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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, 1998
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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
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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, 1998 there were 22,625,227 shares of the Company's common
stock, par value $.01 per share, outstanding.
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<PAGE>
3
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1998 (Unaudited) and December 31, 1997.................... 3
Consolidated Statements of Income and
Comprehensive Income (Unaudited) for the
Three Months Ended June 30, 1998 and 1997.......................... 4
Consolidated Statements of Income and
Comprehensive Income (Unaudited)for the
Six Months Ended June 30, 1998 and 1997............................ 5
Consolidated Statements of Stockholders'
Equity (Unaudited) for the Six Months
Ended June 30, 1998................................................ 6
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 1998 and 1997.................... 7
Notes to Consolidated Interim Financial Statements................. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............10
PART II. OTHER INFORMATION..................................................13
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash and equivalents $ 2,709 $ 4,881
Receivables
Trade 50,055 44,563
Notes and other 1,640 2,121
Net data bank 218,150 180,936
Net oil and gas properties 128,099 112,915
Net other property and equipment 2,407 2,349
Investment in affiliate 15,607 15,054
Prepaid expenses, deferred charges and other assets 2,854 2,863
--------- ---------
TOTAL ASSETS $ 421,521 $ 365,682
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 28,489 $ 28,014
Payable to affiliate 4,900 12,500
Income taxes payable 1,835 1,242
Debt
Senior Notes 75,000 75,000
Line of credit 58,750 15,000
Term loans 281 477
Obligations under capital leases 48 89
Contingent payables 274 274
Deferred income taxes 21,242 18,050
Deferred revenue 10,849 7,763
--------- ---------
TOTAL LIABILITIES 201,668 158,409
--------- ---------
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
50,000,000 shares; issued and outstanding
22,625,227 and 22,548,408 at June 30, 1998
and December 31,1997, respectively 226 225
Additional paid-in capital 129,681 128,406
Retained earnings 93,976 82,742
Treasury stock, 175,818 shares at cost at
June 30, 1998 and December 31, 1997 (2,977) (2,977)
Notes receivable from officers and employees (1,109) (1,109)
Accumulated other comprehensive income (loss) 56 (14)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 219,853 207,273
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 421,521 $ 365,682
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended
June 30,
-------------------
1998 1997
------- -------
<S> <C> <C>
REVENUE $36,976 $34,673
EXPENSES
Depreciation, depletion and amortization 17,726 11,560
Cost of sales 1,350 7,389
Selling, general and administrative expenses 6,472 6,296
------- -------
25,548 25,245
------- -------
INCOME FROM OPERATIONS 11,428 9,428
Interest expense, net (1,402) (984)
Equity in earnings of affiliate 84 --
------- -------
Income before provision for income taxes 10,110 8,444
Provision for income taxes 3,741 3,040
------- -------
NET INCOME 6,369 5,404
Other comprehensive income, net of tax:
Foreign currency translation adjustments,
net of income tax expense of $35 and $0 43 12
------- -------
Comprehensive income $ 6,412 $ 5,416
======= =======
Net income per share:
Basic $ .28 $ .26
======= =======
Diluted $ .28 $ .25
======= =======
Weighted average number of common and common equivalent shares:
Basic 22,592 20,878
======= =======
Diluted 23,115 21,782
======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<TABLE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Six Months Ended
June 30,
-------------------
1998 1997
------- -------
<S> <C> <C>
REVENUE $67,903 $61,892
EXPENSES
Depreciation, depletion and amortization 32,882 21,668
Cost of sales 2,479 12,431
Selling, general and administrative expenses 12,422 11,014
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47,783 45,113
------- -------
INCOME FROM OPERATIONS 20,120 16,779
Interest expense, net (2,397) (2,023)
Equity in earnings of affiliate 125 --
------- -------
Income before provision for income taxes 17,848 14,756
Provision for income taxes 6,614 5,268
------- -------
NET INCOME 11,234 9,488
Other comprehensive income, net of tax:
Foreign currency translation adjustments,
net of income tax expense of $42 and $0 70 (27)
