agreements, we forego an increased profit potential in exchange for a more consistent revenue stream with improved protection from crew downtime or operational delays.
We currently operate under both turnkey and term supplemental agreements. Currently, the majority of our projects are operated under turnkey agreements.
5
Competition
The acquisition and processing of seismic data for the oil and natural gas industry is a highly competitive business in the United States. Contracts for such services generally are awarded on the basis of price quotations, crew experience and availability of crews to perform in a timely manner, although factors other than price, such as crew safety performance history and technological and operational expertise are often determinative. Our competitors include companies with financial resources that are significantly greater than our own as well as companies of comparable and smaller size. Our primary competitors are CGG Veritas, Petroleum Geo-Services ASA, Geokinetics Inc., Global Geophysical Services and Tidelands Geophysical Company.
Employees
As of OctoberSeptember 30, 2008,2009, we employed approximately 1,436942 persons, of which 1,310832 were engaged in providing energy sources and acquiring data. With respect to the remainder of our employees, thirteen are engaged in data processing, thirty-one are administrative personnel, sixty-eightfifty-two are engaged in equipment maintenance and transport and fourteen are officers. Of the employees listed above, ten are geophysicists. Our employees are not represented by a labor union. We believe we have good relations with our employees.
Available Information
All of our Annual Reports onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K and all amendments to those reports filed with or furnished to the Securities and Exchange Commission (“SEC”) on or after May 9, 1995 are available free of charge through our Internet Website, www.dawson3d.com, as soon as reasonably practical after we have electronically filed such material with, or furnished it to, the SEC. Information contained on our Internet Website is not incorporated by reference in this Annual Report onForm 10-K. In addition, the SEC maintains an Internet site containing reports, proxy and information statements, and other information filed electronically at www.sec.gov. You may also read and copy this information, for a copying fee, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.
| Item 1A. | RISK FACTORS |
An investment in our common stock is subject to a number of risks discussed below. You should carefully consider these discussions of risk and the other information included in thisForm 10-K. If any of the following risks were actually to occur,These risk factors could materially adversely affect our business, financial condition or results of operations could be materially adversely affected.operations.
Recent decreases in the market priceprices of oil and natural gas, disruptions in the global financial markets and the global economy generally may decreasehave decreased demand for our seismic services, and causecaused downward pressure on the prices we charge.charge and affected our results of operations.
Since August 2008, the market priceprices for oil and especially natural gas hashave declined significantly.significantly from historic highs. In addition, recent disruptions and instability in the global financial markets and difficulties ina worldwide economic conditionsrecession have resulted in a significant reduction in the availability of funds from debt and equity capital markets and other capital markets whilemarkets. Furthermore, conditions in the global and domestic economy have increased uncertainty and diminished expectations for many businesses, including producers of oil and natural gas. As a result of these developments, many of our customers may bewere unable to implement their development plans and may bewere forced to significantly reduce their capital expenditures. Ifexpenditures during fiscal 2009. As a consequence, during fiscal 2009, we experienced a severe reduction in demand for our services, downward pressure on the prices we charge our customers reducefor our services and our results of operations were adversely affected. We have reduced the number of data acquisition crews we operate from sixteen at the end of fiscal 2008 to nine as of October 2009 to better align our capacity to the reduced demand.
6
Current economic conditions remain uncertain and challenging. If economic conditions do not improve or were to worsen, or our customers do not increase their capital expenditures, it would result in continued diminished demand for our seismic services, and may cause continued downward pressure on the prices we charge or the leveland would continue to affect our results of work we do for our clients. During the third quarter of 2008, several of our clients reduced the size or delayed seismic projects as a result of the decline in oil and natural gas prices and the disruptions in the capital markets and economy.operations. A significant and prolonged reduction in demand for seismic services would have a material adverse effect on our results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview.”
6
If oil and natural gas prices or the level of capital expenditures by oil and gas companies were to decline, demand for our services would decline and our results of operations would be adversely affected.
