UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) |
| | OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended September 30, 2012
| | ¨ | For the Fiscal Year Ended September 30, 2010 |
o
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
| | OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the Transition Period From to |
For the Transition Period From to
Commission FileNo. 001-34404
DAWSON GEOPHYSICAL COMPANY
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| Texas | | 75-0970548 |
Texas | | 75-0970548 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
508 West Wall, Suite 800, Midland, Texas 79701
(Principal Executive Office)
Telephone Number:432-684-3000
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | | Name of Exchange on Which Registered |
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Common Stock, $0.33 and1/3 par value | | The NASDAQ Stock Market |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o¨ No þ
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 þ No o¨
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 ofRegulation S-T (§ 232 405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes oþ No o¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. ¨o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o¨ | | Accelerated filer þ | | Non-accelerated filer o¨ | | Smaller reporting company o¨ |
| (Do not check if a smaller reporting company) |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). Yes o¨ No þ
As of March 31, 2010,2012, the aggregate market value of Dawson Geophysical Company common stock, par value $0.331/3 per share, held by non-affiliates (based upon the closing transaction price on Nasdaq) was approximately $224,166,842.
$260,868,713.On November 23, 2010,2012, there were 7,902,1068,031,369 shares of Dawson Geophysical Company common stock, $0.331/3 par value, outstanding.
As used in this report, the terms “we,” “our,” “us,” “Dawson” and the “Company” refer to Dawson Geophysical Company unless the context indicates otherwise.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for its 20102013 Annual Meeting of Shareholders to be held on January 18, 201122, 2013 are incorporated by reference into Part III of this Annual Report onForm 10-K.
number of energy source units we operate. These increases allow for a greater density of both channels and energy sources in order to increase resolution and to improve operating efficiencies. We have also utilized multi-component recording equipment on several projects in an effort to gain more information to help our clients enhance their development of producing reservoirs.
Multi-component recording involves the collection of different seismic waves, including shear waves, which aids in reservoir analysis such as fracture orientation and intensity in shales and more descriptive rock properties.In recent years, we have experienced continued increases in recording channel capacity on a per crew or project basis. This increase in channel count demand is driven by client needs and is necessary in order to produce higher resolution images, increase crew efficiencies and undertake larger scale projects. Due to the increase in demand for higher channel counts, we have continued our investments in additional channels. In response to project-based channel requirements, we routinely deploy a variable number of channels on a variable number of crews in an effort to maximize asset utilization and meet client needs. We believe we will realize the benefit of increased channel counts and flexibility of deployment through increased crew efficiencies, higher revenues and margins.
During fiscal 2011 and 2012, we purchased or leased a significant number of cable-less recording channels. We have utilized this equipment as primarily stand-alone recording systems but on occasion in conjunction with our cable-based systems. As a result of the introduction of cable-less recording systems, we have realized increased crew efficiencies and increased revenue on projects using this equipment. We believe we will experience continued demand for cable-less recording systems in the future. As we have replaced cable-based recording equipment with cable-less equipment on certain crews, the cable-based recording equipment continues to be redeployed on existing crews as needed, including on the additional two crews fielded during the second quarter of fiscal 2011.
Data Acquisition. The seismic survey begins at the time a client requests that we formulate a proposal to acquire seismic data on its behalf. Geophysicists then assist the client in designing the specifications of the proposed3-D survey. If the client accepts our proposal, permit agents, either our employees or contract agents, then obtain access rights of way from surface and mineral estate owners or lessees where the survey is to be conducted. From time to time, our clients undertake the permitting effort on their own prior to our submittal of a proposal.
Utilizing electronic surveying equipment, survey personnel, who are either our employees or contract companies, precisely locate the energy source and receiver positions from which the seismic data are collected. We use vibrator energy sources which are mounted on vehicles, the majority of which weigh 62,000 pounds each, to generate seismic energy, or we detonate dynamite charges placed in drill holes drilled below the earth’s surface. We use third-party contractors for the drilling of holes and the purchasing, handling and disposition of dynamite charges. We also use third-party helicopter services to move equipment in areas of difficult terrain in an effort to increase efficiency and reduce safety risk.
At fiscal year end 2010, we operated twelve land-based seismic data acquisition crews, utilizing up to 147We currently own 169 vibrator energy source units and over 119,000167,000 recording channels, any of which may be configured to meet the demands of specific survey designs. Each crew consists of approximately forty to one hundred technicians, twenty-five or more vehicles with off-road capabilities, up to 75,000 geophones, a seismic recording system, energy sources, electronic cables and a variety of other equipment.
channels. We also currently own sufficienteighteen central recording equipment, energy sources and ancillary vehicles to operate sixteen fully equipped crews.systems. Of the sixteeneighteen recording systems we owned at September 30, 2010,2012, six are Geospace Technologies GSR cable-less recording systems, eight are ARAM ARIES cable-based recording systems sixand four are I/O System II RSR radio-based recording systems and two are I/O System II MRX cable-based recording systems. In November 2009, we purchased 2,000 OYO GSR four-channel recording boxes along with three-component geophones. The GSR can be operated as a 6,000-channel cable-less recording system with 3-C geophones or 2,000 channels with conventional geophones. Alternatively, with the use of our existing geophones and ARAM cables, the system can operate as an 8,000-channel recording system. In either configuration, the GSR can be operated as added channel count with increased operational flexibility with or in place of the Company’s existing ARAM or RSR systems. The ARIES, RSR and MRX recording systems all utilize similar types of geophones, and the GSR recording system can use either three-component or conventional geophones. All of our systems record equivalent seismic information but vary in the manner by which seismic data are transferred to the central recording unit, as well as their operational flexibility and channel count expandability.
From time to time, we utilize the cable-less Geospace Technologies GSR system in conjunction with the ARAM ARIES cable system to increase the flexibility and recording capacity of the cable system.At fiscal year-end 2012, we operated fourteen land-based seismic data acquisition crews. Each crew consists of approximately forty to one hundred technicians, twenty-five or more vehicles with off-road capabilities, up to 100,000 geophones, a seismic recording system, energy sources, electronic cables and a variety of other equipment. Our equipment may be configured on our crews in various combinations to meet the demands of specific survey designs.
Of the twelvefourteen data acquisition crews in operation at September 30, 2010, seven2012, five used GSR recording systems, six used ARAM recording systems, fourand three used I/O RSR recording systems and one used an I/O MRX recording system.systems. All of our crews utilize either vibrator energy sources or dynamite energy sources.
While the number of recording systems we own is in excess of the number needed to field our current level of data acquisition crews, we maintain the excess equipment to provide additional operational flexibility and to allow us to quickly deploy additional recording channels and energy source units as needed to respond to client demand and clients’ desire for improved data quality with greater subsurface images.Client demand for more recording channels continues to increase as the industry strives for improved data quality with greaterhigher resolution subsurface images. We believe this trend will continue and that our ability to deploy a large number of recording channels and multiple energy source units provides us with the competitive advantages of operational versatility and increased productivity, in addition to improved data quality. In October 2010, we placed an order for 2,000 additional OYO GSR four-channel recording boxes along with three-component geophones. As with the previous OYO purchase, the new GSR four-channel recording system can be used in place of or in conjunction with our ARAM or RSR systems. Beginning in October 2010, we will take delivery of ten INOVA
AHV4-364 energy sources. The purchase of the additional energy sources will expand our energy source fleet to 157 by the end of the first quarter of fiscal year 2011.
Data Processing. We currently operate a computer center located in Midland, Texas and provide additional processing services through our Houston and Oklahoma City offices. Data processing primarily involves the enhancement of seismic data by improving reflected signal resolution, removing ambient noise and establishing
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The markets for oil and natural gas have historically been volatile and are likely to continue to be so in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview.”
Our revenues are subject to fluctuations that are beyond our control which could adversely affect our results of operations in any financial period. Weather conditions and delays in obtaining land access rights from third parties have particularly affected our results of operations in past periods and are likely to affect our results in future periods.
Our operating results vary in material respects from quarter to quarter and will continue to do so in the future. Factors that cause variations include the timing of the receipt and commencement of contracts for data acquisition, timing of the commencement and completion of work under data acquisition contracts, land access permit and weather delays, seasonal factors such as holiday schedules, shorter winter days or agricultural or hunting seasons, and crew repositioning and crew utilization and productivity. Should one or more of our fourteen crews experience changes in timing due to one or more of these factors, our financial results could be subject to significant variations from period to period. Combined with our high fixed costs, these revenue fluctuations could also produce unexpected adverse results of operations in any fiscal period.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview.”Inclement weather may adversely affect our ability to complete projects and could therefore adversely affect our results of operations.
Our seismic data acquisition operations could be adversely affected by inclement weather conditions. Delays associated with weather conditions could adversely affect our results of operations. For example, weather delays could affect our operations on a particular project or an entire region and could lengthen the time to complete data acquisition projects. In addition, even if we negotiate weather protection provisions in our contracts, we may not be fully compensated by our clients for the delay caused by the inclement weather. Delays from adverse weather conditions have particularly affected our results of operations in past periods and are likely to affect our results in future periods. See “Business — Contracts.”
Our operations are subject to delays related to obtaining land access rights from third parties which could affect our results of operations.
Our seismic data acquisition operations could also be adversely affected by our inability to obtain timely right of way usage from both public and private landand/or mineral owners. We cannot begin surveys on property without obtaining permits from governmental entities as well as the permission of the private landowners who own the land being surveyed. In recent years, it has become more difficult, costly and time-consuming to obtain access rights of way as drilling activities have expanded into more populated areas, andareas. Additionally, while landowners generally are cooperative in granting access rights, some have become more resistant to seismic and drilling activities occurring on their property. In addition, governmental entities do not always grant permits within the time periods expected. Delays associated with obtaining such rights of way couldhave negatively affected our results of operations in past periods and may affect our results of operations.in future periods. See “Business — Data Acquisition.”
Our profitability is determined, in part, by the utilization level and productivity of our crews and the type of contracts we enter into and is affected by numerous external factors that are beyond our control.
Our revenue is determined, in part, by the contract price we receive for our services, the productivitylevel of utilization of our fourteen data acquisition crews, and the accuracyproductivity of our cost estimates.these crews. Crew utilization and productivity is partly a function of external factors, such as client cancellation or delay of projects, or operating delays from inclement weather and delaysor in obtaining land access rights, over which we have no control. If our crews encounter operational difficulties or delays on any data acquisition survey, our results of operations may vary, and in some cases, may be adversely affected.
In fiscal 2010,2012, most of our projects were performed on a turnkey basis for which we were paid a fixed price for a defined scope of work or unit of data acquired. The revenue, cost and gross profit realized under our turnkey contracts can vary from our estimates because of changes in job conditions, variations in labor and equipment productivity or because of the performance of our subcontractors. Turnkey contracts may also cause us to bear substantially all of the risks of business interruption caused by external factors over which we may have no control, such as weather, obtaining land access rights, crew downtime or operational delays. These variations, delays and risks inherent in turnkey contracts may result in reducing our profitability. See “Business — Contracts.”
A limited number of customers operating in a single industry account for a significant portion of our revenues, and the loss of one of these customers could harmadversely affect our results of operations; we bear the risk if any of our clients become insolvent and fail to pay amounts owed to us, so any failure to pay by these clients could harm our results of operations.
We derive a significant amount of our revenues from a relatively small number of oil and gas exploration and development companies. Although our ten largest customers in fiscal 20102012 and 20092011 have varied, these customers accounted for approximately 70%67% and 68%78% of our total revenue for these respective periods. For the yearsyear ended September 30, 2010 and 2009,2012, our largest client represented approximately 32% and 31%, respectively,21% of total revenues. If this client, or any of our other significant clients, were to terminate their contracts or fail to contract for our services in the future because they are acquired, alter their exploration or development strategy, experience financial difficulties or for any other reason, our results of operations could be adversely affected. See “Business — Clients.”
We bear the credit risk if any of our clients become insolvent and fail to pay amounts owed to us. Although we perform ongoing credit evaluations of our customers’ financial conditions, we generally require no collateral from our customers. The worldwide recession and the decrease in oil and especially natural gas prices have affected the financial condition and results of operations of many of our clients, and someSome of our clients have experienced financial difficulties in the past and even filed bankruptcy while others may do so in the future. It is possible that one or more of our clients will become financially distressed, andwhich could cause them to default on their obligations to us and could reduce the client’s future need for seismic services provided by us. Furthermore, the bankruptcyOur concentration of one or more ofcustomers may also increase our clients, or some other similar procedure, might make it difficult for usoverall exposure to collect all or a
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key personnel from crews taken out of service continue to be redeployed on remainingremain subject to land access permit and weather delays, our current order book reflects commitment levels sufficient to maintain operation of fourteen crews as needed or otherwise remain available for rapid expansionwell into fiscal 2013. The majority of crew count as demand and market conditions dictateour crews are currently working in oil producing basins. However, in recent years, we have experienced periods in which the future.
services we provided were primarily to clients seeking natural gas.While our revenues are mainly affected by the level of client demand for our services, our revenues are also affected by the pricing for our services that we negotiate with our clients and the productivity and utilization level of our data acquisition crews, including factors such ascrews. Factors impacting productivity and utilization levels include crew downtime related to inclement weather, delays in acquiring land access permits, agricultural or hunting activity, holiday schedules, short winter days, crew repositioning or equipment failure, and whether we enter into turnkey or day rateterm contracts with our clients.clients, the number and size of crews and the number of recording channels per crew. To the extent we experience these factors our operating results may be affected from quarter to quarter. Consequently, our efforts to negotiate favorable contract terms in our supplemental service agreements, to mitigate permit access permit delays and to improve overall crew productivity may contribute to growth in our revenues. DuringAs demand for our services continues to be robust, we were able to negotiate more favorable contract terms during fiscal 2010,2012.
We experienced lower utilization rates during the third and fourth quarters of fiscal 2012 as our crews were affected by project preparation, weather delays, agricultural activity, land access permit issues and client delays. Our utilization rates were also affected by increasing crew efficiencies driven by improved crew processes and recent equipment purchases. In several instances during the second and third fiscal quarters of 2012, our data acquisition crews completed projects ahead of schedule and were idled as other projects were in preparatory and/or permitting phases. While these early project completions have a negative impact on utilization during a particular quarter, we believe the increasing efficiency of our crews may enable us to increase our overall capacity. We believe that the problems that led to lower utilization rates during the third and fourth quarters of fiscal 2012 have been resolved. We returned to full crew utilization during the fourth quarter of fiscal 2012, and such full utilization has continued into the first quarter of fiscal 2013.
Currently, most of our client contracts wereare turnkey contracts. The percentage of revenues derived from turnkey contracts has grown in the past few years from approximately half of our revenues in fiscal 2008 to in excess of three-quarters of our revenues in fiscal 2010.2012. While turnkey contracts allow us to capitalize on improved crew productivity, we also bear more risks related to weather and crew downtime. AlthoughWe expect the percentage of turnkey contracts to remain high as we continue to expand our clients may cancel their serviceoperations in the mid-continent, western and southwestern regions of the United States in which turnkey contracts are more common. However, in the first quarter of fiscal 2013 we have observed an increase in inquiries and requests for term contracts.
Over time, we have experienced continued increases in recording channel capacity on short notice,a per crew or project basis. This increase in channel count demand is driven by client needs and is necessary in order to produce higher resolution images, increase crew efficiencies and undertake larger scale projects. Due to the increase in demand for higher channel counts, we have continued our current order book reflects commitment levels sufficientinvestments in additional channels. In response to maintain operationproject-based channel requirements, we routinely deploy a variable number of channels on a variable number of crews in an effort to maximize asset utilization and meet client needs. We believe we will realize the benefit of increased channel counts and flexibility of deployment through increased crew efficiencies, higher revenues and margins.
Reimbursable third-party charges related to our use of helicopter support services, specialized survey technologies and dynamite energy sources in areas with limited access are another important factor affecting our results. During fiscal 2011, the level of these third-party charges as a percentage of revenue was especially high, approaching 50% of revenue, mainly as a result of our twelvecontinued operations in areas with limited access in the eastern United States. However, revenues associated with third-party charges declined as a percentage of revenue during fiscal 2012 as a result of such third-party charges returning to levels more consistent with our historical average. We expect that as we continue to expand our operations in the more open terrain of the mid-continent, western and southwestern regions of the United States, the level of these third-party charges will continue to be generally within our historical range of 25% to 35% of revenue.
During fiscal 2011, we purchased 25,850 Geospace Technologies GSR single-channel units, 2,000 Geospace Technologies GSR four-channel units with three-component geophones and ten INOVA AHV IV 364 vibrator energy source units. These additions allowed us to deploy the two additional crews added in fiscal 2011 with state-of-the-art cable-less recording equipment. During the first quarter of fiscal 2012, we began operations on a large project in West Texas utilizing the FairfieldNodal ZLand cable-less recording system. We completed the FairfieldNodal ZLand project during the third quarter of fiscal 2012. The ZLand-equipped crew was redeployed in the late third quarter of fiscal 2012 equipped with an ARAM cable-based recording system. As a result of the introduction of the cable-less recording systems, we have realized increased crew efficiencies and increased revenue on projects using this equipment. We believe we will experience continued demand for cable-less recording systems in the future. During fiscal 2012, we purchased an additional 10,500 Geospace Technologies GSR single-channel units, 3,000 stations of Geospace Technologies GSR three-channel units with three component geophones and nineteen INOVA AHV IV 364 vibrator energy source units. As we have replaced cable-based recording equipment with cable-less equipment on certain crews, the cable-based recording equipment continues to be redeployed on existing crews as needed, including on the additional two crews fielded during the second quarter of fiscal 2011. Of the fourteen crews currently in operation, five use Geospace Technologies GSR recording systems, six use ARAM cable-based recording systems, and three use I/O RSR recording systems.
During 2012, we entered into the Canadian market. This market is highly seasonal and operates primarily from late November through March, depending upon weather conditions. We anticipate operating one data acquisition crews well intocrew in Canada during the 2012–2013 winter season, and do not expect these operations to have a significant impact on our fiscal 2011.
2013 financial results.While the markets for oil and natural gas have been very volatile and are likely to continue to be so in the future, and we can make no assurances as to future levels of domestic exploration or commodity prices, we believe opportunities exist for us to enhance our market position by responding to our clients’ continuing desire for higher resolution subsurface images. If economic conditions were to worsen,weaken, our customers reduce their capital expenditures or there is a significant sustained drop in oil and natural gas prices, it would result in diminished demand for our seismic services, maycould cause continued downward pressure on the prices we charge and would affect our results of operations. The services we are currently providing are balanced between clients seeking oil
Fiscal 2012 Highlights
EBITDA for the year-ended September 30, 2012 increased to $49,615,000 compared to $27,861,000 for the same period of fiscal 2011, an increase of 78 percent;
Net income for the year-ended September 30, 2012 increased to $11,113,000, or $1.42 earnings per share, compared to a net loss of $3,246,000, or $0.42 loss per share, in fiscal 2011;
Reported revenues of $319,274,000 for the year-ended September 30, 2012 compared to $333,279,000 for the year-ended September 30, 2011;
Revenues net of third-party reimbursable charges increased 13 percent in fiscal 2012 from fiscal 2011;
Strengthened order book capable of sustaining fourteen data acquisition crews well into calendar 2013;
Fiscal 2012 capital expenditures of approximately $47,664,000 compared to $59,380,000 in fiscal 2011;
Purchased 10,500 single-channel Geospace GSR units, 3,000 GSR three-channel units with three component geophones and natural gas. In recent years, we have experienced periods19 INOVA vibrator energy source units to increase recording capacity and improve efficiency;
Balanced portfolio of projects in which the services we provided were primarily to clients seeking oilEagle Ford Shale, Niobrara Shale, Bakken Shale, Marcellus Shale, Permian Basin and other periodsMississippi Lime;
Approximately $78 million of working capital at September 30, 2012; and
Awarded first contract in which our clients were primarily seeking natural gas.Canada for the deployment of the Company’s first Canadian data acquisition crew during the 2012-2013 winter season.
