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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For Fiscal Year Ended December 31, 1995 [Fee Required]
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period
to
--------------------------- --------------------------
Commission File No. 0-14488
SEITEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0025431
- ------------------------------------ -----------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
50 Briar Hollow Lane, West 7th Floor
Houston, Texas 77027
- ------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (713) 627-1990
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------------- ---------------------
Common Stock, Par Value $.01 New York
9% Convertible Debentures New York
Securities registered pursuant to Section 12(g) of the Act:
None
---------------
(Title of Class)
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 and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 28, 1996 was approximately $249,131,328 For these purposes,
the term "affiliate" is deemed to mean officers and directors of the registrant.
On such date, the closing price of the Common Stock on the New York Stock
Exchange was $27.50 and there were a total of 9,652,186 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
Document Part
------------------------------ ----
Definitive Proxy Statement for III
1996 Annual Stockholders Meeting
ITEM 1. BUSINESS
- -----------------
General
- -------
Seitel, Inc. (the "Company") is a leading provider of seismic data and
corollary geophysical technology used in petroleum exploration and production.
The Company sells its proprietary information-technology to petroleum companies
either for cash or in exchange for working equity-interests in exploration,
development and ownership of natural gas and crude oil reserves. See Note O to
the Company's Consolidated Financial Statements for financial information
relating to industry segments.
Seismic Operations
- ------------------
Since its inception in 1982, the Company has been engaged in the
development of a proprietary library of seismic data, created by both the
Company and others. The Company's seismic data library is owned and marketed by
Seitel Data, Ltd., a Texas limited partnership of which wholly-owned Seitel
subsidiaries constitute all of the limited and general partners. Seitel Data,
Ltd. markets the data library, which consists of both two-dimensional ("2D") and
three-dimensional ("3D") data, to oil and gas companies under license
agreements. Seismic surveys and the analysis of seismic data for the
identification and definition of underground geological structures are principal
techniques used in oil and gas exploration and development to determine the
existence and location of subsurface hydrocarbons.
In 1995, over 300 different petroleum companies entered into seismic
data license agreements with the Company. At December 31, 1995, the Company
owned approximately 880,000 linear miles of 2D and more than 5,000 square miles
of 3D seismic data which it maintained in its library, constituting the second
largest seismic data base marketed publicly in North America. While the majority
of the seismic surveys cover onshore and offshore the U.S. Gulf Coast, the
Company's data bases extend to virtually every major domestic exploration and
development region and 32 foreign countries.
The Company's marketing team of 20 seismic sales specialists markets
data from its library and the creation of new seismic surveys. The Company's
marketing philosophy is that seismic data, like most other products, must be
sold aggressively as opposed to waiting passively for customer purchases. The
marketing team monitors petroleum industry exploration and development
activities through close interaction with oil and gas companies on a daily basis
to maximize seismic sales opportunities.
The Company's 20 member staff of geotechnical professionals, who have
in excess of 400 years of collective geophysical experience, assist the
marketing team by helping clients evaluate their respective seismic
requirements, designing data creation programs to meet market demand, and
supervising the reprocessing of data in the Company's library to enhance future
resales.
The Company strives to maximize its resales of seismic data, which
require minimal incremental cash outlays by the Company and, in turn, can
generate both strong profits and cash flow. In addition to aggressive marketing
and periodic data-reprocessing refinements, the Company supplements its existing
seismic library by the acquisition of additional data.
Through its wholly-owned subsidiary Seitel Geophysical, Inc., the
Company conducts advanced 3D land seismic crew operations. The Company operates
two 1500 channel state-of-the-art telemetric systems, which the Company believes
to be among the largest and fastest real-time systems of their kind in operation
today. These systems enable the Company to efficiently record complex 3D surveys
in the difficult marsh/swamp and transition-zone areas onshore the Gulf Coast
where the Company's data creation activities are concentrated. Most seismic
recording equipment use cables to transmit data and do not operate as
efficiently in wetland areas as telemetric systems, which use radio signals for
data transmission.
Three-dimensional seismic data provide a graphic geophysical depiction
of the earth's subsurface from two horizontal dimensions and one vertical
dimension, rendering a more detailed picture than 2D data which present a
cross-sectional view from one vertical and one horizontal dimension. The more
comprehensive geophysical information provided by 3D surveys significantly
enhances an interpreter's ability to evaluate the probability of the existence
and location of subsurface hydrocarbons. The proper use of 3D surveys can
significantly increase drilling success rates and reduce the occurrence of
costly dry holes and, correspondingly, significantly lower exploration and
development finding costs. However, the cost to create 3D seismic data is
significantly more than the cost to create 2D seismic data, particularly for
onshore data. As a result, 2D data remain economically more efficient for
preliminary, broad-scale exploration evaluation and to determine the location
for 3D surveys. Also, the best way to design a 3D survey is from 2D data grids
of the respective area. The 3D surveys can then be used for more site-specific
analysis to maximize actual drilling potential.
The Company conducts onshore data creation activities in three ways. It
performs "group-shoot" programs, under which several petroleum companies share
in the expense of a survey and thereby materially reduce their respective cost
of the survey. In a group-shoot survey, the Company retains ownership of the
data created and markets licenses to use the data both to the group-shoot
participants and subsequently to others who make selections after the data are
added to the Company's library. (Seismic data cannot be transferred by a
licensee to another party; each individual user must purchase a respective
license.) The Company also conducts proprietary creation programs for individual
petroleum companies, under which the Company receives revenue for creating a
seismic survey, the ownership of which is retained by the petroleum company
contracting for the survey. Seismic surveys also are conducted for the Company's
wholly-owned petroleum exploration and production subsidiary, DDD Energy, Inc.
("DDD Energy"). The DDD Energy 3D surveys are intended to assist participation
in petroleum exploration and development, whereby DDD Energy's ownership
interest in any resultant production will be accounted for as "oil and gas"
revenues and reserves. Surveys conducted for DDD Energy constitute intercompany
transactions and the Company does not record seismic revenue for those projects.
The Company contracts with selected marine seismic companies to conduct
offshore 3D seismic data surveys due to the cost inherent in operating advanced
seismic vessels. The Company's 3D marine activities are concentrated on
group-shoot programs in the Gulf of Mexico. The Company's extensive in-house
geophysical team designs the offshore surveys and supervises the marine
contractor utilized to shoot the actual survey.
The Company has developed fully-integrated 3D technology and
operations, which extend from its expansive 2D seismic library from which to
best design the parameters for 3D surveys, state-of-the-art land seismic
recording systems and crews specifically to conduct 3D surveys, a processing
center and proprietary computer technology coupled with extensive geophysical
application expertise to effectively interpret 3D data. The Company's processing
and interpretation technology and operations are utilized exclusively by DDD
Energy to provide optimum quality control and confidentiality for the
exploration and production programs in which DDD Energy participates.
Oil and Gas Exploration and Production Operations
- -------------------------------------------------
The Company formed DDD Energy, Inc., a wholly-owned subsidiary, in
March 1993 to participate directly in petroleum exploration, development and
ownership of hydrocarbon reserves through partnering relationships with oil and
gas companies, whereby the Company exchanges its proprietary seismic technology
for working interests. The Company's strategy is to combine its 3D and 2D
seismic resources and related geophysical technologies with the land position
and geology, engineering and drilling expertise of selected petroleum producers
in exploration and development programs. The Company believes that this
combination will result in higher drilling success rates, thereby allowing the
Company to participate in oil and gas exploration and development on a
relatively low cost/low risk basis, and to build an asset base of oil and gas
reserves which complement its seismic data library.
During 1995, DDD Energy entered into and maintained cost and
revenue-sharing relationships with more than 80 petroleum companies and, in
doing so, has received the benefit of these petroleum companies' land,
geological, engineering and drilling staffs. Approximately 200 qualified
exploration and development prospects have been identified, located primarily
onshore Texas and Louisiana, and also onshore Alabama, Mississippi and Arkansas.
DDD Energy's working interest in these prospects averages approximately 25%.
Since inception, DDD Energy has participated in the drilling of 112
wells, 78 of which have been completed for a 70% success rate. Most of the
larger size wells completed, in terms of proved reserves and resultant
production, did not come on line commercially until the latter part of 1995 and
during the first quarter of 1996. As a result, the Company believes its revenue
and cash flow from production should increase throughout 1996, as should proved
reserves. Since the beginning of 1994, the Company has conducted, or is in the
process of conducting, in excess of 1,000 square miles of 3D seismic surveys,
covering over 250,000 gross acres, for DDD Energy and its partners. The majority
of well locations pinpointed by those surveys, including most of the larger
prospects, should be drilled in 1996-1998.
Customers
- ---------
During each of 1995, 1994 and 1993, the Company's seismic data
customers consisted of more than 300 oil and gas companies. No one customer
accounted for as much as 10% of the Company's revenues during the years 1995,
1994 or 1993. As a result, the Company does not believe that the loss of any
customer would have a material adverse impact on its seismic business. The
Company believes the size of its customer base is due to its seismic technology
and capabilities and the increasing size of its data-library base.
Competition
- -----------
The creation and resale of seismic data are highly competitive in the
United States. There are a number of independent oil-service companies that
create and market seismic data, and numerous oil and gas companies create
seismic data and maintain their own seismic data banks. Some of the Company's
competitors have longer operating histories, greater financial resources and
larger sales volumes than the Company. However, the number of independent
seismic companies has decreased significantly during the last eight years due to
difficult industry conditions. At the same time, oil and gas companies have
reduced their internal geophysical staffs and have out-sourced more for services
such as seismic data.
The Company believes it can compete favorably because of the
expansiveness of its data-library base, the expertise of its marketing staff,
the technical proficiency and exploration experience of its geotechnical staff
and the state-of-the-art technology of its seismic recording crews. These
resources enable the Company to provide high-quality service and to create and
market high-grade data.
In the exploration for and development of natural gas and crude oil
reserves, the Company believes it can participate effectively because of its
fully-integrated seismic resources and corollary geophysical expertise combined
with the geological and engineering experience and land positions of the
Company's petroleum company partners.
Seasonality
- -----------
Historically, the Company's seismic data revenues are highest in the
fourth quarter, primarily because this coincides with the year-end budgetary
periods of the Company's customers and is therefore a time when they make a
disproportionate amount of expenditures for purchases of library data.
Accordingly, the Company's seismic revenues and profits are typically higher in
the fourth quarter. However, due to certain seismic sales not closing by
December 31, 1995, as anticipated, revenues were not higher in the fourth
quarter of 1995. See Note P to the Company's Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations. In addition to the foregoing, certain weather-related events may
delay the Company's data creation operations during any given year.
Discontinued Operations
- -----------------------
On March 22, 1996, the Company's Board of Directors unanimously adopted
a plan of disposal to discontinue the Company's gas marketing operations,
operated as a wholly-owned subsidiary, Seitel Gas & Energy Corp. The Company
decided to refocus and concentrate on its higher margin seismic technology
operations and related petroleum exploration and production operations in order
to maximize profitability and growth opportunities. Accordingly, the Company's
financial statements have been restated to reflect the discontinued operations.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note L to the Company's Consolidated Financial Statements for
further information related to the discontinued operations.
Employees
- ---------
As of December 31, 1995, the Company and its subsidiaries had 74
full-time employees related to its continuing operations, and three employees
who devote part of their time to the Company who are also officers of other
corporations. Of these employees, 53 are related to the seismic operations and
six are related to the oil and gas operations. In addition, as of December 31,
1995, the Company had eight employees related to its now discontinued gas
marketing operations. None of the Company's employees are covered by collective
bargaining agreements. The Company believes it has a favorable relationship with
its employees. The Company has employment contracts with five of its senior
corporate executives.
Other
- -----
The Company is not dependent on any particular raw materials, patents,
trademarks or copyrights for its business operations.
ITEM 2. PROPERTIES
- -------------------
The Company's wholly-owned subsidiary Seitel Geophysical, Inc., owns
two 1500-channel telemetric seismic data acquisition systems which are used in
the creation of 3D seismic data.
The Company, through its wholly-owned subsidiary DDD Energy,
participates in oil and gas exploration and development efforts. The following
table sets forth the number of productive oil and gas wells (including producing
wells and wells capable of production) in which the Company owned an interest as
of December 31, 1995. All of the wells are operated by the Company's petroleum
company partners.
Gross Wells Net Wells
----------- ---------
Oil 23 4.75
Gas 52 11.47
The following table sets forth the number of net wells drilled in the
last three fiscal years in which the Company participated.
