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, 20082010 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, 2009,18, 2011, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2008.2010. 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.below. 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.
Executive Officers of the Registrant
Set forth below are the names, ages and positions of the Company’s executive officers.
| | | | | | |
Name | | Age | | Position |
|
L. Decker Dawson | | | 90 | | | Chairman of the Board of Directors |
Stephen C. Jumper | | | 49 | | | President, Chief Executive Officer and Director |
C. Ray Tobias | | | 53 | | | Executive Vice President, Chief Operating Officer |
Christina W. Hagan | | | 55 | | | Executive Vice President, Secretary and Chief Financial Officer |
Howell W. Pardue | | | 74 | | | Executive Vice President |
K.S. Forsdick | | | 59 | | | Senior Vice President |
The Board of Directors elects executive officers annually. Executive officers hold office until their successors are elected and have qualified.
Set forth below are descriptions of the principal occupations during at least the past five years of the Company’s executive officers.
L. Decker Dawson. Mr. Dawson founded the Company in 1952. He served as President of the Company until being elected as Chairman of the Board of Directors and Chief Executive Officer in January 2001. In January 2006, Mr. Dawson was reelected as Chairman of the Board of Directors and retired as Chief Executive Officer of the Company. Prior to 1952, Mr. Dawson was a geophysicist with Republic Exploration Company, a geophysical company. Mr. Dawson served as President of the Society of Exploration Geophysicists(1989-1990), received its Enterprise Award in 1997 and was awarded honorary membership in 2002. He was Chairman of the Board of
23
Directors of the International Association of Geophysical Contractors in 1981 and is an honorary life member of such association. He was inducted into the Permian Basin Petroleum Museum’s Hall of Fame in 1997.
Stephen C. Jumper. Mr. Jumper, a geophysicist, joined the Company in 1985, was elected Vice President of Technical Services in September 1997 and was subsequently elected President, Chief Operating Officer and Director in January 2001. In January 2006, Mr. Jumper was elected President, Chief Executive Officer and Director. Prior to 1997, Mr. Jumper served the Company as manager of technical services with an emphasis on3-D processing. Mr. Jumper has served the Permian Basin Geophysical Society as Second Vice President (1991), First Vice President (1992) and as President (1993).
C. Ray Tobias. Mr. Tobias joined the Company in 1990 and was elected Vice President in September 1997 and Executive Vice President and Director in January 2001. In January 2006, Mr. Tobias was elected Executive Vice President and Chief Operating Officer. Mr. Tobias supervises client relationships and survey cost quotations to clients. He has served on the Board of Directors of the International Association of Geophysical Contractors and served as President of the Permian Basin Geophysical Society. Prior to joining the Company, Mr. Tobias was employed by Geo-Search Corporation where he was an operations supervisor.
Christina W. Hagan. Ms. Hagan joined the Company in 1988 and was elected Chief Financial Officer and Vice President in 1997 and Senior Vice President, Secretary and Chief Financial Officer in January 2003. In January 2004, Ms. Hagan was elected as Executive Vice President, Secretary and Chief Financial Officer. Prior thereto, Ms. Hagan served the Company as Controller and Treasurer. Ms. Hagan is a certified public accountant.
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, was elected Vice President in January 2001 and was subsequently elected Senior Vice President in March 2009. Mr. Forsdick is responsible for soliciting, designing and bidding seismic surveys for prospective clients. Prior to joining the Company, Mr. Forsdick was employed by Grant Geophysical Company and Western Geophysical Company and was responsible for marketing and managing land and marine seismic surveys for domestic and international operations. He has served on the Governmental Affairs Committee of the International Association of Geophysical Contractors.
| |
Item 11. | EXECUTIVE COMPENSATION |
The information required by Item 11 is incorporated by reference to our definitive proxy statement for our Annual Meeting of Stockholders to be held on January 27, 2009,18, 2011, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2008.2010.
| |
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required with respect to our equity compensation plans is set forth in Item 5 of thisForm 10-K. Other information required by Item 12 is incorporated by reference to our definitive proxy statement for our Annual Meeting of Stockholders to be held on January 27, 2009,18, 2011, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2008.2010.
| |
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by Item 13 is incorporated by reference to our definitive proxy statement for our Annual Meeting of Stockholders to be held on January 27, 2009,18, 2011, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2008.2010.
| |
Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by Item 14 is incorporated by reference to our definitive proxy statement for our Annual Meeting of Stockholders to be held on January 27, 2009,18, 2011, which we expect to file with the Securities and Exchange Commission within 120 days after September 30, 2008.2010.
2224
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-21 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
(Loss)
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules.
The following financial statement schedule appears onpage F-20F-22 and is hereby incorporated by reference:
Schedule II — Valuation and Qualifying Accounts for the three years ended September 30, 2008, 20072010, 2009 and 2006.2008.
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.
2325
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 9th23rd day of December, 2008.November, 2010.
DAWSON GEOPHYSICAL COMPANY
| | |
| By: | /s/ Stephen C. Jumper |
Stephen C. Jumper
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
/s/ L. Decker Dawson L. Decker Dawson | | Chairman of the Board of Directors | | 12-9-0811-23-10 |
| | | | |
/s/ Stephen C. Jumper Stephen C. Jumper | | President, Chief Executive Officer and Director (principal executive officer) | | 12-9-0811-23-10 |
| | | | |
/s/ Paul H. Brown Paul H. Brown | | Director | | 12-9-0811-23-10 |
| | | | |
/s/ Craig W. Cooper Craig W. Cooper | | Director | | 11-23-10 |
| | | | |
/s/ Gary M. Hoover Gary M. Hoover | | Director | | 12-9-0811-23-10 |
| | | | |
/s/ Jack D. Ladd Jack D. Ladd | | Director | | 12-9-0811-23-10 |
| | | | |
/s/ Ted R. North Ted R. North | | Director | | 12-9-0811-23-10 |
| | | | |
/s/ Tim C. Thompson Tim C. Thompson | | Director | | 12-9-0811-23-10 |
| | | | |
/s/ Christina W. Hagan Christina W. Hagan | | Executive Vice President, Secretary and Chief Financial Officer (principal financial and accounting officer) | | 12-9-0811-23-10 |
2426
INDEX TO FINANCIAL STATEMENTS
| | | | |
Financial Statements of Dawson Geophysical Company | | Page |
|
| | | F-2 | |
| | | F-4 | |
| | | F-5 | |
| | | F-6 | |
| | | F-7 | |
| | | F-8 | |
Financial Statement Schedule: | | | | |
| | | F-20F-22 | |
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, 20082010, and 2007,2009, and the related statements of operations, stockholders’ equity and other comprehensive income (loss), and cash flows for each of the years in the three-year period ended September 30, 2008.2010. 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, 20082010 and 2007,2009, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2008,2010, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, the Company adopted the provisions of the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Paymentin fiscal year 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Dawson Geophysical Company’s internal control over financial reporting as of September 30, 2008,2010, 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 23, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
KPMG LLP
Dallas, Texas
December 9, 2008November 23, 2010
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, 2008,2010 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, 2008,2010, 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, 20082010 and 2007,2009, and the related statements of operations, stockholders’ equity and other comprehensive income (loss), and cash flows for each of the years in the three-year period ended September 30, 2008,2010, and the related financial statement schedule, and our report dated December 9, 2008,November 23, 2010, expressed an unqualified opinion on those financial statements.