Fiscal Year Ended September 30, 2010 Versus2012 versus Fiscal Year Ended September 30, 20092011
Operating Revenues. Our operating revenues decreased 16%4% to $205,272,000$319,274,000 in fiscal 20102012 from $243,995,000$333,279,000 in fiscal 2009.2011. The revenue decrease in fiscal 20102012 was primarily the result of previously announced reductionsa significant decrease in third-party charges and is not indicative of declining operations. Third-party charges decreased 29% in fiscal 2012 from fiscal 2011 due to continued operations in the more wide open terrain of the Western United States while fee revenue net of third-party charges for fiscal 2012 increased 13% from fiscal 2011. The increase in revenues net of third party charges is a result of increased utilization, production and more favorable contract terms in 2012 as compared to 2011.
Operating Costs. Our operating expenses decreased 11% to $258,970,000 in fiscal 2012 from $292,519,000 in fiscal 2011 primarily due to the decrease in reimbursed charges. As discussed above, third-party charges decreased 29% in fiscal 2012 from fiscal 2011. Operating expenses excluding third-party charges in fiscal 2012 increased 4% from fiscal 2011. This increase resulted primarily from increased field personnel and other expenses associated with higher utilization in 2012 as compared to 2011. The increase in revenues net of third-party charges of 13% in fiscal 2012 at the same time operating costs excluding third-party charges increased only 4%, resulted in an overall improvement in the Company’s margins during fiscal 2012. Improved turnkey rates, increased productivity, reduced third-party charges and reduced equipment rental and repair costs all contributed to this improvement in margins.
General and administrative expenses were 3.5% of revenues in fiscal 2012 as compared to 4.1% of revenues in fiscal 2011. General and administrative expenses decreased by $2,345,000 in fiscal 2012 as compared to fiscal 2011. The primary factor for the decrease in general and administrative expenses was the absence during fiscal 2012 of fiscal 2011 transaction costs of $3,866,000 associated with the terminated merger agreement with TGC. Without the effect of the 2011 transaction costs, general and administrative expense increased by $1,521,000. The increase in administrative expense was primarily due to increased employee costs to support expanded field operations and start-up costs associated with our Canadian operations.
We recognized $32,498,000 of depreciation expense in fiscal 2012 as compared to $30,536,000 in fiscal 2011. Depreciation expense increased 6.4% from fiscal 2011 to 2012 reflecting increased capital expenditures during fiscal 2011 and 2012. Our depreciation expense is expected to continue to increase in fiscal 2013 as a result of our significant capital expenditures in fiscal 2012.
Our total operating costs for fiscal 2012 were $302,673,000, a decrease of 10% from fiscal 2011 primarily due to the factors described above.
Income Taxes. Income tax expense was $5,403,000 for fiscal 2012 and $439,000 for fiscal 2011. The effective tax rates for the income tax provision for fiscal 2012 and 2011 were 32.7% and (15.6%), respectively. Our effective tax rate was reduced significantly in fiscal 2011 by transaction costs that had been treated as permanent, non-deductible expenses. In fiscal 2012, these costs became fully tax deductible upon the merger’s termination in October 2011 and were treated as a discrete event in the first quarter of fiscal 2012, which resulted in an income tax benefit. Our effective tax rates differ from the statutory federal rate of 35% for certain items such as foreign operations, state and local taxes, non-deductible expenses, discrete items, expenses related to share-based compensation that were not expected to result in a tax deduction and changes in reserves for uncertain tax positions.
Fiscal Year Ended September 30, 2011 versus Fiscal Year Ended September 30, 2010
Operating Revenues. Our operating revenues increased 62% to $333,279,000 in fiscal 2011 from $205,272,000 in fiscal 2010. The revenue increase in fiscal 2011 was primarily the result of an increase in active crew count during the second quarter of fiscal 2009 (four crews), third quarter of fiscal 2009 (two crews),2011 and first quarter of 2010 (one crew), a more competitive pricing environment in 2010 and substantially lowerhigher utilization rates of the remainingexisting crews. Revenues in fiscal 20102011 continued to include high third-party charges related to the use of helicopter support services, specialized survey technologies and dynamite energy sources. Approximately one-half of the increase in revenues during 2011 was due to the increase in these third-party charges. The sustained high level of these charges is driven by our continued operations in areas with limited access in the Appalachian Basin, Oklahoma, East Texas and Arkansas. We are reimbursed for these charges by our clients.
Operating Costs. Our operating expenses decreased 4%increased 58% to $292,519,000 in fiscal 2011 from $185,588,000 in fiscal 2010 from $192,839,000 in fiscal 2009 primarily due to reductionsincreases in field personnel and other expenses associated with operating the additional data acquisition crews taken out ofput into service during fiscal 20092010 and 2010.2011. As discussed above, reimbursed charges have a similar impact on operating costs.
General and administrative expenses were 4.1% of revenues in fiscal 2011 as compared to 3.5% of revenues in fiscal 2010 as compared to 3.2% of revenues in fiscal 2009.2010. General and administrative expenses decreasedincreased by $725,000$6,419,000 in fiscal 20102011 as compared to fiscal 2009.2010. The primary factor infactors for the decreaseincrease in general and administrative expenses during fiscal 2010 was a decrease in our bad debt expense.
We recognized $27,126,000 of depreciation expense in fiscal 2010 as compared2011 were increased administrative costs, primarily related to
$26,160,000 in fiscal 2009. Depreciation expense increased a relatively modest 4% from fiscal 2009 to 2010 reflecting our limited maintenance capital expenditures in 2009. Our depreciation expense is expected to continue to increase in fiscal 2011employee costs as a result of our increased
crew count and operational activity, and transaction costs of $3,866,000 associated with the terminated merger agreement with TGC. There was no termination fee associated with the termination of the TGC merger agreement.We recognized $30,536,000 of depreciation expense in fiscal 2011 as compared to $27,126,000 in fiscal 2010. Depreciation expense increased 13% from fiscal 2010 to 2011 reflecting increased capital expenditures during fiscal 2010.
2010 and 2011.Our total operating costs for fiscal 20102011 were $219,845,000, a decrease$336,605,000, an increase of 3%53% from fiscal 20092010 primarily due to the factors described above.
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Income Taxes. Income tax benefitexpense was $4,638,000$439,000 for fiscal 20102011 as compared to income tax expensebenefit of $7,493,000$4,638,000 for fiscal 2009.2010. The effective tax raterates for the income tax provision for fiscal 2011 and 2010 were (15.6%) and 2009 was 33.2% and 42.3%, respectively. Our effective tax rates differ from the statutory federal rate of 35% for certain items such as state and local taxes, non-deductible expenses, expenses related to share-based compensation that were not expected to result in a tax deduction and changes in reserves for uncertain tax positions.
Fiscal Year Ended September 30, 2009 Versus Fiscal Year Ended September 30, 2008
Operating Revenues. Our
operating revenues decreased 25% to $243,995,000 in fiscal
2009 from $324,926,000 in fiscal 2008 as a result of a reduction in active crew count during2011 effective tax rate was significantly impacted by the
second quarter of fiscal 2009 (four crews) and the third quarter of fiscal 2009 (two crews), a more competitive pricing environment, substantially lower utilization rates for remaining crews and, in the fourth quarter, increased downtime for weather. Recorded in fiscal 2009 revenues are continued high third-party charges primarilyacquisition transaction costs incurred related to the
useterminated transaction with TGC. During fiscal 2011, we made the policy decision to treat the transaction costs as permanent non-deductible expenses for tax purposes.Use of helicopter support services, specialized survey technologiesEBITDA (Non-GAAP measure)
We define EBITDA as net income (loss) plus interest expense, interest income, income taxes, depreciation and dynamite energy sources, allamortization expense. Our management uses EBITDA as a supplemental financial measure to assess:
the financial performance of our assets without regard to financing methods, capital structures, taxes or historical cost basis;
our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate EBITDA in a similar manner; and
the ability of our assets to generate cash sufficient for us to pay potential interest costs.
We also understand that such data are used by investors to assess our performance. However, the term EBITDA is not defined under generally accepted accounting principles (“GAAP”), and EBITDA is not a measure
of operating income, operating performance or liquidity presented in accordance with GAAP. When assessing our operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income (loss), cash flow from operating activities or other cash flow data calculated in accordance with GAAP. In addition, our EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as us. Further, the results presented by EBITDA cannot be achieved without incurring the costs that the measure excludes: interest, taxes, depreciation and amortization.
The reconciliation of our EBITDA to our net income (loss) and net cash provided by operating activities, which are utilized in areas with limited access. The sustained level of these charges during fiscal 2009 was driven by our continued operations in areas with limited accessthe most directly comparable GAAP financial measures, are provided in the Appalachian Basin, Arkansas, East Texas and Louisiana. We are reimbursed for these chargestables below:
Reconciliation of EBITDA to Net Income (Loss)
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| | | Years Ended September 30, | |
| | | 2012 | | | 2011 | | | 2010 | |
| | | (in thousands) | |
Net income (loss) | | $ | 11,113 | | | $ | (3,246 | ) | | $ | (9,352 | ) |
Depreciation | | | 32,498 | | | | 30,536 | | | | 27,126 | |
Interest expense (income), net | | | 601 | | | | 132 | | | | — | |
Income tax expense (benefit) | | | 5,403 | | | | 439 | | | | (4,638 | ) |
| | | | | | | | | | | | |
EBITDA | | $ | 49,615 | | | $ | 27,861 | | | $ | 13,136 | |
| | | | | | | | | | | | |
Reconciliation of EBITDA to Net Cash Provided by our clients.
Operating Costs. Our operating expenses decreased 19% to $192,839,000 in fiscal 2009 from $237,484,000 in fiscal 2008 primarily due to reductions in field personnel and other expenses of operating the six data acquisition crews taken out of service during the second and third quarters of fiscal 2009. As discussed above, reimbursed charges have a similar impact on operating costs.
General and administrative expenses were 3.2% of revenues in fiscal 2009 as compared to 2.1% of revenues in fiscal 2008. General and administrative expenses increased by approximately $1,094,000 in fiscal 2009 as compared to fiscal 2008. The primary factor in the increase in general and administrative expenses during fiscal 2009 was an increase to our allowance for doubtful accounts during the year of $993,000 offset by bad debts during the year of approximately $515,000 resulting in a net allowance for doubtful accounts at September 30, 2009 of $533,000. The deductions against the bad debt allowance were primarily a result of the settlement of a previously disputed invoice for approximately $450,000. We increased the allowance for doubtful accounts during fiscal 2009 based on our review of the past due accounts and client base. During the second quarter, we became aware that one client with an accounts receivable balance of approximately $1,000,000 and two former clients had filed for reorganization under bankruptcy protection. These facts significantly influenced management’s decision to increase our allowance for doubtful accounts during the second quarter.
We recognized $26,160,000 of depreciation expense in fiscal 2009 as compared to $24,253,000 in fiscal 2008, reflecting the full year of depreciation expense from our fiscal 2008 capital expenditures. Due to market conditions, capital expenditures in fiscal 2009 were limited to necessary maintenance capital requirements.
Our total operating costs for fiscal 2009 were $226,855,000, a decrease of 16% from fiscal 2008 primarily due to the factors described above.
Taxes. Income tax expense was $7,493,000 for fiscal 2009 and $21,400,000 for fiscal 2008. The effective tax rate for the income tax provision for fiscal 2009 and 2008 was 42.3% and 37.9%, respectively. The increase in the effective tax rate between periods was primarily a result of an increase in the unrecognized tax benefits reserve for prior years, changes in tax rates as a result of the varying states in which we operate from year to year and the increasing impact of permanent tax differences resulting from lower income before income taxes.
Activities | | | | | | | | | | | | |
| | | Years Ended September 30, | |
| | | 2012 | | | 2011 | | | 2010 | |
| | | (in thousands) | |
Net cash provided by operating activities | | $ | 76,380 | | | $ | 16,951 | | | $ | 6,244 | |
Changes in working capital and other items | | | (24,949 | ) | | | 12,812 | | | | 8,731 | |
Noncash adjustments to income | | | (1,816 | ) | | | (1,902 | ) | | | (1,839 | ) |
| | | | | | | | | | | | |
EBITDA | | $ | 49,615 | | | $ | 27,861 | | | $ | 13,136 | |
| | | | | | | | | | | | |
Liquidity and Capital Resources
Introduction. Our principal sources of cash are amounts earned from the seismic data acquisition services we provide to our clients. Our principal uses of cash are the amounts used to provide these services, including expenses related to our operations and acquiring new equipment. Accordingly, our cash position depends (as do our revenues) on the level of demand for our services. Historically, cash generated from our operations along with cash reserves and short-term borrowings from commercial banks have been sufficient to fund our working capital requirements, and to some extent, our capital expenditures.
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Cash Flows. Net cash provided by operating activities was $6,244,000$76,380,000 for fiscal 20102012 and $54,598,000$16,951,000 for fiscal 2009. The decrease2011. These amounts primarily reflect an increase in netrevenues and operating margins between periods. Our cash provided by operating activities primarily reflects our substantial decline in revenues and income beginning in fiscal 2009. In addition, working capital components had the impact of decreasingoperations was further positively impacted by cash flows in 2010 while increasing cash flows in 2009. Although our cash flowscollected from accounts receivable fluctuated during this period, this did not reflect any change in ourprior periods. Our collection experience during the period expressed as thean average number of days in accounts receivable has remained at approximately fifty-twosixty over the last twelve months. Amounts in our trade accounts receivable that are over sixty days as of September 30, 2010 represent2012 represents approximately 20.74%20% of our total trade accounts receivables, which is relatively high compared to historical levels. The remaining outstanding trade account balances after taking into consideration payments received subsequent to September 30, 2010 and additional payments anticipated by management, is more representative ofconsistent with historical levels. We believe our allowance for doubtful accounts of $639,000$250,000 at September 30, 20102012 is adequate to cover exposures related to the remainingour trade account balances. As discussed above, the decrease in revenues during fiscal 2010 was not matched by a decrease in operating expenses, and as a result, our margins and net results from operating activities were negatively affected.
Net cash used in investing activities was $13,365,000$48,580,000 in fiscal 20102012 and $26,538,000$36,417,000 in fiscal 2009.2011. In fiscal 2010,2012, we reinvested $14,964,000funded our capital expenditures primarily from cash provided by operating activities of our $20,000,000$76,380,000 as well as proceeds of $9,346,000 from the Second Term Note used to purchase Geospace Technologies GSR recording equipment. In 2011, we funded our capital expenditures primarily from $22,500,000 in cash generated from matured treasury investments. At September 30, 2010 a treasury note for $5,000,000 had maturedshort-term investments and was reflected$16,427,000 in proceeds from the Term Note used to purchase Geospace Technologies GSR recording equipment as well as $16,951,000 of cash provided by operating activities. In fiscal 2012 and cash equivalents on our balance sheet. Approximately $3,000,0002011, we invested excess funds of these funds were invested$4,500,000 and $2,500,000 respectively in certificates of deposit subsequent to September 30, 2010. Due to market conditions, our capital expenditures in fiscal 2009 were limited to necessary maintenance capital requirements rather than investing in additional equipment as in the past few years. During fiscal 2010, our capital expenditures increased as discussed below. During fiscal 2009, we used cash generated from operations in excess of capital expenditures to acquire short-term investments.deposit. In fiscal 2009,2011, we collected proceeds from an insurance claim on our equipment burned in a March 2008an October 2010 wildfire of $2,843,000.
$1,392,000.Net cash provided by financing activities in fiscal 20102012 and fiscal 20092011 was $3,496,000 and $15,868,000, respectively. In fiscal 2012, our primary source of $4,000 and $421,000, respectively, primarily represents proceeds from the exercise of stock options. Netnet cash usedprovided by financing activities was $9,346,000 in proceeds from our Second Term Note that were used to purchase Geospace Technologies GSR recording equipment and subsequent principal payments for both the Term Note and Second Term Note. In fiscal 20082011, our primary source of $4,254,000 primarily representsnet cash provided by financing activities were the net decrease on our revolving line of credit loan agreement from a balance at September 30, 2007 of $5,000,000proceeds and subsequent principal payments for the $16,427,000 Term Note we entered into in order to a zero balance at September 30, 2008. We have not drawn on our revolving line of credit during fiscal years 2010 or 2009.
purchase Geospace Technologies GSR recording equipment.Capital Expenditures. For fiscal year 2010,2012, we made capital expenditures of $19,962,000, in part,$47,664,000, primarily to purchase OYO10,500 Geospace Technologies GSR recording boxes, expand channel count on existing crewssingle-channel units, 3,000 Geospace Technologies GSR three-channel units, additional geophones, nineteen INOVA AHV IV 364 vibrator energy sources units and meet necessary maintenance capital requirements. TheThese purchases reflect our belief that the trend towards increased channel counts and energy sources in our industry will continue. Our Board of Directors has approved an initial fiscal 20112013 capital budget of $30,000,000,$40,000,000, which will be used, in part, to purchase 2,000 additional OYO GSR four-channel recording boxes along with three-component geophones and tennine INOVA AHV4-364AHV IV 364 vibrator energy source units, andwhile the remainder will be used to increase channel count, make technical improvements in various phases of our operations and meet maintenance capital requirements. We believe that these additionsour fiscal 2012 capital investments as well as our planned fiscal 2013 capital investments will allow us to maintain our competitive position as we respond to client desire for higher resolution subsurface images.
We continually strive to supply our clients with technologically advanced3-D data acquisition recording services and data processing capabilities. We maintain equipment in and out of service in anticipation of increased future demand for our services.
Capital Resources. Historically, we have primarily relied on cash generated from operations, cash reserves and short-term borrowings from commercial banks to fund our working capital requirements and, to some extent, our capital expenditures. Recently, we have funded some of our capital expenditures through equipment term loans and capital leases. We have also funded our capital expenditures and other financing needs from time to time through public equity offerings.
Our revolving line of credit loan agreement is with Western National Bank. The agreement was renewed June 2, 2011 under the same terms as the previous agreement and permits us to borrow, repay and reborrow, from time to time until June 2, 20112013, up to $20.0 million based on the borrowing base calculation as defined in the agreement. Our obligations under this agreement are secured by a security interest in our accounts receivable, equipment and related collateral. Interest on the facility accrues at an annual rate equal to either the30-day London Interbank Offered Rate (“LIBOR”), plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent, as we direct monthly, subject to an interest rate floor of 4%. Interest on the outstanding amount under the loan agreement is payable monthly. The loan agreement contains customary covenants for credit
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facilities of this type, including limitations on disposition of assets, mergers and reorganizations. We are also obligated to meet certain financial covenants under the loan agreement, including maintaining specified ratios with respect to cash flow coverage, current assets and liabilities and debt to tangible net worth. We were in compliance with all covenants including specified ratios as of September 30, 20102012 and November 23, 2010.December 5, 2012 and have the full line of credit available for borrowing. We have not utilized the revolving line of credit loan agreement during the fiscal years ended September 30, 20102012 or 2009.
2011.We amended our credit loan agreement with Western National Bank on June 30, 2011 to add a new term loan note (“Term Note”) provision, which provided $16,427,000 in financing for the purchase of Geospace Technologies GSR equipment. The Term Note is repayable over a period of 36 months at $485,444 per month plus any applicable interest. The Term Note bears interest at an annual rate equal to either the 30-day LIBOR, plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent, as we direct monthly, subject to an interest rate floor of 4%, and otherwise has the same terms as our revolving line of credit. The Term Note is collateralized by a security interest in our accounts receivable, equipment and related collateral and matures with all outstanding balances due on June 30, 2014.
On March 31, 2009,May 11, 2012, we entered into a Multiple Advance Term Note (“Second Term Note”) under our credit loan agreement with Western National Bank. The Second Term Note allows us to borrow from time to time up to $15.0 million to purchase equipment. On July 5, 2012, we borrowed $9,346,000 under the Second Term Note to purchase Geospace Technologies GSR recording equipment. The outstanding principal under the Second Term Note will be amortized over 36 months. The Second Term Note bears interest at an annual rate equal to either the 30-day LIBOR, plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent, as we direct monthly, subject to an interest rate floor of 3.75%, and otherwise has the same terms as our revolving line of credit. The Second Term Note is collateralized by a security interest in our accounts receivable, equipment and related collateral and matures with all outstanding balances due on May 2, 2015.
In the second quarter of fiscal 2012, we began leasing vehicles from Enterprise Fleet Management under capital leases. These capital lease obligations are payable in 36 to 60 monthly installments and mature between December 2014 and February 2017. At September 30, 2012, we had leased 42 vehicles under these capital leases.
The following table summarizes payments due in specific periods related to our contractual obligations with initial terms exceeding one year as of September 30, 2012.
