ITEM 1. BUSINESS
GENERAL
Eagle Geophysical, Inc. ("Eagle" or the "Company") is a highly focused international oilfield service company engaged in the acquisition of seismic information, with a specialization in the acquisition of high definition three-dimensional ("3D") seismic data in logistically difficult wetland environments and in congested offshore areas. Seismic data is used by oil and gas companies in the exploration for new oil and gas reserves and the development of existing reserves.
BACKGROUND
The Company was formed in December, 1996 from the onshore seismic data acquisition business of Seitel Geophysical Inc., a wholly-owned subsidiary of Seitel, Inc. ("Seitel"). In May, 1997, the Company acquired a 19% ownership interest in Energy Research International ("ERI") through the contribution of stock from Seitel. ERI is a provider of offshore seismic data acquisition services through its subsidiary Horizon Exploration Ltd. The Company remained a wholly-owned subsidiary of Seitel until August 11, 1997 when the Company completed an initial public offering of 6,524,000 shares of common stock at $17 per share (including 1,880,000 shares sold by Seitel and 180,000 shares sold by the former owners of ERI) resulting in net proceeds to the Company of $69.1 million after deducting offering related expenses, (the "Offering"). Also on August 11, 1997, the Company completed the acquisition of the remaining 81% of ERI in exchange for 600,000 shares of common stock (the "ERI Acquisition").
RECENT DEVELOPMENTS
The Company has entered into a letter of intent to acquire the common stock of Seismic Drilling & Services, Inc. ("SDS") for approximately $5 million consisting of approximately $3.5 million in cash and 98,360 shares of the Company's common stock. SDS is a privately held provider of seismic shot-hole drilling and related front-end services for the seismic data acquisition industry. The Company expects to complete this transaction late in the first quarter or early in the second quarter of 1998.
At the end of March 1998, the Company added a fourth onshore seismic crew to its operation at a cost of approximately $8.6 million.
The Company has recently completed the upgrade of its chartered offshore seismic data acquisition vessel, the Labrador Horizon, at a cost of approximately $20.0 million. This vessel has been in dry-dock for approximately three months and will be deployed to the North Sea.
In March 1998, the Company replaced one of its chartered offshore seismic vessels, the Abshire Tide, with a different vessel, the Celtic Horizon.
OPERATIONS
The Company derives its revenues primarily through seismic data acquisition services to customers in one industry segment, the oil and gas industry. The Company's seismic data acquisition services are performed through its two operations -- the onshore operation and the offshore operation.
ONSHORE SEISMIC OPERATIONS. The Company currently operates four onshore acquisition crews, each utilizing a 2,350 channel 24-bit Opseis 3D seismic data acquisition system. These systems use radio signals to transmit seismic data from the field recording boxes to the central recording system and are therefore more efficient in swamps and marshes and in areas with numerous man-made obstacles than systems that use cables to transmit data. The primary components of the Company's data acquisition systems are waterproof and are designed to be used in a wet environment.
Prior to acquiring onshore seismic data in the field, the specifications of a survey must be designed to optimize the imaging of the targeted geologic strata, permits must be obtained from the mineral owners of the
survey area and permits to enter onto the land must be obtained from surface owners and lessees whose property will be traversed in the acquisition operations. The specifications of the seismic surveys are generally designed by the Company's customers with varying degrees of input from the Company. A typical 3D survey conducted by the Company in the U.S. Gulf Coast region will require permits from hundreds or even thousands of mineral and land owners. Although some customers obtain these permits themselves, many contract with the Company, as part of the acquisition project, to obtain these permits. The Company has developed proprietary computer software to track which permits have been obtained and the conditions imposed by the various permits. Once permitted, surveys frequently require modification to take into account surface obstructions, such as water wells and oil and natural gas wells, highways, towns and areas where permits cannot be obtained. The Company combines its experience in conducting onshore surveys in areas with many obstructions with its knowledge of the capabilities of its radio telemetry systems to modify surveys after permitting to optimize the quality of the data obtained within the physical limitations imposed.
OFFSHORE SEISMIC OPERATIONS. The Company acquires offshore seismic data using seismic crews employed by the Company and operating chartered or leased vessels that have been modified and outfitted with a full complement of data acquisition, recording, navigation and communications equipment owned or leased by the Company. The Company currently operates four seismic vessels, two of which operate in tandem as a single seismic crew. Company crews direct the positioning of the vessels using sophisticated navigation equipment, deploy and retrieve seismic streamers and energy sources and operate all of the systems relating to seismic activities. Company crews are not responsible for the vessels or for vessel crews, who are employees of the vessel owner or a contract operator. Each vessel has an equipment complement consisting of recording instrumentation, digital recording streamers, location systems, multiple navigation systems, and, except for the recording vessel Celtic Horizon, a seismic energy source and control system. The Company generally operates its offshore seismic data vessels on a 24-hours-a-day, seven-days-a-week basis. Each of the Company's vessels is taken out of service for approximately two to four weeks each year, generally at different off-season times of the year, for routine maintenance and service.
The following table sets forth certain information as of March 15, 1998 concerning the seismic vessels operated by the Company. As of such date, all of these vessels were operating or mobilizing to committed projects, except for the Labrador Horizon, which was undergoing sea trials after its recent upgrade and is expected to mobilize to a committed project by the end of the first quarter.
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(1) The Labrador Horizon is currently leased under a capital lease from Royal Bank of Scotland ("RBS") through Simon Horizon Ltd. expiring in 2001. The vessel has recently completed an upgrade to six streamers, the cost of which upgrade is intended to be financed through a capital lease with British Linen Bank for a period of five years ending in 2003. As a result of the capital lease with British Linen Bank, the lease with RBS and Simon Horizon Ltd. will be terminated.
(2) The Discoverer and Celtic Horizon work in tandem as a single seismic crew.
(3) This vessel is recently chartered and replaces the Company's previous undershoot vessel, the Abshire Tide.
(4) This charter can be terminated by the Company on one month's notice.
The Company believes that maintaining a combination of short-term vessel charters with longer-term capital leases and other arrangements provides flexibility to manage the risks associated with the fixed costs of charters. This approach allows the Company to adjust the size of its fleet according to market demand while also providing stability in the Company's vessel fleet. The Company generally believes that chartering vessels maintains financial flexibility and reduces to some extent the Company's exposure to technological change and obsolescence of the vessels. All of the vessels in the Company's fleet are operated under charter agreements or leases expiring from 1999 to 2001, with provisions for extensions for varying periods.
The Company recently upgraded the seismic data acquisition capabilities of the Labrador Horizon to increase its streamer capability from three to six streamers and upgraded its data acquisition system from a 16 bit to a 24 bit resolution system. This upgrade will significantly increase the seismic data acquisition capabilities of the Labrador Horizon, which will enable the Company to further increase efficiency in difficult operational and technically demanding areas. This vessel was taken out of service in December 1997 for a period of approximately three months to accomplish these modifications.
GEOGRAPHIC OPERATIONS
ONSHORE. During 1996, onshore 3D seismic data acquisition contract revenues were $47.3 million, or 52% of the Company's pro forma combined revenues. In 1997, onshore 3D seismic data acquisition contract revenues were $60.7 million, or 56% of the Company's pro forma combined revenues. The revenues in both 1996 and 1997 were generated from surveys conducted in the U.S. Gulf Coast region. The Company expects in the near term to continue to focus its onshore surveys in this region, although the Company intends to seek opportunities for contract revenues in other areas, primarily Latin America, where oil and gas exploration and production activities exist.
OFFSHORE. During 1996, offshore seismic data acquisition contract revenues were $43.6 million, or 48% of the Company's pro forma combined revenues. These revenues were generated primarily from surveys conducted in the North Sea and the U.S. Gulf of Mexico. In 1997, offshore seismic data acquisition contract revenues were $47.5 million, or 44% of the Company's pro forma combined revenues. These revenues were generated primarily from surveys conducted in the North Sea, the Falkland Islands and the U.S. Gulf of Mexico. The Company expects in the near term to continue to focus its offshore surveys in the North Sea and the U.S. Gulf of Mexico, although the Company may take advantage of opportunities for contract revenues in other areas of the world where offshore oil and gas exploration and production activities exist.