Exploratory Development
---------------------------- ---------------------------
Productive Dry Total Productive Dry Total
---------- ----- ------- ---------- ---- -----
1995
- ----
Texas 4.45 1.54 5.99 1.49 1.08 2.57
Alabama -- .21 .21 -- -- --
Mississippi .51 .31 .82 -- .60 .60
Louisiana .27 .96 1.23 .24 .24 .48
Arkansas -- .12 .12 -- -- --
1994
- ----
Texas 2.44 .94 3.38 1.74 .24 1.98
Alabama -- -- -- -- .05 .05
Mississippi .43 .31 .74 -- -- --
1993
- ----
Texas .50 -- .50 -- -- --
Alabama .03 -- .03 -- -- --
As of December 31, 1995, the Company was participating in the drilling
of one gross and .16 net well.
The following table sets forth certain information regarding the
Company's developed and undeveloped lease acreage as of December 31, 1995. The
table does not include additional acreage which the Company may earn upon
completion of pending 3D seismic data projects.
Developed Acres Undeveloped Acres
--------------------------- ----------------------------
Gross Net Gross Net
------------ ------------- ------------- ------------
Texas 13,856 3,543 71,460 16,159
Louisiana 920 178 57,762 13,005
Alabama 160 5 4,051 1,181
Mississippi 2,280 289 8,764 7,317
Arkansas -- -- 7,120 846
------------ ------------- ------------- ------------
Total 17,216 4,015 149,157 38,508
============ ============= ============= ============
The following table describes for each of the last three fiscal years,
crude oil (including condensate and natural gas liquids) and natural gas
production for the Company, average production costs and average sales prices.
All such production comes from the U.S. Gulf Coast region. The Company has not
filed any different estimates of its December 31, 1995 reserves with any federal
agencies.
Net Production Average Sales Price
--------------------- Average --------------------
Year Ended Oil Gas Production Oil Gas
December 31, (Mbbls) (Mmcf) Cost per Mcfe (Bbls) (Mcf)
- ----------- --------------------- ------------- --------------------
1995 193 1,170 $ .66 $ 13.85 $ 1.55
1994 54 268 .53 12.32 1.76
1993 27 97 .44 11.32 2.09
For estimates of the Company's net proved and proved developed oil and
gas reserves as of December 31, 1995, see Note Q to the Company's Consolidated
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
On May 25, 1995, Seitel Geophysical, Inc. ("SGI"), a wholly-owned
subsidiary of the Company, filed suit in United States District Court for the
Eastern District of Louisiana against Greenhill Petroleum Corporation
("Greenhill") for breach of contract. SGI is seeking to recover approximately
$1.4 million owed by Greenhill to SGI for seismic data acquisition services
provided to Greenhill by SGI in 1994 in connection with a 3D seismic data shoot
in southern Louisiana. Greenhill has answered in this suit by generally denying
SGI's allegations and by asserting counterclaims against SGI of approximately $1
million and unspecified punitive damages. To date, Greenhill has paid SGI in
excess of $7 million under the contract at issue, and SGI has provided the
seismic data acquired pursuant to the contract to Greenhill. Active discovery is
currently ongoing and this case is set for trial during the week of May 13,
1996. While the outcome of this litigation cannot be predicted with certainty at
this stage, the Company believes it will prevail on its claims against Greenhill
and Greenhill's counterclaims are without merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
- ---------------------------------------------------------
The Company's Common Stock is traded on the New York Stock Exchange.
The following table sets forth the high and low sales prices for the Common
Stock for 1995 and 1994 as reported by the New York Stock Exchange.
1995 1994
------------------------------------------------
High Low High Low
------------------------------------------------
First Quarter 33-1/2 18-7/8 26-1/2 13-3/8
Second Quarter 34-3/4 27 33-3/8 19-3/8
Third Quarter 31-1/4 23-7/8 37 24-1/4
Fourth Quarter 35-1/2 23-3/4 30-1/2 20
On March 28, 1996, the closing price for the Common Stock was $27.50.
To the best of the Company's knowledge, there are approximately 1,340 record
holders of the Company's Common Stock as of March 28, 1996.
Dividend Policy
- ---------------
The Company did not pay cash dividends during 1994 or 1995, and it
intends to retain future earnings in order to provide funds for use in the
operation and expansion of its business. Because the payment of dividends is
dependent upon earnings, capital requirements, financial conditions, any
required consents of lenders and other factors, there is no assurance that
dividends, whether in the form of stock or cash, will be paid in the future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- ---------------------------------------------
(in thousands, except per share data)
The following table summarizes certain historical consolidated
financial data of the Company and is qualified in its entirety by the more
detailed consolidated financial statements and notes thereto included in Item 8
hereof. Amounts in 1994 and 1993 have been restated to reflect the effects of
the discontinued operations.
Year Ended December 31,
-----------------------------------------------------------------------
Statement of Operations Data: 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Revenue $ 74,439 $ 70,902 $ 43,456 $ 28,354 $ 24,463
Expenses and costs:
Depreciation, depletion and amortization 26,872 27,181 19,852 13,486 9,165
Cost of sales 13,071 10,499 3,202 506 428
Selling, general and administrative 15,393 14,672 9,132 6,412 4,977
Net interest expense 3,078 3,198 2,126 1,470 787
-------- -------- -------- -------- --------
Total expenses and costs 58,414 55,550 34,312 21,874 15,357
Income from continuing operations
before provision for income
taxes, extraordinary item and change in
accounting principle 16,025 15,352 9,144 6,480 9,106
Provision for income taxes 5,898 5,681 3,328 2,134 3,096
-------- -------- -------- -------- --------
Income from continuing operations
before extraordinary item and
change in accounting principle 10,127 9,671 5,816 4,346 6,010
Loss from discounted operations,
net of tax (1,196) (52) (99) -- --
Loss on disposal of discontinued
operations, net of tax (252) -- -- -- --
-------- -------- -------- -------- --------
Income before extraordinary item
and change in accounting principle 8,679 9,619 5,717 4,346 6,010
Extraordinary charge on early
extinguishment of debt, net of tax -- (304) -- -- --
Cumulative effect on prior years of
change in accounting principle -- -- -- 204 --
-------- -------- -------- -------- --------
Net income $ 8,679 $ 9,315 $ 5,717 $ 4,550 $ 6,010
======== ======== ======== ======== ========
Year Ended December 31,
----------------------------------------------------------------
Statement of Operations Data: 1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
Earnings per share:
Primary:
Income from continuing operations
before extraordinary item and
change in accounting principle $ 1.03 $ 1.24 $ .93 $ .76 $ 1.13
Discontinued operations (.15) (.01) (.01) -- --
Extraordinary item -- (.04) -- -- --
Change in accounting principle -- -- -- .04 --
--------- --------- --------- --------- ---------
Net income $ .88 $ 1.19 $ .92 $ .80 $ 1.13
========= ========= ========= ========= =========
Assuming full dilution:
Income from continuing operations
before extraordinary item and
change in accounting principle $ .99 $ 1.11 $ .83 $ .72 $ 1.13
Discontinued operations (.14) (.01) (.01) -- --
Extraordinary item -- (.03) -- -- --
Change in accounting principle -- -- -- .03 --
--------- --------- --------- --------- ---------
Net income $ .85 $ 1.07 $ .82 $ .75 $ 1.13
========= ========= ========= ========= =========
Weighted average shares
- Primary 9,872 7,800 6,893 5,713 5,305
- Assuming full dilution 10,358 9,001 8,279 7,645 5,305
Cash dividends per share $ -- $ -- $ -- $ .05 $ .10
As of December 31,
----------------------------------------------------------------
Balance Sheet Data: 1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
Data bank, net $ 105,369 $ 95,801 $ 58,583 $ 55,278 $ 40,432
Oil and gas properties, net 42,424 21,389 4,811 -- --
Property and equipment, net 10,126 11,035 6,985 698 335
Total assets 209,567 166,769 92,554 73,136 52,042
Total debt 57,560 11,839 31,866 26,746 11,471
Stockholders' equity 120,378 101,329 41,583 35,643 31,350
Stockholders' equity per common share
outstanding at December 31 $ 12.76 $ 11.48 $ 6.95 $ 5.96 $ 5.65
Common shares outstanding at
December 31 9,437 8,826 5,987 5,976 5,548
Note: All number of shares and per share amounts have been restated to give
retroactive effect to the four 1% stock dividends in March, June,
September and December 1991, and the two 1% stock dividends in March
and June, 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------
Introduction
- ------------
The following table sets forth for the periods indicated (i) the
percentage which certain items in the financial statements of the Company bear
to revenues and (ii) the percent change in the dollar amount of such items from
period to period.
Percentage of Percentage of
Total Revenues Increase (Decrease)
Year Ended December 31, Years Ended December 31,
------------------------------------ ------------------------
1995 1994
vs. vs.
1995 1994 1993 1994 1993
-------- -------- ------- -------- --------
Revenue:
Seismic 94% 98% 97% * 66%
Oil and Gas 6% 2% 1% 299% 94%
Other * * 2% (71%) (87%)
-------- -------- -------
Total revenue 100% 100% 100% 5% 63%
Expenses and costs:
Depreciation, depletion and amortization 36% 38% 46% (1%) 37%
Cost of sales 17% 15% 7% 24% 228%
Selling, general and administrative 21% 21% 21% 5% 61%
Net interest 4% 4% 5% (4%) 50%
-------- -------- -------
Total expenses and costs 78% 78% 79% 5% 62%
Provision for income taxes 8% 8% 8% 4% 71%
-------- -------- -------
Income from continuing operations 14% 14% 13% 5% 66%
======== ======== =======
* Less than 1%
Results of Operations
- ---------------------
Total revenue was $74,439,000, $70,902,000 and $43,456,000 in 1995,
1994 and 1993, respectively, representing increases of 5% from 1994 to 1995 and
63% from 1993 to 1994. Revenue primarily consists of revenue generated from the
seismic business and oil and gas production.
Seismic revenue was $69,598,000, $69,579,000, and $41,913,000 during
1995, 1994, and 1993, respectively. The slight increase in seismic revenue
between 1995 and 1994 primarily resulted from an increase in revenue generated
from the licensing of seismic data currently in the Company's library, which was
offset by a decrease in revenue generated from the creation of new seismic data.
During 1995, the Company's focus was more on generating revenue from data that
had been recently added to the library (both onshore and offshore 3D seismic
data) than on the creation of new data. The increase of $27,666,000 in seismic
revenue from 1993 to 1994 is primarily due to increased demand for 3D seismic
surveys and the increased size of the Company's 2D and 3D data library available
for licensing. The Company believes the demand for its seismic data remains
strong due to several factors: large integrated oil and gas companies have
reduced internal seismic data crew staffs and are using outside sources to
provide more of these services; the majority of the Company's seismic data is
located in the Gulf Coast region, which continues to be of particular interest
to the oil and gas industry; and the high quality of the Company's seismic data.
Additionally, management believes that the Company's 2D data library will
continue to generate significant revenue because 2D data is less expensive than
3D and 2D data is the most cost-efficient means to preliminarily identify
exploration and development leads, which are then best evaluated with 3D data.
Oil and gas revenue was $4,806,000, $1,204,000 and $621,000 during
1995, 1994 and 1993, respectively. The increases in oil and gas revenue are due
to more wells coming on line in 1994 and 1995. The first year of oil and gas
operations for the Company was 1993. Since then, the Company has steadily
increased its exploration and development efforts resulting in the number of
wells producing as of December 31, 1993 to increase from one to 23 at December
31, 1994 and to 68 at December 31, 1995. Net production of oil and gas has
increased from 27,000 barrels and 97 million cubic feet (mmcf) for the year
ended December 31, 1993 to 54,000 barrels and 268 mmcf for the year ended
December 31, 1994, and 193,000 barrels and 1,170 mmcf for the year ended
December 31, 1995. Most of the larger size wells completed, in terms of proved
reserves, did not come on line commercially until the latter part of 1995 and
during the first quarter of 1996. As a result, the Company believes its oil and
gas revenue should increase progressively during 1996.
Depreciation, depletion and amortization consist primarily of data bank
amortization. Data bank amortization amounted to $23,852,000, $25,777,000, and
$19,069,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
As a percentage of revenue from licensing seismic data, data bank amortization
was 45%, 46% and 52% for 1995, 1994 and 1993, respectively. These changes
between years 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 costs of the Company's proprietary seismic data are
amortized for each project in the proportion that its revenue for a period
relates to management's estimate of its ultimate revenues. Revenue is expected
to be more evenly received over the lives of existing seismic data libraries
purchased by the Company. Accordingly, the Company amortizes the cash invested
in purchases of existing seismic data libraries evenly over ten years.
