UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2008
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Commission File Number: 333-144844
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SEITEL, INC. |
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(Exact name of registrant as specified in its charter) |
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Delaware |
76-0025431 |
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
10811 S. Westview Circle Drive |
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Building C, Suite 100 |
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Houston, Texas |
77043 |
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code: |
(713) 881-8900 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes |
T |
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No |
o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
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Accelerated filer |
o |
Non-accelerated filer |
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Smaller reporting company |
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes |
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No |
T |
Indicate by check mark whether the
registrant has filed all documents and reports required to be filed by Section
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes |
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No |
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As
of November 11, 2008, there were 100 shares of the Company's common stock, par value
$.001 per share outstanding.
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Page |
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements.................................................................................. |
3 |
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Condensed Consolidated Balance Sheets (Unaudited).................................... |
3 |
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Condensed Consolidated Statements of Operations (Unaudited)...................... |
4 |
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Condensed Consolidated Statements of Comprehensive Loss (Unaudited)........ |
6 |
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Condensed Consolidated Statement of Stockholder's Equity (Unaudited).......... |
7 |
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Condensed Consolidated Statements of Cash Flows (Unaudited)..................... |
8 |
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Notes to Condensed Consolidated Interim Financial Statements (Unaudited).... |
10 |
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................................. |
29 |
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Item 3. |
Quantitative and Qualitative Disclosures about Market Risk.............................. |
41 |
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Item 4T. |
Controls and Procedures............................................................................... |
41 |
PART II. |
OTHER INFORMATION |
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Item 1.A. |
Risk Factors................................................................................................ |
42 |
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Item 6. |
Exhibits....................................................................................................... |
42 |
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Signatures.................................................................................................................. |
43 |
(Index)
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SEITEL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
(Unaudited) |
|||||
September 30, |
December 31, |
|||||
2008 |
2007 |
|||||
ASSETS |
||||||
Cash and cash equivalents |
$ |
36,828 |
$ |
43,333 |
||
Restricted cash |
112 |
110 |
||||
Receivables |
||||||
Trade, net of allowance for doubtful accounts of |
||||||
$756 and $688, respectively |
51,386 |
51,915 |
||||
Notes and other, net of allowance for doubtful accounts |
||||||
of $225 and $238, respectively |
427 |
2,190 |
||||
Net seismic data library, net of accumulated amortization |
||||||
of $263,467 and $140,742, respectively |
297,469 |
349,039 |
||||
Net property and equipment, net of accumulated depreciation |
||||||
and amortization of $4,217 and $2,335, respectively |
9,478 |
10,996 |
||||
Investment in marketable securities |
1,798 |
4,224 |
||||
Prepaid expenses, deferred charges and other |
19,710 |
22,263 |
||||
Intangible assets, net of accumulated amortization of |
||||||
$9,835 and $5,515, respectively |
45,647 |
51,785 |
||||
Goodwill |
200,458 |
207,246 |
||||
TOTAL ASSETS |
$ |
663,313 |
$ |
743,101 |
||
|
||||||
LIABILITIES AND STOCKHOLDER'S EQUITY |
||||||
LIABILITIES |
||||||
Accounts payable and accrued liabilities |
$ |
39,797 |
$ |
49,325 |
||
Income taxes payable |
992 |
948 |
||||
Debt |
||||||
Senior Notes |
402,269 |
402,333 |
||||
Notes payable |
268 |
300 |
||||
Obligations under capital leases |
3,494 |
3,848 |
||||
Deferred revenue |
50,889 |
48,151 |
||||
Deferred income taxes |
10,787 |
17,238 |
||||
TOTAL LIABILITIES |
508,496 |
522,143 |
||||
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COMMITMENTS AND CONTINGENCIES |
||||||
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STOCKHOLDER'S EQUITY |
||||||
Common stock, par value $.001 per share; 100 shares authorized, |
||||||
issued and outstanding at September 30, 2008 and |
||||||
December 31, 2007 |
- |
- |
||||
Additional paid-in capital |
269,777 |
264,805 |
||||
Retained deficit |
(133,140 |
) |
(77,113 |
) |
||
Accumulated other comprehensive income |
18,180 |
33,266 |
||||
TOTAL STOCKHOLDER'S EQUITY |
154,817 |
220,958 |
||||
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY |
$ |
663,313 |
$ |
743,101 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
(Index)
SEITEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited)
(In thousands)
Three Months Ended |
||||||
September 30, |
||||||
2008 |
2007 |
|||||
REVENUE |
$ |
46,091 |
$ |
28,356 |
||
EXPENSES: |
||||||
Depreciation and amortization |
43,592 |
36,005 |
||||
Impairment of intangible asset |
225 |
- |
||||
Cost of sales |
72 |
72 |
||||
Selling, general and administrative |
9,850 |
9,902 |
||||
Merger |
- |
807 |
||||
53,739 |
46,786 |
|||||
LOSS FROM OPERATIONS |
(7,648 |
) |
(18,430 |
) |
||
Interest expense, net |
(9,967 |
) |
(9,895 |
) |
||
Foreign currency exchange gains (losses) |
(729 |
) |
1,360 |
|||
Other income |
- |
39 |
||||
Loss before income taxes |
(18,344 |
) |
(26,926 |
) |
||
Benefit for income taxes |
(1,152 |
) |
(3,701 |
) |
||
NET LOSS |
$ |
(17,192 |
) |
$ |
(23,225 |
) |
The accompanying notes are an integral part of these condensed consolidated
financial statements.
(Index)
SEITEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands)
SUCCESSOR |
PREDECESSOR |
||||||||
PERIOD |
PERIOD |
||||||||
Nine Months Ended |
February 14, 2007 - |
January 1, 2007 - |
|||||||
September 30, 2008 |
September 30, 2007 |
February 13, 2007 |
|||||||
REVENUE |
$ |
138,192 |
$ |
76,025 |
$ |
19,010 |
|||
EXPENSES: |
|||||||||
Depreciation and amortization |
132,706 |
96,008 |
11,485 |
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Impairment of intangible asset |
225 |
- |
- |
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Cost of sales |
351 |
113 |
8 |
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Selling, general and administrative |
30,098 |
23,825 |
3,577 |
||||||
Merger |
357 |
2,087 |
17,457 |
||||||
163,737 |
122,033 |
32,527 |
|||||||
LOSS FROM OPERATIONS |
(25,545 |
) |
(46,008 |
) |
(13,517 |
) |
|||
Interest expense, net |
(30,041 |
) |
(29,018 |
) |
(2,284 |
) |
|||
Foreign currency exchange gains (losses) |
(1,442 |
) |
3,017 |
(102 |
) |
||||
Other income |
39 |
39 |
12 |
||||||
Loss before income taxes |
(56,989 |
) |
(71,970 |
) |
(15,891 |
) |
|||
Provision (benefit) for income taxes |
(962 |
) |
(9,668 |
) |
452 |
||||
NET LOSS |
$ |
(56,027 |
) |
$ |
(62,302 |
) |
$ |
(16,343 |
) |
The accompanying notes are an integral part of
these condensed consolidated financial statements.
(Index)
SUCCESSOR |
SUCCESSOR |
PREDECESSOR |
|||||||||||||
PERIOD |
PERIOD |
PERIOD |
|||||||||||||
Three Months Ended September 30, |
Nine Months Ended |
February 14, 2007 - |
January 1, 2007 - |
||||||||||||
2008 |
2007 |
September 30, 2008 |
September 30, 2007 |
February 13, 2007 |
|||||||||||
Net loss |
$ |
(17,192 |
) |
$ |
(23,225 |
) |
$ |
(56,027 |
) |
$ |
(62,302 |
) |
$ |
(16,343 |
) |
Unrealized losses on |
|||||||||||||||
securities held as |
|||||||||||||||
available for sale, |
|||||||||||||||
net of tax |
(2,811 |
) |
- |
(2,426 |
) |
- |
- |
||||||||
Foreign currency |
|||||||||||||||
translation adjustments |
(6,809 |
) |
11,723 |
(12,660 |
) |
27,406 |
7 |
||||||||
Comprehensive loss |
$ |
(26,812 |
) |
$ |
(11,502 |
) |
$ |
(71,113 |
) |
$ |
(34,896 |
) |
$ |
(16,336 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
(Index)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (Unaudited)
(In thousands, except share amounts)
Accumulated |
|||||||||||||
Additional |
Retained |
Other |
|||||||||||
Common Stock |
Paid-In |
Earnings |
Comprehensive |
||||||||||
Shares |
Amount |
Capital |
(Deficit) |
Income |
|||||||||
Balance, December 31, 2007 |
100 |
$ |
- |
$ |
264,805 |
$ |
(77,113 |
) |
$ |
33,266 |
|||
Issuance of restricted |
|||||||||||||
stock units |
- |
- |
604 |
- |
- |
||||||||
Amortization of stock-based |
|||||||||||||
compensation costs |
- |
- |
4,332 |
- |
- |
||||||||
Accrual for equity based |
|||||||||||||
incentive compensation |
- |
- |
36 |
- |
- |
||||||||
Net loss |
- |
- |
- |
(56,027 |
) |
- |
|||||||
Foreign currency translation |
|||||||||||||
adjustments |
- |
- |
- |
- |
(12,660 |
) |
|||||||
Unrealized loss on marketable |
|||||||||||||
securities, net of tax |
- |
- |
- |
- |
(2,426 |
) |
|||||||
Balance, September 30, 2008 |
100 |
$ |
- |
$ |
269,777 |
$ |
(133,140 |
) |
$ |
18,180 |
The accompanying notes are an integral part of these condensed consolidated
financial statements.
(Index)
SEITEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
SUCCESSOR |
PREDECESSOR |
||||||||
PERIOD |
PERIOD |
||||||||
Nine Months Ended |
February 14, 2007 - |
January 1, 2007 - |
|||||||
September 30, 2008 |
September 30, 2007 |
February 13, 2007 |
|||||||
Cash flows from operating activities: |
|||||||||
Reconciliation of net loss to net cash provided |
|||||||||
by operating activities: |
|||||||||
Net loss |
$ |
(56,027 |
) |
$ |
(62,302 |
) |
$ |
(16,343 |
) |
Depreciation and amortization |
132,706 |
96,008 |
11,485 |
||||||
Impairment of intangible asset |
225 |
- |
- |
||||||
Deferred income tax provision (benefit) |
(2,702 |
) |
(10,119 |
) |
302 |
||||
Amortization of deferred financing costs |
1,208 |
4,952 |
148 |
||||||
Amortization of debt discount (premium) |
(64 |
) |
(51 |
) |
70 |
||||
Amortization of stock-based compensation |
4,332 |
5,954 |
6,673 |
||||||
Amortization of favorable facility lease |
210 |
166 |
- |
||||||
Allowance for collection of trade receivables |
96 |
391 |
- |
||||||
Reversal of allowance for notes receivable |
(54 |
) |
- |
(274 |
) |
||||
Non-cash compensation expense |
640 |
- |
32 |
||||||
Non-cash other income |
(24 |
) |
- |
- |
|||||
Non-cash revenue |
(14,441 |
) |
(1,881 |
) |
(88 |
) |
|||
Decrease in receivables |
372 |
7,124 |
9,074 |
||||||
Decrease (increase) in other assets |
273 |
(927 |
) |
(521 |
) |
||||
Increase (decrease) in deferred revenue |
2,723 |
24,993 |
(7,767 |
) |
|||||
Increase (decrease) in accounts payable |
|||||||||
and other liabilities |
(10,375 |
) |
(8,636 |
) |
2,819 |
||||
Net cash provided by operating activities |
59,098 |
55,672 |
5,610 |
||||||
Cash flows from investing activities: |
|||||||||
Cash invested in seismic data |
(65,484 |
) |
(40,619 |
) |
(8,369 |
) |
|||
Cash paid to acquire property and equipment |
(910 |
) |
(409 |
) |
(60 |
) |
|||
Advances to Seitel Holdings, Inc. |
(135 |
) |
- |
- |
|||||
Increase in restricted cash |
(2 |
) |
(3 |
) |
- |
||||
Net cash used in investing activities |
(66,531 |
) |
(41,031 |
) |
(8,429 |
) |
|||
Cash flows from financing activities: |
|||||||||
Issuance of 9.75% Senior Notes |
- |
400,000 |
- |
||||||
Repayment of 11.75% Senior Notes |
- |
(233,352 |
) |
- |
|||||
Contributed capital |
- |
153,473 |
- |
||||||
Purchase of Seitel stock |
- |
(386,556 |
) |
- |
|||||
Principal payments on notes payable |
(32 |
) |
(27 |
) |
(3 |
) |
|||
Principal payments on capital lease obligations |
(98 |
) |
(62 |
) |
(6 |
) |
|||
Borrowings on line of credit |
286 |
103 |
119 |
||||||
Payments on line of credit |
(286 |
) |
(103 |
) |
(119 |
) |
|||
Cost of debt and equity transactions |
- |
(17,085 |
) |
- |
|||||
Purchase of common stock subsequently retired |
- |
- |
(400 |
) |
|||||
Payments on notes receivable |
54 |
274 |
- |
||||||
Net cash used in financing activities |
$ |
(76 |
) |
$ |
(83,335 |
) |
$ |
(409 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
(Index)
SEITEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - continued
(In thousands)
SUCCESSOR |
PREDECESSOR |
||||||||
PERIOD |
PERIOD |
||||||||
Nine Months Ended |
February 14, 2007 - |
January 1, 2007 - |
|||||||
September 30, 2008 |
September 30, 2007 |
February 13, 2007 |
|||||||
Effect of exchange rate changes |
$ |
1,004 |
$ |
(2,320 |
) |
$ |
46 |
||
Net decrease in cash and equivalents |
(6,505 |
) |
(71,014 |
) |
(3,182 |
) |
|||
Cash and cash equivalents at beginning of period |
43,333 |
104,208 |
107,390 |
||||||
Cash and cash equivalents at end of period |
$ |
36,828 |
$ |
33,194 |
$ |
104,208 |
|||
Supplemental disclosure of cash flow information: |
|||||||||
Cash paid during the period for: |
|||||||||
Interest |
$ |
39,615 |
$ |
21,661 |
$ |
11,207 |
|||
Income taxes |
$ |
44 |
$ |
1,418 |
$ |
1 |
|||
Supplemental schedule of non-cash |
|||||||||
investing activities: |
|||||||||
Additions to seismic data library |
$ |
17,566 |
$ |
2,235 |
$ |
(7 |
) |
The accompanying notes are an integral part of
these condensed consolidated financial statements.
