None.
Our principal facilities are summarized in the table below.
We have operating leases in Houston, Denver and Oklahoma City for general office space. In addition, we have an operating lease for general office purposes, maintenance and repairs in Lyon Township, Michigan.
Our operations are limited to one industry segment and the United States.
From time to time, we are a party to various legal proceedings arising in the ordinary course of business. Although we cannot predict the outcomes of any such legal proceedings, our management believes that the resolution of pending legal actions will not have a material adverse effect on our financial condition, results of operations or liquidity.
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. Depreciation expense, however, is expected to remain relatively unchanged during fiscal 2010.
Our total operating costs for fiscal 2009 were $226,855,000, a decrease of 16% from fiscal 2008 significantly improved when comparedprimarily due to our financial performancethe factors described above.
Taxes. Income tax expense was $7,493,000 for fiscal 20072009 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 continuing strong demand for our seismic services duevarying states in which we operate from year to high levelsyear and the increasing impact of exploration and development activities, particularly by entities seeking natural gas reserves. As a result of continuing high demand, we:permanent tax differences resulting from lower income before income taxes.
| | |
| • | Repaid all $20,000,000 outstanding under the Company’s revolving line of credit in the fourth quarter; |
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| • | Replaced an I/O System II MRX recording system on an existing crew with a 7,500 channel ARAM ARIES recording system; |
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| • | Replaced an I/O System II MRX recording system on an existing crew with an 8,000 channel ARAM ARIES recording system; |
|
| • | Took delivery of thirty ION vibrator energy source units; |
|
| • | Added four IVI Enviro mini-vibrator energy source units used to operate in urban and sensitive environments. The Company now operates eight such units; |
|
| • | Increased channel count from 102,000 to in excess of 117,000; |
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| • | Redeployed an existing I/O System II MRX recording system on an additional crew bringing the total of the Company’s operating data acquisition crews to sixteen; and |
|
| • | Operated in West Texas, South Texas, Fort Worth Basin of Texas, New Mexico, Oklahoma, Arkansas, Colorado, Utah, Montana, West Virginia, Pennsylvania, California, Louisiana, Nevada and New York. |
Fiscal Year Ended September 30, 2008 Versus Fiscal Year Ended September 30, 2007
Operating Revenues. Our operating revenues increased 26% from $257,763,000 in fiscal 2007 to $324,926,000 in fiscal 2008 as a result of continuing high demand for our services. Revenue growth in fiscal 2008 was primarily the result of the addition of new seismic data acquisition crews in September 2007 and May 2008 and the upgrading of recording systems on existing crews, along with increased channel counts and productivity on existing crews. Recorded in fiscal 2008 revenues are continued high third-party charges primarily related to the use of helicopter support services, specialized survey technologies and dynamite energy sources, all of which are utilized in areas with limited access. The sustained level of these charges during fiscal 2008 was driven by our continued operations in areas with limited access in the Appalachian Basin, the Rocky Mountains, the Fayetteville Shale and the Arkoma Basin. We are reimbursed for these charges by our clients.
Operating Costs. Our operating expenses increased 25% from $190,117,000 in fiscal 2007 to $237,484,000 in fiscal 2008 primarily due to the full year of service for the three acquisition crews deployed in fiscal 2007 and the additional crew placed into service in fiscal 2008. As discussed above, reimbursed charges have a similar impact on operating costs.
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General and administrative expenses were 2.1% of revenues in fiscal 2008 as compared to 2.4% of revenues in fiscal 2007. While the ratio of general and administrative expenses to revenue declined in fiscal 2008 due to the increase in revenues, the actual dollar amount increased. The increase of $567,000 from fiscal 2007 to fiscal 2008 reflects ongoing expenses necessary to support expanded field operations.
We recognized $24,253,000 of depreciation expense in fiscal 2008 as compared to $18,103,000 in fiscal 2007, reflecting the full year of depreciation expense from our fiscal 2007 capital expenditures. Our depreciation expense is expected to continue to increase in fiscal 2009 as a result of our significant capital expenditures in fiscal 2008.
Our total operating costs for fiscal 2008 were $268,499,000, an increase of 25% from fiscal 2007 primarily due to the factors described above.
Taxes. OurIncome tax expense was $21,400,000 for fiscal 2008 and $17,300,000 for fiscal 2007. The effective tax ratesrate for the income tax provision for fiscal 2008 and 2007 werewas 37.9% and 38.9%, respectively. The decrease in the effective tax rate in fiscal 2008 as compared to fiscal 2007between periods was primarily a result of changes in state tax rates as a result of the varying states in which we operate from year to year.
Fiscal Year Ended September 30, 2007 Versus Fiscal Year Ended September 30, 2006
Operating Revenues. Our operating revenues increased 53% from $168,550,000 in fiscal 2006 to $257,763,000 in fiscal 2007 as a result of continuing high demand for our services. Revenue growth in fiscal 2007 was primarily due to the addition of three seismic data acquisition crews along with pricing and productivity improvements realized from the expanded capabilities of existing crews. Recorded in the fourth quarter revenues are continued high third-party charges primarily related to the use of helicopter support services, specialized survey technologies, and dynamite energy sources all of which are utilized in areas with limited access. The sustained increase in these charges during fiscal 2007 was driven by our continued geographic expansion in response to increased exploration activities in the Appalachian Basin, the Rocky Mountains, the Fayetteville Shale, and the Arkoma Basin. We are reimbursed for these charges by our clients.
Operating Costs. Our operating expenses increased 51% from $125,848,000 in fiscal 2006 to $190,117,000 in fiscal 2007 primarily due to the full year of service for the twelfth crew fielded in fiscal 2006 and thestart-up and ongoing expenses of the three acquisition crews deployed in fiscal 2007. As discussed above, reimbursed charges have a similar impact on operating costs.
General and administrative expenses were 2.4% of revenues in fiscal 2007 as compared to 2.9% of revenues in fiscal 2006. While the ratio of general and administrative expenses to revenue declined in fiscal 2007 due to the increase in revenues, the actual dollar amount increased. The increase of $1,387,000 from fiscal 2006 to fiscal 2007 reflects ongoing expenses necessary to support expanded field operations.
We recognized $18,103,000 of depreciation expense in fiscal 2007 as compared to $13,338,000 in fiscal 2006, reflecting the full year of depreciation expense from our fiscal 2006 capital expenditures. Our depreciation expense is expected to continue to increase in fiscal 2008 as a result of our significant capital expenditures in fiscal 2007.
Our total operating costs for fiscal 2007 were $214,415,000, an increase of 49% from fiscal 2006 primarily due to the factors described above.
Taxes. Our effective tax rates for fiscal 2007 and 2006 were 38.9% and 37.1%, respectively. The increase in the effective tax rate in fiscal 2007 as compared to fiscal 2006 was primarily a result of changes in tax legislation that impact the Company’s tax expense and changes in state tax rates as a result of the varying states in which we operate from year to year.
Liquidity and Capital Resources
Introduction. Our principal sourcesources of cash isare 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 $54,598,000 for fiscal 2009 and $50,930,000 for fiscal 2008. The amount in fiscal 2008 and $51,427,000 for fiscal 2007. These amounts primarily reflectreflects an increase in total revenues resulting from our expanded business and an increase in accounts receivable without a correlating increase in accounts payable. Net cash provided by operating activities in fiscal 2009 primarily reflects our reduced revenues during fiscal 2009 and a decrease in accounts receivable. The increasedecrease in accounts receivable derives principally from an increase in our trade receivables. This increase in trade receivables is consistent withprimarily reflects the growthdecrease in our revenues, during fiscal 2008, andas the number of days that sales remain on account is consistent with fiscal 2007. In addition, accounts receivable contains anticipated insurance proceeds forin receivables has not significantly changed over the equipment lost on March 14, 2008. See discussion of fire in Item 3, “Legal Proceedings” and Note 10, “Commitments and Contingencies” to the Financial Statements included in Item 8 “Financial Statements and Supplementary Data.”last twelve months.
Net cash used in investing activities was $26,538,000 in fiscal 2009 and $53,240,000 in fiscal 2008. In fiscal 2008, and $51,664,000the net cash used in fiscal 2007. These resultsinvesting activities primarily representrepresents capital expenditures made with cash generated from operations. Due to market conditions, our capital expenditures in both years, and fiscal 2007 includes activity2009 were limited to necessary maintenance capital requirements rather than investing in additional equipment as in the short-term investment portfolio. Capital expenditures were funded primarily withpast few years. During the third quarter of fiscal 2009, we used cash generated from operations in both yearsexcess of capital expenditures to acquire short-term investments. Our short-term investments consist of two U.S. Treasury bills and duringtwo U.S. Treasury notes with a total cost of $20,192,000 and three FDIC guaranteed bonds with a total cost of $5,121,000. The contractual maturities of these short-term investments range from December 2009 to December 2010. In fiscal 2007, with cash2009, we collected proceeds from an insurance claim on our short-term investments.equipment burned in a March 2008 wildfire of $2,843,000.
Net cash provided by financing activities in fiscal 2009 of $421,000 primarily represents proceeds from the exercise of stock options. Net cash used by financing activities in fiscal 2008 of $4,254,000 primarily represents the net decrease on our revolving line of credit loan agreement from a balance at September 30, 2007 of $5,000,000 to a zero balance at September 30, 2008. Net cash provided by financing activities in fiscal 2007 was $7,048,000 primarily representing the draw down of $5,000,000 from our line of credit and proceeds from the exercise of stock options.
Capital Expenditures. For fiscal year 2008,2009, we made capital expenditures of $52,861,000 in part to complete$4,448,000. During the fieldingfirst quarter of fiscal 2009, we purchased an additional data acquisition crew, expand channel count onARAM ARIES II recording system equipped with channels from existing crews purchase additional energy source units, and replace two I/O System II MRX recording systems on existing crews with ARAM ARIES recording systems.replacement vehicles. For the remainder of fiscal 2009, we limited our capital expenditures to necessary maintenance capital requirements. The Board of Directors has approved an initial fiscal 20092010 budget of $20,000,000$10,000,000, $6,100,000 of which will be used to purchase additionala 2,000-station OYO GSR four-channel recording channels, make technical improvements in various phasessystem along with three-component geophones and the remainder will be used to meet necessary maintenance requirements during fiscal 2010. The addition of the Company’s operations,OYO GSR recording equipment will allow us to record 6,000 channels of cable-less multi-component data or up to 8,000 channels of conventional seismic data, either as a stand-alone system or as added channel count and meet maintenance capital requirements.increased flexibility for our ARAM recording systems. We believe these additions will allow the Company to maintain its competitive position as it responds 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, capital expenditures. From time to time, weWe 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. In January 2008,On June 2, 2009, we renewed the existing agreement for an additional year, anda two-year term on June 2, 2008,substantially the same terms as the previous facility. In addition, based on our assessment of our current needs, we amendedreduced the agreementsize of the facility to increase the borrowing limit to$20.0 million from $40.0 million. The agreement permits us to borrow, repay and reborrow, from time to time until June 2, 2009,2011, up to $40.0 million.$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 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 as of September 30, 20082009 and December 8, 2008. On July 5, 2007, we borrowed $5.0 million underNovember 30, 2009. We have not utilized the prior credit loan agreement for working capital purposes. On March 21, 2008, we borrowed an additional $5.0 million, and on June 16, 2008, we borrowed an additional $10.0 million, in each case, for working capital purposes. As of September 30, 2008, we had repaid the $20.0 million balance, and no amounts were outstanding as of December 8, 2008.