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 are amortized within five years of
inception for 2D seismic data and within seven years of inception for 3D data,
and the final 10% is amortized on a straight-line basis over fifteen years.
Under these guidelines, 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 for each seismic data program is compared to
its estimated future revenue and, if appropriate, is reduced to its estimated
net realizable value. Other than adjustments to comply with the annual
amortization guidelines, there have been no material write-downs.
Trends in the Company's (and its industry's) seismic revenue are
evaluated and results are used in estimating future revenue expected to be
received on each seismic data program. Pricing of seismic data is significant
when it indicates a revision to estimated future revenue. During periods of
downturn, the Company may reduce its estimates of future revenue, causing the
amortization rate to rise and liquidity and operating results to decline. If the
Company perceives an impairment in value due to reduced, or a lack of, estimated
future revenue, a write-down of the asset is recognized. In periods of upturn,
the opposite may occur, except, however, that prior write-downs are not
reversed. Even though the price of gas was depressed at times during 1995 and
spiked during the severe cold weather experienced in the fourth quarter of 1995,
the prevailing outlook is that prices will be generally stable, and that demand
will continue to increase. Accordingly, management believes that the economic
outlook for the Company is stable and the possibility for significant
improvement exists.
Costs of sales consists of expenses associated with the acquisition of
seismic data for non-affiliated parties, seismic resale support services, oil
and gas production and, in 1993, geophysical technology services. The increase
in cost of sales from $3,202,000 to $10,499,00 from 1993 to 1994 is attributable
to the Company having a full year of operations related to acquisition of
seismic data for non-affiliated parties and oil and gas production. The increase
in cost of sales from $10,499,000 to $13,071,000 from 1994 to 1995 is due to the
Company's increasing volume of business in these areas. Revenues from these
areas increased from $5,222,000 in 1993 to $14,033,000 in 1994 to $19,773,000 in
1995. Gross profit margin related to the acquisition of seismic data for
non-affiliated parties was 22%, 20% and 30% for 1995, 1994 and 1993,
respectively. Gross profit margin related to oil and gas production was 67%, 72%
and 80% for 1995, 1994 and 1993, respectively.
The Company's selling, general and administrative expenses increased
from $9,132,000 in 1993 and $14,672,000 in 1994 to $15,393,000 in 1995. The
increase for each year was primarily a result of the addition of new employees,
marketing expenses and incentive compensation directly related to the increased
volume of business, as well as expenses related to the Company's expansions into
the 3D seismic recording and crew operation and oil and gas exploration and
production areas. As a percentage of total revenue, these expenses were 21% in
1993,1994 and 1995.
The Company's interest expense was $2,306,000 in 1993, $3,455,000 in
1994 and $3,407,000 in 1995. The increase from 1993 to 1994 was primarily due to
interest expense incurred on amounts owed to a seismic acquisition contractor as
well as interest incurred on funds (both bank and capital leases) used to
acquire the Company's two 3D seismic recording systems and seismic data
processing center. The slight decrease in interest expense in 1995 resulted from
less interest expense incurred on the 9% convertible debentures due to the
conversions and exchanges into common stock, offset by increased interest
expense being incurred primarily on amounts owed to a seismic acquisition
contractor. As of December 31, 1995, amounts owed to the seismic acquisition
contractor had been paid.
On March 22, 1996, the Company's Board of Directors unanimously adopted
a plan of disposal to discontinue the Company's gas marketing operations. The
Company decided to refocus and concentrate on its higher margin seismic
technology operations and related petroleum exploration and production
operations in order to maximize profitability and growth opportunities.
Accordingly, the Company's financial statements have been restated to reflect
the discontinued operations. The loss from discontinued operations amounted to
$1,196,000, net of an income tax benefit of $703,000 for 1995. The loss from
discontinued operations in 1995 includes an estimated $2.1 million pre-tax loss
related to future contractual commitments. At December 31, 1995, the Company had
fixed price gas sales contracts which were generally below the estimated market
price at which the Company could purchase gas supply and transportation. Current
market pricing models were used to estimate the market price at which the
Company could purchase gas supply and transportation in the future, and actual
prices may differ from these estimates. Estimated effects of changes in market
prices and the actual settlement costs of these contracts will be recognized as
net gains or losses in income (loss) from discontinued operations until disposal
or termination of the Company's contracts. The loss on disposal of discontinued
operations recorded as of December 31, 1995, is estimated to be $252,000, net of
an income tax benefit of $148,000, and includes costs such as severance benefits
and estimated personnel costs to continue to honor the Company's obligations
until the contracts are transferred or terminated.
In October 1994, the company called for redemption of its 12-1/2%
subordinated debentures due 1999 totaling $3,725,000. As a result, the Company
recorded an extraordinary charge of $304,000, net of a $163,000 income tax
benefit, associated with the early extinguishment of indebtedness, which has
been reflected as an extraordinary item for the year ended December 31, 1994.
Liquidity and Capital Resources
- -------------------------------
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%. 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 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 has scheduled the issuance
of the Series C Notes, totaling $22.5 million, for April 9, 1996. The Series C
Notes will bear interest at 1.45% above the yield of U.S. Treasury securities
with a five year maturity at the time of issuance. The Company used the majority
of the proceeds of the Series A and Series B Notes to repay amounts outstanding
under its $25 million revolving line of credit, amounts outstanding under a
wholly-owned subsidiary's $75 million reducing revolving line of credit, and
amounts owed to a seismic contractor. The proceeds of the Series C Notes will be
used primarily to fund petroleum exploration and development activities of its
wholly-owned subsidiary and for other working capital or general corporate
purposes.
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.
During 1995, the Company and a wholly-owned subsidiary obtained two
separate three year term loans totaling $716,000, which both bear interest at
the rate of 8.413%, for the purchase of certain property and equipment which
secures the debt. Monthly principal and interest payments total approximately
$22,000. The balance outstanding on the loans at March 28, 1996, was $603,000.
On July 15, 1993, a wholly-owned subsidiary of the Company obtained a
$4,300,000, five year term loan bearing interest at the rate of 7.61% for the
purchase of a 3D seismic recording system. The debt is secured by such
equipment. Monthly principal and interest payments of $86,000 began on August 1,
1993. The balance outstanding on the term loan at March 28, 1996, was
$2,205,000.
During 1994 and 1995, the Company entered into three capital leases
which relate to the purchase of a second 3D seismic recording system and a
seismic data processing center. These lease agreements are for terms of three to
five years. Monthly principal and interest payments total approximately
$125,000. The balance outstanding under these capital lease obligations was
$3,412,000 at March 28, 1996.
During 1995 and 1994, the Company received $6,942,000 and $7,287,000,
respectively, from the exercise of common stock purchase warrants and options
and the Company's 401(k) stock purchases. In connection with the option and
warrant exercises in 1995 and 1994, the Company received $1,900,000 and
$1,879,000, respectively, in tax savings. From January 1, 1996, through March
28, 1996, the Company received $31,000 from the Company's 401(k) stock
purchases.
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 1995, gross seismic data bank additions and capitalized oil and
gas exploration and development costs amounted to $33,417,000 and $22,660,000,
respectively. These capital expenditures, as well as taxes, interest expenses,
cost of sales and general and administrative expenses, were funded by
operations, proceeds received from the exercise of common stock purchase
warrants and options combined with tax savings received on the exercise of the
warrants and options, and proceeds from the private placement described above.
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.
Currently, the Company anticipates capital expenditures for 1996 to
total approximately $70 million. Such expenditures include approximately $45
million for the creation of proprietary seismic data, and approximately $25
million for oil and gas exploration and development efforts. The Company
believes its revenues from operating sources and proceeds from its Series C
Senior Notes and from the exercise of common stock purchase warrants and options
should be sufficient to fund the 1996 capital expenditures, along with
expenditures for operating and general and administrative expenses.
Additionally, the Company could arrange for additional debt or equity financing
during 1996; 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. The
Company has received preliminary, non-binding proposals for a working capital
line of credit from several banks which are currently under consideration.
In March 1995, the Financial Accounting Standards Board issued a
statement establishing accounting standards for the impairment of long-lived
assets. This statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be realizable. The Company is required to
adopt this statement no later than its fiscal year ending December 31, 1996,
although earlier implementation is permitted. As of December 31, 1995, the
Company has not adopted this statement; however, the Company anticipates that
application of the statement will not have a material effect on its consolidated
financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, a new standard on accounting for stock based compensation. SFAS No. 123
encourages companies to account for stock-based compensation awards based on the
fair value of the awards at the date they are granted. The resulting
compensation cost would be shown as an expense in the statement of income.
Companies can choose not to apply the new accounting method and continue to
apply current accounting requirements; however, disclosure will be required as
to what net income and earnings per share would have been had the new accounting
method been followed. Adoption of the standard is required in 1996, although
earlier implementation is permitted. The Company does not intend to adopt SFAS
No. 123 for accounting purposes; however it will make annual pro forma
disclosures of its effects commencing in 1996.
Impact of Inflation and Changing Prices
- ---------------------------------------
The general availability of seismic equipment and crews and the level
of exploration activity in the oil and gas industry directly affect the cost of
creating seismic data. The pricing of the Company's products and services is
primarily a function of these factors. For these reasons, the Company does not
believe inflationary trends have had any significant impact on its financial
operating results during the three years ended December 31, 1995.
Information Regarding Forward Looking Statements
- ------------------------------------------------
This Annual Report on Form 10-K 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The financial statements and financial statement schedules required by
this Item are set forth at the pages indicated in ITEM 14(a) (1) and (2) below.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The information required to be set forth in this Item is incorporated
by reference to a similarly titled heading in the Company's definitive proxy
statement relating to the 1996 annual meeting of its stockholders to be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year covered by this Form 10-K (hereinafter the "Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The information required to be set forth in this Item is incorporated
by reference to a similarly titled heading in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
- ---------------------------------------------------------------
The information required to be set forth in this Item is incorporated
by reference to a similarly titled heading in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information required to be set forth in this Item is incorporated
by reference to a similarly titled heading in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
- ---------------------------------------------------------------
(a) Documents filed as part of this Report Page
-------------------------------------- ----
(1) Financial Statements:
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of
December 31, 1995 and 1994 F-2
Consolidated Statements of Operations
for the years ended December 31,
1995, 1994, and 1993 F-4
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1995,
1994 and 1993 F-6
Notes to Consolidated Financial Statements F-8
(2) All schedules are omitted because they are not applicable or
the required information is shown in the financial statements
or the notes to the financial statements.
(3) Exhibits:
3.1 Certificate of Incorporation of the Company filed May
7, 1982 and Amendment to Certificate of Incorporation
filed April 25, 1984 (1)
3.2 Amendment to Certificate of Incorporation filed August
4, 1987 (3)
3.3 Amendment to Certificate of Incorporation filed January
18, 1989 (4)
3.4 Amendment to Certificate of Incorporation filed July
13, 1989 (5)
3.5 Amendment to Certificate of Incorporation filed August
3, 1993 (12)
3.6 By-Laws of the Company (1)
3.7 Corporate Resolution reflecting an Amendment to the
By-Laws of the Company adopted January 6, 1989 (3)
3.8 Corporate Resolution reflecting an Amendment to the
By-Laws of the Company adopted May 19, 1986 (5)
4.1 Specimen of Common Stock Certificate (1)
4.2 Form of Warrant Certificate granted to employees of the
Company in February 1990 (5)
4.3 Form of Warrant Certificate granted to certain
employees and one Director of the Company in December
1990 and expiring in December 1997 (8)
4.4 Form of Warrant Certificate granted to certain
employees and one Director of the Company in December
1990 and expiring in December 2000 (8)
(3) Exhibits, continued:
4.5 Indenture of Trust between the Company and United
States Trust Company of New York relating to
Convertible Subordinated Debentures due December 31,
2001, including Form of such Debenture (9)
4.6 Form of Underwriter's Warrant Certificate (9)
4.7 Form of Promissory Note for Employee Stock Purchase
dated July 21, 1992 (11)
4.8 Form of Subscription Agreement for Employee Stock
Purchase dated July 21, 1992 (11)
4.9 Form of Pledge for Employee Stock Purchase dated
July 21, 1992 (11)
4.10 Form of Warrant Certificate granted under the 1994
Warrant Plans (16)
4.11 Form of Warrant Certificate granted to certain
Debenture holders (17)
4.12 Form of Warrant Certificate granted under the 1995
Warrant Reload Plan (22)
10.1 Incentive Stock Option Plan of the Company (1)
10.2 Non-Qualified Stock Option Plan of the Company (1)
10.3 1993 Incentive Stock Option Plan of the Company (12)
10.4 Amendment No. 1 to the Seitel, Inc. 1993 Incentive
Stock Option Plan (20)
10.5 Non-Employee Directors' Stock Option Plan of the
Company (15)
10.6 Seitel, Inc. 1995 Warrant Reload Plan (20)
10.7 Memorandum of Understanding between the Company and
Triangle Geophysical Company dated as of June 7,
1984 (1)
10.8 Lease Agreement by and between the Company and
Commonwealth Computer Advisors, Inc. (2)
10.9 The Company's 401(k) Plan adopted January 29, 1988
(3)
10.10 Amendment No. 1 to the Company's 401(k) Plan (6)
10.11 Amendment No. 2 to the Company's 401(k) Plan (6)
10.12 The Company's 401(k) Plan adopted February 27, 1995
(16)
10.13 Executive Services Agreement dated April 3, 1990
between the Company and Helm Resources, Inc. (7)
10.14 Employment Agreement effective as of January 1, 1991
between the Company and Paul A. Frame, Jr. (10)
(3) Exhibits, continued:
10.15 Employment Agreement effective as of January 1, 1991
between the Company and Horace A. Calvert (10)
10.16 Employment Agreement effective as of January 1, 1991
between the Company and Herbert M. Pearlman (10)
10.17 Employment Agreement effective as of January 1, 1991
between the Company and David S. Lawi (10)
10.18 Employment Agreement effective as of January 1, 1993
between the Company and Debra D. Valice (13)
10.19 Joint Venture Agreement dated April 5, 1990 by and
between Seitel Offshore Corp., a wholly-owned
subsidiary of the Company, and Digicon Data Inc., a
wholly-owned subsidiary of Digicon Geophysical Corp.