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period (in 000’s) | |
Contractual Obligations | | Total | | | Within 1
Year | | | 1-2 Years | | | 3-5 Years | | | After 5
Years | |
Operating lease obligations (office space) | | $ | 3,288 | | | $ | 865 | | | $ | 1,720 | | | $ | 703 | | | $ | — | |
Capital lease obligations | | | 1,208 | | | | 415 | | | | 689 | | | | 104 | | | | — | |
Debt obligations | | | 19,102 | | | | 8,716 | | | | 10,386 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 23,598 | | | $ | 9,996 | | | $ | 12,795 | | | $ | 807 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
In April 2012, we filed a shelf registration statement with the SEC covering the periodic offer and sale of up to $100.0$150.0 million in debt securities, preferred and common stock and warrants. The registration statement allows us to sell securities in one or more separate offerings with the size, price and terms to be determined at the time of sale. The terms of any securities offered would be described in a related prospectus to be filed separately with the SEC at the time of the offering. The filing of the shelf registration statement will enable us to act quickly if and when opportunities arise.
The following table summarizes payments due in specific periods related to our contractual obligations with initial terms exceeding one year as of September 30, 2010.
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period (in 000’s) | |
| | | | | | Less than
| | | 1-3
| | | 3-5
| | | More than
| |
| | | Total | | | 1 Year | | | Years | | | Years | | | 5 Years | |
| |
| Operating lease obligations | | $ | 2,082 | | | $ | 738 | | | $ | 749 | | | $ | 581 | | | $ | 14 | |
| | | | | | | | | | | | | | | | | | | | | |
We believe that our capital resources and cash flow from operations are adequate to meet our current operational needs. We believe we will be able to finance our capital requirements through cash flowgenerated from operations, and, if necessary,cash on hand, through borrowings under our revolving line of credit.credit, additional equipment term loans and capital leases. However, our ability to satisfy our working capital requirements and fund future capital requirements will depend principally upon our future operating performance, which is subject to the risks inherent in our business, including the demand for our seismic services from clients.
Off-Balance Sheet Arrangements
As of September 30, 2010,2012, we had no off-balance sheet arrangements.
We do not believe that inflation has had a material effect on our business, results of operations or financial condition during the past three fiscal years.
Critical Accounting Policies
The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting periods. Because of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.
Allowance for Doubtful Accounts. We prepare our allowance for doubtful accounts receivable based on our review of past-due accounts, our past experience of historical write-offs and our current client base. While the collectability of outstanding client invoices is continually assessed, the inherent volatility of the energy industry’s business cycle can cause swift and unpredictable changes in the financial stability of our clients.
Property, Plant and Equipment. Our property, plant and equipment is capitalized at historical cost and depreciated over the useful life of the asset. Our estimation of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. As circumstances change and new information becomes available, these estimates could change.
Depreciation is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in the results of operations for the period.
Impairment of Long-Lived Assets. We review long-lived assets for impairment when triggering events occur suggesting deterioration in the assets’ recoverability or fair value. Recognition of an impairment charge is required if future expected undiscounted net cash flows are insufficient to recover the carrying value of the assets and the fair value of the assets is below the carrying value of the assets. Our forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and expenses based on our anticipated future results while considering anticipated future oil and gas prices, which is fundamental in assessing demand for our services. If the carrying amounts of the assets exceed the estimated expected undiscounted future cash flows, we measure the amount of possible impairment by comparing the carrying amount of the asset to its fair value.
Revenue Recognition. Our services are provided under cancelable service contracts. These contracts are either “turnkey” or “term” agreements. Under both types of agreements, we recognize revenues when revenue is realizable and services are performed. Services are defined as the commencement of data acquisition or processing operations. Revenues are considered realizable when earned according to the terms of the service contracts. Under turnkey agreements, revenue is recognized on a per unit of data acquired rate, as services are performed. Under term agreements, revenue is recognized on a per unit of time worked rate, as services are performed. In the case of a cancelled service contract, we recognize revenue and bill our client for services performed up to the date of cancellation.
We also receive reimbursements for certainout-of-pocket expenses under the terms of our service contracts. We record amounts billed to clients in revenue at the gross amount includingout-of-pocket expenses that are reimbursed by the client.
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In some instances, we bill clients in advance of the services performed. In those cases, we recognize the liability as deferred revenue. As services are performed, those deferred revenue amounts are recognized as revenue.
When it becomes evident that the estimates of total costs to be incurred on a contract will exceed the total estimates of revenue to be earned, an estimated contract loss is recognized in the period in which the loss is identifiable.
Allowance for Doubtful Accounts.Stock-Based Compensation. We prepare our allowance for doubtful accounts receivable based on our review of past-due accounts, our past experience of historical write-offsmeasure all employee stock-based compensation awards, which include stock options and our current client base. While the collectibility of outstanding client invoices is continually assessed, the inherent volatility of the energy industry’s business cycle can cause swift and unpredictable changes in the financial stability of our clients.
Impairment of Long-Lived Assets. We review long-lived assets for impairment when triggering events occur suggesting deterioration in the assets’ recoverability or fair value. Recognition of an impairment charge is required if future expected undiscounted net cash flows are insufficient to recover the carrying value of the assets andrestricted stock, using the fair value method and recognize compensation cost, net of estimated forfeitures, in our financial statements. We record compensation expense as operating or general and administrative expense as appropriate in the Consolidated Statements of Operations on a straight-line basis over the vesting period of the assets is below the carrying value of the assets. Our forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and expenses based on our anticipated future results while considering anticipated future oil and gas prices, which is fundamental in assessing demand for our services. If the carrying amount of the assets exceeds the estimated expected undiscounted future cash flows, we measure the amount of possible impairment by comparing the carrying amount of the asset to its fair value.
Depreciable Lives of Property, Plant and Equipment. Our property, plant and equipment are capitalized at historical cost and depreciated over the useful life of the asset. Our estimation of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. As circumstances change and new information becomes available, these estimates could change.
Depreciation is computed using the straight-line method. When assets are retiredrelated stock options or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in the results of operations for the period.
restricted stock awards.Tax Accounting.Income Taxes. We account for our income taxes with the recognition of amounts of taxes payable or refundable for the current year and by using an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. We determine deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of an enacted rate change. The deferred tax asset is reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Our methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining our annual effective tax rate and the valuation of deferred tax assets, which can create a variance between actual results and estimates and could have a material impact on our provision or benefit for income taxes.
Stock-Based Compensation. We measure all employee stock-based compensation awards, including stock options and restricted stock, using the fair value method and recognize compensation cost, net of forfeitures, in our financial statements. We record compensation expense as operating or general and administrative expense as appropriate in the Statements of Operations on a straight-line basis over the vesting period of the related stock options or restricted stock awards.
Recently Issued Accounting Pronouncements
In January 2010,May 2011, the FASBFinancial Accounting Standards Board (FASB) issued Accounting Standards Update2010-06 (ASU) No. 2011-04, “Fair Value MeasurementsMeasurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosures (Topic 820)Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards,” as new guidanceto provide a consistent definition of fair value and clarificationensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances disclosure requirements, particularly for improving disclosures aboutLevel 3 fair value measurements. ASU2010-06 requiresThe enhanced disclosures regarding transfers in and out of the levels within the fair value hierarchy. Separate disclosures are required for transfers in and out of Level 1 and 2 fair value measurements, and the reasons for the transfers must be disclosed. The new disclosures and clarifications of existing disclosuresmeasurement principles were effective for us as of January 1, 2010.2012. The adoption of this guidance did not have a material impact on our financial statements.
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In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. This update does not change what items are reported in other comprehensive income or the requirement to report reclassification of items from other comprehensive income to net income. However, in December 2011, the FASB issued ASU No. 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” that deferred the specific requirement within ASU 2011-05 to present on the face of the financial statements items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive net income. Entities should continue to report reclassifications out of accumulated other comprehensive income using guidance in effect before ASU 2011-05 was issued. ASU 2011-05 will be effective in our first quarter of fiscal 2013, though earlier adoption is permitted. The update will be applied retrospectively upon adoption, and we believe the adoption will not have a material effect on our financial statements. | |
| Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our primary sourcesWe are exposed to certain market risks arising from the use of market risk include fluctuationsfinancial instruments in commodity prices which affect demand for and pricingthe ordinary course of our servicesbusiness. These risks arise primarily as well as interest rate fluctuations. Our revolving linea result of potential changes to operating concentration of credit carries a variable interest rate that is tied to market indicesrisk and therefore, our results of operations and our cash flows could be impacted by changes in interest rates. Outstanding balances under our revolving line of credit bear interest at our monthly direction of the lower of the Prime rate minus three-quarters percent or the30-day LIBOR plus two and one-quarter percent, subject to an interest rate floor of 4%. At September 30, 2010, we had no balances outstanding on our revolving line of credit. The contractual maturities of our short-term investments range from November 2010 to April 2011. Our short-term investments are classified for accounting purposes asavailable-for-sale. If these short-term investments are not held to maturity, the proceeds obtained when the instruments are sold will be impacted by the current interest rates at the time they are sold. We have not entered into any hedge arrangements, commodity swap agreements, commodity futures, options or other derivative financial instruments. We do not currentlyDuring 2012, we began to conduct business internationally, so we are not generallyin Canada which may subject our results of operations and cash flow to foreign currency exchange rate risk.
Concentration of Credit Risk. Our principal market risks include fluctuations in commodity prices which affect demand for and pricing of our services and the risk related to the concentration of our clients in the oil and natural gas industry. Since all of our clients are involved in the oil and natural gas industry, there may be a positive or negative effect on our exposure to credit risk because our clients may be similarly affected by changes in economic and industry conditions. As an example, changes to existing regulations or the adoption of new regulations may unfavorably impact us, our suppliers or our clients. In the normal course of business, we provide credit terms to our clients. Accordingly, we perform ongoing credit evaluations of our clients and maintain allowances for possible losses. We believe that our allowance for doubtful accounts of $250,000 at September 30, 2012 is adequate to cover exposures related to our trade account balances.
We generally provide services to certain key clients that account for a significant percentage of our accounts receivable at any given time. Our key clients vary over time. We extend credit to various companies in the oil and natural gas industry, including our key clients, 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 the economic or other conditions of our key clients and may accordingly impact our overall credit risk. If any of these significant clients were to terminate their contracts or fail to contract for our services in the future because they are acquired, alter their exploration or development strategy, or for any other reason, our results of operations could be affected. Because of the nature of our contracts and clients’ projects, our largest clients can change from year to year, and the largest clients in any year may not be indicative of the largest clients in any subsequent year.
Interest Rate Risk. We are exposed to the impact of interest rate changes on the outstanding indebtedness under our credit loan agreement, which has variable interest rates. Amounts drawn under the revolving line of credit and equipment term loans bear interest at variable rates based on the lower of the Prime Rate, minus three-quarters percent, or the 30-day LIBOR, plus a margin of two and one-quarter percent, subject to an interest rate floor of 4% for the Term Note and the revolving line of credit and an interest rate floor of 3.75% for the Second Term Note. At September 30, 2012, our interest rate was 4% for the Term Note and the revolving line of credit and 3.75% for the Second Term Note.
We have cash in the bank which, at times, may exceed federally insured limits. Historically, we have not experienced any losses in such accounts; however, volatility in financial markets may impact our credit risk on cash and short-term investments. At September 30, 2012, cash and cash equivalents totaled $57,373,000.
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| Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information required by this item appears on pages F-1 through F-23F-22 hereof and are incorporated herein by reference.
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| Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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| Item 9A. | CONTROLS AND PROCEDURES |
Management’s Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of our disclosure controls and procedures pursuant toRule 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President, Secretary and Chief Financial Officer concluded that, as of September 30, 2010,2012, our disclosure controls and procedures were effective, in all material respects, with regard to the recording, processing, summarizing and reporting, within the time periods specified in the SEC’s rules and forms, for information required to be disclosed by us in the reports that we file or submit under the Exchange Act. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and our Executive Vice President, Secretary and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including our President and Chief Executive Officer and Executive Vice President, Secretary and Chief Financial Officer, we evaluated the effectiveness of our internal controls over financial reporting as of September 30, 20102012 using the criteria set forth inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, we have concluded that, as of September 30, 2010,2012, our internal control over financial reporting was effective. Our internal control over financial reporting as of September 30, 2010,2012 has been
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audited by KPMG LLP, the independent registered public accounting firm who also audited our financial statements. Their attestation report appears onpage F-3.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Exchange ActRule 13a-15(f) and15d-15(f) of the Securities Exchange Act of 1934) during the quarter endingended September 30, 20102012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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| Item 9B. | OTHER INFORMATION |
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| Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by Item 10 is incorporated by reference to our definitive proxy statement for our Annual Meeting of StockholdersShareholders to be held on January 18, 2011,22, 2013, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2010.2012. Certain information with respect to our executive officers is set forth below. OurWe have a code of ethics (asas defined in Item 406 ofRegulation S-K) was adopted by our Board of Directors on May 25, 2004.S-K. The Code of Business Conduct and Ethics applies to our directors, officers and employees, including our principal executive officer and principal financial and principal accounting officer. Our Code of Business Conduct and Ethics is posted on our website athttp://www.dawson3d.com in the “Corporate Governance” area of the “Investor Relations” section. ChangesWe intend to and waivers granted with respectsatisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, ouror waiver from, a provision of the Code of Business Conduct and Ethics related tofor our senior financial officers, identified above, andincluding the Chief Executive Officer, if any, either by posting such information on our other executive officers and directors that we are required to disclose pursuant to applicable rules and regulationswebsite at http://www.dawson3d.com in the “Corporate Governance” area of the SEC will also be posted on our website.
“Investor Relations” section or by filing a Form 8-K.Executive Officers of the Registrant
Set forth below are the names, ages and positions of the Company’s executive officers.
| | | | | | |
Name | | Age | | | Position |
L. Decker Dawson | | | |
Name | | Age | | Position |
|
L. Decker Dawson | | | 9092 | | | Chairman of the Board of Directors |
Stephen C. Jumper | | | 4951 | | | President, Chief Executive Officer and Director |
C. Ray Tobias | | | 5355 | | | Executive Vice President, Chief Operating Officer |
Christina W. Hagan | | | 5557 | | | Executive Vice President, Secretary and Chief Financial Officer |
HowellJames W. PardueThomas | | | 7458 | | | Executive Vice President, Chief Technical Officer |
K.S. Forsdick | | | 5961 | | | Senior Vice President |
The Board of Directors elects executive officers annually. Executive officers hold office until their successors are elected and have qualified.
Set forth below are descriptions of the principal occupations during at least the past five years of the Company’s executive officers.
L. Decker Dawson. Mr. Dawson founded the Company in 1952. He served as President of the Company until being elected as Chairman of the Board of Directors and Chief Executive Officer in January 2001. In January 2006, Mr. Dawson was reelected as Chairman of the Board of Directors and retired as Chief Executive Officer of the Company. Prior to 1952, Mr. Dawson was a geophysicist with Republic Exploration Company, a geophysical company. Mr. Dawson served as President of the Society of Exploration Geophysicists(1989-1990), received its Enterprise Award in 1997 and was awarded honorary membership in 2002. He was Chairman of the Board of
23
Directors of the International Association of Geophysical Contractors in 1981 and is an honorary life member of such association. He was inducted into the Permian Basin Petroleum Museum’s Hall of Fame in 1997.
Stephen C. Jumper. Mr. Jumper, a geophysicist, joined the Company in 1985, was elected Vice President of Technical Services in September 1997 and was subsequently elected President, Chief Operating Officer and Director in January 2001. In January 2006, Mr. Jumper was elected President, Chief Executive Officer and Director. Prior to 1997, Mr. Jumper served the Company as manager of technical services with an emphasis on3-D processing. Mr. Jumper has served the Permian Basin Geophysical Society as Second Vice President, (1991), First Vice President (1992) and as President (1993).
President.C. Ray Tobias. Mr. Tobias joined the Company in 1990 and was elected Vice President in September 1997 and Executive Vice President and Director in January 2001. In January 2006, Mr. Tobias was elected Executive Vice President and Chief Operating Officer. Mr. Tobias supervises client relationships and survey cost quotations to clients. He has served on the Board of Directors of the International Association of Geophysical Contractors and served as President of the Permian Basin Geophysical Society. Prior to joining the Company, Mr. Tobias was employed by Geo-Search Corporation where he was an operations supervisor.
Christina W. Hagan. Ms. Hagan joined the Company in 1988 and was elected Chief Financial Officer and Vice President in 1997 and Senior Vice President, Secretary and Chief Financial Officer in January 2003. In January 2004, Ms. Hagan was elected as Executive Vice President, Secretary and Chief Financial Officer. Prior thereto, Ms. Hagan served the Company as Controller and Treasurer. Ms. Hagan is a certified public accountant.
HowellJames W. Pardue.Thomas. Mr. PardueThomas joined the Company in 19762002 as Vice President of Data Processing and Director.Chief Geophysicist. Mr. PardueThomas was elected Executive Vice President of Data Processing in 1997.March 2007 and Chief Technical Officer in January 2012. Prior to joining the Company, Mr. PardueThomas was employed in data processing for 1721 years by Geosource, Inc. and its predecessor geophysical company.
Phillips Petroleum Company.K.S. Forsdick. Mr. Forsdick joined the Company in 1993, was elected Vice President in January 2001 and was subsequently elected Senior Vice President in March 2009. Mr. Forsdick is responsible for soliciting, designing and bidding seismic surveys for prospective clients. Prior to joining the Company, Mr. Forsdick was employed by Grant Geophysical Company and Western Geophysical Company and was responsible for marketing and managing land and marine seismic surveys for domestic and international operations. He has served on the Governmental Affairs Committee of the International Association of Geophysical Contractors.
| |
| Item 11. | EXECUTIVE COMPENSATION |
The information required by Item 11 is incorporated by reference to our definitive proxy statement for our Annual Meeting of StockholdersShareholders to be held on January 18, 2011,22, 2013, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2010.
| |
| Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required with respect to our equity compensation plans is set forth in Item 5 of thisForm 10-K. Other information required by Item 12 is incorporated by reference to our definitive proxy statement for our Annual Meeting of StockholdersShareholders to be held on January 18, 2011,22, 2013, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2010.
| |
| Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by Item 13 is incorporated by reference to our definitive proxy statement for our Annual Meeting of StockholdersShareholders to be held on January 18, 2011,22, 2013, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2010.
| |
| Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by Item 14 is incorporated by reference to our definitive proxy statement for our Annual Meeting of StockholdersShareholders to be held on January 18, 2011,22, 2013, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2010.
242012.
Part IV
| |
| Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this report:
(1) Financial Statements.
The following consolidated financial statements of the Company appear on pages F-1 through F-21 and are incorporated by reference into Part II, Item 8:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity and Other Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
(2) Financial Statement Schedules.
The following financial statement schedule appears onpage F-22 and is hereby incorporated by reference:
Schedule II — Consolidated Valuation and Qualifying Accounts for the three years ended September 30, 2010, 20092012, 2011 and 2008.
2010.All other schedules are omitted because they are either not applicable or the required information is shown in the financial statements or notes thereto.
The information required by this item 15(a)(3) is set forth in the Index to Exhibits accompanying this Annual Report ofForm 10-K and is hereby incorporated by reference.
25
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Midland, and the State of Texas, on the 235rdth day of November, 2010.