------- -------
Comprehensive income $11,304 $ 9,461
======= =======
Net income per share:
Basic $ .50 $ .46
======= =======
Diluted $ .49 $ .44
======= =======
Weighted average number of common and common equivalent shares:
Basic 22,572 20,807
======= =======
Diluted 23,041 21,679
======= =======
</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
Receivable
from Accumulated
Common Stock Additional Treasury Stock Officers Other
-------------------- Paid-In Retained ------------------ & Comprehensive
Shares Amount Capital Earnings Shares Amount Employees Income
---------- ------ --------- -------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 10,362,102 $ 104 $ 105,544 $ 51,185 (409) $ (4) $ (1,205) $ 17
Net proceeds from issuance
of common stock 912,472 8 17,318 -- -- -- --
Two-for-one stock split 11,273,834 113 (113) -- (409) -- -- --
Tax reduction from exercise
of stock options -- -- 5,657 -- -- -- -- --
Treasury stock purchased -- -- -- -- (175,000) (2,973) -- --
Payments received on notes
receivable from officers
and employees -- -- -- -- -- -- 96 --
Foreign currency translation
adjustment -- -- -- -- -- -- -- (31)
Net income -- -- -- 31,557 -- -- -- --
---------- ----- --------- -------- -------- ------- --------- ------
Balance, December 31, 1997 22,548,408 225 128,406 82,742 (175,818) (2,977) (1,109) (14)
Net proceeds from
issuance of
common stock 76,819 1 932 -- -- -- -- --
Tax reduction from exercise
of stock options -- -- 343 -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- -- -- -- 70
Net income -- -- -- 11,234 -- -- -- --
---------- ----- --------- -------- -------- ------- --------- ------
Balance, June 30, 1998
(unaudited) 22,625,227 $ 226 $ 129,681 $ 93,976 (175,818) $(2,977) $ (1,109) $ 56
========== ===== ========= ======== ======== ======= ========= ======
</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>
Six Months Ended
June 30,
-------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $66,402 $58,067
Cash paid to suppliers and employees (10,737) (24,875)
Interest paid (2,341) (2,595)
Interest received 44 484
Income taxes paid (2,483) (40)
------- -------
Net cash provided by operating activities 50,885 31,041
------- -------
Cash flows from investing activities:
Cash invested in seismic data (72,864) (28,355)
Cash invested in oil and gas properties (24,204) (14,416)
Cash paid to acquire property and equipment (497) (7,960)
Cash from disposal of property and equipment 14 28
Collections on loans made -- 269
------- -------
Net cash used in investing activities (97,551) (50,434)
------- -------
Cash flows from financing activities:
Borrowings under line of credit agreement 54,063 32,000
Principal payments under line of credit (10,313) (21,000)
Borrowings under term loan -- 7,925
Principal payments on term loans (196) (2,061)
Principal payments on capital lease obligations (41) (372)
Proceeds from issuance of common stock 934 3,451
Costs of debt and equity transactions (1) (2)
------- -------
Net cash provided by financing activities 44,446 19,941
------- -------
Effect of exchange rate changes 48 (93)
------- -------
Net increase in cash and equivalents (2,172) 455
Cash and equivalents at beginning of period 4,881 3,340
------- -------
Cash and equivalents at end of period $ 2,709 $ 3,795
======= =======
</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>
Six Months Ended
June 30,
-------------------
1998 1997
------- -------
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income $11,234 $ 9,488
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 32,882 22,537
Deferred income tax provision 3,192 2,634
Equity in earnings of affiliate (125) --
Amortization of deferred revenue -- (4,086)
Discount on note receivable -- (53)
Gain on sale of property and equipment (11) (16)
Increase in receivables (5,465) (4,080)
Decrease (increase) in other assets 371 (4,398)
Increase in account payable and other liabilities 8,807 9,015
------- -------
Total adjustments 39,651 21,553
------- -------
Net cash provided by operating activities $50,885 $31,041
======= =======
Supplemental schedule of non-cash investing activities:
Capital lease obligations incurred $ -- $ 374
======= =======
</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, 1998
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, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further information, refer
to the financial statements and notes thereto for the year ended December 31,
1997.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," the Company has reported comprehensive
income for the quarter and six month periods ended June 30, 1998 and 1997.