CAPITAL EXPENDITURES
The Company has numerous competitors for both its onshore and offshore seismic data acquisition business, and substantial financial and other resources are required to maintain the state-of-the-art technology necessary to permit effective competition in bidding for contracts. Seismic data acquisition technology has progressed rapidly over recent years, and the Company expects this trend to continue. Sophisticated seismic data acquisition equipment and related crew training are very costly. For example, the cost of equipping a crew with a state-of-the-art system, such as the 2,350 channel Opseis system which the Company currently operates onshore (including ancillary equipment), ranges from approximately $7.0 to $9.0 million. Similarly, the cost of equipping a modern seismic data acquisition vessel with between four and eight streamers would range from approximately $20.0 to $30.0 million excluding vessel charter costs. The Company's strategy is to update its onshore and offshore data acquisition systems to maintain its competitive position. This may require large capital expenditures in addition to the Company's planned capital expenditures. There can be no assurance that the Company will have or otherwise be able to obtain the capital necessary to upgrade its equipment or to acquire any additional required equipment.
The Company has recently upgraded the data acquisition capabilities of the seismic acquisition vessel Labrador Horizon at an estimated capital cost of approximately $20.0 million. This upgrade has significantly expanded the seismic data acquisition capabilities of this vessel by increasing its streamer capacity from three to six streamers and upgrading its recording equipment from a 16 bit system to a 24 bit system. The Company has acquired two vessels that it intends to sell and leaseback from charter operators for charter terms of 7 to 10 years. The costs to outfit and equip the two vessels will be approximately $10.0 million for the Austral Horizon utilizing four streamers and approximately $30.0 million for the Atlantic Horizon utilizing eight streamers. As the Company expands its onshore operations internationally, it is likely that the Company will need to acquire additional onshore acquisition systems at an estimated capital cost of approximately $7.0 to $9.0 million per crew. The Company anticipates that the funds for such expenditures will come from operations and additional bank financing, however, there can be no assurance that funds from operations will be sufficient, or that additional bank financing will be available on terms acceptable to the Company. The Company may revise its plans in response to future changes in the oil and gas industry in general and in the demand for its services in particular, its results of operations, its other capital requirements and other factors.
KEY SUPPLIERS
The Company acquires its Opseis onshore seismic data acquisition systems from Georex, Inc., a subsidiary of Compagnie Generale de Geophysique, S.A. and Sercel, Inc. The Company acquires its offshore seismic data acquisition systems primarily from Input/Output, Inc. and Syntron, Inc., a subsidiary of Geoscience, Inc. Although these companies are not the only suppliers of seismic data acquisition systems, they are the Company's primary suppliers, and the Company is dependent on these suppliers with respect to additions and repairs to its current systems.
SALES AND MARKETING
The Company's services traditionally have been marketed by the Company's principal executive officers. Subsequent to the Offering, the Company has maintained this marketing approach in order to preserve long-term relationships established by the Company's executive officers. As the Company's geographical and technical capabilities expand, the Company intends to continue to implement its marketing efforts from its principal offices in Houston, Texas and Sevenoaks, England.
BACKLOG
The Company's backlog represents commitments for seismic data acquisition services from both its onshore and offshore seismic data acquisition businesses. All backlog consists of commitments believed to be firm. However, backlog estimates are based on a number of assumptions and estimates, including assumptions as to exchange rates between the U.S. dollar and the British pound and other currencies and estimates of the percentage of completion of contracts in progress. Contracts for services are occasionally varied or modified by mutual consent and in certain instances may be canceled by the customers on short notice without penalty. Consequently, the Company's backlog as of any particular date may not be indicative of the Company's actual operating results for any succeeding fiscal period.
As of March 15, 1998, the Company estimates that its total backlog was approximately $77.5 million. Backlog for its onshore crews was $49.9 million in future gross revenues from existing customer commitments, and backlog for its offshore seismic acquisition crews was approximately $27.6 million in future gross revenues from existing customer commitments. Of these backlog amounts, approximately $45.0 million of the onshore backlog and none of the offshore backlog is attributable to work to be performed for Seitel and its subsidiaries.
COMPETITION
The acquisition of onshore and offshore seismic data for oil and gas companies is highly competitive worldwide. Competition for available seismic surveys is based on a number of competitive factors, including crew availability, price, performance, dependability, and technology.
As a result of changing technology and capital requirements, the seismic industry, both for onshore and offshore seismic data acquisition services, has consolidated substantially since the early 1980's, thereby reducing the number of competitors in the industry. Although dozens of companies perform onshore seismic data acquisition services, only a few companies compete actively to perform complex 3D surveys in the difficult wetland regions along the U.S. Gulf Coast. The Company's primary competitors in the wetland onshore seismic data acquisition business in the U.S. Gulf Coast region are Acadian Geophysical Services, Inc., Boone Geophysical, Inc., (a subsidiary of Venture Seismic, Inc.), Geco-Prakla (a subsidiary of Schlumberger Limited), Signature Geophysical Services, Inc., Universal Seismic Associates Inc., Veritas DGC, Inc. and Western Geophysical, Inc., (a subsidiary of Western Atlas International). The Company's primary competitors in the offshore seismic data acquisition business are Compagnie Generale de Geophysique, S.A., Geco-Prakla, Petroleum Geo-Services A.S.A., Veritas DGC, Inc. and Western Geophysical, Inc., (a subsidiary of Western Atlas International).
ENVIRONMENTAL MATTERS/REGULATION
The Company's operations are subject to a variety of laws and regulations, including laws and regulations relating to the protection of the environment. Such laws and regulations govern various aspects of operations, including the handling of explosives and the discharge of explosives into the environment, the entry onto and restoration of wetlands, the removal and cleanup of materials that may harm the environment or otherwise relating to the protection of the environment (both onshore and offshore) and the access to private and public lands to perform seismic surveys. The Company is required to invest financial and managerial resources to comply with such laws and related permit requirements in its operations and anticipates that it will continue to do so in the future. Although such expenditures historically have not been material to the Company, the fact that such laws or regulations are changed frequently makes it impossible for the Company to predict the cost or impact of such laws and regulations on its future operations.
The adoption of laws and regulations that have the effect of limiting exploration or production activities by oil and gas companies could adversely affect the Company's operations by reducing the demand for its services. Certain import and export regulations may also limit the Company's ability to operate in certain areas.
In addition, the Company's offshore operations are influenced by licensing activities and lease sales of governmental authorities. The timing and extent of licensing and leasing of areas for exploration and production influences the level of seismic data acquisition activity within a particular country.
CUSTOMERS
ONSHORE. The Company's major customers for its onshore operations include primarily independent oil and gas companies and seismic data marketing companies. For the year ended December 31, 1997, Seitel and its subsidiaries accounted for approximately 57% of the Company's consolidated gross revenues from its onshore operations. For the year ended December 31, 1996, Seitel and its subsidiaries accounted for 57% and Fina Oil and Chemical Company accounted for 20% of the Company's consolidated gross revenues from its onshore operations. For the year ended December 31, 1995, Seitel and its subsidiaries accounted for 53% and Broughton Associates J.V. accounted for 22% of the Company's consolidated gross revenues from its onshore operations.
OFFSHORE. The Company's major customers for its offshore operations include primarily multi-national oil and gas companies, foreign national oil and gas companies, and seismic data marketing companies. For the year ended December 31, 1997, Seitel and its subsidiaries accounted for 50% and Shell Exploration accounted for 11% of the Company's consolidated pro-forma revenues from its offshore operations. For the year ended December 31, 1996, Seitel and its subsidiaries accounted for 46% and Clyde Petroleum Exploratie BV accounted for 26% of the Company's consolidated pro-forma revenues from its offshore operations. For the year ended December 31, 1995, Seitel and its subsidiaries accounted for 8% and Amerada Hess Ltd. and British Gas Exploration and Production Ltd. accounted for 37% and 26%, respectively, of the Company's consolidated pro-forma revenues from its offshore operations.
SEASONALITY
The onshore and offshore seismic data acquisition operations of the Company are subject to seasonal fluctuation, with the greatest volume of data acquisition occurring during the summer and fall. This is due primarily to adverse weather conditions, which are more prevalent in the winter and spring.
EMPLOYEES
At December 31, 1997, the Company employed approximately 390 full-time personnel. The Company has not experienced any material work stoppages related to union activities and considers the relations with its employees to be good. The Company has employment contracts with five of its senior corporate executives.
ITEM 2.