(6)
10.20 Master Revolving Credit and Security Agreement dated
March 18, 1994 (effective February 28, 1994) between
the Company, Seitel Geophysical, Inc. (Company's
wholly-owned subsidiary) and Exsol, Inc. (Company's
wholly-owned subsidiary) and Compass Bank and Bank
One, Texas, N.A. (14)
10.21 Master Revolving Promissory Note effective February
28, 1994 between the Company, Seitel Geophysical,
Inc. (Company's wholly-owned subsidiary) and Exsol,
Inc. (Company's wholly-owned subsidiary) and Compass
Bank (14)
10.22 Master Revolving Promissory Note effective February
28, 1994 between the Company, Seitel Geophysical,
Inc. (Company's wholly-owned subsidiary) and Exsol,
Inc. (Company's wholly-owned subsidiary) and Bank
One, Texas, N.A. (14)
10.23 Letter Agreement dated March 18, 1994 between the
Company, Seitel Geophysical, Inc. (Company's
wholly-owned subsidiary), Exsol, Inc. (Company's
wholly-owned subsidiary) and Seitel Offshore Corp.
(Company's wholly-owned subsidiary) and Compass Bank
and Bank One, Texas, N.A. (14)
10.24 Pledge Agreement dated March 18, 1994 (effective
February 28, 1994) from Seitel, Inc. in favor of
Compass Bank and Bank One, Texas, N.A. (14)
10.25 Loan Modification Agreement and Amendment to Loan
Documents effective as of May 19, 1994 between the
Company, Seitel Geophysical, Inc. (Company's wholly-
owned subsidiary), Exsol, Inc. (Company's
wholly-owned subsidiary) and Seitel Offshore Corp.
(Company's wholly-owned subsidiary) and Compass Bank
and Bank One, Texas, N.A. (15)
10.26 Security Agreement (Joint Venture Interest)
effective as of May 19, 1994 between Seitel Offshore
Corp. (Company's wholly-owned subsidiary) and
Compass Bank and Bank One, Texas, N.A. (15)
10.27 Second Loan Modification Agreement and Amendment to
Loan Documents effective as of August 3, 1994
between the Company, Seitel Geophysical, Inc.
(Company's wholly-owned subsidiary), Exsol, Inc.
(Company's wholly-owned subsidiary) and Seitel
Offshore Corp. (Company's wholly-owned subsidiary)
and Compass Bank and Bank One, Texas, N.A. (15)
(3) Exhibits, continued:
10.28 Master Revolving Promissory Note effective December
31, 1994 between the Company, Seitel Data Corp.
(Company's wholly-owned subsidiary), Seitel
Geophysical, Inc. (Company's wholly-owned
subsidiary), Seitel Offshore Corp. (Company's
wholly-owned subsidiary) and Exsol, Inc. (Company's
wholly-owned subsidiary) and Compass Bank-Houston
(19)
10.29 Master Revolving Promissory Note effective December
31, 1994 between the Company, Seitel Data Corp.
(Company's wholly-owned subsidiary), Seitel
Geophysical, Inc. (Company's wholly-owned
subsidiary), Seitel Offshore Corp. (Company's
wholly-owned subsidiary) and Exsol, Inc. (Company's
wholly-owned subsidiary) and Bank One, Texas, N.A.
(19)
10.30 Restated Revolving Credit and Security Agreement
effective as of December 31, 1994 among the Company,
Seitel Data Corp. (Company's wholly-owned
subsidiary), Seitel Geophysical, Inc. (Company's
wholly-owned subsidiary), Seitel Offshore Corp.
(Company's wholly-owned subsidiary) and Exsol, Inc.
(Company's wholly-owned subsidiary) and Bank One,
Texas, N.A. and Compass Bank-Houston (19)
10.31 Amendment to Security Agreement (Joint Venture
Interest) effective as of December 31, 1994 among
Seitel Offshore Corp. (Company's wholly-owned
subsidiary) and Bank One, Texas, N.A. and Compass
Bank-Houston (19)
10.32 Amendment to Pledge Agreement effective as of
December 31, 1994 among the Company, Seitel
Geophysical, Inc. (Company's wholly-owned
subsidiary), Seitel Data Corp. (Company's
wholly-owned subsidiary) and Bank One, Texas, N.A.
and Compass Bank-Houston (19)
10.33 First Amendment to Restated Credit and Security
Agreement effective as of September 14, 1995 among
the Company, Seitel Data Corp. (Company's wholly-
owned subsidiary), Seitel Geophysical, Inc.
(Company's wholly-owned subsidiary), Seitel Offshore
Corp. (Company's wholly-owned subsidiary), Exsol,
Inc. (Company's wholly-owned subsidiary), and Bank
One, Texas, National Association and Compass Bank -
Houston (21)
10.34 Termination and Release Agreement dated as of
December 28, 1995, between the Company and various
of its subsidiaries and Bank One, Texas, National
Association and Compass Bank-Houston *
10.35 Term Note dated July 15, 1993 between Seitel
Geophysical, Inc. (Company's wholly- owned
subsidiary) and Central Bank of the South (12)
10.36 Term Credit and Security Agreement dated July 15,
1993 between Seitel Geophysical, Inc. (Company's
wholly-owned subsidiary) and Central Bank of the
South (12)
10.37 Continuing Guaranty dated July 15, 1993 between the
Company and Central Bank of the South (12)
10.38 Side Letter Agreement dated July 15, 1993 between
the Company and Central Bank of the South (12)
10.39 Loan Modification Agreement and Amendment to Loan
Documents effective as of December 28, 1995, between
Seitel Geophysical, Inc. (Company's wholly-owned
subsidiary) and Compass Bank*
(3) Exhibits, continued:
10.40 Master Equipment Lease Agreement dated May 20, 1994,
between Seitel Geophysical, Inc. (Company's
wholly-owned subsidiary) and MetLife Capital,
Limited Partnership (15)
10.41 Credit Agreement dated June 14, 1995, between DDD
Energy, Inc. (Company's wholly-owned subsidiary) and
Bank One, Texas, National Association, as a Bank and
the Agent and Compass Bank- Houston (20)
10.42 Promissory Note dated June 14, 1995, in the face
amount of $37,500,000, executed by DDD Energy, Inc.
(Company's wholly-owned subsidiary) and payable to
the order of Bank One, Texas, National Association
(20)
10.43 Promissory Note dated June 14, 1995, in the face
amount of $37,500,000, executed by DDD Energy, Inc.
(Company's wholly-owned subsidiary) and payable to
the order of Compass Bank- Houston (20)
10.44 Guaranty dated June 14, 1995, by Seitel, Inc. in
favor of Bank One, Texas, National Association,
Individually and as Agent and Compass Bank-Houston
(20)
10.45 Security Agreement (Stock Pledge) dated June 14,
1995, by Seitel, Inc. in favor of Bank One, Texas,
National Association, as Agent (20)
10.46 Termination and Release Agreement dated as of
December 28, 1995 between DDD Energy, Inc.
(Company's wholly-owned subsidiary) and Bank One,
Texas, National Association and Compass
Bank-Houston*
10.47 Incentive Compensation Agreement (11)
10.48 Shareholder Value Bonus Agreement effective as of
March 18, 1994 (15)
10.49 Amendment to Shareholder Value Bonus Agreement
effective as of March 18, 1994 (18)
10.50 Seitel, Inc. 1995 Shareholder Value Incentive Bonus
Plan (20)
10.51 Terms Agreement dated July 28, 1994, between the
Company and Bear, Stearns & Co., Inc. (15)
10.52 Note Purchase Agreement dated as of December 28,
1995, between the Company and the Series A
Purchasers, the Series B Purchasers and the Series C
Purchasers*
21.1 Subsidiaries of the Registrant *
23.1 Consent of Arthur Andersen LLP *
23.2 Consent of Forrest A. Garb & Associates, Inc.*
- ----------------------
* Filed herewith
(1) Incorporated by reference to the Company's
Registration Statement, as amended, on Form S-1, No.
2-92572 as filed with the Securities and Exchange
Commission on August 3, 1984.
(3) Exhibits, continued:
(2) Incorporated by reference to Post-Effective
Amendment No. 2 to the Company's Registration
Statement on Form S-2, File No. 33-32838, as filed
with the Securities and Exchange Commission on
October 10, 1991.
(3) Incorporated by reference to the Company's
Registration Statement, as amended, on Form S-2, No.
33-21300 as filed with the Securities and Exchange
Commission on April 18, 1988.
(4) Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1988.
(5) Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1989.
(6) Incorporated by reference to the Company's Form 8
amending the Company's Annual Report on Form 10-K
for the year ended December 31, 1989.
(7) Incorporated by reference to the Company's
Registration Statement, as amended, on Form S-2, No.
33-34217 as filed with the Commission on April 6,
1990.
(8) Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1990.
(9) Incorporated by reference to the Company's
Registration Statement, as amended, on Form S-2, No.
33-44430 as filed with the Commission on December
12, 1991.
(10) Incorporated by reference to the Company's Form 10-Q
for the quarter ended June 30, 1991.
(11) Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1992.
(12) Incorporated by reference to the Company's Form 10-Q
for the quarter ended June 30, 1993.
(13) Incorporated by reference to the Company's Form 10-Q
for the quarter ended September 30, 1993.
(14) Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993.
(15) Incorporated by reference to the Company's Form 10-Q
for the quarter ended June 30, 1994.
(16) Incorporated by reference to the Company's
Registration Statement on Form S-8, No. 33-89934 as
filed with the Securities and Exchange Commission on
March 2, 1995.
(17) Incorporated by reference to the Company's
Registration Statement on Form S-3, No. 33-89890 as
filed with the Securities and Exchange Commission on
March 2, 1995.
(18) Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1994.
(3) Exhibits, continued:
(19) Incorporated by reference to the Company's Form 10-Q
for the quarter ended March 31, 1995.
(20) Incorporated by reference to the Company's Form 10-Q
for the quarter ended June 30, 1995.
(21) Incorporated by reference to the Company's Form 10-Q
for the quarter ended September 30, 1995.
(22) Incorporated by reference to the Company's
Registration Statement on Form S-8, No. 333-01271 as
filed with the Securities and Exchange Commission on
February 28, 1996.
(b) Reports on Form 8-K filed during the quarter ended
December 31, 1995:
-------------------------------------------------------------
NONE
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of
1934, the Registrant has duly caused this report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on the 29th of March 1996.
SEITEL, INC.
By: /s/ Paul A. Frame
---------------------------------------------
Paul A. Frame, President, Chief Executive
Officer and Director
By: /s/ Debra D. Valice
---------------------------------------------
Debra D. Valice, Chief Financial Officer
By: /s/ Marcia H. Kendrick
---------------------------------------------
Marcia H. Kendrick, Chief Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, this Report on Form
10-K has been signed below by the following persons in the capacities and on the
date indicated.