(Index)
SEITEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS (Unaudited)
September 30, 2008
NOTE A-ORGANIZATION
On February 14, 2007, Seitel Acquisition
Corp. ("Acquisition Corp.") was merged with and into Seitel, Inc. (the
"Company"), pursuant to a merger agreement between the Company,
Acquisition Corp. and Seitel Holdings, Inc. ("Holdings") dated
October 31, 2006 (the "Merger"). Pursuant to the merger agreement,
the Company continued as the surviving corporation and became a privately owned
corporation and wholly-owned subsidiary of Holdings. Holdings is an investment
entity controlled by ValueAct Capital Master Fund, L.P. ("ValueAct Capital").
In connection with the Merger, Acquisition Corp. conducted a cash tender offer
and consent solicitation for all of the $189.0 million aggregate principal
amount of the Company's 11.75% senior notes due 2011 (the "11.75% Senior
Notes"). On February 14, 2007, the Company paid $187.0 million aggregate
principal amount for all of the notes tendered. In
connection with the tender offer and consent solicitation, the Company entered
into a supplemental indenture for the 11.75%
Senior Notes. The supplemental indenture effected certain amendments to the
original indenture, primarily to eliminate
substantially all of the restrictive covenants and certain events of default
triggered or implicated by the Merger. $2.0 million aggregate principal amount
of the 11.75% Senior Notes remains outstanding.
In addition, on February 14,
2007, the Company issued $400.0 million aggregate principal amount of 9.75%
senior notes due 2014 (the "9.75% Senior Notes") pursuant to an
indenture by and among the Company, certain subsidiary guarantors and LaSalle
Bank National Association, as trustee.
The Company also entered into an Amended and
Restated Loan and Security Agreement with Wells Fargo Foothill, Inc. with a
maximum credit amount of $25.0 million, subject to certain borrowing base
limitations. All obligations are unconditionally guaranteed by the Company's
domestic subsidiaries that are not borrowers under the new facility, subject to
customary exceptions, exclusions and release
mechanisms. The new facility is secured by a lien on substantially all of the
Company's domestic assets, including equity interests in the Company's U.S. subsidiaries.
Pursuant to the Merger, all of the Company's outstanding shares of common stock
(other than shares owned by ValueAct Capital, which were contributed to Holdings,
and certain shares owned by management investors, which were exchanged for
ownership in Holdings) were exchanged for $3.70 per share.
NOTE B-BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. In preparing the Company's financial statements, a number of estimates and assumptions are made by management that affect the accounting for and recognition of assets, liabilities, revenues and expenses. Operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. The condensed consolidated balance sheet of the Company as of December 31, 2007 has been derived from the audited balance sheet of the Company as of that date. These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2007 contained in the Company's Annual Report on Form 10-K.
Although the Company continues as the
same legal entity after the Merger, the consolidated financial statements for the
first nine months of 2007 are presented for two periods: January 1, 2007
through February 13, 2007 (the "Predecessor Period" or "Predecessor,"
as context requires), which relates to the period preceding the Merger and
February 14, 2007 through September 30,
2007, which relates to the period succeeding the Merger. All financial
statements for the periods succeeding the Merger are referred to as Successor
Period or Successor, as context requires. The consolidated financial
statements for the Successor Periods reflect the acquisition of the Company
under the purchase method of accounting in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." The results between these periods are not comparable to
the Predecessor due to the difference in the basis of presentation of purchase
accounting as compared to historical cost.
(Index)
The Company generates revenue when it creates a new seismic survey that is
initially licensed by one or more of its customers to use the resulting data.
The initial licenses usually provide the customer with a limited exclusivity
period, which will normally last for six months after final delivery of the
processed data. The payments for the initial exclusive licenses are sometimes
referred to as underwriting or prefunding. Customers make periodic payments
throughout the creation period, which generally correspond to costs incurred
and work performed. These payments are non-refundable.
Revenue from the creation of new seismic data is recognized throughout the
creation period using the proportional performance method based upon costs
incurred and work performed to date as a percentage of total estimated costs
and work required. Management believes that this method is the most reliable
and representative measure of progress for its data creation projects. The
duration of most data creation projects is generally less than one year. Under
these contracts, the Company creates new seismic data designed in conjunction
with its customers and specifically suited to the geology of the area using the
most appropriate technology available.
The Company outsources the substantial majority of the work required to
complete data acquisition projects to third party contractors. The Company's
payments to these third party contractors comprise the substantial majority of
the total estimated costs of the project and are paid throughout the creation
period. A typical survey includes specific activities required to complete the
survey, each of which has value to the customers. Typical activities, that
often occur concurrently, include:
permitting for land access, mineral rights, and regulatory approval;
surveying;
drilling for the placement of energy sources;
recording the data in the field; and
processing the data.
The customers paying for the initial exclusive licenses receive legally enforceable rights to any resulting product of each activity described above. The customers also receive access to and use of the newly acquired, processed data.
The customers' access to and use of the results of the work performed and of
the newly acquired, processed data is governed by a license agreement, which is
a separate agreement from the acquisition contract. The Company's acquisition
contracts require the customer either to have a license agreement in place or
to execute one at the time the acquisition contract is signed. The Company
maintains ownership of the newly acquired data, which is added to its library,
and is free to license the data to other customers when the original customers'
exclusivity period ends.
The Company
recognizes a substantial portion of its revenue from data licenses sold after
any exclusive license period. These are sometimes referred to as resale
licensing revenue, post acquisition license sales or shelf sales.
These sales fall under the following four basic forms of non-exclusive
license contracts.
Specific license contract - The customer licenses and selects data from the data library at the time the contract is entered into and holds this license for a long-term period.
Library card license contract - The customer initially receives only access to data. The customer may then select specific data, from the collection of data to which it has access, to hold long-term under its license agreement. The length of the selection periods under the library card contracts is limited in time and varies from customer to customer.
Review and possession license contract - The customer obtains the right to review a certain quantity of data for a limited period of time. During the review period, the customer may select specific data from that available for review to hold long-term under its license agreement. Any data not selected for long-term licensing must be returned to the Company at the end of the review period.
Review only license contract - The customer obtains rights to review a certain quantity of data for a limited period of time, but does not obtain the right to select specific data to hold long-term.
(Index)
The Company's non-exclusive license contracts specify the following:
that all customers must also execute a master license agreement that governs the use of all data received under our non-exclusive license contracts;
the specific payment terms, generally ranging from 30 days to 12 months, and that such payments are non-cancelable and non-refundable;
the actual data that is accessible to the customer; and
that the data is licensed in its present form, where is and as is and the Company is under no obligation to make any enhancements, modifications or additions to the data unless specific terms to the contrary are included.
Revenue from the non-exclusive licensing of seismic data is recognized when the following criteria are met:
the Company has an arrangement with the customer that is validated by a signed contract;
the sales price is fixed and determinable;
collection is reasonably assured;
the customer has selected the specific data or the contract has expired without full selection; and
the license term has begun.
Copies of the data are available to the customer immediately upon request.
For licenses that have been invoiced but have not met the aforementioned
criteria, the revenue is deferred along with the related direct costs
(primarily sales commissions). This normally occurs under the library card,
review and possession or review only license contracts because the data
selection may occur over time. Additionally, if the contract allows licensing
of data that is not currently available or enhancements, modifications or
additions to the data are required per the contract, revenue is deferred until
such time that the data is available.
In certain cases, the Company will take ownership of a customer's seismic
data or revenue interest (collectively referred to as "data") in
exchange for a non-exclusive license to selected seismic data from the
Company's library. In connection with specific data acquisition contracts, the
Company may choose to receive both cash and ownership of seismic data from the
customer as consideration for the underwriting of new data acquisition. In
addition, the Company may receive advanced data processing services on selected
existing data in exchange for a non-exclusive license to selected data from the
Company's library. These exchanges are referred to as non-monetary exchanges.
A non-monetary exchange for data always complies with the following criteria:
the data license delivered is always distinct from the data received;
the customer forfeits ownership of its data; and
the Company retains ownership of its data.
In non-monetary exchange transactions, the Company records a data library asset
for the seismic data received or processed at the time the contract is entered
into or the data is completed, as applicable, and recognizes revenue on the
transaction in equal value in accordance with its policy on revenue from data
licenses, which is, when the data is selected by the customer, or revenue from
data acquisition, as applicable. The data license to the customer is in the
form of one of the four basic forms of non-exclusive license contracts
discussed above. These transactions are valued at the fair value of the data
received or delivered, whichever is more readily determinable.
(Index)
Fair value of the data exchanged is determined using a multi-step process as
follows.
First, the Company considers the value of the data or services received from the customer. In determining the value of the data received, the Company considers the age, quality, current demand and future marketability of the data and, in the case of 3D seismic data, the cost that would be required to create the data. In addition, the Company applies a maximum limitation on the value it assigns per square mile for the data it receives based on relevant criteria. In determining the value of the services received, the Company considers the cost of such similar services that it could obtain from a third party provider.
Second, the Company determines the value of the license granted to the customer. The range of cash transactions by the Company for licenses of similar data during the prior six months are evaluated to assist in this determination. In evaluating the range of cash transactions, the Company does not consider transactions that are disproportionately high or low.
Third, the Company obtains concurrence from an independent third party on the portfolio of all non-monetary exchanges for data of $500,000 or more in order to support the Company's valuation of the data received. The Company obtains this concurrence on an annual basis, usually in connection with the preparation of its annual financial statements.
Due to the Company's revenue recognition policies, revenue recognized on non-monetary exchange transactions may not occur at the same time the seismic data acquired is recorded as an asset. The activity related to non-monetary exchanges for the relevant periods was as follows (in thousands):
SUCCESSOR PERIOD |
SUCCESSOR |
PREDECESSOR |
|||||||||||||
Three Months Ended |
PERIOD |
PERIOD |
|||||||||||||
September 30, |
Nine Months Ended |
February 14, 2007 - |
January 1, 2007 - |
||||||||||||
2008 |
2007 |
September 30, 2008 |
September 30, 2007 |
February 13, 2007 |
|||||||||||
Seismic data library |
|||||||||||||||
additions |
$ |
3,825 |
$ |
73 |
$ |
17,566 |
$ |
2,235 |
$ |
(7 |
) |
||||
Revenue recognized |
|||||||||||||||
on specific data |
|||||||||||||||
licenses and selections |
|||||||||||||||
of data |
2,029 |
126 |
4,766 |
1,208 |
71 |
||||||||||
Revenue recognized |
|||||||||||||||
related to |
|||||||||||||||
acquisition contracts |
4,053 |
646 |
9,675 |
673 |
11 |
||||||||||
Revenue recognized |
|||||||||||||||
related to data |
|||||||||||||||
management services |
- |
- |
- |
- |
6 |
Revenue from Seitel Solutions ("Solutions")
is recognized as the services for reproduction and delivery of seismic data are
provided to customers.
NOTE D-SEISMIC DATA LIBRARY
The Company's seismic data library consists of seismic surveys that
are offered for license to customers on a non-exclusive basis. Costs associated
with creating, acquiring or purchasing the seismic data library are capitalized
and amortized principally on the income forecast method subject to a
straight-line amortization period of four years, applied on a quarterly basis
at the individual survey level.
(Index)
Costs of Seismic Data Library
For purchased seismic data, the Company capitalizes the purchase price of the
acquired data.
For data received through a non-monetary exchange, the Company capitalizes an
amount equal to the fair value of the data received by the Company or the fair
value of the license granted to the customer, whichever is more readily
determinable. See Note C under "Revenue from Non-Monetary
Exchanges" for a discussion of the process used to determine fair
value.
For internally created data, the capitalized costs include costs paid to third
parties for the acquisition of data and related permitting, surveying and other
activities associated with the data creation activity. In addition, the
Company capitalizes certain internal costs related to processing the created
data. Such costs include salaries and benefits of the Company's processing
personnel and certain other costs incurred for the benefit of the processing
activity. The Company believes that the internal processing costs capitalized
are not greater than, and generally are less than, those that would be incurred
and capitalized if such activity were performed by a third party. Capitalized
costs for internal data processing were $484,000 and $506,000 for the three
months ended September 30, 2008 and
2007, respectively, and $1,425,000, $1,218,000 and $265,000 for the nine months
ended September 30, 2008 (Successor
Period), for the period February 14, 2007 to September
30, 2007 (Successor Period), and for the period January 1, 2007 to
February 13, 2007 (Predecessor Period), respectively.
Data Library Amortization
The Company amortizes its seismic data library investment using the greater of
the amortization that would result from the application of the income forecast
method subject to a minimum amortization rate or a straight-line basis over the
useful life of the data. With respect to each survey in the data library, the straight-line
policy is applied from the time such survey is available for licensing to
customers on a non-exclusive basis, since some data in the library may not be
licensed until an exclusivity period (usually six months) has lapsed.
The Company applies the income forecast method by forecasting the ultimate
revenue expected to be derived from a particular data library component over
the estimated useful life of each survey comprising part of such component.
This forecast is made by the Company annually and reviewed quarterly. If,
during any such review, the Company determines that the ultimate revenue for a
library component is expected to be significantly different than the original
estimate of total revenue for such library component, the Company revises the
amortization rate attributable to future revenue from each survey in such
component. The lowest amortization rate the Company applies using the income
forecast method is 70%. In addition, in connection with the forecast reviews
and updates, the Company evaluates the recoverability of its seismic data
library investment, and if required under SFAS No. 144, "Accounting for
the Impairment and Disposal of Long-Lived Assets," records an impairment
charge with respect to such investment. See discussion on "Seismic
Data Library Impairment" below.
The actual aggregate rate of amortization depends on the specific seismic surveys
licensed and selected by the Company's customers during the period and the
amount of straight-line amortization recorded. The income forecast
amortization rates can vary by component and, as of October 1, 2008, the
amortization rate utilized under the income forecast method for all components
is 70%. For those seismic surveys which have been fully amortized, no
amortization expense is required on revenue recorded.
The greater of the income forecast or straight-line amortization policy is
applied quarterly on a cumulative basis at the individual survey level. In
connection with the Merger, this policy was also applied at February 13, 2007
for the Predecessor Period. Under this policy, the Company first records
amortization using the income forecast method. The cumulative amortization
recorded for each survey is then compared with the cumulative straight-line
amortization. If the cumulative straight-line amortization is higher for any
specific survey, additional amortization expense is recorded, resulting in
accumulated amortization being equal to the cumulative straight-line
amortization for such survey. This requirement is applied regardless of
future-year revenue estimates for the library component of which the survey is
a part and does not consider the existence of deferred revenue with respect to
the library component or to any survey.