KPMG LLP
Dallas, Texas
December 9, 2008November 23, 2010
F-3
DAWSON GEOPHYSICAL COMPANY
| | | | | | | | | | | | | | | | |
| | September 30,
| | September 30,
| | | September 30,
| | September 30,
| |
| | 2008 | | 2007 | | | 2010 | | 2009 | |
|
ASSETS | ASSETS | ASSETS |
Current assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 8,311,000 | | | $ | 14,875,000 | | | $ | 29,675,000 | | | $ | 36,792,000 | |
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 | | | | 20,012,000 | | | | 25,267,000 | |
Accounts receivable, net of allowance for doubtful accounts of $639,000 and $533,000 at September 30, 2010 and 2009, respectively | | | | 57,726,000 | | | | 40,106,000 | |
Prepaid expenses and other assets | | | 877,000 | | | | 815,000 | | | | 7,856,000 | | | | 7,819,000 | |
Current deferred tax asset | | | 873,000 | | | | 693,000 | | | | 1,764,000 | | | | 1,694,000 | |
| | | | | | | | | | |
Total current assets | | | 86,282,000 | | | | 73,090,000 | | | | 117,033,000 | | | | 111,678,000 | |
Property, plant and equipment | | | 250,519,000 | | | | 207,427,000 | | | | 248,943,000 | | | | 240,820,000 | |
Less accumulated depreciation | | | (103,180,000 | ) | | | (84,655,000 | ) | | | (130,900,000 | ) | | | (115,341,000 | ) |
| | | | | | | | | | |
Net property, plant and equipment | | | 147,339,000 | | | | 122,772,000 | | | | 118,043,000 | | | | 125,479,000 | |
| | | | | | | | | | |
| | $ | 233,621,000 | | | $ | 195,862,000 | | |
Total assets | | | $ | 235,076,000 | | | $ | 237,157,000 | |
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 15,308,000 | | | $ | 12,816,000 | | | $ | 14,274,000 | | | $ | 6,966,000 | |
Revolving line of credit | | | — | | | | 5,000,000 | | |
Accrued liabilities: | | | | | | | | | | | | | | | | |
Payroll costs and other taxes | | | 3,363,000 | | | | 2,325,000 | | | | 3,625,000 | | | | 2,720,000 | |
Other | | | 14,869,000 | | | | 14,263,000 | | | | 7,963,000 | | | | 10,600,000 | |
Deferred revenue | | | 993,000 | | | | 2,922,000 | | | | 204,000 | | | | 2,230,000 | |
| | | | | | | | | | |
Total current liabilities | | | 34,533,000 | | | | 37,326,000 | | | | 26,066,000 | | | | 22,516,000 | |
Deferred tax liability | | | 13,128,000 | | | | 9,381,000 | | | | 18,785,000 | | | | 16,262,000 | |
Stockholders’ equity: | | | | | | | | | | | | | | | | |
Preferred stock-par value $1.00 per share; 5,000,000 shares authorized, none outstanding | | | — | | | | — | | | | — | | | | — | |
Common stock-par value $.331/3 per share; 50,000,000 shares authorized, 7,794,744 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, 7,902,106 and 7,822,994 shares issued and outstanding at September 30, 2010 and 2009 respectively | | | | 2,634,000 | | | | 2,608,000 | |
Additional paid-in capital | | | 87,051,000 | | | | 85,090,000 | | | | 90,406,000 | | | | 89,220,000 | |
Other comprehensive income, net of tax | | | | 4,000 | | | | 18,000 | |
Retained earnings | | | 96,311,000 | | | | 61,512,000 | | | | 97,181,000 | | | | 106,533,000 | |
| | | | | | | | | | |
Total stockholders’ equity | | | 185,960,000 | | | | 149,155,000 | | | | 190,225,000 | | | | 198,379,000 | |
| | | | | | | | | | |
Total liabilities and stockholders’ equity | | | $ | 235,076,000 | | | $ | 237,157,000 | |
| | $ | 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 | | | 2010 | | 2009 | | 2008 | |
|
Operating revenues | | $ | 324,926,000 | | | $ | 257,763,000 | | | $ | 168,550,000 | | | $ | 205,272,000 | | | $ | 243,995,000 | | | $ | 324,926,000 | |
Operating costs: | | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | 237,484,000 | | | | 190,117,000 | | | | 125,848,000 | | | | 185,588,000 | | | | 192,839,000 | | | | 237,484,000 | |
General and administrative | | | 6,762,000 | | | | 6,195,000 | | | | 4,808,000 | | | | 7,131,000 | | | | 7,856,000 | | | | 6,762,000 | |
Depreciation | | | 24,253,000 | | | | 18,103,000 | | | | 13,338,000 | | | | 27,126,000 | | | | 26,160,000 | | | | 24,253,000 | |
| | | | | | | | | | | | | | |
| | | 268,499,000 | | | | 214,415,000 | | | | 143,994,000 | | | | 219,845,000 | | | | 226,855,000 | | | | 268,499,000 | |
Income from operations | | | 56,427,000 | | | | 43,348,000 | | | | 24,556,000 | | |
(Loss) income from operations | | | | (14,573,000 | ) | | | 17,140,000 | | | | 56,427,000 | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | | | 497,000 | | | | 749,000 | | | | 582,000 | | | | 185,000 | | | | 249,000 | | | | 497,000 | |
Interest expense | | | (482,000 | ) | | | (145,000 | ) | | | — | | | | — | | | | — | | | | (482,000 | ) |
Other (expense) income | | | (35,000 | ) | | | 506,000 | | | | 75,000 | | |
Other income (expense) | | | | 398,000 | | | | 326,000 | | | | (35,000 | ) |
| | | | | | | | | | | | | | |
Income before income tax | | | 56,407,000 | | | | 44,458,000 | | | | 25,213,000 | | |
Income tax expense: | | | | | | | | | | | | | |
(Loss) income before income tax | | | | (13,990,000 | ) | | | 17,715,000 | | | | 56,407,000 | |
Income tax benefit (expense): | | | | | | | | | | | | | |
Current | | | (17,834,000 | ) | | | (13,906,000 | ) | | | (4,886,000 | ) | | | 7,102,000 | | | | (5,193,000 | ) | | | (17,834,000 | ) |
Deferred | | | (3,566,000 | ) | | | (3,394,000 | ) | | | (4,472,000 | ) | | | (2,464,000 | ) | | | (2,300,000 | ) | | | (3,566,000 | ) |
| | | | | | | | | | | | | | |
| | | (21,400,000 | ) | | | (17,300,000 | ) | | | (9,358,000 | ) | | | 4,638,000 | | | | (7,493,000 | ) | | | (21,400,000 | ) |
| | | | | | | | | | | | | | |
Net income | | $ | 35,007,000 | | | $ | 27,158,000 | | | $ | 15,855,000 | | |
Net (loss) income | | | $ | (9,352,000 | ) | | $ | 10,222,000 | | | $ | 35,007,000 | |
| | | | | | | | | | | | | | |
Net income per common share | | $ | 4.57 | | | $ | 3.57 | | | $ | 2.11 | | |
Basic (loss) income per common share | | | $ | (1.20 | ) | | $ | 1.31 | | | $ | 4.57 | |
| | | | | | | | | | | | | | |
Net income per common share-assuming dilution | | $ | 4.53 | | | $ | 3.54 | | | $ | 2.09 | | |
Diluted (loss) income per common share | | | $ | (1.20 | ) | | $ | 1.30 | | | $ | 4.53 | |
| | | | | | | | | | | | | | |
Weighted average equivalent common shares outstanding | | | 7,669,124 | | | | 7,601,889 | | | | 7,518,372 | | | | 7,777,404 | | | | 7,807,385 | | | | 7,669,124 | |
| | | | | | | | | | | | | | |
Weighted average equivalent common shares outstanding-assuming dilution | | | 7,728,651 | | | | 7,669,462 | | | | 7,599,555 | | |
Weighted average equivalent common shares outstanding- assuming dilution | | | | 7,777,404 | | | | 7,853,531 | | | | 7,728,651 | |
| | | | | | | | | | | | | | |
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 (Loss) | | Earnings | | Total | |
|
Balance September 30, 2005 | | | 7,484,044 | | | $ | 2,495,000 | | | $ | 80,987,000 | | | $ | (77,000 | ) | | $ | 18,499,000 | | | $ | 101,904,000 | | |
Balance September 30, 2007 | | | | 7,658,494 | | | $ | 2,553,000 | | | $ | 85,090,000 | | | $ | — | | | $ | 61,512,000 | | | $ | 149,155,000 | |
Impact of adopting certain provisions ofASC 740-10 | | | | | | | | | | | | | | | | | | | | (208,000 | ) | | | (208,000 | ) |
Net income | | | | | | | | | | | | | | | | | | | | 35,007,000 | | | | 35,007,000 | |
Excess tax benefit of employee stock plan | | | | | | | | | | | | 440,000 | | | | | | | | | | | | 440,000 | |
Stock-based compensation expense | | | | | | | | | | | | 836,000 | | | | | | | | | | | | 836,000 | |
Issuance of common stock as compensation | | | | 6,500 | | | | 2,000 | | | | 423,000 | | | | | | | | | | | | 425,000 | |
Issuance of restricted stock awards and unearned compensation | | | | 94,500 | | | | 31,000 | | | | (32,000 | ) | | | | | | | | | | | (1,000 | ) |
Exercise of stock options | | | | 35,250 | | | | 12,000 | | | | 294,000 | | | | | | | | | | | | 306,000 | |
| | | | | | | | | | | | | | |
Balance September 30, 2008 | | | | 7,794,744 | | | | 2,598,000 | | | | 87,051,000 | | | | — | | | | 96,311,000 | | | | 185,960,000 | |
Net income | | | | | | | | | | | | | | | | | | | 15,855,000 | | | | 15,855,000 | | | | | | | | | | | | | | | | | | | | 10,222,000 | | | | 10,222,000 | |
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 | ) | | | | | | | | | |
Unrealized holding gains arising during the period | | | | | | | | | | | | | | | | 31,000 | | | | | | | | | |
Income tax expense | | | | | | | | | | | | | | | | (13,000 | ) | | | | | | | | |
| | | | | | |
Other comprehensive income | | | | | | | | | | | | | | | 44,000 | | | | | | | | 44,000 | | | | | | | | | | | | | | | | 18,000 | | | | | | | | 18,000 | |
| | | | | | |
Comprehensive income for the period | | | | | | | | | | | | | | | | | | | | | | | 15,899,000 | | | | | | | | | | | | | | | | | | | | | | | | 10,240,000 | |
Excess tax benefit of employee stock plan | | | | | | | | | | | 180,000 | | | | | | | | | | | | 180,000 | | | | | | | | | | | | 5,000 | | | | | | | | | | | | 5,000 | |
Stock-based compensation expense | | | | | | | | | | | 289,000 | | | | | | | | | | | | 289,000 | | | | | | | | | | | | 1,667,000 | | | | | | | | | | | | 1,667,000 | |
Issuance of common stock as compensation | | | 18,450 | | | | 6,000 | | | | 560,000 | | | | | | | | | | | | 566,000 | | | | 5,000 | | | | 2,000 | | | | 89,000 | | | | | | | | | | | | 91,000 | |
Exercise of stock options | | | 46,750 | | | | 16,000 | | | | 354,000 | | | | | | | | | | | | 370,000 | | | | 23,250 | | | | 8,000 | | | | 408,000 | | | | | | | | | | | | 416,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2006 | | | 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 | | |
Other comprehensive income net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | |
Realization of gains on investments | | | | | | | | | | | | | | | 51,000 | | | | | | | | | | |
Balance September 30, 2009 | | | | 7,822,994 | | | | 2,608,000 | | | | 89,220,000 | | | | 18,000 | | | | 106,533,000 | | | | 198,379,000 | |
Net loss | | | | | | | | | | | | | | | | | | | | (9,352,000 | ) | | | (9,352,000 | ) |
Other comprehensive loss net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | |
Realization of losses on investment | | | | | | | | | | | | | | | | (28,000 | ) | | | | | | | | |
Unrealized holding gains arising during the period | | | | | | | | | | | | | | | | 3,000 | | | | | | | | | |
Income tax benefit | | | | | | | | | | | | | | | (18,000 | ) | | | | | | | | | | | | | | | | | | | | | | | 11,000 | | | | | | | | | |
| | | | | | |
Other comprehensive income | | | | | | | | | | | | | | | 33,000 | | | | | | | | 33,000 | | |
Other comprehensive loss | | | | | | | | | | | | | | | | (14,000 | ) | | | | | | | (14,000 | ) |
| | | | | | |
Comprehensive income for the period | | | | | | | | | | | | | | | | | | | | | | | 27,191,000 | | |
Excess tax benefit of employee stock plan | | | | | | | | | | | 1,312,000 | | | | | | | | | | | | 1,312,000 | | |
Stock-based compensation expense | | | | | | | | | | | 588,000 | | | | | | | | | | | | 588,000 | | |
Issuance of common stock as compensation | | | 3,000 | | | | 1,000 | | | | 119,000 | | | | | | | | | | | | 120,000 | | |
Exercise of stock options | | | 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 | | |
Adoption of FIN 48 | | | | | | | | | | | | | | | | | | | (208,000 | ) | | | (208,000 | ) | |
Net income | | | | | | | | | | | | | | | | | | | 35,007,000 | | | | 35,007,000 | | |
Excess tax benefit of employee stock plan | | | | | | | | | | | 440,000 | | | | | | | | | | | | 440,000 | | |
Comprehensive loss for the period | | | | | | | | | | | | | | | | | | | | | | | | (9,366,000 | ) |
Stock-based compensation expense | | | | | | | | | | | 836,000 | | | | | | | | | | | | 836,000 | | | | | | | | | | | | 1,398,000 | | | | | | | | | | | | 1,398,000 | |
Issuance of common stock as compensation | | | 6,500 | | | | 2,000 | | | | 423,000 | | | | | | | | | | | | 425,000 | | | | 8,340 | | | | 3,000 | | | | 182,000 | | | | | | | | | | | | 185,000 | |
Issuance of restricted stock awards and unearned compensation | | | 94,500 | | | | 31,000 | | | | (32,000 | ) | | | | | | | | | | | (1,000 | ) | | | 84,100 | | | | 28,000 | | | | (28,000 | ) | | | | | | | | | | | — | |
Exercise of stock options | | | 35,250 | | | | 12,000 | | | | 294,000 | | | | | | | | | | | | 306,000 | | | | 250 | | | | | | | | 4,000 | | | | | | | | | | | | 4,000 | |
Shares exchanged for taxes on stock-based compensation | | | | (13,578 | ) | | | (5,000 | ) | | | (370,000 | ) | | | | | | | | | | | (375,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2008 | | | 7,794,744 | | | $ | 2,598,000 | | | $ | 87,051,000 | | | $ | — | | | $ | 96,311,000 | | | $ | 185,960,000 | | |
Balance September 30, 2010 | | | | 7,902,106 | | | $ | 2,634,000 | | | $ | 90,406,000 | | | $ | 4,000 | | | $ | 97,181,000 | | | $ | 190,225,000 | |
| | | | | | | | | | | | | | |
See accompanying notes to the financial statements.