Signature Title Date
--------- ----- ----
/s/ Herbert M. Pearlman Chairman of the Board of March 29 , 1996
- ------------------------ Directors
Herbert M. Pearlman
/s/ Paul A. Frame President and Chief Executive March 29, 1996
- ------------------------ Officer, Director
Paul A. Frame
/s/ Horace A. Calvert Executive Vice President and March 29 , 1996
- ------------------------ Chief Operating Officer, Director
Horace A. Calvert
/s/ Debra D. Valice Senior Vice President-Finance, March 29, 1996
- ------------------------ Chief Financial Officer, Secretary
Debra D. Valice and Treasurer, Director
/s/ Jesse R. Marion President - Seitel Delaware, Inc. March 29, 1996
- ------------------------ and Seitel Data, Ltd., Director
Jesse R. Marion
/s/ David S. Lawi Director March 29, 1996
- ------------------------
David S. Lawi
/s/ William Lerner Director March 29, 1996
- ------------------------
William Lerner
/s/ Walter M. Craig, Jr. Director March 29, 1996
- ------------------------
Walter M. Craig, Jr.
/s/ John Stieglitz Director March 29, 1996
- ------------------------
John Stieglitz
/s/ William L. Lurie Director March 29, 1996
- ------------------------
William L. Lurie
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Seitel, Inc.:
We have audited the accompanying consolidated balance sheets of Seitel, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seitel, Inc. and subsidiaries
as of December 31, 1995 and 1994 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Houston, Texas
March 29, 1996
F-1
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
----------------------
1995 1994
--------- ---------
ASSETS
Cash and equivalents $ 6,242 $ 846
Receivables
Trade, less allowance for doubtful accounts
of $650 and $100 at December 31, 1995 and
1994, respectively 40,992 35,405
Notes and other 1,289 329
Net assets of discontinued operations -- 529
Data bank 232,704 199,287
Less: Accumulated amortization (127,335) (103,486)
--------- ---------
Net data bank 105,369 95,801
Property and equipment, at cost:
Oil and gas properties, full cost method
of accounting, including $20,862 and
$13,748 not being amortized at
December 31, 1995 and 1994, respectively 44,684 22,024
Geophysical equipment 12,531 11,862
Furniture, fixtures and other 4,404 2,953
--------- ---------
61,619 36,839
Less: Accumulated depreciation, depletion
and amortization (9,069) (4,415)
--------- ---------
Net property and equipment 52,550 32,424
Prepaid expenses, deferred charges and
other assets 3,125 1,435
--------- ---------
TOTAL ASSETS $ 209,567 $ 166,769
========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- continued
(In thousands, except share and per share amounts)
December 31,
-----------------------
1995 1994
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 9,830 $ 23,861
Accrued liabilities 6,243 4,769
Employee compensation payable 2,349 2,069
Income taxes payable 227 933
Net liabilities of discontinued operations 1,105 --
Debt
Senior Notes 52,500 --
Subordinated debentures 1,989 3,523
Line of Credit -- 5,085
Term loans 3,071 3,231
Obligations under capital leases 3,723 5,088
Deferred contractor payable -- 9,698
Contingent payables 279 3,152
Deferred income taxes 6,472 3,502
Deferred revenue 1,401 529
--------- ---------
TOTAL LIABILITIES 89,189 65,440
--------- ---------
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 9,436,854 and 8,825,619
at December 31, 1995 and 1994, respectively 94 88
Additional paid-in capital 85,821 75,611
Retained earnings 35,936 27,257
Treasury stock, 414 shares at cost at
December 31, 1995 and 1994 (4) (4)
Notes receivable from officers and employees (1,395) (1,551)
Cumulative translation adjustment (74) (72)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 120,378 101,329
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 209,567 $ 166,769
========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
-----------------------------------------
1995 1994 1993
---------- ---------- ----------
REVENUE $ 74,439 $ 70,902 $ 43,456
EXPENSES
Depreciation, depletion and amortization 26,872 27,181 19,852
Cost of sales 13,071 10,499 3,202
Selling, general and administrative expenses 15,393 14,672 9,132
Interest expense 3,407 3,455 2,306
Interest income (329) (257) (180)
-------- -------- --------
58,414 55,550 34,312
-------- -------- --------
Income from continuing operations before provision for
income taxes and extraordinary item 16,025 15,352 9,144
Provision for income taxes 5,898 5,681 3,328
-------- -------- --------
Income from continuing operations before extraordinary item 10,127 9,671 5,816
Loss from discontinued operations, net of income tax
benefit of $703 for 1995, $30 for 1994 and
$57 for 1993 (1,196) (52) (99)
Loss on disposal of discontinued operations, net of income
tax benefit of $148 (252) -- --
-------- -------- --------
Income before extraordinary item 8,679 9,619 5,717
Extraordinary charge on early extinguishment of debt, net of
income tax benefit of $163 -- (304) --
-------- -------- --------
NET INCOME $ 8,679 $ 9,315 $ 5,717
======== ======== ========
Earnings per share:
Primary:
Income from continuing operations before extraordinary item $ 1.03 $ 1.24 $ .93
Loss from discontinued operations (.12) (.01) (.01)
Loss on disposal of discontinued operations (.03) -- --
Extraordinary item -- (.04) --
-------- -------- --------
Net income $ .88 $ 1.19 $ .92
======== ======== ========
Assuming full dilution:
Income from continuing operations before extraordinary item $ .99 $ 1.11 $ .83
Loss from discontinued operations (.12) (.01) (.01)
Loss on disposal of discontinued operations (.02) -- --
Extraordinary item -- (.03) --
-------- -------- --------
Net income $ .85 $ 1.07 $ .82
======== ======== ========
Weighted average number of common and common equivalent shares:
Primary 9,872 7,800 6,893
======== ======== ========
Assuming full dilution 10,358 9,001 8,279
======== ======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Notes
Receivables
Common Stock Additional Treasury Stock from Cumulative
------------------ Paid-in Retained ----------------- Officers Translation
Shares Amount Capital Earnings Shares Amount & Employees Adjustments
--------- -------- ---------- ---------- -------- -------- ---------- ----------
BALANCE, DECEMBER 31, 1992 5,976,472 $ 60 $ 25,672 $ 12,225 -- $ -- $ (2,150) $ (164)
Proceeds from issuance of common stock 10,916 -- 37 -- -- -- -- --
Payments received on notes receivable from
officers and employees -- -- -- -- (414) (4) 111 --
Foreign currency translation adjustment -- -- -- -- -- -- -- 79
Net income -- -- -- 5,717 -- -- -- --
--------- -------- ---------- ---------- -------- -------- ---------- ----------
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 -- -- -- -- --
Proceeds from issuance of common stock 770,364 7 7,280 -- -- -- -- --
Tax reduction from exercise of stock options -- -- 1,879 -- -- -- -- --
Conversions 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)
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
debentures 165,296 2 1,416 -- -- -- -- --
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)
========= ======== ========== ========== ======== ======== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
Cash flows from operating activities:
Cash received from customers $ 80,981 $ 51,312 $ 33,235
Cash paid to suppliers and employees (38,563) (24,540) (9,649)
Interest paid (4,551) (2,543) (2,259)
Interest received 320 265 185
Income taxes paid (2,218) (517) (2,927)
-------- -------- --------
Net cash provided by operating activities 35,969 23,977 18,585
-------- -------- --------
Cash flows from investing activities:
Cash invested in seismic data (59,286) (36,761) (17,841)
Cash invested in oil and gas properties (21,737) (15,269) (3,309)
Cash paid to acquire property and equipment (1,416) (615) (5,127)
Advances made to oil and gas joint venture
partner (1,142) -- --
Collections on loans made 108 -- 134
-------- -------- --------
Net cash used in investing activities (83,473) (52,645) (26,143)
-------- -------- --------
Cash flows from financing activities:
Borrowings under line of credit agreement 75,101 79,767 42,142
Principal payments under line of credit
agreement (80,186) (85,745) (40,534)
Borrowings under term loans 387 -- 4,300
Principal payments on term loans (876) (759) (310)
Principal payments under capital lease
obligations (1,375) (551) (4)
Redemption of subordinated debentures -- (3,911) --
Payments on notes receivable from officers
and employees 156 488 107
Proceeds from issuance of senior notes 52,500 -- --
Proceeds from issuance of common stock 6,942 41,290 37
Costs of debt and equity transactions (202) (2,135) --
Other -- -- 6
-------- -------- --------
Net cash provided by financing activities 52,447 28,444 5,744
-------- -------- --------
Effect of exchange rate changes (8) 6 80
-------- -------- --------
Net increase (decrease) in cash and equivalents 4,935 (218) (1,734)
Cash and equivalents at beginning of period:
Continuing operations 846 1,759 3,493
Discontinued operations 695 -- --
-------- -------- --------
Total cash and equivalents at beginning
of period 1,541 1,759 3,493
-------- -------- --------
Cash and equivalents at end of period:
Continuing operations 6,242 846 1,759
Discontinued operations 234 695 --
-------- -------- --------
Total cash and equivalents at end of period $ 6,476 $ 1,541 $ 1,759
======== ======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--continued
(In thousands)
Year Ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 8,679 $ 9,315 $ 5,717
-------- -------- --------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and amortization 27,663 27,929 20,217
Deferred income tax provision 2,970 2,455 760
Loss on discontinued operations,
net of tax 1,448 52 99
Extraordinary loss on extinguishment
of debt, net of tax -- 304 --
Non-cash sales (1,534) (3,162) (3,768)
Warrants issued in debenture exchange -- 180 --
Loss on foreign currency transactions -- -- 87
Increase in receivables (5,514) (17,322) (6,832)
Decrease (increase) in other assets (1,189) (476) 7
Increase in accounts payable and
other liabilities 3,722 4,588 2,483
-------- -------- --------
Total adjustments 27,566 14,548 13,053
-------- -------- --------
Net cash provided by (used in) operating
activities of:
Continuing operations 36,245 23,863 18,770
Discontinued operations (276) 114 (185)
-------- -------- --------
Net cash provided by operating activities $ 35,969 $ 23,977 $ 18,585
======== ======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
SEITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Seitel, Inc. (the "Company") is a leading provider of
seismic data and corollary geophysical services to the petroleum industry and
directly participates in exploration, development and ownership of natural gas
and crude oil reserves. The majority of the Company's seismic surveys cover
onshore and offshore the U.S. Gulf Coast region. The Company's oil and gas
exploration, development and production activities are on properties located
primarily onshore Texas and Louisiana, and also onshore Alabama, Mississippi and
Arkansas.
Use of Estimates: The preparation of these consolidated financial
statements require the use of certain estimates by management in determining the
Company's assets, liabilities, revenues and expenses. Actual results could
differ from estimates. Data bank amortization is determined using estimates of
ultimate revenues from licensing of the seismic data. Refer to the data bank
discussion below for additional information on data bank amortization.
Depreciation, depletion and amortization of oil and gas properties and the
impairment of oil and gas properties are determined using estimates of proved
oil and gas reserves. There are numerous uncertainties in estimating the
quantity of proved reserves and in projecting the future rates of production and
timing of development expenditures. Refer to Note Q, "Supplemental Oil and Gas
information" for additional information regarding the process of estimating
proved reserve quantities. Estimates have been used to determine the loss on
future contractual commitments of the discontinued operations. Refer to Note L,
"Discontinued Operations" for additional information on management's estimate.
Basis of Presentation: The accompanying consolidated financial statements
include the accounts of Seitel, Inc., the accounts of its wholly-owned
subsidiaries and the Company's pro rata share of its investments in joint
ventures. All material intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to the
amounts in the prior years' financial statements to conform to the current
year's presentation.
The Company presents its consolidated balance sheets on an unclassified
basis. Because the portion of seismic data acquisition costs to be amortized
during the next year cannot be classified as a current asset, and classification
of all of these costs as noncurrent would be misleading to the reader because it
would not indicate the level of assets expected to be converted into cash in the
next year, the Company believes that the use of an unclassified balance sheet
results in improved financial reporting.