ITEM 2. PROPERTIES
The Company occupies six leased facilities that are principally used for general administrative functions, maintenance, storage and warehouse space. Two of these facilities are located in Texas, one in Louisiana and three in England. These properties range in size from approximately 1,000 to approximately 14,000 square feet, the terms of the leases range from month-to-month to leases that expire in 2012 and the leases provide for annual rentals ranging from approximately $12,000 to approximately $264,000. The Company's annual lease expense under these leases totals approximately $448,000. The Company subleases one of these properties, which serves as the Company's executive offices, from Seitel under a sublease that will expire in August 2000 and which provides for annual rental of approximately $85,000, which amount is included in the $448,000 total annual lease expense referred to above.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in or threatened with various legal proceedings from time to time arising in the ordinary course of business. Management of the Company does not believe that any liabilities resulting from any such current proceedings will have a material adverse effect on its consolidated operations or financial position.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON SHARES
The Company's common shares have been traded on the NASDAQ Stock Market under the symbol "EGEO" since the Company's initial public offering in August, 1997. The following table sets forth the high and low sales prices of the Company's common stock for the periods indicated as reported by NASDAQ/NM.
On March 12, 1998, the closing price as quoted by NASDAQ/NM was $14.25 per share. As of March 12, 1998, there were 8,489,000 common shares outstanding held by approximately 22 record holders.
DIVIDEND POLICY
In connection with the Offering, the Company paid a dividend of $6.7 million to Seitel to eliminate intercompany profits that had accrued prior to the Offering.
The Company does not currently intend to declare or pay dividends on its Common Stock and expects to retain funds generated by operations for the development and growth of the Company's business. The Company's future dividend policy will be determined by the Company's Board of Directors on the basis of various factors, including among other things, the Company's financial condition, cash flows from operations, the level of its capital expenditures, its future business prospects, the requirements of Delaware law and any restrictions imposed by the Company's credit facilities. The Company's current working capital line of credit contains certain financial covenants which may limit the Company's ability to pay dividends.
USE OF PROCEEDS
On August 5, 1997, the Securities and Exchange Commission declared the Company's registration statement on Form S-1, File No. 333-28303, effective. Item 2 of Part II of the Company's 10-Q for the quarter ended September 30, 1997 set forth information regarding the Company's proceeds from the offering pursuant to such registration statement and the Company's use of such proceeds. The following information has changed since such disclosure.
Total expenses incurred to date are approximately $9.3 million, consisting of $7.8 million of underwriting discounts and commissions, and an estimated $1.5 million of accounting, legal and other expenses. After deducting the Company's underwriting commissions and other expenses, the net proceeds to the Company were approximately $69.1 million.
As of March 15, 1998, the Company has utilized all of the $69.1 million net proceeds from the Offering. The Company used a portion of the proceeds to repay $40.1 million of indebtedness and trade accounts payable, of which $7.8 million was repaid to Seitel (Seitel owns 17.9% of the common stock of the Company). An additional $4.4 million was deposited with the Royal Bank of Scotland as further security for a capital lease of the Labrador Horizon. Approximately $20.0 million was utilized to upgrade the Labrador Horizon, $2.5 million for the upgrade from 1,850 channels to 2,350 channels for the Company's three onshore seismic crews and approximately $2.1 million was utilized to purchase equipment for the Company's fourth onshore seismic data acquisition crew.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected unaudited pro forma financial data for the Company. The unaudited pro forma results of operations for the years ended December 31, 1997 and 1996 give effect to the Offering, the application of the net proceeds thereof to retire certain debt and capital leases, and the ERI Acquisition as if such transactions had occurred on January 1, 1996. Results of operations for periods prior to August, 1997 are pro forma and may not be indicative of the actual results that would have been achieved had the Company been a public company during the periods presented. The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements included in Item 8 herein:
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(1) Reflects proforma adjustments for the ERI Acquisition, adjustments to reflect the completion of the Offering and the application of the net proceeds to retire certain debt and capital leases, and the sale of 25,000 shares of common stock, at the initial public offering price, to Jay N. Silverman, President of the Company, for a note.
(2) Reflects the combination of the proforma adjustments and the historical financial statements.
(3) As used herein, operating expenses exclude depreciation and amortization.
(4) Excludes the effect of a $600,000 extraordinary gain for early extinguishment of debt on ERI's historical 1996 financial statements.
(5) EBITDA represents earnings before interest expense, taxes, depreciation and amortization. Although EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles, management believes that securities analysts use EBITDA as a measure to evaluate oilfield service companies. The Company believes that EBITDA may provide additional information about the Company's ability to meet its future requirements for debt service, capital expenditures and working capital, although such future cash outlays are not included in the determination of EBITDA. The amount and trends in EBITDA should not be considered as alternatives to net income as an indicator of the Company's operating performance or as an alternative to cash flow as a better measure of the Company's profitability or liquidity. Because EBITDA excludes some, but not all, items that affect net income and its computation may vary among company's, the EBITDA calculation presented above may not be comparable to similarly titled measures of other companies.
The following selected financial information set forth below has been derived from the audited consolidated financial statements and the unaudited consolidated financial statements of the Company and reflects the historical results of the Company and the historical results of ERI following the ERI Acquisition on August 11, 1997. Such consolidated financial statements for the years ended December 31, 1994, 1995, 1996 and 1997 have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report included elsewhere herein. Arthur Andersen's 1997 report indicates that ERI's 1997 financial statements were audited by other auditors, whose opinion was furnished to Arthur Andersen. Arthur Andersen's 1997 opinion, insofar as it relates to ERI, is based solely on the report of the other auditors. This information should be read in conjunction with the consolidated financial statements of the Company, the notes related thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Report.
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(1) Includes results of ERI from August 11, 1997, the date of the ERI Acquisition, to December 31, 1997.
(2) As used herein, operating expenses exclude depreciation and amortization.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's revenues are generated from the sale of onshore and offshore seismic data acquisition services. The Company focuses its onshore operations in logistically difficult wetland environments along the U.S. Gulf Coast, and focuses its offshore operations through Energy Research International (ERI) in congested areas in the North Sea and the U.S. Gulf of Mexico.
ONSHORE OPERATIONS. With respect to its onshore operations, the Company's prices, and therefore its revenues, vary depending on demand for the Company's services, the number of acquisition crews of the Company, the acquisition capacity of each crew, the utilization rates of the Company's crews and the
complexity and difficulty of the projects undertaken by each crew. The Company increased the channel capabilities of its two existing Opseis crews during 1996 and added a third Opseis crew in January 1997. At the end of the third quarter of 1997, the Company upgraded the channel capacity of each of its three crews to 2,350 channels from 1,850 channels. Thus, the Company has increased the number of crews operated and the acquisition capacities of its crews for the periods presented in the financial statements, which has contributed substantially to the increased revenues from period to period.
Revenues for less complex, easier to perform seismic acquisition projects tend to be lower than revenues for more complex, difficult to perform projects, even when the projects take the same amount of time for a crew to perform. The mix of more or less complex projects results in variations from period to period for revenues attributable to each crew. The projects performed by the Company's three onshore crews operating in 1997 were weighted more heavily towards complex projects than in 1996, further contributing to the increases in revenues in 1997 as compared to 1996.
OFFSHORE OPERATIONS. Similar to the Company's onshore operations, prices and revenues with respect to the offshore operations performed by ERI vary depending on demand for the number of vessels operated by the Company, the acquisition capacity of each vessel, utilization rates and the complexity and difficulty of the projects undertaken by each vessel. The Company operated four vessels in 1997 and during the third and fourth quarter of 1996, with only three vessels being operated during the first and second quarter of 1996. The Company also increased the streamer capacity of its vessels in mid-1996, so that the vessels operated in 1997 had greater data acquisition capabilities than in the first half of 1996. Thus, the Company has increased the number of vessels operated and the acquisition capacities of its vessels for the periods presented in the financial statements, which has contributed substantially to the increased revenues from period to period.
Because the Company derives a portion of its offshore revenues from sales internationally, the Company is subject to risks relating to fluctuations in currency exchange rates. The Company's costs and revenues from offshore operations have historically been evenly divided between the U.S. dollar and the British pound. The Company's financial statements are prepared using the U.S. dollar as the functional currency, and, therefore, fluctuations in the exchange rate between the U.S. dollar and the British pound affect the Company's costs and revenues. Historically, fluctuations in exchange rates have not had a material impact on the Company's results of operations, and the Company does not currently engage in any currency hedging activities. As the Company expands its operations into new geographic markets, such as Latin America, Africa and Southeast Asia, which may involve more extensive currency risks, the Company intends to protect itself against foreign currency fluctuations. The Company generally intends to match foreign currency revenues and expenses in order to balance its net position of receivables and payables denominated in foreign currencies and by endeavoring to require its customers to pay for services in U.S. dollars and, to a lesser extent, by purchasing foreign exchange contracts and other foreign exchange instruments and implementing other procedures to counteract currency fluctuations.