(Index)
Seismic Data Library Impairment
The Company evaluates its seismic data library investment by grouping
individual surveys into components based on its operations and geological and
geographical trends, resulting in the following data library segments for
purposes of evaluating impairments: (I) Gulf of Mexico offshore comprised of
the following components: (a) multi-component data, (b) ocean bottom cable
data, (c) shelf data, (d) deep water data, and (e) value-added products; (II)
North America onshore comprised of the following components: (a) Texas Gulf
Coast, (b) Northern, Eastern and Western Texas, (c) Southern
Louisiana/Mississippi, (d) Northern Louisiana, (e) Rocky Mountains, (f) North
Dakota, (g) other United States, (h) Canada and (i) value-added products; and
(III) international data outside North America. The Company believes that
these library components constitute the lowest levels of independently identifiable
cash flows.
As events or conditions require, the Company evaluates the recoverability of
its seismic data library investment in accordance with SFAS No. 144. The
Company evaluates its seismic data library investment for impairment whenever
events or changes in circumstances indicate that the carrying amounts may not
be recoverable. The Company considers the level of sales performance in each
component compared to projected sales, as well as industry conditions, among
others, to be key factors in determining when its seismic data investment
should be evaluated for impairment. In evaluating sales performance of each
component, the Company generally considers five consecutive quarters of actual
performance below forecasted sales to be an indicator of potential impairment.
In accordance with SFAS No. 144, the impairment evaluation is based first
on a comparison of the undiscounted future cash flows over each component's
remaining estimated useful life with the carrying value of each library component.
If the undiscounted cash flows are equal to or greater than the carrying value
of such component, no impairment is recorded. If undiscounted cash flows are
less than the carrying value of any component, the forecast of future cash
flows related to such component is discounted to fair value and compared with
such component's carrying amount. The difference between the library
component's carrying amount and the discounted future value of the expected
revenue stream is recorded as an impairment charge.
For purposes of evaluating potential impairment losses, the Company estimates
the future cash flows attributable to a library component by evaluating, among
other factors, historical and recent revenue trends, oil and gas prospectivity
in particular regions, general economic conditions affecting its customer base,
expected changes in technology and other factors that the Company deems
relevant. The cash flow estimates exclude expected future revenues attributable
to non-monetary data exchanges and future data creation projects.
The estimation of future cash flows and fair value is highly subjective and
inherently imprecise. Estimates can change materially from period to period
based on many factors, including those described in the preceding paragraph. Accordingly,
if conditions change in the future, the Company may record impairment losses
relative to its seismic data library investment, which could be material to any
particular reporting period.
The Company did not have
any impairment charges during the nine months
ended September 30, 2008 (Successor
Period), for the period February 14,
2007 to September 30, 2007 (Successor
Period) or for the period January 1, 2007 to February 13, 2007 (Predecessor Period).
NOTE E-IMPAIRMENT OF INTANGIBLE ASSET
During the three and nine months ended September 30, 2008, the Company
recorded an impairment charge of $225,000 related to the customer relationship
intangible asset that resulted from the Company's October 2007 purchase of a
small data fulfillment company in Canada. The impairment was necessary as a
result of the loss of significant customer business and current-period and
projected operating losses associated with the customer relationship intangible
asset. The impairment was determined by comparing estimated future cash flows
attributable to the customer relationship to the carrying value of the asset in
accordance with SFAS No. 144. The resulting impairment reduced the customer
relationship intangible asset to $0.
(Index)
NOTE F-DEBT
The following is a summary of the Company's debt (in thousands):
September 30, |
December 31, |
|||||
2008 |
2007 |
|||||
9.75% Senior Notes |
$ |
400,000 |
$ |
400,000 |
||
11.75% Senior Notes |
2,000 |
2,000 |
||||
Revolving Credit Facility |
- |
- |
||||
Subsidiary revolving line of credit |
- |
- |
||||
Note payable to former executive |
268 |
300 |
||||
402,268 |
402,300 |
|||||
Plus: Premium on debt |
269 |
333 |
||||
$ |
402,537 |
$ |
402,633 |
9.75% Senior Unsecured Notes: On February 14, 2007, the Company issued in a private placement $400.0 million aggregate principal amount of 9.75% Senior Notes. The proceeds from the 9.75% Senior Notes were used to partially fund the transactions in connection with the Merger. As required by their terms, the 9.75% Senior Notes were exchanged for senior notes of like amounts and terms in a registered exchange offer in August 2007. These notes mature on February 15, 2014. Interest is payable in cash, semi-annually in arrears on February 15 and August 15 of each year. The 9.75% Senior Notes are unsecured and are guaranteed by substantially all of the Company's domestic subsidiaries on a senior basis. The 9.75% Senior Notes contain restrictive covenants which limit the Company's ability to, among other things, incur additional indebtedness, pay dividends and complete certain mergers, acquisitions and sales of assets.
From time to time on or before February 15, 2010, the Company may redeem up to 35% of the aggregate principal amount of the 9.75% Senior Notes with the net proceeds of equity offerings at a redemption price equal to 109.75% of the principal amount, plus accrued and unpaid interest. Upon a change of control (as defined in the indenture), each holder of the 9.75% Senior Notes will have the right to require the Company to offer to purchase all of such holder's notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest.
11.75% Senior Unsecured Notes:
On July 2, 2004, the Company issued in a private
placement $193.0 million aggregate principal amount of 11.75% Senior Notes. As
required by their terms, the 11.75% Senior Notes were exchanged for senior
notes of like amounts and terms in a registered exchange offer in February
2005. In connection with the 2004 excess cash flow offer in March 2005, $4.0
million aggregate principal amount of these notes was tendered and accepted.
In connection with the Merger and related transactions, $187.0 million
aggregate principal amount of these notes was tendered and accepted on February
14, 2007. The fair value of these notes was higher than the face value on the
date of the Merger and consequently, a premium has been reflected in the
Successor financial statements related to these notes. Interest on the
remaining notes is payable semi-annually in arrears on January 15 and July 15
of each year. The remaining $2.0 million of notes mature on July 15, 2011.
The 11.75% Senior Notes are unsecured and are guaranteed by substantially all
of the Company's U.S. subsidiaries on a senior basis.
As a result of the tender and consent offer, effective February 14, 2007, the
11.75% Senior Notes no longer contain any restrictive covenants, other than the
requirement to make excess cash flow offers. Subject to certain conditions, if
at the end of each fiscal year the Company has excess cash flow (as defined in
the indenture) in excess of $5.0 million, the Company is required to use 50% of
the excess cash flow to fund an offer to repurchase the 11.75% Senior Notes on
a pro rata basis at 100% of its principal amount, plus accrued and unpaid
interest. If the Company has less than $5.0 million in excess cash flow at the
end of any fiscal year, such excess cash flow will be carried forward to
succeeding years, and such repurchase offer is required to be made in the first
year in which the cumulative excess cash flow for all years in which there has
not been an offer is at least $5.0 million. A repurchase offer is required
only if there is no event of default under the Company's revolving credit
facilities prior to and after giving effect to any repurchases. The Company was
not required to make an excess cash flow offer for the year ended December 31, 2007.
Upon a change of control (as defined in the indenture), each holder of the
11.75% Senior Notes will have the right to require the Company to offer to
purchase all of such holder's notes at a price equal to 101% of the principal
amount, plus accrued and unpaid interest.
(Index)
Revolving Credit Facility: On February 14, 2007, the Company entered into an amended and restated U.S. revolving credit facility with Wells Fargo Foothill, Inc., as lender, which provides for up to $25.0 million, subject to borrowing base limitations. Interest is payable at an applicable margin above either LIBOR or the prime rate. The facility is secured by a first priority, perfected security interest on substantially all of the Company's U.S. assets and a pledge of all of the issued and outstanding capital stock of the Company's U.S. subsidiaries. The facility expires on February 14, 2010. The revolving credit facility contains covenants requiring the Company to achieve and maintain certain financial results and restricts, among other things, the amount of capital expenditures, the ability to incur additional indebtedness, pay dividends, and complete certain mergers, acquisitions and sales of assets. The revolving credit facility requires the payment of an unused line fee of .25% per annum payable in arrears.
Subsidiary Revolving Line of Credit: The Company's wholly-owned
subsidiary, Olympic Seismic Ltd. ("Olympic") has a revolving credit
facility, which allows it to borrow up to $5.0 million (Canadian), subject to
an availability formula, by way of prime-based loans or letters of credit. The
interest rate applicable to borrowings is the bank's prime rate plus 0.35% per
annum. Letter of credit fees are based on scheduled rates in effect at the
time of issuance. The facility is secured by the assets of Olympic, but is not
guaranteed by the Company or any of its other U.S. subsidiaries. Available
borrowings under the facility are equivalent to a maximum of $5.0 million
(Canadian), subject to a requirement that the borrowings may not exceed 75% of
good accounts receivable (as defined in the agreement) of Olympic, less
prior-ranking claims, if any, relating to inventory or accounts. The facility
is subject to repayment upon demand and is available from time to time at the
bank's sole discretion.
Note Payable to Former Executive: In connection with the settlement of
certain litigation, the Company entered into a note payable to a former
executive with remaining payments of $6,000 per month until May 2013. The note
is non-interest bearing. The note is guaranteed by Olympic.
NOTE G-INCOME TAXES
The following is the detail of income tax expense (benefit) recorded for
the three and nine months ended September 30, 2008 (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2008 |
|
|
September 30, 2008 |
|
|
|
|
|
|
|
|
Tax expense (benefit) resulting from: |
|
|
|
|
|
|
Current operations |
$ |
(6,168 |
) |
$ |
(15,996 |
) |
Change in valuation allowance |
|
5,016 |
|
|
15,034 |
|
|
$ |
(1,152 |
) |
$ |
(962 |
) |
For the three and nine months ended September 30, 2008, the Company continued to provide a full valuation allowance against the Federal tax benefit generated from its U.S. operations as it was more likely than not that such benefit would not be realized. For the same period, the Company has recognized the tax benefits generated from its Canadian operations. Offsetting the Canadian tax benefits in the first nine months of 2008 was an additional reserve, penalties and interest totaling $2.7 million on uncertain tax positions. Additionally, in the third quarter of 2008, the Company recorded a tax benefit of $0.8 million related to certain research and development tax credits received in Canada.
NOTE H-STOCK BASED COMPENSATION
In connection with the Merger and to appropriately account for the
elimination of equity-based compensation under the Company's incentive plan
that existed prior to the Merger, Holdings, the Company's parent, adopted a
stock-based compensation plan (the "2007 Non-Qualified Stock Option
Plan") in order to provide an equity component to management compensation
following the Merger. The 2007 Non-Qualified Stock Option Plan became
effective February 14, 2007. The board of directors of Holdings, which administers
the 2007 Non-Qualified Stock Option Plan, may issue options to purchase up to
105,200 shares of Holdings' common stock to employees, directors and other
service providers of Holdings and its subsidiaries, including the Company,
under the 2007 Non-Qualified Stock Option Plan. In April 2008, Holdings adopted
the 2008 Restricted Stock and Restricted Stock Unit Plan which is designed to
provide incentives to present and future employees of the Company through the
grant of restricted stock and restricted stock unit awards. The 2008 Restricted
Stock and Restricted Stock Unit Plan authorizes the issuance of up to 25,000
shares of Holdings' common stock pursuant to such grants. The Company accounts
for grants of its stock options, restricted stock and restricted stock units in
accordance with SFAS 123(R), "Share Based Payment."
(Index)
During the nine months ended September 30, 2008, 2,341 restricted stock units with a fair value of $604,000 and 14,145 stock options with a fair value of $2.8 million were granted. The restricted stock units vested immediately, whereas the stock options contain continued employment requirements and vest ratably over a period of four years from date of grant and expire 10 years after the date of grant. In addition, a portion of incentive compensation for 2008 is expected to be paid in equity awards which resulted in a non-cash expense of $36,000 for the nine months ended September 30, 2008. Total share-based compensation cost that has been recognized in the Company's Statements of Operations was $1.6 million and $2.4 million for the three months ended September 30, 2008 and 2007, respectively, and $5.0 million, $6.0 million and $6.7 million for the nine months ended September 30, 2008 (Successor Period), for the period from February 14, 2007 to September 30, 2007 (Successor Period), and for the period from January 1, 2007 to February 13, 2007 (Predecessor Period), respectively. Included in the $6.7 million share-based compensation cost for the Predecessor Period was $6.3 million related to the accelerated vesting of all outstanding unvested restricted stock as a result of the Merger and change in control of the Company which was included in merger expenses in the Company's Statement of Operations. The Company has not recognized any tax benefits related to stock based compensation for the three and nine months ended September 30, 2008, the period from February 14, 2007 to September 30, 2007 (Successor Period), or for the period from January 1, 2007 to February 13, 2007 (Predecessor Period). As of September 30, 2008, the total future compensation cost related to non-vested options not yet recognized in the Company's Statement of Operations was $7.9 million and will be recognized using graded vesting over a weighted average period of 2.6 years.
NOTE I-FAIR VALUE MEASUREMENTS
Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair
Value Measurements" for recurring financial assets and liabilities carried
at fair value. The adoption of SFAS No. 157 had no impact on the Company's consolidated
results of operations, cash flows or financial position.
SFAS No. 157 provides a framework for measuring fair value and establishes a
fair value hierarchy that prioritizes the inputs used to measure fair value,
giving the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 inputs) and the lowest priority to
unobservable inputs (Level 3 inputs).
The Company uses valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs. In measuring the fair value
of the Company's assets and liabilities, market data or assumptions are used
that the Company believes market participants would use in pricing an asset or
liability, including assumptions about risk when appropriate. The Company's investment
in marketable securities is the only balance that is measured at fair value on
a recurring basis. As of September
30, 2008, the fair value was $1.8 million, which was determined using significant
other observable inputs (Level 2 inputs).
NOTE J-STATEMENT OF CASH FLOW INFORMATION
The Company had restricted cash at September 30, 2008 and December 31, 2007 of $112,000 and $110,000, respectively, related to collateral on a seismic operations bond.