Data Bank: Costs incurred in the creation of proprietary seismic data,
including the direct costs of Company personnel dedicated to 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 its ultimate revenues. 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 are amortized within
five years of inception for two-dimensional seismic data and within seven years
of inception for three-dimensional data, and the final 10% is amortized on a
straight-line basis over fifteen years. Under these guidelines, costs of
existing seismic data libraries purchased by the Company are fully amortized
within ten years from date of purchase. Using these guidelines, the Company
would expect the percentage of net data bank as of December 31, 1995 to be
amortized to be 26%, 17%, 12%, 10%, 13%, and 22%, for the years ending December
31, 1996, 1997, 1998, 1999, 2000 and thereafter, respectively. On a periodic
basis, the carrying value of each seismic data program is compared to its
estimated future revenue and, if appropriate, is reduced to its estimated net
realizable value.
F-8
Net data bank at December 31, 1995 and 1994 was comprised of the following
(in thousands):
December 31,
---------------------------------
1995 1994
-------------- ---------------
2D data created by the Company $ 23,607 $ 27,610
3D data created by the Company 70,069 56,888
Data purchased by the Company 11,693 11,303
--------------- --------------
Net data bank $ 105,369 $ 95,801
=============== ==============
Property and Equipment: 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 are capitalized, including directly related
overhead costs, and interest costs related to its unevaluated properties and
certain properties under development which are not currently being amortized.
For the three years ended December 31, 1995, general and administrative costs of
$861,000, $707,000 and $252,000, respectively, have been capitalized to oil and
gas properties. For the year ended December 31, 1995, interest costs of $835,000
have been capitalized to oil and gas properties.
Provisions for depreciation, depletion and amortization are calculated
using the units-of-production method. Estimated future site restoration,
dismantlement and abandonment costs, net of salvage value, are taken into
consideration. Such costs are not currently expected to be material. Capitalized
costs associated with the acquisition and evaluation of unproved properties and
certain properties under development are not currently amortized. Amortization
of the costs associated with these properties will commence when the properties
or projects are evaluated.
Capitalized costs are limited to the present value, discounted at 10
percent, of future net revenues calculated using current prices from estimated
proved reserves plus the lower of cost or market value of unevaluated
properties, adjusted for the effects of related income taxes.
Depreciation of other property and equipment is calculated using the
straight-line method over the estimated useful lives of the assets of three to
five years.
Income Taxes: The Company and all of its subsidiaries file a consolidated
federal income tax return. The Company does not provide deferred taxes (benefit)
on the undistributed earnings (loss) of its foreign subsidiary, which amounted
to $(3,000), $1,000, and $(125,000) for the years ended December 31, 1995, 1994
and 1993, respectively, as such earnings are intended to be permanently
reinvested in those operations.
Income Recognition: Revenue from seismic data licensing agreements are
recognized when each seismic data program is available for use by the licensees
and are presented net of revenue shared with other entities. Revenue from the
acquisition of seismic data for non-affiliated parties are recognized on the
percentage-of-completion method based on the work effort completed compared with
the total work effort estimated for the contract. Revenue received in advance of
being earned is deferred until earned.
Cost of Sales: Cost of sales consists of expenses associated with the
acquisition of seismic data for non-affiliated parties, oil and gas production,
data resale support services and geophysical technology services. Cost of sales
related to the acquisition of seismic data for non-affiliated parties includes
all direct material and labor costs and indirect costs related to the
acquisition such as supplies, tools, repairs and depreciation.
Earnings per Share: Earnings per share is based on the weighted average
number of outstanding shares of common stock during the respective years,
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.
F-9
Earnings per share was determined by dividing net income, as adjusted
below, by applicable shares outstanding (in thousands):
Year Ended December 31,
---------------------------------------
1995 1994 1993
------- ------- -------
Net income as reported $ 8,679 $ 9,315 $ 5,717
Interest earned on application of assumed proceeds from exercise
of options and warrants in excess of 20% limitation, net of tax -- -- 640
------- ------- -------
Total income used for primary earnings per share $ 8,679 $ 9,315 $ 6,357
======= ======= =======
Net income as reported $ 8,679 $ 9,315 $ 5,717
Interest eliminated on assumed conversion of 9% convertible
subordinated debentures, net of tax 95 329 621
Interest earned on application of assumed proceeds from exercise
of options and warrants in excess of 20% limitation, net of tax -- -- 432
------- ------- -------
Total income used for fully diluted earnings per share $ 8,774 $ 9,644 $ 6,770
======= ======= =======
Weighted average number of common and common equivalent shares 9,872 7,800 6,893
======= ======= =======
Weighted average number of common shares assuming full dilution 10,358 9,001 8,279
======= ======= =======
If the current year conversions and exchanges of the Company's 9%
debentures had occurred at the beginning of the year, primary earnings per share
for 1995 would have remained $.88.
Subsequent to December 31, 1995, the Company's remaining 9% debentures
converted into approximately 214,000 shares of common stock (see Note C). Had
the conversion occurred on January 1, 1995, primary earnings per share for 1995
would have been $.87.
Statement of Cash Flows: For purposes of the statement of cash flows,
the Company considers all highly liquid investments or debt instruments with
original maturity of three months or less to be cash equivalents.
Operating cash flows reported in the consolidated financial statements
of cash flows do not reflect effects of changes in inventory levels because the
Company reports no inventories and classifies cash expenditures for its seismic
data library as an investing, rather than an operating, activity.
Fair Value of Financial Instruments: Statement of Financial Accounting
Standards ("SFAS") No. 107 "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair value of certain financial
instruments. The estimated fair value amounts have been determined by the
Company using available market data and valuation methodologies. The book values
of cash and equivalents, receivables and accounts payable approximate their fair
value as of December 31, 1995 and 1994, because of the short-term maturity of
these instruments. Based upon the rates available to the Company, the fair value
of the Senior Notes, the line of credit, and the term loans approximates the
carrying value of this debt as of December 31, 1995 and 1994. Based on the
quoted market price, the fair value of the 9% convertible subordinated
debentures at December 31, 1995 and 1994 was $6,962,000 and $12,330,000,
respectively.
Impairment of Long-Lived Assets: In March 1995, the Financial
Accounting Standards Board ("FASB") issued a statement establishing accounting
standards for the impairment of long-lived assets. This statement requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
realizable. The Company is required to adopt this statement no later than its
fiscal year ending December 31, 1996, although earlier implementation is
permitted. As of December 31, 1995, the Company has not adopted this statement;
however, the Company anticipates that application of the statement will not have
a material effect on its consolidated financial statements.
F-10
NOTE B--INCOME TAXES
- --------------------
The discussion of income taxes herein does not include the income tax
effects of the discontinued operations or the extraordinary item explained in
Note L and Note M, respectively, of these consolidated financial statements.
The provision (benefit) for income taxes for each of the three years
ended December 31, 1995, are comprised of the following (in thousands):
1995 1994 1993
------- ------- -------
Current - Federal $ 2,753 $ 2,706 $ 2,366
- State 153 225 111
- Foreign 22 295 91
------- ------- -------
2,928 3,226 2,568
------- ------- -------
Deferred - Federal 3,001 2,429 751
- State (31) 26 9
------- ------- -------
2,970 2,455 760
------- ------- -------
Tax provision - Federal 5,754 5,135 3,117
- State 122 251 120
- Foreign 22 295 91
------- ------- -------
$ 5,898 $ 5,681 $ 3,328
======= ======= =======
The differences between the U.S. Federal income taxes computed at the
statutory rate (34.6% for 1995, 34.4% for 1994 and 34% for 1993) and the
Company's income taxes for financial reporting purposes are as follows (in
thousands):
1995 1994 1993
------ ------ ------
Statutory Federal income tax $5,540 $5,280 $3,109
State income tax, less Federal benefit 79 163 79
Other, net 279 238 140
------ ------ ------
Income tax expense $5,898 $5,681 $3,328
====== ====== ======
F-11
The components of the net deferred income tax liability reflected in
the Company's consolidated balance sheets at December 31, 1995 and 1994 were as
follows (in thousands):
Deferred Tax Assets
(Liabilities)
at December 31,
--------------------
1995 1994
------- -------
Alternative minimum tax credit carry forward $ 958 $ 735
Partnership earnings 217 176
Investment tax credits 44 44
Other 820 106
------- -------
Total deferred tax assets 2,039 1,061
Less: Valuation allowance (44) (44)
------- -------
Deferred tax assets, net of
valuation allowance 1,995 1,017
------- -------
Depreciation, depletion and amortization (8,370) (4,391)
Other (97) (128)
------- -------
Total deferred tax liabilities (8,467) (4,519)
------- -------
Net deferred tax liability $(6,472) $(3,502)
======= =======
F-12
As of December 31, 1995, the Company has an alternative minimum tax
(AMT) credit carryforward of approximately $958,000 which can be used to offset
regular Federal income taxes payable in future years. The AMT credit has an
indefinite carryforward period.
In connection with the exercise of non-qualified stock options and
common stock purchase warrants by employees during 1995 and 1994, the Company
received $1,900,000 and $1,879,000, respectively, in Federal income tax savings
which has been reflected as a credit to additional paid-in capital.
NOTE C--DEBT
- ------------
The following is a summary of the Company's debt at December 31, 1995
and 1994 (in thousands):
December 31,
-----------------------
1995 1994
------- -------
Senior notes $52,500 $ --
Subordinated debentures 1,989 3,523
Borrowings under line of credit -- 5,085
Term loans 3,071 3,231
------- -------
$57,560 $11,839
======= =======
Senior Notes: On December 28, 1995, the Company completed a private
placement of three series of unsecured Senior Notes totaling $75,000,000. The
Company contemporaneously issued its Series A Notes and Series B Notes, which
total $52,500,000 and bear interest at the fixed rate of 7.17%. The Series A
Notes mature on December 30, 2001, and require annual principal payments of
$8,333,000 beginning December 30, 1999. The Series B Notes mature on December
30, 2002, and require annual principal payments of $5,500,000 beginning December
30, 1998. The Series C Notes were not issued at December 31, 1995. Interest on
the Senior Notes is payable semi-annually on June 30 and December 30.
Subordinated Debentures: The Company's convertible subordinated
debentures due March 31, 2002, carry an interest rate of 9% and a conversion
price of $9.28 per share. During the years ended December 31, 1995 and 1994, the
Company issued 165,296 and 1,006,667, respectively, shares of common stock upon
conversion and exchange of $1,534,000 and $9,342,000, respectively, principal
amount of debentures, leaving $1,989,000 outstanding as of December 31, 1995.
Subsequent to December 31, 1995, all remaining outstanding debentures were
converted into approximately 214,000 shares of common stock.
Term Loans: On July 15, 1993, a wholly-owned subsidiary of the Company
obtained a $4,300,000, five year term loan bearing interest at the rate of 7.61%
for the purchase of a telemetry seismic data acquisition system and auxiliary
equipment. The debt is secured by such equipment. Monthly principal and interest
payments total approximately $86,000.
During 1995, the Company and one of its wholly-owned subsidiaries
obtained two separate three year term loans totaling $716,000, which both bear
interest at the rate of 8.413%, for the purchase of certain property and
equipment. The debt is secured by such equipment. Monthly principal and interest
payments total approximately $22,000.
Certain of the borrowings described above contain requirements as to
the maintenance of minimum net worth and limitations on liens, total debt, debt
issuance and disposition of assets.
Aggregate maturities of the Company's debt over the next five years are
as follows: $1,103,000 in 1996; $1,193,000 in 1997; $6,275,000 in 1998; and
$13,833,000 in 1999; and $13,833,000 in 2000. Aggregate maturities reflect the
conversion of the convertible debentures.
F-13
NOTE D--LEASE OBLIGATIONS
- -------------------------
Property and equipment in the accompanying consolidated balance sheets
includes the following assets held under capital leases (in thousands):
December 31,
------------------------
1995 1994
------- -------
Geophysical equipment $ 5,298 $ 5,315
Furniture, fixtures and other 324 324
------- -------
Assets under capital lease 5,622 5,639
Accumulated amortization (1,641) (509)
------- -------
Assets under capital lease, net $ 3,981 $ 5,130
======= =======
The Company also leases office space under operating leases. Rental expense
for 1995, 1994 and 1993 was approximately $571,000, $473,000 and $418,000,
respectively.
Future minimum lease payments for the five years subsequent to December 31,
1995 and in the aggregate are as follows (in thousands):
Capital Operating
Leases Leases
------ ------
1996 $1,455 $ 478
1997 1,186 430
1998 943 450
1999 442 340
2000 -- 54
------ ------
Total minimum lease payments 4,026 $1,752
======
Less amount representing interest (303)
------
Present value of net minimum
lease payments $3,723
======
F-14
NOTE E--CONTINGENCIES AND COMMITMENTS
- -------------------------------------
At December 31, 1995 and 1994, $279,000 and $284,000, respectively, of
charges for seismic surveys which are payable to joint venture partners only
from the collection of sales proceeds from those seismic surveys are included in
contingent payables.