Demand for our services depends upon the level of spending by oil and gas companies for exploration, production, development and field management activities, which depend, in part, on oil and natural gas prices. Significant fluctuations in oil and natural gas exploration activities and commodity prices have adversely affected the demand for our services and our results of operations in years past and would do so again if there was a sustained decline in the prices for oil and natural gas. While in recent years, the priceprices of oil and natural gas hashave been historically high and exploration activities have been strong, since August 2008, the priceprices of oil and especially natural gas hashave declined significantly. In addition to the market priceprices of oil and natural gas, our clients’ willingness to explore, develop and produce depends largely upon prevailing industry conditions that are influenced by numerous factors over which our management has no control, including general economic conditions and the market price for oil and natural gas and economic conditions.availability of credit. There can be no assurance that the current level of energy prices will not decline further or that exploration and development activities by our clients will continue to be as strong as inresume at the pace of recent years. A significant sustained drop in oil and natural gas prices or the inability of our clients to secure funding for new exploration projects would have a negative impact on demand for our services. During the third quarter of 2008, several ofBeginning in fiscal 2009, we experienced a severe reduction in demand for our services as clients reduced the size or delayed seismic projects as a result of the decline in oil and natural gas prices and the disruptions in the capital markets and economy. As a result, we reduced the number of our operating data acquisition crews from sixteen at the end of fiscal 2008 to nine as of October 2009. Because substantially allthe majority of our current clients’ projects are focused on the exploration for natural gas, a sustained significant decline in the price of natural gas has had, and would continue to have, a particularly negative effect on the demand for our services. Any significant decline in exploration or production-related spending by our clients, whether due to a decrease in the market priceprices for oil and natural gas or otherwise, could cause us to alter our capital spending plans and would have a material adverse effect on our results of operations. Additionally, increases in oil and gas prices may not increase demand for our products and services or otherwise have a positive effect on our results of operations or financial condition.
Factors affecting the priceprices of oil and natural gas and our clients’ desire to explore, develop and produce include:
| • | the level of supply and demand for oil and natural gas; | |
| • | level of prices, and expectations about future prices, for oil and natural gas; | |
| • | the ability of oil and gas producers to raise equity capital and debt financing; | |
| • | worldwide political, military and economic conditions, including the ability of the Organization of Petroleum Exporting Countries to set and maintain production levels and prices for oil; | |
| • | the cost of exploring for, developing and producing oil and natural gas; | |
| • | government policies regarding the exploration for | |
| • | level of taxation relating to the energy industry, including taxation of consumption of energy sources; and | |
| • | weather conditions, including large-scale weather events such as hurricanes that affect oil and gas operations over a wide area or affect prices or locally inclement weather that can preclude or delay our seismic operations. |
7
The markets for oil and natural gas have historically been volatile and are likely to continue to be so in the future.
7
Our clients could delay, reduce or cancel their service contracts with us on short notice, which may lead to lower than expected demand and revenues.
Our order book consists of written orders or commitments for our services that we believe to be firm. We believe we currently have a sufficient order book to sustain operations at full capacity into calendar 2009 on all sixteen crews. However, our clients can delay, reduce or cancel their service contracts with us on short notice. As a result, our order book as of any particular date may not be indicative of actual revenues for any succeeding fiscal period.
The high fixed costs of our operations could adversely affect our results of operations.
Our business has high fixed costs. As a result, any significant downtime or low productivity caused by reduced demand, weather interruptions, equipment failures, permit delays or other causes could adversely affect our results of operations.
Our revenues are subject to fluctuations that are beyond our control which could adversely affect our results of operations in any financial period.
Our operating results vary in material respects from quarter to quarter and will continue to do so in the future. Factors that cause variations include the timing of the receipt and commencement of contracts for data acquisition, permit delays, weather delays, holiday schedules and crew productivity. Combined with our high fixed costs, these revenue fluctuations could produce unexpected adverse results of operations in any fiscal period.
Our operations are subject to weather conditions which could adversely affect our results of operations.
Our seismic data acquisition operations could be adversely affected by inclement weather conditions. Delays associated with weather conditions could adversely affect our results of operations. See “Business — Contracts.”
Our operations are subject to delays related to obtaining land access rights of way from third parties which could affect our results of operations.
Our seismic data acquisition operations could be adversely affected by our inability to obtain timely right of way usage from both public and private landand/or mineral owners. In recent years, it has become more difficult, costly and time-consuming to obtain access rights of way as drilling activities have expanded into more populated areas, and landowners have become more resistant to seismic and drilling activities occurring on their property. Delays associated with obtaining such rights of way could negatively affect our results.results of operations.
We face intense competition in our business that could result in downward pricing pressure and the loss of market share.
The acquisition and processing of seismic data for the oil and natural gas industry is a highly competitive business in the United States. Some of our competitors have financial resources that are significantly greater than our own. Competition from these and other competitors could result in downward pricing pressure and the loss of market share. See “Business — Competition.”
A limited number of customers account for a significant portion of our revenues, and the loss of one of these customers could harm our results of operations; we bear the risk if any of our clients become insolvent and fail to pay amounts owed to the Company, so any failure to pay by these clients could harm our results of operations.