PRO FORMA RESULTS OF OPERATIONS
The following discussion of the results of operations is divided into a discussion of the Company's onshore operations, which were conducted by the Company, and the Company's offshore operations, which were conducted by ERI prior to the consummation of the Offering. These discussions are presented based on the unaudited pro forma revenues and expenses of the separate companies including periods prior to the ERI Acquisition, which occurred contemporaneously with the Offering in August, 1997. The revenues of the Company include intercompany profits from work performed for Seitel and its subsidiaries prior to the Offering.
Onshore Operations -- Year Ended December 31, 1997 Compared to 1996
Revenue increased 28% from $47.3 million in 1996 to $60.7 million in 1997, primarily due to the addition of a third Opseis crew in January 1997. Additionally, the surveys performed by the Company's crews in the 1997 period were in more difficult logistical and environmental areas, providing higher contract prices per crew, than the surveys performed in the 1996 period.
Operating costs (excluding depreciation) increased 25% from $34.9 million in 1996 to $43.6 million in 1997, primarily due to the addition of the third crew in the 1997 period. Operating margin (revenues less operating costs as a percentage of revenues) increased from 26.2% in 1996 to 28.0% in 1997 as a result of these changes in revenues and operating costs.
Depreciation and amortization increased 77% from $3.4 million in 1996 to $6.0 million in 1997, resulting from operating three crews in the 1997 period versus two in the 1996 period and from depreciation of marine seismic equipment purchased by Eagle in July 1996 and leased to a subsidiary of ERI.
Selling, general and administrative expenses increased 58% from $3.8 million in 1996 to $6.0 million in 1997, primarily due to the addition of administrative staff to support expanded operations and additional corporate staff and related expenses incurred subsequent to the Offering.
Net interest expense decreased from $0.5 million in the 1996 period to $0.3 million in the 1997 period due to interest savings related to the retirement of certain debt and capital leases and interest income earned on proceeds from the Offering
Offshore Operations -- Year Ended December 31, 1997 Compared to December 31,
Revenue increased 9% from $43.6 million in 1996 to $47.5 million in 1997, primarily due to improved vessel utilization. Two vessels experienced downtime in the third quarter of 1996 due to upgrades and repairs.
Operating expenses (excluding depreciation) decreased 11% from $36.8 million in 1996 to $33.1 million in 1997 primarily due to improved efficiency. Operating margins increased from 15.6% in 1996 to 30.3% in 1997 as a result of these changes in revenues and operating costs.
Depreciation and amortization increased 15% from $6.0 million in 1996 to $6.9 million in 1997, resulting from the purchase of additional capital equipment in mid 1996 with corresponding depreciation beginning in 1997 as well as additional vessel upgrades in 1997 subsequent to the Offering.
Selling, general and administrative expenses increased 8% from $2.6 million in 1996 to $2.8 million due to higher legal and administrative costs.
Net interest and other expense decreased from $0.15 million in 1996 to $-0- in 1997 due to interest income earned on higher cash balances during 1997 and favorable foreign currency movements.
HISTORICAL RESULTS OF OPERATIONS
The following is a discussion of the historical results of operations of the Company, including the results of ERI following the ERI Acquisition. The revenues of the Company include intercompany profits from work performed for Seitel prior to the Offering.
Year Ended December 31, 1997 Compared to December 31, 1996
Revenues increased 64% from $48.1 million in 1996 to $79.1 million in 1997 due to the addition of a third onshore seismic crew in January, 1997, and the acquisition of ERI in August, 1997.
Operating expenses increased 62% from $34.9 million in 1996 to $56.5 million in 1997 also due to the addition of the third onshore seismic crew in January, 1997 and the acquisition of ERI in August 1997. Operating margins improved from 27.5% in 1996 to 28.6% in 1997.
Depreciation and amortization increased 152% from $3.4 million in 1996 to $8.5 million in 1997 due primarily to the addition of the third onshore seismic crew in January, 1997, and depreciation and goodwill amortization associated with the ERI acquisition.
Selling, general and administrative expenses increased 139% from $2.7 million in 1996 to $6.4 million in 1997 due to the addition of staff to support the Company's expanded operations, expenses related to corporate staff and related expenses added subsequent to the Offering, and general and administrative expenses of ERI incurred subsequent to the ERI acquisition.
Interest and other expense decreased from $0.5 million in 1996 to $0.2 million in 1997 due to interest savings related to the retirement of the Company's debt and capital leases and interest income earned on the net proceeds from the Offering.
Year Ended December 31, 1996 Compared to December 31, 1995
Revenues increased 64% from $29.3 million for 1995 to $48.1 million for 1996. This increase in revenue was primarily due to increased production from the two crews operating in 1996 and higher prices due to these crews performing a greater proportion of higher definition seismic data acquisition services than in 1995 and performing seismic data acquisition services in logistically and environmentally more difficult areas than in 1995. The Company increased the channel capacity of both crews during 1996 by approximately 20% over their 1995 channel capacity. This enabled each crew to acquire more seismic data, resulting in higher revenues.
Operating costs (excluding depreciation and amortization) increased 66% from $21.0 million for 1995 to $34.9 million for 1996, reflecting the higher costs associated with performing services in logistically and environmentally difficult areas. These higher costs were primarily attributable to additional subcontract service and labor costs. Operating margin percentages changed only slightly from 28.3% for 1995 to 27.5% for 1996.
Depreciation and amortization increased 38% from $2.5 million in 1995 to $3.4 million in 1996, primarily as a result of depreciation related to additional equipment costs from the increased channel capacity of both crews and additional capital purchases for both crews during 1996. Selling, general and administrative expenses decreased slightly, from $2.9 million in 1995 to $2.7 million in 1996, primarily due to cost saving measures implemented in 1996. Net interest expense increased from $0.4 million in 1995 to $0.5 million in 1996, reflecting additional financing costs for equipment purchases made during 1996.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Offering, the Company was a wholly-owned subsidiary of Seitel. In the past, Seitel guaranteed certain indebtedness of the Company and made loans to the Company. All of such debt owed to Seitel was repaid with a portion of the net proceeds of the Offering. The Company's borrowing costs may increase in the future as a result of having to obtain financing based on its own creditworthiness. Therefore, the historical liquidity and capital resources of the Company may not be indicative of the Company's future liquidity and capital resources.
Prior to the Offering, revenues for services provided by the Company to Seitel were based on prices charged to unaffiliated third parties for similar work. These revenues included a profit. Prior to the consummation of the Offering, the Company declared and paid a dividend to Seitel to eliminate these intercompany profits. The amount of such dividend was $6.7 million.
The Company's working capital as of December 31, 1997 was $18.5 million. The indebtedness of the Company as of such date consisted of capital lease obligations, totaling approximately $10.8 million.
The Company has repaid $35.7 million of existing indebtedness with a portion of the net proceeds of the Offering, which has significantly decreased the Company's interest expense and has eliminated the Company's obligation to make payments on the principal of such debt in the future. This will allow the Company to apply the cash generated from operations towards its capital requirements rather than to service such debt.
The Company has commenced expanding its existing data acquisition capabilities through the expansion of the streamer towing capacity of its vessel the Labrador Horizon. The upgrades to this vessel were initiated late in the fourth quarter of 1997 and carried over into the first quarter of 1998. The capital cost of these upgrades is approximately $20.0 million. The Company currently operates the Labrador Horizon under a capital lease with Simon-Horizon Limited ("Simon"), which in turn leases the vessel from the Royal Bank of Scotland ("RBS") under a capital lease. Pursuant to the arrangement between the Company and Simon, the Company is required to use its best endeavors to obtain the release of Simon from all obligations in connection with the lease of this vessel. The Company intends to enter into a capital lease with British Linen Bank,
described below, which will allow the Company to terminate the current lease arrangement with Simon and RBS and provide funding for the $20.0 million upgrade to the Labrador Horizon.
