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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________
FORM 10-Q

 (Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-10165
_______________________________________________
 SEITEL, INC.
(Exact name of registrant as specified in its charter)
_______________________________________________
Delaware
  
76-0025431
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
 
10811 S. Westview Circle Drive
Building C, Suite 100
Houston, Texas
  
77043
(Address of principal executive offices)
  
(Zip Code)
(713) 881-8900
(Registrant’s telephone number, including area code)
_______________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  ¨    No  ý
(Explanatory Note: The registrant is a voluntary filer and is therefore not subject to the filing requirements of the Securities Exchange Act of 1934. However, during the preceding 12 months, the registrant has filed all reports that it would have been required to file by Section 13 or 15(d) of the Securities Exchange Act of 1934 if the registrant was subject to the filing requirements of the Securities Exchange Act of 1934 during such timeframe.)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  ý    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
Non-accelerated filer
 
ý (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨    No  ý
As of August 9, 2018, there were 100 shares of the Company’s common stock outstanding, par value $.001 per share.
 


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
Page
PART  I.
 
 
 
 
 
 
 
 
 
 
 
PART  II.
 
 
 
Item 1A. Risk Factors
 
Item 6. Exhibits
 

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PART I—FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS
SEITEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 
 
(Unaudited)
June 30,
2018
 
December 31,
2017
ASSETS
 
 
 
Cash and cash equivalents
$
75,153

 
$
70,581

Receivables
 
 
 
Trade, net of allowance for doubtful accounts of $175 and $176, respectively
9,868

 
23,330

Notes and other
2,583

 
2,617

Due from Seitel Holdings, Inc.
1,198

 
1,191

Seismic data library, net of accumulated amortization of $1,276,498 and $1,274,808, respectively
64,594

 
74,542

Property and equipment, net of accumulated depreciation and amortization of $17,140 and $17,346, respectively
1,426

 
1,599

Prepaid expenses, deferred charges and other
4,915

 
1,842

Intangible assets, net of accumulated amortization of $48,663 and $49,485, respectively
900

 
900

Goodwill
178,980

 
187,243

Deferred income taxes
219

 
203

TOTAL ASSETS
$
339,836

 
$
364,048

LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
LIABILITIES
 
 
 
Accounts payable and accrued liabilities
$
13,840

 
$
20,198

Income taxes payable
33

 
2,777

Senior Notes
248,834

 
248,142

Obligations under capital leases
1,166

 
1,363

Deferred revenue
15,186

 
13,095

Deferred income taxes
748

 
1,359

TOTAL LIABILITIES
279,807

 
286,934

COMMITMENTS AND CONTINGENCIES (Note I)

 

STOCKHOLDER’S EQUITY
 
 
 
Common stock, par value $.001 per share; 100 shares authorized, issued and outstanding

 

Additional paid-in capital
400,595

 
400,592

Retained deficit
(326,194
)
 
(314,671
)
Accumulated other comprehensive loss
(14,372
)
 
(8,807
)
TOTAL STOCKHOLDER’S EQUITY
60,029

 
77,114

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY
$
339,836

 
$
364,048


The accompanying notes are an integral part of these condensed consolidated financial statements.

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SEITEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands)
 
  
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
REVENUE
$
12,324

 
$
23,700

 
$
31,813

 
$
44,295

EXPENSES:
 
 
 
 
 
 
 
Depreciation and amortization
8,081

 
21,969

 
18,392

 
44,232

Impairment of goodwill
4,496

 

 
4,496

 

Cost of sales
88

 
33

 
105

 
43

Selling, general and administrative
4,807

 
5,005

 
10,514

 
10,651

 
17,472

 
27,007

 
33,507

 
54,926

LOSS FROM OPERATIONS
(5,148
)
 
(3,307
)
 
(1,694
)
 
(10,631
)
Interest expense, net
(6,032
)
 
(6,187
)
 
(12,086
)
 
(12,397
)
Foreign currency exchange gains (losses)
470

 
(34
)
 
1,112

 
(85
)
Other income
63

 
96

 
72

 
96

Loss before income taxes
(10,647
)
 
(9,432
)
 
(12,596
)
 
(23,017
)
Provision (benefit) for income taxes
(836
)
 
204

 
(882
)
 
(2
)
NET LOSS
$
(9,811
)
 
$
(9,636
)
 
$
(11,714
)
 
$
(23,015
)
The accompanying notes are an integral part of these condensed consolidated financial statements.



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SEITEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
(In thousands)
 
  
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Net loss
$
(9,811
)
 
$
(9,636
)
 
$
(11,714
)
 
$
(23,015
)
Foreign currency translation adjustments
(2,369
)
 
2,569

 
(5,565
)
 
3,391

Comprehensive loss
$
(12,180
)
 
$
(7,067
)
 
$
(17,279
)
 
$
(19,624
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


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SEITEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY (Unaudited)
(In thousands, except share amounts)
 
 
 
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Common Stock
 
 
Shares
 
Amount
 
Balance, December 31, 2017
100

 
$

 
$
400,592

 
$
(314,671
)
 
$
(8,807
)
Amortization of stock-based compensation costs

 

 
3

 

 

Net loss

 

 

 
(11,714
)
 

Impact of adoption of new accounting standard

 

 

 
191

 

Foreign currency translation adjustments

 

 

 

 
(5,565
)
Balance, June 30, 2018
100

 
$

 
$
400,595

 
$
(326,194
)
 
$
(14,372
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


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SEITEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)

  
Six Months Ended
June 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Reconciliation of net loss to net cash provided by operating activities:
 
 
 
Net loss
$
(11,714
)
 
$
(23,015
)
Depreciation and amortization
18,392

 
44,232

Impairment of goodwill
4,496

 

Deferred income tax benefit
(977
)
 
(585
)
Foreign currency exchange losses (gains)
(1,112
)
 
85

Amortization of deferred financing costs
692

 
627

Amortization of stock-based compensation
3

 
6

Gain on sale of seismic data and property and equipment
(54
)
 
(96
)
Non-cash revenue
(97
)
 
(1,407
)
Decrease in receivables
13,517

 
6,441

Increase in other assets
(1,434
)
 
(165
)
Increase (decrease) in deferred revenue
2,451

 
(2,888
)
Decrease in accounts payable and other liabilities
(5,228
)
 
(2,381
)
Net cash provided by operating activities
18,935

 
20,854

Cash flows from investing activities:
 
 
 
Cash invested in seismic data
(13,991
)
 
(16,101
)
Cash paid to acquire property and equipment
(173
)
 
(250
)
Cash from sale of seismic data and property and equipment
58

 
3

Advances to Seitel Holdings, Inc.
(7
)
 
(8
)
Net cash used in investing activities
(14,113
)
 
(16,356
)
Cash flows from financing activities:
 
 
 
Principal payments on capital lease obligations
(138
)
 