Although our ten largest customers in fiscal 2009 and 2008 have varied, these customers accounted for approximately 68% and 83% of our total revenue for these respective periods. For the years ended September 30, 2009 and 2008, the Company’s largest client represented approximately 31% and 36%, respectively, of total revenues. If this client, or any of our other significant clients were to terminate their contracts or fail to contract for
8
We bear the credit risk if any of our clients become insolvent and fail to pay amounts owed to the Company. Although we perform ongoing credit evaluations of our customers’ financial conditions, we generally require no collateral from our customers. The worldwide recession and the decrease in oil and especially natural gas prices have affected the financial condition and results of operations of our clients, and some of our clients have experienced substantial growth duringfinancial difficulties and even filed bankruptcy and others may do so in the last five fiscal years, adding ten seismic data acquisition crews during thisfuture. It is possible that one or more of our clients will become financially distressed and default on their obligations to the Company. Furthermore, the bankruptcy of one or more of our clients, or some other similar procedure, might make it difficult for the Company to collect all or a significant portion of amounts owed by the client. Our inability to collect our accounts receivable could have a materially adverse effect on our results of operations. In addition, from time to time, we experience contractual disputes with our clients regarding the payment of invoices or other matters. While we seek to minimize these disputes and maintain good relations with our clients, we have in the past, and may in the future, experience disputes that could affect our revenues and results of operations in any period. This growth has presented a challenge to our systems, processes, resources, personnel, management and other infrastructure and support mechanisms. If we do not manage these growth challenges effectively, our profitability and
Our results of operations could be adversely affected by asset impairments.
We periodically review our management resourcesportfolio of equipment for impairment. If we expect significant sustained decreases in oil and natural gas prices and reduced demand for our services, we may be divertedrequired to write down the value of our equipment if the future cash flows anticipated to be generated from the related equipment falls below net book value. The recent decline in oil and natural gas prices, if sustained, could result in future impairments. If we are forced to write down the value of our future growthequipment, these noncash asset impairments could be impeded.negatively affect our results of operations in the period in which they are recorded. See discussion of “Impairment of Long-Lived Assets” included in “Critical Accounting Policies.”
We may be unable to attract and retain skilled and technically knowledgeable employees which could adversely affect our business and our growth.
Our success depends upon attracting and retaining highly skilled professionals and other technical personnel. A number of our employees are highly skilled scientists and highly trained technicians, and our failure to continue to attract and retain such individuals could adversely affect our ability to compete in the seismic services industry. We may confrontexperience significant and potentially adverse competition for these skilled and technically knowledgeable personnel, particularly during periods of increased demand for seismic services. The increased demand for seismic services during the past few years has also made it difficult for the Company to hire additional skilled persons to join our data acquisition crews. Should this trend continue, the Company’s ability to expand the number of operating data acquisition crews may be impaired. None of our employees are under employment contracts, and we have no key man insurance.
Capital requirements for our operations are large. If we are unable to finance these requirements, our abilitywe may not be able to continue our expansion and maintain our profitability could be affected.competitive advantage.
Our sources of working capital are limited. We have historically funded our working capital requirements with cash generated from operations, cash reserves and short-term borrowings from commercial banks. In the past, we have also funded our capital expenditures and other financing needs through public equity offerings. Our working capital requirements continue to increase, primarily due to the expansion of our infrastructure in response to client demand for more recording channels, which has increased as the industry strives for improved data quality with greater subsurface resolutions. If we were to expand our operations at a rate exceeding operating cash flow, or if current demand or pricing of geophysical services were to decrease substantially, additional financing could be required. If we were not able to obtain such financing or renew our existing revolving line of credit when needed, our failure could have a negative impact on our ability to pursue expansion and maintain our profitability.competitive advantage. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
9
restrict the productivity of its existing crews, adversely affecting the Company’s business and results of operation. In addition, any adverse change in the future, we may be required to write downterms of the valueCompany’s supplier arrangements could affect its results of operations.
Certain of our suppliers may also be competitors of us. If competitive pressures were to become such that our suppliers would no longer sell to us, we would not be able to easily replace the technology with equipment if the future cash flows anticipatedthat communicates effectively with our existing technology, thereby impairing our ability to be generated from the related equipment falls below net book value. The recent decline in oil and natural gas prices, if sustained, could result in future impairments. If we are forced to write down the value ofconduct our equipment, these noncash asset impairments could negatively affect our results of operations in the period in which they are recorded. See discussion of “Impairment of Long-Lived Assets” included in “Critical Accounting Policies.”business.
Technological change in our business creates risks of technological obsolescence and requirements for future capital expenditures. If we are unable to keep up with these technological advances, we may not be able to compete effectively.
Seismic data acquisition and data processing technologies historically have progressed rather rapidly, and we expect this progression to continue. Our strategy is to regularly upgrade our data acquisition and processing equipment to maintain our competitive position. However, due to potential advances in technology and the related costs associated with such technological advances, we might not be able to fulfill this strategy, thus possibly affecting our ability to compete.
9
We operate under hazardous conditions that subject us to risk of damage to property or personal injuries and may interrupt our business.
Our business is subject to the general risks inherent in land-based seismic data acquisition activities. Our activities are often conducted in remote areas under extreme weather and other dangerous conditions.conditions, including the use of dynamite as an energy source. These operations are subject to risks of injury to our personnel and equipment.equipment, to third parties and to buildings and other improvements in the areas in which we operate. Our crews are mobile, and equipment and personnel are subject to vehicular accidents. We use diesel fuel which is classified by the U.S. Department of Transportation as a hazardous material. These risks could cause us to experience equipment losses, injuries to our personnel and interruptions in our business. Delays due to operational disruptions such as equipment losses, personnel injuries and business interruptions could adversely affect our profitability and results of operations.