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line of credit loan agreement since we paid off the entire outstanding balance of $20.0 million as of September 30, 2008.
On March 31, 2009, we filed a shelf registration statement with the SEC covering the periodic offer and sale of up to $100.0 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, 2008.2009.
| | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 1,778 | | | $ | 569 | | | $ | 1,042 | | | $ | 167 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 1,209 | | | $ | 578 | | | $ | 610 | | | $ | 21 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
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 including the continued expansion of our capital equipment through cash flow from operations and, if necessary, through borrowings under our revolving line of credit and, if necessary, from capital markets offerings.credit. 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, 2008,2009, we had no off-balance sheet arrangements.
Effect of Inflation
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 period.periods. Because of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.
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.
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 amounts are reversed and recognized as revenue.
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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 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 assetsassets’ 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 asset.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 future gross marginsexpenses based on our historicalanticipated future results and analysis ofwhile considering anticipated future oil and gas prices, which is fundamental in assessing demand for our services. If we are unable to achieve thesethe carrying amount of the assets exceeds the expected undiscounted future cash flows, anwe measure the amount of possible impairment charge would be recorded.by comparing the carrying amount of the asset to its fair value.
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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. We depreciate these capitalized itemsDepreciation 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.
Tax Accounting. We account for our income taxes in accordance with Statement of Financial Accounting Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes,” which requires the recognition of amounts of taxes payable or refundable for the current year and 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 and reducing the deferred tax asset 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 account for stock-based compensation awards in accordance with SFAS No. 123(R) (“SFAS 123(R)”), “Share-Based Payment.” We measure all employee stock-based compensation awards, including stock options and restricted stock, using athe fair value method and recognize compensation cost, net of forfeitures, in our financial statements. We adopted SFAS 123(R) beginning October 1, 2005 for stock-based compensation awards granted after that date and for nonvested awards outstanding at that date using the modified prospective application method. 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.period of the related stock options or restricted stock awards.
Recently Issued Accounting Pronouncements
In September 2006, the FASBFinancial Accounting Standards Board (FASB) issued SFAS No. 157 (“SFAS 157”),Accounting Standards Codification (ASC)820-10, “Fair Value Measurements.Measurements and Disclosures.” SFAS 157ASC820-10 clarifies that fair value is the amount that would be exchanged to sell an asset or transfer a liability in an orderly transaction between market participants. Further, the standard establishes a framework for measuring fair value in generally accepted accounting principles and expands certain disclosures about fair value measurements. SFAS 157 isASC820-10 became effective for fiscal years beginning after November 15, 2007.all financial assets and financial liabilities as of October 1, 2008, and upon adoption, ASC820-10 did not have a material impact on our financial statements. In February 2008, the FASB issued FASB Staff PositionASC157-2(“FSP 157-2”),820-10-15-1A, “Effective“Fair Value Measurements and Disclosures — Transition and Open Effective Date of FASB Statement No. 157,Information,” which delays the effective date of SFAS 157ASC820-10 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We do not expect the adoption of SFAS 157ASC820-10-15-1A to have a material impact on our financial statements.
In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities.ASC825-10, “Financial Instruments.” SFAS 159ASC825-10 provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 isAs of September 30, 2009, we have not
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elected the fair value option for any additional financial assets and liabilities beyond those already prescribed by accounting principles generally accepted in the United States.
In April 2009, the FASB issued ASC825-10-65-1, “Financial Instruments — Transition and Open Effective Date Information.” ASC825-10-65-1 requires fair value disclosures in both interim and annual financial statements in order to provide more timely information about the effects of current market conditions on financial instruments. ASC825-10-65-1 became effective for fiscal years beginning after Novemberus as of June 15, 2007. We do not expect the2009. The adoption of SFAS 159 tothis standard did not have a material impact on our financial statements.
In May 2008,2009, the FASB issued SFAS No. 162 (“SFAS 162”), “The HierarchyASC855-10, ���Subsequent Events,” which establishes general standards of Generallyaccounting for, and requires disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. We adopted the provisions of ASC855-10 for the quarter ended June 30, 2009. The adoption of ASC855-10 did not have a material impact on our financial statements. We have evaluated events subsequent to our balance sheet date (September 30, 2009) through the issue date of thisForm 10-K (November 30, 2009) and concluded that no subsequent events have occurred that require recognition in the Financial Statements or disclosure in the Notes to the Financial Statements.
In June 2009, the FASB issued ASC105-10, “Generally Accepted Accounting Principles.” Under SFAS 162,ASC105-10 provides for the FASB Accounting Standards Codification (the “Codification”) to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles. The Codification did not change GAAP hierarchy will now reside inbut reorganizes the accounting literature established byliterature. ASC105-10 became effective for us for the FASB. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements in conformity with GAAP. SFAS 162 is effective 60 days following the SEC’s approval of the Public Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” We do not expect theyear ended September 30, 2009. The adoption of SFAS 162 tothis standard did not have a materialan impact on our financial statements.
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Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our primary sources of market risk include fluctuations in commodity prices which affect demand for and pricing of our services andas well as interest rate fluctuations. AsOur revolving line of June 16, 2008, we had borrowed $20.0 millioncredit carries a variable interest rate that is tied to market indices 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 loan agreement with Western National Bank. Through January 18, 2008,bear interest payable
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underat our monthly direction of the revolving linelower of credit was variable based upon the then current prime rate. Beginning on January 19, 2008, interest on the outstanding amount under the line of credit loan agreement is payable monthly at an annualPrime rate equal to eitherminus three-quarters percent or the30-day London Interbank Offered Rate (“LIBOR”),LIBOR plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent at our direction, subject to an interest rate floor of 4%. As of September 30, 2008, we had repaid the $20.0 million balance, and no amounts were outstanding as of December 8, 2008.
At September 30, 2008,2009, we didhad no balances outstanding on our revolving line of credit. Short-term investments held at September 30, 2009 consist of two U.S. Treasury bills and two U.S. Treasury notes of approximately $5,000,000 each with a total cost of $20,192,000 and a fair value of $20,167,000 and three FDIC guaranteed bonds with a total cost of $5,121,000 and a fair value of $5,100,000. The contractual maturities of these short-term investments range from December 2009 to December 2010. Our short-term investments are classified for accounting purposes asavailable-for-sale. If these short-term investments are not have any short-term investments.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 currently conduct business internationally, so we are not generally subject to foreign currency exchange rate risk.
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Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information required by this item appears on pages F-1 through F-20F-23 hereof and are incorporated herein by reference.
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Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
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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
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procedures pursuant toRule 13a-1513a-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, 2008,2009, 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 as defined inRule 13a-15(f) under the Securities Exchange Act of 1934.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 Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal controls over financial reporting as of September 30, 20082009 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, 2008,2009, our internal control over financial reporting was effective. Our internal control over financial reporting as of September 30, 2008,2009, has been audited by KPMG LLP, the independent registered public accounting firm who also audited our financial statements. Their attestation report appears onpage F-3.
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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 ending September 30, 20082009 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 |
None.
Part III
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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 Stockholders to be held on January 27, 2009,26, 2010, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2008.2009. Certain information with respect to our executive officers is set forth under the caption “Executive Officers of the Registrant” in Part I of this report. Our code of ethics (as defined in Item 406 ofRegulation S-K) was adopted by our Board of Directors on May 25, 2004. The Code of Business Conduct and Ethics applies to our directors, officers and employees, including our principal executive officer, principal financial officer 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. Changes to and waivers granted with respect to our Code of Business Conduct and Ethics related to officers identified above, and our other executive officers and directors that we are required to disclose pursuant to applicable rules and regulations of the SEC will also be posted on our website.
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Item 11. | EXECUTIVE COMPENSATION |
The information required by Item 11 is incorporated by reference to our definitive proxy statement for our Annual Meeting of Stockholders to be held on January 27, 2009,26, 2010, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2008.2009.
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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 Stockholders to be held on January 27, 2009,26, 2010, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2008.2009.
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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 Stockholders to be held on January 27, 2009,26, 2010, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2008.2009.
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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 Stockholders to be held on January 27, 2009,26, 2010, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2008.2009.
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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 financial statements of the Company appear on pages F-1 through F-19F-22 and are incorporated by reference into Part II, Item 8:
Reports of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Stockholders’ Equity and Other Comprehensive Income
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules.
The following financial statement schedule appears onpage F-20F-23 and is hereby incorporated by reference:
Schedule II — Valuation and Qualifying Accounts for the three years ended September 30, 2009, 2008 2007 and 2006.2007.
All other schedules are omitted because they are either not applicable or the required information is shown in the financial statements or notes thereto.
(3) Exhibits.
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.
2324
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 9th30th day of December, 2008.November, 2009.
DAWSON GEOPHYSICAL COMPANY
| | |
| By: | /s/ Stephen C. Jumper |
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 |
|
| | | | |
/s/ L. Decker Dawson L. Decker Dawson | | Chairman of the Board of Directors | | 12-9-0811-30-09 |
| | | | |
/s/ Stephen C. Jumper Stephen C. Jumper | | President, Chief Executive Officer and Director (principal executive officer) | | 12-9-0811-30-09 |
| | | | |
/s/ Paul H. Brown Paul H. Brown | | Director | | 12-9-0811-30-09 |
| | | | |
/s/ Gary M. Hoover Gary M. Hoover | | Director | | 12-9-0811-30-09 |
| | | | |
/s/ Jack D. Ladd Jack D. Ladd | | Director | | 12-9-0811-30-09 |
| | | | |
/s/ Ted R. North Ted R. North | | Director | | 12-9-0811-30-09 |
| | | | |
/s/ Tim C. Thompson Tim C. Thompson | | Director | | 12-9-0811-30-09 |
| | | | |
/s/ Christina W. Hagan Christina W. Hagan | | Executive Vice President, Secretary and Chief Financial Officer (principal financial and accounting officer) | | 12-9-0811-30-09 |
2425
INDEX TO FINANCIAL STATEMENTS
| | | | |
Financial Statements of Dawson Geophysical Company | | Page |
|
| | | F-2 | |
| | | F-4 | |
| | | F-5 | |
| | | F-6 | |
| | | F-7 | |
| | | F-8 | |
Financial Statement Schedule: | | | | |
| | | F-20F-23 | |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Dawson Geophysical Company:
We have audited the accompanying balance sheets of Dawson Geophysical Company (the Company) as of September 30, 20082009 and 2007,2008, and the related statements of operations, stockholders’ equity and other comprehensive income, and cash flows for each of the years in the three-year period ended September 30, 2008.2009. In connection with our audits of the financial statements, we also have audited financial statement Schedule II. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of Dawson Geophysical Company as of September 30, 20082009 and 2007,2008, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2008,2009, 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 financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, the Company adopted the provisions of the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Paymentin fiscal year 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Dawson Geophysical Company’s internal control over financial reporting as of September 30, 2008,2009, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December 9, 2008November 30, 2009, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
KPMG LLP
Dallas, Texas
December 9, 2008November 30, 2009
F-2
REPORT 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, 2008,2009 based on 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, 2008,2009, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of Dawson Geophysical Company as of September 30, 20082009 and 2007,2008, and the related statements of operations, stockholders’ equity and other comprehensive income, and cash flows for each of the years in the three-year period ended September 30, 2008,2009, and our report dated December 9, 2008,November 30, 2009, expressed an unqualified opinion on those financial statements.