F-6
DAWSON GEOPHYSICAL COMPANY
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended September 30, | | | Years Ended September 30, | |
| | 2008 | | 2007 | | 2006 | | | 2010 | | 2009 | | 2008 | |
|
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 35,007,000 | | | $ | 27,158,000 | | | $ | 15,855,000 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | |
Net (loss) income | | | $ | (9,352,000 | ) | | $ | 10,222,000 | | | $ | 35,007,000 | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | | | | | | | | |
Depreciation | | | 24,253,000 | | | | 18,103,000 | | | | 13,338,000 | | | | 27,126,000 | | | | 26,160,000 | | | | 24,253,000 | |
Noncash compensation | | | 1,259,000 | | | | 707,000 | | | | 855,000 | | | | 1,583,000 | | | | 1,758,000 | | | | 1,259,000 | |
Deferred income tax expense | | | 3,566,000 | | | | 3,394,000 | | | | 4,472,000 | | | | 2,464,000 | | | | 2,300,000 | | | | 3,566,000 | |
Excess tax benefit from share-based payment arrangement | | | (440,000 | ) | | | (1,312,000 | ) | | | (180,000 | ) | | | — | | | | (5,000 | ) | | | (440,000 | ) |
Provision for bad debts | | | | 256,000 | | | | 993,000 | | | | 32,000 | |
Other | | | 443,000 | | | | 995,000 | | | | 119,000 | | | | (343,000 | ) | | | 106,000 | | | | 443,000 | |
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 | | |
(Increase) decrease in accounts receivable | | | | (17,876,000 | ) | | | 31,641,000 | | | | (15,743,000 | ) |
Increase in prepaid expenses and other assets | | | | (37,000 | ) | | | (6,942,000 | ) | | | (62,000 | ) |
Increase (decrease) in accounts payable | | | | 6,181,000 | | | | (7,960,000 | ) | | | 2,900,000 | |
(Decrease) increase in accrued liabilities | | | | (1,732,000 | ) | | | (4,912,000 | ) | | | 1,644,000 | |
(Decrease) increase in deferred revenue | | | (1,929,000 | ) | | | 2,059,000 | | | | 673,000 | | | | (2,026,000 | ) | | | 1,237,000 | | | | (1,929,000 | ) |
| | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 50,930,000 | | | | 51,427,000 | | | | 25,743,000 | | | | 6,244,000 | | | | 54,598,000 | | | | 50,930,000 | |
| | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures, net of noncash capital expenditures summarized below in noncash investing activities | | | | (18,835,000 | ) | | | (4,192,000 | ) | | | (53,269,000 | ) |
Acquisition of short-term investments | | | | (14,964,000 | ) | | | (25,313,000 | ) | | | — | |
Proceeds from maturity of short-term investments | | | | 20,000,000 | | | | — | | | | — | |
Proceeds from disposal of assets | | | 29,000 | | | | 537,000 | | | | 453,000 | | | | 434,000 | | | | 124,000 | | | | 29,000 | |
Capital expenditures, net of noncash capital expenditures summarized below in noncash investing activities | | | (53,269,000 | ) | | | (58,701,000 | ) | | | (35,477,000 | ) | |
Proceeds from sale of short-term investments | | | — | | | | — | | | | 8,993,000 | | |
Proceeds from maturity of short-term investments | | | — | | | | 6,500,000 | | | | 5,000,000 | | |
Proceeds on fire insurance claim | | | | — | | | | 2,843,000 | | | | — | |
| | | | | | | | | | | | | | |
Net cash used in investing activities | | | (53,240,000 | ) | | | (51,664,000 | ) | | | (21,031,000 | ) | | | (13,365,000 | ) | | | (26,538,000 | ) | | | (53,240,000 | ) |
| | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from exercise of stock options | | | 306,000 | | | | 736,000 | | | | 369,000 | | | | 4,000 | | | | 416,000 | | | | 306,000 | |
Proceeds from revolving line of credit | | | 15,000,000 | | | | 5,000,000 | | | | — | | | | — | | | | — | | | | 15,000,000 | |
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 | |
| | | | | | | | | | | | | | |
Net cash (used) provided by financing activities | | | (4,254,000 | ) | | | 7,048,000 | | | | 549,000 | | |
Net cash provided (used) by financing activities | | | | 4,000 | | | | 421,000 | | | | (4,254,000 | ) |
| | | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (6,564,000 | ) | | | 6,811,000 | | | | 5,261,000 | | | | (7,117,000 | ) | | | 28,481,000 | | | | (6,564,000 | ) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | | 14,875,000 | | | | 8,064,000 | | | | 2,803,000 | | | | 36,792,000 | | | | 8,311,000 | | | | 14,875,000 | |
| | | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 8,311,000 | | | $ | 14,875,000 | | | $ | 8,064,000 | | | $ | 29,675,000 | | | $ | 36,792,000 | | | $ | 8,311,000 | |
| | | | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | | | | | | | | | | | | | |
Cash paid for interest expense | | $ | 541,000 | | | $ | 145,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 541,000 | |
Cash paid during the period for income taxes | | $ | 18,812,000 | | | $ | 10,259,000 | | | $ | 4,177,000 | | | $ | 839,000 | | | $ | 13,222,000 | | | $ | 18,812,000 | |
| | | | | | | | |
Cash received during the period for income taxes | | | $ | 8,125,000 | | | $ | — | | | $ | — | |
NONCASH INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | |
Accrued purchases of property and equipment | | $ | 382,000 | | | $ | 790,000 | | | $ | 4,900,000 | | | $ | 1,127,000 | | | $ | — | | | $ | 382,000 | |
Unrealized loss on investments | | $ | — | | | $ | — | | | $ | (10,000 | ) | |
| | | | | | | | |
Equipment purchase through asset trade in | | | $ | 2,260,000 | | | $ | — | | | $ | — | |
Equipment purchase through reduction of insurance proceeds | | | $ | — | | | $ | 638,000 | | | $ | — | |
Unrealized gain on investments | | | $ | 3,000 | | | $ | 31,000 | | | $ | — | |
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 theirthe fair values based on theirthe short-term nature.nature of the financial instruments. 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, trade and trade accounts receivable.other receivables and other current assets. At September 30, 20082010 and 2007,2009, 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, 2008,2010, sales to the Company’s two largest clientsclient represented 56%32% of its revenues and 54%25% of its revenues net of third-party charges as compared to 56%31% and 50%22%, respectively, at September 30, 2007. At September 30, 2006, sales to the Company’s two largest clients represented 35% of its revenues.2009. The remaining balance of the Company’s fiscal 20082010 revenues was derived from varied clients and none represented 10% or more of its fiscal 20082010 revenues.
F-8
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
Property, Plant and Equipment
Property, plant and equipment are capitalized at historical cost and depreciated over the useful life of the asset. Management’s estimation of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. As circumstances change and new information becomes available, these estimates could change.
Depreciation is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in the results of operations for the period.
F-8
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when triggering events occur suggesting 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, 2008, 20072010, 2009 or 2006.2008.
Revenue Recognition
Services are provided under cancelable service contracts. These contracts are either “turnkey” or “term” agreements. Under both types of agreements, the Company recognizes revenues when revenue is realizable and services have been performed. Services are defined as the commencement of data acquisition or processing operations. Revenues are considered realizable when earned according to the terms of the service contracts. Under turnkey agreements, revenue is recognized on a per unit of data acquired rate as services are performed. Under term agreements, revenue is recognized on a per unit of time worked rate as services are performed. In the case of a cancelled service contract, revenue is recognized and the customer is billed for services performed up to the date of cancellation.
The Company receives reimbursements for certainout-of-pocket expenses under the terms of the service contracts. Amounts billed to clients are recorded in revenue at the gross amount includingout-of-pocket expenses that are reimbursed by the client.
In some instances, customers are billed in advance of services performed. In those cases, the Company recognizes the liability as deferred revenue. As services are performed, those deferred revenue amounts are recognized as revenue.
Allowance for Doubtful Accounts
Management prepares its allowance for doubtful accounts receivable based on its review of past-due accounts, its past experience of historical write-offs and its current client base. While the collectibility of outstanding client invoices is continually assessed, the inherent volatility of the energy industry’s business cycle can cause swift and unpredictable changes in the financial stability of the Company’s clients.
Tax Accounting
The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition ofby recognizing amounts of taxes payable or refundable for the current year and by using an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Management determines deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred
F-9
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
tax asset or liability using the applicable tax rate and reducingin effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of an enacted rate change. The deferred tax asset is reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assetsasset will not be realized. Management’s methodology for recording income taxes requires 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.