(112
)
Net cash used in financing activities
(138
)
 
(112
)
Effect of exchange rate changes
(112
)
 
460

Net increase in cash and cash equivalents
4,572

 
4,846

Cash and cash equivalents at beginning of period
70,581

 
55,997

Cash and cash equivalents at end of period
$
75,153

 
$
60,843

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
11,946

 
$
11,940

Income taxes, net of refunds received
$
3,681

 
$
690

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Additions to seismic data library
$

 
$
1,250

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SEITEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited)
June 30, 2018
NOTE A-BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Seitel, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. In preparing the Company’s financial statements, a number of estimates and assumptions are made by management that affect the accounting for and recognition of assets, liabilities, revenues and expenses. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for any other quarter of 2018 or for the year ending December 31, 2018. The condensed consolidated balance sheet of the Company as of December 31, 2017 has been derived from the audited balance sheet of the Company as of that date. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company’s $250.0 million 9½% senior notes (the “9½% Senior Notes”) mature on April 15, 2019. While the Company is currently evaluating its options to refinance all or a portion of this debt, no firm plans for refinancing have been reached. As a result of the debt maturing in less than one year from the issuance of these financial statements and the Company not having firm plans in place related to a refinancing, substantial doubt is raised about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s ability to restructure or refinance at least a portion of its outstanding debt as it matures. There is no assurance that the Company will be able to refinance or extend principal payments due at maturity or pay them with proceeds of other capital transactions and the Company’s cash flow may not be sufficient to repay all such maturing debt. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Effective January 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” utilizing the modified retrospective approach, recognizing approximately $0.2 million that was in deferred revenue as of December 31, 2017 to retained earnings. This amount represents the cumulative catch-up of revenue recognition on uncompleted contracts as of January 1, 2018 on non-exclusive data licenses (resale licenses) of seismic surveys that are in the process of being created and where the resale licensing customers have been granted the same legally enforceable rights and access to and use of the results of the acquisition work performed as the original acquisition underwriting clients. Prior to adoption of the new standard, the Company recognized revenue on these resale licenses when the data was available for delivery. Upon adoption, the Company now recognizes the revenue for these specific resale licensing agreements during the remaining survey creation period, resulting in revenue being recognized earlier. Other than this change in policy, ongoing application of the new standard will not have a significant impact to the Company’s revenue recognition but has resulted in expanded disclosures. See further discussion and expanded revenue recognition disclosures at Note B - “Revenue Recognition.”
Effective April 1, 2018, the Company adopted ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new standard simplifies the measurement of goodwill impairment by eliminating Step 2 from the goodwill impairment test. Prior to adoption of the new standard, Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In order to compute the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the same procedure that would be required for purchase price allocation in a business combination. Under the new standard, a goodwill impairment loss is measured using the difference between the carrying amount and the fair value of the reporting unit limited to the total carrying amount of that reporting unit’s goodwill. The Company performed a goodwill impairment test as of June 30, 2018 utilizing the simplified method as prescribed by ASU No. 2017-04. See further discussion at Note D - “Goodwill and Other Intangibles.”
NOTE B-REVENUE RECOGNITION
Revenues are primarily derived from licensing of seismic data to customers for fixed consideration. These seismic data licenses represent a single performance obligation and revenue is recognized when a contract with a customer exists and the Company satisfies its performance obligation to the customer either over time in the case of revenue from data acquisition or at a point in time for the majority of its revenue from non-exclusive licenses. If a contract contains multiple performance obligations

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(seismic data license and reproduction or data processing services), the Company allocates the transaction price to the related performance obligations based on their relative standalone selling prices typically using the residual approach. The Company does not adjust the amount of consideration per the contract for the effects of a significant financing component when the Company expects, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less, which is in substantially all cases. Additionally, the Company does not typically extend payment terms beyond one year in its contracts with customers.
The following table presents the Company’s revenues disaggregated by component (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Acquisition underwriting revenue
$
1,432

 
$
4,359

 
$
4,633

 
$
11,272

Resale licensing revenue
10,257

 
18,878

 
26,073

 
32,073

Total seismic revenue
11,689

 
23,237

 
30,706

 
43,345

Solutions and other
635

 
463

 
1,107

 
950

Total revenue
$
12,324

 
$
23,700

 
$
31,813

 
$
44,295

Revenue from Data Acquisition
The Company generates revenue when it creates a new seismic survey that is initially licensed by one or more of its customers to use the resulting data. The payments for the initial licenses, representing the fixed consideration stated per the contract, are sometimes referred to as acquisition underwriting or prefunding. Customers make periodic payments throughout the new survey creation period based on milestones stated per the contract, which generally correspond to costs incurred and work performed. These payments are non-refundable. Contracts signed up to the time the Company makes a firm commitment to create the new seismic survey are considered acquisition underwriting. Any subsequent license of the data while the survey is in progress or once it is completed is considered a resale license (see “Revenue from Non-Exclusive Data Licenses”).
The license price and acquisition services provided by the Company represent a single performance obligation as the data acquisition services are not distinct from the corresponding data license; therefore, acquisition underwriting revenue is recognized throughout the new survey creation period using the proportional performance method. The proportional performance amount at each reporting period is calculated using an input method based upon costs incurred and work performed to date as a percentage of total estimated costs and work required. Management believes that this method is the most reliable and representative measure of progress for its new survey creation projects and satisfaction of its performance obligation for recognition of its acquisition underwriting revenue. On average, the duration of the new survey creation process is approximately 12 to 18 months.
Under the contracts related to the new survey, the Company creates new seismic data designed in conjunction with its customers and specifically suited to the geology of the area using the most appropriate technology available. The Company outsources the substantial majority of the work required to complete data acquisition projects to third-party contractors. The Company’s payments to these third-party contractors comprise the substantial majority of the total estimated costs of the projects and are paid throughout the new survey creation period. A typical survey includes specific activities required to complete the survey creation, each of which has value to the customers. Typical activities, that often occur concurrently, include:
permitting for land access, mineral rights, and regulatory approval;
surveying;
drilling for the placement of energy sources;
recording the data in the field; and
processing the data.
The customers paying for the initial licenses to the data created from a new survey have access to and receive legally enforceable rights to any resulting product of each activity described above. The customers also receive access to and use of the newly acquired, processed data.
The customers’ access to and use of the results of the work performed and of the newly acquired, processed data is governed by a master license agreement, which is a separate agreement from the acquisition contract. The Company’s acquisition contracts require the customer either to have a master license agreement in place or to execute one at the time the acquisition contract is signed. The Company typically maintains sole ownership of the newly acquired data, which is added to its library, and is free to license the data to other customers.