December, 2012.DAWSON GEOPHYSICAL COMPANY
| | |
DAWSON GEOPHYSICAL COMPANY |
| |
By: | | /s/ Stephen C. Jumper |
| | Stephen C. Jumper |
| | President and Chief |
| | Executive Officer |
Stephen C. Jumper
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | |
Signature | | Title | | | | Date |
Signature | | Title | | Date |
|
| | | | |
L. Decker Dawson | | Chairman of the Board of Directors | | 11-23-1012-5-12 |
| | | | |
Stephen C. Jumper | | President, Chief Executive Officer and Director (principal (principal executive officer) | | 11-23-1012-5-12 |
| | | | |
Paul H. Brown | | Director | | 11-23-1012-5-12 |
| | | | |
Craig W. Cooper | | Director | | 11-23-1012-5-12 |
| | | | |
Gary M. Hoover | | Director | | 11-23-1012-5-12 |
| | | | |
Jack D. Ladd | | Director | | 11-23-1012-5-12 |
| | | | |
Ted R. North | | Director | | 11-23-1012-5-12 |
| | | | |
Tim C. Thompson | | Director | | 11-23-1012-5-12 |
| | | | |
Christina W. Hagan | | Executive Vice President, Secretary and Chief Financial Officer (principal financial and accounting officer) | | 11-23-1012-5-12 |
26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | | | | |
Consolidated Financial Statements of Dawson Geophysical Company | | Page |
| |
| | | F-2 | |
| | | F-4 | |
| | | F-5 | |
| | | F-6 | |
| | | F-7 | |
| | | F-8 | |
Financial Statement Schedule: | | | | |
| | | F-22 | |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Dawson Geophysical Company:
We have audited the accompanying consolidated balance sheets of Dawson Geophysical Company as of September 30, 2010,2012 and 2009,2011, and the related consolidated statements of operations, stockholders’ equity and other comprehensive income (loss), and cash flows for each of the years in the three-year period ended September 30, 2010.2012. In connection with our audits of the consolidated financial statements, we also have audited financial statement Schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dawson Geophysical Company as of September 30, 20102012 and 2009,2011, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2010,2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
thereinWe also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Dawson Geophysical Company’s internal control over financial reporting as of September 30, 2010,2012, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 23, 2010December 5, 2012 expressed an unqualified opinion on the effectiveness of theDawson Geophysical Company’s internal control over financial reporting.
November 23, 2010
F-2
December 5, 2012REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Dawson Geophysical Company:
We have audited Dawson Geophysical Company’s internal control over financial reporting as of September 30, 20102012, based on criteria“criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”. Dawson Geophysical Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Dawson Geophysical Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2010,2012, based on criteria“criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
Commission”.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Dawson Geophysical Company as of September 30, 20102012 and 2009,2011, and the related consolidated statements of operations, stockholders’ equity and other comprehensive income (loss), and cash flows for each of the years in the three-year period ended September 30, 2010,2012, and the related financial statement schedule, and our report dated November 23, 2010,December 5, 2012 expressed an unqualified opinion on those consolidated financial statements.
statements and financial statement schedule.KPMG LLP
November 23, 2010
F-3
December 5, 2012DAWSON GEOPHYSICAL COMPANY
| | | | | | | | | |
| | | September 30,
| | | September 30,
| |
| | | 2010 | | | 2009 | |
| |
ASSETS |
Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 29,675,000 | | | $ | 36,792,000 | |
| Short-term investments | | | 20,012,000 | | | | 25,267,000 | |
| Accounts receivable, net of allowance for doubtful accounts of $639,000 and $533,000 at September 30, 2010 and 2009, respectively | | | 57,726,000 | | | | 40,106,000 | |
| Prepaid expenses and other assets | | | 7,856,000 | | | | 7,819,000 | |
| Current deferred tax asset | | | 1,764,000 | | | | 1,694,000 | |
| | | | | | | | | |
| Total current assets | | | 117,033,000 | | | | 111,678,000 | |
Property, plant and equipment | | | 248,943,000 | | | | 240,820,000 | |
| Less accumulated depreciation | | | (130,900,000 | ) | | | (115,341,000 | ) |
| | | | | | | | | |
| Net property, plant and equipment | | | 118,043,000 | | | | 125,479,000 | |
| | | | | | | | | |
| Total assets | | $ | 235,076,000 | | | $ | 237,157,000 | |
| | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 14,274,000 | | | $ | 6,966,000 | |
| Accrued liabilities: | | | | | | | | |
| Payroll costs and other taxes | | | 3,625,000 | | | | 2,720,000 | |
| Other | | | 7,963,000 | | | | 10,600,000 | |
| Deferred revenue | | | 204,000 | | | | 2,230,000 | |
| | | | | | | | | |
| Total current liabilities | | | 26,066,000 | | | | 22,516,000 | |
Deferred tax liability | | | 18,785,000 | | | | 16,262,000 | |
Stockholders’ equity: | | | | | | | | |
| Preferred stock-par value $1.00 per share; 5,000,000 shares authorized, none outstanding | | | — | | | | — | |
Common stock-par value $.331/3 per share; 50,000,000 shares authorized, 7,902,106 and 7,822,994 shares issued and outstanding at September 30, 2010 and 2009 respectively | | | 2,634,000 | | | | 2,608,000 | |
| Additional paid-in capital | | | 90,406,000 | | | | 89,220,000 | |
| Other comprehensive income, net of tax | | | 4,000 | | | | 18,000 | |
| Retained earnings | | | 97,181,000 | | | | 106,533,000 | |
| | | | | | | | | |
| Total stockholders’ equity | | | 190,225,000 | | | | 198,379,000 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 235,076,000 | | | $ | 237,157,000 | |
| | | | | | | | | |
| | | | | | | | |
| | | September 30,
2012 | | | September 30,
2011 | |
| ASSETS | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 57,373,000 | | | $ | 26,077,000 | |
Short-term investments | | | 4,000,000 | | | | — | |
Accounts receivable, net of allowance for doubtful accounts of $250,000 and $155,000 at September 30, 2012 and September 30, 2011, respectively | | | 53,719,000 | | | | 86,716,000 | |
Prepaid expenses and other assets | | | 762,000 | | | | 4,254,000 | |
Current deferred tax asset | | | 1,925,000 | | | | 1,236,000 | |
| | | | | | | | |
Total current assets | | | 117,779,000 | | | | 118,283,000 | |
| | |
Property, plant and equipment | | | 326,030,000 | | | | 302,647,000 | |
Less accumulated depreciation | | | (164,634,000 | ) | | | (156,106,000 | ) |
| | | | | | | | |
Net property, plant and equipment | | | 161,396,000 | | | | 146,541,000 | |
| | | | | | | | |
Total assets | | $ | 279,175,000 | | | $ | 264,824,000 | |
| | | | | | | | |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 18,544,000 | | | $ | 18,732,000 | |
Accrued liabilities: | | | | | | | | |
Payroll costs and other taxes | | | 1,802,000 | | | | 1,436,000 | |
Other | | | 6,425,000 | | | | 9,230,000 | |
Deferred revenue | | | 3,467,000 | | | | 9,616,000 | |
Current maturities of notes payable and obligations under capital leases | | | 9,131,000 | | | | 5,290,000 | |
| | | | | | | | |
Total current liabilities | | | 39,369,000 | | | | 44,304,000 | |
| | |
Long-term liabilities: | | | | | | | | |
Notes payable and obligations under capital leases less current maturities | | | 11,179,000 | | | | 10,281,000 | |
Deferred tax liability | | | 27,678,000 | | | | 22,076,000 | |
| | | | | | | | |
Total long-term liabilities | | | 38,857,000 | | | | 32,357,000 | |
| | |
Stockholders’ equity: | | | | | | | | |
Preferred stock-par value $1.00 per share;
5,000,000 shares authorized, none outstanding | | | — | | | | — | |
Common stock-par value $.33 1/3 per share;
50,000,000 shares authorized, 8,031,369 and 7,910,885 shares issued and outstanding at September 30, 2012 and September 30, 2011, respectively | | | 2,677,000 | | | | 2,637,000 | |
Additional paid-in capital | | | 93,224,000 | | | | 91,591,000 | |
Retained earnings | | | 105,048,000 | | | | 93,935,000 | |
| | | | | | | | |
Total stockholders’ equity | | | 200,949,000 | | | | 188,163,000 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 279,175,000 | | | $ | 264,824,000 | |
| | | | | | | | |
See accompanying notes to the consolidated financial statements.
F-4
DAWSON GEOPHYSICAL COMPANY
| | | | | | | | | | | | | |
| | | Years Ended September 30, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
| Operating revenues | | $ | 205,272,000 | | | $ | 243,995,000 | | | $ | 324,926,000 | |
| Operating costs: | | | | | | | | | | | | |
| Operating expenses | | | 185,588,000 | | | | 192,839,000 | | | | 237,484,000 | |
| General and administrative | | | 7,131,000 | | | | 7,856,000 | | | | 6,762,000 | |
| Depreciation | | | 27,126,000 | | | | 26,160,000 | | | | 24,253,000 | |
| | | | | | | | | | | | | |
| | | | 219,845,000 | | | | 226,855,000 | | | | 268,499,000 | |
| (Loss) income from operations | | | (14,573,000 | ) | | | 17,140,000 | | | | 56,427,000 | |
| Other income (expense): | | | | | | | | | | | | |
| Interest income | | | 185,000 | | | | 249,000 | | | | 497,000 | |
| Interest expense | | | — | | | | — | | | | (482,000 | ) |
| Other income (expense) | | | 398,000 | | | | 326,000 | | | | (35,000 | ) |
| | | | | | | | | | | | | |
| (Loss) income before income tax | | | (13,990,000 | ) | | | 17,715,000 | | | | 56,407,000 | |
| Income tax benefit (expense): | | | | | | | | | | | | |
| Current | | | 7,102,000 | | | | (5,193,000 | ) | | | (17,834,000 | ) |
| Deferred | | | (2,464,000 | ) | | | (2,300,000 | ) | | | (3,566,000 | ) |
| | | | | | | | | | | | | |
| | | | 4,638,000 | | | | (7,493,000 | ) | | | (21,400,000 | ) |
| | | | | | | | | | | | | |
| Net (loss) income | | $ | (9,352,000 | ) | | $ | 10,222,000 | | | $ | 35,007,000 | |
| | | | | | | | | | | | | |
| Basic (loss) income per common share | | $ | (1.20 | ) | | $ | 1.31 | | | $ | 4.57 | |
| | | | | | | | | | | | | |
| Diluted (loss) income per common share | | $ | (1.20 | ) | | $ | 1.30 | | | $ | 4.53 | |
| | | | | | | | | | | | | |
| Weighted average equivalent common shares outstanding | | | 7,777,404 | | | | 7,807,385 | | | | 7,669,124 | |
| | | | | | | | | | | | | |
| Weighted average equivalent common shares outstanding- assuming dilution | | | 7,777,404 | | | | 7,853,531 | | | | 7,728,651 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Years Ended September 30, | |
| | | 2012 | | | 2011 | | | 2010 | |
Operating revenues | | $ | 319,274,000 | | | $ | 333,279,000 | | | $ | 205,272,000 | |
Operating costs: | | | | | | | | | | | | |
Operating expenses | | | 258,970,000 | | | | 292,519,000 | | | | 185,588,000 | |
General and administrative | | | 11,205,000 | | | | 13,550,000 | | | | 7,131,000 | |
Depreciation | | | 32,498,000 | | | | 30,536,000 | | | | 27,126,000 | |
| | | | | | | | | | | | |
| | | 302,673,000 | | | | 336,605,000 | | | | 219,845,000 | |
Income (loss) from operations | | | 16,601,000 | | | | (3,326,000 | ) | | | (14,573,000 | ) |
Other income (expense): | | | | | | | | | | | | |
Interest income | | | 28,000 | | | | 35,000 | | | | 185,000 | |
Interest expense | | | (629,000 | ) | | | (167,000 | ) | | | — | |
Other income | | | 516,000 | | | | 651,000 | | | | 398,000 | |
| | | | | | | | | | | | |
Income (loss) before income tax | | | 16,516,000 | | | | (2,807,000 | ) | | | (13,990,000 | ) |
Income tax (expense) benefit: | | | | | | | | | | | | |
Current | | | (490,000 | ) | | | 2,929,000 | | | | 7,102,000 | |
Deferred | | | (4,913,000 | ) | | | (3,368,000 | ) | | | (2,464,000 | ) |
| | | | | | | | | | | | |
| | | (5,403,000 | ) | | | (439,000 | ) | | | 4,638,000 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | 11,113,000 | | | $ | (3,246,000 | ) | | $ | (9,352,000 | ) |
| | | | | | | | | | | | |
Basic income (loss) per common share | | $ | 1.42 | | | $ | (0.42 | ) | | $ | (1.20 | ) |
| | | | | | | | | | | | |
Diluted income (loss) per common share | | $ | 1.40 | | | $ | (0.42 | ) | | $ | (1.20 | ) |
| | | | | | | | | | | | |
Weighted average equivalent common shares outstanding | | | 7,841,722 | | | | 7,809,561 | | | | 7,777,404 | |
| | | | | | | | | | | | |
Weighted average equivalent common shares outstanding — assuming dilution | | | 7,931,593 | | | | 7,809,561 | | | | 7,777,404 | |
| | | | | | | | | | | | |
See accompanying notes to the consolidated financial statements.
F-5
DAWSON GEOPHYSICAL COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated
| | | | | | | |
| | | Common Stock | | | Additional
| | | Other
| | | | | | | |
| | | Number
| | | | | | Paid-in
| | | Comprehensive
| | | Retained
| | | | |
| | | of Shares | | | Amount | | | Capital | | | Income (Loss) | | | Earnings | | | Total | |
| |
Balance September 30, 2007 | | | 7,658,494 | | | $ | 2,553,000 | | | $ | 85,090,000 | | | $ | — | | | $ | 61,512,000 | | | $ | 149,155,000 | |
Impact of adopting certain provisions ofASC 740-10 | | | | | | | | | | | | | | | | | | | (208,000 | ) | | | (208,000 | ) |
| Net income | | | | | | | | | | | | | | | | | | | 35,007,000 | | | | 35,007,000 | |
| Excess tax benefit of employee stock plan | | | | | | | | | | | 440,000 | | | | | | | | | | | | 440,000 | |
| Stock-based compensation expense | | | | | | | | | | | 836,000 | | | | | | | | | | | | 836,000 | |
| Issuance of common stock as compensation | | | 6,500 | | | | 2,000 | | | | 423,000 | | | | | | | | | | | | 425,000 | |
| Issuance of restricted stock awards and unearned compensation | | | 94,500 | | | | 31,000 | | | | (32,000 | ) | | | | | | | | | | | (1,000 | ) |
| Exercise of stock options | | | 35,250 | | | | 12,000 | | | | 294,000 | | | | | | | | | | | | 306,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2008 | | | 7,794,744 | | | | 2,598,000 | | | | 87,051,000 | | | | — | | | | 96,311,000 | | | | 185,960,000 | |
| Net income | | | | | | | | | | | | | | | | | | | 10,222,000 | | | | 10,222,000 | |
| Other comprehensive income net of tax: | | | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized holding gains arising during the period | | | | | | | | | | | | | | | 31,000 | | | | | | | | | |
| Income tax expense | | | | | | | | | | | | | | | (13,000 | ) | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other comprehensive income | | | | | | | | | | | | | | | 18,000 | | | | | | | | 18,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income for the period | | | | | | | | | | | | | | | | | | | | | | | 10,240,000 | |
| Excess tax benefit of employee stock plan | | | | | | | | | | | 5,000 | | | | | | | | | | | | 5,000 | |
| Stock-based compensation expense | | | | | | | | | | | 1,667,000 | | | | | | | | | | | | 1,667,000 | |
| Issuance of common stock as compensation | | | 5,000 | | | | 2,000 | | | | 89,000 | | | | | | | | | | | | 91,000 | |
| Exercise of stock options | | | 23,250 | | | | 8,000 | | | | 408,000 | | | | | | | | | | | | 416,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2009 | | | 7,822,994 | | | | 2,608,000 | | | | 89,220,000 | | | | 18,000 | | | | 106,533,000 | | | | 198,379,000 | |
| Net loss | | | | | | | | | | | | | | | | | | | (9,352,000 | ) | | | (9,352,000 | ) |
| Other comprehensive loss net of tax: | | | | | | | | | | | | | | | | | | | | | | | | |
| Realization of losses on investment | | | | | | | | | | | | | | | (28,000 | ) | | | | | | | | |
| Unrealized holding gains arising during the period | | | | | | | | | | | | | | | 3,000 | | | | | | | | | |
| Income tax benefit | | | | | | | | | | | | | | | 11,000 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other comprehensive loss | | | | | | | | | | | | | | | (14,000 | ) | | | | | | | (14,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive loss for the period | | | | | | | | | | | | | | | | | | | | | | | (9,366,000 | ) |
| Stock-based compensation expense | | | | | | | | | | | 1,398,000 | | | | | | | | | | | | 1,398,000 | |
| Issuance of common stock as compensation | | | 8,340 | | | | 3,000 | | | | 182,000 | | | | | | | | | | | | 185,000 | |
| Issuance of restricted stock awards and unearned compensation | | | 84,100 | | | | 28,000 | | | | (28,000 | ) | | | | | | | | | | | — | |
| Exercise of stock options | | | 250 | | | | | | | | 4,000 | | | | | | | | | | | | 4,000 | |
| Shares exchanged for taxes on stock-based compensation | | | (13,578 | ) | | | (5,000 | ) | | | (370,000 | ) | | | | | | | | | | | (375,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2010 | | | 7,902,106 | | | $ | 2,634,000 | | | $ | 90,406,000 | | | $ | 4,000 | | | $ | 97,181,000 | | | $ | 190,225,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Additional
Paid-in
Capital | | | Accumulated
Other
Comprehensive
Income (Loss) | | | Retained
Earnings | | | Total | |
| | | Number
of Shares | | | Amount | | | | | |
Balance September 30, 2009 | | | 7,822,994 | | | $ | 2,608,000 | | | $ | 89,220,000 | | | $ | 18,000 | | | $ | 106,533,000 | | | $ | 198,379,000 | |
Net loss | | | | | | | | | | | | | | | | | | | (9,352,000 | ) | | | (9,352,000 | ) |
Other comprehensive loss net of tax: | | | | | | | | | | | | | | | | | | | | | | | | |
Realization of losses on investment | | | | | | | | | | | | | | | (28,000 | ) | | | | | | | | |
Unrealized holding gains arising during the period | | | | | | | | | | | | | | | 3,000 | | | | | | | | | |
Income tax benefit | | | | | | | | | | | | | | | 11,000 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss | | | | | | | | | | | | | | | (14,000 | ) | | | | | | | (14,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive loss for the period | | | | | | | | | | | | | | | | | | | | | | | (9,366,000 | ) |
Stock-based compensation expense | | | | | | | | | | | 1,398,000 | | | | | | | | | | | | 1,398,000 | |
Issuance of common stock as compensation | | | 8,340 | | | | 3,000 | | | | 182,000 | | | | | | | | | | | | 185,000 | |
Issuance of restricted stock awards and unearned compensation | | | 84,100 | | | | 28,000 | | | | (28,000 | ) | | | | | | | | | | | — | |
Exercise of stock options | | | 250 | | | | | | | | 4,000 | | | | | | | | | | | | 4,000 | |
Shares exchanged for taxes on stock-based compensation | | | (13,578 | ) | | | (5,000 | ) | | | (370,000 | ) | | | | | | | | | | | (375,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2010 | | | 7,902,106 | | | | 2,634,000 | | | | 90,406,000 | | | | 4,000 | | | | 97,181,000 | | | | 190,225,000 | |
Net loss | | | | | | | | | | | | | | | | | | | (3,246,000 | ) | | | (3,246,000 | ) |
Other comprehensive loss net of tax: | | | | | | | | | | | | | | | | | | | | | | | | |
Realization of losses on investment | | | | | | | | | | | | | | | (6,000 | ) | | | | | | | | |
Income tax benefit | | | | | | | | | | | | | | | 2,000 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss | | | | | | | | | | | | | | | (4,000 | ) | | | | | | | (4,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive loss for the period | | | | | | | | | | | | | | | | | | | | | | | (3,250,000 | ) |
Tax deficit resulting from share-based compensation | | | | | | | | | | | (453,000 | ) | | | | | | | | | | | (453,000 | ) |
Stock-based compensation expense | | | | | | | | | | | 1,485,000 | | | | | | | | | | | | 1,485,000 | |
Issuance of common stock as compensation | | | 6,479 | | | | 2,000 | | | | 184,000 | | | | | | | | | | | | 186,000 | |
Forfeiture of restricted stock awards | | | (4,000 | ) | | | (1,000 | ) | | | | | | | | | | | | | | | (1,000 | ) |
Shares exchanged for taxes on stock-based compensation | | | (9,400 | ) | | | (3,000 | ) | | | (323,000 | ) | | | | | | | | | | | (326,000 | ) |
Exercise of stock options | | | 15,700 | | | | 5,000 | | | | 292,000 | | | | | | | | | | | | 297,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2011 | | | 7,910,885 | | | | 2,637,000 | | | | 91,591,000 | | | | — | | | | 93,935,000 | | | | 188,163,000 | |
Net income | | | | | | | | | | | | | | | | | | | 11,113,000 | | | | 11,113,000 | |
Stock-based compensation expense | | | | | | | | | | | 1,245,000 | | | | | | | | | | | | 1,245,000 | |
Issuance of common stock as compensation | | | 7,234 | | | | 3,000 | | | | 241,000 | | | | | | | | | | | | 244,000 | |
Exercise of stock options | | | 9,750 | | | | 3,000 | | | | 181,000 | | | | | | | | | | | | 184,000 | |
Issuance of restricted stock awards and unearned compensation | | | 103,500 | | | | 34,000 | | | | (34,000 | ) | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2012 | | | 8,031,369 | | | $ | 2,677,000 | | | $ | 93,224,000 | | | $ | — | | | $ | 105,048,000 | | | $ | 200,949,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the consolidated financial statements.