We may be subject to liability claims that are not covered by our master service agreements or by insurance.
We could be subject to personal injury or real property damage claims in the normal operation of our business. Such claims may not be covered under the indemnification provisions in our master service agreements to the extent that the damage was due to our or our subcontractors’ negligence, gross negligence or intentional misconduct.
In addition, we do not carry insurance against certain risks that we could experience, including business interruption resulting from equipment losses or weather delays. We obtain insurance against certain property and personal casualty risks and other risks when such insurance is available and when our management considers it advisable to do so. Such coverage is not always available or applicable and, when available, is subject to unilateral cancellation by the insuring companies on very short notice. Liabilities for which we are not insured, or which exceed the policy limits of our applicable insurance, could have a materially adverse effect on our results of operations.
We may be held liable for the actions of our subcontractors.
We often work as the general contractor on seismic data acquisition surveys and consequently engage a number of subcontractors to perform services and provide products. While we obtain contractual indemnification and insurance covering the acts of these subcontractors, and require the subcontractors to obtain insurance for our benefit, there can be no assurance we will not be held liable for the actions of these subcontractors. In addition, subcontractors may cause damage or injury to our personnel and property that is not fully covered by insurance.
10
Our industry is subject to governmental regulation which may adversely affect our future operations.
Our operations are subject to a variety of federal, state and local laws and regulations, including laws and regulations relating to protection of the environment and archeological sites. We are required to expend financial and managerial resources to comply with such laws and related permit requirements in our operations, and we anticipate that we will continue to be required to do so in the future. The fact that such laws or regulations change frequently makes it impossible for us to predict the cost or impact of such laws and regulations on our future operations. The adoption of laws and regulations that have the effect of reducing or curtailing exploration and production activities by energy companies could also adversely affect our operations by reducing the demand for our services.
In particular, in response to concerns suggesting that emissions of certain gases, commonly referred to as “greenhouse gases” (including carbon dioxide and methane) may be contributing to global climate change, the U.S. Congress is actively considering legislation to reduce such emissions. In addition, at least one-third of the states, either individually or through multi-state regional initiatives, have already taken legal measures intended to reduce greenhouse gas emissions, primarily through the planned development of greenhouse gas emission inventoriesand/or greenhouse gas cap and trade programs.
On June 26, 2009, the U.S. House of Representatives approved adoption of the “American Clean Energy and Security Act of 2009,” also known as the “Waxman-MarkeyCap-and-Trade legislation,” or “ACESA.” The purpose of ACESA is to control and reduce emissions of greenhouse gases in the United States. The U.S. Senate is working on its own legislation for controlling and reducing emissions of greenhouse gases. For legislation to become law, both chambers of Congress would be required to approve the same legislation. It is not possible at the time to predict whether or when the Senate may act on climate change legislation, how any bill approved by the Senate would be reconciled with ACESA or how federal legislation may be reconciled with state and regional requirements.
The Environmental Protection Agency (the “EPA”) is separately considering whether it will regulate greenhouse gases as “air pollutants” under the existing federal Clean Air Act. Recently, the EPA issued the Final Mandatory Reporting of Greenhouse Gases Rule. This rule will be effective December 29, 2009 and will require the collection of information beginning in January 2010 with annual reporting to begin in 2011 for covered facilities. The rule requires reporting of greenhouse gas emissions from large sources and suppliers in the United States, and the EPA has stated that it will use the information to guide development of the policies and programs to reduce emissions.
This increasing governmental focus on global warming may result in new environmental laws or regulations that may negatively affect us, our suppliers and our customers. This could cause us to incur additional direct costs in complying with any new environmental regulations, as well as increased indirect costs resulting from our customers, suppliers or both incurring additional compliance costs that get passed on to us. Moreover, passage of climate change legislation or other federal or state legislative or regulatory initiatives that regulate or restrict emissions of greenhouse gases may curtail production and demand for fossil fuels such as oil and gas in areas where our customers operate and thus adversely affect future demand for our products and services. Reductions in our revenues or increases in our expenses as a result of climate control initiatives could have adverse effects on our business, financial position, results of operations and prospects.
Certain provisions of our charter and bylaws and our shareholder rights plan may make it difficult for a third party to acquire us, even in situations that may be viewed as desirable by shareholders.
Our articles of incorporation and bylaws contain provisions that authorize the issuance of preferred stock and establish advance notice requirements for director nominations and actions to be taken at shareholder meetings. These provisions could discourage or impede a tender offer, proxy contest or other similar transaction involving control of us,the Company, even in situations that may be viewed as desirable by our shareholders. In addition, we have adopted a shareholder rights plan that would likely discourage a hostile attempt to acquire control of us.the Company.