Accumulated other comprehensive income consists of foreign currency translation
adjustments.
NOTE B-EARNINGS PER SHARE
- -------------------------
In accordance with SFAS No. 128, "Earnings per Share," basic earnings per
share is computed based on the weighted average shares of common stock
outstanding during the periods. Diluted earnings per share is computed based on
the weighted average shares of common stock plus the assumed issuance of common
stock for all potentially dilutive securities. Earnings per share computations
to reconcile basic and diluted net income for the three and six months ended
June 30, 1998 and 1997 consist of the following (in thousands except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 6,369 $ 5,404 $11,234 $ 9,488
======= ======= ======= =======
Basic weighted average shares 22,592 20,878 22,572 20,807
Effect of dilutive securities: (1)<F1>
Options and warrants 523 904 469 872
------- ------- ------- -------
Diluted weighted average shares 23,115 21,782 23,041 21,679
======= ======= ======= =======
Per share income:
Basic $ .28 $ .26 $ .50 $ .46
Diluted $ .28 $ .25 $ .49 $ .44
- ----------
<FN>
(1)<F1> During the second quarter of 1998 and 1997 and the first six months of
1998 and 1997, a weighted average number of options and warrants to
purchase 2,196,000, 562,000, 2,424,000 and 715,000 shares of common
stock were outstanding, respectively, but were not included in the
computation of diluted per share income because their exercise prices
were greater than the average market price of the common shares.
</FN>
</TABLE>
<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 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, 1998 and 1997, general and administrative costs of $821,000 and $686,000,
respectively, have been capitalized to oil and gas properties. For the six
months ended June 30, 1998 and 1997, interest costs of $1,184,000 and $974,000,
respectively, have been capitalized to oil and gas properties.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
----------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Total revenue was $36,976,000 and $34,673,000 in the second quarters of
1998 and 1997, respectively, representing an increase of 7%, and was $67,903,000
and $61,892,000 in the first six months of 1998 and 1997, respectively,
representing an increase of 10%. Revenue primarily consists of revenue generated
from the marketing of seismic data and oil and gas production. The second
quarter and first six months of 1997 include revenue of $8,654,000 and
$13,554,000, respectively, related to proprietary seismic data acquisition
services performed by Eagle Geophysical, Inc. ("Eagle"), which was spun-off on
August 11, 1997.
Revenue from the marketing of seismic data increased from $20,676,000 in
the second quarter of 1997 to $31,777,000 in the second quarter of 1998 and
increased from $35,078,000 in the first six months of 1997 to $58,093,000 in the
first six months of 1998. These increases are primarily attributable to a
continued increase in demand for high-resolution seismic data, which is being
used increasingly in oil and gas exploration and development efforts.
Oil and gas revenue was $5,199,000 in the second quarter of 1998 compared
to $5,343,000 in the second quarter of 1997 and was $9,810,000 in the first six
months of 1998 compared to $13,280,000 in the first six months of 1997. The
slight decrease in oil and gas revenue between the second quarters of 1997 and
1998 was caused primarily by lower natural gas production partially offset by an
increase in the average natural gas price received by the Company. The decrease
in oil and gas revenue between the first six months of 1997 and 1998 was caused
by both lower production volumes and lower commodity prices. The production
decline from certain of the Company's shallow, short-lived producing properties
<PAGE>
has not yet been offset by production from new wells coming on-line. Second
quarter 1998 production volumes increased approximately 15% from the first
quarter 1998 volumes. Net volume and price information for the Company's oil and
gas production for the second quarters and first six months of 1998 and 1997 is
summarized in the following table:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Natural gas volumes (mmcf) 1,564 1,683 2,921 3,632
Average natural gas price ($/mcf) $ 2.45 $ 2.16 $ 2.43 $ 2.66
Crude oil/condensate volumes (mbbl) 105 98 198 214
Average crude oil/condensate price ($/bbl) $ 12.17 $ 16.37 $ 12.87 $ 15.87
</TABLE>
Depreciation, depletion and amortization consists primarily of data bank
amortization and depletion of oil and gas properties. Data bank amortization
increased from $8,286,000 during the second quarter of 1997 to $14,104,000
during the second quarter of 1998 and increased from $14,184,000 during the
first half of 1997 to $26,076,000 during the first half of 1998. As a percentage
of revenue from licensing seismic data, data bank amortization was 45% and 41%
for the second quarters of 1998 and 1997, respectively, and 45% and 42% for the
first six months of 1998 and 1997, respectively. These changes between periods
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.
