Sale of common stock through public offering 1,061,200 11 31,906 - - - - -
Net proceeds from issuance of common stock 770,364 7 7,280 - - - - -
Tax reduction from exercise of stock options - - 1,879 - - - - -
Conversion and exchanges of subordinated
debentures 1,006,667 10 8,837 - - - - -
Payments received on notes receivable from
officers and employees - - - - - - 488 -
Foreign currency translation adjustment - - - - - - - 13
Net income - - - 9,315 - - - -
---------- ---- ------- ------- ---- ---- ------- ----
Balance, December 31, 1994 8,825,619 88 75,611 27,257 (414) (4) (1,551) (72)
Net proceeds from issuance of common stock 445,939 4 6,894 - - - - -
Tax reduction from exercise of stock options - - 1,900 - - - - -
Conversions and exchanges of subordinated 165,296 2 1,416 - - - - -
debentures
Payments received on notes receivable from
officers and employees - - - - - - 156 -
Foreign currency translation adjustment - - - - - - - (2)
Net income - - - 8,679 - - - -
---------- ---- ------- ------- ---- ---- ------- ----
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 265,344 2 3,447 - - - - -
Tax reduction from exercise of stock options - - 1,748 - - - - -
Foreign currency translation adjustment - - - - - - - (27)
Net Income - - - 9,488 - - - -
---------- ---- ------- ------- ---- ---- ------- ----
Balance, June 30, 1997 (unaudited) 10,627,446 $ 106 $110,739 $ 60,673 (409) $ (4) $ (1,205) $ (10)
========== ==== ======= ======= ==== ==== ======= ====
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 58,067 $ 43,789
Proceeds from volumetric production payment - 20,000
Cash paid to suppliers and employees (24,875) (23,363)
Interest paid (2,595) (1,724)
Interest received 484 439
Income taxes paid (40) (800)
---------- -----------
Net cash provided by operating activities 31,041 38,341
---------- -----------
Cash flows from investing activities:
Cash invested in seismic data (28,355) (14,008)
Cash invested in oil and gas properties (14,416) (32,479)
Cash paid to acquire property and equipment (7,960) (3,100)
Cash from disposal of property and equipment 28 59
Collections on loans made 269 94
---------- -----------
Net cash used in investing activities (50,434) (49,434)
---------- -----------
Cash flows from financing activities:
Borrowings under line of credit agreements 32,000 -
Principal payments under line of credit (21,000) -
Borrowings under term loan 7,925 433
Principal payments on term loans (2,061) (571)
Principal payments on capital lease obligations (372) (640)
Payments on notes receivable from officers and employees - 45
Proceeds from issuance of senior notes - 22,500
Proceeds from issuance of common stock 3,451 1,970
Costs of debt and equity transactions (2) (36)
---------- -----------
Net cash provided by financing activities 19,941 23,701
---------- -----------
Effect of exchange rate changes (93) (182)
---------- -----------
Net increase in cash and equivalents 455 12,426
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 3,795 18,902
Discontinued operations - -
---------- -----------
Total cash and equivalents at end of period $ 3,795 $ 18,902
========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1997 1996
--------- ----------
<S> <C> <C>
Reconciliation of net income to net cash provided by operating
activities:
Net income $ 9,488 $ 6,232
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 22,537 18,619
Loss from discontinued operations, net of tax - 988
Deferred income tax provision 2,634 2,120
Amortization of deferred revenue (4,086) -
Discount on note receivable (53) -
Gain on sale of property and equipment (16) (22)
Increase in receivables (4,080) (6,227)
Increase in other assets (4,398) (2,021)
Proceeds from volumetric production payment - 20,000
Increase in other liabilities 9,015 595
--------- ----------
Total adjustments 21,553 34,052
Net cash provided by (used in) operating activities of:
Continuing operations 31,041 40,284
Discontinued operations - (1,943)
--------- ----------
$ 31,041 $ 38,341
========= ==========
</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)
June 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 six months
ended June 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 Six Months Ended
---------------------- ----------------------
June 30, June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary:
- -------
Weighted average shares outstanding 10,439 9,702 10,404 9,595
Common stock equivalents 452 556 435 536
---------- ---------- ---------- ----------
Weighted average shares used
for earnings per share 10,891 10,258 10,839 10,131
========== ========== ========== ==========
Fully Diluted:
- -------------
Weighted average shares outstanding 10,439 9,702 10,404 9,595
Common stock equivalents 484 571 484 653
---------- ---------- ---------- ----------
Weighted average shares used
for earnings per share 10,923 10,273 10,888 10,248
========== ========== ========== ==========
</TABLE>
<PAGE>
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 second quarter
of 1997 and 1996, the pro forma EPS would have been $.52 and $.91 per share for
basic and $.50 and $.88 per share for diluted for the three-month and six-month
periods ended June 30, 1997, respectively, and $.33 and $.65 per share for basic
and $.31 and $.62 per share for diluted for the three-month and six-month
periods ended June 30, 1996, respectively.