In January 1998, the Company obtained a commitment, subject to negotiation of final documentation, from British Linen Bank for the financing of the Labrador Horizon upgrade. As part of this financing, British Linen Bank will purchase the vessel from RBS, fund the approximately $20.0 million upgrades to the vessel, and enter into a capital lease of the vessel to the Company for a five-year term commencing upon completion of the upgrades, for a total commitment of approximately $31.3 million. The facility will bear interest at a rate of LIBOR plus 1.375% and requires the Company to post a security deposit of approximately $5 million with scheduled amounts to be refunded based upon a predetermined formula. Additionally, the Company will have the option to acquire the vessel at the end of the term of the capital lease for a price of 0.1% of the total facility commitment. The Company anticipates that this financing will be consummated late in the first quarter or early in the second quarter.
In 1998, the Company intends to charter and equip two additional offshore seismic vessels, at a capital cost of approximately $40.0 million. The Company acquired two vessels, the Austral Horizon and the Atlantic Horizon, during the fourth quarter of 1997 for purchase prices of approximately $1.6 million and $3.6 million, respectively. These acquisitions were funded with cash flows from operations. The Company intends to sell and leaseback the vessels from charter operators during the second quarter of 1998 for charter terms of 7 to 10 years. The costs to outfit and equip the two vessels will be approximately $10.0 million for the Austral Horizon and approximately $30.0 million for the Atlantic Horizon. The Company intends to fund these capital costs with a combination of cash from operations and additional debt financing. The Company currently has $7.3 million of capital commitments outstanding related to these projects.
In September 1997, the Company ordered a fourth Opseis seismic data acquisition system at an estimated total cost of approximately $5.9 million as part of the Company's addition of a fourth crew at a total cost of $8.6 million. In March 1998, the Company obtained a term loan commitment, subject to documentation, with Fleet Capital Corporation for the financing of this Opseis system at a fixed rate equal to the average three year treasury rate at the time of closing plus 1.75%. Monthly payments of approximately $118,000 will be made under the loan with the Opseis system pledged as security for the loan. The Company anticipates that operation of this fourth system will begin at the end of the first quarter of 1998.
Additionally in August 1997, the Company purchased a total of 1,500 seismic recording channels for its three crews at a cost of approximately $3.5 million. The Company funded this purchase with cash flows from operations and proceeds from the Offering.
On October 21, 1997, the Company entered into an agreement with Bank One, Texas, N.A. with respect to a $20.0 million revolving credit facility secured by the Company's accounts receivable. The amount the Company may borrow under the revolving credit facility is limited to a borrowing base that is equal to 90% of eligible U.S. and U.K. investment grade accounts receivable, 100% of receivables secured by acceptable letters of credit and 80% of non-graded U.S. or foreign receivables and other eligible receivables approved by the bank. Interest only is payable monthly or at the end of LIBOR interest periods, and the credit facility is payable in full in three years. Mandatory prepayments are required if borrowings exceed the borrowing base. Interest accrues under the credit facility at the bank's base rate or at LIBOR plus a spread of 1.375% if the Company's debt to net worth ratio is less than 1 to 1, and 1.625% if such ratio is equal to or greater than 1 to 1. As of December 31, 1997, $18.5 million was available for borrowing under the facility and no amounts were outstanding.
The Company has entered into a letter of intent to acquire the common stock of Seismic Drilling Services, Inc., a privately-held company providing seismic shot-hole drilling and front-end services, for a price of approximately $5 million consisting of approximately $3.5 million in cash and 98,360 shares of the Company's common stock. The Company expects to complete this transaction late in the first quarter or early in the second quarter of 1998. The Company plans to finance the cash portion of the acquisition with a combination of cash flows from operations and borrowings from the Company's revolving credit facility.
The Company believes that its planned capital expenditures and operating requirements through the end of 1998 will be funded from the Bank One Revolving Credit facility, the British Linen Bank capital lease, the Fleet Capital term loan, additional equipment financing, and the Company's cash flow from operations. The Company anticipates that its cash flow from operations will be sufficient to fund its operating requirements for the foreseeable future, and that any additional capital expenditures will be funded from the Company's cash flow from operations and additional debt financing. If the Company is not able to obtain additional financing, it will be unable to make such capital expenditures and the Company's financial position and results of operations may be materially and adversely affected as a result.
IMPACT OF INFLATION AND CHANGING PRICES
The general availability of seismic equipment and crews and the level of exploration activity in the oil and gas industry directly affect the cost of creating seismic data. The level of exploration activity is dependent on the commodity price levels of oil and natural gas. The pricing of the Company's products and services is primarily a function of these factors. For these reasons, the Company does not believe inflationary trends have had any significant impact on its financial operating results during the three years ended December 31, 1997.
YEAR 2000
The Company is currently in the process of evaluating its computer software programs and operating systems to ensure such programs and systems will be able to process transactions in the year 2000. However, the Company does not expect that costs incurred to modify its programs and systems will have a material adverse effect on its financial condition or results of operations.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward looking statements herein include, but are not limited to, changes in the exploration budgets of the Company's seismic data and related services customers, actual customer demand for the Company's seismic acquisition services, and the timing and extent of changes in commodity prices for natural gas, crude oil and condensate and natural gas liquids and conditions in the capital markets and equity markets during the periods covered by the forward looking statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedules required by this Item are set forth at the pages indicated in Item 14(a) (1) and (2) below.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be set forth in this Item is incorporated by reference to a similarly titled heading in the Company's definitive proxy statement relating to the 1998 annual meeting of its stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K (hereinafter the "Proxy Statement").
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be set forth in this Item is incorporated by reference to a similarly titled heading in the Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The information required to be set forth in this Item is incorporated by reference to a similarly titled heading in the Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth in this Item is incorporated by reference to a similarly titled heading in the Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Document filed as part of this Report
(1) Financial Statements:
(2) All Schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes to the financial statements.
(3) Exhibits:
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* Filed herewith
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eagle Geophysical, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Eagle Geophysical, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Energy Research International, which statements reflect total assets and total revenues of 41 percent and 22 percent in 1997, respectively, of the consolidated totals. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for that entity, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eagle Geophysical, Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas March 6, 1998
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The accompanying notes are an integral part of these consolidated financial statements.
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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(1) Includes revenue from affiliates of $15,391, $27,217 and $42,265 for the periods ended December 31, 1995, 1996 and 1997, respectively, and operating expenses related to such affiliate revenue of $10,845, $20,078 and $34,514 for the periods ended December 31, 1995, 1996 and 1997, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BUSINESS, FORMATION OF THE COMPANY AND ACQUISITIONS
BUSINESS
Eagle Geophysical, Inc. (the "Company") is an international oilfield service company engaged in seismic data acquisition services, with a specialization in the acquisition of high-resolution, three dimensional seismic data in logistically difficult wetland environments and in congested offshore areas primarily in the U.S. Gulf Coast region. Since its inception and through August 11, 1997, the Company was a wholly-owned subsidiary of Seitel, Inc. ("Seitel"), which has subsidiaries that have been significant purchasers of the Company's services -- See Note J.
FORMATION OF THE COMPANY AND ACQUISITIONS
The Company was formed from the onshore seismic data acquisition business of Seitel Geophysical, Inc., a wholly-owned subsidiary of Seitel that began operations in December, 1992. Eagle Geophysical, Inc., indirectly a wholly-owned subsidiary of Seitel and Eagle Geophysical Onshore, Inc. were both formed on December 18, 1996. Effective December 31, 1996, substantially all of the net assets of Seitel Geophysical, Inc. were contributed to Eagle Geophysical Onshore, Inc.
In May 1997, Seitel contributed to the Company all of the shares that it owned of Energy Research International ("ERI"), representing a 19% ownership interest. ERI is a holding company that wholly owns two marine seismic companies. This contribution was recorded at Seitel's basis in such investment and resulted in a $914,000 increase in the Company's additional paid-in capital account.
On August 11, 1997 and September 5, 1997, the Company completed the offering and sale of a total of 6,524,000 shares of common stock to the public at a price of $17 per share (including 1,880,000 shares sold by the Company's former parent, Seitel and 180,000 shares sold by the former owners of ERI) resulting in net proceeds to the Company of $69.1 million after deducting offering-related expenses (the "Offering"). After the Offering, Seitel owns 1,520,000 shares or 17.9% of the Company's common stock.