F-9
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
Use of Estimates in the Preparation of Financial Statements
Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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.
| |
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, 2010 (in 000’s) | |
| | Amortized
| | | Unrealized
| | | Unrealized
| | | Estimated
| |
| | Cost | | | Gains | | | Losses | | | Fair Value | |
|
Short-term investments: | | | | | | | | | | | | | | | | |
U.S. Treasury bills | | $ | 14,991 | | | $ | 2 | | | $ | — | | | $ | 14,993 | |
FDIC guaranteed bonds | | | 5,015 | | | | 4 | | | | — | | | | 5,019 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 20,006 | | | $ | 6 | (a) | | $ | — | | | $ | 20,012 | |
| | | | | | | | | | | | | | | | |
In fiscal 2004, the Company adopted the 2004 Incentive Stock Plan (the “2004 Plan”) which provides 375,000 shares of authorized but unissued common stock of the Company. The 2004 Plan operates like the 2000 Plan except that of the 375,000 shares, up to 125,000 shares may be awarded to officers, directors, and employees of the Company and up to 125,000 shares may be awarded with restrictions for the purpose of additional compensation.
| | |
(a) | | Other comprehensive income reflected on the Balance Sheet reflects unrealized gains and losses net of the tax effect of approximately $2,000. |
Although shares are available under the 2000 and 2004 Plans, the Company does not intend to issue shares from these plans in the future.
| | | | | | | | | | | | | | | | |
| | As of September 30, 2009 (in 000’s) | |
| | Amortized
| | | Unrealized
| | | Unrealized
| | | Estimated
| |
| | Cost | | | Gains | | | Losses | | | Fair Value | |
|
Short-term investments: | | | | | | | | | | | | | | | | |
U.S. Treasury bills | | $ | 9,987 | | | $ | 7 | | | $ | — | | | $ | 9,994 | |
U.S. Treasury notes | | | 10,153 | | | | 20 | | | | — | | | | 10,173 | |
FDIC guaranteed bonds | | | 5,096 | | | | 4 | | | | — | | | | 5,100 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 25,236 | | | $ | 31 | (a) | | $ | — | | | $ | 25,267 | |
| | | | | | | | | | | | | | | | |
In fiscal 2007, the Company adopted the Dawson Geophysical Company 2006 Stock and Performance Incentive Plan (“the Plan”). The Plan provides 750,000 shares of authorized but unissued common stock of the Company which may be awarded to officers, directors, employees and consultants of the Company in various forms including options, grants, restricted stock grants and others. Stock option grant prices awarded under the Plan may not be less than the fair market value of the common stock subject to such option on the grant date, and the term of stock options shall extend no more than ten years after the grant date. The Plan was approved by shareholders at the Company’s Annual Shareholders Meeting on January 23, 2007.
Incentive Stock Options:
| | |
(a) | | Other comprehensive income reflected on the Balance Sheet reflects unrealized gains and losses net of the tax effect of approximately $13,000. |
The Company estimatesCompany’s short-term investments have contractual maturities ranging from November 2010 to April 2011. These investments have been classified asavailable-for-sale.
| |
3. | Fair Value of Financial Instruments |
At September 30, 2010 and 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, other current assets, accounts payables and other current liabilities, 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)
value realized, if any, is dependent on the future performance of the Company’s common stockThe Company measures certain financial assets and overall stock market conditions. There is no assurance the value realized by an optionee will beliabilities at or near the value estimated by the Black-Scholes model.
A summary of the Company’s employee stock options as of September 2008, 2007 and 2006, and changes during the years ended on those dates is presented below.
| | | | | | | | | | | | | | | | |
| | | | | | | | 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 | |
| | | | | | | | | | | | | | | | |
No options were granted during fiscal years 2008, 2007 and 2006. The total intrinsic value of options exercised during fiscal 2008, 2007 and 2006 was $1,812,000, $4,650,000 and $1,029,000, respectively. The total fair value of options vested during fiscal 2008, 2007 and 2006 was $201,000, $367,000 and $549,000, respectively.
A summary of the status of the Company’s nonvested shares as of September 30, 2008 and changes during the fiscal year ended September 30, 2008 is presented below.
| | | | | | | | |
| | Number of
| | | Weighted Average
| |
| | Nonvested
| | | Grant Date
| |
| | Share Awards | | | Fair Value | |
|
Nonvested Shares Outstanding September 30, 2007 | | | 24,000 | | | $ | 14.52 | |
Granted | | | — | | | | — | |
Vested | | | (15,750 | ) | | | 12.74 | |
Forfeited | | | — | | | | — | |
| | | | | | | | |
Nonvested Shares Outstanding September 30, 2008 | | | 8,250 | | | $ | 17.91 | |
| | | | | | | | |
Outstanding options at September 30, 2008 expire November 2009 and have an exercise price of $17.91. As of September 30, 2008 there was approximately $7,000 of unrecognized compensation cost related to nonvested stock option awards to be recognized in October 2008.
Stock options issued under 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 inon a disqualifying disposition, a tax deduction for the Company occurs. For the years ended September 30, 2008 and 2007 excess tax benefits from
F-11
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
disqualifying dispositions of options of $440,000 and $1,312,000, respectively, were reflected in both cash flows from operating activities and cash flows from financing activities on the Statements of Cash Flows.
Cash received from option exercises under all share-based payment arrangements during the years ended September 30, 2008 and 2007 was $306,000 and $736,000, respectively.recurring basis, including short-term investments.
The Company recognized compensation expensefair value measurements of $78,000, $83,000 and $289,000 in fiscal 2008, 2007 and 2006, respectively, associated with stock option awards. This amount is included in wages inthese short-term investments were determined using the Statements of Operations.following inputs:
| | | | | | | | | | | | | | | | |
| | As of September 30, 2010 (in 000’s) | |
| | Fair Value Measurements at Reporting Date Using: | |
| | | | | Quoted Prices in
| | | Significant Other
| | | Significant
| |
| | | | | Active Markets for
| | | Observable
| | | Unobservable
| |
| | | | | Identical Assets | | | Inputs | | | Inputs | |
| | Total | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
|
Short-term investments: | | | | | | | | | | | | | | | | |
U.S. Treasury bills | | $ | 14,993 | | | $ | 14,993 | | | $ | — | | | $ | — | |
FDIC guaranteed bonds | | | 5,019 | | | | 5,019 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 20,012 | | | $ | 20,012 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Stock Awards:
The Company granted 5,500 restricted shares during the second quarter of fiscal 2008 and 33,000 restricted shares during the third quarter fiscal 2008, each from the 2006 Plan. The fair value of the restricted stock granted equals the market price on the grant date and vests after three years.
| | | | | | | | |
| | Number of
| | | Weighted Average
| |
| | Restricted
| | | Grant Date
| |
| | Share Awards | | | Fair Value | |
|
Nonvested Restricted Shares Outstanding September 30, 2007 | | | 56,000 | | | $ | 27.05 | |
Granted | | | 38,500 | | | $ | 67.25 | |
| | | | | | | | |
Nonvested Restricted Shares Outstanding September 30, 2008 | | | 94,500 | | | $ | 43.43 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | |
| | 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 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
The Company’s tax benefit with regards to restricted stock awards is consistent withInvestments in U.S. Treasury bills and notes and FDIC guaranteed corporate bonds classified asavailable-for-sale are measured using unadjusted quoted market prices (Level 1) at the tax election of the recipient of the award. No elections under IRC Section 83(b) have been made for the restricted stock awards grantedreporting date provided by the Company. As a result, the compensation expense recorded for restricted stock generated in a deferred tax asset for the Company equal to the tax effect of the amount of compensation expense recorded.
The Company recognized compensation expense of $758,000 in fiscal 2008 related to restricted stock awards. This amount is included in wages in the Statements of Operations. As of September 30, 2008 there was approximately $2,773,000 of unrecognized compensation cost related to nonvested restricted stock awards granted. The cost is expected to be recognized over 1.7 years.
The Company granted 3,000 shares with immediate vesting to outside directors in each of the first quarters of fiscal 2008, 2007 and 2006 as compensation. The grant date fair value equaled $69.64, $39.77 and $31.65 in each quarter, respectively. The Company granted 2,000 shares with immediate vesting to employees as compensation in the second quarter of fiscal 2008. The grant date fair value equaled $55.22. The Company granted 500 and 1,000 shares with immediate vesting to employees as compensation during the third quarter of fiscal 2008. The grant date fair value equaled $69.22 and $70.46, respectively. No stock awards were granted during the remaining periods of fiscal 2008, 2007 and 2006. The Company recognized expense of $423,000, $119,000 and $353,000 in fiscal 2008, 2007 and 2006, respectively, as well as the related tax benefit associated with these awards in fiscal years ended September 30, 2008, 2007 and 2006.
F-12
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)Company’s investment custodian.