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 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 six months ended June
30, 1997 and 1996, general and administrative costs of $686,000 and $506,000,
respectively, have been capitalized to oil and gas properties. For the six
months ended June 30, 1997 and 1996, interest costs of $974,000 and $642,000,
respectively, have been capitalized to oil and gas properties.
NOTE E-SUPPLEMENTAL CASH FLOW INFORMATION
Significant non-cash investing and financing activities are as follows:
1. During the first six months of 1997, capital lease obligations totaling
$374,000 were incurred when the Company entered into leases for property
and equipment.
2. During the first six 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 six months of 1996 were charged to additional paid-in-capital.
<PAGE>
NOTE F-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, the Company's wholly-owned seismic data acquisition
crew subsidiary, Eagle Geophysical, Inc. ("Eagle"), completed an initial public
offering of 4,000,000 shares of its common stock. 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 18.9% 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. In addition, the Company
granted the underwriters of the offering 30-day over-allotment options to
purchase up to 100,000 additional shares of Eagle common stock from the Company,
which if exercised in full, will provide additional net proceeds to the Company
of $1,581,000. If the underwriters exercise all of the over-allotment options
granted to them in connection with the offering, the Company will retain
1,420,000 shares of Eagle common stock, or 16.4% of the then outstanding shares
of Eagle.
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenue increased 28% and 30% during the second quarter and first six
months of 1997, respectively, as compared to the second quarter and first six
months of 1996. Revenue primarily consists of revenue generated from the seismic
business and oil and gas production.
Seismic revenue increased from $23,419,000 during the second quarter of
1996 to $29,330,000 during the second quarter of 1997 and increased from
$41,300,000 during the first six months of 1996 to $48,612,000 during the first
six months of 1997. These increases are primarily attributable to an increase in
demand for both three-dimensional and two-dimensional seismic data.
Oil and gas revenue increased from $3,761,000 in the second quarter of 1996
to $5,343,000 in the second quarter of 1997 and increased from $6,146,000 in the
first six months of 1996 to $13,280,000 in the first six months of 1997. These
increases in oil and gas revenue are primarily due to higher production
resulting from more wells being on line during the 1997 periods (111 wells at
June 30, 1997) as compared to the 1996 periods (82 wells at June 30, 1996). Net
production of oil and gas increased from 65,000 barrels and 897 million cubic
feet (mmcf) for the second quarter of 1996 to 97,500 barrels and 1,684 mmcf for
the second quarter of 1997. Net production of oil and gas increased from 132,000
barrels and 1,497 mmcf for the first six months of 1996 to 214,000 barrels and
3,633 mmcf for the first six months of 1997. Average oil prices were $23.36 and
$15.82 per barrel for the second quarters of 1996 and 1997, respectively, and
$20.32 and $15.62 per barrel for the first six months of 1996 and 1997,
respectively. Average gas prices received by the Company were $2.40 and $2.17
per mcf for the second quarters of 1996 and 1997, respectively, and $2.19 and
$2.66 per mcf for the first six months of 1996 and 1997, respectively.