KPMG LLP
Dallas, Texas
December 9, 2008November 30, 2009
F-3
DAWSON GEOPHYSICAL COMPANY
| | | | | | | | | | | | | | | | |
| | September 30,
| | September 30,
| | | September 30,
| | September 30,
| |
| | 2008 | | 2007 | | | 2009 | | 2008 | |
|
ASSETS | ASSETS | ASSETS |
Current assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 8,311,000 | | | $ | 14,875,000 | | | $ | 36,792,000 | | | $ | 8,311,000 | |
Accounts receivable, net of allowance for doubtful accounts of $55,000 in September 2008 and $176,000 in September 2007 | | | 76,221,000 | | | | 56,707,000 | | |
Short-term investments | | | | 25,267,000 | | | | — | |
Accounts receivable, net of allowance for doubtful accounts of $533,000 in September 2009 and $55,000 in September 2008 | | | | 40,106,000 | | | | 76,221,000 | |
Prepaid expenses and other assets | | | 877,000 | | | | 815,000 | | | | 7,819,000 | | | | 877,000 | |
Current deferred tax asset | | | 873,000 | | | | 693,000 | | | | 1,694,000 | | | | 873,000 | |
| | | | | | | | | | |
Total current assets | | | 86,282,000 | | | | 73,090,000 | | | | 111,678,000 | | | | 86,282,000 | |
Property, plant and equipment | | | 250,519,000 | | | | 207,427,000 | | | | 240,820,000 | | | | 250,519,000 | |
Less accumulated depreciation | | | (103,180,000 | ) | | | (84,655,000 | ) | | | (115,341,000 | ) | | | (103,180,000 | ) |
| | | | | | | | | | |
Net property, plant and equipment | | | 147,339,000 | | | | 122,772,000 | | | | 125,479,000 | | | | 147,339,000 | |
| | | | | | | | | | |
| | $ | 233,621,000 | | | $ | 195,862,000 | | |
Total assets | | | $ | 237,157,000 | | | $ | 233,621,000 | |
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 15,308,000 | | | $ | 12,816,000 | | | $ | 6,966,000 | | | $ | 15,308,000 | |
Revolving line of credit | | | — | | | | 5,000,000 | | |
Accrued liabilities: | | | | | | | | | | | | | | | | |
Payroll costs and other taxes | | | 3,363,000 | | | | 2,325,000 | | | | 2,720,000 | | | | 3,363,000 | |
Other | | | 14,869,000 | | | | 14,263,000 | | | | 10,600,000 | | | | 14,869,000 | |
Deferred revenue | | | 993,000 | | | | 2,922,000 | | | | 2,230,000 | | | | 993,000 | |
| | | | | | | | | | |
Total current liabilities | | | 34,533,000 | | | | 37,326,000 | | | | 22,516,000 | | | | 34,533,000 | |
Deferred tax liability | | | 13,128,000 | | | | 9,381,000 | | | | 16,262,000 | | | | 13,128,000 | |
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, 7,794,744 and 7,658,494 shares issued and outstanding in each period | | | 2,598,000 | | | | 2,553,000 | | |
Common stock-par value $.331/3 per share; 50,000,000 shares authorized, 7,822,994 and 7,794,744 shares issued and outstanding in each period | | | | 2,608,000 | | | | 2,598,000 | |
Additional paid-in capital | | | 87,051,000 | | | | 85,090,000 | | | | 89,220,000 | | | | 87,051,000 | |
Other comprehensive income, net of tax | | | | 18,000 | | | | — | |
Retained earnings | | | 96,311,000 | | | | 61,512,000 | | | | 106,533,000 | | | | 96,311,000 | |
| | | | | | | | | | |
Total stockholders’ equity | | | 185,960,000 | | | | 149,155,000 | | | | 198,379,000 | | | | 185,960,000 | |
| | | | | | | | | | |
Total liabilities and stockholders’ equity | | | $ | 237,157,000 | | | $ | 233,621,000 | |
| | $ | 233,621,000 | | | $ | 195,862,000 | | | | | | |
| | | | | | |
See accompanying notes to the financial statements.
F-4
DAWSON GEOPHYSICAL COMPANY
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended September 30, | | | Years Ended September 30, | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
|
Operating revenues | | $ | 324,926,000 | | | $ | 257,763,000 | | | $ | 168,550,000 | | | $ | 243,995,000 | | | $ | 324,926,000 | | | $ | 257,763,000 | |
Operating costs: | | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | 237,484,000 | | | | 190,117,000 | | | | 125,848,000 | | | | 192,839,000 | | | | 237,484,000 | | | | 190,117,000 | |
General and administrative | | | 6,762,000 | | | | 6,195,000 | | | | 4,808,000 | | | | 7,856,000 | | | | 6,762,000 | | | | 6,195,000 | |
Depreciation | | | 24,253,000 | | | | 18,103,000 | | | | 13,338,000 | | | | 26,160,000 | | | | 24,253,000 | | | | 18,103,000 | |
| | | | | | | | | | | | | | |
| | | 268,499,000 | | | | 214,415,000 | | | | 143,994,000 | | | | 226,855,000 | | | | 268,499,000 | | | | 214,415,000 | |
Income from operations | | | 56,427,000 | | | | 43,348,000 | | | | 24,556,000 | | | | 17,140,000 | | | | 56,427,000 | | | | 43,348,000 | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | | | 497,000 | | | | 749,000 | | | | 582,000 | | | | 249,000 | | | | 497,000 | | | | 749,000 | |
Interest expense | | | (482,000 | ) | | | (145,000 | ) | | | — | | | | — | | | | (482,000 | ) | | | (145,000 | ) |
Other (expense) income | | | (35,000 | ) | | | 506,000 | | | | 75,000 | | |
Other income (expense) | | | | 326,000 | | | | (35,000 | ) | | | 506,000 | |
| | | | | | | | | | | | | | |
Income before income tax | | | 56,407,000 | | | | 44,458,000 | | | | 25,213,000 | | | | 17,715,000 | | | | 56,407,000 | | | | 44,458,000 | |
Income tax expense: | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | | (17,834,000 | ) | | | (13,906,000 | ) | | | (4,886,000 | ) | | | (5,193,000 | ) | | | (17,834,000 | ) | | | (13,906,000 | ) |
Deferred | | | (3,566,000 | ) | | | (3,394,000 | ) | | | (4,472,000 | ) | | | (2,300,000 | ) | | | (3,566,000 | ) | | | (3,394,000 | ) |
| | | | | | | | | | | | | | |
| | | (21,400,000 | ) | | | (17,300,000 | ) | | | (9,358,000 | ) | | | (7,493,000 | ) | | | (21,400,000 | ) | | | (17,300,000 | ) |
| | | | | | | | | | | | | | |
Net income | | $ | 35,007,000 | | | $ | 27,158,000 | | | $ | 15,855,000 | | | $ | 10,222,000 | | | $ | 35,007,000 | | | $ | 27,158,000 | |
| | | | | | | | | | | | | | |
Net income per common share | | $ | 4.57 | | | $ | 3.57 | | | $ | 2.11 | | | $ | 1.31 | | | $ | 4.57 | | | $ | 3.57 | |
| | | | | | | | | | | | | | |
Net income per common share-assuming dilution | | $ | 4.53 | | | $ | 3.54 | | | $ | 2.09 | | | $ | 1.30 | | | $ | 4.53 | | | $ | 3.54 | |
| | | | | | | | | | | | | | |
Weighted average equivalent common shares outstanding | | | 7,669,124 | | | | 7,601,889 | | | | 7,518,372 | | | | 7,807,385 | | | | 7,669,124 | | | | 7,601,889 | |
| | | | | | | | | | | | | | |
Weighted average equivalent common shares outstanding-assuming dilution | | | 7,728,651 | | | | 7,669,462 | | | | 7,599,555 | | | | 7,853,531 | | | | 7,728,651 | | | | 7,669,462 | |
| | | | | | | | | | | | | | |
See accompanying notes to the financial statements.
F-5
DAWSON GEOPHYSICAL COMPANY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Accumulated
| | | | | | | | | | | | | Accumulated
| | | | | |
| | Common Stock | | Additional
| | Other
| | | | | | | Common Stock | | Additional
| | Other
| | | | | |
| | Number
| | | | Paid-in
| | Comprehensive
| | Retained
| | | | | Number
| | | | Paid-in
| | Comprehensive
| | Retained
| | | |
| | of Shares | | Amount | | Capital | | Income (Expense) | | Earnings | | Total | | | of Shares | | Amount | | Capital | | Income (Expense) | | Earnings | | Total | |
|
Balance September 30, 2005 | | | 7,484,044 | | | $ | 2,495,000 | | | $ | 80,987,000 | | | $ | (77,000 | ) | | $ | 18,499,000 | | | $ | 101,904,000 | | |
Net income | | | | | | | | | | | | | | | | | | | 15,855,000 | | | | 15,855,000 | | |
Other comprehensive income net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized loss on securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized holding gain arising during period | | | | | | | | | | | | | | | 35,000 | | | | | | | | | | |
Less: Reclassification adjustment for gain included in net income | | | | | | | | | | | | | | | 31,000 | | | | | | | | | | |
Income tax benefit | | | | | | | | | | | | | | | (22,000 | ) | | | | | | | | | |
| | | | |
Other comprehensive income | | | | | | | | | | | | | | | 44,000 | | | | | | | | 44,000 | | |
| | | | |
Comprehensive income for the period | | | | | | | | | | | | | | | | | | | | | | | 15,899,000 | | |
Excess tax benefit of employee stock plan | | | | | | | | | | | 180,000 | | | | | | | | | | | | 180,000 | | |
Stock-based compensation expense | | | | | | | | | | | 289,000 | | | | | | | | | | | | 289,000 | | |
Issuance of common stock as compensation | | | 18,450 | | | | 6,000 | | | | 560,000 | | | | | | | | | | | | 566,000 | | |
Exercise of stock options | | | 46,750 | | | | 16,000 | | | | 354,000 | | | | | | | | | | | | 370,000 | | |
| | | | | | | | | | | | | | |
Balance September 30, 2006 | | | 7,549,244 | | | | 2,517,000 | | | | 82,370,000 | | | | (33,000 | ) | | | 34,354,000 | | | | 119,208,000 | | | | 7,549,244 | | | $ | 2,517,000 | | | $ | 82,370,000 | | | $ | (33,000 | ) | | $ | 34,354,000 | | | $ | 119,208,000 | |
Net income | | | | | | | | | | | | | | | | | | | 27,158,000 | | | | 27,158,000 | | | | | | | | | | | | | | | | | | | | 27,158,000 | | | | 27,158,000 | |
Other comprehensive income net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realization of gains on investments | | | | | | | | | | | | | | | 51,000 | | | | | | | | | | | | | | | | | | | | | | | | 51,000 | | | | | | | | | |
Income tax benefit | | | | | | | | | | | | | | | (18,000 | ) | | | | | | | | | |
Income tax expense | | | | | | | | | | | | | | | | (18,000 | ) | | | | | | | | |
| | | | | | |
Other comprehensive income | | | | | | | | | | | | | | | 33,000 | | | | | | | | 33,000 | | | | | | | | | | | | | | | | 33,000 | | | | | | | | 33,000 | |
| | | | | | |
Comprehensive income for the period | | | | | | | | | | | | | | | | | | | | | | | 27,191,000 | | | | | | | | | | | | | | | | | | | | | | | | 27,191,000 | |
Excess tax benefit of employee stock plan | | | | | | | | | | | 1,312,000 | | | | | | | | | | | | 1,312,000 | | | | | | | | | | | | 1,312,000 | | | | | | | | | | | | 1,312,000 | |
Stock-based compensation expense | | | | | | | | | | | 588,000 | | | | | | | | | | | | 588,000 | | | | | | | | | | | | 588,000 | | | | | | | | | | | | 588,000 | |
Issuance of common stock as compensation | | | 3,000 | | | | 1,000 | | | | 119,000 | | | | | | | | | | | | 120,000 | | | | 3,000 | | | | 1,000 | | | | 119,000 | | | | | | | | | | | | 120,000 | |
Exercise of stock options | | | 106,250 | | | | 35,000 | | | | 701,000 | | | | | | | | | | | | 736,000 | | | | 106,250 | | | | 35,000 | | | | 701,000 | | | | | | | | | | | | 736,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2007 | | | 7,658,494 | | | | 2,553,000 | | | | 85,090,000 | | | | — | | | | 61,512,000 | | | | 149,155,000 | | | | 7,658,494 | | | | 2,553,000 | | | | 85,090,000 | | | | — | | | | 61,512,000 | | | | 149,155,000 | |
Adoption of FIN 48 | | | | | | | | | | | | | | | | | | | (208,000 | ) | | | (208,000 | ) | |
Impact of adopting certain provisions of ASC740-10 | | | | | | | | | | | | | | | | | | | | (208,000 | ) | | | (208,000 | ) |
Net income | | | | | | | | | | | | | | | | | | | 35,007,000 | | | | 35,007,000 | | | | | | | | | | | | | | | | | | | | 35,007,000 | | | | 35,007,000 | |
Excess tax benefit of employee stock plan | | | | | | | | | | | 440,000 | | | | | | | | | | | | 440,000 | | | | | | | | | | | | 440,000 | | | | | | | | | | | | 440,000 | |
Stock-based compensation expense | | | | | | | | | | | 836,000 | | | | | | | | | | | | 836,000 | | | | | | | | | | | | 836,000 | | | | | | | | | | | | 836,000 | |
Issuance of common stock as compensation | | | 6,500 | | | | 2,000 | | | | 423,000 | | | | | | | | | | | | 425,000 | | | | 6,500 | | | | 2,000 | | | | 423,000 | | | | | | | | | | | | 425,000 | |
Issuance of restricted stock awards and unearned compensation | | | 94,500 | | | | 31,000 | | | | (32,000 | ) | | | | | | | | | | | (1,000 | ) | |
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 | | | | 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 | | | | 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 | |
| | | | | | | | | | | | | | |
See accompanying notes to the financial statements.