F-6
DAWSON GEOPHYSICAL COMPANY
| | | | | | | | | | | | | |
| | | Years Ended September 30, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
| Net (loss) income | | $ | (9,352,000 | ) | | $ | 10,222,000 | | | $ | 35,007,000 | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation | | | 27,126,000 | | | | 26,160,000 | | | | 24,253,000 | |
| Noncash compensation | | | 1,583,000 | | | | 1,758,000 | | | | 1,259,000 | |
| Deferred income tax expense | | | 2,464,000 | | | | 2,300,000 | | | | 3,566,000 | |
| Excess tax benefit from share-based payment arrangement | | | — | | | | (5,000 | ) | | | (440,000 | ) |
| Provision for bad debts | | | 256,000 | | | | 993,000 | | | | 32,000 | |
| Other | | | (343,000 | ) | | | 106,000 | | | | 443,000 | |
| Change in current assets and liabilities: | | | | | | | | | | | | |
| (Increase) decrease in accounts receivable | | | (17,876,000 | ) | | | 31,641,000 | | | | (15,743,000 | ) |
| Increase in prepaid expenses and other assets | | | (37,000 | ) | | | (6,942,000 | ) | | | (62,000 | ) |
| Increase (decrease) in accounts payable | | | 6,181,000 | | | | (7,960,000 | ) | | | 2,900,000 | |
| (Decrease) increase in accrued liabilities | | | (1,732,000 | ) | | | (4,912,000 | ) | | | 1,644,000 | |
| (Decrease) increase in deferred revenue | | | (2,026,000 | ) | | | 1,237,000 | | | | (1,929,000 | ) |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 6,244,000 | | | | 54,598,000 | | | | 50,930,000 | |
| | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Capital expenditures, net of noncash capital expenditures summarized below in noncash investing activities | | | (18,835,000 | ) | | | (4,192,000 | ) | | | (53,269,000 | ) |
| Acquisition of short-term investments | | | (14,964,000 | ) | | | (25,313,000 | ) | | | — | |
| Proceeds from maturity of short-term investments | | | 20,000,000 | | | | — | | | | — | |
| Proceeds from disposal of assets | | | 434,000 | | | | 124,000 | | | | 29,000 | |
| Proceeds on fire insurance claim | | | — | | | | 2,843,000 | | | | — | |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (13,365,000 | ) | | | (26,538,000 | ) | | | (53,240,000 | ) |
| | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
| Proceeds from exercise of stock options | | | 4,000 | | | | 416,000 | | | | 306,000 | |
| Proceeds from revolving line of credit | | | — | | | | — | | | | 15,000,000 | |
| Repayment on revolving line of credit | | | — | | | | — | | | | (20,000,000 | ) |
| Excess tax benefit from share-based payment arrangement | | | — | | | | 5,000 | | | | 440,000 | |
| | | | | | | | | | | | | |
| Net cash provided (used) by financing activities | | | 4,000 | | | | 421,000 | | | | (4,254,000 | ) |
| | | | | | | | | | | | | |
| Net (decrease) increase in cash and cash equivalents | | | (7,117,000 | ) | | | 28,481,000 | | | | (6,564,000 | ) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | | 36,792,000 | | | | 8,311,000 | | | | 14,875,000 | |
| | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 29,675,000 | | | $ | 36,792,000 | | | $ | 8,311,000 | |
| | | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | |
| Cash paid for interest expense | | $ | — | | | $ | — | | | $ | 541,000 | |
| Cash paid during the period for income taxes | | $ | 839,000 | | | $ | 13,222,000 | | | $ | 18,812,000 | |
| Cash received during the period for income taxes | | $ | 8,125,000 | | | $ | — | | | $ | — | |
NONCASH INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Accrued purchases of property and equipment | | $ | 1,127,000 | | | $ | — | | | $ | 382,000 | |
| Equipment purchase through asset trade in | | $ | 2,260,000 | | | $ | — | | | $ | — | |
| Equipment purchase through reduction of insurance proceeds | | $ | — | | | $ | 638,000 | | | $ | — | |
| Unrealized gain on investments | | $ | 3,000 | | | $ | 31,000 | | | $ | — | |
| | | | | | | | | | | | |
| | | Years Ended September 30, | |
| | | 2012 | | | 2011 | | | 2010 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
Net income (loss) | | $ | 11,113,000 | | | $ | (3,246,000 | ) | | $ | (9,352,000 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation | | | 32,498,000 | | | | 30,536,000 | | | | 27,126,000 | |
Noncash compensation | | | 1,489,000 | | | | 1,671,000 | | | | 1,583,000 | |
Deferred income tax expense | | | 4,913,000 | | | | 3,368,000 | | | | 2,464,000 | |
Provision for bad debts | | | 327,000 | | | | 231,000 | | | | 256,000 | |
Other | | | 192,000 | | | | (516,000 | ) | | | (343,000 | ) |
Change in current assets and liabilities: | | | | | | | | | | | | |
Decrease (increase) in accounts receivable | | | 32,670,000 | | | | (30,613,000 | ) | | | (17,876,000 | ) |
Decrease (increase) in prepaid expenses and other assets | | | 3,359,000 | | | | 3,402,000 | | | | (37,000 | ) |
(Decrease) increase in accounts payable | | | (1,593,000 | ) | | | 3,628,000 | | | | 6,181,000 | |
Decrease in accrued liabilities | | | (2,439,000 | ) | | | (922,000 | ) | | | (1,732,000 | ) |
(Decrease) increase in deferred revenue | | | (6,149,000 | ) | | | 9,412,000 | | | | (2,026,000 | ) |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 76,380,000 | | | | 16,951,000 | | | | 6,244,000 | |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Capital expenditures, net of noncash capital expendituressummarized below in noncash investing and financing activities | | | (44,832,000 | ) | | | (58,550,000 | ) | | | (18,835,000 | ) |
Proceeds from maturity of short-term investments | | | 500,000 | | | | 22,500,000 | | | | 20,000,000 | |
Acquisition of short-term investments | | | (4,500,000 | ) | | | (2,500,000 | ) | | | (14,964,000 | ) |
Proceeds from disposal of assets | | | 252,000 | | | | 741,000 | | | | 434,000 | |
Partial proceeds on fire insurance claim | | | — | | | | 1,392,000 | | | | — | |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (48,580,000 | ) | | | (36,417,000 | ) | | | (13,365,000 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Proceeds from notes payable | | | 9,346,000 | | | | 16,427,000 | | | | — | |
Principal payments on notes payable | | | (5,814,000 | ) | | | (856,000 | ) | | | — | |
Principal payments on capital lease obligations | | | (220,000 | ) | | | — | | | | — | |
Proceeds from exercise of stock options | | | 184,000 | | | | 297,000 | | | | 4,000 | |
| | | | | | | | | | | | |
Net cash provided by financing activities | | | 3,496,000 | | | | 15,868,000 | | | | 4,000 | |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 31,296,000 | | | | (3,598,000 | ) | | | (7,117,000 | ) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | | 26,077,000 | | | | 29,675,000 | | | | 36,792,000 | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 57,373,000 | | | $ | 26,077,000 | | | $ | 29,675,000 | |
| | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | |
Cash paid for interest expense | | $ | 618,000 | | | $ | 115,000 | | | $ | — | |
Cash paid for income taxes | | $ | 262,000 | | | $ | 509,000 | | | $ | 839,000 | |
Cash received for income taxes | | $ | 3,258,000 | | | $ | 7,366,000 | | | $ | 8,125,000 | |
NONCASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | | | | | |
Accrued purchases of property and equipment | | $ | 1,405,000 | | | $ | 830,000 | | | $ | 1,127,000 | |
Equipment purchase through asset trade in | | $ | — | | | $ | — | | | $ | 2,260,000 | |
Capital lease obligations incurred | | $ | 1,427,000 | | | $ | — | | | $ | — | |
Unrealized gain on investments | | $ | — | | | $ | — | | | $ | 3,000 | |
See accompanying notes to the consolidated financial statements.
F-7statements
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
1. Summary of Significant Accounting Policies 1.
| Summary of Significant Accounting Policies |
Organization and Nature of Operations
Founded in 1952, the Company acquires and processes2-D,3-D 2-D, 3-D and multi-component seismic data for its clients, ranging from major oil and gas companies to independent oil and gas operators as well as providers of multi-client data libraries.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Dawson Seismic Services Holdings, Inc. and Dawson Seismic Services ULC. All significant intercompany balances and transactions have been eliminated in consolidation.
Cash Equivalents
For purposes of the financial statements, the Company considers demand deposits, certificates of deposit, overnight investments, money market funds and all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents.
Short-Term InvestmentsAllowance for Doubtful Accounts
The Company classifiesManagement prepares its investments consisting of U.S. Treasury Securities and FDIC guaranteed bonds as“available-for-sale” and records the net unrealized holding gains and losses as accumulated comprehensive income in stockholders’ equity. The cost of short-term investments sold isallowance for doubtful accounts receivable based on its review of past-due accounts, its past experience of historical write-offs and its current client base. While the specific identification method.
Fair Valuecollectability of Financial Instruments
The carrying amounts for cash and cash equivalents, short-term investments, trade and other receivables, other current assets, accounts payable and other current liabilities approximateoutstanding client invoices is continually assessed, the fair values based on the short-term natureinherent volatility of the energy industry’s business cycle can cause swift and unpredictable changes in the financial instruments. The fair value of investments is based on quoted market prices.
Concentrations of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk at any given time may consist of cash and cash equivalents, money market funds and overnight investment accounts, short-term investments, trade and other receivables and other current assets. At September 30, 2010 and 2009, the Company had deposits with domestic banks in excess of federally insured limits. Management believes the credit risk associated with these deposits is minimal. Money market funds seek to preserve the value of the investment, but it is possible to lose money investing in these funds. The Company invests funds overnight under a repurchase agreement with its bank which is collateralized by securities of the United States Federal agencies. The Company invests primarily in short-term U.S. Treasury Securities. During fiscal 2009, the Company also invested funds in FDIC guaranteed bonds. The Company believes all of its investments are low risk investments. The Company’s sales are to clients whose activities relate to oil and natural gas exploration and production. The Company generally extends unsecured credit to these clients; therefore, collection of receivables may be affected by the economy surrounding the oil and natural gas industry. The Company closely monitors extensions of credit and may negotiate payment terms that mitigate risk. At September 30, 2010, sales to the Company’s largest client represented 32% of its revenues and 25% of its revenues net of third-party charges as compared to 31% and 22%, respectively, at September 30, 2009. The remaining balancestability of the Company’s fiscal 2010 revenues was derived from varied clients and none represented 10% or more of its fiscal 2010 revenues.
clients.Property, Plant and Equipment
Property, plant and equipment areis capitalized at historical cost and depreciated over the useful life of the asset. Management’s estimation of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. As circumstances change and new information becomes available, these estimates could change.
Depreciation is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in the results of operations for the period.
F-8
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when triggering events occur suggesting deterioration in the assets’ recoverability or fair value. Recognition of an impairment charge is required if future expected undiscounted net cash flows are insufficient to recover the carrying value of the assets and the fair value of the assets is below the carrying value of the assets. Management’s forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and expenses based on the Company’s anticipated future results while considering anticipated future oil and natural gas prices which is fundamental in assessing demand for the Company’s services. If the carrying amountamounts of the assets exceed the estimated expected undiscounted future cash flows, the Company measures the amount of possible impairment by comparing the carrying amount of the assets to the fair value. No impairment charges were recognized in the Consolidated Statements of Operations for the years ended September 30, 2010, 20092012, 2011 or 2008.
2010.DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Leases
The Company leases certain equipment and vehicles under lease agreements. The Company evaluates each lease to determine its appropriate classification as an operating or capital lease for financial reporting purposes. Any lease that does not meet the criteria for a capital lease is accounted for as an operating lease. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair market value of the related assets. Assets under capital leases are depreciated using the straight-line method over the initial lease term.
Revenue Recognition
Services are provided under cancelable service contracts. These contracts are either “turnkey” or “term” agreements. Under both types of agreements, the Company recognizes revenues when revenue is realizable and services have been performed. Services are defined as the commencement of data acquisition or processing operations. Revenues are considered realizable when earned according to the terms of the service contracts. Under turnkey agreements, revenue is recognized on a per unit of data acquired rate as services are performed. Under term agreements, revenue is recognized on a per unit of time worked rate as services are performed. In the case of a cancelled service contract, revenue is recognized and the customer is billed for services performed up to the date of cancellation.
The Company receives reimbursements for certainout-of-pocket expenses under the terms of the service contracts. Amounts billed to clients are recorded in revenue at the gross amount includingout-of-pocket expenses that are reimbursed by the client.
In some instances, customers are billed in advance of services performed. In those cases, the Company recognizes the liability as deferred revenue. As services are performed, those deferred revenue amounts are recognized as revenue.
When it becomes evident that the estimates of total costs to be incurred on a contract will exceed the total estimates of revenue to be earned, an estimated contract loss is recognized in the period in which the loss is identifiable.
Allowance for Doubtful AccountsStock-Based Compensation
Management preparesThe Company measures all employee stock-based compensation awards, which include stock options and restricted stock, using the fair value method and recognizes compensation cost, net of estimated forfeitures, in its allowance for doubtful accounts receivable basedfinancial statements. The Company records compensation expense as operating or general and administrative expense as appropriate in the Consolidated Statements of Operations on its review of past-due accounts, its past experience of historical write-offs and its current client base. Whilea straight-line basis over the collectibility of outstanding client invoices is continually assessed, the inherent volatilityvesting period of the energy industry’s business cycle can cause swift and unpredictable changes in the financial stability of the Company’s clients.
related stock options or restricted stock awards.Tax AccountingIncome Taxes
The Company accounts for income taxes by recognizing amounts of taxes payable or refundable for the current year and by using an asset and liability approach in recognizing the amount of deferred tax liabilitiesassets and assetsliabilities for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Management determines deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of an enacted rate change. The deferred tax asset is reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Management’s methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
determining the annual effective tax rate and the valuation of deferred tax assets, which can create variances between actual results and estimates and could have a material impact on the Company’s provision or benefit for income taxes.
F-9
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
Use of Estimates in the Preparation of Financial Statements
Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.
Stock-Based Compensation2. Short-Term Investments
The Company measures all employee stock-based compensation awards, including stock options and restricted stock, using the fair value method and recognizes compensation cost, net of forfeitures, in its financial statements. The Company records compensation expense as operating or general and administrative expense as appropriate in the Statements of Operations on a straight-line basis over the vesting period of the related stock options or restricted stock awards.
| |
2. | Short-term Investments |
The components of the Company’shad short-term investments at September 30, 2012 consisting of certificates of deposit with original maturities greater than three months, but less than a year. Certificates of deposit are as follows:
| | | | | | | | | | | | | | | | | |
| | | As of September 30, 2010 (in 000’s) | |
| | | Amortized
| | | Unrealized
| | | Unrealized
| | | Estimated
| |
| | | Cost | | | Gains | | | Losses | | | Fair Value | |
| |
| Short-term investments: | | | | | | | | | | | | | | | | |
| U.S. Treasury bills | | $ | 14,991 | | | $ | 2 | | | $ | — | | | $ | 14,993 | |
| FDIC guaranteed bonds | | | 5,015 | | | | 4 | | | | — | | | | 5,019 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 20,006 | | | $ | 6 | (a) | | $ | — | | | $ | 20,012 | |
| | | | | | | | | | | | | | | | | |
| | |
(a) | | Other comprehensive income reflected on the Balance Sheet reflects unrealized gains and losses net of the tax effect of approximately $2,000. |
| | | | | | | | | | | | | | | | | |
| | | As of September 30, 2009 (in 000’s) | |
| | | Amortized
| | | Unrealized
| | | Unrealized
| | | Estimated
| |
| | | Cost | | | Gains | | | Losses | | | Fair Value | |
| |
| Short-term investments: | | | | | | | | | | | | | | | | |
| U.S. Treasury bills | | $ | 9,987 | | | $ | 7 | | | $ | — | | | $ | 9,994 | |
| U.S. Treasury notes | | | 10,153 | | | | 20 | | | | — | | | | 10,173 | |
| FDIC guaranteed bonds | | | 5,096 | | | | 4 | | | | — | | | | 5,100 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 25,236 | | | $ | 31 | (a) | | $ | — | | | $ | 25,267 | |
| | | | | | | | | | | | | | | | | |
| | |
(a) | | Other comprehensive income reflected on the Balance Sheet reflects unrealized gains and losses net of the tax effect of approximately $13,000. |
The Company’slimited to one per banking institution and no single investment exceeded the FDIC insurance limit at September 30, 2012. There were no outstanding short-term investments
have contractual maturities ranging from November 2010 to Aprilat September 30, 2011.
These investments have been classified asavailable-for-sale.3. Fair Value of Financial Instruments
| |
3. | Fair Value of Financial Instruments |
At September 30, 20102012 and 20092011, the Company’s financial instruments included cash and cash equivalents, short-term investments, trade and other receivables, other current assets, accounts payable, and other current liabilities.liabilities and the Term Note. At September 30, 2012, the Company’s financial instruments also included short-term investments in certificates of deposit and the Second Term Note. Due to the short-term maturities of cash and cash equivalents, short-term investments in certificates of deposit, trade and other receivables, other current assets, accounts payables and other current liabilities, the carrying amounts approximate fair value at the respective balance sheet dates.
F-10
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The Company measures certain financial assetsCompany’s Term Note and liabilities atSecond Term Note approximate their fair value due to the fact that the interest rates on a recurring basis, including short-term investments.