On August 11, 1997, the Company acquired the remaining 81% of ERI in exchange for 600,000 shares of common stock valued at the initial offering of $17 per share (the "ERI Acquisition"). The ERI Acquisition was accounted for by the Company as a purchase transaction in which the Company recorded its cost in the assets acquired less liabilities assumed, with the difference between the cost and the sum of the fair values of tangible assets less liabilities assumed recorded as goodwill. The Company is currently evaluating the value of assets acquired and liabilities assumed in order to determine the final purchase price allocation related to the ERI Acquisition.
The following table presents the unaudited pro forma effects of the Offering, the application of the net proceeds thereof, and the ERI Acquisition, as if such transactions had occurred on January 1, 1996.
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results of operations reflect the application of United Kingdom statutory tax rates to earnings from ERI resulting from non-deductible goodwill. Had such rates not been applied, pro forma earnings would have been $.80 and $.09 for the years ended December 31, 1997 and 1996 respectively.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES: The preparation of these consolidated financial statements in accordance with generally accepted accounting principles requires the use of certain estimates by management in determining the Company's assets, liabilities, contingencies, revenues and expenses. One important estimate relates to the percentage of revenue recognized based on the stage of completion of seismic acquisition projects. Actual results could differ from estimates.
BASIS OF PRESENTATION: The accompanying consolidated financial statements include the accounts of Eagle Geophysical, Inc., indirectly a wholly-owned subsidiary of Seitel until August 11, 1997, and the accounts of its wholly-owned subsidiaries, Eagle Geophysical Onshore, Inc. and ERI. The Company's reported assets, liabilities, revenues and expenses include the predecessor operations of Seitel Geophysical, Inc. for all periods presented. The financial reporting basis of the contributed net assets was carried forward to the Company's accounts, and the net equity of Seitel Geophysical, Inc. for periods prior to December 31, 1996, is reflected in the Company's additional paid-in capital account. The accompanying consolidated financial statements include the results of operations of ERI for the period after the ERI Acquisition (August 11, 1997).
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include short-term investments with original maturities of three months or less.
INVENTORY: Inventory which consists primarily of spare parts for equipment is stated at the lower of cost or market value on a first-in, first-out basis.
PROPERTY AND EQUIPMENT: Property and equipment are carried at cost and include assets under capital leases. Maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized. Gains and losses from retirement or replacement of property and equipment are included in operations.
Depreciation of property and equipment and assets under capital leases is provided over the estimated useful lives of the assets, which range from three to five years or the term of the lease, using the straight-line method.
INTANGIBLE ASSETS: Goodwill which resulted from the ERI Acquisition is amortized on a straight-line basis over a period of 15 years. Organization costs, which are classified as other long-term assets, are amortized on a straight-line basis over a period of three years. The Company evaluates intangible assets periodically in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" to determine whether they are properly reflected in the financial statements based upon future undiscounted operating cash flows. If an impairment is determined to exist, then the asset is written down to fair market value.
INCOME TAXES: The Company and all of its subsidiaries file a consolidated federal income tax return. ERI and its subsidiaries file a consolidated income tax return in the United Kingdom. The Company does not provide deferred taxes (benefit) on the undistributed earnings (loss) of its foreign subsidiaries which amounted to $192,000 for the year ended December 31, 1997, as such earnings are intended to be permanently invested in those operations.
REVENUE AND COST RECOGNITION: Revenue from the acquisition of seismic data is recognized on the percentage-of-completion method based on the work effort completed compared with the total work effort estimated for the contract. Revenue received in advance of being earned is deferred until earned. For contracts
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounted for under the percentage of completion method, the Company's contracts provide that the customer accepts work completed throughout the duration of the project and owes the Company, based on the pricing provisions and job completion to date, measured in terms of time incurred or other performance milestones.
Operating expenses include all direct material and labor costs and indirect costs related to the acquisition of seismic data such as supplies, tools and repairs. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
The asset, "costs and estimated earnings in excess of billings on uncompleted contracts," represents revenue recognized in excess of amounts billed. The liability, "billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenue recognized.
FOREIGN CURRENCY TRANSLATION: The Company's functional currency is the U.S. Dollar. Accordingly, foreign entities translate monetary assets and liabilities at period end exchange rates, while nonmonetary items are translated at historical rates. Income and expense accounts are translated at the average rates in effect during the year except for depreciation and amortization which are translated at historical rates. Gains and losses resulting from the translation of foreign financial statements and from foreign currency transactions are included in other income and expense. The Company recorded no foreign currency translation gains or losses in 1995 and 1996 and approximately $117,000 in net gains for the year ending December 31, 1997.
EARNINGS PER SHARE: Earnings per share is based on the weighted average number of outstanding shares of common stock during the respective years, and where dilutive, the effect of common stock contingently issuable, which arises from the exercise of stock options. In February 1997, the Financial Accounting Standards board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," effective for interim and annual periods after December 15, 1997. This statement replaces primary earnings per share with a newly defined basic earnings per share and modifies the computation of dilutive earnings per share. The Company adopted this statement effective for the fiscal year ended December 31, 1997. The adoption of this statement had no effect on the Company's earnings per share for the three years ended December 31, 1997. The weighted average number of common shares outstanding for calculation of basic earnings per share was 3,400,000, 3,400,000 and 5,418,000 for the years ended December 31, 1995, 1996 and 1997 respectively. The weighted average number of common shares outstanding for calculation of diluted earnings per share was 3,400,000, 3,400,000 and 5,436,000 for the years ended December 31, 1995, 1996 and 1997 respectively.
STOCK-BASED COMPENSATION: The Company accounts for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Reference is made to Note G, "Stockholders' Equity," for a summary of the pro forma effect of SFAS No. 123, "Accounting for Stock Based Compensation" on the Company's results of operations for 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The estimated fair value amounts have been determined by the Company using available market data and valuation methodologies. The book values of cash and cash equivalents, receivables and accounts payable approximate their fair value as of December 31, 1996 and 1997, because of the short-term maturity of these instruments. Based upon the rates available to the Company, the fair value of the Company's debt and capital leases approximated the carrying value as of December 31, 1996 and was $10,186,000 compared to a carrying value of $10,760,000 as of December 31, 1997.
NEW ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." This statements requires the reporting of comprehensive income which includes net income plus all other non owner changes in equity during the period. This
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statement is required to be adopted for fiscal years beginning after December 15, 1997. The Company intends to adopt this statement during its fiscal year ending December 31, 1998. The Company does not believe the adoption of this statement will have a material effect on its consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." This statement requires the reporting of expanded information of a company's operating segments. It also expands the definition of what constitutes an entity's operating segments. This statement is required to be adopted for fiscal years beginning after December 15, 1997. The Company intends to adopt this statement during its fiscal year ending December 31, 1998. The Company does not believe the adoption of this statement will have a material effect on its consolidated financial statements.
NOTE C -- INCOME TAXES
The provision for income taxes for each of the three years ended December 31, 1997, consists of the following (in thousands):
The difference between U.S. Federal income taxes computed at the statutory rate (34%) and the Company's income tax provision are as follows (in thousands):
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred income tax asset and liability reflected in the Company's consolidated balance sheets at December 31, 1996 and 1997 were as follows (in thousands):
Included in the deferred federal tax provisions are the following: excess of tax depreciation expense over book depreciation expense and expenses accrued for financial statement purposes which are not yet deductible for tax purposes. In connection with the ERI Acquisition, the Company acquired approximately $6.0 million of net operating loss carry forwards (currently with no expiration date) and $1.3 million of other items not currently deductible for tax purposes in the United Kingdom related to ERI's United Kingdom subsidiary, Horizon Exploration Ltd. resulting in a deferred tax asset of approximately $2.6 million. Such deferred tax asset was recorded by the Company in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes," with only the portion of such tax assets that are in management's opinion, more likely than not, expected to be realized considering ERI's results subsequent to the ERI Acquisition. Accordingly, a $291,000 valuation allowance was provided on such deferred assets.
NOTE D -- COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
The following is a summary of the Company's estimated costs and earnings on uncompleted contacts at December 31, 1996 and 1997 (in thousands):
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LONG TERM DEBT
The following is a summary of the Company's long-term debt at December 31, 1996 and 1997 (in thousands):
TERM LOANS: On July 15, 1993, the Company obtained a $4,300,000, five-year term loan bearing interest at the rate of 7.61% for the purchase of a telemetry seismic data acquisition system and auxiliary equipment. The debt was secured by such equipment. Monthly principal and interest payments total approximately $86,000. This term loan was guaranteed by Seitel. On August 12, 1997, the Company repaid the remaining balance of the loan of approximately $917,000, including accrued interest to date, with proceeds from the Offering.