(Index)
SUCCESSOR |
PREDECESSOR |
||||||||
PERIOD |
PERIOD |
||||||||
Nine Months Ended |
February 14, 2007- |
January 1, 2007- |
|||||||
September 30, 2008 |
September 30, 2007 |
February 13, 2007 |
|||||||
Non-monetary exchanges related to resale |
|||||||||
licensing revenue |
$ |
8,682 |
$ |
2,873 |
$ |
(7 |
) |
||
Non-monetary exchanges from underwriting |
|||||||||
of new data acquisition |
9,681 |
- |
- |
||||||
Other non-monetary exchanges |
24 |
- |
- |
||||||
Completion of data in progress from prior |
|||||||||
non-monetary exchanges |
1,779 |
600 |
- |
||||||
Less: Non-monetary exchanges |
|||||||||
for data in progress |
(2,600 |
) |
(1,238 |
) |
- |
||||
Total non-cash additions to seismic data library |
$ |
17,566 |
$ |
2,235 |
$ |
(7 |
) |
Non-cash revenue consisted of the following for the periods indicated (in thousands):
SUCCESSOR |
PREDECESSOR |
||||||||
PERIOD |
PERIOD |
||||||||
Nine Months Ended |
February 14, 2007- |
January 1, 2007- |
|||||||
September 30, 2008 |
September 30,2007 |
February 13, 2007 |
|||||||
Acquisition revenue on underwriting from |
|||||||||
non-monetary exchange contracts |
$ |
9,675 |
$ |
673 |
$ |
11 |
|||
Licensing revenue from specific data licenses |
|||||||||
and selections on non-monetary |
|||||||||
exchange contracts |
4,766 |
1,208 |
71 |
||||||
Data management revenue |
- |
- |
6 |
||||||
Total non-cash revenue |
$ |
14,441 |
$ |
1,881 |
$ |
88 |
NOTE K-COMMITMENTS AND CONTINGENCIES
The Company is involved from time to time in ordinary, routine claims and
lawsuits incidental to its business. In the opinion of management, losses, if
any, resulting from the ultimate resolutions of these matters should not be
material to the Company's financial position or results of operation. However,
it is not possible to predict or determine the outcomes of the legal actions
brought against it or by it, or to provide an estimate of all additional
losses, if any, that may arise. At September
30, 2008, the Company did not have any amounts accrued related to litigation
and claims, as the Company believes it is not probable that any amounts will be
paid relative to such litigation and claims.
NOTE L-RECENT ACCOUNTING PRONOUNCEMENTS
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles." This Statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the United States. This Statement is effective 60 days following the Securities and Exchange
Commission's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The Company does
not expect the adoption of SFAS No. 162 to have a material effect on its
results of operations or financial condition.
(Index)
In February 2008, the Financial Accounting Standards Board ("FASB") issued Staff Position ("FSP") FAS 157-2, "Effective Date of FASB Statement No. 157," which delayed the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are measured at fair value on a recurring basis. FSP FAS 157-2 establishes January 1, 2009 as the effective date of SFAS No. 157 with respect to these fair value measurements for the Company. The Company does not currently expect the application of the fair value framework established by SFAS No. 157 to non-financial assets and liabilities measured on a non-recurring basis to have a material impact on its consolidated financial statements. However, we will continue to assess the potential effects of SFAS No. 157 as additional guidance becomes available.
In December 2007, the FASB issued
SFAS No. 141(R), "Business Combinations," which replaces SFAS
No. 141. SFAS No. 141(R) establishes principles and
requirements for how the acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree. In
addition, SFAS No. 141(R) recognizes and measures the goodwill acquired in
a business combination or a gain from a bargain purchase. SFAS No. 141(R)
also establishes disclosure requirements to enable users to evaluate the nature
and financial effects of a business combination. SFAS No. 141(R) is
effective as of the beginning of an entity's fiscal year that begins after
December 15, 2008, with early adoption prohibited. The Company will apply
the standard prospectively to future business combinations with an acquisition
date on or after January 1, 2009.
On February 14, 2007, the Company completed a private placement of 9.75%
Senior Notes in the aggregate principal amount of $400.0 million. Seitel,
Inc.'s (the "Parent") payment obligations under the 9.75% Senior
Notes are jointly and severally guaranteed by certain of its domestic
subsidiaries ("Guarantor Subsidiaries"). All subsidiaries of Seitel,
Inc. that do not guaranty the 9.75% Senior Notes are referred to as
Non-Guarantor Subsidiaries.
The consolidating condensed financial statements are presented below and should
be read in connection with the Consolidated Financial Statements of the
Company. Separate financial statements of the Guarantor Subsidiaries are not
presented because (i) the Guarantor Subsidiaries are wholly-owned and have
fully and unconditionally guaranteed the 9.75% Senior Notes on a joint and
several basis, and (ii) the Company's management has determined such separate
financial statements are not material to investors.
The following consolidating condensed financial information presents: the
consolidating condensed balance sheets as of September
30, 2008 (Successor Period) and December 31, 2007 (Successor Period),
and the consolidating condensed statements of operations and statements of cash
flows for the nine months ended September 30,
2008 (Successor Period), the period February 14, 2007 to September 30, 2007 (Successor Period) and the
period January 1, 2007 to February 13, 2007 (Predecessor Period) of (a) the Parent;
(b) the Guarantor Subsidiaries; (c) the Non-Guarantor Subsidiaries; (d)
elimination entries; and (e) the Parent, the Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries on a consolidated basis.
Investments in subsidiaries are accounted for on the equity method. The
principal elimination entries eliminate investments in subsidiaries,
intercompany balances, intercompany transactions and intercompany sales.
(Index)
CONSOLIDATING CONDENSED BALANCE SHEET
SUCCESSOR PERIOD
As of September 30, 2008
(In thousands)
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
ASSETS |
|||||||||||||||
Cash and cash equivalents |
$ |
- |
$ |
26,296 |
$ |
10,532 |
$ |
- |
$ |
36,828 |
|||||
Restricted cash |
- |
112 |
- |
- |
112 |
||||||||||
Receivables |
|||||||||||||||
Trade, net |
- |
37,397 |
13,989 |
- |
51,386 |
||||||||||
Notes and other, net |
- |
164 |
263 |
- |
427 |
||||||||||
Intercompany receivables (payables) |
155,439 |
(141,878 |
) |
(13,561 |
) |
- |
- |
||||||||
Investment in subsidiaries |
376,615 |
449,498 |
1,144 |
(827,257 |
) |
- |
|||||||||
Net seismic data library |
- |
214,517 |
82,952 |
- |
297,469 |
||||||||||
Net property and equipment |
- |
3,584 |
5,894 |
- |
9,478 |
||||||||||
Investment in marketable securities |
- |
1,798 |
- |
- |
1,798 |
||||||||||
Prepaid expenses, deferred charges |
|||||||||||||||
and other |
12,502 |
6,626 |
582 |
- |
19,710 |
||||||||||
Intangible assets, net |
900 |
26,902 |
17,845 |
- |
45,647 |
||||||||||
Goodwill |
- |
107,108 |
93,350 |
- |
200,458 |
||||||||||
TOTAL ASSETS |
$ |
545,456 |
$ |
732,124 |
$ |
212,990 |
$ |
(827,257 |
) |
$ |
663,313 |
||||
LIABILITIES AND STOCKHOLDER'S |
|||||||||||||||
EQUITY |
|||||||||||||||
Accounts payable and accrued liabilities |
$ |
5,525 |
$ |
14,260 |
$ |
20,012 |
$ |
- |
$ |
39,797 |
|||||
Income taxes payable |
753 |
5 |
234 |
- |
992 |
||||||||||
Senior Notes |
402,269 |
- |
- |
- |
402,269 |
||||||||||
Notes payable |
268 |
- |
- |
- |
268 |
||||||||||
Obligations under capital leases |
- |
- |
3,494 |
- |
3,494 |
||||||||||
Deferred revenue |
- |
41,475 |
9,414 |
- |
50,889 |
||||||||||
Deferred income taxes |
4 |
- |
10,783 |
- |
10,787 |
||||||||||
TOTAL LIABILITIES |
408,819 |
55,740 |
43,937 |
- |
508,496 |
||||||||||
STOCKHOLDER'S EQUITY |
|||||||||||||||
Common stock |
- |
- |
- |
- |
- |
||||||||||
Additional paid-in capital |
269,777 |
- |
- |
- |
269,777 |
||||||||||
Parent investment |
- |
764,753 |
172,172 |
(936,925 |
) |
- |
|||||||||
Retained deficit |
(133,140 |
) |
(90,167 |
) |
(19,501 |
) |
109,668 |
(133,140 |
) |
||||||
Accumulated other comprehensive income |
- |
1,798 |
16,382 |
- |
18,180 |
||||||||||
TOTAL STOCKHOLDER'S EQUITY |
136,637 |
676,384 |
169,053 |
(827,257 |
) |
154,817 |
|||||||||
TOTAL LIABILITIES AND |
|||||||||||||||
STOCKHOLDER'S EQUITY |
$ |
545,456 |
$ |
732,124 |
$ |
212,990 |
$ |
(827,257 |
) |
$ |
663,313 |
(Index)
CONSOLIDATING CONDENSED BALANCE SHEET
SUCCESSOR PERIOD
As of December 31, 2007
(In thousands)
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
ASSETS |
|||||||||||||||
Cash and equivalents |
$ |
- |
$ |
36,847 |
$ |
6,486 |
$ |
- |
$ |
43,333 |
|||||
Restricted cash |
- |
110 |
- |
- |
110 |
||||||||||
Receivables |
|||||||||||||||
Trade, net |
- |
36,183 |
15,732 |
- |
51,915 |
||||||||||
Notes and other, net |
- |
1,335 |
855 |
- |
2,190 |
||||||||||
Intercompany receivables (payables) |
174,299 |
(159,894 |
) |
(14,405 |
) |
- |
- |
||||||||
Investment in subsidiaries |
418,152 |
457,966 |
775 |
(876,893 |
) |
- |
|||||||||
Net seismic data library |
- |
243,957 |
105,082 |
- |
349,039 |
||||||||||
Net property and equipment |
- |
4,291 |
6,705 |
- |
10,996 |
||||||||||
Investment in marketable securities |
- |
4,224 |
- |
- |
4,224 |
||||||||||
Prepaid expenses, deferred charges |
|||||||||||||||
and other |
13,050 |
8,645 |
568 |
- |
22,263 |
||||||||||
Intangible assets, net |
923 |
29,310 |
21,552 |
- |
51,785 |
||||||||||
Goodwill |
- |
107,108 |
100,138 |
- |
207,246 |
||||||||||
TOTAL ASSETS |
$ |
606,424 |
$ |
770,082 |
$ |
243,488 |
$ |
(876,893 |
) |
$ |
743,101 |
||||
LIABILITIES AND STOCKHOLDER'S |
|||||||||||||||
EQUITY |
|||||||||||||||
Accounts payable and accrued liabilities |
$ |
15,374 |
$ |
18,792 |
$ |
15,159 |
$ |
- |
$ |
49,325 |
|||||
Income taxes payable |
721 |
209 |
18 |
- |
948 |
||||||||||
Senior Notes |
402,333 |
- |
- |
- |
402,333 |
||||||||||
Notes payable |
300 |
- |
- |
- |
300 |
||||||||||
Obligations under capital leases |
- |
- |
3,848 |
- |
3,848 |
||||||||||
Deferred revenue |
- |
34,823 |
13,328 |
- |
48,151 |
||||||||||
Deferred income taxes |
4 |
- |
17,234 |
- |
17,238 |
||||||||||
TOTAL LIABILITIES |
418,732 |
53,824 |
49,587 |
- |
522,143 |
||||||||||
STOCKHOLDER'S EQUITY |
|||||||||||||||
Common stock |
- |
- |
- |
- |
- |
||||||||||
Additional paid-in capital |
264,805 |
- |
- |
- |
264,805 |
||||||||||
Parent investment |
- |
764,762 |
172,172 |
(936,934 |
) |
- |
|||||||||
Retained deficit |
(77,113 |
) |
(52,728 |
) |
(7,313 |
) |
60,041 |
(77,113 |
) |
||||||
Accumulated other comprehensive |
|||||||||||||||
income |
- |
4,224 |
29,042 |
- |
33,266 |
||||||||||
TOTAL STOCKHOLDER'S EQUITY |
187,692 |
716,258 |
193,901 |
(876,893 |
) |
220,958 |
|||||||||
TOTAL LIABILITIES AND |
|||||||||||||||
STOCKHOLDER'S EQUITY |
$ |
606,424 |
$ |
770,082 |
$ |
243,488 |
$ |
(876,893 |
) |
$ |
743,101 |
(Index)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
SUCCESSOR PERIOD
For the Nine Months Ended September 30, 2008
(In thousands)
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
REVENUE |
$ |
- |
$ |
92,950 |
$ |
49,128 |
$ |
(3,886 |
) |
$ |
138,192 |
||||
EXPENSES: |
|||||||||||||||
Depreciation and amortization |
23 |
86,214 |
46,469 |
- |
132,706 |
||||||||||
Impairment of intangible asset |
- |
- |
225 |
- |
225 |
||||||||||
Cost of sales |
- |
312 |
39 |
- |
351 |
||||||||||
Selling, general and administrative |
4,947 |
15,321 |
13,716 |
(3,886 |
) |
30,098 |
|||||||||
Merger |
- |
357 |
- |
- |
357 |
||||||||||
4,970 |
102,204 |
60,449 |
(3,886 |
) |
163,737 |
||||||||||
LOSS FROM OPERATIONS |
(4,970 |
) |
(9,254 |
) |
(11,321 |
) |
- |
(25,545 |
) |
||||||
Interest expense, net |
(13,618 |
) |
(15,708 |
) |
(715 |
) |
- |
(30,041 |
) |
||||||
Foreign currency exchange losses |
- |
(123 |
) |
(1,319 |
) |
- |
(1,442 |
) |
|||||||
Other income |
- |
15 |
24 |
- |
39 |
||||||||||
Loss before income taxes and |
|||||||||||||||
equity in loss of subsidiaries |
(18,588 |
) |
(25,070 |
) |
(13,331 |
) |
- |
(56,989 |
) |
||||||
Provision (benefit) for income taxes |
- |
181 |
(1,143 |
) |
- |
(962 |
) |
||||||||
Equity in loss of subsidiaries |
(37,439 |
) |
(12,188 |
) |
- |
49,627 |
- |
||||||||
NET LOSS |
$ |
(56,027 |
) |
$ |
(37,439 |
) |
$ |
(12,188 |
) |
$ |
49,627 |
$ |
(56,027 |
) |
|
(Index)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
SUCCESSOR PERIOD
February 14, 2007 - September 30, 2007
(In thousands)
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
REVENUE |
$ |
- |
$ |
59,194 |
$ |
18,143 |
$ |
(1,312 |
) |
$ |
76,025 |
||||
EXPENSES: |
|||||||||||||||
Depreciation and amortization |
113 |
71,455 |
24,440 |
- |
96,008 |
||||||||||
Cost of sales |
- |
86 |
27 |
- |
113 |
||||||||||
Selling, general and administrative |
6,570 |
10,463 |
8,104 |
(1,312 |
) |
23,825 |
|||||||||
Merger |
- |
2,053 |
34 |
- |
2,087 |
||||||||||
6,683 |
84,057 |
32,605 |
(1,312 |
) |
122,033 |
||||||||||
LOSS FROM OPERATIONS |
(6,683 |
) |
(24,863 |
) |
(14,462 |
) |
- |
(46,008 |
) |
||||||
Interest expense, net |
(11,318 |
) |
(16,996 |
) |
(704 |
) |
- |
(29,018 |
) |
||||||
Foreign currency exchange gains |
- |
- |
3,017 |
- |
3,017 |
||||||||||
Other income |
- |
39 |
- |
- |
39 |
||||||||||
Loss before income taxes and equity |
|||||||||||||||
in loss of subsidiaries |
(18,001 |
) |
(41,820 |
) |
(12,149 |
) |
- |