The fair value measurements of these short-term investments were determined using the following inputs:
| | | | | | | | | | | | | | | | | |
| | | As of September 30, 2010 (in 000’s) | |
| | | Fair Value Measurements at Reporting Date Using: | |
| | | | | | Quoted Prices in
| | | Significant Other
| | | Significant
| |
| | | | | | Active Markets for
| | | Observable
| | | Unobservable
| |
| | | | | | Identical Assets | | | Inputs | | | Inputs | |
| | | Total | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| |
| Short-term investments: | | | | | | | | | | | | | | | | |
| U.S. Treasury bills | | $ | 14,993 | | | $ | 14,993 | | | $ | — | | | $ | — | |
| FDIC guaranteed bonds | | | 5,019 | | | | 5,019 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 20,012 | | | $ | 20,012 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | As of September 30, 2009 (in 000’s) | |
| | | Fair Value Measurements at Reporting Date Using: | |
| | | | | | Quoted Prices in
| | | Significant Other
| | | Significant
| |
| | | | | | Active Markets for
| | | Observable
| | | Unobservable
| |
| | | | | | Identical Assets | | | Inputs | | | Inputs | |
| | | Total | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| |
| Short-term investments: | | | | | | | | | | | | | | | | |
| U.S. Treasury bills | | $ | 9,994 | | | $ | 9,994 | | | $ | — | | | $ | — | |
| U.S. Treasury notes | | | 10,173 | | | | 10,173 | | | | — | | | | — | |
| FDIC guaranteed bonds | | | 5,100 | | | | 5,100 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 25,267 | | | $ | 25,267 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Investments in U.S. Treasury billsTerm Note and
notesSecond Term Note are reset each month based on the prevailing market interest rate.4. Property, Plant and FDIC guaranteed corporate bonds classified asavailable-for-saleEquipment are measured using unadjusted quoted market prices (Level 1) at the reporting date provided by the Company’s investment custodian.
| |
4. | Property, Plant and Equipment |
Property, plant and equipment, together with annual depreciation rates, consist of the following:
| | | | | | | | | | | | | |
| | | September 30, | | | | |
| | | 2010 | | | 2009 | | | Useful Lives | |
| |
| Land, building and other | | $ | 6,467,000 | | | $ | 5,589,000 | | | | 3 to 40 years | |
| Recording equipment | | | 155,949,000 | | | | 149,444,000 | | | | 5 to 10 years | |
| Vibrator energy sources | | | 59,103,000 | | | | 58,745,000 | | | | 10 to 15 years | |
| Vehicles | | | 27,133,000 | | | | 26,856,000 | | | | 2 to 10 years | |
| Other(a) | | | 291,000 | | | | 186,000 | | | | — | |
| | | | | | | | | | | | | |
| | | | 248,943,000 | | | | 240,820,000 | | | | | |
| Less accumulated depreciation | | | (130,900,000 | ) | | | (115,341,000 | ) | | | | |
| | | | | | | | | | | | | |
| Net property, plant and equipment | | $ | 118,043,000 | | | $ | 125,479,000 | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | September 30, | | | | |
| | | 2012 | | | 2011 | | | Useful Lives | |
Land, building and other | | $ | 8,641,000 | | | $ | 7,532,000 | | | | 3 to 40 years | |
Recording equipment | | | 206,642,000 | | | | 199,347,000 | | | | 5 to 10 years | |
Line clearing equipment | | | 913,000 | | | | — | | | | 5 years | |
Vibrator energy sources | | | 76,813,000 | | | | 65,175,000 | | | | 5 to 15 years | |
Vehicles | | | 32,429,000 | | | | 30,337,000 | | | | 1.5 to 10 years | |
Other(a) | | | 592,000 | | | | 256,000 | | | | — | |
| | | | | | | | | | | | |
| | | 326,030,000 | | | | 302,647,000 | | | | | |
Less accumulated depreciation | | | (164,634,000 | ) | | | (156,106,000 | ) | | | | |
| | | | | | | | | | | | |
Net property, plant and equipment | | $ | 161,396,000 | | | $ | 146,541,000 | | | | | |
| | | | | | | | | | | | |
| | |
| (a) | | Other represents accumulated costs associated with equipment fabrication and modification not yet completed. |
F-11
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
5. | Supplemental Balance Sheet Information |
5. Supplemental Consolidated Balance Sheet Information
Accounts receivable consist of the following at September 30, 20102012 and 2009:
| | | | | | | | | |
| | | September 30, | |
| | | 2010 | | | 2009 | |
| |
| Trade and accrued trade receivables | | $ | 54,697,000 | | | $ | 33,910,000 | |
| Allowance for doubtful accounts | | | (639,000 | ) | | | (533,000 | ) |
| Insurance receivable associated with fire damage | | | — | | | | 1,836,000 | |
| Accrued receivable for workers’ compensation stop loss policy | | | 3,668,000 | | | | 4,893,000 | |
| | | | | | | | | |
| Total accounts receivable | | $ | 57,726,000 | | | $ | 40,106,000 | |
| | | | | | | | | |
2011: | | | | | | | | |
| | | September 30, | |
| | | 2012 | | | 2011 | |
Trade and accrued trade receivables | | $ | 53,268,000 | | | $ | 82,676,000 | |
Allowance for doubtful accounts | | | (250,000 | ) | | | (155,000 | ) |
Accrued receivable for workers’ compensation stop loss policy | | | 623,000 | | | | 3,852,000 | |
Other | | | 78,000 | | | | 343,000 | |
| | | | | | | | |
Total accounts receivable | | $ | 53,719,000 | | | $ | 86,716,000 | |
| | | | | | | | |
Prepaid expenses and other assets consist of the following at September 30, 20102012 and 2009:
| | | | | | | | | |
| | | September 30, | |
| | | 2010 | | | 2009 | |
| |
| Prepaid expenses and other | | $ | 616,000 | | | $ | 591,000 | |
| Income tax receivable | | | 7,240,000 | | | | 7,228,000 | |
| | | | | | | | | |
| Total prepaid expenses and other assets | | $ | 7,856,000 | | | $ | 7,819,000 | |
| | | | | | | | | |
2011: | | | | | | | | |
| | | September 30, | |
| | | 2012 | | | 2011 | |
Prepaid expenses and other assets | | $ | 762,000 | | | $ | 943,000 | |
Income tax receivable | | | — | | | | 3,311,000 | |
| | | | | | | | |
Total prepaid expenses and other assets | | $ | 762,000 | | | $ | 4,254,000 | |
| | | | | | | | |
Other current liabilities consist of the following at September 30, 20102012 and 2009:
| | | | | | | | | |
| | | September 30, | |
| | | 2010 | | | 2009 | |
| |
| Accrued self insurance reserves | | $ | 5,318,000 | | | $ | 6,698,000 | |
| Accrued bonus and profit sharing | | | — | | | | 1,014,000 | |
| Income and franchise taxes payable | | | 879,000 | | | | 674,000 | |
| Other accrued expenses and current liabilities | | | 1,766,000 | | | | 2,214,000 | |
| | | | | | | | | |
| Total other current liabilities | | $ | 7,963,000 | | | $ | 10,600,000 | |
| | | | | | | | | |
2011: | | | | | | | | |
| | | September 30, | |
| | | 2012 | | | 2011 | |
Accrued self-insurance reserves | | $ | 2,181,000 | | | $ | 5,567,000 | |
Income and franchise taxes payable | | | 1,096,000 | | | | 897,000 | |
Other accrued expenses and current liabilities | | | 3,148,000 | | | | 2,766,000 | |
| | | | | | | | |
Total other current liabilities | | $ | 6,425,000 | | | $ | 9,230,000 | |
| | | | | | | | |
6. Debt
The Company’s revolving line of credit loan agreement is with Western National Bank. The agreement was renewed June 2, 2011 under the same terms as the previous agreement. The agreement permits the Company to borrow, repay and reborrow, from time to time until June 2, 2011,2013, up to $20.0 million based on the borrowing base calculation as defined in the agreement. The Company’s obligations under this agreement are secured by a security interest in its accounts receivable, equipment and related collateral. Interest on the facility accrues at an annual rate equal to either the30-day London Interbank Offered Rate (“LIBOR”), LIBOR, plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent, as the Company directs monthly, subject to an interest rate floor of 4%. Interest on the outstanding amount under the loan agreement is payable monthly. The loan agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets, mergers and reorganizations. The Company is also obligated to meet certain financial covenants under the loan agreement, including maintaining specified ratios with respect to cash flow coverage, current assets and liabilities and debt to tangible net worth. The Company was in compliance with all covenants including specified ratios as of September 30, 20102012 and November 23, 2010.December 5, 2012 and has the full line of credit available for borrowing. The Company has not utilized the revolving line of credit loan agreement during the fiscal years ended September 30, 20102012 or 2009.
| |
7. | Stock-Based Compensation |
September 30, 2011.The Company amended its credit loan agreement with Western National Bank on June 30, 2011 to add the Term Note provision, under which the Company obtained $16,427,000 in financing for the purchase of Geospace Technologies GSR equipment. The Term Note is repayable over a period of 36 months at $485,444 per month plus any applicable interest. Interest on the Term Note accrues at an annual rate equal to either the 30-day
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
LIBOR, plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent, as the Company directs monthly, subject to an interest rate floor of 4%, and otherwise has the same terms as the revolving line of credit. The Term Note is collateralized by a security interest in the Company’s accounts receivable, equipment and related collateral and matures with all outstanding balances due on June 30, 2014. The fair value of the Term Note approximates its carrying value at September 30, 2012 due to the fact that the interest rate on the Term Note is reset each month based on the prevailing market interest rate.
On May 11, 2012, the Company entered into the Second Term Note under its credit loan agreement with Western National Bank. The Second Term Note allows the Company to borrow from time to time up to $15.0 million to purchase equipment. The outstanding principal under the Second Term Note will be amortized over a period of 36 months. The Second Term Note bears interest at an annual rate equal to either the 30-day LIBOR, plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent, as the Company directs monthly, subject to an interest rate floor of 3.75%, and otherwise has the same terms as the revolving line of credit. The Second Term Note is collateralized by a security interest in the Company’s accounts receivable, equipment and related collateral and matures with all outstanding balances due on May 2, 2015. On July 5, 2012, the Company borrowed $9,346,000 under the Second Term Note to purchase Geospace Technologies GSR recording equipment. The fair value of the Second Term Note approximates its carrying value at September 30, 2012 due to the fact that the interest rate on the Second Term Note is reset each month based on the prevailing market interest rate.
In the second quarter of fiscal 2012, the Company began leasing vehicles from Enterprise Fleet Management under capital leases. These capital lease obligations are payable in 36 to 60 monthly installments and mature between December 2014 and February 2017. At September 30, 2010,2012, the Company had twoleased 42 vehicles under these capital leases.
The Company’s notes payable and obligations under capital leases consist of the following:
| | | | | | | | |
| | | September 30,
2012 | | | September 30,
2011 | |
Term Note | | $ | 10,281,000 | | | $ | 15,571,000 | |
Second Term Note | | | 8,821,000 | | | | — | |
Revolving line of credit | | | — | | | | — | |
Obligations under capital leases | | | 1,208,000 | | | | — | |
| | | | | | | | |
| | $ | 20,310,000 | | | $ | 15,571,000 | |
Less current maturities of notes payable and obligations under capital leases | | | (9,131,000 | ) | | | (5,290,000 | ) |
| | | | | | | | |
| | $ | 11,179,000 | | | $ | 10,281,000 | |
| | | | | | | | |
The aggregate maturities of the notes payable and obligations under capital leases at September 30, 2012 are as follows:
| | | | |
October 2012 – September 2013 | | $ | 9,131,0000 | |
October 2013 – September 2014 | | | 8,530,000 | |
October 2014 – September 2015 | | | 2,545,000 | |
October 2015 – September 2016 | | | 73,000 | |
October 2016 – September 2017 | | | 31,000 | |
| | | | |
| | $ | 20,310,000 | |
| | | | |
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. Stock-Based Compensation
At September 30, 2012, the Company had one stock-based compensation plans. Each plan, theplan. The awards outstanding under these plansthis plan and the associated accounting treatment are discussed below.
In fiscal 2004, the Company adopted the 2004 Incentive Stock Plan (the “2004 Plan”) which provides 375,000 shares of authorized but unissued common stock of the Company. The option price is the market value of
F-12
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
the Company’s common stock at the date of grant. Options are exercisable 25% annually from the date of the grant, and the options expire five years from the date of grant. The 2004 Plan provides that of the 375,000 shares, up to 125,000 shares may be awarded to officers, directors, and employees of the Company, and up to 125,000 shares may be awarded with restrictions for the purpose of additional compensation. Although shares are available under the 2004 Plan, the Company does not intend to issue shares from this plan in the future.
In fiscal 2007, the Company adopted the Dawson Geophysical Company 2006 Stock and Performance Incentive Plan (“the Plan”). The Plan provides 750,000 shares of authorized but unissued common stock of the Company which may be awarded to officers, directors, employees and consultants of the Company in various forms including options, grants, restricted stock grants and others. Stock option grant prices awarded under the Plan may not be less than the fair market value of the common stock subject to such option on the grant date, and the term of stock options shall extend no more than ten years after the grant date.
The Company estimates the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. The expected volatility is based on historical volatility.volatility of the Company’s stock. The expected term represents the average period that the Company expects stock options to be outstanding and is determined based on the Company’s historical experience. The risk free interest rate used by the Company as the discounting interest rate is based on the U.S. Treasury rates on the grant date for securities with maturity dates of approximately the expected term. As the Company has not historically declared dividends and does not expect to declare dividends over the near term, the dividend yield used in the calculation is zero. Actual value realized, if any, is dependent on the future performance of the Company’s common stock and overall stock market conditions. There is no assurance the value realized by an optionee will be at or near the value estimated by the Black-Scholes model.
The fair values of stock options granted during 2009 were $8.59 and $10.49 using the Black-Scholes model and included the following assumptions:
| | | | | | | | | |
| | | Group A | | | Group B | |
| |
| Expected term | | | 4 years | | | | 6 years | |
| Expected volatility | | | 57.57% | | | | 56.85% | |
| Risk free interest rate | | | 1.67% | | | | 2.82% | |
| Expected dividend yield | | | — | | | | — | |
A summary of the Company’s employee stock options as of September 30, 2010,2012, as well as activity during the year then ended is presented below.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Weighted
| | | | |
| | | | | | Weighted
| | | Average
| | | | |
| | | Number of
| | | Average
| | | Remaining
| | | Aggregate
| |
| | | Optioned
| | | Exercise
| | | Contractual
| | | Intrinsic
| |
| | | Shares | | | Price | | | Term in Years | | | Value ($000) | |
| |
| Balance as of September 30, 2009 | | | 152,000 | | | $ | 18.91 | | | | | | | | | |
| Granted | | | — | | | | — | | | | | | | | | |
| Exercised | | | (250 | ) | | | 18.91 | | | | | | | $ | 1 | |
| Forfeited | | | (750 | ) | | | 18.91 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance as of September 30, 2010 | | | 151,000 | | | $ | 18.91 | | | | 8.172 | | | $ | 1,169 | |
| | | | | | | | | | | | | | | | | |
| Exercisable as of September 30, 2010 | | | 37,750 | | | $ | 18.91 | | | | 8.172 | | | $ | 292 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Number of
Optioned
Shares | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Contractual
Term in Years | | | Aggregate
Intrinsic
Value ($000) | |
Balance as of September 30, 2011 | | | 135,300 | | | $ | 18.91 | | | | | | | | | |
Granted | | | — | | | | — | | | | | | | | | |
Exercised | | | (9,750 | ) | | | 18.91 | | | | | | | $ | 173 | |
Forfeited | | | — | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance as of September 30, 2012 | | | 125,550 | | | $ | 18.91 | | | | 6.17 | | | $ | 797 | |
| | | | | | | | | | | | | | | | |
Exercisable as of September 30, 2012 | | | 87,800 | | | $ | 18.91 | | | | 6.17 | | | $ | 558 | |
| | | | | | | | | | | | | | | | |
No options were granted during fiscal 2010 and 2008. During fiscal 2009, 152,000 options were issued to employees of the Company. These options vest 25% annually from the date of grant and expire ten years from the date of grant. These options had a weighted average grant date fair value of $18.91.2012, 2011 or 2010. The total intrinsic value of
F-13
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
options exercised during fiscal 2012, 2011 and 2010 2009was $173,000, $318,000 and 2008 was $1,000, $206,000 and $1,812,000, respectively. The total fair value of options vested during fiscal 2012, 2011 and 2010 2009was $362,000, $362,000 and 2008 was $719,000, $148,000 and $201,000,$364,000, respectively.
A summary of the status of the Company’s nonvested stock option awards as of September 30, 20102012 and changes during the fiscal year then ended September 30, 2010 is presented below.
| | | | | | | | | |
| | | Number of
| | | Weighted Average
| |
| | | Nonvested
| | | Grant Date
| |
| | | Share Awards | | | Fair Value | |
| |
| Nonvested option awards outstanding September 30, 2009 | | | 152,000 | | | $ | 18.91 | |
| Granted | | | — | | | | — | |
| Vested | | | (38,000 | ) | | | 18.91 | |
| Forfeited | | | (750 | ) | | | 18.91 | |
| | | | | | | | | |
| Nonvested option awards outstanding September 30, 2010 | | | 113,250 | | | $ | 18.91 | |
| | | | | | | | | |
| | | | | | | | |
| | | Number of
Nonvested
Share Awards | | | Weighted Average
Grant Date
Fair Value | |
Nonvested option awards outstanding September 30, 2011 | | | 75,500 | | | $ | 9.59 | |
Granted | | | — | | | | — | |
Vested | | | (37,750 | ) | | | 9.59 | |
Forfeited | | | — | | | | — | |
| | | | | | | | |
Nonvested option awards outstanding September 30, 2012 | | | 37,750 | | | $ | 9.59 | |
| | | | | | | | |
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Outstanding options at September 30, 20102012 expire in December 2018 and have an exercise price of $18.91. As of September 30, 2010,2012, there was approximately $765,000$61,000 of unrecognized compensation cost related to nonvested stock option awards to be recognized over a weighted average period of 2.20.17 years.
Stock options issued under the Company’s 2006 Plan are incentive stock options. No tax deduction is recorded when options are awarded. If an exercise and sale of vested options results in a disqualifying disposition, a tax deduction for the Company occurs. For the yearyears ended September 30, 2012, 2011 and 2010, there were no excess tax benefits from disqualifying dispositions. For fiscal years ended 2009 and 2008, excess tax benefits from disqualifying dispositions of options of $5,000 and $440,000, respectively, were reflected in both cash flows from operating activities and cash flows from financing activities on the Statements of Cash Flows.
Cash received from option exercises under all share-based payment arrangements during the years ended September 30, 2012, 2011 and 2010 was $184,000, $297,000 and 2009 was $4,000, and $416,000, respectively.
The Company recognized compensation expense associated with stock option awards of $363,000, $315,000$362,000, $362,000 and $78,000$363,000 in fiscal 2010, 20092012, 2011 and 2008,2010, respectively. This amount is included in operating or general and administrative expense as appropriate in the Consolidated Statements of Operations.
The Company granted 84,100103,500 and 38,50084,100 shares of restricted stock to employees in fiscal 2012 and 2010, and 2008, respectively. There were no restricted stock grants in fiscal 2009. The weighted average grant date fair value of restricted stock awards in fiscal 2012 and 2010 was $23.55 and 2008 was $23.33, and $67.25, respectively. The fair value of the restricted stock granted equals the market price on the grant date and vests after three years.
| | | | | | | | | |
| | | Number of
| | | Weighted Average
| |
| | | Restricted
| | | Grant Date
| |
| | | Share Awards | | | Fair Value | |
| |
| Nonvested restricted shares outstanding September 30, 2009 | | | 94,500 | | | $ | 43.43 | |
| Granted | | | 84,100 | | | $ | 23.33 | |
| Vested | | | (56,000 | ) | | $ | 27.05 | |
| | | | | | | | | |
| Nonvested restricted shares outstanding September 30, 2010 | | | 122,600 | | | $ | 37.12 | |
| | | | | | | | | |
There were no restricted stock grants in 2011.A summary of the status of the Company’s nonvested restricted stock awards as of September 30, 2012 and changes during the year then ended is presented below.
| | | | | | | | |
| | | Number of
Restricted
Share Awards | | | Weighted Average
Grant Date
Fair Value | |
Nonvested restricted shares outstanding September 30, 2011 | | | 81,100 | | | $ | 23.33 | |
Granted | | | 103,500 | | | $ | 23.55 | |
Vested | | | — | | | $ | — | |
Forfeited | | | — | | | $ | — | |
| | | | | | | | |
Nonvested restricted shares outstanding September 30, 2012 | | | 184,600 | | | $ | 23.45 | |
| | | | | | | | |
The Company’s tax benefit with regards to restricted stock awards is consistent with the tax election of the recipient of the award. No elections under IRC Section 83(b) have been made for the restricted stock awards granted by the Company.Company in fiscal 2012. As a result, the compensation expense recorded for restricted stock resulted in a deferred tax asset for the Company equal to the tax effect of the amount of compensation expense recorded.
The Company recognized compensation expense related to restricted stock awards of $1,035,000, $1,352,000$883,000, $1,123,000 and $758,000$1,035,000 in fiscal 2010, 20092012, 2011 and 2008,2010, respectively. This amount is included in operating or general and
F-14
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
administrative expense as appropriate in the Consolidated Statements of Operations. As of September 30, 2010,2012, there was approximately $2,300,000$2,603,000 of unrecognized compensation cost related to nonvested restricted stock awards granted. TheThis cost is expected to be recognized over a weighted average period of 2.32.32 years.