11
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our stock price.
If, in the future, we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could have a material adverse effect on the price of our common stock.
10
| Item 1B. | UNRESOLVED STAFF COMMENTS |
None.
| Item 2. | PROPERTIES |
Our principal facilities are summarized in the table below.
| Owned or | Building Area | |||||||
Location | Leased | Purpose | Square Feet | |||||
| Midland, TX | Leased | Executive offices and data processing | 29,960 | |||||
| Midland, TX | Owned | Field office | 61,402 | |||||
| Equipment fabrication facility | ||||||||
| Maintenance and repairs shop | ||||||||
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.
| Item 3. | LEGAL PROCEEDINGS |
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.
| Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matter has been submitted during the fourth quarter of the 20082009 fiscal year to a vote of our security holders, through the solicitation of proxies or otherwise. However, please refer to our Proxy Statement for the Annual Meeting to be held on January 27, 200926, 2010 (the “Proxy Statement”), to be filed with the Securities and Exchange Commission, notifying security holders as to the election of directors and selection of KPMG LLP as our independent registered public accounting firm.
11
Executive Officers of the Registrant
Set forth below are the names, ages and positions of the Company’s executive officers.
12
Name | Age | Position | ||||
| L. Decker Dawson | Chairman of the Board of Directors | |||||
| Stephen C. Jumper | President, Chief Executive Officer and Director | |||||
| C. Ray Tobias | Executive Vice President, Chief Operating Officer | |||||
| Christina W. Hagan | Executive Vice President, Secretary and Chief Financial Officer | |||||
| Howell W. Pardue | Executive Vice President | |||||
| K.S. Forsdick | Senior Vice President | |||||
The Board of Directors elects executive officers annually. Executive officers hold office until their successors are elected and have qualified.
Set forth below are descriptions of the principal occupations during at least the past five years of the Company’s executive officers.
L. Decker Dawson. Mr. Dawson founded the Company in 1952. He served as President of the Company until being elected as Chairman of the Board of Directors and Chief Executive Officer in January 2001. In January 2006, Mr. Dawson was reelected as Chairman of the Board of Directors and retired as Chief Executive Officer of the Company. Prior to 1952, Mr. Dawson was a geophysicist with Republic Exploration Company, a geophysical company. Mr. Dawson served as President of the Society of Exploration Geophysicists(1989-1990), received its Enterprise Award in 1997 and was awarded honorary membership in 2002. He was Chairman of the Board of Directors of the International Association of Geophysical Contractors in 1981 and is an honorary life member of such association. He was inducted into the Permian Basin Petroleum Museum’s Hall of Fame in 1997.
Stephen C. Jumper. Mr. Jumper, a geophysicist, joined the Company in 1985, was elected Vice President of Technical Services in September 1997 and was subsequently elected President, Chief Operating Officer and Director in January 2001. In January 2006, Mr. Jumper was elected President, Chief Executive Officer and Director. Prior to 1997, Mr. Jumper served the Company as manager of technical services with an emphasis on3-D processing. Mr. Jumper has served the Permian Basin Geophysical Society as Second Vice President (1991), First Vice President (1992) and as President (1993).
C. Ray Tobias. Mr. Tobias joined the Company in 1990, and was elected Vice President in September 1997 and Executive Vice President and Director in January 2001. In January 2006, Mr. Tobias was elected Executive Vice President and Chief Operating Officer. Mr. Tobias supervises client relationships and survey cost quotations to clients. He has served on the Board of Directors of the International Association of Geophysical Contractors and is Past President of the Permian Basin Geophysical Society. Prior to joining the Company, Mr. Tobias was employed by Geo-Search Corporation where he was an operations supervisor.
Christina W. Hagan. Ms. Hagan joined the Company in 1988, and was elected Chief Financial Officer and Vice President in 1997 and Senior Vice President, Secretary and Chief Financial Officer in January 2003. In January 2004, Ms. Hagan was elected as Executive Vice President, Secretary and Chief Financial Officer. Prior thereto, Ms. Hagan served the Company as Controller and Treasurer. Ms. Hagan is a certified public accountant.
Howell W. Pardue. Mr. Pardue joined the Company in 1976 as Vice President of Data Processing and Director. Mr. Pardue was elected Executive Vice President of Data Processing in 1997. Prior to joining the Company, Mr. Pardue was employed in data processing for 17 years by Geosource, Inc. and its predecessor geophysical company.
K.S. Forsdick. Mr. Forsdick joined the Company in 1993, and was elected Vice President in January 2001.2001 and was subsequently elected Senior Vice President in March 2009. Mr. Forsdick is responsible for soliciting, designing and bidding seismic surveys for prospective clients. Prior to joining the Company, Mr. Forsdick was employed by Grant Geophysical Company and Western Geophysical Company and was responsible for marketing and managing land and marine seismic surveys for domestic and
12
international operations. He has served on the Governmental Affairs Committee of the International Association of Geophysical Contractors.