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Revenue from Non-Exclusive Data Licenses
The Company recognizes a substantial portion of its revenue from licensing of data that has already been created and is available for delivery. This seismic data license represents a single performance obligation that is typically recognized at a point in time. The revenue is sometimes referred to as resale licensing revenue, late sales or shelf sales.
These sales fall under the following four basic forms of non-exclusive license contracts, each of which is subject to the terms and conditions contained in a customer’s master license agreement.
Specific license contract—The customer licenses specific data from the data library, including data currently in progress, at the time the contract is entered into and holds this license for a long-term period.

Library card license contract—The customer initially receives only the right to access a certain amount of data. The customer selects which data to access and hold long-term under its license agreement. The length of the selection period under a library card contract is limited in time and varies from customer to customer.

Review and possession license contract—The customer receives the right to review a certain quantity of data for a limited period of time. During the review period, the customer may select specific data from that available for review to hold long-term under its license agreement. Any data not selected for long-term licensing must be returned to the Company at the end of the review period.

Review only license contract—The customer obtains rights to review a certain quantity of data for a limited period of time, but does not obtain the right to select specific data to hold long-term.
The Company’s non-exclusive license contracts specify the following:

that all customers must also have in place or execute a master license agreement that governs the use of all data received under each non-exclusive license contract;
the specific payment terms, generally ranging from 30 days to 12 months, and that such payments are non-cancelable and non-refundable;
the actual data that is accessible by the customer; and
that the data is licensed in its present form, as is, where is, and that the Company is under no obligation to make any enhancements, modifications or additions to the data unless specific terms to the contrary are included.
Non-exclusive licenses are provided to each customer as a right to use the seismic data licensed as it exists at contract execution. Therefore, revenue from the non-exclusive licensing of seismic data is typically recognized at the point in time when the following criteria are met:

the Company has an approved agreement with the customer;
the transaction price is determinable;
collection of consideration (transaction price) is probable;
the customer has selected the specific data or the contract has expired without full selection; and
the data is currently available for delivery.
Copies of the licensed data are available to the customer immediately upon request.
For licenses that have been invoiced for which payment is due or has been received, but that have not met the aforementioned criteria, revenue is deferred. This normally occurs under the library card, review and possession or review only license contracts because the data selection may occur over time.
In situations where the non-exclusive license provided to the customer is for seismic data in progress and the resale licensing customer is granted the same legally enforceable rights and access to and use of the results of the acquisition work performed as the original acquisition underwriting clients, effective January 1, 2018, the Company recognizes such resale revenue over time during the remaining survey creation period using the proportional performance method, instead of when the data is available for delivery. This change is due to the adoption of ASU 2014-09 as discussed in Note A - “Basis of Presentation.”

Revenue from Non-Monetary Exchanges
In certain cases, the Company will take ownership of a customer’s seismic data or revenue interest therein (collectively referred to as “data”) in exchange for a non-exclusive license to selected seismic data from the Company’s library or, in some cases, reproduction or data processing services. In connection with specific data acquisition contracts, the Company may choose to

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receive both cash and ownership of seismic data from the customer as consideration for the underwriting of new data acquisition. These transactions are referred to as non-monetary exchanges. A non-monetary exchange for data always complies with the following criteria:
the data licensed to a customer is always distinct from the data received from that customer;
the customer forfeits ownership of the data received by the Company; and
the Company retains ownership in the data licensed.
In non-monetary exchange transactions, the Company records a data library asset for the seismic data received at the time the contract is entered into and recognizes revenue on the transaction in equal value in accordance with its policy on revenue from resale data licenses or data acquisition, or as services are provided by our Seitel Solutions business unit (“Solutions”), as applicable. The resale data license to the customer is in the form of one of the four basic forms of contracts discussed above. These transactions are valued at the fair value of the data received by the Company or the fair value of the license granted or services provided to the customer, whichever is more readily determinable.
Fair value of the data exchanged is determined using a multi-step process as follows:

First, the Company considers the value of the data received from the customer. In determining the value of the data received, the Company considers the age, quality, current demand and future marketability of the data and, in the case of 3D seismic data, the cost that would be required to create the data. In addition, the Company applies a limitation on the value it assigns per square mile on the data received.

Second, the Company determines the value of the license granted to the customer. Typically, the range of cash transactions by the Company for licenses of similar data during the prior six months are evaluated. In evaluating the range of cash transactions, the Company does not consider transactions that are disproportionately high or low.
Due to the Company’s revenue recognition policies, revenue recognized on non-monetary exchange transactions may not occur at the same time that the seismic data acquired is recorded as an asset. The activity related to non-monetary exchanges was as follows (in thousands): 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Seismic data library additions
$

 
$
1,000

 
$

 
$
1,250

Revenue recognized on specific data licenses or selections of data
63

 
1,000

 
63

 
1,250

Revenue recognized related to acquisition contracts

 
87

 

 
126

Revenue recognized related to Solutions and other revenue
29

 
31

 
34

 
31

Revenue from Solutions
Revenue from Solutions is recognized as the services for reproduction and delivery of seismic data are provided to customers.
Trade Receivables: Trade receivables include amounts billed and currently due from customers and unbilled amounts typically arising from data acquisition contracts when revenue recognized exceeds the amounts billed to the customer, and right to payment is not just subject to the passage of time. Trade receivables are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected.
Deferred Commissions: The Company’s incremental direct costs of obtaining a contract, which primarily consist of sales commissions, are recognized as expense as revenue is recognized on the corresponding contract. Therefore, sales commissions are deferred on licenses that have been invoiced for which payment is due or has been received, but that have not met the criteria needed for revenue recognition. Deferred commissions are included in prepaid expenses, deferred charges and other assets in the consolidated balance sheets and were $0.3 million and $0.2 million as of June 30, 2018 and December 31, 2017, respectively.
Contract Liabilities: The Company’s contract liabilities consist of billings in excess of revenue recognized and are included in deferred revenue in the consolidated balance sheets. The Company’s deferred revenue balance is comprised of (i) deferred revenue on data acquisition projects, (ii) data licensing contracts where selection of specific data had not yet occurred, (iii) data licensing contracts with data products not yet available and (iv) data licensing contracts where any other revenue recognition criteria has not yet been met. The deferred revenue will be recognized as work progresses on the data acquisition contracts, when selection of specific data is made by the customer, upon expiration of the data selection period specified in the data

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licensing contracts if full selection has not occurred, as the data products become available or as all of the revenue recognition criteria are met. Revenue recognized that had been previously deferred was $2.6 million during the six months ended June 30, 2018 and $6.1 million during the six months ended June 30, 2017.
At June 30, 2018, we had a deferred revenue balance of $15.2 million, compared to the December 31, 2017 balance of $13.1 million. The deferred revenue balance as of June 30, 2018 is scheduled to be recognized no later than the following, based on the contractual expiration of the selection period or the Company’s estimate of progress on acquisition projects and the availability of data products, although some revenue may be recognized earlier (in thousands):
2018
$
13,089