On March 14, 1996, the Company obtained a $433,000, three-year term loan bearing interest at the rate of 7.52% for the purchase of geophysical equipment. The debt was secured by such equipment. Monthly principal and interest payments totaled approximately $13,000. This term loan was guaranteed by Seitel. On August 14, 1997, the Company repaid the remaining balance of the loan of approximately $257,000, including accrued interest to date, with proceeds from the Offering.
On July 9, 1996, the Company obtained two term loans aggregating $7,264,000 for the purchase of land and marine seismic equipment which secured the debt. The first loan was a $5,902,000, five year term loan bearing interest at the rate of 8%. The second loan was a $1,362,000 three year term loan bearing interest at a rate of 8.06%. Monthly principal and interest payments on both term loans totaled approximately $163,000. In March 1997, the Company obtained two additional loans from the same lender of $558,000 and $7,006,000, respectively, for the purchase of additional seismic equipment. The notes bear interest at 7.73% and 7.98%, respectively, and mature in three and five years respectively. These term loans were guaranteed by Seitel. On August 12, 1997, the Company repaid the remaining balance of these loans of $13.3 million, including interest and prepayment penalties, with proceeds from the Offering.
On August 14, 1997, the Company repaid approximately $7.5 million of borrowings and accrued interest to date with respect to the ERI Acquisition with proceeds from the Offering.
On October 21, 1997, the Company entered into an agreement with Bank One, Texas N.A. with respect to a $20,000,000 revolving credit facility secured by the Company's accounts receivable. The amount the Company may borrow under the facility is limited to a borrowing base that is equal to 90% of the eligible U.S. and U.K. investment grade accounts receivable, as defined, 100% of receivables secured by acceptable letters of credit, and 80% of eligible noninvestment grade domestic and other foreign receivables. Interest only will be payable monthly or at the end of LIBOR interest periods, and the credit facility is payable in full in three years. Mandatory prepayments are required if borrowings exceed the borrowing base. Interest accrues under the credit facility at the bank's base rate or LIBOR plus a spread of 1.375% if the Company's debt to net worth ratio is less than 1 to 1, and 1.625% if such ratio is equal to or greater than 1 to 1. As of December 31, 1997, the Company has approximately $18.5 million available under this facility and no borrowings were currently outstanding.
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- LEASE OBLIGATIONS
Property and equipment in the accompanying consolidated balance sheets includes the following assets held under capital leases (in thousands):
The Company is allocated a portion of the office lease expense incurred by Seitel under its operating lease for the corporate office based on the actual cost of such office space pro-rated to the square footage utilized by the Company. Additionally, the Company directly leases office space and charters vessels and geophysical equipment under certain non-cancelable operating leases. Rental expense for 1995, 1996 and 1997 was approximately $98,000, $142,000 and $4,293,000, respectively, related to these leases.
Future minimum lease payments for the five years subsequent to December 31, 1997 and in the aggregate are as follows (in thousands):
The capital lease obligation outstanding as of December 31, 1997 has an annual interest rate of approximately 4.95%.
NOTE G -- STOCKHOLDERS' EQUITY
COMMON STOCK: In May 1997, the Company amended its Certificate of Incorporation to authorize the issuance of 25,000,000 shares of common stock and changed the par value to $.01 per share. At the same time, the Company approved a 3,400-for-one stock split. All share and per share information included in the accompanying consolidated financial statements has been adjusted to give retroactive effect to the split.
On July 23, 1997, the Company issued 25,000 shares of common stock to the president of the Company for a note valued at $425,000 which represented the fair value of the Company's common stock at that date. The note bears interest at 6% and is for a term of eight years. Interest is payable quarterly until September 2000 when equal payments of principal plus interest will be payable monthly until July 2005. The note is secured by a pledge of the 25,000 shares of common stock in favor of the Company.
PREFERRED STOCK: In May 1997, the Company amended its Certificate of Incorporation to authorize the issuance of 5,000,000 shares of preferred stock, the terms and conditions to be determined by the Board of Directors in creating any particular series.
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEITEL CONTRIBUTION: In May 1997, Seitel contributed to the Company all of the shares that it owned of Energy Research International, which represented a 19% ownership interest. Energy Research International is a holding company that wholly-owns two marine seismic companies. This contribution was recorded at Seitel's basis in such investment and resulted in a $914,000 increase in the Company's additional paid-in capital.
SECURITIES OFFERING, ERI ACQUISITION: On August 11, 1997 and September 5, 1997, the Company completed the offering and sale of a total of 6,524,000 shares of common stock to the public at a price of $17 per share (including 1,880,000 shares sold by the Company's former parent, Seitel, Inc. and 180,000 shares sold by the former owners of ERI) resulting in net proceeds of $69.1 million to the Company after deducting offering-related expenses. Also on August 11, 1997, the Company acquired the remaining 81% of Energy Research International in exchange for 600,000 shares of common stock.
STOCK OPTION PLANS: In May 1997, the Company adopted a stock option plan whereby 1,100,000 shares of common stock were reserved for issuance pursuant to such plan. Under the stock option plan, the Company may grant both incentive stock options intended to qualify under Section 422 of the Internal Revenue Code and options that are not qualified as incentive stock options. Options are granted at or above the market price of the Company's stock on the date of grant. As of December 31, 1997, 763,250 options have been issued under the plan.
In May 1997, the Company adopted an independent directors stock option plan and 100,000 shares were reserved for issuance pursuant to such plan. Under this plan, options are automatically granted to independent directors upon their election and reelection as directors of the Company. Such options are granted at the fair market value of the Company's stock on the date of grant. As of December 31, 1997, 30,000 options have been issued under the plan.
The following summarizes information with regard to the stock option plans for the year ended December 31, 1997 (shares in thousands):
The following table summarizes information for the options outstanding at December 31, 1997 (shares in thousands):
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion 25 and related interpretations in accounting for its stock-based compensation plans. APB Opinion 25 does not require compensation costs to be recorded on options which have exercise prices at least equal to the market price of the stock on the date of grant. Accordingly, no compensation cost has been recognized for the Company's stock-based plans. Had compensation costs for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the optional accounting method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for 1997: risk-free interest rates ranging from 5.7% to 6.5%; dividend yield of 0%; stock price volatility ranging from 40.7% to 41.2%; and an expected option life of ten years. The weighted-average fair value of options granted during 1997 was $10.68 per option, for options granted at fair market value.
NOTE H -- COMMITMENTS AND CONTINGENCIES
ACQUISITION AND FINANCING COMMITMENTS: In September, 1997, the Company entered into an agreement for the purchase of a telemetry seismic data acquisition system at a cost of approximately $5.9 million. A deposit of approximately $586,000 has been made with the remaining amount to be paid upon delivery of the system which is expected in March, 1998.
In December 1997, the Company commenced upgrades on one of its vessels, the Labrador Horizon, for an estimated upgrade cost of approximately $20 million. In March 1998, the Company completed the upgrade.
In December 1997, the Company entered into a letter of intent for the purchase of Seismic Drilling Services, Inc., a privately-held company providing seismic shot-hole drilling and front-end services, for a price of approximately $5 million consisting of approximately $3.5 million cash and 98,360 shares of the Company's common stock. This acquisition is expected to be accounted for under the purchase method of accounting. The Company expects to complete this transaction late in the first quarter or early in the second quarter of 1998.
In January 1998, the Company obtained a commitment, subject to documentation, with British Linen Bank for the financing of the Labrador Horizon upgrades and the purchase of the vessel for a total commitment of approximately $31.3 million. The facility will bear interest at a rate of LIBOR plus 1.375% and will require the Company to enter into a lease purchase agreement with British Linen Bank for a period of five years commencing upon completion of the upgrades. The facility will require a security deposit of approximately $5 million with scheduled amounts to be refunded based upon a predetermined formula. Additionally, the Company will have the option to acquire the vessel at the end of the lease purchase agreement for a price of .1% of the total facility commitment.
In March 1998, the Company obtained a term loan commitment, subject to documentation, with Fleet Capital Corporation for the financing of an Opseis system for approximately $5.9 million. The loan will be for
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a period of five years and will bear interest at a fixed rate equal to the average three year treasury rate at the time of closing plus 1.75%. Monthly payments of approximately $118,000 will be made under the loan with the Opseis system pledged as security for the loan.