13
Part II
| Item 5. | MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
Our common stock trades on the Nasdaq Stock Market® under the symbol “DWSN.” The table below represents the high and low sales prices per share for the period shown.
Quarter Ended | High | Low | High | Low | ||||||||||||
| December 31, 2006 | $ | 40.26 | $ | 26.56 | ||||||||||||
| March 31, 2007 | $ | 53.82 | $ | 30.50 | ||||||||||||
| June 30, 2007 | $ | 63.89 | $ | 48.03 | ||||||||||||
| September 30, 2007 | $ | 85.67 | $ | 51.52 | ||||||||||||
| December 31, 2007 | $ | 83.86 | $ | 64.67 | $ | 83.86 | $ | 64.67 | ||||||||
| March 31, 2008 | $ | 78.00 | $ | 48.75 | $ | 78.00 | $ | 48.75 | ||||||||
| June 30, 2008 | $ | 79.95 | $ | 56.41 | $ | 79.95 | $ | 56.41 | ||||||||
| September 30, 2008 | $ | 65.93 | $ | 40.27 | $ | 65.93 | $ | 40.27 | ||||||||
| December 31, 2008 | $ | 46.15 | $ | 14.31 | ||||||||||||
| March 31, 2009 | $ | 22.23 | $ | 9.96 | ||||||||||||
| June 30, 2009 | $ | 31.42 | $ | 13.13 | ||||||||||||
| September 30, 2009 | $ | 35.98 | $ | 23.60 | ||||||||||||
As of November 28, 2008,27, 2009, the market price for our common stock was $20.145$21.62 per share, and we had 177170 common stockholders of record, as reported by our transfer agent.
We have not paid cash dividends on our common stock since becoming a public company and have no plans to do so in the foreseeable future.
The following table summarizes certain information regarding securities authorized for issuance under our equity compensation plans as of September 30, 2008.2009. See information regarding material features of the plans in Note 1, “Summary of Significant Accounting Policies,”7, “Stock-Based Compensation” to the Financial Statements included herein.
Equity Compensation Plan Information
| Number of | ||||||||||||
| Securities Remaining | ||||||||||||
| Available for | ||||||||||||
| Number of | Future Issuance | |||||||||||
| Securities to | Under Equity | |||||||||||
| be Issued | Compensation Plans | |||||||||||
| Upon Exercise | Weighted-Average Exercise | (Excluding Securities | ||||||||||
| of Outstanding | Price of | Reflected in | ||||||||||
Plan Category | Options | Outstanding Options | Column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 23,250 | $ | 17.91 | 943,550 | (1) | |||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||||
| Total | 23,250 | $ | 17.91 | 943,550 | (1) | |||||||
| Number of | ||||||||||||
| Securities Remaining | ||||||||||||
| Available for | ||||||||||||
| Number of | Future Issuance | |||||||||||
| Securities to | Under Equity | |||||||||||
| be Issued | Compensation Plans | |||||||||||
| Upon Exercise | Weighted-Average Exercise | (Excluding Securities | ||||||||||
| of Outstanding | Price of | Reflected in | ||||||||||
Plan Category | Options | Outstanding Options | Column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 152,000 | $ | 18.91 | 786,550 | (1) | |||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||||
| Total | 152,000 | $ | 18.91 | 786,550 | (1) | |||||||
| (1) | Although 238,550 shares are available to be issued under the |
1314
Performance Graph
The following graph compares the five-year cumulative total return of the Company’s common stock as compared with the S&P 500 Stock Index and a peer group made up of companies in the Value-Line Oilfield Services Industry Index. The Value-Line Oilfield Services Industry Index consists of far larger companies that perform a variety of services as compared to land-based acquisition and processing of seismic data performed by the Company.
Comparison of5-Year 5 Year Cumulative Total Return*
Among Dawson Geophysical Company, the S & P 500 Index
and the Value-Line Oilfield Services Industry Index
| 9/03 | 9/04 | 9/05 | 9/06 | 9/07 | 9/08 | 9/04 | 9/05 | 9/06 | 9/07 | 9/08 | 9/09 | |||||||||||||||||||||||||||||||||||||
| DAWSON GEOPHYSICAL COMPANY | 100.00 | 303.63 | 439.04 | 431.06 | 1124.96 | 677.65 | 100.00 | 144.60 | 141.97 | 370.51 | 223.18 | 130.88 | ||||||||||||||||||||||||||||||||||||
| S & P 500 | 100.00 | 113.87 | 127.82 | 141.62 | 164.90 | 128.66 | 100.00 | 112.25 | 124.37 | 144.81 | 112.99 | 105.18 | ||||||||||||||||||||||||||||||||||||
| VALUE-LINE OILFIELD SERVICES | 100.00 | 143.93 | 218.50 | 237.51 | 360.99 | 282.31 | 100.00 | 151.20 | 163.68 | 248.78 | 196.06 | 164.08 | ||||||||||||||||||||||||||||||||||||
| * | $100 invested on9/30/ |
Copyright© 20082009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
1415
| Item 6. | SELECTED FINANCIAL DATA |
The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Company’s financial statements and related notes included in Item 8, “Financial Statements and Supplementary Data.”