| |
2.4. | Property, Plant and Equipment |
Property, plant and equipment, together with annual depreciation rates, consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, | | | | | September 30, | | | |
| | 2008 | | 2007 | | Useful Lives | | | 2010 | | 2009 | | Useful Lives | |
|
Land, building and other | | $ | 5,350,000 | | | $ | 4,435,000 | | | | 3 to 40 years | | | $ | 6,467,000 | | | $ | 5,589,000 | | | | 3 to 40 years | |
Recording equipment | | | 160,516,000 | | | | 141,648,000 | | | | 5 to 10 years | | | | 155,949,000 | | | | 149,444,000 | | | | 5 to 10 years | |
Vibrator energy sources | | | 58,750,000 | | | | 39,900,000 | | | | 10 to 15 years | | | | 59,103,000 | | | | 58,745,000 | | | | 10 to 15 years | |
Vehicles | | | 25,713,000 | | | | 21,059,000 | | | | 2 to 10 years | | | | 27,133,000 | | | | 26,856,000 | | | | 2 to 10 years | |
Other(a) | | | 190,000 | | | | 385,000 | | | | — | | | | 291,000 | | | | 186,000 | | | | — | |
| | | | | | | | | | |
| | | 250,519,000 | | | | 207,427,000 | | | | | | | | 248,943,000 | | | | 240,820,000 | | | | | |
Less accumulated depreciation | | | (103,180,000 | ) | | | (84,655,000 | ) | | | | | | | (130,900,000 | ) | | | (115,341,000 | ) | | | | |
| | | | | | | | | | |
Net property, plant and equipment | | $ | 147,339,000 | | | $ | 122,772,000 | | | | | | | $ | 118,043,000 | | | $ | 125,479,000 | | | | | |
| | | | | | | | | | |
| | |
(a) | | Other represents accumulated costs associated with equipment fabrication and modification not yet completed. |
F-11
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
3.5. | Other Current LiabilitiesSupplemental Balance Sheet Information |
Accounts receivable consist of the following at September 30, 2010 and 2009:
| | | | | | | | |
| | September 30, | |
| | 2010 | | | 2009 | |
|
Trade and accrued trade receivables | | $ | 54,697,000 | | | $ | 33,910,000 | |
Allowance for doubtful accounts | | | (639,000 | ) | | | (533,000 | ) |
Insurance receivable associated with fire damage | | | — | | | | 1,836,000 | |
Accrued receivable for workers’ compensation stop loss policy | | | 3,668,000 | | | | 4,893,000 | |
| | | | | | | | |
Total accounts receivable | | $ | 57,726,000 | | | $ | 40,106,000 | |
| | | | | | | | |
Prepaid expenses and other assets consist of the following at September 30, 2010 and 2009:
| | | | | | | | |
| | September 30, | |
| | 2010 | | | 2009 | |
|
Prepaid expenses and other | | $ | 616,000 | | | $ | 591,000 | |
Income tax receivable | | | 7,240,000 | | | | 7,228,000 | |
| | | | | | | | |
Total prepaid expenses and other assets | | $ | 7,856,000 | | | $ | 7,819,000 | |
| | | | | | | | |
Other current liabilities consist of the following at September 30, 20082010 and 2007:2009:
| | | | | | | | | | | | | | | | |
| | September 30, | | | September 30, | |
| | 2008 | | 2007 | | | 2010 | | 2009 | |
|
Accrued self insurance reserves | | $ | 6,704,000 | | | $ | 6,373,000 | | | $ | 5,318,000 | | | $ | 6,698,000 | |
Accrued bonus and profit sharing | | | 3,855,000 | | | | 3,078,000 | | | | — | | | | 1,014,000 | |
Income taxes payable | | | 1,262,000 | | | | 2,314,000 | | |
Accrued payables associated with fire | | | 794,000 | | | | — | | |
Income and franchise taxes payable | | | | 879,000 | | | | 674,000 | |
Other accrued expenses and current liabilities | | | 2,254,000 | | | | 2,498,000 | | | | 1,766,000 | | | | 2,214,000 | |
| | | | | | | | | | |
Total other current liabilities | | $ | 14,869,000 | | | $ | 14,263,000 | | | $ | 7,963,000 | | | $ | 10,600,000 | |
| | | | | | | | | | |
The Company’s revolving line of credit loan agreement is with Western National Bank. In January 2008, the Company renewed the agreement for an additional year, and on June 2, 2008, the agreement was amended to increase the borrowing limit to $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, 20082010 and December 8, 2008. On July 5, 2007,November 23, 2010. The Company has not utilized the Company borrowed $5.0 million under the priorline of credit loan agreement for working capital purposes. On March 21, 2008,during the Company borrowed an additional $5.0 million, and on June 16, 2008, it borrowed an additional $10.0 million, in each case, for working capital purposes. As offiscal years ended September 30, 2008,2010 or 2009.
| |
7. | Stock-Based Compensation |
At September 30, 2010, the Company had repaidtwo stock-based compensation plans. Each plan, the $20.0 million balance,awards outstanding under these plans and no amountsthe associated accounting treatment are outstanding asdiscussed below.
In fiscal 2004, the Company adopted the 2004 Incentive Stock Plan (the “2004 Plan”) which provides 375,000 shares of December 8, 2008.authorized but unissued common stock of the Company. The option price is the market value of
F-13F-12
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
the Company’s common stock at the date of grant. Options are exercisable 25% annually from the date of the grant, and the options expire five years from the date of grant. The 2004 Plan provides that of the 375,000 shares, up to 125,000 shares may be awarded to officers, directors, and employees of the Company, and up to 125,000 shares may be awarded with restrictions for the purpose of additional compensation. Although shares are available under the 2004 Plan, the Company does not intend to issue shares from this plan in the future.
In fiscal 2007, the Company adopted the Dawson Geophysical Company 2006 Stock and Performance Incentive Plan (“the Plan”). The Plan provides 750,000 shares of authorized but unissued common stock of the Company which may be awarded to officers, directors, employees and consultants of the Company in various forms including options, grants, restricted stock grants and others. Stock option grant prices awarded under the Plan may not be less than the fair market value of the common stock subject to such option on the grant date, and the term of stock options shall extend no more than ten years after the grant date.
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 expects stock options to be outstanding and is determined based on the Company’s historical experience. The risk free interest rate used by the Company as the discounting interest rate is based on the U.S. Treasury rates on the grant date for securities with maturity dates of approximately the expected term. As the Company has not historically declared dividends and does not expect to declare dividends over the near term, the dividend yield used in the calculation is zero. Actual value realized, if any, is dependent on the future performance of the Company’s common stock and overall stock market conditions. There is no assurance the value realized by an optionee will be at or near the value estimated by the Black-Scholes model.
The fair values of stock options granted during 2009 were $8.59 and $10.49 using the Black-Scholes model and included the following assumptions:
| | | | | | | | |
| | Group A | | | Group B | |
|
Expected term | | | 4 years | | | | 6 years | |
Expected volatility | | | 57.57% | | | | 56.85% | |
Risk free interest rate | | | 1.67% | | | | 2.82% | |
Expected dividend yield | | | — | | | | — | |
A summary of the Company’s employee stock options as of September 30, 2010, as well as activity during the year then ended is presented below.
| | | | | | | | | | | | | | | | |
| | | | | | | | Weighted
| | | | |
| | | | | Weighted
| | | Average
| | | | |
| | Number of
| | | Average
| | | Remaining
| | | Aggregate
| |
| | Optioned
| | | Exercise
| | | Contractual
| | | Intrinsic
| |
| | Shares | | | Price | | | Term in Years | | | Value ($000) | |
|
Balance as of September 30, 2009 | | | 152,000 | | | $ | 18.91 | | | | | | | | | |
Granted | | | — | | | | — | | | | | | | | | |
Exercised | | | (250 | ) | | | 18.91 | | | | | | | $ | 1 | |
Forfeited | | | (750 | ) | | | 18.91 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance as of September 30, 2010 | | | 151,000 | | | $ | 18.91 | | | | 8.172 | | | $ | 1,169 | |
| | | | | | | | | | | | | | | | |
Exercisable as of September 30, 2010 | | | 37,750 | | | $ | 18.91 | | | | 8.172 | | | $ | 292 | |
| | | | | | | | | | | | | | | | |
No options were granted during fiscal 2010 and 2008. During fiscal 2009, 152,000 options were issued to employees of the Company. These options vest 25% annually from the date of grant and expire ten years from the date of grant. These options had a weighted average grant date fair value of $18.91. The total intrinsic value of
F-13
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
options exercised during fiscal 2010, 2009 and 2008 was $1,000, $206,000 and $1,812,000, respectively. The total fair value of options vested during fiscal 2010, 2009 and 2008 was $719,000, $148,000 and $201,000, respectively.
A summary of the status of the Company’s nonvested stock option awards as of September 30, 2010 and changes during the fiscal year ended September 30, 2010 is presented below.
| | | | | | | | |
| | Number of
| | | Weighted Average
| |
| | Nonvested
| | | Grant Date
| |
| | Share Awards | | | Fair Value | |
|
Nonvested option awards outstanding September 30, 2009 | | | 152,000 | | | $ | 18.91 | |
Granted | | | — | | | | — | |
Vested | | | (38,000 | ) | | | 18.91 | |
Forfeited | | | (750 | ) | | | 18.91 | |
| | | | | | | | |
Nonvested option awards outstanding September 30, 2010 | | | 113,250 | | | $ | 18.91 | |
| | | | | | | | |
Outstanding options at September 30, 2010 expire in December 2018 and have an exercise price of $18.91. As of September 30, 2010, there was approximately $765,000 of unrecognized compensation cost related to nonvested stock option awards to be recognized over a weighted average period of 2.2 years.
Stock options issued under the Company’s 2006 Plan are incentive stock options. No tax deduction is recorded when options are awarded. If an exercise and sale of vested options results in a disqualifying disposition, a tax deduction for the Company occurs. For the year ended September 30, 2010, there were no excess tax benefits from disqualifying dispositions. For fiscal years ended 2009 and 2008, excess tax benefits from disqualifying dispositions of options of $5,000 and $440,000, respectively, were reflected in both cash flows from operating activities and cash flows from financing activities on the Statements of Cash Flows.
Cash received from option exercises under all share-based payment arrangements during the years ended September 30, 2010 and 2009 was $4,000 and $416,000, respectively.
The Company recognized compensation expense associated with stock option awards of $363,000, $315,000 and $78,000 in fiscal 2010, 2009 and 2008, respectively. This amount is included in operating or general and administrative expense as appropriate in the Statements of Operations.
Stock Awards:
The Company granted 84,100 and 38,500 shares of restricted stock to employees in fiscal 2010 and 2008, respectively. There were no restricted stock grants in fiscal 2009. The weighted average grant date fair value of restricted stock awards in 2010 and 2008 was $23.33 and $67.25, respectively. The fair value of the restricted stock granted equals the market price on the grant date and vests after three years.
| | | | | | | | |
| | Number of
| | | Weighted Average
| |
| | Restricted
| | | Grant Date
| |
| | Share Awards | | | Fair Value | |
|
Nonvested restricted shares outstanding September 30, 2009 | | | 94,500 | | | $ | 43.43 | |
Granted | | | 84,100 | | | $ | 23.33 | |
Vested | | | (56,000 | ) | | $ | 27.05 | |
| | | | | | | | |
Nonvested restricted shares outstanding September 30, 2010 | | | 122,600 | | | $ | 37.12 | |
| | | | | | | | |
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 related to restricted stock awards of $1,035,000, $1,352,000 and $758,000 in fiscal 2010, 2009 and 2008, respectively. This amount is included in operating or general and
F-14
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
administrative expense as appropriate in the Statements of Operations. As of September 30, 2010, there was approximately $2,300,000 of unrecognized compensation cost related to nonvested restricted stock awards granted. The cost is expected to be recognized over a weighted average period of 2.3 years.