The Company granted common shares with immediate vesting to outside directors and employees in 2010, 2009fiscal years 2012, 2011 and 2008:
| | | | | | | | | |
| | | | | Weighted Average
|
| | | Number of
| | Grant Date
|
| | | Shares Granted | | Fair Value |
| |
| 2010 | | | 8,340 | | | $ | 22.11 | |
| 2009 | | | 5,000 | | | $ | 18.19 | |
| 2008 | | | 6,500 | | | $ | 65.30 | |
2010: | | | | | | | | |
| | | Number of
Shares Granted | | | Weighted Average
Grant Date
Fair Value | |
2012 | | | 7,234 | | | $ | 33.64 | |
2011 | | | 6,479 | | | $ | 28.69 | |
2010 | | | 8,340 | | | $ | 22.11 | |
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recognized expense of $185,000, $91,000$244,000, $186,000 and $423,000$185,000 in fiscal 2010, 20092012, 2011 and 2008,2010, respectively, as well as the related tax benefit associated with these awards.
| |
8. | Employee Benefit Plans |
8. Employee Benefit Plans
The Company provides a 401(k) plan as part of its employee benefits package in order to retain quality personnel. During 2010, 2009fiscal years 2012, 2011 and 2008,2010, the Company elected to match 100% of the employee contributions up to a maximum of 6% of the participant’s gross salary. The Company’s matching contributions for fiscal 2010, 20092012, 2011 and 20082010 were approximately $1,521,000, $1,366,000 and $1,270,000, $1,213,000 and $1,117,000, respectively.
9. Advertising Costs
Advertising costs are charged to expense as incurred. Advertising costs totaled $256,000, $181,000$340,000, $370,000 and $288,000$256,000 during the fiscal years ended September 30, 2012, 2011 and 2010, 2009 and 2008, respectively.
10. Income Taxes
The Company recorded income tax benefitexpense in the current year of $4,638,000$5,403,000, as compared to income tax expense of $7,493,000$439,000 in 2011 and $21,400,000income tax benefit of $4,638,000 in 2009 and 2008, respectively. The decrease in the provision for 2010 from 2009 is primarily the result of a shift from net income in fiscal 2009 to net losses in fiscal 2010.
Income tax expense (benefit) expense from operations:
| | | | | | | | | | | | | |
| | | Year Ended September 30, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
| Current Federal | | $ | (7,342,000 | ) | | $ | 3,770,000 | | | $ | 16,082,000 | |
| Current State | | | 240,000 | | | | 1,423,000 | | | | 1,752,000 | |
| Deferred Federal | | | 2,817,000 | | | | 1,921,000 | | | | 3,296,000 | |
| Deferred State | | | (353,000 | ) | | | 379,000 | | | | 270,000 | |
| | | | | | | | | | | | | |
| Total | | $ | (4,638,000 | ) | | $ | 7,493,000 | | | $ | 21,400,000 | |
| | | | | | | | | | | | | |
F-15
| | | | | | | | | | | | |
| | | Year Ended September 30, | |
| | | 2012 | | | 2011 | | | 2010 | |
Current federal | | $ | (10,000 | ) | | $ | (3,167,000 | ) | | $ | (7,342,000 | ) |
Current state | | | 500,000 | | | | 238,000 | | | | 240,000 | |
Deferred federal | | | 4,737,000 | | | | 3,920,000 | | | | 2,817,000 | |
Deferred state | | | 176,000 | | | | (552,000 | ) | | | (353,000 | ) |
| | | | | | | | | | | | |
Total | | $ | 5,403,000 | | | $ | 439,000 | | | $ | (4,638,000 | ) |
| | | | | | | | | | | | |
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to income (losses) from continuing operations before income taxes as follows:
| | | | | | | | | | | | | |
| | | Year Ended September 30, | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
| Tax (benefit) expense computed at statutory rate of 35% | | $ | (4,896,000 | ) | | $ | 6,200,000 | | | $ | 19,743,000 | |
| Change in valuation allowance | | | (39,000 | ) | | | (12,000 | ) | | | (18,000 | ) |
| State income tax (benefit) expense | | | (82,000 | ) | | | 1,089,000 | | | | 1,270,000 | |
| Other | | | 379,000 | | | | 216,000 | | | | 405,000 | |
| | | | | | | | | | | | | |
| Income tax (benefit) expense | | $ | (4,638,000 | ) | | $ | 7,493,000 | | | $ | 21,400,000 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Year Ended September 30, | |
| | | 2012 | | | 2011 | | | 2010 | |
Tax expense (benefit) computed at statutory rate of 35% | | $ | 5,781,000 | | | $ | (982,000 | ) | | $ | (4,896,000 | ) |
Change in valuation allowance | | | — | | | | (19,000 | ) | | | (39,000 | ) |
State income tax expense (benefit), net of federal tax | | | 433,000 | | | | (284,000 | ) | | | (82,000 | ) |
Transaction costs | | | (1,353,000 | ) | | | 1,353,000 | | | | — | |
Other | | | 542,000 | | | | 371,000 | | | | 379,000 | |
| | | | | | | | | | | | |
Income tax expense (benefit) | | $ | 5,403,000 | | | $ | 439,000 | | | $ | (4,638,000 | ) |
| | | | | | | | | | | | |
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The principal components of the Company’s net deferred tax liability are as follows:
| | | | | | | | | |
| | | September 30, | |
| | | 2010 | | | 2009 | |
| |
| Deferred tax assets: | | | | | | | | |
| Receivables | | $ | 129,000 | | | $ | 199,000 | |
| Restricted stock | | | 802,000 | | | | 978,000 | |
| Workers’ compensation | | | 368,000 | | | | 408,000 | |
| State tax net operating loss (NOL) carry forward | | | 484,000 | | | | — | |
| Other | | | 580,000 | | | | 716,000 | |
| | | | | | | | | |
| Total gross deferred tax assets | | | 2,363,000 | | | | 2,301,000 | |
| Less valuation allowance | | | (19,000 | ) | | | (58,000 | ) |
| | | | | | | | | |
| Total net deferred tax assets | | | 2,344,000 | | | | 2,243,000 | |
| Deferred tax liabilities: | | | | | | | | |
| Property and equipment | | | (19,363,000 | ) | | | (16,798,000 | ) |
| Other | | | (2,000 | ) | | | (13,000 | ) |
| | | | | | | | | |
| Total gross deferred tax liabilities | | | (19,365,000 | ) | | | (16,811,000 | ) |
| | | | | | | | | |
| Net deferred tax liability | | $ | (17,021,000 | ) | | $ | (14,568,000 | ) |
| | | | | | | | | |
| Current portion of net deferred tax asset/liability | | $ | 1,764,000 | | | $ | 1,694,000 | |
| Non-current portion of net deferred tax asset/liability | | | (18,785,000 | ) | | | (16,262,000 | ) |
| | | | | | | | | |
| Total net deferred tax liability | | $ | (17,021,000 | ) | | $ | (14,568,000 | ) |
| | | | | | | | | |
| | | | | | | | |
| | | September 30, | |
| | | 2012 | | | 2011 | |
Deferred tax assets: | | | | | | | | |
Deferred revenue | | $ | 1,265,000 | | | $ | 550,000 | |
Restricted stock | | | 579,000 | | | | 258,000 | |
Workers’ compensation | | | 270,000 | | | | 331,000 | |
State tax net operating loss (NOL) carry forward | | | 691,000 | | | | 853,000 | |
Federal tax NOL carry forward | | | 12,776,000 | | | | 13,625,000 | |
Self-insurance | | | 298,000 | | | | 298,000 | |
Canadian start-up costs | | | 153,000 | | | | — | |
AMT credit carry forward | | | 177,000 | | | | 177,000 | |
Other | | | 210,000 | | | | 262,000 | |
| | | | | | | | |
Total deferred tax assets | | | 16,419,000 | | | | 16,354,000 | |
Deferred tax liabilities: | | | | | | | | |
Property and equipment | | | (42,172,000 | ) | | | (37,194,000 | ) |
| | | | | | | | |
Total deferred tax liabilities | | | (42,172,000 | ) | | | (37,194,000 | ) |
| | | | | | | | |
Net deferred tax liability | | $ | (25,753,000 | ) | | $ | (20,840,000 | ) |
| | | | | | | | |
Current portion of net deferred tax asset/liability | | $ | 1,925,000 | | | $ | 1,236,000 | |
Non-current portion of net deferred tax asset/liability | | | (27,678,000 | ) | | | (22,076,000 | ) |
| | | | | | | | |
Total net deferred tax liability | | $ | (25,753,000 | ) | | $ | (20,840,000 | ) |
| | | | | | | | |
At September 30, 2010,2012, the Company had a net operating loss (NOL)gross NOL for U.S. federal and state income tax purposes of approximately $19,047,000.$36,502,000. This NOL expires in 2031. The Company intends to carryback the federal portion ofwill carry forward the net operating loss for two years to offset against prior taxable income. In addition to the federal net operating loss, theNOL of approximately $12,776,000. The Company also had net state net operating lossesNOLs that will affect state taxtaxes of approximately $484,000$691,000 at September 30, 2010.2012. State net operating lossesNOLs will begin to expire in 2015. Carryback provisions are not allowed by all states, so the entire state net operating lossesNOLs give rise to a deferred tax asset. The Company expects to havebelieves, based on past levels of income, it is more likely than not that the results of future operations will generate sufficient taxable income in which to use the state net operating loss carryforwards before they expire.realize these deferred tax assets. As such, no valuation allowance was considered necessary related to the federal or state net operating losses.
NOLs.At September 30, 2010,2011, the Company released all of the valuation allowance of $19,000 washeld at September 30, 2010 related to the Company’s deferred tax assets for capital loss carryforwards that are deemed more likely than not to not be realized in the foreseeable future.
F-16
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The following presents a roll forward of the Company’s unrecognized tax benefits:
| | | | | | | | | |
| | | September 30, | |
| | | 2010 | | | 2009 | |
| |
| Balance at beginning of fiscal year | | $ | 416,000 | | | $ | 135,000 | |
| Increase (decrease) in prior year tax positions | | | — | | | | 350,000 | |
| Increase (decrease) in current year tax positions | | | — | | | | — | |
| Settlement with taxing authorities | | | — | | | | — | |
| Expiration of statutes of limitations | | | (181,000 | ) | | | (69,000 | ) |
| | | | | | | | | |
| Balance at end of fiscal year | | $ | 235,000 | | | $ | 416,000 | |
| | | | | | | | | |
| | | | | | | | |
| | | September 30, | |
| | | 2012 | | | 2011 | |
Balance at beginning of fiscal year | | $ | 161,000 | | | $ | 235,000 | |
Expiration of statutes of limitations | | | (161,000 | ) | | | (74,000 | ) |
| | | | | | | | |
Balance at end of fiscal year | | $ | — | | | $ | 161,000 | |
| | | | | | | | |
As of September 30, 2010,2012, the Company recognized $344,000 ofdid not recognize any liabilities for unrecognized tax benefits of which $109,000 related to penalties and interest. The Company expects approximately $75,000benefits. All of the liabilities for unrecognized tax benefits to settle or lapselapsed in the statutes of limitations by September 30,during fiscal 2012. The Company did not record any changes in prior year tax positions, current year tax positions or settlements with taxing authorities related to uncertain tax positions during fiscal 2012 or 2011.
The tax years generally subject to future examination by tax authorities are for years ending September 30, 2006 and after. While it is expected that the amount of unrecognized tax benefits will change in the next twelve months, the Company does not expect any change to have a significant impact on its results of operations. The recognition of the total amount of unrecognized tax benefits of $344,000 would have an impact on the effective tax rate.
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s continuing practice is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. In fiscal 2009, the Company’s net accrued interestyears 2012 and penalties increased by approximately $55,000. In fiscal 2010,2011, the Company’s net accrued interest and penalties decreased by approximately $54,000.
| |
11. | Net Income (loss) per Common Share |
$98,000 and $11,000, respectively.11. Income (loss) per Common Share
Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares and common share equivalents outstanding during the period.
The following table sets forth the computation of basic and diluted net income (loss) per common share.
| | | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
Numerator: | | | | | | | | | | | | |
| Net (loss) income and numerator for basic and diluted net (loss) income per common share — income available to common shareholders | | $ | (9,352,000 | ) | | $ | 10,222,000 | | | $ | 35,007,000 | |
| | | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
| Denominator for basic net (loss) income per common share-weighted average common shares | | | 7,777,404 | | | | 7,807,385 | | | | 7,669,124 | |
| Effect of dilutive securities-employee stock options and restricted stock grants | | | — | | | | 46,146 | | | | 59,527 | |
| | | | | | | | | | | | | |
| Denominator for diluted net (loss) income per common share-adjusted weighted average common shares and assumed conversions | | | 7,777,404 | | | | 7,853,531 | | | | 7,728,651 | |
| | | | | | | | | | | | | |
| Basic (loss) income per common share | | $ | (1.20 | ) | | $ | 1.31 | | | $ | 4.57 | |
| | | | | | | | | | | | | |
| Diluted (loss) income per common share | | $ | (1.20 | ) | | $ | 1.30 | | | $ | 4.53 | |
| | | | | | | | | | | | | |
F-17
| | | | | | | | | | | | |
| | | 2012 | | | 2011 | | | 2010 | |
Numerator: | | | | | | | | | | | | |
Net income (loss) and numerator for basic and diluted income (loss) per common share — income available to common shareholders | | $ | 11,113,000 | | | $ | (3,246,000 | ) | | $ | (9,352,000 | ) |
| | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
Denominator for basic income (loss) per common share-weighted average common shares | | | 7,841,722 | | | | 7,809,561 | | | | 7,777,404 | |
Effect of dilutive securities-employee stock options and restricted stock grants | | | 89,871 | | | | — | | | | — | |
| | | | | | | | | | | | |
Denominator for diluted income (loss) per common share-adjusted weighted average common shares and assumed conversions | | | 7,931,593 | | | | 7,809,561 | | | | 7,777,404 | |
| | | | | | | | | | | | |
Basic income (loss) per common share | | $ | 1.42 | | | $ | (0.42 | ) | | $ | (1.20 | ) |
| | | | | | | | | | | | |
Diluted income (loss) per common share | | $ | 1.40 | | | $ | (0.42 | ) | | $ | (1.20 | ) |
| | | | | | | | | | | | |
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The Company had a net loss in
2010,2011 and 2010; therefore the denominator for diluted loss per common share is the same as the denominator for basic loss per common
share. Becauseshare for these periods.The following weighted average numbers of certain securities have been excluded from the Company had a net loss the effect of outstanding stock options and restricted stock on the computationcalculation of diluted lossincome (loss) per common share, as their effects would be anti-dilutive.
| | | | | | | | | | | | |
| | | 2012 | | | 2011 | | | 2010 | |
Stock options | | | — | | | | 140,487 | | | | 151,710 | |
Restricted stock | | | 46,273 | | | | 105,655 | | | | 54,397 | |
| | | | | | | | | | | | |
Total | | | 46,273 | | | | 246,142 | | | | 206,107 | |
| | | | | | | | | | | | |
12. Major Customers
The Company operates in only one business segment, contract seismic data acquisition and processing services. The major customers in fiscal 2010, 20092012, 2011 and 20082010 have varied. Sales to these customers, as a percentage of operating revenues that exceeded 10%, were as follows:
| | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 |
| |
A | | | 32 | % | | | 31 | % | | | 36 | % |
B | | | — | | | | — | | | | 20 | % |
Although 32% of the Company’s fiscal 2010 revenues were derived from one client (“A”), the Company believes that the relationship is well founded for continued contractual commitments for the foreseeable future in multiple producing basins across the lower 48 states. Although not a client in 2010, the Company’s client “B” in the table remained one of the Company’s clients in 2009; however, sales to this customer as a percentage of operating revenue did not exceed 10%.
| |
| | | | | | | | | | | | | | | | 2012 | | | 2011 | | | 2010 | | A | | | 21 | % | | | 27 | % | | | 32 | % | B | | | — | | | | 24 | % | | | — | |
DAWSON GEOPHYSICAL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 13. | Commitments and Contingencies |
On March 14, 2008, a wildfire in West Texas burned a remote area in which one of the Company’s data acquisition crews was operating. The fire destroyed approximately $2.9 million net book value of the Company’s equipment, all of which was covered by the Company’s liability insurance, net of the deductible. In addition to the loss of equipment, a number of landowners in the fire area suffered damage to their grazing lands, livestock, fences and other improvements. The Company repaired damage incurred by such landowners as a result of the fire. The total cost to repair landowner damages was approximately $1.8 million. In fiscal 2009, the Company received insurance proceeds for equipment losses sustained by the Company during the fire and for the Company’s debrispick-upContingencies costs. In fiscal 2010, the Company received insurance proceeds for all costs to repair landowner damages.
During the quarter ended March 31, 2009, one of the Company’s clients filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. As of September 30, 2010, this client had an accounts receivable balance with the Company of approximately $1.0 million. On October 29, 2010 the Bankruptcy Court approved a compromise settlement between the Company and the former client’s Liquidating Trustee. The Company believes that the current allowance for doubtful accounts will cover estimated exposures related to the bankruptcy.
On October 4, 2010, a wildfire in Douglas, Wyoming burned an area in which one of the Company’s data acquisition crews was operating. The fire destroyed an immaterial amount of the Company’s equipment. In addition to the loss of equipment, a number of landowners in the fire area suffered damage to their grazing lands, livestock, fences, equipment and other improvements. Although the Company cannot currently estimate the likely amount of damages, the Company believes its insurance coverage is adequate to cover losses related to the fire.
From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. Although the Company cannot predict the outcomes of any such legal proceedings, management believes that the resolution of pending legal actions will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity as the Company believes it is adequately indemnified and insured.
The Company experiences contractual disputes with its clients from time to time regarding the payment of invoices or other matters. While the Company seeks to minimize these disputes and maintain good relations with its clients, the Company has in the past, and may in the future, experience disputes that could affect its revenues and results of operations in any period.
The Company has non-cancelable operating leases for domestic office space in Midland, Houston, Denver, Oklahoma City Lyon Township, Michigan and Canonsburg, Pennsylvania.
F-18
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The following table summarizes payments due in specific periods related to the Company’s contractual obligations with initial terms exceeding one year as of September 30, 2010.
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period (in 000’s) | |
| | | | | | Less than
| | | | | | | | | More than
| |
| | | Total | | | 1 Year | | | 1-3 Years | | | 3-5 Years | | | 5 Years | |
| |
| Operating lease obligations | | $ | 2,082 | | | $ | 738 | | | $ | 749 | | | $ | 581 | | | $ | 14 | |
| | | | | | | | | | | | | | | | | | | | | |
2012. | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period (in 000’s) | |
| | | Total | | | Within
1 Year | | | 1-2 Years | | | 3-5 Years | | | After
5 Years | |
Operating lease obligations (office space) | | $ | 3,288 | | | $ | 865 | | | $ | 1,720 | | | $ | 703 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
Some of the Company’s operating leases contain predetermined fixed increases of the minimum rental rate during the initial lease term. For these leases, the Company recognizes the related expense on a straight-line basis and records deferred rent as the difference between the amount charged to expense and the rent paid as deferred rent.paid. Rental expense under the Company’s operating leases with initial terms exceeding one year was $619,000, $575,000$805,000, $717,000 and $528,000$619,000 for fiscal 2012, 2011 and 2010, 2009 and 2008, respectively.
As of November 23, 2010,30, 2012, the Company had unused letters of credit totaling $3,580,000.approximately $1,580,000. The Company’s letters of credit principally back obligations associated with the Company’s self-insured retention on workers’ compensation claims.
Effective in fiscal 2012, the Company was no longer self-insured for workers’ compensation claims after October 1, 2011. The unused letters of credit outstanding at November 30, 2012 are associated with workers’ compensation claims outstanding prior to October 1, 2011.14. Rights Agreement
On July 8, 2009, the Board of Directors of the Company authorized and declared a dividend to the holders of record at the close of business on July 23, 2009 of one Right (a “Right”) for each outstanding share of the Company’s common stock. When exercisable, each Right will entitle the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a “Fractional Share”) of Series A Junior Participating Preferred Stock, par value $1.00 per share, of the Company (the “Preferred Shares”), at a purchase price of $130.00 per Fractional Share, subject to adjustment (the “Purchase Price”). The description and terms of the Rights are set forth in a Rights Agreement (the “Rights Agreement”) effective as of the close of business on July 23, 2009 as it may from time to time be supplemented or amended between the Company and Computershare Shareowner Services LLC (formerly Mellon Investor Services LLC,LLC), as Rights Agent. The Rights Agreement replaced the previous rights plan that was originally adopted in 1999 which expired on July 23, 2009.