Years Ended September 30 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||||||||||||
Years Ended September 30, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | (In thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||||||
| Operating revenues | $ | 324,926 | $ | 257,763 | $ | 168,550 | $ | 116,663 | $ | 69,346 | $ | 243,995 | $ | 324,926 | $ | 257,763 | $ | 168,550 | $ | 116,663 | ||||||||||||||||||||
| Net income | $ | 35,007 | $ | 27,158 | $ | 15,855 | $ | 10,016 | $ | 8,618 | $ | 10,222 | $ | 35,007 | $ | 27,158 | $ | 15,855 | $ | 10,016 | ||||||||||||||||||||
| Net income per common share | $ | 4.57 | $ | 3.57 | $ | 2.11 | $ | 1.50 | $ | 1.55 | $ | 1.31 | $ | 4.57 | $ | 3.57 | $ | 2.11 | $ | 1.50 | ||||||||||||||||||||
| Weighted average equivalent common shares outstanding | 7,669 | 7,602 | 7,518 | 6,706 | 5,559 | 7,807 | 7,669 | 7,602 | 7,518 | 6,706 | ||||||||||||||||||||||||||||||
| Total assets | $ | 233,621 | $ | 195,862 | $ | 149,418 | $ | 114,127 | $ | 56,759 | $ | 237,157 | $ | 233,621 | $ | 195,862 | $ | 149,418 | $ | 114,127 | ||||||||||||||||||||
| Revolving line of credit | $ | — | $ | 5,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 5,000 | $ | — | $ | — | ||||||||||||||||||||
| Long-term debt-less current maturities | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Stockholders’ equity | $ | 185,960 | $ | 149,155 | $ | 119,208 | $ | 101,904 | $ | 50,282 | $ | 198,379 | $ | 185,960 | $ | 149,155 | $ | 119,208 | $ | 101,904 | ||||||||||||||||||||
In March 2005, we successfully completed a public offering of 1,800,000 shares of common stock such that weighted average equivalent common shares outstanding in 2005 reflect these additional shares for a portion of the year.
| Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes to those statements included elsewhere in thisForm 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Please see “Risk Factors” and “Disclosure Regarding Forward-Looking Statements” elsewhere in thisForm 10-K.
Overview
We are the leading provider of onshore seismic data acquisition services in the lower 48 states of the United States as measured by the number of active data acquisition crews. Substantially all of our revenues are derived from the seismic data acquisition services we provide to our clients, mainly domestic oil and natural gas companies. Demand for our services depends upon the level of spending by these companies for exploration, production, development and field management activities, which depends, in part, on oil and natural gas prices. Significant fluctuations in domestic oil and natural gas exploration activities and commodity prices have affected the demand for our services and our results of operations in years past, and such fluctuations continue today to be the single most important factor affecting our business and results of operations. In the past few years, substantially all of our clients have been focused on the exploration for and production of natural gas.
Our return to profitability in fiscal 2004 after several years of losses was directly related to an increase in the level of exploration for domestic oil and natural gas reserves by the petroleum industry since 2003. The increased level of exploration was a function of higher prices for oil and natural gas. As a result of the increase in domestic exploration spending, we experienced an increased demand for our seismic data acquisition and processing services during this period, particularly from entities seeking natural gas reserves. SinceBeginning in August 2008, the priceprices of oil and especially natural gas declined significantly from historic highs due to reduced demand from the global economic slowdown, and during 2009 many domestic oil and natural gas has declined significantlycompanies reduced their capital expenditures due to the decrease in market prices and there has been a significant disruptiondisruptions in globalthe credit markets. AsThese factors led to a resultsevere reduction in demand for our services and in our industry in general during 2009 as well as downward pressure on the prices we charge our customers for our services. In order to better align our crew capacity with reduced demand, we have reduced the number of these factors, duringdata acquisition crews we operate from sixteen at the third quarterend of fiscal 2008 severalto nine as of October 2009.