(71,970 |
) |
||||||
Benefit for income taxes |
- |
(3,975 |
) |
(5,693 |
) |
- |
(9,668 |
) |
|||||||
Equity in loss of subsidiaries |
(44,301 |
) |
(1,965 |
) |
- |
46,266 |
- |
||||||||
NET LOSS |
$ |
(62,302 |
) |
$ |
(39,810 |
) |
$ |
(6,456 |
) |
$ |
46,266 |
$ |
(62,302 |
) |
|
(Index)
CONSOLIDATING
CONDENSED STATEMENT OF OPERATIONS
PREDECESSOR PERIOD
January 1, 2007 - February 13, 2007
(In thousands)
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
REVENUE |
$ |
- |
$ |
13,346 |
$ |
6,055 |
$ |
(391 |
) |
$ |
19,010 |
||||
EXPENSES: |
|||||||||||||||
Depreciation and amortization |
- |
6,989 |
4,669 |
(173 |
) |
11,485 |
|||||||||
Cost of sales |
- |
7 |
1 |
- |
8 |
||||||||||
Selling, general and administrative |
240 |
1,871 |
1,857 |
(391 |
) |
3,577 |
|||||||||
Merger |
1,054 |
15,823 |
580 |
- |
17,457 |
||||||||||
1,294 |
24,690 |
7,107 |
(564 |
) |
32,527 |
||||||||||
LOSS FROM OPERATIONS |
(1,294 |
) |
(11,344 |
) |
(1,052 |
) |
173 |
(13,517 |
) |
||||||
Interest expense, net |
(236 |
) |
(1,878 |
) |
(170 |
) |
- |
(2,284 |
) |
||||||
Foreign currency exchange losses |
- |
- |
(102 |
) |
- |
(102 |
) |
||||||||
Other income |
12 |
- |
- |
- |
12 |
||||||||||
Loss before income taxes and equity |
|||||||||||||||
in loss of subsidiaries |
(1,518 |
) |
(13,222 |
) |
(1,324 |
) |
173 |
(15,891 |
) |
||||||
Provision for income taxes |
- |
99 |
353 |
- |
452 |
||||||||||
Equity in loss of subsidiaries |
(14,825 |
) |
(1,677 |
) |
- |
16,502 |
- |
||||||||
NET LOSS |
$ |
(16,343 |
) |
$ |
(14,998 |
) |
$ |
(1,677 |
) |
$ |
16,675 |
$ |
(16,343 |
) |
|
(Index)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
SUCCESSOR PERIOD
For the Nine Months Ended September 30, 2008
(In thousands)
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
Cash flows from operating activities: |
|||||||||||||||
Net cash provided by (used in) |
|||||||||||||||
operating activities |
$ |
(40,194 |
) |
$ |
66,289 |
$ |
33,003 |
$ |
- |
$ |
59,098 |
||||
Cash flows from investing activities: |
|||||||||||||||
Cash invested in seismic data |
- |
(41,077 |
) |
(24,407 |
) |
- |
(65,484 |
) |
|||||||
Cash paid to acquire property |
|||||||||||||||
and equipment |
- |
(419 |
) |
(491 |
) |
- |
(910 |
) |
|||||||
Advances to Seitel Holdings, Inc. |
- |
(135 |
) |
- |
- |
(135 |
) |
||||||||
Increase in restricted cash |
- |
(2 |
) |
- |
- |
(2 |
) |
||||||||
Net cash used in investing activities |
- |
(41,633 |
) |
(24,898 |
) |
- |
(66,531 |
) |
|||||||
Cash flows from financing activities: |
|||||||||||||||
Principal payments on notes payable |
(32 |
) |
- |
- |
- |
(32 |
) |
||||||||
Principal payments on capital |
|||||||||||||||
lease obligations |
- |
- |
(98 |
) |
- |
(98 |
) |
||||||||
Borrowings on line of credit |
- |
- |
286 |
- |
286 |
||||||||||
Payments on line of credit |
- |
- |
(286 |
) |
- |
(286 |
) |
||||||||
Payments on notes receivable |
- |
54 |
- |
- |
54 |
||||||||||
Intercompany transfers |
40,226 |
(35,261 |
) |
(4,965 |
) |
- |
- |
||||||||
Net cash provided by (used in) |
|||||||||||||||
financing activities |
40,194 |
(35,207 |
) |
(5,063 |
) |
- |
(76 |
) |
|||||||
Effect of exchange rate changes |
- |
- |
1,004 |
- |
1,004 |
||||||||||
Net decrease in cash and cash |
|||||||||||||||
equivalents |
- |
(10,551 |
) |
4,046 |
- |
(6,505 |
) |
||||||||
Cash and cash equivalents at |
|||||||||||||||
beginning of period |
- |
36,847 |
6,486 |
- |
43,333 |
||||||||||
Cash and cash equivalents at end of period |
$ |
- |
$ |
26,296 |
$ |
10,532 |
$ |
- |
$ |
36,828 |
|||||
(Index)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
SUCCESSOR PERIOD
February 14, 2007 - September 30, 2007
(In thousands)
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
Cash flows from operating activities: |
|||||||||||||||
Net cash provided by (used in) |
|||||||||||||||
operating activities |
$ |
(21,929 |
) |
$ |
55,523 |
$ |
22,078 |
$ |
- |
$ |
55,672 |
||||
Cash flows from investing activities: |
|||||||||||||||
Cash invested in seismic data |
- |
(23,711 |
) |
(16,908 |
) |
- |
(40,619 |
) |
|||||||
Cash paid to acquire property |
|||||||||||||||
and equipment |
- |
(361 |
) |
(48 |
) |
- |
(409 |
) |
|||||||
Increase in restricted cash |
- |
(3 |
) |
- |
- |
(3 |
) |
||||||||
Net cash used in investing activities |
- |
(24,075 |
) |
(16,956 |
) |
- |
(41,031 |
) |
|||||||
Cash flows from financing activities: |
|||||||||||||||
Issuance of 9.75% Senior Notes |
400,000 |
- |
- |
- |
400,000 |
||||||||||
Repayment of 11.75% Senior Notes |
(233,352 |
) |
- |
- |
- |
(233,352 |
) |
||||||||
Contributed capital |
153,473 |
- |
- |
- |
153,473 |
||||||||||
Purchase of Seitel stock |
(386,556 |
) |
- |
- |
- |
(386,556 |
) |
||||||||
Principal payments on notes payable |
(27 |
) |
- |
- |
- |
(27 |
) |
||||||||
Principal payments on capital |
|||||||||||||||
lease obligations |
- |
- |
(62 |
) |
- |
(62 |
) |
||||||||
Borrowings on line of credit |
- |
- |
103 |
- |
103 |
||||||||||
Payments on line of credit |
- |
- |
(103 |
) |
- |
(103 |
) |
||||||||
Cost of debt and equity transactions |
(17,085 |
) |
- |
- |
- |
(17,085 |
) |
||||||||
Payments on notes receivable |
- |
274 |
- |
- |
274 |
||||||||||
Intercompany transfers |
105,476 |
(105,476 |
) |
- |
- |
- |
|||||||||
Net cash provided by (used in) |
|||||||||||||||
financing activities |
21,929 |
(105,202 |
) |
(62 |
) |
- |
(83,335 |
) |
|||||||
Effect of exchange rate changes |
- |
- |
(2,320 |
) |
- |
(2,320 |
) |
||||||||
Net increase (decrease) in cash |
|||||||||||||||
and cash equivalents |
- |
(73,754 |
) |
2,740 |
- |
(71,014 |
) |
||||||||
Cash and cash equivalents at |
|||||||||||||||
beginning of period |
- |
102,788 |
1,420 |
- |
104,208 |
||||||||||
Cash and cash equivalents at end of period |
$ |
- |
$ |
29,034 |
$ |
4,160 |
$ |
- |
$ |
33,194 |
|||||
(Index)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
PREDECESSOR PERIOD
January 1, 2007 - February 13, 2007
(In thousands)
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
Cash flows from operating activities: |
|||||||||||||||
Net cash provided by (used in) |
|||||||||||||||
operating activities |
$ |
(11,821 |
) |
$ |
19,894 |
$ |
(2,463 |
) |
$ |
- |
$ |
5,610 |
|||
Cash flows from investing activities: |
|||||||||||||||
Cash invested in seismic data |
- |
(7,500 |
) |
(869 |
) |
- |
(8,369 |
) |
|||||||
Cash paid to acquire property |
|||||||||||||||
and equipment |
- |
(27 |
) |
(33 |
) |
- |
(60 |
) |
|||||||
Net cash used in investing activities |
- |
(7,527 |
) |
(902 |
) |
- |
(8,429 |
) |
|||||||
Cash flows from financing activities: |
|||||||||||||||
Principal payments on notes payable |
(3 |
) |
- |
- |
- |
(3 |
) |
||||||||
Principal payments on capital |
|||||||||||||||
lease obligations |
- |
- |
(6 |
) |
- |
(6 |
) |
||||||||
Borrowings on line of credit |
- |
- |
119 |
- |
119 |
||||||||||
Payments on line of credit |
- |
- |
(119 |
) |
- |
(119 |
) |
||||||||
Purchase of common stock |
|||||||||||||||
subsequently retired |
(400 |
) |
- |
- |
- |
(400 |
) |
||||||||
Intercompany transfers |
12,224 |
(10,622 |
) |
(1,602 |
) |
- |
- |
||||||||
Net cash provided by (used in) |
|||||||||||||||
financing activities |
11,821 |
(10,622 |
) |
(1,608 |
) |
- |
(409 |
) |
|||||||
Effect of exchange rate changes |
- |
- |
46 |
- |
46 |
||||||||||
Net increase (decrease) in cash |
|||||||||||||||
and cash equivalents |
- |
1,745 |
(4,927 |
) |
- |
(3,182 |
) |
||||||||
Cash and cash equivalents at |
|||||||||||||||
beginning of period |
- |
101,043 |
6,347 |
- |
107,390 |
||||||||||
Cash and cash equivalents at end of period |
$ |
- |
$ |
102,788 |
$ |
1,420 |
$ |
- |
$ |
104,208 |
|||||
(Index)
The following discussion should be read in
conjunction with our consolidated financial statements and the related notes to
the financial statements included elsewhere in this document.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Statements contained in this report
about our future outlook, prospects, strategies and plans, and about industry
conditions, demand for seismic services and the future economic life of our
seismic data are forward-looking. All statements that express belief,
expectation, estimates or intentions, as well as those that are not statements
of historical fact, are forward looking. The words "proposed,"
"anticipates," "anticipated," "will,"
"would," "should," "estimates" and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements represent our present belief and are based on our
current expectations and assumptions with respect to future events. While we
believe our expectations and assumptions are reasonable, they involve risks and
uncertainties beyond our control that could cause the actual results or outcome
to differ materially from the expected results or outcome reflected in our
forward-looking statements. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this Quarterly Report may
not occur. Such risks and uncertainties include, without limitation, our
ability to comply with the terms of our final judgment of permanent injunction
by the Securities and Exchange Commission ("SEC"), the impact on our
results of operations of our significant amount of debt, our significant amount
of debt service and interest expense, our ability to obtain and maintain normal
terms with our vendors and service providers, our ability to maintain contracts
that are critical to our operations, changes in the oil and gas industry or the
economy generally, changes in the exploration budgets of our customers, actual
customer demand for our seismic data and related services, the timing and
extent of changes in commodity prices for natural gas, crude oil and condensate
and natural gas liquids, conditions in the capital markets during the periods
covered by the forward-looking statements and our ability to obtain financing
on satisfactory terms if internally generated funds are insufficient to fund
our capital needs. The foregoing and other risk factors are identified in our
Annual Report on Form 10-K filed with the SEC for the year ended
December 31, 2007.
The forward-looking statements contained in
this report speak only as of the date hereof. Except as required by federal
and state securities laws, we undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or any other reason. All forward-looking statements attributable
to Seitel, Inc. or any person acting on its behalf are expressly qualified in
their entirety by the cautionary statements contained or referred to in our Annual
Report filed on Form 10-K and in our future periodic reports filed with the
SEC.
Overview
General
Our products and services are
used by oil and gas companies to assist in the exploration for, and development
and management of, oil and gas reserves.
We have ownership in an extensive library of onshore and offshore seismic data
that we offer for license to oil and gas companies. Oil and gas companies use
seismic data in oil and gas exploration and development efforts to increase the
probability of drilling success. We believe that our library of onshore seismic
data is one of the largest libraries available for licensing in the United States and Canada. We primarily generate revenue by licensing data from our data library and
from new data creation products, which are substantially underwritten or paid
for by our clients. By participating in underwritten, nonexclusive surveys or
purchasing licenses to existing data, oil and gas companies can obtain access
to surveys at reduced costs as compared to acquiring seismic data on a
proprietary basis.
Our primary areas of focus are onshore United States and Canada and, to a lesser extent, offshore U.S. Gulf of Mexico. These markets continue to experience
major changes. Having spent several years increasing their focus on
international exploration opportunities, several major oil companies have
become more active in the U.S. market than in the past few years. Independent
oil and gas companies continue to be responsible for a significant portion of
current U.S. drilling activity. The energy industry remains challenged to
develop adequate oil and gas supplies to offset current production declines in
mature fields of North America. We expect demand for natural gas to continue
to increase exploration activity over the next two to three years in the United States and Canada.
(Index)
Our clients continue to seek our services to create data in the United States and Canada. Our clients' commitment for underwriting on new data creation projects was $32.1 million as of September 30, 2008. Licensing data "off the shelf" does not require the longer planning and lead times like new data creation and thus is more likely to fluctuate quarter to quarter.
The current financial crisis has limited the credit markets which, in turn, may
effect the level of capital spending by oil and gas companies. As a result, we
may experience volatility in the level of our cash resales and in commitments
by our clients for new data acquisition. However, we believe we can respond
quickly to changes in demand to ensure we operate within our cash flows.
The Merger
On February 14, 2007, Seitel Acquisition
Corp. ("Acquisition Corp.") was merged with and into Seitel, Inc. ("Seitel"),
pursuant to a merger agreement between Seitel, Acquisition Corp. and Seitel
Holdings, Inc. ("Holdings") dated October 31, 2006 (the "Merger").
Pursuant to the merger agreement, Seitel continued as the surviving corporation
and became a privately owned corporation and wholly-owned subsidiary of
Holdings.