Depletion of oil and gas properties was $3,399,000 for the second quarter
of 1998 compared to $2,660,000 for the second quarter of 1997, which amounted to
$1.55 and $1.17, respectively, per mcfe of gas produced during such periods.
Depletion of oil and gas properties was $6,374,000 and $6,257,000 during the
first six months of 1998 and 1997, respectively, which amounted to $1.55 and
$1.27, respectively, per mcfe of gas produced during such periods. The increase
in the rate reflects the amount of exploration and development costs incurred
increasing at a higher rate than the proven reserve base. The depletion rate per
mcfe of gas produced was $1.55 for both the first and second quarters of 1998.
Cost of sales consists of expenses associated with oil and gas production
and seismic resale support services, as well as geophysical services in the
second quarter and first six months of 1997. The decrease in cost of sales from
$7,389,000 to $1,350,000 for the second quarter of 1997 and 1998, respectively,
and from $12,431,000 to $2,479,000 for the first six months of 1997 and 1998,
respectively, is primarily due to the second quarter and first six months of
1997 including cost of sales associated with geophysical services of $6,718,000
and $10,343,000, respectively, whereas in 1998 there are none due to the
spin-off of Eagle in 1997. Oil and gas production costs amounted to $.60 and
$.58 per mcfe of gas produced in the second quarter and first six months of
1998, respectively, compared to $.27 and $.38 per mcfe in the same periods in
1997. The increase in rate is primarily due to an increase in workover and
maintenance costs on some of the Company's older wells along with increased
operating costs on some of the Company's newer wells that are producing from
deeper and higher pressure horizons.
The Company's selling, general and administrative expenses increased during
the 1998 periods as compared to the 1997 periods primarily as a result of
variable expenses related to the increased volume of business and the addition
of employees to meet the demands of the increased level of activities. As a
percentage of total revenue, these expenses were 18% for all periods presented.
Net interest expense increased from $984,000 to $1,402,000 in the second
quarters of 1997 and 1998, respectively, and increased from $2,023,000 to
$2,397,000 in the first six months of 1997 and 1998, respectively, primarily due
to increased borrowings made under the Company's revolving line of credit during
the 1998 periods.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On March 16, 1998, the Company increased its $50,000,000 unsecured
revolving line of credit facility to $75,000,000. 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
March 16, 2001. The balance outstanding on the revolving line of credit
decreased from $58,750,000 at June 30, 1998, to $52,250,000 at August 12, 1998,
and the effective interest rate decreased from 6.74% to 6.45% over the same
period.
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 may 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, up to an aggregate of $41,041,600 pursuant to an
effective "shelf" registration statement filed with the Securities and Exchange
Commission.
From November 1995 to April 1997, the Company and two of its wholly-owned
subsidiaries obtained three separate three-year term loans totaling $747,000.
One of the loans bears 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 $23,000. The balance outstanding on the loans at August 12, 1998,
was $259,000.
The Company owns 1,520,000 shares of Eagle common stock. As of June 30,
1998, the market value of the Company's remaining equity interest in Eagle was
$15,960,000, based on the June 30, 1998 closing price of $10.50 per share as
quoted by NASDAQ. These shares are subject to certain trading restrictions.
From January 1, 1998, through August 12, 1998, the Company received
$933,000 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 $343,000 in tax savings.
During December 1997, the Company repurchased 175,000 shares of its common
stock in the open market at a cost of $2,973,000, pursuant to a stock repurchase
program authorized by the Board of Directors on December 12, 1997. The Board has
authorized expenditures of up to $25 million towards the repurchase of its
common stock.