2019
155

2020 and thereafter
1,942

Remaining Performance Obligations: Remaining performance obligations represents the transaction price of executed acquisition contracts for which work has not been performed. In addition to the $15.2 million total deferred revenue balance as of June 30, 2018, an additional $7.3 million related to the aggregate amount of transaction price allocated to remaining performance obligations remained. The Company expects to recognize revenue of approximately $7.0 million during 2018 with the remainder in 2019.
NOTE C-SEISMIC DATA LIBRARY
The Company’s seismic data library consists of seismic surveys that are offered for license to customers on a non-exclusive basis. Costs associated with creating, acquiring or purchasing the seismic data library are capitalized and amortized principally on the income forecast method subject to a straight-line amortization period of four years, applied on a quarterly basis at the individual survey level.
Costs of Seismic Data Library
For newly created data, the capitalized costs include costs paid to third parties for the acquisition of data and related permitting, surveying and other activities associated with the data creation activity. In addition, the Company capitalizes certain internal costs related to processing the created data and reprocessing existing data. Such costs include salaries and benefits of the Company’s processing personnel and certain other costs incurred for the benefit of the processing activity. The Company believes that the internal processing costs capitalized are not greater than, and generally are less than, those that would be incurred and capitalized if such activity were performed by a third party. Capitalized costs for internal data processing were $0.6 million for each of the three months ended June 30, 2018 and 2017 and $1.2 million and $1.3 million for the six months ended June 30, 2018 and 2017, respectively.
For data received through a non-monetary exchange, the Company capitalizes an amount equal to the fair value of the data received by the Company or the fair value of the license granted or services provided to the customer, whichever is more readily determinable. See Note B – “Revenue Recognition – Revenue from Non-Monetary Exchanges” for discussion of the process used to determine fair value.
For purchased seismic data, the Company capitalizes the purchase price of the acquired data.
Data Library Amortization
The Company amortizes each survey in its seismic data library using the greater of the amortization that would result from the application of the income forecast method to each survey’s revenue, subject to a minimum amortization rate, or a straight-line basis over four years, commencing at the time such survey is completed and available for licensing to customers on a non-exclusive basis.
The Company applies the income forecast method by forecasting the ultimate revenue expected to be derived from a particular data library component over the estimated useful life of each survey comprising part of such component. This forecast is made by the Company annually and reviewed quarterly. If, during any such review, the Company determines that the ultimate revenue for a library component is expected to be significantly different than the most recent estimate of total revenue for such library component, the Company revises the amortization rate attributable to future revenue from each survey in such component. The Company applies a minimum amortization rate of 70%. In addition, in connection with the forecast reviews and updates, the Company evaluates the recoverability of its seismic data library investment, and if required, records an impairment charge with respect to such investment. See discussion on “Seismic Data Library Impairment” below.
The greater of the income forecast or straight-line amortization policy is applied quarterly on a cumulative basis at the individual survey level. Under this policy, the Company first records amortization using the income forecast method. The

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cumulative amortization recorded for each survey is then compared with the cumulative straight-line amortization. If the cumulative straight-line amortization is higher for any specific survey, additional amortization expense is recorded, resulting in accumulated amortization being equal to the cumulative straight-line amortization for such survey. This requirement is applied regardless of future-year revenue estimates for the library component of which the survey is a part and does not consider the existence of deferred revenue with respect to the library component or to any survey.
The actual aggregate rate of amortization depends on the specific seismic surveys licensed and selected by the Company’s customers during the period and the amount of straight-line amortization recorded. The income forecast amortization rates can vary by component and, as of July 1, 2018, is 70% for all components. For those seismic surveys which have been fully amortized, no amortization expense is required on revenue recorded.

Seismic Data Library Impairment
The Company evaluates its seismic data library investment by grouping individual surveys into components based on its operations and geological and geographical trends, resulting in the following data library segments for purposes of evaluating impairments: (I) North America 3D onshore comprised of the following components: (a) Texas Gulf Coast, (b) Eastern Texas, (c) Permian, (d) Anadarko Basin in North Texas/Oklahoma, (e) Southern Louisiana/Mississippi, (f) Northern Louisiana, (g) Rocky Mountains, (h) Utica/Marcellus in Pennsylvania, Ohio and West Virginia, (i) other United States, (j) Montney in British Columbia and Alberta, (k) Horn River in British Columbia, (l) Duvernay in Alberta and (m) other Canada; (II) United States 2D; (III) Canada 2D; (IV) Mexico; (V) Gulf of Mexico offshore; and (VI) international data outside North America. The Company believes that these library components constitute the lowest levels of independently identifiable cash flows.
The Company evaluates its seismic data library investment for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company considers the level of sales performance in each component compared to projected sales, as well as industry conditions, among others, to be key factors in determining when its seismic data investment should be evaluated for impairment. In evaluating sales performance of each component, the Company generally considers five consecutive quarters of actual performance below forecasted sales to be an indicator of potential impairment.
The impairment evaluation is based first on a comparison of the undiscounted future cash flows over each component’s remaining estimated useful life with the carrying value of each library component. If the undiscounted cash flows are equal to or greater than the carrying value of such component, no impairment is recorded. If undiscounted cash flows are less than the carrying value of any component, the forecast of future cash flows related to such component is discounted to fair value and compared with such component’s carrying amount. The difference between the library component’s carrying amount and the discounted future value of the expected revenue stream is recorded as an impairment charge.
For purposes of evaluating potential impairment losses, the Company estimates the future cash flows attributable to a library component by evaluating, among other factors, historical and recent revenue trends, oil and gas prospectivity in particular regions, general economic conditions affecting its customer base and expected changes in technology and other factors that the Company deems relevant. The cash flow estimates exclude expected future revenues attributable to non-monetary data exchanges and future data creation projects.
The estimation of future cash flows and fair value is highly subjective and inherently imprecise. Estimates can change materially from period to period based on many factors, including those described in the preceding paragraph. Accordingly, if conditions change in the future, the Company may record impairment losses relative to its seismic data library investment, which could be material to any particular reporting period.
The Company did not have any impairment charges during the six months ended June 30, 2018 or 2017.
NOTE D-GOODWILL AND OTHER INTANGIBLES
At least annually on October 1st, and more frequently if warranted, the Company assesses its goodwill and indefinite lived intangible assets for impairment. Due to a change in ownership that occurred at Seitel, Inc.’s parent company level in July 2018 (the “July 2018 Transaction”), the Company performed a goodwill impairment test as of June 30, 2018 and determined that the carrying amount of the reporting unit was less than its fair value and recorded a goodwill impairment loss of approximately $4.5 million. The fair value of the reporting unit used for the goodwill impairment test was determined based on the purchase price paid in the July 2018 Transaction. See Note L - “Subsequent Events” for further discussion of the July 2018 Transaction.