Although we continue as the same legal entity after the Merger, the
consolidated financial statements for the first nine months of 2007 are
presented for two periods: January 1, 2007 through February 13, 2007 (the
"Predecessor Period" or "Predecessor," as context requires), which relates to
the period preceding the Merger and February 14, 2007 through September 30, 2007, which relates to the period succeeding the
Merger. All financial statements for the periods succeeding the Merger are
referred to as Successor Period or Successor, as context requires. The
combined results for the nine months ended September 30,
2007 represent the addition of Predecessor and 2007 Successor Periods
("Combined"). This combination does not comply with U.S. GAAP or
with the rules for pro forma presentation but is presented because we believe
it provides a meaningful comparison of our results. The consolidated financial
statements for the Successor Periods reflect the acquisition of Seitel under
the purchase method of accounting in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business
Combinations." The results between these periods are not comparable to
the Predecessor due to the difference in the basis of presentation of purchase
accounting as compared to historical cost.
Principal Factors Affecting Our
Business
Our
business is dependent upon a variety of factors, many of which are beyond our
control. The following are those that we consider to be principal factors
affecting our business.
Demand for Seismic Data: Demand for our products
and services is cyclical due to the nature of the oil and gas industry. In
particular, demand for our seismic data services depends upon exploration,
production, development and field management spending by oil and gas companies
and, in the case of new data creation, the willingness of those companies to
forgo ownership in the seismic data. Capital expenditures by oil and gas
companies depend upon several factors, including actual and forecasted oil and
natural gas commodity prices, prospect availability and the companies' own
short-term and strategic plans. These capital expenditures may also be affected
by worldwide economic or industry-wide conditions. Demand for our seismic data
is more likely to be influenced by natural gas prices rather than crude oil
prices due to the geographic location of our seismic data.
Availability of Capital for Our Customers: Many
of our customers consist of independent oil and gas companies and private
prospect-generating companies that rely primarily on private capital markets to
fund their exploration, production, development and field management
activities. The recent changes in the availability of capital could have a
material impact on the ability of these companies to obtain funding necessary
to purchase our seismic data.
Merger and Acquisition Activity: In recent
years, there has been an increase in the level of merger and acquisition
activity within our client base. This activity could have a negative impact on
seismic companies that operate in markets with a limited number of
participating clients. However, we believe that, over time, this activity could
have a positive impact on our business, as it should generate re-licensing
fees, result in increased vitality in the trading of mineral interests and
result in the creation of new independent customers through the rationalization
of staff within those companies affected by this activity.
(Index)
Natural Gas Reserve Replacement: Gas reserve
replacement in the United States and Canada has lagged. As a result, we
believe there is an increasing need in the oil and gas industry to replace
these reserves, which we anticipate will increase the demand for our seismic
data.
Government Regulation: Our operations are
subject to a variety of federal, provincial, state, foreign and local laws and
regulations, including environmental and health and safety laws. We invest
financial and managerial resources to comply with these laws and related permit
requirements. Modification of existing laws or regulations and the adoption of
new laws or regulations limiting or increasing exploration or production
activities by oil and gas companies may have a material effect on our business
operations.
Non-GAAP Key Performance Measures
Management
considers certain performance measures in evaluating and managing our financial
condition and operating performance at various times and from time to time. Some
of these performance measures are non-GAAP financial measures. Generally, a
non-GAAP financial measure is a numerical measure of a company's performance,
financial position or cash flows that either excludes or includes amounts that
are not normally excluded or included in the most directly comparable measure
calculated and presented in accordance with United States generally accepted
accounting principles, or GAAP. These non-GAAP measures are not in accordance with,
nor are they a substitute for, GAAP measures. These non-GAAP measures are
intended to supplement our presentation of our financial results that are
prepared in accordance with GAAP.
The following are the key performance measures
considered by management.
Cash Resales: Cash resales represent new
contracts for data licenses from our library, payable in cash. We believe this
measure is important in gauging new business activity. We expect cash resales
to generally follow a consistent trend over several quarters, while considering
our normal seasonality. Volatility in this trend over several consecutive
quarters could indicate changing market conditions. The following is a
reconciliation of this non-GAAP financial measure to the most directly comparable
GAAP financial measure, total revenue (in thousands):
|
|
SUCCESSOR |
|
|
|
|
|
SUCCESSOR |
|
|
PREDECESSOR |
|
||||||
PERIOD |
COMBINED (1) |
PERIOD |
PERIOD |
|||||||||||||||
Three Months |
Nine Months |
Nine Months |
February 14, |
January 1, |
||||||||||||||
Ended |
Ended |
Ended |
2007 - |
2007 - |
||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
February 13, |
||||||||||||||
2008 |
2007 |
2008 |
2007 |
2007 |
2007 |
|||||||||||||
Cash resales |
$ |
37,297 |
$ |
29,162 |
$ |
89,802 |
$ |
78,668 |
$ |
72,683 |
$ |
5,985 |
||||||
Other revenue |
||||||||||||||||||
components: |
||||||||||||||||||
Acquisition revenue |
11,598 |
8,511 |
42,547 |
29,805 |
23,707 |
6,098 |
||||||||||||
Non-monetary |
||||||||||||||||||
exchanges |
2,202 |
135 |
6,659 |
2,866 |
2,873 |
(7 |
) |
|||||||||||
Revenue deferred |
(16,612 |
) |
(15,984 |
) |
(41,675 |
) |
(39,938 |
) |
(37,302 |
) |
(2,636 |
) |
||||||
Recognition of revenue |
||||||||||||||||||
previously deferred |
10,114 |
5,327 |
35,723 |
19,786 |
10,840 |
8,946 |
||||||||||||
Solutions and other |
1,492 |
1,205 |
5,136 |
3,848 |
3,224 |
624 |
||||||||||||
Total revenue, as |
||||||||||||||||||
reported |
$ |
46,091 |
$ |
28,356 |
$ |
138,192 |
$ |
95,035 |
$ |
76,025 |
$ |
19,010 |
(1) |
Our combined results for the nine months ended September 30, 2007 represent the addition of the Predecessor Period from January 1, 2007 to February 13, 2007 and the Successor Period from February 14, 2007 to September 30, 2007. This combination does not comply with U.S. GAAP or with the rules for pro forma presentation, but is presented because we believe it provides a meaningful comparison of our results. |
(Index)
Cash EBITDA:
Cash EBITDA (which we have previously referred to as
cash margin) includes cash resales plus all other cash revenues other than from
data acquisitions, less cash selling, general and administrative expenses (excluding
Merger expenses and merger and acquisition transaction costs) and cost of goods
sold. We believe this measure is helpful in determining the level of cash from
operations we have available for debt service and funding of capital
expenditures (net of the portion funded or underwritten by our customers). The
following is a quantitative reconciliation of this non-GAAP financial measure
to the most directly comparable GAAP financial measure, operating loss (in
thousands):
SUCCESSOR |
SUCCESSOR |
PREDECESSOR |
||||||||||||||||
PERIOD |
COMBINED (1) |
PERIOD |
PERIOD |
|||||||||||||||
Three Months |
Nine Months |
Nine Months |
February 14, |
January 1, |
||||||||||||||
Ended |
Ended |
Ended |
2007 - |
2007 - |
||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
February 13, |
||||||||||||||
2008 |
2007 |
2008 |
2007 |
2007 |
2007 |
|||||||||||||
Cash EBITDA |
$ |
30,529 |
$ |
23,816 |
$ |
69,632 |
$ |
62,466 |
$ |
59,036 |
$ |
3,430 |
||||||
Add (subtract) other |
||||||||||||||||||
revenue components |
||||||||||||||||||
not included in |
||||||||||||||||||
cash EBITDA: |
||||||||||||||||||
Acquisition revenue |
11,598 |
8,511 |
42,547 |
29,805 |
23,707 |
6,098 |
||||||||||||
Non-monetary |
||||||||||||||||||
exchanges |
2,202 |
135 |
6,659 |
2,866 |
2,873 |
(7 |
) |
|||||||||||
Revenue deferred |
(16,612 |
) |
(15,984 |
) |
(41,675 |
) |
(39,938 |
) |
(37,302 |
) |
(2,636 |
) |
||||||
Recognition of |
||||||||||||||||||
revenue previously |
||||||||||||||||||
deferred |
10,114 |
5,327 |
35,723 |
19,786 |
10,840 |
8,946 |
||||||||||||
Recognition of |
||||||||||||||||||
Solutions revenue |
||||||||||||||||||
previously deferred |
- |
- |
44 |
6 |
- |
6 |
||||||||||||
Less: |
||||||||||||||||||
(43,592 |
) |
(36,005 |
) |
(132,706 |
) |
(107,493 |
) |
(96,008 |
) |
(11,485 |
) |
|||||||
(225 |
) |
- |
(225 |
) |
- |
- |
- |
|||||||||||
- |
(807 |
) |
(357 |
) |
(19,544 |
) |
(2,087 |
) |
(17,457 |
) |
||||||||
- |
(948 |
) |
(5 |
) |
(948 |
) |
(948 |
) |
- |
|||||||||
(1,662 |
) |
(2,475 |
) |
(5,182 |
) |
(6,531 |
) |
(6,119 |
) |
(412 |
) |
|||||||
$ |
(7,648 |
) |
$ |
(18,430 |
) |
$ |
(25,545 |
) |
$ |
(59,525 |
) |
$ |
(46,008 |
) |
$ |
(13,517 |
) |
(1) |
Our combined results for the nine months ended September 30, 2007 represent the addition of the Predecessor Period from January 1, 2007 to February 13, 2007 and the Successor Period from February 14, 2007 to September 30, 2007. This combination does not comply with U.S. GAAP or with the rules for pro forma presentation, but is presented because we believe it provides a meaningful comparison of our results. |
Growth of Our Seismic Data Library: We regularly add to our seismic data library
through four different methods: (1) recording new data; (2) buying ownership of
existing data for cash; (3) obtaining ownership of existing data sets through
non-monetary exchanges; and (4) creating new value-added products from existing
data within our library. For the period from January 1, 2008 to September 30, 2008, we completed the
addition of approximately 1,600 square miles of seismic data to our library. As
of September 30, 2008, we had
approximately 1,100 square miles of seismic data in progress.
(Index)
Critical Accounting Policies
We operate in one business segment, which is made up of seismic data
acquisition, seismic data licensing, seismic data processing and seismic
reproduction services. There have not been any changes in our critical
accounting policies since December 31, 2007.
Results of Operations
Revenue
The following table summarizes the
components of our revenue for the periods indicated (in thousands):
SUCCESSOR |
SUCCESSOR |
PREDECESSOR |
||||||||||||||||
PERIOD |
COMBINED (1) |
PERIOD |
PERIOD |
|||||||||||||||
Three Months |
Nine Months |
Nine Months |
February 14, |
January 1, |
||||||||||||||
Ended |
Ended |
Ended |
2007 - |
2007 - |
||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
September 13, |
||||||||||||||
2008 |
2007 |
2008 |
2007 |
2007 |
2007 |
|||||||||||||
Acquisition revenue: |
||||||||||||||||||
Cash underwriting |
$ |
7,545 |
$ |
7,865 |
$ |
32,872 |
$ |
29,121 |
$ |
23,034 |
$ |
6,087 |
||||||
Underwriting from |
||||||||||||||||||
non-monetary |
||||||||||||||||||
exchanges |
4,053 |
646 |
9,675 |
684 |
673 |
11 |
||||||||||||
Total acquisition |
||||||||||||||||||
revenue |
11,598 |
8,511 |
42,547 |
29,805 |
23,707 |
6,098 |
||||||||||||
Licensing revenue: |
||||||||||||||||||
Cash resales |
37,297 |
29,162 |
89,802 |
78,668 |
72,683 |
5,985 |
||||||||||||
Non-monetary |
||||||||||||||||||
exchanges |
2,202 |
135 |
6,659 |
2,866 |
2,873 |
(7 |
) |
|||||||||||
Revenue deferred |
(16,612 |
) |
(15,984 |
) |
(41,675 |
) |
(39,938 |
) |
(37,302 |
) |
(2,636 |
) |
||||||
Recognition of revenue |
||||||||||||||||||
previously deferred |
10,114 |
5,327 |
35,723 |
19,786 |
10,840 |
8,946 |
||||||||||||
Total resale revenue |
33,001 |
18,640 |
90,509 |
61,382 |
49,094 |
12,288 |
||||||||||||
Total seismic revenue |
44,599 |
27,151 |
133,056 |
91,187 |
72,801 |
18,386 |
||||||||||||
Solutions and other |
1,492 |
1,205 |
5,136 |
3,848 |
3,224 |
624 |
||||||||||||
Total revenue |
$ |
46,091 |
$ |
28,356 |
$ |
138,192 |
$ |
95,035 |
$ |
76,025 |
$ |
19,010 |
(1) |
Our combined results for the nine months ended September 30, 2007 represent the addition of the Predecessor Period from January 1, 2007 to February 13, 2007 and the Successor Period from February 14, 2007 to September 30, 2007. This combination does not comply with U.S. GAAP or with the rules for pro forma presentation, but is presented because we believe it provides a meaningful comparison of our results. |
Total revenue increased $17.7 million, or 62.5% to $46.1 million in the third
quarter of 2008 from $28.4 million in the third quarter of 2007. Acquisition
revenue increased 36.3% to $11.6 million in the third quarter of 2008 primarily
from increased data creation activity in Canada. Total resale revenue
increased 77.0% from $18.6 million in the third quarter of 2007 to $33.0 million
in the third quarter of 2008 and was the result of various changes in the
components of resale revenue. Cash resales for the 2008 third quarter were $37.3
million compared to $29.2 million in the 2007 third quarter. The 27.9% growth
in cash resales reflected 33.2% higher core resales (U.S. 3D and Canada 2D and 3D), with Canada and the U.S. delivering 93.2% and 8.6% increases, respectively.
Non-core cash resales (U.S. 2D and offshore) decreased by $0.3 million between
the periods. Revenue recognized from previously deferred contracts, or
selections, increased $4.8 million, or 89.9% between quarters. This increase
was primarily due to several large selections on open library cards and the
growth in the inventory of open library cards from which clients selected
subsequent to the Merger. Solutions and other revenue increased 23.8% between
quarters primarily due to the increase in total seismic revenue and the types
of products delivered.