During the first six months of 1998, gross seismic data bank additions and
capitalized oil and gas exploration and development costs amounted to
$63,283,000 and $21,558,000, respectively. These capital expenditures, as well
as taxes, interest expenses, cost of sales and general and administrative
expenses, were funded by operations and borrowings under the Company's revolving
line of credit.
<PAGE>
Currently, the Company anticipates capital expenditures for the remainder
of 1998 to total approximately $86 million. Such expenditures include
approximately $70 million for the creation of proprietary seismic data, and
approximately $16 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 and project financing where
applicable, should be sufficient to fund the 1998 capital expenditures, along
with expenditures for operating and general and administrative expenses.
Additionally, the Company could arrange for additional debt or equity financing
during 1998; however, there can be no assurance that the Company would be able
to accomplish any such debt or equity financing on satisfactory terms.
Recent Accounting Pronouncements
- --------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Under the
new standard, companies will be required to report certain information about
operating segments in consolidated statements. Operating segments will be
determined based on the method by which management organizes its business for
making operating decisions and assessing performance. The standard also requires
that companies report certain information about their products and services, the
geographic areas in which they operate, and their major customers. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. Statement 133 is effective for fiscal years beginning after
June 15, 1999. A company may also implement the Statement as of the beginning of
any fiscal quarter after issuance (that is, fiscal quarters beginning June 16,
1998 and thereafter.) Statement 133 cannot be applied retroactively. Statement
133 must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the company's election,
before January 1, 1998). The Company has not yet quantified the impact of
adopting Statement 133 on its financial statements and has not determined the
timing of or method of its adoption of Statement 133. However, the Company
anticipates that application of the statement will not have a material effect on
its consolidated statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." Under this SOP, all costs of start-up activities and organizational
costs are to be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998, although earlier implementation is permitted.
As of June 30, 1998, the Company had not adopted this SOP; however, the Company
anticipates that the application of this SOP will not have a material effect on
its consolidated financial statements.
<PAGE>
Year 2000
- ---------
The Company utilizes software and technologies throughout its operations
that will be affected by the date change in the year 2000 ("Year 2000 Issue").
An initial assessment of the systems that will be affected by the Year 2000
Issue has been made and a more thorough analysis is currently underway. The
Company does not believe the costs related to the Year 2000 Issue will
materially impact its results of operations. However, there can be no guarantee
that the systems of other companies, on which the Company's systems rely, will
be timely converted or that a failure to convert by another company or a
conversion that is incompatible with the Company's systems would not have a
material adverse effect on the Company. The Company is communicating with
software vendors, business partners, and others with which it conducts business
to provide written assurances that their systems will be year 2000 compliant.
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 5. Not applicable.
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
10.1 Amendment to Employment Agreement dated effective as of
June 10, 1998 between the Company and Debra D. Valice.
(b) Not applicable
<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, 1998 /s/ Paul A. Frame
---------------------------------------
Paul A. Frame
President
Dated: August 13, 1998 /s/ Debra D. Valice
---------------------------------------
Debra D. Valice
Chief Financial Officer
Dated: August 13, 1998 /s/ Marcia H. Kendrick
---------------------------------------
Marcia H. Kendrick
Chief Accounting Officer
<PAGE>
EXHIBIT
INDEX
- --------------------------------------------------------------------------------
Exhibit Title Page
Number
- --------------------------------------------------------------------------------
10.1 Amendment to Employment Agreement dated 16
effective as of June 10, 1998
between the Company and Debra D. Valice
SEITEL, INC.
EMPLOYMENT AGREEMENT AMENDMENT NO. 2
THIS EMPLOYMENT AGREEMENT AMENDMENT NO. 2 ( this "Agreement") is between
Seitel, Inc. (the "Company"), a Delaware corporation with its principal place of
business in Houston, Texas, and Debra D. Valice (the "Employee", and
collectively with the Company, the "Parties"), and is an amendment to that
certain Employment Agreement between the Company and the Employee dated
effective March 11, 1993, as previously amended by that certain Employment
Agreement Amendment dated effective as of January 1, 1998 (the "Employment
Agreement").