The Company granted common shares with immediate vesting to outside directors and employees in 2010, 2009 and 2008:
| | | | | | | | |
| | | | Weighted Average
|
| | Number of
| | Grant Date
|
| | Shares Granted | | Fair Value |
|
2010 | | | 8,340 | | | $ | 22.11 | |
2009 | | | 5,000 | | | $ | 18.19 | |
2008 | | | 6,500 | | | $ | 65.30 | |
The Company recognized expense of $185,000, $91,000 and $423,000 in fiscal 2010, 2009 and 2008, respectively, as well as the related tax benefit associated with these awards.
| |
5.8. | Employee Benefit Plans |
The Company provides a 401(k) plan as part of its employee benefits package in order to retain quality personnel. During 20082010, 2009 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 2008, 20072010, 2009 and 20062008 were approximately $1,117,000, $912,000$1,270,000, $1,213,000 and $724,000,$1,117,000, respectively.
Advertising costs are charged to expense as incurred. Advertising costs totaled $288,000, $292,000,$256,000, $181,000 and $136,000$288,000 during the fiscal years ended September 30, 2008, 20072010, 2009 and 2006,2008, respectively.
The Company recorded income tax expensebenefit in the current year of $21,400,000$4,638,000 as compared to $17,300,000income tax expense of $7,493,000 and $21,400,000 in 2007.2009 and 2008, respectively. The increasedecrease in the provision for 20082010 from 20072009 is primarily athe result of a substantial increaseshift from net income in income before income taxes resultingfiscal 2009 to net losses in increased federal and state income taxes. The Company fully utilized its federal alternative minimum tax credits during 2007.fiscal 2010.
Income tax (benefit) expense from continuing operations:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | Year Ended September 30, | |
| | 2008 | | 2007 | | 2006 | | | 2010 | | 2009 | | 2008 | |
|
Current Federal | | $ | 16,082,000 | | | $ | 11,778,000 | | | $ | 3,935,000 | | | $ | (7,342,000 | ) | | $ | 3,770,000 | | | $ | 16,082,000 | |
Current State | | | 1,752,000 | | | | 2,128,000 | | | | 951,000 | | | | 240,000 | | | | 1,423,000 | | | | 1,752,000 | |
Deferred Federal | | | 3,296,000 | | | | 3,280,000 | | | | 4,599,000 | | | | 2,817,000 | | | | 1,921,000 | | | | 3,296,000 | |
Deferred State | | | 270,000 | | | | 114,000 | | | | (127,000 | ) | | | (353,000 | ) | | | 379,000 | | | | 270,000 | |
| | | | | | | | | | | | | | |
Total | | $ | 21,400,000 | | | $ | 17,300,000 | | | $ | 9,358,000 | | | $ | (4,638,000 | ) | | $ | 7,493,000 | | | $ | 21,400,000 | |
| | | | | | | | | | | | | | |
F-15
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to income from continuing operations before income taxes as follows:
| | | | | | | | | | | | |
| | Year Ended September 30, | |
| | 2008 | | | 2007 | | | 2006 | |
|
Tax expense computed at statutory rates | | $ | 19,743,000 | | | $ | 15,560,000 | | | $ | 8,573,000 | |
Change in valuation allowance | | | (18,000 | ) | | | (2,000 | ) | | | 90,000 | |
State income tax | | | 1,270,000 | | | | 1,505,000 | | | | 569,000 | |
Other | | | 405,000 | | | | 237,000 | | | | 126,000 | |
| | | | | | | | | | | | |
Income tax expense | | $ | 21,400,000 | | | $ | 17,300,000 | | | $ | 9,358,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Year Ended September 30, | |
| | 2010 | | | 2009 | | | 2008 | |
|
Tax (benefit) expense computed at statutory rate of 35% | | $ | (4,896,000 | ) | | $ | 6,200,000 | | | $ | 19,743,000 | |
Change in valuation allowance | | | (39,000 | ) | | | (12,000 | ) | | | (18,000 | ) |
State income tax (benefit) expense | | | (82,000 | ) | | | 1,089,000 | | | | 1,270,000 | |
Other | | | 379,000 | | | | 216,000 | | | | 405,000 | |
| | | | | | | | | | | | |
Income tax (benefit) expense | | $ | (4,638,000 | ) | | $ | 7,493,000 | | | $ | 21,400,000 | |
| | | | | | | | | | | | |
The principal components of the Company’s net deferred tax liability are as follows:
| | | | | | | | |
| | September 30, | |
| | 2010 | | | 2009 | |
|
Deferred tax assets: | | | | | | | | |
Receivables | | $ | 129,000 | | | $ | 199,000 | |
Restricted stock | | | 802,000 | | | | 978,000 | |
Workers’ compensation | | | 368,000 | | | | 408,000 | |
State tax net operating loss (NOL) carry forward | | | 484,000 | | | | — | |
Other | | | 580,000 | | | | 716,000 | |
| | | | | | | | |
Total gross deferred tax assets | | | 2,363,000 | | | | 2,301,000 | |
Less valuation allowance | | | (19,000 | ) | | | (58,000 | ) |
| | | | | | | | |
Total net deferred tax assets | | | 2,344,000 | | | | 2,243,000 | |
Deferred tax liabilities: | | | | | | | | |
Property and equipment | | | (19,363,000 | ) | | | (16,798,000 | ) |
Other | | | (2,000 | ) | | | (13,000 | ) |
| | | | | | | | |
Total gross deferred tax liabilities | | | (19,365,000 | ) | | | (16,811,000 | ) |
| | | | | | | | |
Net deferred tax liability | | $ | (17,021,000 | ) | | $ | (14,568,000 | ) |
| | | | | | | | |
Current portion of net deferred tax asset/liability | | $ | 1,764,000 | | | $ | 1,694,000 | |
Non-current portion of net deferred tax asset/liability | | | (18,785,000 | ) | | | (16,262,000 | ) |
| | | | | | | | |
Total net deferred tax liability | | $ | (17,021,000 | ) | | $ | (14,568,000 | ) |
| | | | | | | | |
At September 30, 2010, the Company had a net operating loss (NOL) for U.S. federal and state income tax purposes of approximately $19,047,000. The Company intends to carryback the federal portion of the net operating loss for two years to offset against prior taxable income. In addition to the federal net operating loss, the Company also had state net operating losses that will affect state tax of approximately $484,000 at September 30, 2010. State net operating losses will begin to expire in 2015. Carryback provisions are not allowed by states, so the entire state net operating losses give rise to a deferred tax asset. The Company expects to have taxable income in which to use the state net operating loss carryforwards before they expire. As such, no valuation allowance was considered necessary related to the state net operating losses.
At September 30, 2010, all of the valuation allowance of $19,000 was related to the Company’s deferred tax assets for capital loss carryforwards that are deemed more likely than not to not be realized in the foreseeable future.
F-14F-16
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The principal components of the Company’s net deferred tax liability are as follows:
| | | | | | | | |
| | September 30, | |
| | 2008 | | | 2007 | |
|
Deferred tax assets: | | | | | | | | |
Net operating loss carryforwards | | $ | — | | | $ | 19,000 | |
Receivables | | | 20,000 | | | | 64,000 | |
Restricted stock | | | 464,000 | | | | 183,000 | |
Workers’ compensation | | | 493,000 | | | | 355,000 | |
Other | | | 430,000 | | | | 343,000 | |
| | | | | | | | |
Total gross deferred tax assets | | | 1,407,000 | | | | 964,000 | |
Less valuation allowance | | | (70,000 | ) | | | (88,000 | ) |
| | | | | | | | |
Total deferred tax assets | | | 1,337,000 | | | | 876,000 | |
Deferred tax liabilities: | | | | | | | | |
Property and equipment | | | (13,592,000 | ) | | | (9,564,000 | ) |
| | | | | | | | |
Total gross deferred tax liabilities | | | (13,592,000 | ) | | | (9,564,000 | ) |
| | | | | | | | |
Net deferred tax liability | | $ | (12,255,000 | ) | | $ | (8,688,000 | ) |
| | | | | | | | |
Current portion of net deferred tax asset/liability | | $ | 873,000 | | | $ | 693,000 | |
Noncurrent portion of net deferred tax asset/liability | | | (13,128,000 | ) | | | (9,381,000 | ) |
| | | | | | | | |
Total net deferred tax liability | | $ | (12,255,000 | ) | | $ | (8,688,000 | ) |
| | | | | | | | |
At September 30, 2008, substantially all of the valuation allowance of $70,000 was related to the Company’s deferred tax assets for capital loss carryforwards that are deemed more likely than not realizable in the foreseeable future.
In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,” which became effective for the Company on October 1, 2007. FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon re-examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. As a result of the adoption of FIN 48, the Company recorded a liability of approximately $208,000, which was accounted for as a reduction to retained earnings as of October 1, 2007. The liability included $137,000 in taxes and $71,000 in penalties and interest.
The following presents a roll forward of the Company’s unrecognized tax benefits:
| | | | | | | | | | | | |
| | Unrecognized
| | | September 30, | |
| | Benefits | | | 2010 | | 2009 | |
|
Balance as of October 1, 2007 | | $ | 137,000 | | |
Balance at beginning of fiscal year | | | $ | 416,000 | | | $ | 135,000 | |
Increase (decrease) in prior year tax positions | | | — | | | | — | | | | 350,000 | |
Increase (decrease) in current year tax positions | | | — | | | | — | | | | — | |
Settlement with taxing authorities | | | — | | | | — | | | | — | |
Expiration of statutes of limitations | | | (2,000 | ) | | | (181,000 | ) | | | (69,000 | ) |
| | | | | | | | |
Balance as of September 30, 2008 | | $ | 135,000 | | |
Balance at end of fiscal year | | | $ | 235,000 | | | $ | 416,000 | |
| | | | | | | | |
F-15
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
As of September 30, 20082010, the Company has recognized $228,000$344,000 of liabilities for unrecognized tax benefits of which $93,000$109,000 related to penalties and interest. The Company expects approximately $83,000$75,000 of the liabilities for unrecognized tax benefits to settle or lapse in the statutes of limitations by December 31, 2008.September 30, 2011.
Interest and penalty costs related to income taxes are classified as income tax expense. The tax years generally subject to future examination by tax authorities are for years ending September 30, 20042006 and after. While it is expected that the amount of unrecognized tax benefits will change in the next twelve months, the Company does not expect any change to have a significant impact on its results of operations. The recognition of the total amount of unrecognized tax benefits of $344,000 would have an immaterial effectimpact on the effective tax rate.
