Part I
Item 1.
BUSINESS
General
Dawson
Geophysical Company (the Company), a Texas corporation, is a leading provider of onshore seismic data acquisition and processing services in the lower 48 states of the United States. Founded in 1952, we acquire and process 2-D, 3-D
and multi-component seismic data for our clients, ranging from major oil and gas companies to independent oil and gas operators, as well as providers of multi-client data libraries. During 2012, we entered the Canadian market by forming a new
Canadian subsidiary. Over the past few years the focus of our efforts has shifted between natural gas and oil-based exploration projects. Natural gas projects were our primary focus until late 2008. Since that time, we have experienced a gradual
shift in activity to oil exploration, which has accelerated as oil prices have remained at a relatively high level in 2010, 2011 and 2012 while natural gas prices have been relatively low during these periods. The majority of our crews are currently
working in oil and liquids-rich producing basins. Our clients rely on seismic data to identify areas where subsurface conditions are favorable for the accumulation of hydrocarbons and to optimize the development and production of hydrocarbon
reservoirs. During fiscal 2012, substantially all of our revenues were derived from 3-D seismic data acquisition operations.
As of September 30, 2012, we operated fourteen 3-D seismic data acquisition crews in the lower 48 states of the United States
and a seismic data processing center. We market and supplement our services in the lower 48 from our headquarters in Midland, Texas and from additional offices in Houston, Denver, Oklahoma City and Pittsburgh. Our geophysicists perform data
processing in our Midland, Houston and Oklahoma City offices, and our field operations are supported from our field office facility in Midland. We anticipate operating one data acquisition crew in Canada during the 2012-2013 winter season and do not
expect these operations to have a
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significant impact on our fiscal 2013 financial results. We will market and supplement our services in Canada from our office in Calgary, Canada. The results of a seismic survey conducted for a
client belong to that client. We do not acquire seismic data for our own account nor do we participate in oil and gas ventures.
Demand for our data acquisition services is closely linked to oil and natural gas prices and the related level of spending for
exploration and development of oil and natural gas reserves. With the decline in the market prices for oil, and especially natural gas following the financial crisis of late 2008, we experienced a severe reduction in demand for our services
beginning in early fiscal 2009. As a result, we reduced the number of active data acquisition crews we operated from sixteen in January 2009 to nine in October 2009. Since the middle of fiscal 2010, we have experienced stronger demand for our
services and, as a result, we redeployed three data acquisition crews during fiscal 2010 and two data acquisition crews during fiscal 2011, bringing our current total to fourteen active crews.
Business Strategy
Our
strategy is to maintain our leadership position in the U.S. onshore market and build our business in Canada. Key elements of our strategy include:
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Attracting and retaining skilled and experienced personnel for our data acquisition and processing operations;
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Providing integrated in-house services necessary in each phase of seismic data acquisition and processing, including project design, land access
permitting, surveying and related support functions as well as continuing the enhancement of our in-house health, safety, security and environmental programs;
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Maintaining the focus of our operations on the North American onshore seismic market with a primary focus on the lower 48 United States;
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Continuing to operate with conservative financial discipline;
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Updating our capabilities to incorporate advances in geophysical and supporting technologies; and
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Acquiring equipment to expand the recording channel capacity on our existing crews and equipping additional crews as market conditions dictate.
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Business Description
Geophysical Services Overview.
Our business consists of the acquisition and processing of seismic data to produce an image of the earths subsurface. The seismic method involves the
recording of reflected acoustic or sonic waves from below the ground. In our operations, we introduce acoustic energy into the ground by using an acoustic energy source, usually large vibrating machines or through the detonation of dynamite. We then
record the subsequent reflected energy, or echoes, with recording devices placed along the earths surface. These recording devices, or geophones, are placed on the ground individually or in groups connected together as a single recording
channel. We generally use thousands of recording channels in our seismic surveys. Additional recording channels enhance the resolution of the seismic survey through increased imaging analysis and provide improved operational efficiencies for our
clients.