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No impairment losses were recorded for goodwill in prior periods. Changes in the carrying amount of goodwill for the six months ended June 30, 2018 were as follows (in thousands): 
 
 
June 30, 2018
Balance at beginning of year
 
$
187,243

Impairment loss
 
(4,496
)
Translation adjustments
 
(3,767
)
Balance at June 30, 2018
 
$
178,980

In addition to goodwill, the Company also assessed its tradename indefinite lived intangible assets for impairment as of June 30, 2018 and determined that those assets were not impaired.
NOTE E-INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. The changes include, but are not limited to, a decrease in the U.S. corporate tax rate from 35% to 21%, the transition of U.S. international taxation from a worldwide tax system to a territorial system, allowing for immediate expensing of certain qualified property, modifications to many business deductions and credits and providing various tax incentives. Due to the complexities involved in the accounting for the enactment of the new law, the Securities and Exchange Commission staff released Staff Accounting Bulletin 118 on December 23, 2017, which allowed companies to record a provisional impact of the Tax Act during a measurement period, not to exceed one year, in situations where companies do not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act for the reporting period which includes enactment. The Company recorded its provisional estimates related to the realizability of the Company’s alternative minimum tax credit and taxes on mandatory deemed repatriation of foreign earnings as of December 31, 2017 which resulted in a benefit to income taxes of $2.4 million. The Company is finalizing its determination of cumulative undistributed foreign earnings through December 31, 2017 and as of June 30, 2018, currently estimates the amount to be positive earnings and profits. However, the one-time transition tax on the deemed repatriation is expected to be offset against the Company’s 2017 net operating loss; therefore, no additional tax expense has been recorded.
The Company will continue to evaluate the Tax Act and adjust the provisional amounts as additional information is obtained and will complete its analysis no later than the fourth quarter of 2018. There were no changes during the second quarter or first six months of 2018 to previous estimates and amounts recorded.
NOTE F-DEBT
The following is a summary of the Company’s debt (in thousands):
 
June 30,
2018
 
December 31,
2017
9½% Senior Notes
$
250,000

 
$
250,000

Less: unamortized debt issuance costs
(1,166
)
 
(1,858
)
 
$
248,834

 
$
248,142

9½% Senior Unsecured Notes: On March 20, 2013, the Company issued, in a private placement, $250.0 million aggregate principal amount of its 9½% Senior Notes. As required by their terms, the 9½% Senior Notes were exchanged for senior notes of like amounts and terms in a publicly registered exchange offer in August 2013. The 9½% Senior Notes mature on April 15, 2019. Interest is payable in cash, semi-annually on April 15 and October 15 of each year. The 9½% Senior Notes are unsecured and are jointly and severally guaranteed by substantially all of the Company’s significant 100% owned U.S. subsidiaries on a senior basis. The 9½% Senior Notes contain restrictive covenants which limit the Company’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends and make other restricted payments, engage in transactions with affiliates, and complete mergers, acquisitions and sales of assets.
Upon a change of control (as defined in the indenture), each holder of the 9½% Senior Notes will have the right to require the Company to offer to purchase all of such holder’s notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest. The July 2018 Transaction described in Note L - “Subsequent Events” did not result in a change of control as defined in the indenture.

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NOTE G-FAIR VALUE MEASUREMENTS
Authoritative guidance on fair value measurements provides a framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. In measuring the fair value of the Company’s assets and liabilities, market data or assumptions are used that the Company believes market participants would use in pricing an asset or liability, including assumptions about risk when appropriate. The Company’s assets that are measured at fair value on a recurring basis include the following (in thousands):
 
 
 
Fair Value Measurements Using
 
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant  Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
At June 30, 2018:
 
 
 
 
 
 
 
Cash equivalents
$
75,043

 
$
75,043

 
$

 
$

At December 31, 2017:
 
 
 
 
 
 
 
Cash equivalents
$
70,298

 
$
70,298

 
$

 
$

The Company had no transfers of assets between any of the above levels during the six months ended June 30, 2018 or 2017.
Cash equivalents include treasury bills and money market funds that invest in United States government obligations and Canadian investment accounts, all with original maturities of three months or less. The original costs of these assets approximate fair value due to their short-term maturities.
Other Financial Instruments:
At June 30, 2018, the carrying value of the Company’s debt was $248.8 million, net of $1.2 million of unamortized debt issuance costs. At December 31, 2017, the carrying value was $248.1 million, net of $1.9 million of unamortized debt issuance costs. The estimated fair value of the debt was approximately $250.0 million at June 30, 2018 and $250.3 million at December 31, 2017. The fair value of the Company’s 9½% Senior Notes is based on quoted market prices (Level 1 inputs).
NOTE H-STATEMENT OF CASH FLOW INFORMATION
Cash and cash equivalents at June 30, 2018 and December 31, 2017 included $0.1 million and $0.6 million, respectively of restricted cash related to collateral on seismic operations bonds.
For purposes of the statement of cash flows, the Company considers all highly liquid investments or debt instruments with an original maturity of three months or less to be cash equivalents. The Company maintains its day-to-day operating cash and temporary excess cash with various banking institutions that, in turn, invest in time deposits and U.S. Treasury bills.
Income taxes paid during the six months ended June 30, 2018 and 2017 were $4.2 million and $0.7 million, respectively. During the six months ended June 30, 2018, the Company also received income tax refunds totaling $0.5 million.
The Company had non-cash additions to its seismic data library comprised of the following (in thousands): 
 
Six Months Ended
June 30,
 
2018
 
2017
Non-monetary exchanges related to resale licensing
$

 
$
1,250



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Non-cash revenue consisted of the following (in thousands):
 
Six Months Ended
June 30,
 
2018
 
2017
Acquisition revenue on underwriting from non-monetary exchange contracts
$

 
$
126

Licensing revenue from specific data licenses and selections on non-monetary exchange contracts
63