F-6
DAWSON GEOPHYSICAL COMPANY
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended September 30, | | | Years Ended September 30, | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
|
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 35,007,000 | | | $ | 27,158,000 | | | $ | 15,855,000 | | | $ | 10,222,000 | | | $ | 35,007,000 | | | $ | 27,158,000 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation | | | 24,253,000 | | | | 18,103,000 | | | | 13,338,000 | | | | 26,160,000 | | | | 24,253,000 | | | | 18,103,000 | |
Noncash compensation | | | 1,259,000 | | | | 707,000 | | | | 855,000 | | | | 1,758,000 | | | | 1,259,000 | | | | 707,000 | |
Deferred income tax expense | | | 3,566,000 | | | | 3,394,000 | | | | 4,472,000 | | | | 2,300,000 | | | | 3,566,000 | | | | 3,394,000 | |
Excess tax benefit from share-based payment arrangement | | | (440,000 | ) | | | (1,312,000 | ) | | | (180,000 | ) | | | (5,000 | ) | | | (440,000 | ) | | | (1,312,000 | ) |
Provision for bad debts | | | | 993,000 | | | | 32,000 | | | | 51,000 | |
Other | | | 443,000 | | | | 995,000 | | | | 119,000 | | | | 106,000 | | | | 443,000 | | | | 995,000 | |
Change in current assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Increase in accounts receivable | | | (15,711,000 | ) | | | (10,633,000 | ) | | | (17,378,000 | ) | |
(Increase) decrease in prepaid expenses | | | (62,000 | ) | | | (125,000 | ) | | | 437,000 | | |
Increase in accounts payable | | | 2,900,000 | | | | 646,000 | | | | 4,779,000 | | |
Increase in accrued liabilities | | | 1,644,000 | | | | 10,435,000 | | | | 2,773,000 | | |
(Decrease) increase in deferred revenue | | | (1,929,000 | ) | | | 2,059,000 | | | | 673,000 | | |
Decrease (increase) in accounts receivable | | | | 31,641,000 | | | | (15,743,000 | ) | | | (10,684,000 | ) |
Increase in prepaid expenses and other assets | | | | (6,942,000 | ) | | | (62,000 | ) | | | (125,000 | ) |
(Decrease) increase in accounts payable | | | | (7,960,000 | ) | | | 2,900,000 | | | | 646,000 | |
(Decrease) increase in accrued liabilities | | | | (4,912,000 | ) | | | 1,644,000 | | | | 10,435,000 | |
Increase (decrease) in deferred revenue | | | | 1,237,000 | | | | (1,929,000 | ) | | | 2,059,000 | |
| | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 50,930,000 | | | | 51,427,000 | | | | 25,743,000 | | | | 54,598,000 | | | | 50,930,000 | | | | 51,427,000 | |
| | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of short-term investments | | | | (25,313,000 | ) | | | — | | | | — | |
Proceeds from maturity of short-term investments | | | | — | | | | — | | | | 6,500,000 | |
Proceeds from disposal of assets | | | 29,000 | | | | 537,000 | | | | 453,000 | | | | 124,000 | | | | 29,000 | | | | 537,000 | |
Partial proceeds on fire insurance claim | | | | 2,843,000 | | | | — | | | | — | |
Capital expenditures, net of noncash capital expenditures summarized below in noncash investing activities | | | (53,269,000 | ) | | | (58,701,000 | ) | | | (35,477,000 | ) | | | (4,192,000 | ) | | | (53,269,000 | ) | | | (58,701,000 | ) |
Proceeds from sale of short-term investments | | | — | | | | — | | | | 8,993,000 | | |
Proceeds from maturity of short-term investments | | | — | | | | 6,500,000 | | | | 5,000,000 | | |
| | | | | | | | | | | | | | |
Net cash used in investing activities | | | (53,240,000 | ) | | | (51,664,000 | ) | | | (21,031,000 | ) | | | (26,538,000 | ) | | | (53,240,000 | ) | | | (51,664,000 | ) |
| | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from exercise of stock options | | | 306,000 | | | | 736,000 | | | | 369,000 | | | | 416,000 | | | | 306,000 | | | | 736,000 | |
Proceeds from revolving line of credit | | | 15,000,000 | | | | 5,000,000 | | | | — | | | | — | | | | 15,000,000 | | | | 5,000,000 | |
Repayment on revolving line of credit | | | (20,000,000 | ) | | | — | | | | — | | | | — | | | | (20,000,000 | ) | | | — | |
Excess tax benefit from share-based payment arrangement | | | 440,000 | | | | 1,312,000 | | | | 180,000 | | | | 5,000 | | | | 440,000 | | | | 1,312,000 | |
| | | | | | | | | | | | | | |
Net cash (used) provided by financing activities | | | (4,254,000 | ) | | | 7,048,000 | | | | 549,000 | | |
Net cash provided (used) by financing activities | | | | 421,000 | | | | (4,254,000 | ) | | | 7,048,000 | |
| | | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (6,564,000 | ) | | | 6,811,000 | | | | 5,261,000 | | |
Net increase (decrease) in cash and cash equivalents | | | | 28,481,000 | | | | (6,564,000 | ) | | | 6,811,000 | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | | 14,875,000 | | | | 8,064,000 | | | | 2,803,000 | | | | 8,311,000 | | | | 14,875,000 | | | | 8,064,000 | |
| | | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 8,311,000 | | | $ | 14,875,000 | | | $ | 8,064,000 | | | $ | 36,792,000 | | | $ | 8,311,000 | | | $ | 14,875,000 | |
| | | | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash paid for interest expense | | $ | 541,000 | | | $ | 145,000 | | | $ | — | | | $ | — | | | $ | 541,000 | | | $ | 145,000 | |
Cash paid during the period for income taxes | | $ | 18,812,000 | | | $ | 10,259,000 | | | $ | 4,177,000 | | | $ | 13,222,000 | | | $ | 18,812,000 | | | $ | 10,259,000 | |
| | | | | | | | |
NONCASH INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
Accrued purchases of property and equipment | | $ | 382,000 | | | $ | 790,000 | | | $ | 4,900,000 | | | $ | — | | | $ | 382,000 | | | $ | 790,000 | |
Unrealized loss on investments | | $ | — | | | $ | — | | | $ | (10,000 | ) | |
| | | | | | | | |
Equipment purchase through reduction of insurance proceeds | | | $ | 638,000 | | | $ | — | | | $ | — | |
Unrealized gain on investments | | | $ | 31,000 | | | $ | — | | | $ | — | |
See accompanying notes to the financial statements.
F-7
DAWSON GEOPHYSICAL COMPANY
| |
1. | Summary of Significant Accounting Policies |
Organization and Nature of Operations
Founded in 1952, the Company acquires and processes2-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.
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 Investments
The Company accounts for its short-term investments in accordance with Statement of Financial Accounting Standards (SFAS) No. 115 (“SFAS No. 115”), “Accounting for Certain Investments in Debt and Equity Securities.” In accordance with SFAS No. 115, the Company classifies its investments consisting of U.S. Treasury Securities and FDIC guaranteed bonds as “available-for-sale”“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 is based on the specific identification method.
Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents, accounts receivable,short-term investments, trade and other receivables, other current assets, accounts payable and other current liabilities approximate their fair values based on their short-term nature. The fair value of investments is based on quoted market prices.
Concentrations of Credit Risk
Financial instruments whichthat potentially expose the Company to concentrations of credit risk as defined by SFAS No. 105, “Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with 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 and trade accounts receivable.and other receivables. At September 30, 20082009 and 2007,2008, the Company had deposits inwith 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 which itSecurities. During fiscal 2009, the Company also invested funds in FDIC guaranteed bonds. The Company believes all of its investments are a low risk investment.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. The Company’s analysis of historical collections of accounts receivable and other relevant data does not substantiate an increased allowance for doubtful accounts. At September 30, 2008,2009, sales to the Company’s two largest clientsclient represented 56%31% of its revenues and 54%22% of its revenues net of third-party charges as compared to 56%36% and 50%31%, respectively, at September 30, 2007.2008. At September 30, 2006,2007, sales to the Company’s two largest clientsclient represented 35%49% of its revenues.revenues and 40% of its revenues net of third-party charges. The remaining balance of the Company’s fiscal 20082009 revenues was derived from varied clients and none represented 10% or more of its fiscal 20082009 revenues.
F-8
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
Property, Plant and Equipment
Property, plant and equipment are 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.
F-8
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
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
Long-lived assets are reviewed for impairment when triggering events occur suggesting a 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 asset.assets and the fair value of the assets is below the carrying value of the assets. Management’s forecast of future cash flowflows used to perform impairment analysis includes estimates of future revenues and future gross marginsexpenses based on the Company’s historicalanticipated future results and analysis ofwhile considering anticipated future oil and natural gas prices which is fundamental in assessing demand for the Company’s services. If the carrying amount 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 Statements of Operations for the years ended September 30, 2009, 2008 2007 or 2006.2007.
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 amounts are reversed and recognized as revenue.