We are able to collect seismic data using either 3-D or 2-D methods. During fiscal 2012, substantially all of our
revenues were derived from 3-D seismic data acquisition. Continued technological advances in seismic equipment and computing allow us to economically acquire and process data by placing large numbers of energy sources and recording channels over a
broad area. The industry refers to the technique of broad distribution of energy sources and recording channels as the 3-D seismic method. The 3-D method creates an immense volume of seismic data which produces more precise images of the
earths subsurface. Geophysicists use computers to interpret 3-D seismic data volumes, generate geologic models of the earths subsurface and identify subsurface features that are favorable for the accumulation of hydrocarbons. In contrast
with 3-D methods, the 2-D method
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involves the collection of seismic data in a linear fashion thus generating a single plane of subsurface seismic data. In recent years, the 2-D seismic method has been used as a regional
evaluation tool in many of the limited access shale basins, in particular the Marcellus Shale in the Appalachian Basin, in which we operated one small channel count crew for a portion of fiscal 2012.
3-D seismic data are used in the exploration for new reserves and enable oil and gas companies to better delineate existing fields and to
augment their reservoir completion and management techniques. Benefits of incorporating high resolution 3-D seismic surveys into exploration and development programs include reducing drilling risk, decreasing oil and natural gas finding costs and
increasing the efficiencies of reservoir location, delineation, completion and management. In order to meet the requirements necessary to fully realize the benefits of 3-D seismic data, there is an increasing demand for improved data quality with
greater subsurface resolution. We are prepared to meet such demands with the implementation of improved techniques and evolving technology. In recent years, we have steadily increased the recording capacity of our crews by increasing channel count
and the number of energy source units we operate. These increases allow for a greater density of both channels and energy sources in order to increase resolution and to improve operating efficiencies. We have also utilized multi-component recording
equipment on several projects in an effort to gain more information to help our clients enhance their development of producing reservoirs. Multi-component recording involves the collection of different seismic waves, including shear waves, which
aids in reservoir analysis such as fracture orientation and intensity in shales and more descriptive rock properties.
In
recent years, we have experienced continued increases in recording channel capacity on a per crew or project basis. This increase in channel count demand is driven by client needs and is necessary in order to produce higher resolution images,
increase crew efficiencies and undertake larger scale projects. Due to the increase in demand for higher channel counts, we have continued our investments in additional channels. In response to project-based channel requirements, we routinely deploy
a variable number of channels on a variable number of crews in an effort to maximize asset utilization and meet client needs. We believe we will realize the benefit of increased channel counts and flexibility of deployment through increased crew
efficiencies, higher revenues and margins.
During fiscal 2011 and 2012, we purchased or leased a significant number of
cable-less recording channels. We have utilized this equipment as primarily stand-alone recording systems but on occasion in conjunction with our cable-based systems. As a result of the introduction of cable-less recording systems, we have realized
increased crew efficiencies and increased revenue on projects using this equipment. We believe we will experience continued demand for cable-less recording systems in the future. As we have replaced cable-based recording equipment with cable-less
equipment on certain crews, the cable-based recording equipment continues to be redeployed on existing crews as needed, including on the additional two crews fielded during the second quarter of fiscal 2011.
Data Acquisition.
The seismic survey begins at the time a client requests that we formulate a proposal to acquire seismic
data on its behalf. Geophysicists then assist the client in designing the specifications of the proposed 3-D survey. If the client accepts our proposal, permit agents, either our employees or contract agents, then obtain access rights of way from
surface and mineral estate owners or lessees where the survey is to be conducted. From time to time, our clients undertake the permitting effort on their own prior to our submittal of a proposal.
Utilizing electronic surveying equipment, survey personnel, who are either our employees or contract companies, precisely locate the
energy source and receiver positions from which the seismic data are collected. We use vibrator energy sources which are mounted on vehicles, the majority of which weigh 62,000 pounds each, to generate seismic energy, or we detonate dynamite charges
placed in holes drilled below the earths surface. We use third-party contractors for the drilling of holes and the purchasing, handling and disposition of dynamite charges. We also use third-party helicopter services to move equipment in areas
of difficult terrain in an effort to increase efficiency and reduce safety risk.