 
1,250

Solutions and other revenue recognized from non-monetary exchange contracts
34

 
31

Total non-cash revenue
$
97

 
$
1,407

NOTE I-COMMITMENTS AND CONTINGENCIES
The Company is involved from time to time in ordinary, routine claims and lawsuits incidental to its business. In the opinion of management, uninsured losses, if any, resulting from the ultimate resolution of these matters should not be material to the Company’s financial position, results of operations or cash flows. However, it is not possible to predict or determine the outcomes of the legal actions brought against it or by it, or to provide an estimate of all additional losses, if any, that may arise. At June 30, 2018, the Company has recorded the estimated amount of potential exposure it may have with respect to claims. Such amounts are not material to the financial statements.
NOTE J-RECENT ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” with the objective of increasing transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the present value of the rights and obligations created by all leases with terms of more than 12 months. The ASU will also require disclosures designed to give financial statement users information on the amount, timing and uncertainty of cash flows arising from leases. The amendments in this ASU are to be applied using a modified retrospective approach and will be effective for the Company as of January 1, 2019, but early adoption is permitted. The Company is currently evaluating the impact of adopting this new standard on its consolidated financial statements as of January 1, 2019 and believes that the most significant change will be to the Company’s balance sheet as its asset and liability balances will increase for operating leases that are currently off-balance sheet.
Other new pronouncements issued but not yet effective are not expected to have a material impact on the Company’s financial position, results of operations or liquidity.
NOTE K-SUPPLEMENTAL GUARANTORS CONSOLIDATING CONDENSED FINANCIAL INFORMATION
On March 20, 2013, the Company completed a private placement of 9½% Senior Notes in the aggregate principal amount of $250.0 million. The Company’s payment obligations under the 9½% Senior Notes are jointly and severally guaranteed on a senior basis by substantially all of the Company’s significant 100% owned U.S. subsidiaries (“Guarantor Subsidiaries”). All subsidiaries of the Company that do not guarantee the 9½% Senior Notes are referred to as Non-Guarantor Subsidiaries.
The indenture governing the 9½% Senior Notes provides that the guarantees by the Guarantor Subsidiaries will be released in the following customary circumstances: (i) upon a sale or other disposition, whether by merger, consolidation or otherwise, of the equity interests of that guarantor to a person that is not the Company or a restricted subsidiary of the Company; (ii) the guarantor sells all or substantially all of its assets to a person that is not the Company or a restricted subsidiary of the Company; (iii) the guarantor is properly designated as an unrestricted subsidiary or ceases to be a restricted subsidiary; (iv) upon legal defeasance of the 9½% Senior Notes or satisfaction and discharge of the indenture governing the 9½% Senior Notes; (v) the guarantor becomes an immaterial subsidiary or (vi) the guarantor, having also been a guarantor under a credit facility, is released from its guarantee obligations under a credit facility and does not guarantee any indebtedness of the Company or the Guarantor Subsidiaries.
The consolidating condensed financial statements are presented below and should be read in connection with the condensed consolidated financial statements of the Company. Separate financial statements of the Guarantor Subsidiaries are not presented because (i) the Guarantor Subsidiaries are wholly-owned and have fully and unconditionally guaranteed the 9½% Senior Notes on a joint and several basis and (ii) the Company’s management has determined such separate financial statements are not material to investors.

16

Table of Contents

The following consolidating condensed financial information presents the consolidating condensed balance sheets as of June 30, 2018 and December 31, 2017, the consolidating condensed statements of operations and statements of comprehensive income (loss) for the three and six months ended June 30, 2018 and June 30, 2017 and the consolidating condensed statements of cash flows for the six months ended June 30, 2018 and 2017 of (a) the Company; (b) the Guarantor Subsidiaries; (c) the Non-Guarantor Subsidiaries; (d) elimination entries; and (e) the Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis.
Investments in subsidiaries are accounted for under the equity method. The principal elimination entries eliminate investments in subsidiaries, intercompany balances, intercompany transactions and intercompany sales.

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Table of Contents


CONSOLIDATING CONDENSED BALANCE SHEET
As of June 30, 2018
(In thousands)
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
52,178

 
$
22,975

 
$

 
$
75,153

Receivables
 
 
 
 
 
 
 
 
 
Trade, net

 
8,986

 
882

 

 
9,868

Notes and other
2,357

 
25

 
201

 

 
2,583

Due from Seitel Holdings, Inc.

 
1,198

 

 

 
1,198

Intercompany receivables (payables)
(87,965
)
 
85,938

 
2,027

 

 

Investment in subsidiaries
412,751

 
422,925

 
653

 
(836,329
)
 

Net seismic data library

 
50,753

 
13,841

 

 
64,594

Net property and equipment

 
565

 
861

 

 
1,426

Prepaid expenses, deferred charges and other
211

 
2,640

 
2,064

 

 
4,915

Intangible assets, net
900

 

 

 

 
900

Goodwill

 
105,170

 
73,810

 

 
178,980

Deferred income taxes

 
53

 
166

 

 
219

TOTAL ASSETS
$
328,254

 
$
730,431

 
$
117,480

 
$
(836,329
)
 
$
339,836

LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
5,007

 
$
6,320

 
$
2,513

 
$

 
$
13,840

Income taxes payable
12

 
21

 

 

 
33

Senior Notes
248,834

 

 

 

 
248,834

Obligations under capital leases

 

 
1,166

 

 
1,166

Deferred revenue

 
13,843

 
1,343

 

 
15,186

Deferred income taxes

 

 
748

 

 
748

TOTAL LIABILITIES
253,853

 
20,184

 
5,770

 

 
279,807

STOCKHOLDER’S EQUITY
 
 
 
 
 
 
 
 
 
Common stock

 

 

 

 

Additional paid-in capital
400,595

 

 

 

 
400,595

Parent investment

 
764,105

 
156,784

 
(920,889
)
 

Retained deficit
(326,194
)
 
(53,858
)
 
(30,326
)
 
84,184

 
(326,194
)
Accumulated other comprehensive loss

 

 
(14,748
)
 
376

 
(14,372
)
TOTAL STOCKHOLDER’S EQUITY
74,401

 
710,247

 
111,710

 
(836,329
)
 
60,029

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY
$
328,254

 
$
730,431

 
$
117,480

 
$
(836,329
)
 
$
339,836



18

Table of Contents


CONSOLIDATING CONDENSED BALANCE SHEET
As of December 31, 2017
(In thousands)
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
43,380

 
$
27,201

 
$

 
$
70,581

Receivables
 
 
 
 
 
 
 
 
 
Trade, net

 
19,183

 
4,147

 

 
23,330

Notes and other
2,357

 
151

 
109

 

 
2,617

Due from Seitel Holdings, Inc.

 
1,191

 

 

 
1,191

Intercompany receivables (payables)
(75,641
)
 
73,244

 
2,397

 

 

Investment in subsidiaries
411,423

 
425,736

 
702

 
(837,861
)
 

Net seismic data library

 
57,703

 
16,839

 

 
74,542

Net property and equipment

 
593

 
1,006

 

 
1,599

Prepaid expenses, deferred charges and other
31

 
1,164

 
647

 

 
1,842

Intangible assets, net
900

 

 

 

 
900

Goodwill

 
107,688

 
79,555

 

 
187,243

Deferred income taxes

 
51

 
152

 

 
203

TOTAL ASSETS
$
339,070

 
$
730,084

 
$
132,755

 
$
(837,861
)
 
$
364,048

LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
5,007

 
$
9,421

 
$
5,770

 
$

 
$
20,198

Income taxes payable

 
12

 
2,765

 

 
2,777

Senior Notes
248,142

 

 

 

 
248,142

Obligations under capital leases

 

 
1,363

 

 
1,363

Deferred revenue

 
11,568

 
1,527

 