Due to the reductions in the number of our active data acquisition crews and lower utilization rates for our remaining operating crews, we have experienced a reduction in operating revenues and operating costs during
16
calendar 2009, and we anticipate that such reductions will continue into calendar 2010, and possibly beyond, depending on future market prices for oil and natural gas and the level of domestic exploration spending. In light of current market difficulties, we are focusing our efforts on reducing costs, limiting capital expenditures and maintaining our financial strength. Equipment and key personnel from crews taken out of service will be redeployed on remaining crews as needed or otherwise remain available for rapid expansion of crew count as demand and market conditions dictate in the future. While our revenues are mainly affected by the level of client demand for our services, our revenues are also affected by the pricing for our services that we negotiate with our clients and the productivity of our data acquisition crews, including factors such as crew downtime related to inclement weather, delays in acquiring land access permits or equipment failure. Consequently, our efforts to negotiate favorable contract terms in our supplemental service agreements, to mitigate access permit delays and to improve overall crew productivity may partially offset the impact of reduced the sizedemand and anticipated contract price weaknesses. Although our clients may cancel their service contracts on short notice, our current order book reflects commitment levels sufficient to maintain operation of or delayed seismic projects. our nine data acquisition crews into calendar 2010.
While the markets for oil and natural gas have been very volatile and are likely to continue to be volatile in the future, and we can make no assurances as to future levels of domestic exploration or commodity prices, we believe opportunities exist for us to enhance our market position by responding to our clients’ continuing desire for higher resolution subsurface images. We have continuedIf economic conditions do not improve or were to experience high demand forworsen, our services despite recent fluctuations in oil and natural gas prices. However,customers do not increase their capital expenditures, or there is a significant sustained drop in oil and natural gas prices, orit would result in continued diminished demand for our seismic services, may cause continued downward pressure on the inabilityprices we charge and would continue to affect our results of our clients to secure funding for new exploration projects would have a negative impact on demand for
15
Results of Operations
Fiscal Year Ended September 30, 2009 Versus Fiscal Year Ended September 30, 2008 Highlights
Operating Revenues.Our financial performanceoperating revenues decreased 25% to $243,995,000 in fiscal 2009 from $324,926,000 in fiscal 2008 as a result of a reduction in active crew count during the second quarter of fiscal 2009 (four crews) and the third quarter of fiscal 2009 (two crews), a more competitive pricing environment, substantially lower utilization rates for remaining crews and, in the fourth quarter, increased downtime for weather. Recorded in fiscal 2009 revenues are continued high third-party charges 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 2009 was driven by our continued operations in areas with limited access in the Appalachian Basin, Arkansas, East Texas and Louisiana. We are reimbursed for these charges by our clients.
Operating Costs. Our operating expenses decreased 19% to $192,839,000 in fiscal 2009 from $237,484,000 in fiscal 2008 primarily due to reductions in field personnel and other expenses of operating the six data acquisition crews taken out of service during the second and third quarters of fiscal 2009. As discussed above, reimbursed charges have a similar impact on operating costs.
General and administrative expenses were 3.2% of revenues in fiscal 2009 as compared to 2.1% of revenues in fiscal 2008. General and administration expenses increased by approximately $1,094,000 in fiscal 2009 as compared to fiscal 2008. The primary factor in the increase in general and administration expenses during fiscal 2009 was an increase to the Company’s allowance for doubtful accounts during the year of $993,000 offset by bad debts during the year of approximately $515,000 resulting in a net allowance for doubtful accounts at September 30, 2009 of $533,000. The deductions against the bad debt allowance were primarily a result of the settlement of a previously disputed invoice for approximately $450,000. We increased the allowance for doubtful accounts during fiscal 2009 based on our review of the past due accounts and client base. During the second quarter, we became aware that one current client with an accounts receivable balance of approximately $1.0 million and two former
17
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.
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.
16
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.
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.
1718
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.
1819
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.
20
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.
19
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
21
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.
| 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
20
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.
| 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.
| Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| 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
22
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.
21
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.
| Item 9B. | OTHER INFORMATION |
None.
Part III
| 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.
23
| 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.
| 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.
| 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.
| 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.
22
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 | |||||
/s/ Stephen C. Jumper Stephen C. Jumper | President, Chief Executive Officer and Director (principal executive officer) | |||||
/s/ Paul H. Brown Paul H. Brown | Director | |||||
/s/ Gary M. Hoover Gary M. Hoover | Director | |||||
/s/ Jack D. Ladd Jack D. Ladd | Director | |||||
/s/ Ted R. North Ted R. North | Director | |||||
/s/ Tim C. Thompson Tim C. Thompson | Director | |||||
/s/ Christina W. Hagan Christina W. Hagan | Executive Vice President, Secretary and Chief Financial Officer (principal financial and accounting officer) | |||||
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-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.
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
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
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
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
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 | |||||||
| (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.
| 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 | $ | — | $ | — | ||||||||
| 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 | |||||
| 4. | Property, Plant and Equipment |
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)
| 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 | |||||
F-12
| 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 | ||||||||
| 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 | ||||
| Debt |
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.
| 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 |
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.
| Income Taxes |
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 | ) | ||
| 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
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.
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.
| Net Income per Common Share |
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 | ||||||||||||
| Major Customers |
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
| 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.
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.
| Rights Agreement |
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)
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.
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.
| 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.
| Subsequent Events |
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)
| 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. |