(Index)
Total revenue for the first nine months of 2008 increased $43.2 million, or 45.4%
compared to the 2007 nine month period. Acquisition revenue increased 42.8% from
$29.8 million to $42.5 million representing strong data creation activity in
both the U.S. and Canada. Total resale revenue increased 47.5% between the nine
month periods primarily due to higher cash and non-cash resales and increased
selections. Cash resales increased 14.2% from $78.7 million in the first nine
months of 2007 to $89.8 million in the first nine months of 2008. This
increase reflected a 15.5% growth in our core resales and 4.3% increase in our
non-core resales. Revenue recognized from previously deferred contracts, or
selections, increased $15.9 million, or 80.5%, primarily due to several large
selections on open library cards and the growth in the inventory of open
library cards from which clients selected subsequent to the Merger. Solutions
and other revenue increased by 33.5% during the nine month periods primarily
resulting from the higher level of seismic revenue and the types of products
delivered.
At September 30, 2008, we had a deferred
revenue balance of $50.9 million, compared to the December 31, 2007 balance of $48.2
million. The majority of the deferred revenue will be recognized when
selection of the data is made by the customer or upon expiration of the
selection period, whichever occurs first.
Depreciation and Amortization
Depreciation and amortization was comprised of the following (in thousands):
SUCCESSOR |
SUCCESSOR |
PREDECESSOR |
||||||||||||||||
PERIOD |
COMBINED (1) |
PERIOD |
PERIOD |
|||||||||||||||
Three Months |
Nine Months |
Nine Months |
February 14, |
January 1, |
||||||||||||||
Ended |
Ended |
Ended |
2007 - |
2007 - |
||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
February 13, |
||||||||||||||
2008 |
2007 |
2008 |
2007 |
2007 |
2007 |
|||||||||||||
Amortization of |
||||||||||||||||||
seismic data: |
||||||||||||||||||
Income forecast |
$ |
28,068 |
$ |
17,435 |
$ |
82,824 |
$ |
55,489 |
$ |
48,578 |
$ |
6,911 |
||||||
Straight-line |
13,502 |
16,592 |
43,740 |
46,638 |
42,342 |
4,296 |
||||||||||||
Total amortization of |
||||||||||||||||||
seismic data |
41,570 |
34,027 |
126,564 |
102,127 |
90,920 |
11,207 |
||||||||||||
Depreciation of property |
||||||||||||||||||
and equipment |
592 |
498 |
1,776 |
1,724 |
1,446 |
278 |
||||||||||||
Amortization of acquired |
||||||||||||||||||
intangibles |
1,430 |
1,480 |
4,366 |
3,642 |
3,642 |
- |
||||||||||||
Total |
$ |
43,592 |
$ |
36,005 |
$ |
132,706 |
$ |
107,493 |
$ |
96,008 |
$ |
11,485 |
(1) |
Our combined results for the nine months ended September 30, 2007 represent the addition of the Predecessor Period from January 1, 2007 to February 13, 2007 and the Successor Period from February 14, 2007 to September 30, 2007. This combination does not comply with U.S. GAAP or with the rules for pro forma presentation, but is presented because we believe it provides a meaningful comparison of our results. |
Total seismic data library amortization amounted to $41.6 million in the
third quarter of 2008 compared to $34.0 million in the third quarter of 2007
and $126.6 million for the first nine months of 2008 compared to $102.1 million
for the first nine months of 2007. The amount of seismic data library
amortization fluctuates based on the level and location of specific seismic
surveys licensed (including licensing resulting from new data acquisition) and
selected by our customers during any period as well as the amount of
straight-line amortization required under our accounting policy. The Successor
Period reflects the higher level of amortization as a result of the step-up to
fair value of our seismic data library in connection with the Merger.
(Index)
Seismic data amortization as of percentage of total seismic revenue is
summarized as follows:
|
|
SUCCESSOR |
|
|
|
|
|
SUCCESSOR |
|
|
PREDECESSOR |
|
||||||
PERIOD |
COMBINED (1) |
PERIOD |
PERIOD |
|||||||||||||||
Three Months |
Nine Months |
Nine Months |
February 14, |
January 1, |
||||||||||||||
Ended |
Ended |
Ended |
2007 - |
2007 - |
||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
February 13, |
||||||||||||||
Components of Amortization |
2008 |
2007 |
2008 |
2007 |
2007 |
2007 |
||||||||||||
Income forecast |
62.9 |
% |
64.2 |
% |
62.2 |
% |
60.9 |
% |
66.7 |
% |
37.6 |
% |
||||||
Straight-line |
30.3 |
% |
61.1 |
% |
32.9 |
% |
51.1 |
% |
58.2 |
% |
23.4 |
% |
||||||
Total |
93.2 |
% |
125.3 |
% |
95.1 |
% |
112.0 |
% |
124.9 |
% |
61.0 |
% |
(1) |
Our combined results for the nine months ended September 30, 2007 represent the addition of the Predecessor Period from January 1, 2007 to February 13, 2007 and the Successor Period from February 14, 2007 to September 30, 2007. This combination does not comply with U.S. GAAP or with the rules for pro forma presentation, but is presented because we believe it provides a meaningful comparison of our results. |
The percentage of income forecast amortization to total seismic revenue
decreased in the third quarter of 2008 as compared to the third quarter of 2007
as a result of the level of revenue recognized on fully amortized data. In the
third quarter of 2008, 14% of resale revenue recognized was from data whose
costs were fully amortized compared to 11% in the third quarter of 2007. In
the first nine months of 2008, 17% of resale revenue recognized was from fully
amortized data. For the period from February 14, 2007 to September 30, 2007,
substantially all resale revenue required income forecast amortization.
The amount of straight-line amortization decreased from the 2007 third quarter
to the 2008 third quarter and from the first nine months of 2007 to the first
nine months of 2008. Straight-line amortization represents the expense
required under our accounting policy to ensure our data value is fully
amortized within four years of when the data becomes available for sale. The
decrease was due to some seismic surveys becoming fully amortized, thus not
requiring any straight-line amortization, as well as to the distribution of
revenue among the various seismic surveys, resulting in less straight-line
amortization.
In connection with the Merger, we recorded
acquired intangible assets of $53.4 million, of which $52.5 million are
amortizable over their useful lives ranging from 1 to 10 years. The
increase in amortization of acquired intangibles between years was due to 2008
including amortization from January 1, 2008 through September 30, 2008, whereas
2007 only included amortization from the Merger date (February 14, 2007).
Impairment of Intangible Asset
During the three and nine months ended September 30, 2008, we recorded
an impairment charge of $225,000 related to the customer relationship
intangible asset that resulted from our October 2007 purchase of a small data
fulfillment company in Canada. The impairment was necessary as a result of the
loss of significant customer business and current-period and projected
operating losses associated with the customer relationship intangible asset.
The impairment was determined by comparing estimated future cash flows
attributable to the customer relationship to the carrying value of the asset in
accordance with SFAS No. 144. The resulting impairment reduced the customer
relationship intangible asset to $0.
(Index)
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses
were $9.9 million in both the third quarter of 2008 and the third quarter of 2007
and $30.1 million in the first nine months of 2008 compared to $27.4 million in
the first nine months of 2007. SG&A expense is made up of the following
cash and non-cash expenses (in thousands):
SUCCESSOR |
SUCCESSOR |
PREDECESSOR |
||||||||||||||||
PERIOD |
COMBINED (1) |
PERIOD |
PERIOD |
|||||||||||||||
Three Months |
Nine Months |
Nine Months |
February 14, |
January 1, |
||||||||||||||
Ended |
Ended |
Ended |
2007 - |
2007 - |
||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
February 13, |
||||||||||||||
2008 |
2007 |
2008 |
2007 |
2007 |
2007 |
|||||||||||||
Cash SG&A expenses |
$ |
8,188 |
$ |
7,427 |
$ |
24,916 |
$ |
20,871 |
$ |
17,706 |
$ |
3,165 |
||||||
Non-cash compensation |
||||||||||||||||||
expense |
1,594 |
2,407 |
4,972 |
6,366 |
5,954 |
412 |
||||||||||||
Non-cash rent expense |
68 |
68 |
210 |
165 |
165 |
- |
||||||||||||
Total |
$ |
9,850 |
$ |
9,902 |
$ |
30,098 |
$ |
27,402 |
$ |
23,825 |
$ |
3,577 |
(1) |
Our combined results for the nine months ended September 30, 2007 represent the addition of the Predecessor Period from January 1, 2007 to February 13, 2007 and the Successor Period from February 14, 2007 to September 30, 2007. This combination does not comply with U.S. GAAP or with the rules for pro forma presentation, but is presented because we believe it provides a meaningful comparison of our results. |
The increase in cash SG&A expenses of $0.8 million from the third quarter
of 2007 to the third quarter of 2008 was partly due to additional variable
compensation of $1.1 million, mainly sales commissions on the higher level of
revenue recognized between the periods and higher accruals for employee
incentive bonuses. This increase was partially offset by a reduction of $0.7
million in professional fees primarily as a result of the 2007 period including
professional fees related to strategic merger and acquisition activities.
The increase in cash SG&A expenses of $4.0 million from the first nine
months of 2007 to the first nine months of 2008 was primarily due to (1) the
2007 period including a $0.9 million reduction in SG&A resulting from a
cash settlement of litigation and collection of a previously reserved
receivable and (2) an increase of $2.3 million in variable compensation, mainly
sales commissions on the higher level of revenue recognized in the 2008 period
and higher accruals for employee incentive bonuses. In addition, the stronger
Canadian dollar added approximately $0.7 million to our operating expenses.
These increases were partially offset by a reduction of $0.5 million in
professional fees primarily as a result of the 2007 period including
professional fees related to strategic merger and acquisition activities.
The decrease in non-cash compensation expense between the 2008 and 2007 periods
was primarily due to a reduction in the expense related to stock options
granted to certain employees and non-employee directors since the Merger due to
the expense being recognized using graded vesting. This reduction was
partially offset by a charge of $0.6 million in the first nine months of 2008
due to the issuance of fully vested restricted stock units to certain key
employees.
The non-cash rent expense in the Successor Periods related to amortization of a
favorable facility lease that was recorded as an intangible asset in connection
with the Merger and is being amortized over the remaining lease term at the
date of the Merger of 6.25 years.
(Index)
Merger Expenses
Merger expenses included the following fees and expenses incurred in
connection with the merger transaction for the periods indicated (in
thousands):
|
|
SUCCESSOR |
|
|
|
|
|
SUCCESSOR |
|
|
PREDECESSOR |
|
||||||
|
|
PERIOD |
|
|
COMBINED (1) |
|
|
PERIOD |
|
|
PERIOD |
|
||||||
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
February 14, |
|
|
January 1, |
|
|||
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
2007 - |
|
|
2007 - |
|
|||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
February 13, |
|
|||
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
7,789 |
|
$ |
- |
|
$ |
7,789 |
|
Legal and advisory fees |
|
- |
|
|
190 |
|
|
- |
|
|
1,174 |
|
|
545 |
|
|
629 |
|
Change in control |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payments |
|
- |
|
|
617 |
|
|
357 |
|
|
4,287 |
|
|
1,542 |
|
|
2,745 |
|
Early vesting of restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock (non-cash) |
|
- |
|
|
- |
|
|
- |
|
|
6,294 |
|
|
- |
|
|
6,294 |
|
|
$ |
- |
|
$ |
807 |
|
|
357 |
|
|
19,544 |
|
|
2,087 |
|
$ |
17,457 |
|
(1) |
Our combined results for the nine months ended September 30, 2007 represent the addition of the Predecessor Period from January 1, 2007 to February 13, 2007 and the Successor Period from February 14, 2007 to September 30, 2007. This combination does not comply with U.S. GAAP or with the rules for pro forma presentation, but is presented because we believe it provides a meaningful comparison of our results. |
Other Income (Expense)
Interest expense, net, was $10.0 million in the third quarter of 2008 compared
to $9.9 million in the third quarter of 2007 and was $30.0 million and $31.3
million for the nine months ended September 30, 2008 and 2007, respectively. The
decrease in the first nine months of 2008 compared to 2007 is primarily due to
the 2007 period including $4.0 million related to fees from the non-utilized
acquisition financing bridge facility. Additionally, interest expense in the
Predecessor Period was lower as a result of our lower debt level.
Income Taxes
Tax benefit was $1.2 million and $3.7 million in the third quarters of
2008 and 2007, respectively. The 2008 third quarter benefit was comprised of
(i) a benefit of $0.9 million related to our Canadian operations, (ii) a
benefit of $0.8 million related to certain research and development tax credits
received in Canada, (iii) an expense of $0.3 million related to interest on
uncertain tax positions and (iv) $0.2 million of state tax expense in the U.S. The Federal tax benefit of $5.0 million resulting from our U.S. operations in the
2008 third quarter was offset by a valuation allowance because it was more
likely than not that the deferred tax asset would not be realized. The 2007 third
quarter benefit was comprised of (i) a benefit of $3.4 million related to our
Canadian operations, (ii) a benefit of $0.1 million related to our U.S.
operations, (iii) $0.2 million of state tax expense in the U.S., (iv) a benefit
of $0.4 million related to Canadian withholding tax and (v) a benefit of $0.1 million
related to penalties and interest on uncertain tax positions. In the 2007 third
quarter, an adjustment was made to increase our U.S. deferred tax liability
resulting from the Merger, allowing us to recognize a partial benefit on our U.S. operating results. The remainder of the benefit of $8.5 million from the U.S. book loss in this period was offset by a valuation allowance because it was more
likely than not that the deferred tax asset would not be realized.
Tax benefit was $1.0 million and $9.2 million for the nine months ended September
30, 2008 and 2007, respectively. The benefit for the first nine months of 2008
was comprised of (i) a benefit of $3.7 million related to our Canadian
operations, (ii) a benefit of $0.8 million related to certain research and
development tax credits received in Canada, (iii) an expense of $2.7 million related
to an additional reserve, penalties and interest on uncertain tax positions, (iv)
$0.7 million of state tax expense in the U.S. and (v) $0.2 million of Canadian
withholding taxes. The Federal tax benefit of $15.0 million resulting from our
U.S. operations in the 2008 period was offset by a valuation allowance because
it was more likely than not that the deferred tax asset would not be realized.
Tax benefit was $9.2 million for the first nine months of 2007 and related to
both our U.S. and Canadian operations. In the U.S., a deferred tax liability
of $4.4 million was recorded in connection with the Merger due to the step-up
in asset value related to the Merger. In the period from February 14, 2007 to
September 30, 2007, a U.S. Federal tax benefit was recorded equivalent to the
amount of deferred tax liability with the remainder of the benefit from our
U.S. book loss being offset by a valuation allowance because it was more likely
than not that the deferred tax asset would not be realized. In Canada, a tax benefit of $5.6 million was recognized on our Canadian operations in the
period from February 14, 2007 to September 30, 2007. Additionally, we recorded
other tax expense primarily related to state income tax and FIN 48 totaling
approximately $0.2 million in the period from February 14, 2007 to September
30, 2007. Tax expense in the period from January 1, 2007 to February 13, 2007
primarily related to taxes on our Canadian operations and FIN 48. The Federal
income tax expense recorded on our U.S. operations was offset by a reduction in
our deferred tax asset valuation allowance resulting in no Federal tax expense
in the U.S. for the period from January 1, 2007 to February 13, 2007.