On July 21, 1992, the Company's Board of Directors approved payment of
a one-time $2,500,000 bonus to be divided among five key employees upon the
event of the market price of the Company's stock maintaining or exceeding $20
per share for at least 90 consecutive days (the "Target Date" ) at any time
before July 21, 1997. The Target Date was achieved in June 1994. The bonus vests
equally over the 12 quarters following the Target Date, contingent upon
continued full-time employment, except in the event of death or disability in
which case the balance of the bonus will be due and payable immediately. The
bonus expense will be recognized over the vesting period. For the years ended
December 31, 1995 and 1994, $833,000 and $625,000, respectively, was charged to
expense for this bonus. Interest, at the prevailing prime rate, is paid
quarterly on the total outstanding bonus. As of December 31, 1995, $1,042,000 of
the bonus payment remains unpaid.
On January 27, 1995, the Company's Board of Directors approved a
shareholder value incentive bonus under which a cash bonus aggregating
$4,000,000 would be paid to all salaried employees if the market price of the
Company's stock reaches $60 per share on or before April 30, 1998, and maintains
that price for at least 90 consecutive days. This bonus would be shared by all
salaried employees on a basis proportionate to their respective compensation
ranking in the Company, and it would vest and be paid out in escalating
quarterly installments over a three-year period, subject to continued employment
with the Company. As of March 28, 1996, the market price of the Company's common
stock was $27.50 per share.
F-15
NOTE F--STOCK OPTIONS AND WARRANTS
- ----------------------------------
On July 7, 1984, the Company's Board of Directors adopted an Incentive
Stock Option Plan and a Non-Qualified Stock Option Plan. As of December 31,
1995, 115,600 shares have been reserved for issuance under the Incentive Stock
Option Plan and 270,900 shares have been reserved under the Non-Qualified Stock
Option Plan, of which all options have been issued under both original plans. On
July 28, 1993, the Company's Board of Directors adopted the 1993 Incentive Stock
Option Plan and on July 18, 1995, approved an amendment to that plan to increase
the number of shares issuable under the option plan by 405,000 to 700,000. As of
December 31, 1995, 582,166 options have been issued under the plan. As of
December 31, 1995, all options issued under these plans have been issued at or
above the market price of the Company's common stock as of the date of issuance
and have a term of ten years. On June 17, 1994, the Company's Board of Directors
adopted the Non-Employee Directors Stock Option Plan which reserves 75,000
shares for issuance. As of December 31, 1995, 17,000 options have been issued at
the market price of the Company's common stock as of the date of issuance and
have a term of five years. The following summarizes information with regard to
the stock option plans for the years ended December 31, 1995, 1994 and 1993 (in
thousands):
Number of Shares
Under Option
------------------------
Year Ended December 31,
------------------------
1995 1994 1993
------ ------ ------
Outstanding at beginning of year 356 288 146
Granted ($6.88 to $40.00 per share) 337 112 153
Surrendered ($5.57 to $14.75 per share) (1) (1) --
Exercised ($1.22 to $20.25 per share) (52) (43) (11)
----- ----- -----
Outstanding at end of year 640 356 288
===== ===== =====
Exercisable at end of year 186 136 124
===== ===== =====
At December 31, 1995, outstanding warrants to purchase the Company's
common stock were as follows (in thousands):
Number of Range of Expiration
Shares Exercise Prices Date
--------- --------------- ----------
Issued to employees and directors 31 $ 11.25 2/27/97
Issued to employees and directors 526 13.19 - 32.00 12/10/97
Issued to employees and directors 562 24.00 - 32.00 4/11/99
Issued to employees and directors 19 30.13 5/4/99
Issued to employees and directors 526 13.05 - 32.00 12/10/00
Issued to an employee 10 5.38 7/21/02
Issued to underwriters in connection
with 9% convertible
subordinated debentures 20 9.28 3/26/97
Issued in debenture exchange 96 29.92 11/28/97
F-16
In October 1995, the FASB issued SFAS No. 123, a new standard on
accounting for stock based compensation. SFAS No. 123 encourages companies to
account for stock-based compensation awards based on the fair value of the
awards at the date they are granted. The resulting compensation cost would be
shown as an expense in the statement of income. Companies can choose not to
apply the new accounting method and continue to apply current accounting
requirements; however, disclosure will be required as to what net income and
earnings per share would have been had the new accounting method been followed.
Adoption of the standard is required in 1996, although earlier implementation is
permitted. The Company does not intend to adopt SFAS No. 123 for accounting
purposes; however, it will make annual pro forma disclosures of its effects
commencing in 1996.
NOTE G--COMMON STOCK
- --------------------
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 July 21, 1992, the Company granted ten year loans at an interest
rate of 4% to most of its employees for purchases of the Company's common stock
at the then market price of $5.375 per share. The Company recorded related
compensation expense of $56,000, $64,000 and $79,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. Payments of 5% of the original
principal balance plus accrued interest are due annually August 1, with a
balloon payment of the remaining principal and accrued interest due August 1,
2002. During 1995 and 1994, the Company received $156,000 and $488,000,
respectively, as principal payments on these notes. During 1993, the Company
received $107,000 and 414 shares of its common stock with a then market value of
$4,000 as principal payments on these notes. The stock certificates are held by
the Company as collateral until payment is received.
NOTE H--PREFERRED STOCK
- -----------------------
The Company is authorized by its Amended Certificate of Incorporation
to issue 5,000,000 shares of preferred stock, the terms and conditions to be
determined by the Board of Directors in creating any particular series. As of
December 31, 1995, no preferred stock had been issued.
F-17
NOTE I--RELATED PARTY TRANSACTIONS
- ----------------------------------
The Company owed Helm Resources, Inc. and its subsidiaries ("Helm"), a
company that has three executive officers that are directors of the Company,
$51,000 and $11,000 as of December 31, 1995 and 1994, respectively, for sales of
seismic data they jointly own and for expenses paid by Helm on behalf of the
Company. The Company incurred charges of $78,000, $84,000 and $84,000 for these
expenses during 1995, 1994 and 1993, respectively. Management believes that
these expenses, which were specifically related to the Company's business,
represented costs which would have been incurred, in the same amount, by the
Company if such services that were performed by Helm were performed by an
unaffiliated entity.
Certain employees and directors of the Company contributed cash to
partnerships in 1995 and 1994 which invest in the exploration and development of
oil and gas properties on a working interest basis along with DDD Energy, Inc.
Each partnership's working interest amounts to 5% of the total investment made
by such partnership and DDD Energy, Inc. Each partnership invests in projects
and prospects undertaken by DDD Energy, Inc. in the year such partnership is
formed and all subsequent development of those projects and prospects. The terms
of each partnership require the participants to contribute their share of
required capital contributions at the beginning of the year and any future cash
calls, as required. All transactions between the partnerships and DDD Energy,
Inc. are at arms length.
NOTE J--MAJOR CUSTOMERS
- -----------------------
No customers accounted for 10% or more of revenues during the years
1995, 1994 or 1993.
The Company extends credit to various companies in the oil and gas
industry for the purchase of their seismic data, which results in a
concentration of credit risk. This concentration of credit risk may be affected
by changes in economic or other conditions and may accordingly impact the
Company's overall credit risk. However, management believes that the risk is
mitigated by the number, size, reputation and diversified nature of the
companies to which they extend credit. Historical credit losses incurred on
receivables by the Company have been immaterial.
NOTE K--PROFIT-SHARING PLAN
- ---------------------------
The Company has an Incentive Compensation Agreement for certain
employees under which annual contributions, ranging from 2.5% to 5% of revenues
generated on certain seismic programs, are required. Contributions amounted to
$263,000, $652,000 and $404,000, for 1995, 1994 and 1993, respectively.
NOTE L--DISCONTINUED OPERATIONS
- -------------------------------
On March 22, 1996, the Company's Board of Directors unanimously adopted
a plan of disposal to discontinue the Company's gas marketing operations.
Accordingly, the Company's consolidated financial statements have been restated
to reflect the discontinued operations.
The method of disposal of the gas marketing operations shall be to sell
and assign or otherwise transfer in an orderly fashion all contracts to supply
natural gas to the Company's customers along with the related gas supply and
transportation contracts to one or more purchasers or transferees. In the event
that the Company has not been able to sell or otherwise transfer all such
contracts within a reasonable period of time, the Company shall commence
negotiations to terminate the remaining contracts. Pending disposal or
termination of the contracts, the Company plans to continue to honor its
obligations under the contracts, and may enter into additional contracts for gas
supply and transportation required to honor existing customer contracts;
however, the Company will not enter into any new customer contracts. Disposal of
all of the contracts is expected to be completed within one year.
F-18
The loss from discontinued operations amounted to $1,196,000, $52,000
and $99,000 for the three years ended December 31, 1995, net of an income tax
benefit of $703,000 for 1995, $30,000 for 1994 and $57,000 for 1993. The loss
from discontinued operations in 1995 includes an estimated $2.1 million pre-tax
loss related to future contractual commitments. At December 31, 1995, the
Company had fixed price gas sales contracts which were generally below the
estimated market price at which the Company could purchase gas supply and
transportation. Current market pricing models were used to estimate the market
price at which the Company could purchase gas supply and transportation in the
future, and actual prices may differ from these estimates. Estimated effects of
changes in market prices and the actual settlement costs of these contracts will
be recognized as net gains or losses in income (loss) from discontinued
operations until disposal or termination of the Company's contracts. The loss on
disposal of discontinued operations recorded as of December 31, 1995, is
estimated to be $252,000, net of an income tax benefit of $148,000, and includes
costs such as severance benefits and estimated personnel costs to continue to
honor the Company's obligations until the contracts are transferred or
terminated.
Revenue from the discontinued operations was $13,116,000 and $2,864,000
for the years ended December 31, 1995 and 1994, respectively. There was no
revenue for the year ended December 31, 1993. The net liabilities of
discontinued operations at December 31, 1995, consist primarily of accounts
payable and accrued liabilities offset by trade receivables and income tax
benefits.
NOTE M--EARLY EXTINGUISHMENT OF DEBT
- ------------------------------------
In October 1994, the Company called for redemption of its 12-1/2%
subordinated debentures due 1999 totaling $3,725,000, which was funded by
proceeds from the public offering of common stock in 1994. As a result, the
Company recorded a charge of $304,000, net of a $163,000 income tax benefit,
associated with the early extinguishment of indebtedness, which has been
reflected in the Company's consolidated statement of operations as an
extraordinary item for the year ended December 31, 1994. This charge includes
the write-off of unamortized bond discount totaling $176,000.
F-19
NOTE N--SUPPLEMENTAL CASH FLOW INFORMATION
- ------------------------------------------
Significant non-cash investing and financing activities are as follows:
1. During 1995 and 1994, the Company issued 165,296 and 1,006,667,
respectively, shares of its common stock upon the conversion and
exchange of $1,534,000 and $9,342,000, respectively, of its 9%
convertible subordinated debentures. In connection with these
conversions and exchanges, unamortized bond issue costs totaling
$98,000 and $626,000 during 1995 and 1994, respectively, have been
charged to additional paid-in capital.
2. During 1995, 1994 and 1993, the Company licensed seismic data valued
at $1,534,000, $3,162,000 and $3,768,000, respectively, in exchange
for the purchase of property and equipment, oil and gas properties and
seismic data for its library.
3. During 1995 and 1994, capital lease obligations totaling $10,000 and
$5,639,000, respectively, were incurred when the Company entered into
leases for property and equipment.
4. During 1995, the Company acquired $330,000 of property and equipment
by incurring a directly related term loan.