The Company’s continuing practice is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. In fiscal 2009, the Company’s net accrued interest and penalties increased by approximately $55,000. In fiscal 2010, the Company’s net accrued interest and penalties decreased by approximately $54,000.
| |
8.11. | Net Income (loss) per Common Share |
The Company accounts for earnings per share in accordance with SFAS No. 128, “Earnings per Share.” Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares and common share equivalents outstanding during the period.
The following table sets forth the computation of basic and diluted net income (loss) per common share:share.
| | | | | | | | | | | | |
| | 2008 | | | 2007 | | | 2006 | |
|
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 | |
| | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
Denominator for basic net income per common share-weighted average common shares | | | 7,669,124 | | | | 7,601,889 | | | | 7,518,372 | |
Effect of dilutive securities-employee stock options and restricted stock grants | | | 59,527 | | | | 67,573 | | | | 81,183 | |
| | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | |
Net income per common share | | $ | 4.57 | | | $ | 3.57 | | | $ | 2.11 | |
| | | | | | | | | | | | |
Net income per common share-assuming dilution | | $ | 4.53 | | | $ | 3.54 | | | $ | 2.09 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2010 | | | 2009 | | | 2008 | |
|
Numerator: | | | | | | | | | | | | |
Net (loss) income and numerator for basic and diluted net (loss) income per common share — income available to common shareholders | | $ | (9,352,000 | ) | | $ | 10,222,000 | | | $ | 35,007,000 | |
| | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
Denominator for basic net (loss) income per common share-weighted average common shares | | | 7,777,404 | | | | 7,807,385 | | | | 7,669,124 | |
Effect of dilutive securities-employee stock options and restricted stock grants | | | — | | | | 46,146 | | | | 59,527 | |
| | | | | | | | | | | | |
Denominator for diluted net (loss) income per common share-adjusted weighted average common shares and assumed conversions | | | 7,777,404 | | | | 7,853,531 | | | | 7,728,651 | |
| | | | | | | | | | | | |
Basic (loss) income per common share | | $ | (1.20 | ) | | $ | 1.31 | | | $ | 4.57 | |
| | | | | | | | | | | | |
Diluted (loss) income per common share | | $ | (1.20 | ) | | $ | 1.30 | | | $ | 4.53 | |
| | | | | | | | | | | | |
F-17
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The Company had a net loss in 2010, therefore the denominator for diluted loss per common share is the same as the denominator for basic loss per common share. Because the Company had a net loss the effect of outstanding stock options and restricted stock on the computation of diluted loss per common share would be anti-dilutive.
The Company operates in only one business segment, contract seismic data acquisition and processing services. The major customers in 2008, 2007fiscal 2010, 2009 and 20062008 have varied. Sales to these customers, as a percentage of operating revenues that exceeded 10%, were as follows:
| | | | | | | | | | | | | | | | | | |
| | 2008 | | 2007 | | 2006 | | | 2010 | | 2009 | | 2008 |
|
A | | | 36 | % | | | 49 | % | | | 24 | % | | | 32 | % | | | 31 | % | | | 36 | % |
B | | | 20 | % | | | — | | | | — | | | | — | | | | — | | | | 20 | % |
C | | | — | | | | — | | | | 11 | % | |
Although 36% and 20%32% of the Company’s fiscal 20082010 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,Although not a client in 2010, the Company anticipates a reduction in sales in
F-16
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
fiscal 2009 to these two clients. The Company’s client “C”“B” in the table above continues to be a client and acts as an agent for other entities that are the actual purchasersremained one of the Company’s services.clients in 2009; however, sales to this customer as a percentage of operating revenue did not exceed 10%.
| |
10.13. | Commitments and Contingencies |
On March 14, 2008, a wildfire in West Texas burned a remote area in which one of the Company’s data acquisition crews was operating. The fire destroyed approximately $2.9 million net book value of the Company’s equipment, all of which was covered by the Company’s liability insurance, net of the deductible. In addition to the loss of equipment, a number of landowners in the fire area suffered damage to their grazing lands, livestock, fences and other improvements. The Company is currently repairingrepaired damage incurred by such landowners as a result of the fire. The total cost to repair landowner damages was approximately $1.8 million. In fiscal 2009, the Company received insurance proceeds for equipment losses sustained by the Company during the fire and for the Company’s debrispick-up costs. In fiscal 2010, the Company received insurance proceeds for all costs to repair landowner damages.
During the quarter ended March 31, 2009, one of the Company’s clients filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. As of September 30, 2010, this client had an accounts receivable balance with the Company of approximately $1.0 million. On October 29, 2010 the Bankruptcy Court approved a compromise settlement between the Company and the former client’s Liquidating Trustee. The Company believes that the current allowance for doubtful accounts will cover estimated exposures related to the bankruptcy.
On October 4, 2010, a wildfire in Douglas, Wyoming burned an area in which one of the Company’s data acquisition crews was operating. The fire destroyed an immaterial amount of the Company’s equipment. In addition to the loss of equipment, a number of landowners in the fire area suffered damage to their grazing lands, livestock, fences, equipment and other improvements. Although the Company cannot currently estimatesestimate the likely amount of the landowner damages, will be less than $1.5 million. Thethe Company believes any damages paid will be covered byits insurance coverage is adequate to cover losses related to the Company’s liability insurance.fire.
From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. Although the Company cannot predict the outcomes of any such legal proceedings, management believes that the resolution of pending legal actions will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity as the Company believes it is adequately indemnified and insured.
On November 21, 2008, the Company received written notice dated November 14, 2008 from a client disputing approximately $1.4 million in charges payable for seismic work performed by the Company. The Company believes that the disputed charges are owed to the Company, and the Company intends to seek full payment from the client.
The Company experiences contractual disputes with its clients from time to time regarding the payment of invoices or other matters. While the Company seeks to minimize these disputes and maintain good relations with its clients, the Company has in the past, and may in the future, experience disputes that could affect its revenues and results of operations in any period.
The Company has non-cancelable operating leases for office space in Midland, Houston, Denver, Oklahoma City, and Lyon Township, Michigan.Michigan and Canonsburg, Pennsylvania.
F-18
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
The following table summarizes payments due in specific periods related to the Company’s contractual obligations with initial terms exceeding one year as of September 30, 2008.2010.
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period (in 000’s) | |
| | | | | Less than
| | | | | | | | | More than
| |
| | Total | | | 1 Year | | | 1-3 Years | | | 3-5 Years | | | 5 Years | |
|
Operating lease obligations | | $ | 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 | | $ | 2,082 | | | $ | 738 | | | $ | 749 | | | $ | 581 | | | $ | 14 | |
| | | | | | | | | | | | | | | | | | | | |
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 $528,000, $432,000$619,000, $575,000 and $274,000$528,000 for fiscal 2008, 20072010, 2009 and 2006,2008, respectively.
As of September 30, 2008,November 23, 2010, the Company recognizedhad unused letters of credit totaling $3,580,000. The Company’s letters of credit principally back obligations associated with the Company’s self-insured retention on workers’ compensation claims.
On July 13, 1999,8, 2009, the Board of Directors of the Company authorized and declared a dividend to the holders of record at the close of business on July 23, 19992009 of one Right (a “Right”) for each outstanding share of the Company’s common stock. When exercisable, each Right will entitle the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a “Fractional Share”) of a Series A Junior Participating Preferred Stock, par value $1.00 per share, of the Company (the “Preferred Shares”), at a purchase price of $130.00 per Fractional Share, subject to adjustment (the “Purchase Price”). The description and terms of the Rights are set forth in a Rights Agreement (the “Rights Agreement”) effective as of the close of business on July 23, 2009 as it may from time to time be supplemented or amended between the Company and Mellon Investor Services LLC, as Rights Agent. The Rights Agreement replaced the previous rights plan that was originally adopted in 1999 which expired on July 23, 2009.
Initially, the Rights are attached to all certificates representing outstanding shares of Common Stock. The Rights will only separate from the Common Stock and a “Distribution Date” will only occur, with certain exceptions, upon the earlier of (i) ten days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock, or (ii) ten business days following the commencement of a tender offer or exchange offer that would result in a person’s becoming an Acquiring Person. In certain circumstances, the Distribution Date may be deferred by the Board of Directors.
The Rights are not exercisable until the Distribution Date and will expire at the close of business on July 23, 2019, unless earlier redeemed or exchanged by the Company as described below.
In the event (a “Flip-In Event”) that a person becomes an Acquiring Person (except pursuant to a tender or exchange offer for all outstanding shares of Common Stock at a price and on terms that a majority of the directors of the Company who are not, and are not representatives, nominees, Affiliates or Associates of, an Acquiring Person or the person making the offer determines to be fair to and otherwise in the best interests of the Company and its shareholders (a “Permitted Offer”)), each holder of a Right will thereafter have the right to receive, upon exercise of such Right, a number of shares of Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a Current Market Price (as defined in the Rights Agreement) equal to two times the exercise price of the Right. Notwithstanding the foregoing, following the occurrence of any Triggering Event, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by or transferred to an Acquiring Person (or by certain related parties) will be null and void in the circumstances set forth in the Rights Agreement. However, Rights are not exercisable following the occurrence of any Flip-In Event until such time as the Rights are no longer redeemable by the Company as set forth below.
F-17F-19
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
Participating Preferred Stock, par value $1.00 per share, ofIn the Company (the “Preferred Shares”event (a “Flip-Over Event”) at an exercise price of $50.00 per Right. The rights are not currently exercisable and will become exercisable only if a person or group acquires beneficial ownership of 20% or more of the Company’s outstanding common stock or announces a tender offer or exchange offer, the consummating of which would result in attaining the triggering percentage. The Rights are subject to redemption by the Company for $.01 per Rightthat, at any time prior to the tenth dayfrom and after the first public announcement of a triggering acquisition.
Iftime an Acquiring Person becomes such, (i) the Company is acquired in a merger or other business combination transaction after(other than certain mergers that follow a person has acquired beneficial ownership of 20%Permitted Offer), or (ii) 50% or more of the Company’s common stock,assets, cash flow or earning power is sold or transferred, each holder of a Right will entitle its holder(except Rights that are voided as set forth above) shall thereafter have the right to purchase, at the Right’s then currentreceive, upon exercise, price, a number of the acquired Company’s shares of common stock of the acquiring company having a market value of two times such price. In addition, if a person or group acquires beneficial ownership of 20% or more of the Company’s common stock, each Right will entitle its holder (other than the acquiring person or group)Current Market Price equal to purchase, at the Right’s then current exercise price, a number of the Company’s shares of common stock having a market value of two times the exercise price.price of the Right. Flip-In Events and Flip-Over Events are collectively referred to as “Triggering Events.”