Initially, the Rights are attached to all certificates representing outstanding shares of Common Stock. The Rights will only separate from the Common Stock and a “Distribution Date” will only occur, with certain exceptions, upon the earlier of (i) ten days following a public announcement that a person or group of affiliated
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
or associated persons (an “Acquiring Person”) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock, or (ii) ten business days following the commencement of a tender offer or exchange offer that would result in a person’s becoming an Acquiring Person. In certain circumstances, the Distribution Date may be deferred by the Board of Directors.
The Rights are not exercisable until the Distribution Date and will expire at the close of business on July 23, 2019, unless earlier redeemed or exchanged by the Company as described below.
In the event (a “Flip-In Event”) that a person becomes an Acquiring Person (except pursuant to a tender or exchange offer for all outstanding shares of Common Stock at a price and on terms that a majority of the directors of the Company who are not, and are not representatives, nominees, Affiliates or Associates of, an Acquiring Person or the person making the offer determines to be fair to and otherwise in the best interests of the Company and its shareholders (a “Permitted Offer”)), each holder of a Right will thereafter have the right to receive, upon exercise of such Right, a number of shares of Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a Current Market Price (as defined in the Rights Agreement) equal to two times the exercise price of the Right. Notwithstanding the foregoing, following the occurrence of any Triggering Event, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by or transferred to an Acquiring Person (or by certain related parties) will be null and void in the circumstances set forth in the Rights Agreement. However, Rights are not exercisable following the occurrence of any Flip-In Event until such time as the Rights are no longer redeemable by the Company as set forth below.
F-19
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
In the event (a “Flip-Over Event”) that, at any time from and after the time an Acquiring Person becomes such, (i) the Company is acquired in a merger or other business combination transaction (other than certain mergers that follow a Permitted Offer), or (ii) 50% or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right (except Rights that are voided as set forth above) shall thereafter have the right to receive, upon exercise, a number of shares of common stock of the acquiring company having a Current Market Price equal to two times the exercise price of the Right. Flip-In Events and Flip-Over Events are collectively referred to as “Triggering Events.”
At any time until ten days following the first date of public announcement of the occurrence of a Flip-In Event, the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right, payable, at the option of the Company, in cash, shares of Common Stock or such other consideration as the Board of Directors may determine. After a person becomes an Acquiring Person, the right of redemption is subject to certain limitations in the Rights Agreement.
At any time after the occurrence of a Flip-In Event and prior to a person’s becoming the beneficial owner of 50% or more of the shares of Common Stock then outstanding or the occurrence of a Flip-Over Event, the Company may exchange the Rights (other than Rights owned by an Acquiring Person or an affiliate or an associate of an Acquiring Person, which will have become void), in whole or in part, at an exchange ratio of one share of Common Stock,and/or other equity securities deemed to have the same value as one share of Common Stock, per Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends.
| |
15. | Recently Issued Accounting Pronouncements |
15. Recently Issued Accounting Pronouncements
In January 2010,May 2011, the FASBFinancial Accounting Standards Board (FASB) issued Accounting Standards Update2010-06 (ASU) No. 2011-04, “Fair Value MeasurementsMeasurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosures (Topic 820)Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards,” as new guidanceto provide a consistent definition of fair value and clarificationensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
changes certain fair value measurement principles and enhances disclosure requirements, particularly for improving disclosures aboutLevel 3 fair value measurements. ASU2010-06 requiresThe enhanced disclosures regarding transfers in and out of the levels within the fair value hierarchy. Separate disclosures are required for transfers in and out of Level 1 and 2 fair value measurements, and the reasons for the transfers must be disclosed. The new disclosures and clarifications of existing disclosuresmeasurement principles were effective for the Company as of January 1, 2010.2012. The adoption of this guidance did not have a material impact on the Company’s financial statements.
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. This update does not change what items are reported in other comprehensive income or the requirement to report reclassification of items from other comprehensive income to net income. However, in December 2011, the FASB issued ASU No. 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” that deferred the specific requirement within ASU 2011-05 to present on the face of the financial statements items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive net income. Entities should continue to report reclassifications out of accumulated other comprehensive income using guidance in effect before ASU 2011-05 was issued. ASU 2011-05 will be effective for the Company in its first quarter of fiscal 2013, though earlier adoption is permitted. The update will be applied retrospectively upon adoption, and the Company believes the adoption will not have a material effect on its financial statements.
16. Concentrations of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk at any given time may consist of cash and cash equivalents, money market funds and overnight investment accounts, short-term investments in certificates of deposit, trade and other receivables and other current assets. At September 30, 2012 and 2011, the Company had deposits with domestic banks in excess of federally insured limits. Management believes the credit risk associated with these deposits is minimal. Money market funds seek to preserve the value of the investment, but it is possible to lose money investing in these funds. The Company has evaluated events subsequentinvests funds overnight under a repurchase agreement with its bank which is collateralized by securities of the United States Federal agencies. The Company generally invests primarily in short-term U.S. Treasury Securities. The Company believes its investments are of high credit quality.
The Company’s sales are to clients whose activities relate to oil and natural gas exploration and production. The Company generally extends unsecured credit to these clients; therefore, collection of receivables may be affected by the economy surrounding the oil and natural gas industry or other economic conditions. The Company closely monitors extensions of credit and may negotiate payment terms that mitigate risk. For the year ended September 30, 2012, sales to the Company’s largest client represented 21% of both its revenues and revenues net of third-party charges as compared to 27% and 18%, respectively, at September 30, 2011. The remaining balance sheet date (September 30, 2010)of the Company’s fiscal 2012 revenues was derived from varied clients and none represented 10% or more of its fiscal 2012 revenues.
17. Subsequent Events
The Company evaluates subsequent events through the issue date of thisForm 10-K and concluded that no subsequent events have occurred other than those described abovethe financial statements are issued in Note 13, “Commitments and Contingencies.”
F-20
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
17. | Quarterly Financial Data (Unaudited) |
| | | | | | | | | | | | | | | | | |
| | | Quarter Ended | |
| | | December 31 | | | March 31 | | | June 30 | | | September 30 | |
| |
| Fiscal 2009: | | | | | | | | | | | | | | | | |
| Operating revenues | | $ | 80,216,000 | | | $ | 64,625,000 | | | $ | 52,319,000 | | | $ | 46,835,000 | |
| Income (loss) from operations | | $ | 12,445,000 | | | $ | 9,951,000 | | | $ | (2,337,000 | ) | | $ | (2,919,000 | ) |
| Net income (loss) | | $ | 7,734,000 | | | $ | 6,170,000 | | | $ | (1,626,000 | ) | | $ | (2,056,000 | ) |
| Net income (loss) per common share | | $ | 1.00 | | | $ | 0.79 | | | $ | (0.21 | ) | | $ | (0.26 | ) |
| Net income (loss) per common share assuming dilution | | $ | 0.99 | | | $ | 0.79 | | | $ | (0.21 | ) | | $ | (0.26 | ) |
| Fiscal 2010: | | | | | | | | | | | | | | | | |
| Operating revenues | | $ | 36,330,000 | | | $ | 48,585,000 | | | $ | 61,178,000 | | | $ | 59,179,000 | |
| (Loss) income from operations | | $ | (6,720,000 | ) | | $ | (4,330,000 | ) | | $ | (1,571,000 | ) | | $ | (1,952,000 | ) |
| Net (loss) income | | $ | (4,216,000 | ) | | $ | (2,706,000 | ) | | $ | (1,019,000 | ) | | $ | (1,411,000 | ) |
| Net (loss) income per common share | | $ | (0.54 | ) | | $ | (0.35 | ) | | $ | (0.13 | ) | | $ | (0.18 | ) |
| Net (loss) income per common share assuming dilution | | $ | (0.54 | ) | | $ | (0.35 | ) | | $ | (0.13 | ) | | $ | (0.18 | ) |
Net18. Quarterly Consolidated Financial Data18. Quarterly Consolidated Financial Data (Unaudited)
| | | | | | | | | | | | | | | | |
| | | Quarter Ended | |
| | | December 31 | | | March 31 | | | June 30 | | | September 30 | |
Fiscal 2011: | | | | | | | | | | | | | | | | |
Operating revenues | | $ | 72,653,000 | | | $ | 78,337,000 | | | $ | 98,033,000 | | | $ | 84,256,000 | |
(Loss) income from operations | | $ | (2,817,000 | ) | | $ | (6,545,000 | ) | | $ | 898,000 | | | $ | 5,138,000 | |
Net (loss) income | | $ | (1,667,000 | ) | | $ | (4,857,000 | ) | | $ | 334,000 | | | $ | 2,944,000 | |
Basic (loss) income per common share | | $ | (0.21 | ) | | $ | (0.62 | ) | | $ | 0.04 | | | $ | 0.38 | |
Diluted (loss) income per common share | | $ | (0.21 | ) | | $ | (0.62 | ) | | $ | 0.04 | | | $ | 0.37 | |
Fiscal 2012: | | | | | | | | | | | | | | | | |
Operating revenues | | $ | 92,382,000 | | | $ | 85,546,000 | | | $ | 68,348,000 | | | $ | 72,998,000 | |
Income from operations | | $ | 3,226,000 | | | $ | 9,446,000 | | | $ | 1,798,000 | | | $ | 2,131,000 | |
Net income | | $ | 3,231,000 | | | $ | 5,589,000 | | | $ | 1,141,000 | | | $ | 1,152,000 | |
Basic income per common share | | $ | 0.41 | | | $ | 0.71 | | | $ | 0.15 | | | $ | 0.15 | |
Diluted income per common share | | $ | 0.41 | | | $ | 0.70 | | | $ | 0.14 | | | $ | 0.15 | |
Basic income (loss) per common share (basic) and netdiluted income (loss) per common share assuming dilution (diluted) are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal the annual basic and diluted earnings per share.
F-21
ScheduleSchedule II
Dawson Geophysical Company
Consolidated Valuation and Qualifying Accounts
| | | | | | | | | | | | | | | | | |
| | | Balance at
| | | Charged to
| | | | | | Balance at
| |
| | | Beginning
| | | Costs and
| | | | | | End of
| |
| | | of Period | | | Expenses | | | Deductions | | | Period | |
| |
| Allowance for doubtful accounts*: | | | | | | | | | | | | | | | | |
| Fiscal Year: | | | | | | | | | | | | | | | | |
| 2010 | | $ | 533,000 | | | $ | 256,000 | | | $ | 150,000 | | | $ | 639,000 | |
| 2009 | | | 55,000 | | | | 993,000 | | | | 515,000 | | | | 533,000 | |
| 2008 | | | 176,000 | | | | 32,000 | | | | 153,000 | | | | 55,000 | |
| Valuation allowance for deferred tax assets: | | | | | | | | | | | | | | | | |
| Fiscal Year: | | | | | | | | | | | | | | | | |
| 2010 | | $ | 58,000 | | | $ | (39,000 | ) | | $ | — | | | $ | 19,000 | |
| 2009 | | | 70,000 | | | | (12,000 | ) | | | — | | | | 58,000 | |
| 2008 | | | 88,000 | | | | (18,000 | ) | | | — | | | | 70,000 | |
| | | | | | | | | | | | | | | | |
| | | Balance at
Beginning
of Period | | | Charged to
Costs and
Expenses | | | Deductions | | | Balance at
End of
Period | |
Allowance for doubtful accounts*: | | | | | | | | | | | | | | | | |
Fiscal Year: | | | | | | | | | | | | | | | | |
2012 | | $ | 155,000 | | | $ | 327,000 | | | $ | 232,000 | | | $ | 250,000 | |
2011 | | | 639,000 | | | | 231,000 | | | | 715,000 | | | | 155,000 | |
2010 | | | 533,000 | | | | 256,000 | | | | 150,000 | | | | 639,000 | |
Valuation allowance for deferred tax assets: | | | | | | | | | | | | | | | | |
Fiscal Year: | | | | | | | | | | | | | | | | |
2012 | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
2011 | | | 19,000 | | | | (19,000 | ) | | | — | | | | — | |
2010 | | | 58,000 | | | | (39,000 | ) | | | — | | | | 19,000 | |
| | |
| * | | Deductions related to allowance for doubtful accounts represent amounts that have been deemed uncollectible and written off by the Company. |
F-22
INDEX TO EXHIBITS
| | | | | |
| Number | | Exhibit |
| |
| | 3 | .1 | | Second Restated Articles of Incorporation of the Company, as amended (filed on February 9, 2007 as Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the first quarter ended December 31, 2006 (FileNo. 000-10144) and incorporated herein by reference and filed on November 28, 2007 as Exhibit 3.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| | 3 | .2* | | Second Amended and Restated Bylaws of the Company, as amended. |
| | 3 | .3 | | Statement of Resolution Establishing Series of Shares of Series A Junior Participating Preferred Stock of the Company (filed on July 9, 2009 as Exhibit 3.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| | 4 | .1 | | Rights Agreement effective as of July 23, 2009 between the Company and Mellon Investor Services LLC as Rights Agent, which includes as Exhibit A the form of Statement of Resolution Establishing Series of Shares of Series A Junior Participating Preferred Stock setting forth the terms of the Preferred Stock, as Exhibit B the form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Preferred Stock (filed on July 9, 2009 as Exhibit 4.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .1† | | Dawson Geophysical Company 2006 Stock and Performance Incentive Plan (the “2006 Plan”), dated November 28, 2006 (filed on January 29, 2007 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .2† | | Dawson Geophysical Company 2004 Incentive Stock Plan (filed on March 12, 2004 as Exhibit 10.1 to the Company’s Registration Statement onForm S-8 (FileNo. 333-113576) and incorporated herein by reference). |
| | 10 | .3† | | Form of Restricted Stock Agreement for the 2006 Plan (filed on February 11, 2008 as Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .4† | | Form of Stock Option Agreement for the 2006 Plan (filed on February 11, 2008 as Exhibit 10.4 to the Company’s Quarterly Report onForm 10-Q (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .5† | | Form of Restricted Stock Agreement for the 2006 Plan (filed on August 6, 2007 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .6† | | Form of Stock Option Agreement for the 2006 Plan (filed on August 6, 2007 as Exhibit 10.2 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .7† | | Description of Profit Sharing Plan (filed on December 3, 2007 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .8† | | Description of Profit Sharing Plan (filed on September 29, 2008 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .9† | | Summary of Non-Employee Director Compensation (filed on February 9, 2009 as Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .10 | | Form of Master Geophysical Data Acquisition Agreement (filed on December 11, 2003 as Exhibit 10 to the Registrant’s Annual Report onForm 10-K for the fiscal year ended September 30, 2003 (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .11 | | Master Geophysical Data Acquisition Agreement between SandRidge Energy, Inc. and the Company, dated December 19, 2006 (filed on February 9, 2009 as Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .12 | | Master Service Contract between Chesapeake Operating, Inc. and the Company, dated December 18, 2003 (filed on February 9, 2009 as Exhibit 10.2 to the Company’s Quarterly Report onForm 10-Q (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .13 | | Revolving Line of Credit Loan Agreement, dated June 2, 2009, between the Company and Western National Bank (filed on June 5, 2009 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| | 10 | .14 | | Security Agreement, dated June 2, 2009, between the Company and Western National Bank (filed on June 5, 2009 as Exhibit 10.2 to the Company’s Current Report onForm 8-K and incorporated herein by reference). |
| | 23 | .1* | | Consent of Independent Registered Public Accounting Firm. |
| | |
Number | | Exhibit |
| |
| 3.1 | | Second Restated Articles of Incorporation of the Company, as amended (filed on February 9, 2007 as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the first quarter ended December 31, 2006 (File No. 000-10144) and incorporated herein by reference and filed on November 28, 2007 as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference). |
Number | |
| 3.2 | | Second Amended and Restated Bylaws of the Company, as amended (filed on November 23, 2010 as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010 (File No. 001-34404) and incorporated herein by reference). |
| |
| 3.3 | | Amendment No. 2 to Second Amended and Restated Bylaws, as amended, of the Company (filed on March 21, 2011 as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-34404) and incorporated herein by reference). |
| |
| 3.4 | 31 | .1*Amendment No. 3 to Second Amended and Restated Bylaws, as amended, of the Company (filed on November 30, 2012 as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-34404) and incorporated herein by reference). |
| |
| 3.5 | | Statement of Resolution Establishing Series of Shares of Series A Junior Participating Preferred Stock of the Company (filed on July 9, 2009 as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference). |
| |
| 4.1 | | Rights Agreement effective as of July 23, 2009 between the Company and Mellon Investor Services LLC as Rights Agent, which includes as Exhibit A the form of Statement of Resolution Establishing Series of Shares of Series A Junior Participating Preferred Stock setting forth the terms of the Preferred Stock, as Exhibit B the form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Preferred Stock (filed on July 9, 2009 as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference). |
| |
| 10.1† | | Dawson Geophysical Company 2006 Stock and Performance Incentive Plan (the “2006 Plan”), dated November 28, 2006 (filed on January 29, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference). |
| |
| 10.2† | | Dawson Geophysical Company 2004 Incentive Stock Plan (filed on March 12, 2004 as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 (File No. 333-113576) and incorporated herein by reference). |
| |
| 10.3† | | Form of Restricted Stock Agreement for the 2006 Plan (filed on February 11, 2008 as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10144) and incorporated herein by reference). |
| |
| 10.4† | | Form of Stock Option Agreement for the 2006 Plan (filed on February 11, 2008 as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10144) and incorporated herein by reference). |
| |
| 10.5† | | Form of Restricted Stock Agreement for the 2006 Plan (filed on August 6, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference). |
| |
| 10.6† | | Form of Stock Option Agreement for the 2006 Plan (filed on August 6, 2007 as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference). |
| |
| 10.7† | | Description of Profit Sharing Plan (filed on December 3, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference). |
| |
| 10.8† | | Description of Profit Sharing Plan (filed on September 29, 2008 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference). |
| |
| 10.9† | | Summary of Non-Employee Director Compensation (filed on February 9, 2009 as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10144) and incorporated herein by reference). |
| | |
Number | | Exhibit |
| |
| 10.10* | | Form of Master Geophysical Data Acquisition Agreement. |
| |
| 10.11* | | Form of Supplemental Agreement to Master Geophysical Data Acquisition Agreement. |
| |
| 10.12† | | Form of Indemnification Agreement with Directors and Officers of the Company (filed on March 21, 2011 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-34404) and incorporated herein by reference). |
| |
| 10.13 | | Revolving Line of Credit and Term Loan Agreement, dated as of June 30, 2011, between the Company and Western National Bank (filed on August 9, 2011 as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-34404) and incorporated herein by reference). |
| |
| 10.14 | | Security Agreement, dated as of June 30, 2011, between the Company and Western National Bank (filed on August 9, 2011 as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 001-34404) and incorporated herein by reference). |
| |
| 10.15 | | Multiple Advance Term Note Agreement, dated as of May 11, 2012, between the Company and Western National Bank (filed on August 9, 2012 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-34404) and incorporated herein by reference). |
| |
| 10.16 | | Security Agreement, dated as of May 11, 2012, between the Company and Western National Bank (filed on August 9, 2012 as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-34404) and incorporated herein by reference). |
| |
| 21.1* | | List of Subsidiaries. |
| |
| 23.1* | | Consent of Independent Registered Public Accounting Firm. |
| |
| 31.1* | | Certification of Chief Executive Officer of Dawson Geophysical Company pursuant toRule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. |
| 31 |
.2*31.2* | | Certification of Chief Financial Officer of Dawson Geophysical Company pursuant toRule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. |
| 32 |
.1*32.1* | | Certification of Chief Executive Officer of Dawson Geophysical Company pursuant toRule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code. Pursuant to SEC Release34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be “filed.” |
| 32 |
.2*32.2* | | Certification of Chief Financial Officer of Dawson Geophysical Company pursuant toRule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code. Pursuant to SEC Release34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be “filed.” |
| | |
| **101 | | The following materials from the Company’s Annual Report on Form 10-K for the year ended September 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2012 and September 30, 2011, (ii) Consolidated Statements of Operations for the years ended September 30, 2012, 2011 and 2010, (iii) Consolidated Statements of Stockholders’ Equity and Other Comprehensive Income (Loss) for the years ended September 30, 2012, 2011 and 2010, (iv) Consolidated Statements of Cash Flows for the years ended September 30, 2012, 2011 and 2010, and (v) Notes to Consolidated Financial Statements. |
| ** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections. |
| † | | Identifies exhibit that consists of or includes a management contract or compensatory plan or arrangement. |