Allowance for Doubtful Accounts
Management prepares its allowance 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 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 the Company’s clients.
Tax Accounting
The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition ofby 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 liabilities and assets 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
F-9
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
tax asset or liability using the applicable tax rate and reducing the deferred tax asset 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. Management’s methodology for recording income taxes requires
F-9
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
judgment regarding assumptions and the use of estimates, including 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.
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. ActualBecause of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with SFAS 123(R) (“SFAS 123(R)”), “Share-Based Payment,” which requires companies to measuremeasures all employee stock-based compensation awards, including stock options and restricted stock, using athe fair value method and recognizerecognizes compensation cost, net of forfeitures, in its financial statements for all awards granted after that date and for nonvested awards outstanding at that date using the modified prospective application method.statements. The Company recognizes the fair value of stock-basedrecords compensation awardsexpense as operating or general and administrative expense as appropriate in the Statements of Operations on a straight-line basis over the vesting period.period of the related stock options or restricted stock awards.
Reclassifications
Certain prior year amounts have been reclassified in the current year in order to be consistent with the current year presentation.
| |
2. | Short-term Investments |
The Company adopted the 2000 Incentive Stock Plan during fiscal 1999 (the “2000 Plan”), which provides options to purchase 500,000 shares of authorized but unissued common stock of the Company. The option price is the market valuecomponents of the Company’s common stock at date of grant. Optionsshort-term investments are exercisable 25% annually from the date of the grant and the options expire five years from the date of grant. The 2000 Plan provides that 50,000 of the 500,000 shares of authorized but unissued common stock may be awarded to officers, directors and employees of the Company for the purpose of additional compensation.as follows:
| | | | | | | | | | | | | | | | |
| | 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 | |
| | | | | | | | | | | | | | | | |
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 2004 Plan operates like the 2000 Plan except 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 2000 and 2004 Plans, the Company does not intend to issue shares from these plans 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 Plan was approved by shareholders at the Company’s Annual Shareholders Meeting on January 23, 2007.
Incentive Stock Options:
| | |
(a) | | Other comprehensive income reflected on the Balance Sheet reflects unrealized gains net of the tax effect of approximately $13,000. |
The Company’s short-term investments have contractual maturities ranging from December 2009 to December 2010. These investments have been classified asavailable-for-sale. The Company estimateshad no short-term investments at September 30, 2008.
| |
3. | Fair Value of Financial Instruments |
At September 30, 2009 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. Due to the short-term maturities of cash and cash equivalents, trade and other receivables and accounts payables, the carrying amounts approximate fair value of each stock option onat the date of grant using the Black-Scholes option pricing model. The expected volatility is based on historical volatility over the expected vesting term of 48 months. As the Company has not historically declared dividends, the dividend yield used in the calculation is zero. Actualrespective balance sheet dates.
F-10
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The Company measures certain financial assets and liabilities at fair 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.a recurring basis, including short-term investments.
A summaryThe fair value measurements of these short-term investments were determined using the Company’s employee stock options as of September 2008, 2007 and 2006, and changes during the years ended on those dates is presented below.following inputs:
| | | | | | | | | | | | | | | | |
| | | | | | | | Weighted
| | | | |
| | | | | Weighted
| | | Average
| | | | |
| | Number of
| | | Average
| | | Remaining
| | | | |
| | Optioned
| | | Exercise
| | | Contractual
| | | Aggregate Intrinsic
| |
| | Shares | | | Price | | | Term in Years | | | Value ($000) | |
|
Balance as of September 30, 2005 | | | 224,500 | | | $ | 8.87 | | | | 2.65 | | | $ | 4,803 | |
| | | | | | | | | | | | | | | | |
Granted | | | — | | | $ | — | | | | | | | | | |
Exercised | | | (46,750 | ) | | $ | 7.90 | | | | | | | | | |
Expired | | | (6,500 | ) | | $ | 9.27 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance as of September 30, 2006 | | | 171,250 | | | $ | 9.12 | | | | 2.22 | | | $ | 3,535 | |
| | | | | | | | | | | | | | | | |
Granted | | | — | | | $ | — | | | | | | | | | |
Exercised | | | (106,250 | ) | | $ | 6.93 | | | | | | | | | |
Forfeited | | | (6,500 | ) | | $ | 15.82 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance as of September 30, 2007 | | | 58,500 | | | $ | 12.35 | | | | 1.60 | | | $ | 3,875 | |
| | | | | | | | | | | | | | | | |
Granted | | | — | | | $ | — | | | | | | | | | |
Exercised | | | (35,250 | ) | | $ | 8.68 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance as of September 30, 2008 | | | 23,250 | | | $ | 17.91 | | | | 1.08 | | | $ | 650 | |
| | | | | | | | | | | | | | | | |
Exercisable as of September 30, 2008 | | | 15,000 | | | $ | 17.91 | | | | 1.08 | | | $ | 420 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | 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 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
No options were granted during fiscal years 2008, 2007Investments in U.S. Treasury bills and 2006. The total intrinsic value of options exercised during fiscal 2008, 2007notes and 2006 was $1,812,000, $4,650,000 and $1,029,000, respectively. The total fair value of options vested during fiscal 2008, 2007 and 2006 was $201,000, $367,000 and $549,000, respectively.FDIC guaranteed corporate bonds classified asavailable-for-sale are measured using unadjusted quoted market prices (Level 1) at the reporting date provided by our investment custodian.
A summary of the status of the Company’s nonvested shares as of September 30, 2008 and changes during the fiscal year ended September 30, 2008 is presented below.
| | | | | | | | |
| | Number of
| | | Weighted Average
| |
| | Nonvested
| | | Grant Date
| |
| | Share Awards | | | Fair Value | |
|
Nonvested Shares Outstanding September 30, 2007 | | | 24,000 | | | $ | 14.52 | |
Granted | | | — | | | | — | |
Vested | | | (15,750 | ) | | | 12.74 | |
Forfeited | | | — | | | | — | |
| | | | | | | | |
Nonvested Shares Outstanding September 30, 2008 | | | 8,250 | | | $ | 17.91 | |
| | | | | | | | |
Outstanding optionsThe Company had no short-term investments at September 30, 2008 expire November 2009 and have an exercise price of $17.91. As of September 30, 2008 there was approximately $7,000 of unrecognized compensation cost related to nonvested stock option awards to be recognized in October 2008.
| |
4. | Property, Plant and Equipment |
Stock options issued under
Property, plant and equipment, together with annual depreciation rates, consist of the Company’s 2004 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 years ended September 30, 2008 and 2007 excess tax benefits fromfollowing:
| | | | | | | | | | | | |
| | September 30, | | | | |
| | 2009 | | | 2008 | | | Useful Lives | |
|
Land, building and other | | $ | 5,589,000 | | | $ | 5,350,000 | | | | 3 to 40 years | |
Recording equipment | | | 149,444,000 | | | | 160,516,000 | | | | 5 to 10 years | |
Vibrator energy sources | | | 58,745,000 | | | | 58,750,000 | | | | 10 to 15 years | |
Vehicles | | | 26,856,000 | | | | 25,713,000 | | | | 2 to 10 years | |
Other(a) | | | 186,000 | | | | 190,000 | | | | — | |
| | | | | | | | | | | | |
| | | 240,820,000 | | | | 250,519,000 | | | | | |
Less accumulated depreciation | | | (115,341,000 | ) | | | (103,180,000 | ) | | | | |
| | | | | | | | | | | | |
Net property, plant and equipment | | $ | 125,479,000 | | | $ | 147,339,000 | | | | | |
| | | | | | | | | | | | |
| | |
(a) | | Other represents accumulated costs associated with equipment fabrication and modification not yet completed. |
F-11
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
disqualifying dispositions of options of $440,000 and $1,312,000, 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, 2008 and 2007 was $306,000 and $736,000, respectively.
The Company recognized compensation expense of $78,000, $83,000 and $289,000 in fiscal 2008, 2007 and 2006, respectively, associated with stock option awards. This amount is included in wages in the Statements of Operations.
Stock Awards:
The Company granted 5,500 restricted shares during the second quarter of fiscal 2008 and 33,000 restricted shares during the third quarter fiscal 2008, each from the 2006 Plan. 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, 2007 | | | 56,000 | | | $ | 27.05 | |
Granted | | | 38,500 | | | $ | 67.25 | |
| | | | | | | | |
Nonvested Restricted Shares Outstanding September 30, 2008 | | | 94,500 | | | $ | 43.43 | |
| | | | | | | | |
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. As a result, the compensation expense recorded for restricted stock generated 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 of $758,000 in fiscal 2008 related to restricted stock awards. This amount is included in wages in the Statements of Operations. As of September 30, 2008 there was approximately $2,773,000 of unrecognized compensation cost related to nonvested restricted stock awards granted. The cost is expected to be recognized over 1.7 years.
The Company granted 3,000 shares with immediate vesting to outside directors in each of the first quarters of fiscal 2008, 2007 and 2006 as compensation. The grant date fair value equaled $69.64, $39.77 and $31.65 in each quarter, respectively. The Company granted 2,000 shares with immediate vesting to employees as compensation in the second quarter of fiscal 2008. The grant date fair value equaled $55.22. The Company granted 500 and 1,000 shares with immediate vesting to employees as compensation during the third quarter of fiscal 2008. The grant date fair value equaled $69.22 and $70.46, respectively. No stock awards were granted during the remaining periods of fiscal 2008, 2007 and 2006. The Company recognized expense of $423,000, $119,000 and $353,000 in fiscal 2008, 2007 and 2006, respectively, as well as the related tax benefit associated with these awards in fiscal years ended September 30, 2008, 2007 and 2006.