NOW, THEREFORE, the Parties do hereby agree as follows:
1. Term. Section 2 of the Employment Agreement, "Term", is hereby deleted
in its entirety and replaced by the following:
"2. Term: The term of this Agreement shall begin on January 1, 1993
and shall terminate on December 31, 1998 (being five (5) years after the
commencement date); provided, however, that commencing on January 1, 1994,
and on each January 1 thereafter (each a Renewal Date), the term shall be
automatically extended so as to terminate five years from such Renewal
Date, unless at least sixty (60) days prior to such Renewal Date either
party hereto gives notice to the other that the term should not be extended
for an additional year (the "Termination Date"). The term of this
Agreement, as extended in the manner described in the preceding sentence,
is hereafter sometimes referred to as the "Employment Period", and each
year of the Employment Period beginning January 1 and ending December 31 of
any year is hereafter sometimes referred to as the Annual Period. If the
Employment Period reaches the Termination Date, Employer will pay Employee
for two (2) additional years after the end of the Employment Period the
compensation then applicable, which shall include for purposes of this
payment the Base Salary, together with the average of all bonus and
commission payments paid to Employee for the prior three (3) years (the
Severance Payment). The Severance Payment will be paid provided Employee is
available to act as a consultant to Employer for up to fifty percent (50%)
of Employee's work related time (as compared to her final year of
employment) (hereinafter, the "Consulting Services"). If Employee
terminates this Agreement prior to the Termination Date, the Employer shall
be under no obligation to pay Employee any Severance Payment. Employer
shall have no obligation to pay Employee any Severance Payment if Employee:
(i) Refuses to perform the consulting services requested by
Employer, although there is no requirement that Employer request such
services for Employee to be entitled to said payment; or
(ii) Violates any of the provisions of the confidential and
proprietary information or the noncompete provisions set forth in
paragraphs 13 and 14 herein."
<PAGE>
2. Amendment of Employment Agreement. This Agreement is executed as and
shall constitute an amendment to the Employment Agreement, and shall be
construed in connection with and as a part of the Employment Agreement. Except
as specifically amended by this Agreement, all of the terms and provisions of
the Employment Agreement shall remain in full force and effect. In the event of
any conflict between the terms of the Employment Agreement and the terms of this
Agreement, the terms of this Agreement shall apply.
3. Controlling Law. The execution, validity, interpretation and performance
of this Agreement shall be determined and governed by the laws of the State of
Texas, and, in any action by the Company to enforce this Agreement, venue may be
had in Harris County, Texas.
4. Entire Agreement. The Employment Agreement, as amended by this
Agreement, contains the entire agreement of the Parties. The Employment
Agreement and this Agreement may not be changed orally or by action or inaction,
but only by an agreement in writing signed by the Party against whom enforcement
of any waiver, change, modification, extension or discharge is sought.
5. Severability. If any provision of this Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by decree of a court of last resort, the Parties shall promptly
meet and negotiate substitute provisions for those rendered or declared illegal
or unenforceable, but all remaining provisions of this Agreement shall remain in
full force and effect.
6. Execution. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which shall constitute one
instrument.
EXECUTED to be effective as of the 10th day of June, 1998.
SEITEL, INC.
By: /s/ Paul A. Frame
-----------------------------------
Name: Paul A. Frame
Title: President
/s/ Debra D. Valice
----------------------------------------
DEBRA D. VALICE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,709
<SECURITIES> 0
<RECEIVABLES> 52,381
<ALLOWANCES> 686
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 174,104<F2>
<DEPRECIATION> 43,598
<TOTAL-ASSETS> 421,521
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 134,079
0
0
<COMMON> 226
<OTHER-SE> 219,627
<TOTAL-LIABILITY-AND-EQUITY> 421,521
<SALES> 67,903
<TOTAL-REVENUES> 67,903
<CGS> 2,479
<TOTAL-COSTS> 2,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,397
<INCOME-PRETAX> 17,848
<INCOME-TAX> 6,614
<INCOME-CONTINUING> 11,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,234
<EPS-PRIMARY> .50<F3>
<EPS-DILUTED> .49
<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 $437,203,000
and related accumulated amortization of $219,053,000.
<F3> Reflects basic earnings per share.
</FN>
</TABLE>