(Index)
As of September 30, 2008, we had $36.8 million in consolidated cash, cash
equivalents and short-term investments. Other sources of liquidity include our
credit facilities described below.
U.S. Credit Facility: On February 14, 2007, we entered into an
amended and restated U.S. revolving credit facility which provides for up to
$25.0 million, subject to borrowing base limitations. The borrowing base is
determined from time to time based on the lesser of:
$25.0 million,
75% of our trailing twelve months' U.S. cash margin (defined as cash resales and Solutions revenue, plus gain on sale of seismic data, less cash cost of sales and cash SG&A expenses, before depreciation and amortization expense), or
the sum of (1) 85% of eligible U.S. short term accounts (defined as accounts that are not long term accounts and within 90 days of invoice date), plus (2) the lesser of (a) 50% of eligible U.S. long term accounts (defined as accounts with contracts for periods of performance from one month to 18 months, where the account debtor makes payments over the term of the contract) and (b) $7.5 million, plus (3) $15.0 million.
At September 30, 2008, there was no outstanding balance under the facility and there was $25.0 million of availability.
Canadian Credit Facility: Our wholly owned
subsidiary, Olympic Seismic Ltd. ("Olympic"), has a revolving credit facility which allows it to
borrow up to $5.0 million (Canadian), subject to an availability formula, by
way of prime-based loans or letters of credit. Available borrowings under the
facility are equivalent to a maximum of $5.0 million (Canadian), subject to a
requirement that such borrowings may not exceed 75% of good accounts receivable
(as defined in the agreement) of Olympic, less prior-ranking claims, if any,
relating to inventory or accounts. As of September 30, 2008, no amounts were
outstanding on this revolving line of credit and $5.0 million (Canadian) was
available on the line of credit.
9.75% Senior Unsecured Notes: On February 14, 2007, we issued in a
private placement $400.0 million aggregate principal amount of our 9.75% Senior
Notes. The proceeds from the notes were used to partially fund the
transactions in connection with the Merger. Interest on these senior notes is
payable in cash, semi-annually in arrears on February 15 and August 15.
11.75% Senior Unsecured Notes: On July 2, 2004, we issued in a private
placement $193.0 million aggregate principal amount of our 11.75% Senior
Notes. As of September 30, 2008, $2.0 million of the 11.75% Senior Notes
remain outstanding. Interest on these senior notes is payable in cash,
semi-annually in arrears on January 15 and July 15.
(Index)
Contractual Obligations: As of September 30, 2008, we had outstanding debt and lease
obligations, with aggregate contractual cash obligations summarized as follows
(in thousands):
|
|
|
|
Payments due by period |
||||||
|
|
|
|
Remainder |
|
|
|
|
|
|
|
|
|
|
of |
|
|
|
|
|
2014 and |
Contractual cash obligations |
|
Total |
|
2008 |
|
2009-2011 |
|
2012-2013 |
|
thereafter |
|
|
|
|
|
|
|
|
|
|
|
Debt obligations (1)(2) |
$ |
617,541 |
$ |
18 |
$ |
119,921 |
$ |
78,102 |
$ |
419,500 |
Capital lease obligations (2) |
|
5,320 |
|
87 |
|
1,050 |
|
761 |
|
3,422 |
Operating lease obligations |
|
4,854 |
|
289 |
|
3,547 |
|
1,018 |
|
- |
Total contractual cash obligations |
$ |
627,715 |
$ |
394 |
$ |
124,518 |
$ |
79,881 |
$ |
422,922 |
(1) |
Debt obligations include the face amount of our 9.75% Senior Notes totaling $400.0 million and the 11.75% Senior Notes totaling $2.0 million. |
(2) |
Amounts include interest related to debt and capital lease obligations. |
Cash Flows from Operating Activities: Cash flows provided by
operating activities were $59.1 million, $55.7 million and $5.6 million for the
nine months ended September 30, 2008 (Successor Period), for the period from February
14, 2007 to September 30, 2007 (Successor Period), and for the period from January
1, 2007 to February 13, 2007 (Predecessor Period), respectively. Operating
cash flows for the first nine months of 2008 decreased $2.2 million from the
first nine months of 2007 primarily due to an increase in interest expense paid
in the first nine months of 2008 of $6.7 million and an increase in payment of
operating expenses principally due to the higher level of revenue activity resulting
in an increase in personnel costs and variable compensation. These increases
were partially offset by the 2007 period including the payment of fees and
expenses totaling $13.1 million related to the Merger.
Cash Flows from Investing Activities: Cash flows used in investing
activities were $66.5 million, $41.0 million and $8.4 million for the nine months
ended September 30, 2008 (Successor Period), for the period from February 14,
2007 to September 30, 2007 (Successor Period), and for the period from January
1, 2007 to February 13, 2007 (Predecessor Period), respectively. Cash
expenditures for seismic data were $65.5 million, $40.6 million and $8.4 million
for the nine months ended September 30, 2008 (Successor Period), for the period
from February 14, 2007 to September 30, 2007 (Successor Period), and for the
period from January 1, 2007 to February 13, 2007 (Predecessor Period),
respectively. The increase in cash invested in seismic data for the first nine
months of 2008 compared to the first nine months of 2007 was primarily due to an
increase in cash paid for new data acquisition projects.
Cash Flows from Financing Activities: Cash flows used in financing activities were $0.1 million,
$83.3 million and $0.4 million for the nine months ended September 30, 2008
(Successor Period), for the period from February 14, 2007 to September 30, 2007
(Successor Period), and for the period from January 1, 2007 to February 13,
2007 (Predecessor Period), respectively. The period from February 14, 2007 to September
30, 2007 included (i) the issuance of $400.0 million of our 9.75% Senior Notes,
(ii) a cash capital contribution of $153.5 million by ValueAct Capital in
connection with the Merger, (iii) acquisition of all of our outstanding shares
of common stock (other than shares owned by ValueAct Capital and certain shares
owned by management investors) in connection with the Merger for a total of
$386.6 million, (iv) payment of $233.4 million of principal and tender and
consent fees on our 11.75% Senior Notes and (v) payment of $17.1 million of
financing fees in connection with the Merger.
Anticipated Liquidity: Our ability
to make required payments of principal and interest on our 9.75% and 11.75% Senior
Notes and on borrowings under our revolving credit facilities, incur additional
indebtedness, and comply with our various debt covenants, will depend primarily
on our ability to generate substantial operating cash flows. Over the next 12
months, we expect to obtain the funds necessary to pay our operating, capital
and other expenses and principal and interest on our senior notes, borrowings
under our revolving credit facilities and our other indebtedness, from our
operating cash flows, cash and cash equivalents on hand and, if required, from
additional borrowings (to the extent available under our revolving credit
facilities and otherwise subject to the borrowing base). Our ability to satisfy
our payment obligations depends substantially on our future operating and
financial performance, which necessarily will be affected by, and subject to,
industry, market, economic and other factors. If necessary, we could reduce our
spending on capital projects and operating expenses to ensure we operate within
the cash flow generated from our operations. We will not be able to predict or
control many of these factors, such as economic conditions in the markets where
we operate and competitive pressures.
(Index)
As of September 30, 2008, we had a net deferred tax liability of $10.8 million
attributable to our Canadian operations and $4,000 attributable to U.S. state deferred taxes. In the U.S., we had a deferred tax asset of $47.7 million, all
of which was fully offset by a valuation allowance. The recognition of the
U.S. deferred tax asset will not occur until such time that it is more likely
than not that some portion or all of the deferred tax asset will be realized.
As of September 30, 2008, it was more likely than not that all of the U.S. deferred tax asset will not be realized.
Section 382 of the Internal Revenue Code places a limit on certain tax
attributes which were in existence prior to a greater than 50% change in
ownership. The rules use a rolling three-year period for determination of such
change. At February 14, 2007, we
had a greater than 50% change in ownership. However, any limitations resulting
from the application of the Section 382 rules are not expected to have a
significant effect on us.
Off-Balance Sheet Transactions
Other than operating leases, we do
not maintain any off-balance sheet transactions, arrangements, obligations or
other relationships with unconsolidated entities or others that are reasonably
likely to have a material current or future effect on our financial condition,
changes in financial condition, revenue or expense, results of operations,
liquidity, capital expenditures or capital resources.
Capital Expenditures
During the nine months ended September
30, 2008, capital expenditures for seismic
data and other property and equipment amounted to $82.6 million. Our
capital expenditures for the full year of 2008 are presently estimated to be $107.5
million. The actual capital expenditures for the nine months ended September 30,
2008 and total 2008 estimated capital expenditures are comprised of the
following (in thousands):
|
|
Nine Months |
|
|
Full Year |
|
|
|
Ended |
|
|
Estimate |
|
|
|
September 30, 2008 |
|
|
for 2008 |
|
|
|
|
|
|
|
|
New data acquisition |
$ |
61,218 |
|
$ |
78,400 |
|
Cash purchases of seismic data and other |
|
2,879 |
|
|
4,000 |
|
Non-monetary exchanges |
|
17,566 |
|
|
23,500 |
|
Other property and equipment |
|
910 |
|
|
1,600 |
|
Total capital expenditures |
|
82,573 |
|
|
107,500 |
|
Less: Non-monetary exchanges |
|
(17,566 |
) |
|
(23,500 |
) |
Changes in working capital |
|
1,387 |
|
|
1,387 |
|
Cash investment per |
|
|
|
|
|
|
statement of cash flows |
$ |
66,394 |
|
$ |
85,387 |
|
The capital expenditures discussed above are within the capital expenditure limitations imposed by our U.S. revolving credit facility.
Capital expenditures funded from operating cash flow are
as follows (in thousands):
|
|
Nine Months |
|
|
Total |
|
|
|
Ended |
|
|
Estimate |
|
|
|
September 30, 2008 |
|
|
for 2008 |
|
|
|
|
|
|
|
|
Total capital expenditures |
$ |
82,573 |
|
$ |
107,500 |
|
Less: Non-cash additions |
|
(17,566 |
) |
|
(23,500 |
) |
Cash underwriting |
|
(32,872 |
) |
|
(40,000 |
) |
Capital expenditures funded from |
|
|
|
|
|
|
operating cash flow |
$ |
32,135 |
|
$ |
44,000 |
|
As of September 30, 2008, we had capital expenditure commitments related to data acquisition projects of approximately $49.8 million, of which we have obtained approximately $28.2 million of cash underwriting and $3.9 million of underwriting for non-monetary exchanges.
(Index)
Item 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market
risk, including adverse changes in interest rates and foreign currency exchange
rates.
Interest Rate Risk
We may enter into various
financial instruments, such as interest rate swaps or interest rate lock
agreements, to manage the impact of changes in interest rates. As of September
30, 2008, we did not have any open interest rate swap or interest rate lock
agreements. Therefore, our exposure to changes in interest rates primarily
results from our short-term and long-term debt with both fixed and floating
interest rates.
Foreign Currency Exchange Rate Risk
Our Canadian subsidiaries conduct business in the Canadian dollar
and are therefore subject to foreign currency exchange rate risk on cash flows
related to sales, expenses, financing and investing transactions in currencies
other than the U.S. dollar. Currently, we do not have any open forward exchange
contracts.
We have not had any significant changes in our market risk exposures during the
quarter ended September 30, 2008.
Item 4T. CONTROLS AND
PROCEDURES
(a) Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our President and Chief Executive Officer along with our Chief Financial Officer concluded that the Company's disclosure controls and procedures as of September 30, 2008 are effective in ensuring that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
(b) Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
(Index)
PART II - OTHER INFORMATION
Part I, Item 1A, "Risk Factors," of our Annual Report
on Form 10-K for the year ended December 31, 2007 includes a detailed
discussion of our risk factors. The information presented below updates, and
should be read in conjunction with, the risk factors and information disclosed
in our 2007 Form 10-K.
The recent financial crisis and falling
commodity prices could adversely affect demand for our seismic data and related
services and may increase our credit risk of customer non-payment.
Our customers generally rely on
equity and debt financing from public and private capital sources and cash flow
from operations to finance their drilling activities. We believe that the
recent U.S. and global financial crisis has made it more difficult for our
customers to obtain equity capital and credit. As a consequence, demand for
our seismic data and related services could be adversely affected by these
financial market conditions and, as such, we are unable to predict the severity
or duration of any such decrease in demand. We also believe that fears of a
prolonged recession and possibly reduced energy demand have contributed to
recent substantial declines in prices for oil and gas. These falling commodity
prices could also dampen demand for our seismic data and related services as
our customers' operating cash flow decreases and the borrowing bases under
their oil and gas reserve-based credit facilities are reduced as a consequence
of lower commodity prices. We may also face increased credit risk from
customers as the ability of some of our customers to pay amounts owed to us may
be impaired because of the financial crisis and falling commodity prices.
Item 1., 2., 3., 4. and 5. Not applicable.
Item 6. EXHIBITS
3.1 |
|
Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Registration Statement on Form S-4, No. 333-144844, as filed with the SEC on July 25, 2007). |
|
|
|
3.2 |
|
Bylaws of Seitel, Inc. (incorporated by reference from Exhibit 3.2 to the Registration Statement on Form S-4, No. 333-144844, as filed with the SEC on July 25, 2007). |
|
|
|
31.1 |
* |
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2 |
* |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
** |
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002 |
|
|
|
32.2 |
** |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002 |
_______________
* Filed herewith.
** Furnished, not filed, pursuant to 601(b)(32) of Regulation S-K.
(Index)
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report |
|||||
to be signed on its behalf by the undersigned thereunto duly authorized. |
|||||
SEITEL, INC. |
|||||
Dated: November |
12, |
2008 |
/s/ |
Robert D. Monson |
|
Robert D. Monson |
|||||
Chief Executive Officer and President |
|||||
Dated: November |
12, |
2008 |
/s/ |
William J. Restrepo |
|
William J. Restrepo |
|||||
Chief Financial Officer |
|||||
(Index)
EXHIBIT INDEX |
||
Exhibit |
Title |
|
3.1 |
Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Registration Statement on Form S-4, No. 333-144844, as filed with the SEC on July 25, 2007). |
|
3.2 |
Bylaws of Seitel, Inc. (incorporated by reference from Exhibit 3.2 to the Registration Statement on Form S-4, No. 333-144844, as filed with the SEC on July 25, 2007). |
|
31.1 |
* |
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 |
* |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 |
** |
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002 |
32.2 |
** |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002 |
_______________
* Filed herewith.
** Furnished, not filed, pursuant to Item 601(b)(32) of Regulation S-K.