F-12
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
2.5. | Property, Plant and EquipmentSupplemental Balance Sheet Information |
Property, plant and equipment, together with annual depreciation rates, consist of the following:
| | | | | | | | | | | | |
| | September 30, | | | | |
| | 2008 | | | 2007 | | | Useful Lives | |
|
Land, building and other | | $ | 5,350,000 | | | $ | 4,435,000 | | | | 3 to 40 years | |
Recording equipment | | | 160,516,000 | | | | 141,648,000 | | | | 5 to 10 years | |
Vibrator energy sources | | | 58,750,000 | | | | 39,900,000 | | | | 10 to 15 years | |
Vehicles | | | 25,713,000 | | | | 21,059,000 | | | | 2 to 10 years | |
Other(a) | | | 190,000 | | | | 385,000 | | | | — | |
| | | | | | | | | | | | |
| | | 250,519,000 | | | | 207,427,000 | | | | | |
Less accumulated depreciation | | | (103,180,000 | ) | | | (84,655,000 | ) | | | | |
| | | | | | | | | | | | |
Net property, plant and equipment | | $ | 147,339,000 | | | $ | 122,772,000 | | | | | |
| | | | | | | | | | | | |
| | |
(a) | | Other represents accumulated costs associated with equipment fabrication and modification not yet completed. |
| |
3. | Other Current Liabilities |
Other current liabilitiesAccounts receivable consist of the following at September 30, 20082009 and 2007:2008:
| | | | | | | | |
| | September 30, | |
| | 2008 | | | 2007 | |
|
Accrued self insurance reserves | | $ | 6,704,000 | | | $ | 6,373,000 | |
Accrued bonus and profit sharing | | | 3,855,000 | | | | 3,078,000 | |
Income taxes payable | | | 1,262,000 | | | | 2,314,000 | |
Accrued payables associated with fire | | | 794,000 | | | | — | |
Other accrued expenses and current liabilities | | | 2,254,000 | | | | 2,498,000 | |
| | | | | | | | |
Total other current liabilities | | $ | 14,869,000 | | | $ | 14,263,000 | |
| | | | | | | | |
| | | | | | | | |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Trade and accrued trade receivables | | $ | 33,910,000 | | | $ | 67,186,000 | |
Allowance for doubtful accounts | | | (533,000 | ) | | | (55,000 | ) |
Insurance receivable associated with fire damage | | | 1,836,000 | | | | 4,339,000 | |
Accrued receivable for worker’s compensation stop loss policy | | | 4,893,000 | | | | 4,751,000 | |
| | | | | | | | |
Total accounts receivable | | $ | 40,106,000 | | | $ | 76,221,000 | |
| | | | | | | | |
Prepaid expenses and other assets consist of the following at September 30, 2009 and 2008:
| | | | | | | | |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Prepaid other | | $ | 591,000 | | | $ | 877,000 | |
Income tax receivable | | | 7,228,000 | | | | — | |
| | | | | | | | |
Total prepaid expenses and other assets | | $ | 7,819,000 | | | $ | 877,000 | |
| | | | | | | | |
|
Other current liabilities consist of the following at September 30, 2009 and 2008: |
| | | | | | | | |
| | | | | | | | |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Accrued self insurance reserves | | $ | 6,698,000 | | | $ | 6,704,000 | |
Accrued bonus and profit sharing | | | 1,014,000 | | | | 3,855,000 | |
Income and franchise taxes payable | | | 674,000 | | | | 1,262,000 | |
Accrued payables associated with fire damage | | | — | | | | 794,000 | |
Other accrued expenses and current liabilities | | | 2,214,000 | | | | 2,254,000 | |
| | | | | | | | |
Total other current liabilities | | $ | 10,600,000 | | | $ | 14,869,000 | |
| | | | | | | | |
The Company’s revolving line of credit loan agreement is with Western National Bank. In January 2008,On June 2, 2009, the Company renewed the existing agreement for an additional year, anda two-year term on June 2, 2008,substantially the agreement was amendedsame terms as the previous facility. In addition, based on the Company’s assessment of its current needs, the Company reduced the size of the facility to increase the borrowing limit to$20.0 million from $40.0 million. The agreement permits the Company to borrow, repay and reborrow, from time to time until June 2, 2009,2011, up to $40.0 million.$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”), 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 as of September 30, 20082009 and December 8,November 30, 2009. The Company has not utilized the line of credit loan agreement since it paid off the entire outstanding balance as of September 30, 2008. On July 5,
F-12
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
7. | Stock-Based Compensation |
At September 30, 2009, the Company had two stock-based compensation plans. Each plan, the awards outstanding under these plans 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 the Company’s common stock at 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 borrowed $5.0 millionadopted 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 prior credit loan agreement for working capital purposes. On March 21, 2008,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 Plan was approved by shareholders at the Company’s Annual Shareholders Meeting on January 23, 2007.
Incentive Stock Options:
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. The expected term represents the average period that the Company borrowedexpects 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 additional $5.0 million,optionee will be at or near the value estimated by the Black-Scholes model.
The fair value of stock options granted during 2009 was $8.59 and on June 16, 2008, it borrowed an additional $10.0 million, in each case, for working capital purposes. As$10.49 using the Black-Scholes model 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, 2008,2009, as well as activity during the Company had repaid the $20.0 million balance, and no amounts are outstanding as of December 8, 2008.year then ended is presented below.
F-13
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | |
| | | | | | | | Weighted
| | | | |
| | | | | Weighted
| | | Average
| | | | |
| | Number of
| | | Average
| | | Remaining
| | | Aggregate
| |
| | Optioned
| | | Exercise
| | | Contractual
| | | Intrinsic
| |
| | Shares | | | Price | | | Term in Years | | | Value ($000) | |
|
Balance as of September 30, 2008 | | | 23,250 | | | $ | 17.91 | | | | | | | | | |
Granted | | | 152,000 | | | | 18.91 | | | | | | | | | |
Exercised | | | (23,250 | ) | | | 17.91 | | | | | | | $ | 206 | |
Forfeited | | | — | | | | — | | | | | | | | | |
Balance as of September 30, 2009 | | | 152,000 | | | $ | 18.91 | | | | 9.17 | | | $ | 1,287 | |
| | | | | | | | | | | | | | | | |
Exercisable as of September 30, 2009 | | | — | | | $ | — | | | | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
During fiscal 2009, 152,000 options were issued to employees of the Company. No options were granted during fiscal years 2008 and 2007. The total intrinsic value of options exercised during fiscal 2009, 2008 and 2007 was $206,000, $1,812,000 and $4,650,000, respectively. The total fair value of options vested during fiscal 2009, 2008 and 2007 was $148,000, $201,000 and $367,000, respectively.
A summary of the status of the Company’s nonvested stock option awards as of September 30, 2009 and changes during the fiscal year ended September 30, 2009 is presented below.
| | | | | | | | |
| | Number of
| | | Weighted Average
| |
| | Nonvested
| | | Grant Date
| |
| | Share Awards | | | Fair Value | |
|
Nonvested option awards outstanding September 30, 2008 | | | 8,250 | | | $ | 17.91 | |
Granted | | | 152,000 | | | | 18.91 | |
Vested | | | (8,250 | ) | | | 17.91 | |
Forfeited | | | — | | | | — | |
| | | | | | | | |
Nonvested option awards outstanding September 30, 2009 | | | 152,000 | | | $ | 18.91 | |
| | | | | | | | |
Outstanding options at September 30, 2009 expire in December 2018 and have an exercise price of $18.91. As of September 30, 2009, there was approximately $1,090,000 of unrecognized compensation cost related to nonvested stock option awards to be recognized over a weighted average period of 2.0 years.
Stock options issued under the Company’s 2004 and 2006 Plans 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 years ended September 30, 2009, 2008 and 2007, excess tax benefits from disqualifying dispositions of options of $5,000, $440,000 and $1,312,000, 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, 2009 and 2008 was $416,000 and $306,000, respectively.
The Company recognized compensation expense of $315,000, $78,000 and $83,000 in fiscal 2009, 2008 and 2007, respectively, associated with stock option awards. This amount is included in operating or general and administrative expense as appropriate in the Statements of Operations.
Stock Awards:
There were no restricted stock grants in fiscal 2009. The weighted average grant date fair value of restricted stock awards in 2008 and 2007 was $67.25 and $27.05, respectively. The fair value of the restricted stock granted equals the market price on the grant date and vests after three years.
F-14
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | Number of
| | | Weighted Average
| |
| | Restricted
| | | Grant Date
| |
| | Share Awards | | | Fair Value | |
|
Nonvested restricted shares outstanding September 30, 2008 | | | 94,500 | | | $ | 43.43 | |
Granted | | | — | | | | — | |
| | | | | | | | |
Nonvested restricted shares outstanding September 30, 2009 | | | 94,500 | | | $ | 43.43 | |
| | | | | | | | |
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. 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 of $1,352,000, $758,000 and $505,000 in fiscal 2009, 2008 and 2007, respectively, related to restricted stock awards. This amount is included in operating or general and administrative expense as appropriate in the Statements of Operations. As of September 30, 2009, there was approximately $1,326,000 of unrecognized compensation cost related to nonvested restricted stock awards granted. The cost is expected to be recognized over a weighted average period of 1.6 years.
The Company granted 5,000 common shares with immediate vesting to outside directors in the first quarter of fiscal 2009 as compensation and 3,000 common shares with immediate vesting to outside directors in the first quarter of both 2008 and 2007 as compensation. The grant date fair value equaled $18.19, $69.64 and $39.77 in each quarter, respectively. The Company granted 2,000 common shares with immediate vesting to employees as compensation in the second quarter of fiscal 2008. The grant date fair value equaled $55.22. The Company granted 500 and 1,000 common shares with immediate vesting to employees as compensation during the third quarter of fiscal 2008. The grant date fair value equaled $69.22 and $70.46, respectively. No stock awards were granted during the remaining periods of fiscal 2009, 2008 and 2007. The Company recognized expense of $91,000, $423,000 and $119,000 in fiscal 2009, 2008 and 2007, respectively, as well as the related tax benefit associated with these awards in fiscal years ended September 30, 2009, 2008 and 2007.
| |
5.8. | Employee Benefit Plans |
The Company provides a 401(k) plan as part of its employee benefits package in order to retain quality personnel. During 20082009 and 2007,2008, the Company elected to match 100% of the employee contributions up to a maximum of 6% of the participant’s gross salary. During 2006, the Company elected to match 100% of employee contributions up to a maximum of 5% of the participant’s gross salary. The Company’s matching contributions for fiscal 2009, 2008 2007 and 20062007 were approximately $1,213,000, $1,117,000 $912,000 and $724,000,$912,000, respectively.
Advertising costs are charged to expense as incurred. Advertising costs totaled $181,000, $288,000 $292,000, and $136,000$292,000 during the fiscal years ended September 30, 2009, 2008 2007 and 2006,2007, respectively.
The Company recorded income tax expense in the current year of $21,400,000$7,493,000 as compared to $21,400,000 and $17,300,000 in 2007.2008 and 2007, respectively. The increasedecrease in the provision for 20082009 from 20072008 is primarily athe result of a substantial increasedecrease in income before income taxes resulting in increased federal and state income taxes. The Company fully utilized its federal alternative minimum tax credits during 2007.