Subsequent toAt any time until ten days following the acquisition byfirst date of public announcement of the occurrence of a Flip-In Event, the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right, payable, at the option of the Company, in cash, shares of Common Stock or such other consideration as the Board of Directors may determine. After a person or groupbecomes an Acquiring Person, the right of beneficial ownershipredemption is subject to certain limitations in the Rights Agreement.
At any time after the occurrence of 20% or more of the Company’s common stocka Flip-In Event and prior to a person’s becoming the acquisition of beneficial ownershipowner of 50% or more of the Company’s common stock,shares of Common Stock then outstanding or the Boardoccurrence of Directors ofa Flip-Over Event, the Company may exchange the Rights (other than Rights owned by such acquiring personan Acquiring Person or group,an affiliate or an associate of an Acquiring Person, which will have become null and void and nontransferable)void), in whole or in part, at an exchange ratio of one share of Common Stock,and/or other equity securities deemed to have the Company’s common stock (orsame value as one one-hundredthshare of a Preferred Share)Common Stock, per Right.Right, subject to adjustment.
The Rights dividend distribution was made on July 23, 1999, payableUntil a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to shareholders of record at the close of business on that date. The Rights will expire on July 23, 2009.vote or to receive dividends.
| |
12.15. | Recently Issued Accounting Pronouncements |
In September 2006,January 2010, the FASB issued SFAS No. 157 (“SFAS 157”),Accounting Standards Update2010-06 “Fair Value Measurements.Measurements and Disclosures (Topic 820)” SFAS 157 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 frameworkas new guidance and clarification for measuring fair value in generally accepted accounting principles and expands certainimproving disclosures about fair value measurements. SFAS 157 isASU2010-06 requires enhanced disclosures regarding transfers in and out of the levels within the fair value hierarchy. Separate disclosures are required for transfers in and out of Level 1 and 2 fair value measurements, and the reasons for the transfers must be disclosed. The new disclosures and clarifications of existing disclosures were effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position157-2(“FSP 157-2”), “Effective DateCompany as of FASB Statement No. 157,” which delays the effective date of SFAS 157 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).January 1, 2010. The Company does not expect the adoption of SFAS 157 tothis guidance did not 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.” SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS 159 to have a material impact on its financial statements.
In May 2008, the FASB issued SFAS No. 162 (“SFAS 162”), “The Hierarchy of Generally Accepted Accounting Principles.” Under SFAS 162, the GAAP hierarchy will now reside in the accounting literature established by 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.” The Company does not expect the adoption of SFAS 162 to have a material impact on itsCompany’s financial statements.
The Company received written notice from a client disputing outstanding receivables on November 21, 2008. Seehas evaluated events subsequent to the balance sheet date (September 30, 2010) through the issue date of thisForm 10-K and concluded that no subsequent events have occurred other than those described above in Note 10,13, “Commitments and Contingencies,Contingencies.” for additional information.
F-18F-20
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS — (Continued)
| |
14.17. | Quarterly Financial Data (Unaudited) |
| | | | | | | | | | | | | | | | |
| | Quarter Ended | |
| | 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 | |
Income from operations | | $ | 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 | |
Net income per common share | | $ | 1.01 | | | $ | 1.08 | | | $ | 1.27 | | | $ | 1.21 | |
Net income per common share assuming dilution | | $ | 1.00 | | | $ | 1.07 | | | $ | 1.26 | | | $ | 1.20 | |
| | | | | | | | | | | | | | | | |
| | Quarter Ended | |
| | December 31 | | | March 31 | | | June 30 | | | September 30 | |
|
Fiscal 2009: | | | | | | | | | | | | | | | | |
Operating revenues | | $ | 80,216,000 | | | $ | 64,625,000 | | | $ | 52,319,000 | | | $ | 46,835,000 | |
Income (loss) from operations | | $ | 12,445,000 | | | $ | 9,951,000 | | | $ | (2,337,000 | ) | | $ | (2,919,000 | ) |
Net income (loss) | | $ | 7,734,000 | | | $ | 6,170,000 | | | $ | (1,626,000 | ) | | $ | (2,056,000 | ) |
Net income (loss) per common share | | $ | 1.00 | | | $ | 0.79 | | | $ | (0.21 | ) | | $ | (0.26 | ) |
Net income (loss) per common share assuming dilution | | $ | 0.99 | | | $ | 0.79 | | | $ | (0.21 | ) | | $ | (0.26 | ) |
Fiscal 2010: | | | | | | | | | | | | | | | | |
Operating revenues | | $ | 36,330,000 | | | $ | 48,585,000 | | | $ | 61,178,000 | | | $ | 59,179,000 | |
(Loss) income from operations | | $ | (6,720,000 | ) | | $ | (4,330,000 | ) | | $ | (1,571,000 | ) | | $ | (1,952,000 | ) |
Net (loss) income | | $ | (4,216,000 | ) | | $ | (2,706,000 | ) | | $ | (1,019,000 | ) | | $ | (1,411,000 | ) |
Net (loss) income per common share | | $ | (0.54 | ) | | $ | (0.35 | ) | | $ | (0.13 | ) | | $ | (0.18 | ) |
Net (loss) income per common share assuming dilution | | $ | (0.54 | ) | | $ | (0.35 | ) | | $ | (0.13 | ) | | $ | (0.18 | ) |
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-21
Schedule II
Dawson Geophysical Company
Valuation and Qualifying Accounts
| | | | | | | | | | | | | | | | |
| | Balance at
| | | Charged to
| | | | | | Balance at
| |
| | Beginning
| | | Costs and
| | | | | | End of
| |
| | of Period | | | Expenses | | | Deductions | | | Period | |
|
Allowance for doubtful accounts*: | | | | | | | | | | | | | | | | |
Fiscal Year: | | | | | | | | | | | | | | | | |
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: | | | | | | | | | | | | | | | | |
2010 | | $ | 533,000 | | | $ | 256,000 | | | $ | 150,000 | | | $ | 639,000 | |
2009 | | | 55,000 | | | | 993,000 | | | | 515,000 | | | | 533,000 | |
2008 | | | 176,000 | | | | 32,000 | | | | 153,000 | | | | 55,000 | |
Valuation allowance for deferred tax assets: | | | | | | | | | | | | | | | | |
Fiscal Year: | | | | | | | | | | | | | | | | |
2010 | | $ | 58,000 | | | $ | (39,000 | ) | | $ | — | | | $ | 19,000 | |
2009 | | | 70,000 | | | | (12,000 | ) | | | — | | | | 58,000 | |
2008 | | | 88,000 | | | | (18,000 | ) | | | — | | | | 70,000 | |
| | |
* | | Deductions related to allowance for doubtful accounts represent amounts that have been deemed uncollectible and written off by the Company. |
F-20F-22
INDEX TO EXHIBITS
| | | | |
Number | | Exhibit |
|
| 3 | .1 | | Second Restated Articles of Incorporation of the Company, as amended (filed on February 9, 2007 as Exhibit 3.1 to the Company’s Quarterly Report onForm 10-Q for the first quarter ended December 31, 2006 (FileNo. 000-10144) and incorporated herein by reference and filed on November 28, 2007 as Exhibit 3.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| 3 | .2 | | 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* | | Second Amended and Restated Bylaws of the Company, as amended. |
| 3 | .3 | | Statement of Resolution Establishing Series of Shares of Series A Junior Participating Preferred Stock of the Company (filed on July 9, 2009 as Exhibit 3.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| 4 | .1 | | Rights Agreement effective as of July 23, 2009 between the Company and Mellon Investor Services LLC as Rights Agent, which includes as Exhibit A the form of Statement of Resolution Establishing Series of Shares of Series A Junior Participating Preferred Stock setting forth the terms of the Preferred Stock, as Exhibit B the form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Preferred Stock (filed on July 9, 2009 as Exhibit 4.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .1† | | Dawson Geophysical Company 2006 Stock and Performance Incentive Plan (the “2006 Plan”), dated November 28, 2006 (filed on January 29, 2007 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .2† | | Dawson Geophysical Company 2004 Incentive Stock Plan (filed on March 12, 2004 as Exhibit 10.1 to the Company’s Registration Statement onForm S-8 (FileNo. 333-113576) and incorporated herein by reference). |
| 10 | .3† | | Form of Restricted Stock Agreement for the 2006 Plan (filed on February 11, 2008 as Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .4† | | Form of Stock Option Agreement for the 2006 Plan (filed on February 11, 2008 as Exhibit 10.4 to the Company’s Quarterly Report onForm 10-Q (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .5† | | Form of Restricted Stock Agreement for the 2006 Plan (filed on August 6, 2007 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .6† | | Form of Stock Option Agreement for the 2006 Plan (filed on August 6, 2007 as Exhibit 10.2 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .7† | | Description of Profit Sharing Plan (filed on December 3, 2007 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .8† | | Description of Profit Sharing Plan (filed on September 29, 2008 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .9† | | Summary of Non-Employee Director Compensation (filed on February 9, 2009 as Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .10 | | Form of Master Geophysical Data Acquisition Agreement (filed on December 11, 2003 as Exhibit 10 to the Registrant’s Annual Report onForm 10-K for the fiscal year ended September 30, 2003 (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .11 | | Master Geophysical Data Acquisition Agreement between SandRidge Energy, Inc. and the Company, dated December 19, 2006 (filed on February 9, 2009 as Exhibit 10.1 to the Company’s Quarterly Report onForm 10-Q (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .12 | | Master Service Contract between Chesapeake Operating, Inc. and the Company, dated December 18, 2003 (filed on February 9, 2009 as Exhibit 10.2 to the Company’s Quarterly Report onForm 10-Q (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .13 | | Revolving Line of Credit Loan Agreement, dated June 2, 2009, between the Company and Western National Bank (filed on June 5, 2009 as Exhibit 10.1 to the Company’s Current Report onForm 8-K (FileNo. 000-10144) and incorporated herein by reference). |
| 10 | .14 | | Security Agreement, dated June 2, 2009, between the Company and Western National Bank (filed on June 5, 2009 as Exhibit 10.2 to the Company’s Current Report onForm 8-K and incorporated herein by reference). |
| 23 | .1* | | Consent of Independent Registered Public Accounting Firm. |
| | | | |
Number | | Exhibit |
|
| 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. |