F-20
NOTE O--INDUSTRY SEGMENTS
- -------------------------
Financial information by industry segment for the years ended December
31, 1995 and 1994 was as follows (in thousands):
Exploration Corporate
and and Consolidating
Seismic Production Other Eliminations Consolidated
---------- ---------- ----------- ---------- ---------
1995
- ----
Unaffiliated revenue $ 69,598 $ 4,806 $ 35 $ -- $ 74,439
Intersegment revenue (a) 10,877 -- -- (10,877) --
-------- -------- --------- -------- --------
Total revenue $ 80,475 $ 4,806 $ 35 $(10,877) $ 74,439
======== ======== ========= ======== ========
Depreciation, depletion
and amortization $ 24,384 $ 1,625 $ 863 $ -- $ 26,872
======== ======== ========= ======== ========
Operating income (loss) $ 25,465 $ 838 $ (4,840) $ (2,360) $ 19,103
Interest expense, net -- -- (3,078) -- (3,078)
-------- -------- --------- -------- --------
Income from continuing
operations before
income taxes $ 25,465 $ 838 $ (7,918) $ (2,360) $ 16,025
======== ======== ========= ======== ========
Identifiable assets $164,886 $ 46,092 $ 9,466 $(10,877) $209,567
======== ======== ========= ======== ========
Capital expenditures $ 34,137 $ 23,075 $ 985 $ -- $ 58,197
======== ======== ========= ======== ========
1994
- ----
Unaffiliated revenue $ 69,579 $ 1,204 $ 119 $ -- $ 70,902
Intersegment revenue(a) 9,755 -- -- (9,755) --
-------- -------- --------- -------- --------
Total revenue $ 79,334 $ 1,204 $ 119 $ (9,755) $ 70,902
======== ======== ========= ======== ========
Depreciation, depletion
and amortization $ 25,777 $ 296 $ 1,108 $ -- $ 27,181
======== ======== ========= ======== ========
Operating income (loss) $ 19,797 $ 229 $ (6) $ (1,470) $ 18,550
Interest expense, net -- -- (3,198) -- (3,198)
-------- -------- --------- -------- --------
Income from continuing
operations before
income taxes and
extraordinary item $ 19,797 $ 229 $ (3,204) $ (1,470) $ 15,352
======== ======== ========= ======== ========
Identifiable assets $151,614 $ 22,164 $ 2,746(b) $ (9,755) $166,769
======== ======== ========= ======== ========
Capital expenditures $ 69,095 $ 16,874 $ 134 $ -- $ 86,103
======== ======== ========= ======== ========
(a) Intersegment sales are made at prices comparable to those received from
unaffiliated customers.
(b) Includes net assets of discontinued operations of $529,000.
F-21
For the year ended December 31, 1993, seismic operations accounted for
in excess of 90% of the Company's revenue, operating profit and identifiable
assets. Accordingly, no industry segment information has been presented.
NOTE P--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the years ended December 31, 1995 and 1994. Certain amounts have
been restated to reflect the effect of the discontinued operations.
Quarter Ended
-------------------------------------------
(In thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
1995
- ----
Revenue $16,608 $22,143 $17,873 $17,815
Gross profit 9,338 10,808 8,289 7,456
Provision for income taxes 1,637 1,891 1,226 1,144
Income from continuing operations 2,787 3,221 2,088 2,031
Net income 2,974 3,341 2,182 182
Earnings per share:
- Primary:
Income from continuing operations .29 .33 .21 .20
Income (loss) from discontinued
operations .02 .01 .01 (.16)
Loss on disposal of discontinued
operations - - - (.02)
Net Income .31 .34 .22 .02
- Assuming full dilution:
Income from continuing operations .27 .32 .21 .20
Income (loss) from discontinued
operations .02 .01 .01 (.16)
Loss on disposal of discontinued
operations - - - (.02)
Net Income .29 .33 .22 .02
1994
- ----
Revenue $12,556 $16,005 $18,466 $23,875
Gross profit 6,152 8,106 7,630 12,442
Provision for income taxes 913 1,240 1,086 2,442
Income from continuing operations
before extraordinary item 1,695 2,303 2,016 3,657
Net income 1,647 2,203 1,768 3,697
Earnings per share:
- Primary:
Income from continuing operations
before extraordinary item .26 .31 .24 .41
Income (loss) from discontinued
operations (.01) (.01) .01 -
Extraordinary item - - (.04) -
Net income .25 .30 .21 .41
- Assuming full dilution:
Income from continuing operations
before extraordinary item .23 .28 .22 .38
Income (loss) from discontinued
operations (.01) (.01) .01 -
Extraordinary item - - (.03) -
Net income .22 .27 .20 .38
F-22
NOTE Q--SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
The following information concerning the Company's oil and gas operations
is made in accordance with SFAS No. 69, "Disclosures About Oil and Gas Producing
Activities."
Oil and Gas Reserves: Proved reserves represent estimated quantities of
crude oil, condensate, natural gas and natural gas liquids that geological and
engineering data demonstrate, with reasonable certainty, to be recoverable in
future years from known reservoirs under economic and operating conditions
existing at the time the estimates were made. Proved developed reserves are
proved reserves expected to be recovered through wells and equipment in place
and under operating methods being utilized at the time the estimates were made.
The following table sets forth estimates of proved reserves and proved
developed reserves of crude oil (including condensate and natural gas liquids)
and natural gas attributable to the Company's interest in oil and gas
properties. All reserve estimates presented herein were prepared by Forrest A.
Garb & Associates, Inc., independent petroleum reserve engineers. It should be
noted that these reserve quantities are estimates and may be subject to
substantial upward or downward revisions. The estimates are based on the most
current and reliable information available; however, additional information
obtained through future production and experience and additional development of
existing reservoirs may significantly alter previous estimates of proved
reserves.
Oil Gas
(Mbbl) (MMcf)
------- -------
Proved reserves at December 31, 1992 - -
Purchases of reserves in place 169 1,007
Extensions and discoveries 56 87
Production (27) (97)
------- -------
Proved reserves at December 31, 1993 198 997
Revisions of previous estimates (25) 520
Extensions and discoveries 1,355 14,128
Production (54) (268)
------- -------
Proved reserves at December 31, 1994 1,474 15,377
Revisions of previous estimates (964) (9,075)
Purchases of reserves in place 782 1,851
Extensions and discoveries 413 7,028
Production (193) (1,170)
------- -------
Proved reserves at December 31, 1995 1,512 14,011
======= =======
Proved developed reserves -
December 31, 1993 168 974
======= =======
December 31, 1994 487 7,315
======= =======
December 31, 1995 1,178 10,219
======= =======
In addition to the proved reserves disclosed above, the Company owned
proved sulfur reserves of 239,000 long tons, 261,000 long tons and 70,000 long
tons at December 31, 1995, 1994 and 1993, respectively.
F-23
Capitalized Costs of Oil and Gas Properties: As of December 31, 1995 and
1994, the Company's capitalized costs of oil and gas properties were as follows
(in thousands):
December 31,
----------------------------
1995 1994
-------- ---------
Unproved properties $ 20,862 $ 13,748
Proved properties 23,822 8,276
-------- ---------
Total capital costs 44,684 22,024
Less: Accumulated depreciation,
depletion and amortization (2,260) (635)
-------- ---------
Net capitalized costs $ 42,424 $ 21,389
======== =========
F-24
Of the total costs excluded from the amortization calculation as of
December 31, 1995, $12,321,000 were incurred during 1995, $6,594,000 were
incurred during 1994 and $1,947,000 were incurred during 1993. The Company
cannot accurately predict when these costs will be included in the amortization
base, but it is expected that these costs will be evaluated in the next three
years.
Costs Incurred in Oil and Gas Activities: The following table sets
forth the Company's costs incurred for oil and gas activities for the years
ended December 31, 1995, 1994 and 1993 (in thousands):
1995 1994 1993
------- ------- -------
Acquisition of properties:
Proved $ 3,643 $ -- $ 1,715
Unproved 5,549 3,676 2,640
Exploration costs 11,963 10,853 463
Development costs 1,505 2,345 332
------- ------- -------
Total costs incurred $22,660 $16,874 $ 5,150
======= ======= =======
Results of Operations for Oil and Gas Producing Activities: The
following table sets forth the results of operations for oil and gas producing
activities for the years ended December 31, 1995, 1994 and 1993 (in thousands):
1995 1994 1993
------- ------- -------
Revenue $ 4,482 $ 1,137 $ 508
Production costs (1,553) (316) (113)
Depreciation, depletion and amortization (1,625) (296) (339)
------- ------- -------
Income before income taxes 1,304 525 56
Income tax expense (456) (179) (19)
------- ------- -------
Results of operations $ 848 $ 346 $ 37
======= ======= =======
In addition to the revenues and production costs disclosed above, the
Company had revenues from sulfur sales and related production costs of $324,000
and $19,000, respectively, for the year ended December 31, 1995, $67,000 and
$24,000, respectively for the year ended December 31, 1994, and $113,000 and
$10,000, respectively, for the year ended December 31, 1993.
Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves: The following table sets forth the standardized
measure of the discounted future net cash flows attributable to the Company's
proved oil and gas reserves as prescribed by SFAS No. 69. Future cash inflows
were computed by applying year-end prices of oil and gas to the estimated future
production of proved oil and gas reserves. Future prices actually received may
differ from the estimates in the standardized measure.
F-25
Future production and development costs represent the estimated future
expenditures (based on current costs) to be incurred in developing and producing
the proved reserves, assuming continuation of existing economic conditions.
Future income tax expenses were computed by applying statutory income tax rates
to the difference between pre-tax net cash flows relating to the Company's
proved oil and gas reserves and the tax basis of proved oil and gas properties,
adjusted for tax credits and allowances. The resulting annual net cash flows
were then discounted to present value amounts by applying a 10 percent annual
discount factor.
Although the information presented is based on the Company's best
estimates of the required data, the methods and assumptions used in preparing
the data were those prescribed by the Financial Accounting Standards Board
("FASB"). Although not market sensitive, they were specified in order to achieve
uniformity in assumptions and to provide for the use of reasonably objective
data. It is important to note here that this information is neither fair market
value nor the present value of future cash flows and it does not reflect changes
in oil and gas prices experienced since the respective year end. It is primarily
a tool designed by the FASB to allow for a reasonable comparison of oil and gas
reserves and changes therein through the use of a standardized method.
Accordingly, the Company cautions that this data should not be used for other
than its intended purpose.
Management does not rely upon the following information in making
investment and operating decisions. The Company, along with its partners, base
such decisions upon a wide range of factors, including estimates of probable as
well as proved reserves, and varying price and cost assumptions considered more
representative of a range of possible economic conditions that may be
anticipated.
(in thousands)
December 31,
--------------------------------------
1995 1994 1993
--------- --------- ---------
Future gross revenue $ 43,724 $ 35,910 $ 3,182
Future production costs (8,951) (7,100) (1,036)
Future development costs (3,393) (6,998) (267)
Future income taxes (9,266) (6,024) (299)
--------- --------- ---------
Future net cash flows 22,114 15,788 1,580
10 percent annual discount for
estimated timing of cash flows (6,056) (4,958) (289)
--------- --------- ---------
Standardized measure of discounted
future net cash flows $ 16,058 $ 10,830 $ 1,291
========= ======== =========
The above table excludes future net cash flows before income taxes of
$5,061,000, $3,884,000 and $1,038,000, and discounted future net cash flows
before income taxes of $3,926,000, $2,939,000 and $804,000, as of December 31,
1995, 1994 and 1993, respectively, related to proved sulfur reserves.
F-26
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows for the years ended December 31,
1995, 1994 and 1993 (in thousands):
1995 1994 1993
-------- -------- --------
Standardized measure, beginning of year $ 10,830 $ 1,291 $ --
Extensions and discoveries, net of related costs 13,714 14,344 536
Sales of oil and gas produced, net of production costs (2,929) (821) (395)
Net changes in prices and production costs 77 (276) --
Change in future development costs 4,010 74 --
Development costs incurred during the period
that reduced future development costs 421 -- --
Revision of previous quantity estimates (12,192) 201 --
Purchases of reserves in place 5,583 -- 1,400
Accretion of discount 1,525 154 --
Net change in income taxes (2,583) (4,174) (250)
Change in production rates and other (2,398) 37 --
-------- -------- --------
Standardized measure, end of year $ 16,058 $ 10,830 $ 1,291
======== ======== ========
F-27
EXHIBIT
INDEX
- --------------------------------------------------------------------------------
Exhibit Title
- --------------------------------------------------------------------------------
10.34 Termination and Release Agreement dated as
of December 28, 1995, between the
Company and various of its subsidiaries
and Bank One, Texas, National Association
and Compass Bank-Houston
10.39 Loan Modification Agreement and Amendment
to Loan Documents effective
December 28, 1995, between Seitel
Geophysical, Inc.(Company's wholly-owned
subsidiary) and Compass Bank
10.46 Termination and Release Agreement dated as
of December 28, 1995, between DDD Energy,
Inc. (Company's wholly-owned subsidiary)
and Bank One, Texas, National Association
and Compass Bank-Houston
10.52 Note Purchase Agreement dated as of
December 28, 1995, between the Company
and the Series A Purchasers, the Series B
Purchasers and the Series C Purchasers
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Forrest A. Garb & Associates