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We currently own 169 vibrator energy source units and over 167,000 recording channels. We
also currently own eighteen central recording systems. Of the eighteen recording systems we owned at September 30, 2012, six are Geospace Technologies GSR cable-less recording systems, eight are ARAM ARIES cable-based recording systems and four
are I/O System II RSR radio-based recording systems. All of our systems record equivalent seismic information but vary in the manner by which seismic data are transferred to the central recording unit, as well as their operational flexibility
and channel count expandability. From time to time, we utilize the cable-less Geospace Technologies GSR system in conjunction with the ARAM ARIES cable system to increase the flexibility and recording capacity of the cable system.
At fiscal year-end 2012, we operated fourteen land-based seismic data acquisition crews. Each crew consists of approximately forty to one
hundred technicians, twenty-five or more vehicles with off-road capabilities, up to 100,000 geophones, a seismic recording system, energy sources, electronic cables and a variety of other equipment. Our equipment may be configured on our crews in
various combinations to meet the demands of specific survey designs.
Of the fourteen data acquisition crews in operation at
September 30, 2012, five used GSR recording systems, six used ARAM recording systems, and three used RSR recording systems. All of our crews utilize either vibrator energy sources or dynamite energy sources. While the number of recording
systems we own is in excess of the number needed to field our current level of data acquisition crews, we maintain the excess equipment to provide additional operational flexibility and to allow us to quickly deploy additional recording channels and
energy source units as needed to respond to client demand and clients desire for improved data quality with greater subsurface images.
Client demand for more recording channels continues to increase as the industry strives for improved data quality with higher resolution subsurface images. We believe this trend will continue and that our
ability to deploy a large number of recording channels and multiple energy source units provides us with the competitive advantages of operational versatility and increased productivity, in addition to improved data quality.
Data Processing.
We currently operate a computer center located in Midland, Texas and provide additional processing services
through our Houston and Oklahoma City offices. Data processing primarily involves the enhancement of seismic data by improving reflected signal resolution, removing ambient noise and establishing proper spatial relationships of geological features.
The data are then formatted in such a manner that computer graphic technology may be employed for examination and interpretation of the data by the user.
We continue to improve data processing efficiency and accuracy with the addition of improved processing software and high-speed computer technology. We purchase, develop or lease seismic data processing
software under non-exclusive licensing arrangements.
Our computer center processes seismic data collected by our crews, as
well as by other geophysical contractors. In addition, we reprocess previously recorded seismic data using current technology to enhance the data quality. Our processing contracts may be awarded jointly with, or independently from, data acquisition
services. Data processing services comprise a small portion of our overall revenues.
Integrated Services.
We
maintain integrated in-house operations necessary to the development and completion of seismic surveys. Our experienced personnel have the capability to conduct or supervise the seismic survey design, permitting, surveying, data acquisition and
processing functions for each seismic program. In-house support operations include health, safety, security and environmental programs as well as facilities for vehicle repair, vehicle paint and body repair, electronics repair, electrical
engineering and software development. In addition, we perform line clearing operations, own temporary housing facilities and maintain a fleet of tractor trailers to transport our seismic acquisition equipment to our survey sites. We believe that
maintaining as many of these functions as possible in-house contributes to better quality control and improved efficiency in our operations. Our clients are responsible for the interpretation of the seismic data we provide.