 
13,095

Deferred income taxes

 

 
1,359

 

 
1,359

TOTAL LIABILITIES
253,149

 
21,001

 
12,784

 

 
286,934

STOCKHOLDER’S EQUITY
 
 
 
 
 
 
 
 
 
Common stock

 

 

 

 

Additional paid-in capital
400,592

 

 

 

 
400,592

Parent investment

 
764,105

 
156,782

 
(920,887
)
 

Retained deficit
(314,671
)
 
(55,022
)
 
(27,652
)
 
82,674

 
(314,671
)
Accumulated other comprehensive loss

 

 
(9,159
)
 
352

 
(8,807
)
TOTAL STOCKHOLDER’S EQUITY
85,921

 
709,083

 
119,971

 
(837,861
)
 
77,114

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY
$
339,070

 
$
730,084

 
$
132,755

 
$
(837,861
)
 
$
364,048



19

Table of Contents


CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2018
(In thousands)
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
REVENUE
$

 
$
11,634

 
$
1,029

 
$
(339
)
 
$
12,324

EXPENSES:
 
 
 
 
 
 
 
 
 
Depreciation and amortization

 
6,291

 
1,790

 

 
8,081

Impairment of goodwill

 
2,518

 
1,978

 

 
4,496

Cost of sales

 
52

 
55

 
(19
)
 
88

Selling, general and administrative
130

 
3,984

 
1,013

 
(320
)
 
4,807

 
130

 
12,845

 
4,836

 
(339
)
 
17,472

LOSS FROM OPERATIONS
(130
)
 
(1,211
)
 
(3,807
)
 

 
(5,148
)
Interest income (expense), net
(6,407
)
 
261

 
114

 

 
(6,032
)
Foreign currency exchange gains

 

 
470

 

 
470

Other income

 
41

 
22

 

 
63

Loss before income taxes and equity in loss of subsidiaries
(6,537
)
 
(909
)
 
(3,201
)
 

 
(10,647
)
Provision (benefit) for income taxes

 
6

 
(842
)
 

 
(836
)
Equity in loss of subsidiaries
(3,274
)
 
(2,359
)
 

 
5,633

 

NET LOSS
$
(9,811
)
 
$
(3,274
)
 
$
(2,359
)
 
$
5,633

 
$
(9,811
)


20

Table of Contents


CONSOLIDATING CONDENSED STATEMENT OF COMPREHENSIVE LOSS
For the Three Months Ended June 30, 2018
(In thousands)

 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
Net loss
$
(9,811
)
 
$
(3,274
)
 
$
(2,359
)
 
$
5,633

 
$
(9,811
)
Foreign currency translation adjustments

 

 
(2,369
)
 

 
(2,369
)
Comprehensive loss
$
(9,811
)
 
$
(3,274
)
 
$
(4,728
)
 
$
5,633

 
$
(12,180
)


21

Table of Contents


CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2017
(In thousands)
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
REVENUE
$

 
$
19,291

 
$
5,010

 
$
(601
)
 
$
23,700

EXPENSES:
 
 
 
 
 
 
 
 
 
Depreciation and amortization

 
18,366

 
3,615

 
(12
)
 
21,969

Cost of sales

 
317

 
(8
)
 
(276
)
 
33

Selling, general and administrative
137

 
4,010

 
1,183

 
(325
)
 
5,005

 
137

 
22,693

 
4,790

 
(613
)
 
27,007

INCOME (LOSS) FROM OPERATIONS
(137
)
 
(3,402
)
 
220

 
12

 
(3,307
)
Interest expense, net
(6,039
)
 
(145
)
 
(3
)
 

 
(6,187
)
Foreign currency exchange gains (losses)

 
2

 
(36
)
 

 
(34
)
Other income

 

 
96

 

 
96

Income (loss) before income taxes and equity in income (loss) of subsidiaries
(6,176
)
 
(3,545
)
 
277

 
12

 
(9,432
)
Provision for income taxes

 
1

 
203

 

 
204

Equity in income (loss) of subsidiaries
(3,460
)
 
74

 

 
3,386

 

NET INCOME (LOSS)
$
(9,636
)
 
$
(3,472
)
 
$
74

 
$
3,398

 
$
(9,636
)


22

Table of Contents


CONSOLIDATING CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended June 30, 2017
(In thousands)

 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
Net income (loss)
$
(9,636
)
 
$
(3,472
)
 
$
74

 
$
3,398

 
$
(9,636
)
Foreign currency translation adjustments

 

 
2,569

 

 
2,569

Comprehensive income (loss)
$
(9,636
)
 
$
(3,472
)
 
$
2,643

 
$
3,398

 
$
(7,067
)

23

Table of Contents


CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2018
(In thousands)
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
REVENUE
$

 
$
28,489

 
$
4,250

 
$
(926
)
 
$
31,813

EXPENSES:
 
 
 
 
 
 
 
 
 
Depreciation and amortization

 
13,463

 
4,929

 

 
18,392

Impairment of goodwill

 
2,518

 
1,978

 

 
4,496

Cost of sales

 
332

 
56

 
(283
)
 
105

Selling, general and administrative
260

 
8,653

 
2,244

 
(643
)
 
10,514

 
260

 
24,966

 
9,207

 
(926
)
 
33,507

INCOME (LOSS) FROM OPERATIONS
(260
)
 
3,523

 
(4,957
)
 

 
(1,694
)
Interest income (expense), net
(12,618
)
 
313

 
219

 

 
(12,086
)
Foreign currency exchange gains (losses)

 
(1
)
 
1,113

 

 
1,112

Other income

 
50

 
22

 

 
72

Income (loss) before income taxes and equity in income (loss) of subsidiaries
(12,878
)
 
3,885

 
(3,603
)
 

 
(12,596
)
Provision (benefit) for income taxes

 
47

 
(929
)
 

 
(882
)
Equity in income (loss) of subsidiaries
1,164

 
(2,674
)
 

 
1,510

 

NET INCOME (LOSS)
$
(11,714
)
 
$
1,164

 
$
(2,674
)
 
$
1,510

 
$
(11,714
)


24

Table of Contents


CONSOLIDATING CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended June 30, 2018
(In thousands)

 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
Net income (loss)
$
(11,714
)
 
$
1,164

 
$
(2,674
)
 
$
1,510

 
$
(11,714
)
Foreign currency translation adjustments

 

 
(5,589
)
 
24

 
(5,565
)
Comprehensive income (loss)
$
(11,714
)
 
$
1,164

 
$
(8,263
)
 
$
1,534

 
$
(17,279
)

25

Table of Contents


CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2017
(In thousands)
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
REVENUE
$

 
$
33,093

 
$
12,144

 
$
(942
)
 
$
44,295

EXPENSES:
 
 
 
 
 
 
 
 
 