F-15
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
Income tax expense from continuing operations:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | Year Ended September 30, | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
|
Current Federal | | $ | 16,082,000 | | | $ | 11,778,000 | | | $ | 3,935,000 | | | $ | 3,770,000 | | | $ | 16,082,000 | | | $ | 11,778,000 | |
Current State | | | 1,752,000 | | | | 2,128,000 | | | | 951,000 | | | | 1,423,000 | | | | 1,752,000 | | | | 2,128,000 | |
Deferred Federal | | | 3,296,000 | | | | 3,280,000 | | | | 4,599,000 | | | | 1,921,000 | | | | 3,296,000 | | | | 3,280,000 | |
Deferred State | | | 270,000 | | | | 114,000 | | | | (127,000 | ) | | | 379,000 | | | | 270,000 | | | | 114,000 | |
| | | | | | | | | | | | | | |
Total | | $ | 21,400,000 | | | $ | 17,300,000 | | | $ | 9,358,000 | | | $ | 7,493,000 | | | $ | 21,400,000 | | | $ | 17,300,000 | |
| | | | | | | | | | | | | | |
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to income from continuing operations before income taxes as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | Year Ended September 30, | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
|
Tax expense computed at statutory rates | | $ | 19,743,000 | | | $ | 15,560,000 | | | $ | 8,573,000 | | | $ | 6,200,000 | | | $ | 19,743,000 | | | $ | 15,560,000 | |
Change in valuation allowance | | | (18,000 | ) | | | (2,000 | ) | | | 90,000 | | | | (12,000 | ) | | | (18,000 | ) | | | (2,000 | ) |
State income tax | | | 1,270,000 | | | | 1,505,000 | | | | 569,000 | | | | 1,089,000 | | | | 1,270,000 | | | | 1,505,000 | |
Other | | | 405,000 | | | | 237,000 | | | | 126,000 | | | | 216,000 | | | | 405,000 | | | | 237,000 | |
| | | | | | | | | | | | | | |
Income tax expense | | $ | 21,400,000 | | | $ | 17,300,000 | | | $ | 9,358,000 | | | $ | 7,493,000 | | | $ | 21,400,000 | | | $ | 17,300,000 | |
| | | | | | | | | | | | | | |
The principal components of the Company’s net deferred tax liability are as follows:
| | | | | | | | |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Deferred tax assets: | | | | | | | | |
Receivables | | $ | 199,000 | | | $ | 20,000 | |
Restricted stock | | | 978,000 | | | | 464,000 | |
Workers’ compensation | | | 408,000 | | | | 493,000 | |
Other | | | 716,000 | | | | 430,000 | |
| | | | | | | | |
Total gross deferred tax assets | | | 2,301,000 | | | | 1,407,000 | |
Less valuation allowance | | | (58,000 | ) | | | (70,000 | ) |
| | | | | | | | |
Total deferred tax assets | | | 2,243,000 | | | | 1,337,000 | |
Deferred tax liabilities: | | | | | | | | |
Property and equipment | | | (16,798,000 | ) | | | (13,592,000 | ) |
Other | | | (13,000 | ) | | | — | |
| | | | | | | | |
Total gross deferred tax liabilities | | | (16,811,000 | ) | | | (13,592,000 | ) |
| | | | | | | | |
Net deferred tax liability | | $ | (14,568,000 | ) | | $ | (12,255,000 | ) |
| | | | | | | | |
Current portion of net deferred tax asset/liability | | $ | 1,694,000 | | | $ | 873,000 | |
Non-current portion of net deferred tax asset/liability | | | (16,262,000 | ) | | | (13,128,000 | ) |
| | | | | | | | |
Total net deferred tax liability | | $ | (14,568,000 | ) | | $ | (12,255,000 | ) |
| | | | | | | | |
At September 30, 2009, substantially all of the valuation allowance of $58,000 was 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-14F-16
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The principal components of the Company’s net deferred tax liability are as follows:
| | | | | | | | |
| | September 30, | |
| | 2008 | | | 2007 | |
|
Deferred tax assets: | | | | | | | | |
Net operating loss carryforwards | | $ | — | | | $ | 19,000 | |
Receivables | | | 20,000 | | | | 64,000 | |
Restricted stock | | | 464,000 | | | | 183,000 | |
Workers’ compensation | | | 493,000 | | | | 355,000 | |
Other | | | 430,000 | | | | 343,000 | |
| | | | | | | | |
Total gross deferred tax assets | | | 1,407,000 | | | | 964,000 | |
Less valuation allowance | | | (70,000 | ) | | | (88,000 | ) |
| | | | | | | | |
Total deferred tax assets | | | 1,337,000 | | | | 876,000 | |
Deferred tax liabilities: | | | | | | | | |
Property and equipment | | | (13,592,000 | ) | | | (9,564,000 | ) |
| | | | | | | | |
Total gross deferred tax liabilities | | | (13,592,000 | ) | | | (9,564,000 | ) |
| | | | | | | | |
Net deferred tax liability | | $ | (12,255,000 | ) | | $ | (8,688,000 | ) |
| | | | | | | | |
Current portion of net deferred tax asset/liability | | $ | 873,000 | | | $ | 693,000 | |
Noncurrent portion of net deferred tax asset/liability | | | (13,128,000 | ) | | | (9,381,000 | ) |
| | | | | | | | |
Total net deferred tax liability | | $ | (12,255,000 | ) | | $ | (8,688,000 | ) |
| | | | | | | | |
At September 30, 2008, substantially all of the valuation allowance of $70,000 was related to the Company’s deferred tax assets for capital loss carryforwards that are deemed more likely than not realizable in the foreseeable future.
In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,” which became effective for the Company on October 1, 2007. FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon re-examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. As a result of the adoption of FIN 48, the Company recorded a liability of approximately $208,000, which was accounted for as a reduction to retained earnings as of October 1, 2007. The liability included $137,000 in taxes and $71,000 in penalties and interest.
The following presents a roll forward of the Company’s unrecognized tax benefits:
| | | | | | | | | | | | |
| | Unrecognized
| | | September 30, | |
| | Benefits | | | 2009 | | 2008 | |
|
Balance as of October 1, 2007 | | $ | 137,000 | | |
Balance at beginning of fiscal year | | | $ | 135,000 | | | $ | 137,000 | |
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 | | | (2,000 | ) | | | (69,000 | ) | | | (2,000 | ) |
| | | | | | | | |
Balance as of September 30, 2008 | | $ | 135,000 | | |
Balance at end of fiscal year | | | $ | 416,000 | | | $ | 135,000 | |
| | | | | | | | |
F-15
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
As of September 30, 20082009, the Company has recognized $228,000$579,000 of liabilities for unrecognized tax benefits of which $93,000$163,000 related to penalties and interest. The Company expects approximately $83,000$282,000 of the liabilities for unrecognized tax benefits including the related penalties and interest to settle or lapse in the statutes of limitations by December 31, 2008.September 30, 2010.
Interest and penalty costs related to income taxes are classified as income tax expense. The tax years generally subject to future examination by tax authorities are for years ending September 30, 20042005 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 $579,000 would have an immaterial effectimpact on the effective tax rate.
The Company’s continuing practice is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2008, the Company’s accrued interest and penalties was approximately $108,000. The Company’s Statements of Operations at September 30, 2009 included accrued interest and penalties of $55,000.
| |
8.11. | Net Income per Common Share |
The Company accounts for earnings per share in accordance with SFAS No. 128, “Earnings per Share.” Basic net income per share is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common shares and common share equivalents outstanding during the period.
F-17
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The following table sets forth the computation of basic and diluted net income per common share:share.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
|
Numerator: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income and numerator for basic and diluted net income per common share: income available to common shareholders | | $ | 35,007,000 | | | $ | 27,158,000 | | | $ | 15,855,000 | | |
Net income and numerator for basic and diluted net income per common share — income available to common shareholders | | | $ | 10,222,000 | | | $ | 35,007,000 | | | $ | 27,158,000 | |
| | | | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | | | | | | | | | | | | | |
Denominator for basic net income per common share-weighted average common shares | | | 7,669,124 | | | | 7,601,889 | | | | 7,518,372 | | | | 7,807,385 | | | | 7,669,124 | | | | 7,601,889 | |
Effect of dilutive securities-employee stock options and restricted stock grants | | | 59,527 | | | | 67,573 | | | | 81,183 | | | | 46,146 | | | | 59,527 | | | | 67,573 | |
| | | | | | | | | | | | | | |
Denominator for diluted net income per common share-adjusted weighted average common shares and assumed conversions | | | 7,728,651 | | | | 7,669,462 | | | | 7,599,555 | | | | 7,853,531 | | | | 7,728,651 | | | | 7,669,462 | |
| | | | | | | | | | | | | | |
Net income per common share | | $ | 4.57 | | | $ | 3.57 | | | $ | 2.11 | | | $ | 1.31 | | | $ | 4.57 | | | $ | 3.57 | |
| | | | | | | | | | | | | | |
Net income per common share-assuming dilution | | $ | 4.53 | | | $ | 3.54 | | | $ | 2.09 | | | $ | 1.30 | | | $ | 4.53 | | | $ | 3.54 | |
| | | | | | | | | | | | | | |
The Company operates in only one business segment, contract seismic data acquisition and processing services. The major customers in 2009, 2008 2007 and 20062007 have varied. Sales to these customers, as a percentage of operating revenues that exceeded 10%, were as follows:
| | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 |
|
A | | | 36 | % | | | 49 | % | | | 24 | % | | | 31 | % | | | 36 | % | | | 49 | % |
B | | | 20 | % | | | — | | | | — | | | | — | | | | 20 | % | | | — | |
C | | | — | | | | — | | | | 11 | % | |
Although 36% and 20%31% of the Company’s fiscal 20082009 revenues were derived from two clients,one client (“A”), the Company believes that the relationships arerelationship is well founded for continued contractual commitments for the foreseeable future in multiple producing basins across the lower 48 states. However, the Company anticipates a reduction in sales in
F-16
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
fiscal 2009 to these two clients. The Company’s client “C”“B” in the table above continues to be a client and acts as an agent for other entities that are the actual purchasersremained one of the Company’s services.clients in 2009, although sales to this customer as a percentage of operating revenue did not exceed 10%.
| |
10.13. | 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 is currently repairingrepaired damage incurred by such landowners as a result of the fire. The Company currently estimates the likely amount of thetotal cost to repair landowner damages will be less than $1.5was approximately $1.8 million. This amount is included in accounts receivable on our Balance Sheet. The Company believes anythe damages paid by the Company to repair landowner damages will be covered by the Company’s liability insurance. In February 2009, the Company received the remaining insurance proceeds for equipment losses sustained by the Company during the fire and for the Company’s debrispick-up costs. The Company recorded an immaterial gain on the receipt of such insurance proceeds in the second quarter of fiscal 2009.
F-18
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
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.
On November 21, 2008, the Company received written notice dated November 14, 2008 from a client disputing approximately $1.4 million in charges payable for seismic work performed by the Company. The Company believes that the disputed charges are owed to the Company, and the Company intends to seek full payment from the client.
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.
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, 2009, this client had an accounts receivable balance with the Company of approximately $1.0 million. The Company increased its allowance for doubtful accounts during the second fiscal quarter to cover estimated exposures related to this bankruptcy.
The Company has non-cancelable operating leases for office space in Midland, Houston, Denver, Oklahoma City and Lyon Township, Michigan.
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, 2008.2009.
| | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 1,778 | | | $ | 569 | | | $ | 1,042 | | | $ | 167 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 1,209 | | | $ | 578 | | | $ | 610 | | | $ | 21 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
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 linestraight-line basis and records the difference between the amount charged to expense and the rent paid as deferred rent. Rental expense under the Company’s operating leases with initial terms exceeding one year was $575,000, $528,000 $432,000 and $274,000$432,000 for fiscal 2009, 2008 2007 and 2006,2007, respectively.
As of SeptemberNovember 30, 2008,2009, the Company recognizedhad unused letters of credit totaling $3,580,000.$4,080,000. The Company’s letters of credit principally back obligations associated with the Company’s self-insured retention on workers’ compensation claims.
On July 13, 1999,8, 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, 19992009 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 a 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 Mellon Investor Services 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 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
F-17F-19
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
Participating Preferred Stock, par value $1.00 per share, of the Company (the “Preferred Shares”) at an exercise price of $50.00 per Right. The rights are not currently exercisable and will become exercisable only if a person or group acquires beneficial ownership of 20% or more of the Company’s outstanding common stock or announces a tender offer or exchange offer the consummating of whichthat would result in attaininga person’s becoming an Acquiring Person. In certain circumstances, the triggering percentage. Distribution Date may be deferred by the Board of Directors.
The Rights are subject to redemptionnot 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 $.01 perall 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.
In the event (a “Flip-Over Event”) that, at any time prior to the tenth dayfrom and after the first public announcement of a triggering acquisition.
Iftime an Acquiring Person becomes such, (i) the Company is acquired in a merger or other business combination transaction after(other than certain mergers that follow a person has acquired beneficial ownership of 20%Permitted Offer), or (ii) 50% or more of the Company’s common stock,assets, cash flow or earning power is sold or transferred, each holder of a Right will entitle its holder(except Rights that are voided as set forth above) shall thereafter have the right to purchase, at the Right’s then currentreceive, upon exercise, price, a number of the acquired Company’s shares of common stock of the acquiring company having a market value of two times such price. In addition, if a person or group acquires beneficial ownership of 20% or more of the Company’s common stock, each Right will entitle its holder (other than the acquiring person or group)Current Market Price equal to purchase, at the Right’s then current exercise price, a number of the Company’s shares of common stock having a market value of two times the exercise price.price of the Right. Flip-In Events and Flip-Over Events are collectively referred to as “Triggering Events.”