EMPLOYMENT AGREEMENTS: In connection with the completion of the Offering in August 1997, the Company entered into employment agreements with five of its executive officers.
LITIGATION: The Company is involved in or threatened with various legal proceedings from time to time arising in the ordinary course of business. Management of the Company does not believe that any liabilities resulting from such proceedings will have a material adverse effect on its consolidated results of operations or financial position.
NOTE I -- EMPLOYEE BENEFIT PLANS
In July 1997, the Company adopted the Eagle Geophysical, Inc. 401k Retirement Plan (the "Plan") which is a defined contribution plan for all eligible employees in the United States. The Company matches employee contributions up to specified limits and may contribute a portion of the net profits of the Company in accordance with the Plan. For the year ended December 31, 1997, the Company incurred expense of approximately $32,000 for its matching contributions to the Plan.
The Company provides for the retirement of its United Kingdom employees through The Horizon Pension Plan (the "Pension Plan"). The Pension Plan provides defined retirement benefits as defined in the Trust Deed and is managed by the Trustees. The following table sets forth the Pension Plan and the funded status as of December 31, 1996 and 1997 (in thousands):
Plan assets are invested in a unitized mixed managed fund. At December 31, 1997 approximately 82% of the fund was invested in UK and international equities and the balance was invested in fixed interest securities or held as cash deposits.
Net pension cost for 1995, 1996 and 1997 included the following components (in thousands):
EAGLE GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The major assumptions used in computing the net pension cost were:
NOTE J -- RELATED PARTY TRANSACTIONS
The Company enters into various transactions with Seitel and its subsidiaries. The Company performs seismic data acquisition services for Seitel's seismic data library subsidiary and its exploration and production subsidiary. For the years ended December 31, 1995, 1996 and 1997, the Company recognized revenue of $15,391,000, $27,217,000 and $42,265,000, respectively, for seismic data acquisition services performed for Seitel's subsidiaries. Prior to August 11, 1997 such revenues from affiliates were based on prices charged to unaffiliated third parties for similar work. Gross margin recognized on work for affiliates was limited in each reporting period to the total margin percentage earned on work for unaffiliated parties. Subsequent to August 11, 1997, revenues from affiliates were based on agreed upon contractual amounts and terms similar to contracts with other third party customers.
Prior to the Offering, the Company reimbursed Seitel for direct and indirect costs of certain Seitel employees who provided services to the Company and for other costs, primarily general and administrative expenses, related to the Company's operations. Seitel allocated indirect costs to the Company using a formula based on the ratio of the Company's levels of revenue, number of personnel or other factors, as applicable, to the total consolidated Seitel levels for such factors. Management of the Company believes that the use of such formula resulted in a reasonable allocation of indirect costs. During the period from January 1, 1997 to August 11, 1997, the Company recorded general and administrative costs allocated from Seitel of $818,000. Prior to August 11, 1997, Seitel funded the Company's direct operating costs through intercompany advances and was reimbursed for such advances with available cash. Amounts payable to or receivable from Seitel and its subsidiaries bore interest at the same rates which Seitel was charged or received. During the period from January 1, 1997 to August 11, 1997, the Company recorded net interest income of $404,000 related to the amounts payable to or receivable from Seitel and its subsidiaries.
On July 22, 1997 the Company declared a dividend to Seitel for its receivable for work performed by the Company for Seitel and its subsidiaries prior to the Offering. On August 11, 1997, the Company settled this receivable through a non-cash dividend which amounted to approximately $6,651,000.
Prior to the Offering, the Company leased certain marine seismic equipment to Horizon Exploration Limited, a marine seismic company wholly-owned by ERI, under a five-year operating rental agreement expiring June 30, 2001. For the years ended December 31, 1995, 1996, and 1997, the Company recognized revenues of $-0-, $828,000 and $1,783,000, respectively, related to this lease. Subsequent to the Offering and the ERI acquisition, $694,000 of such rental income and expense has been eliminated in the Company's consolidated results of operations.
The Company and Seitel have entered into a number of agreements for the purpose of defining their continuing relationship. Conflicts of interest may arise in the future between Seitel and the Company in connection with these agreements and other areas of their ongoing relationship. The following is a summary of certain prospective arrangements between the Company and Seitel.
MASTER SEPARATION AGREEMENT: The Master Separation Agreement provided for the Company and Seitel to enter into a Sublease, a Registration Rights Agreement, a Tax Indemnity Agreement and an Administrative Services Agreement. In addition, the Master Separation Agreement required the Company to repay indebtedness owed by the Company and its subsidiaries to Seitel and indebtedness owed by the Company and
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its subsidiaries to third parties guaranteed by Seitel contemporaneously with the consummation of the Offering. Under the Master Separation Agreement, Seitel and its subsidiaries and the Company and its subsidiaries have indemnified each other with respect to liabilities arising in connection with the operations of their respective businesses prior to and after the date of consummation of the Offering including liabilities under the Securities Act with respect to the Offering. The Master Separation Agreement also provides for continued access by the Company to historical financial and operational information relating to the Company and its subsidiaries maintained by Seitel.
SUBLEASE: The Sublease between the Company and Seitel provides for the Company to lease its principal corporate offices, comprising approximately 7,600 square feet, from Seitel for a term of three years at an annual rent of approximately $85,000. The Sublease also provides for the Company to utilize certain shared office equipment, such as phone systems and central computer systems, for an additional charge.
REGISTRATION RIGHTS AGREEMENT: Pursuant to the Registration Rights Agreement, the Company has agreed to register the offer and sale by Seitel on a delayed and continuous basis from time to time of the shares of common stock owned by Seitel after the Offering at the expense of the Company.
TAX INDEMNITY AGREEMENT: Prior to the Offering, the Company was a member of the Seitel affiliated group and filed its tax returns on a consolidated basis with such group. After the Offering, the Company is no longer a member of the Seitel affiliated group. The Company and Seitel have entered into a Tax Indemnity Agreement to define their respective rights and obligations relating to federal, state and other taxes for periods before and after the Offering. Pursuant to the Tax Indemnity Agreement, the Company is required to pay Seitel (to the extent not already paid) its share of federal income taxes prior to the date of consummation of the Offering, and is responsible for federal income taxes from its operations on and after the date of the Offering. Any subsequent refunds, additional taxes or penalties or other adjustments relating to the Company's federal income taxes for periods prior to the date of consummation of the Offering shall be for the benefit of or be borne by Seitel. Similar provisions apply under the Tax Indemnity Agreement to other taxes, such as state and local income taxes.
ADMINISTRATIVE SERVICES AGREEMENT: Seitel and the Company entered into an Administrative Services Agreement pursuant to which Seitel provides the Company with administrative services, primarily accounting services, at or up to the same levels as provided prior to the Offering. Seitel provided these services for a 90-day transition period after the Offering to allow the Company adequate time to build an internal administrative staff. The Company paid Seitel approximately $5,500 for these services at Seitel's actual cost of providing these services for the year ended December 31, 1997.
NOTE K -- MAJOR CUSTOMERS
During each of the years ended December 31, 1995, 1996 and 1997, certain customers accounted for 10% or more of the Company's consolidated revenue as follows:
The Company extends credit to various companies in the oil and gas industry for the acquisition of seismic data, which results in a concentration of credit risk. This concentration of credit risk may be affected by changes in economic or other conditions and may accordingly impact the Company's overall credit risk. However, management believes that the risk is mitigated by the number, size, reputation and diversified
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
nature of the companies to which they extend credit. Historical credit losses as a percentage of total revenues have been immaterial.
NOTE L -- FOREIGN OPERATIONS
Prior to the Offering, the Company's principal operations were in the United States. With the completion of the ERI Acquisition, the Company's principal operations are in both Europe and the United States. Financial information by geographic area is as follows (in thousands):
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 1996 and 1997:
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(1) The sum of individual quarterly earnings per share may not agree with the year to date earnings per share as each period's computation is based on the weighted average number of common shares outstanding during the period.
EXHIBIT INDEX
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* Filed herewith
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 26TH OF MARCH, 1998.
EAGLE GEOPHYSICAL, INC.
By: /s/ JAY N. SILVERMAN ----------------------------------- Jay N. Silverman President
By: /s/ RICHARD W. MCNAIRY ----------------------------------- Richard W. McNairy Chief Financial Officer
By: /s/ DAVID H. SAINDON ----------------------------------- David H. Saindon Chief Accounting Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT ON FORM 10-K HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.