Depreciation and amortization

 
34,482

 
9,775

 
(25
)
 
44,232

Cost of sales

 
327

 
6

 
(290
)
 
43

Selling, general and administrative
260

 
8,637

 
2,406

 
(652
)
 
10,651

 
260

 
43,446

 
12,187

 
(967
)
 
54,926

LOSS FROM OPERATIONS
(260
)
 
(10,353
)
 
(43
)
 
25

 
(10,631
)
Interest expense, net
(11,913
)
 
(466
)
 
(18
)
 

 
(12,397
)
Foreign currency exchange gains (losses)

 
2

 
(87
)
 

 
(85
)
Other income

 

 
96

 

 
96

Loss before income taxes and equity in loss of subsidiaries
(12,173
)
 
(10,817
)
 
(52
)
 
25

 
(23,017
)
Benefit for income taxes

 
(1
)
 
(1
)
 

 
(2
)
Equity in loss of subsidiaries
(10,842
)
 
(51
)
 

 
10,893

 

NET LOSS
$
(23,015
)
 
$
(10,867
)
 
$
(51
)
 
$
10,918

 
$
(23,015
)


26

Table of Contents


CONSOLIDATING CONDENSED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended June 30, 2017
(In thousands)

 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
Net loss
$
(23,015
)
 
$
(10,867
)
 
$
(51
)
 
$
10,918

 
$
(23,015
)
Foreign currency translation adjustments

 

 
3,280

 
111

 
3,391

Comprehensive income (loss)
$
(23,015
)
 
$
(10,867
)
 
$
3,229

 
$
11,029

 
$
(19,624
)


27

Table of Contents


CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2018
(In thousands)
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(12,127
)
 
$
30,125

 
$
937

 
$

 
$
18,935

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Cash invested in seismic data

 
(9,154
)
 
(4,837
)
 

 
(13,991
)
Cash paid to acquire property and equipment

 
(141
)
 
(32
)
 

 
(173
)
Cash from sale of seismic data and property and equipment

 
32

 
26

 

 
58

Advances to Seitel Holdings, Inc.

 
(7
)
 

 

 
(7
)
Net cash used in investing activities

 
(9,270
)
 
(4,843
)
 

 
(14,113
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Principal payments on capital lease obligations

 

 
(138
)
 

 
(138
)
Intercompany transfers
12,127

 
(12,056
)
 
(71
)
 

 

Net cash provided by (used in) financing activities
12,127

 
(12,056
)
 
(209
)
 

 
(138
)
Effect of exchange rate changes

 
(1
)
 
(111
)
 

 
(112
)
Net increase (decrease) in cash and cash equivalents

 
8,798

 
(4,226
)
 

 
4,572

Cash and cash equivalents at beginning of period

 
43,380

 
27,201

 

 
70,581

Cash and cash equivalents at end of period
$

 
$
52,178

 
$
22,975

 
$

 
$
75,153



28

Table of Contents


CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2017
(In thousands)
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(12,220
)
 
$
17,498

 
$
15,576

 
$

 
$
20,854

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Cash invested in seismic data

 
(9,491
)
 
(6,610
)
 

 
(16,101
)
Cash paid to acquire property and equipment

 
(149
)
 
(101
)
 

 
(250
)
Cash from sale of seismic data and property and equipment

 

 
3

 

 
3

Advances to Seitel Holdings, Inc.

 
(8
)
 

 

 
(8
)
Net cash used in investing activities

 
(9,648
)
 
(6,708
)
 

 
(16,356
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Principal payments on capital lease obligations

 

 
(112
)
 

 
(112
)
Intercompany transfers
12,220

 
(12,220
)
 

 

 

Net cash provided by (used in) financing activities
12,220

 
(12,220
)
 
(112
)
 

 
(112
)
Effect of exchange rate changes

 

 
460

 

 
460

Net increase (decrease) in cash and cash equivalents

 
(4,370
)
 
9,216

 

 
4,846

Cash and cash equivalents at beginning of period

 
47,971

 
8,026

 

 
55,997

Cash and cash equivalents at end of period
$

 
$
43,601

 
$
17,242

 
$

 
$
60,843



29

Table of Contents

NOTE L-SUBSEQUENT EVENTS
The Company is a wholly-owned subsidiary of Seitel Holdings, Inc. (“Holdings”). Holdings is an investment entity in which ValueAct Capital Master Fund, L.P. (“ValueAct”) owned a majority interest and Centerbridge Capital Partners II, L.P. and Centerbridge Capital Partners SBS II, L.P. (together with Centerbridge Capital Partners II, L.P., “Centerbridge”) owned a minority interest. On July 17, 2018, Holdings, ValueAct and Centerbridge entered into a Securities Purchase Agreement through which Centerbridge exercised its rights under the Amended and Restated Securities Holders Agreement, dated May 23, 2011 to acquire all of ValueAct’s ownership interest in Holdings (previously defined as the “July 2018 Transaction”). The July 2018 Transaction resulted in a change of control at the Holdings level and Centerbridge now owns approximately 99.7% of the issued and outstanding shares of Holdings. The July 2018 Transaction will be accounted for as a business combination using the acquisition method in which a new basis of accounting at fair value is established in the acquirer’s financial statements for the assets acquired and liabilities assumed. The Company is currently evaluating whether the acquirer’s new accounting basis at fair value will be pushed-down to its subsequent financial statements.
Pursuant to Chief Executive Officer Mr. Robert D. Monson’s employment agreement, Mr. Monson was entitled to certain severance payments and benefits in the event his employment was terminated without cause, voluntarily or involuntarily after the July 2018 Transaction, including a cash severance payment in an amount equal to three times the sum of his base salary plus target bonus (the “Cash Payment”). On July 19, 2018, the Company entered into a letter agreement with Mr. Monson whereby the Company agreed to pay Mr. Monson an amount equal to the sum of the Cash Payment and a gross up for certain taxes, and in return Mr. Monson irrevocably waived certain rights and claims, including the right to receive additional severance payments and benefits under his employment agreement upon a future termination of his employment. As a result, the Company paid Mr. Monson $5.5 million in July 2018 that will be reflected as an expense of the Company in its statement of operations for the quarter ending September 30, 2018.

30

Table of Contents


Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes to the condensed consolidated financial statements included elsewhere in this document. When we use the terms we, us, our or similar words in this disclosure, we are referring to Seitel, Inc. and its subsidiaries, unless the context otherwise requires.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements contained in this report about our future outlook, prospects, strategies and plans, and about industry conditions, demand for seismic services and the future economic life of our seismic data are forward-looking, among others. All statements that express belief, expectation, estimates or intentions, as well as those that are not statements of historical fact, are forward-looking. The words “believe”, “expect”, “anticipate”, “estimate”, “project”, “propose”, “plan”, “target”, “foresee”, “should”, “intend”, “may”, “will”, “would”