<PAGE>
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 decreased from $8,498,000 during the second
quarter of 1996 to $8,286,000 during the second quarter of 1997 and decreased
from $15,488,000 to $14,184,000 for the first six months of 1996 and 1997,
respectively. As a percentage of revenue from licensing seismic data, data bank
amortization was 48% and 41% for the second quarter of 1996 and 1997,
respectively, and 49% and 42% for the first six 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 $1,613,000 and $3,274,000 for the second quarters of 1996 and
1997, respectively, and $2,669,000 and $7,484,000 for the first six 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 additional property and equipment.
Cost of sales consists of expenses associated with the acquisition of
seismic data for non-affiliated parties, seismic resale support services, and
oil and gas production. Cost of sales increased from $4,399,000 to $7,389,000
for the second quarter of 1996 and 1997, respectively, and from $7,669,000 to
$12,431,000 for the first six months of 1996 and 1997, respectively. These
increases in cost of sales for the second quarter and first half of 1997 are
primarily due to an increase in the corresponding revenue from these areas.
Revenues from these areas increased from $9,239,000 to $13,850,000 during the
second quarter of 1996 and 1997, respectively, and increased from $15,036,000 to
$26,536,000 during the first six 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 decreased from 20% for the second quarter of
1996 to 18% for the second quarter of 1997, and decreased from 19% for the first
six months of 1996 to 18% for the first six months of 1997.
Net interest expense increased from $727,000 to $984,000 in the second
quarters of 1996 and 1997, respectively, and increased from $1,311,000 to
$2,023,000 in the first six months of 1996 and 1997, respectively, primarily due
to borrowings made under the Company's revolving line of credit during the 1997
periods. Additionally, $75 million was outstanding on the Company's Senior Notes
for all of the first six 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, the Company's seismic data acquisition crew subsidiary,
Eagle Geophysical, Inc. ("Eagle"), completed an initial public offering of
4,000,000 shares of its common stock. 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 18.9% of the outstanding shares of Eagle. Beginning August 11,
1997, the financial results of Eagle will no longer be consolidated in the
Company's consolidated financial statements; however, the Company's equity
interest in Eagle will be included in the Company's consolidated financial
statements.
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. In
addition, the Company granted the underwriters of the Eagle public offering
30-day over-allotment options to purchase up to 100,000 additional shares of
Eagle common stock from the Company, which, if exercised in full, will provide
additional net proceeds to the Company of $1,581,000. The value of the Company's
remaining equity interest in Eagle is $25,840,000, based on 1,520,000 shares at
the initial public offering price of $17 per share (or $24,140,000 if the
over-allotment options are exercised in full). These shares are subject to
certain trading restrictions.
Because Eagle will no longer be consolidated in the Company's consolidated
financial statements, the amount of the Company's term loans ($14,889,000 at
June 30, 1997) will be reduced to $616,000 as of August 12, 1997, and the amount
of the Company's capital lease obligations ($2,465,000 at June 30, 1997) will be
reduced to $117,000 as of August 12, 1997. The Company will also receive
repayment of debts owed directly to it by Eagle, plus advances and accrued
interest until final payment, which is estimated to be before the end of August
1997. The Company received $7,831,000 towards this debt repayment on August 12,
1997.
<PAGE>
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)
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 August 12, 1997, the balance outstanding on the revolving line of
credit amounted to $3,000,000 bearing an interest rate of 6.418%. This
$3,000,000 balance will be paid in full upon maturity of the underlying LIBOR
advance on August 18, 1997.
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 August 12, 1997,
was $616,000.
During 1994, the Company entered into a five year capital lease for the
purchase of a seismic data processing center. Monthly principal and interest
payments total approximately $6,000. The balance outstanding under this capital
lease obligation was $117,000 at August 12, 1997.