Subsequent toAt any time until ten days following the acquisition byfirst 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 or groupbecomes an Acquiring Person, the right of beneficial ownershipredemption is subject to certain limitations in the Rights Agreement.
At any time after the occurrence of 20% or more of the Company’s common stocka Flip-In Event and prior to a person’s becoming the acquisition of beneficial ownershipowner of 50% or more of the Company’s common stock,shares of Common Stock then outstanding or the Boardoccurrence of Directors ofa Flip-Over Event, the Company may exchange the Rights (other than Rights owned by such acquiring personan Acquiring Person or group,an affiliate or an associate of an Acquiring Person, which will have become null and void and nontransferable)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 Company’s common stock (orsame value as one one-hundredthshare of a Preferred Share)Common Stock, per Right.Right, subject to adjustment.
The Rights dividend distribution was made on July 23, 1999, payableUntil 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 shareholders of record at the close of business on that date. The Rights will expire on July 23, 2009.vote or to receive dividends.
| |
12.15. | Recently Issued Accounting Pronouncements |
In September 2006, the FASB issued SFAS No. 157 (“SFAS 157”),ASC820-10, “Fair Value Measurements.Measurements and Disclosures.” SFAS 157ASC820-10 clarifies that fair value is the amount that would be exchanged to sell an asset or transfer a liability in an orderly transaction between market participants. Further, the standard establishes a framework for measuring fair value in generally accepted accounting principles and expands certain disclosures about fair value measurements. SFAS 157 isASC820-10 became effective for fiscal years beginning after November 15, 2007.all financial assets and financial liabilities as of October 1, 2008, and upon adoption, ASC820-10 did not have a material impact on the Company’s financial statements. In February 2008, the FASB issued FASB Staff PositionASC157-2(“FSP 157-2”),820-10-15-1A, “Effective“Fair Value Measurements and Disclosures — Transition and Open Effective Date of FASB Statement No. 157,Information,” which delays the effective date of SFAS 157ASC820-10 for all non-financial assets and non-financial
F-20
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company does not expect the adoption of SFAS 157ASC820-10-15-1A to have a material impact on its financial statements.
In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities.ASC825-10, “Financial Instruments.” SFAS 159ASC825-10 provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 isAs of September 30, 2009, the Company has not elected the fair value option for any additional financial assets and liabilities beyond those already prescribed by accounting principles generally accepted in the United States.
In April 2009, the FASB issued ASC825-10-65-1, “Financial Instruments — Transition and Open Effective Date Information.” ASC825-10-65-1 requires fair value disclosures in both interim and annual financial statements in order to provide more timely information about the effects of current market conditions on financial instruments. ASC825-10-65-1 became effective for fiscal years beginning after Novemberthe Company as of June 15, 2007.2009. The Company does not expect the adoption of SFAS 159 tothis standard did not have a material impact on its financial statements.
In May 2008,2009, the FASB issued SFAS No. 162 (“SFAS 162”), “The Hierarchy of Generally Accepted Accounting Principles.ASC855-10, “Subsequent Events,” Under SFAS 162, the GAAP hierarchy will now reside in the accounting literature established by the FASB. SFAS 162 identifies the sourceswhich establishes general standards of accounting principlesfor, and requires disclosure of, events that occur after the framework for selecting the principles used in the preparation ofbalance sheet date but before financial statements in conformity with GAAP. SFAS 162 is effective 60 days following the SEC’s approval of the Public Accounting Oversight Board Auditing amendmentsare issued or are available to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.”be issued. The Company does not expectadopted the provisions of ASC855-10 for the quarter ended June 30, 2009. The adoption of SFAS 162 toASC855-10 did not have a material impact on its financial statements. The Company has evaluated events subsequent to its balance sheet date (September 30, 2009) through the issue date of thisForm 10-K (November 30, 2009) and concluded that no significant subsequent events have occurred that require recognition in the Financial Statements or disclosure in the Notes to the Financial Statements.
In June 2009, the FASB issued ASC105-10, “Generally Accepted Accounting Principles.” ASC105-10 provides for the FASB Accounting Standards Codification (the “Codification”) to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles. The Codification did not change GAAP but reorganizes the literature. ASC105-10 became effective for the Company for the year ended September 30, 2009. The adoption of this standard did not have an impact on the Company’s financial statements.
The Company received written notice from a client disputing outstanding receivables on November 21, 2008. See Note 10, “Commitmentshas evaluated events subsequent to the balance sheet date (September 30, 2009) through the issue date of thisForm 10-K (November 30, 2009) and Contingencies,” for additional information.concluded that no significant subsequent events have occurred that require recognition in the Financial Statements or disclosure in the Notes to the Financial Statements.
F-18F-21
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
14.17. | Quarterly Financial Data (Unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended | | | Quarter Ended | |
| | December 31 | | March 31 | | June 30 | | September 30 | | | December 31 | | March 31 | | June 30 | | September 30 | |
|
Fiscal 2007: | | | | | | | | | | | | | | | | | |
Operating revenues | | $ | 53,654,000 | | | $ | 59,935,000 | | | $ | 68,637,000 | | | $ | 75,537,000 | | |
Income from operations | | $ | 8,468,000 | | | $ | 8,568,000 | | | $ | 12,595,000 | | | $ | 13,717,000 | | |
Net income | | $ | 5,435,000 | | | $ | 5,368,000 | | | $ | 7,561,000 | | | $ | 8,794,000 | | |
Net income per common share | | $ | .72 | | | $ | .71 | | | $ | .99 | | | $ | 1.15 | | |
Net income per common share assuming dilution | | $ | .71 | | | $ | .70 | | | $ | .98 | | | $ | 1.14 | | |
Fiscal 2008: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating revenues | | $ | 77,599,000 | | | $ | 78,363,000 | | | $ | 84,568,000 | | | $ | 84,396,000 | | | $ | 77,599,000 | | | $ | 78,363,000 | | | $ | 84,568,000 | | | $ | 84,396,000 | |
Income from operations | | $ | 12,217,000 | | | $ | 13,143,000 | | | $ | 16,145,000 | | | $ | 14,922,000 | | | $ | 12,217,000 | | | $ | 13,143,000 | | | $ | 16,145,000 | | | $ | 14,922,000 | |
Net income | | $ | 7,704,000 | | | $ | 8,292,000 | | | $ | 9,707,000 | | | $ | 9,304,000 | | | $ | 7,704,000 | | | $ | 8,292,000 | | | $ | 9,707,000 | | | $ | 9,304,000 | |
Net income per common share | | $ | 1.01 | | | $ | 1.08 | | | $ | 1.27 | | | $ | 1.21 | | | $ | 1.01 | | | $ | 1.08 | | | $ | 1.27 | | | $ | 1.21 | |
Net income per common share assuming dilution | | $ | 1.00 | | | $ | 1.07 | | | $ | 1.26 | | | $ | 1.20 | | | $ | 1.00 | | | $ | 1.07 | | | $ | 1.26 | | | $ | 1.20 | |
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 | ) |
Net income (loss) per common share (basic) and net 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 annual basic and diluted earnings per share.
F-19F-22
Schedule II
Dawson Geophysical Company
| | | | | | | | | | | | | | | | |
| | Balance at
| | | Charged to
| | | | | | Balance at
| |
| | Beginning
| | | Costs and
| | | | | | End of
| |
| | of Period | | | Expenses | | | Deductions | | | Period | |
|
Allowance for doubtful accounts*: | | | | | | | | | | | | | | | | |
Fiscal Year: | | | | | | | | | | | | | | | | |
2008 | | $ | 176,000 | | | $ | 32,000 | | | $ | 153,000 | | | $ | 55,000 | |
2007 | | | 148,000 | | | | 51,000 | | | | 23,000 | | | | 176,000 | |
2006 | | | 331,000 | | | | 20,000 | | | | 203,000 | | | | 148,000 | |
Valuation allowance for deferred tax assets: | | | | | | | | | | | | | | | | |
Fiscal Year: | | | | | | | | | | | | | | | | |
2008 | | $ | 88,000 | | | $ | (18,000 | ) | | $ | — | | | $ | 70,000 | |
2007 | | | 90,000 | | | | (2,000 | ) | | | — | | | | 88,000 | |
2006 | | | — | | | | 90,000 | | | | — | | | | 90,000 | |
| | | | | | | | | | | | | | | | |
| | Balance at
| | | Charged to
| | | | | | Balance at
| |
| | Beginning
| | | Costs and
| | | | | | End of
| |
| | of Period | | | Expenses | | | Deductions | | | Period | |
|
Allowance for doubtful accounts*: | | | | | | | | | | | | | | | | |
Fiscal Year: | | | | | | | | | | | | | | | | |
2009 | | $ | 55,000 | | | $ | 993,000 | | | $ | 515,000 | | | $ | 533,000 | |
2008 | | | 176,000 | | | | 32,000 | | | | 153,000 | | | | 55,000 | |
2007 | | | 148,000 | | | | 51,000 | | | | 23,000 | | | | 176,000 | |
Valuation allowance for deferred tax assets: | | | | | | | | | | | | | | | | |
Fiscal Year: | | | | | | | | | | | | | | | | |
2009 | | $ | 70,000 | | | $ | (12,000 | ) | | $ | — | | | $ | 58,000 | |
2008 | | | 88,000 | | | | (18,000 | ) | | | — | | | | 70,000 | |
2007 | | | 90,000 | | | | (2,000 | ) | | | — | | | | 88,000 | |
| | |
* | | Deductions related to allowance for doubtful accounts represent amounts that have been deemed uncollectible and written off by the Company. |
F-20F-23
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 | | Amended and Restated Bylaws of the Company (filed on August 7, 2007 as Exhibit 3.2 to the Company’s Quarterly Report onForm 10-Q for the third quarter ended June 30, 2007 (FileNo. 000-10144) and incorporated herein by reference). |
| 4 | .1 | | Rights Agreement by and between the Company and Mellon Investor Services, LLC (f/k/a Chasemellon Shareholder Services, L.L.C.), as Rights Agent, dated July 13, 1999 (filed on December 11, 2003 as Exhibit 4 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 | .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† | | Dawson Geophysical Company 2000 Incentive Stock Plan (filed on August 3, 2001 as Exhibit 10.1 to the Company’s Registration Statement onForm S-8 (FileNo. 333-66666) and incorporated herein by reference). |
| 10 | .4† | | 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 | .5† | | 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 | .6† | | 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 | .7† | | 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 | .8† | | 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 | .9† | | 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 | .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 | | Revolving Line of Credit Loan Agreement, dated June 2, 2008, between the Company and Western National Bank (filed on June 5, 2008 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .12 | | Security Agreement, dated June 2, 2008, between the Company and Western National Bank (filed on June 5, 2008 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. |
| 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. |
| | | | |
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 | | Amended and Restated Bylaws of the Company (filed on August 7, 2007 as Exhibit 3.2 to the Company’s Quarterly Report onForm 10-Q for the third quarter ended June 30, 2007 (FileNo. 000-10144) and incorporated herein by reference). |
| 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). |
| | | | |
Number | | Exhibit |
|
| 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* | | 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* | | 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* | | 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.” |
| | |
* | | Filed herewith. |
|
† | | Identifies exhibit that consists of or includes a management contract or compensatory plan or arrangement. |