In June 1996, a wholly-owned subsidiary of the Company sold a volumetric
production payment for $19 million to certain limited partnerships. Under the
terms of the production payment agreements, the Company conveyed a mineral
property interest of approximately 7.6 billion cubic feet of certain natural gas
and approximately 363,000 barrels of other hydrocarbons to the purchasers. The
Company retains responsibility for its working interest share of the cost of
operations. The proceeds of the sale were applied toward the acquisition cost of
certain oil and gas properties. The Company accounted for the proceeds received
in the transaction as deferred revenue which is being amortized into revenue and
income as natural gas and other hydrocarbons are produced and delivered during
the term of the volumetric production payment agreements.
From January 1, 1997 through August 12, 1997, the Company received
$6,781,000 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 $3,129,000 in tax savings.
<PAGE>
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 first half of 1997, gross seismic data bank additions and
capitalized oil and gas exploration and development costs amounted to
$33,742,000 and $14,935,000, respectively. These capital expenditures, as well
as taxes, interest expenses, cost of sales and general and administrative
expenses, were funded by operations, borrowings under the Company's unsecured
revolving line of credit and proceeds received from the exercise of common stock
purchase warrants and options. Acquisitions of geophysical equipment and other
property and equipment were funded partially by cash from operations and the
remainder through capital lease financing and term loans. The geophysical
equipment and related capital lease financing and term loans will no longer be
consolidated with the Company's consolidated financial statements after August
11, 1997.
Currently, the Company anticipates capital expenditures for the remainder
of 1997 to total approximately $45 million. Such expenditures include
approximately $30 million for the creation of proprietary seismic data, and
approximately $15 million for oil and gas exploration and development efforts.
The Company believes its current cash balances, revenues from operating sources
and proceeds from the sale of Eagle common stock and 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
during 1997; 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.
PART II - OTHER INFORMATION
Items 1., 2., 3., 4., and 6. Not applicable.
Item 5. OTHER INFORMATION.
On August 11, 1997, the Company's seismic data acquisition crew subsidiary,
Eagle Geophysical, Inc. ("Eagle"), completed an initial public offering of
4,000,000 shares of its common stock. 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 18.9% of the outstanding shares of Eagle. The Company received
net proceeds of $29,722,800 from its participation in the offering. In addition,
the Company granted the underwriters of the offering 30-day over-allotment
options to purchase up to 100,000 additional shares of Eagle Common Stock from
the Company, which if exercised in full, will provide additional net proceeds to
the Company of $1,581,000. If the underwriters exercise all of the
over-allotment options granted to them in connection with the offering, the
Company will retain 1,420,000 shares of Eagle Common Stock, or 16.4% of the then
outstanding shares of Eagle.
Eagle will use a portion of its proceeds from the offering to repay
approximately $16.6 million of indebtedness guaranteed by the Company and
approximately $7.8 million of indebtedness owed to the Company.
<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: August 13, 1997 /s/Paul A. Frame
-----------------------------
Paul A. Frame
President
Dated: August 13, 1997 /s/Debra D. Valice
-----------------------------
Debra D. Valice
Chief Financial Officer
Dated: August 13, 1997 /s/Marcia H. Kendrick
-----------------------------
Marcia H. Kendrick
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,795
<SECURITIES> 0
<RECEIVABLES> 63,004
<ALLOWANCES> 411
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 144,788<F2>
<DEPRECIATION> 29,680
<TOTAL-ASSETS> 336,601
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 103,354
0
0
<COMMON> 106
<OTHER-SE> 170,193
<TOTAL-LIABILITY-AND-EQUITY> 336,601
<SALES> 61,892
<TOTAL-REVENUES> 61,892
<CGS> 12,431
<TOTAL-COSTS> 12,431
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,023
<INCOME-PRETAX> 14,756
<INCOME-TAX> 5,268
<INCOME-CONTINUING> 9,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,488
<EPS-PRIMARY> .88
<EPS-DILUTED> .87
<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 $318,589,000
and related accumulated amortization of $172,015,000.
</FN>
</TABLE>