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Equipment Acquisition and Capital Expenditures
We monitor and evaluate advances in geophysical technology and commit capital funds to purchase the equipment we deem most effective to
maintain our competitive position. Purchasing new assets and upgrading existing capital assets requires a commitment to capital spending. During fiscal 2012, we invested $47,664,000 primarily on equipment and energy sources, including nineteen INOVA
vibrator energy source units, 10,500 additional Geospace Technologies GSR single-channel recording units, 3,000 stations of Geospace Technologies GSR three-channel units with three-component geophones and additional conventional geophones. These
purchases reflect our belief that the trend towards increased channel counts and energy sources in our industry will continue. Our Board of Directors has approved an initial $40,000,000 capital budget for fiscal 2013 which will be used to purchase
nine INOVA AHV IV 364 vibrator energy sources units, increase channel count, make technical improvements in various phases of our operations and meet maintenance capital requirements. We believe that these additions will allow us to maintain our
competitive position as we respond to client desire for higher resolution subsurface images.
Clients
Our services are marketed by supervisory and executive personnel who contact clients to determine geophysical needs and respond to client
inquiries regarding the availability of crews or processing schedules. These contacts are based principally upon professional relationships developed over a number of years.
Our clients range from major oil and gas companies to small independent oil and gas operators and also providers of multi-client data libraries. The services we provide to our clients vary according to
the size and needs of each client. During fiscal 2012, sales to our largest client, Chesapeake Energy Corporation, represented 21% of our revenue. The remaining balance of our fiscal 2012 revenue was derived from varied clients and none represented
10% or more of our fiscal 2012 revenues. We anticipate that sales to Chesapeake will represent a smaller percentage of our overall revenues during fiscal 2013.
We do not acquire data for our own account or for future sale, maintain multi-client data libraries or participate in oil and gas ventures. The results of a seismic survey conducted for a client belong to
that client. It is also our policy that none of our officers, directors or employees actively participate in oil and natural gas ventures. All of our clients information is maintained in the strictest confidence.
Contracts
Our data
acquisition services are conducted under master service contracts with our clients. These master service contracts define certain obligations for us and for our clients. A supplemental agreement setting forth the terms of a specific project, which
may be cancelled by either party on short notice, is entered into for every data acquisition project. The supplemental agreements are either turnkey agreements that provide for a fixed fee to be paid to us for each unit of data acquired,
or term agreements that provide for a fixed hourly, daily or monthly fee during the term of the project or projects. Turnkey agreements generally provide us more profit potential, but involve more risks because of the potential of crew
downtime or operational delays. We attempt to negotiate on a project-by-project basis some level of weather downtime protection within the turnkey agreements. Under the term agreements, we forego an increased profit potential in exchange for a more
consistent revenue stream with improved protection from crew downtime or operational delays.
We operate under both turnkey
and term supplemental agreements. The percentage of revenues derived from turnkey contracts has grown in the past few years from approximately half of our revenues in fiscal 2008 to in excess of three-quarters of our revenues in fiscal 2012.
Currently, most of our projects are operated under turnkey agreements. However, in the first quarter of fiscal 2013 we have observed an increase in inquiries and requests for term agreements.
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Competition
The acquisition and processing of seismic data for the oil and natural gas industry is a highly competitive business in the United States. Contracts for such services generally are awarded on the basis of
price quotations, crew experience and availability of crews to perform in a timely manner, although factors other than price, such as crew safety, performance history and technological and operational expertise, are often determinative. Our
competitors include companies with financial resources that are significantly greater than our own as well as companies of comparable and smaller size. Our primary competitors are CGG Veritas, Geokinetics Inc., Global Geophysical Services, Tidelands
Geophysical Company and TESLA Exploration. In addition, the barriers to entry in the seismic industry are not prohibitive, and it would not be difficult for seismic companies outside of the United States to enter the United States market and compete
with us.
Employees
As of September 30, 2012, we employed approximately 1,452 persons, of which 1,295 were engaged in providing energy sources and acquiring data. With respect to the remainder of our employees, ten
are engaged in data processing, sixty-eight are administrative personnel, sixty-five are engaged in equipment maintenance and transport and fourteen are officers. Of the employees listed above, nine are geophysicists. Our employees are not
represented by a labor union. We believe we have good relations with our employees.
Available Information
All of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to
those reports filed with or furnished to the Securities and Exchange Commission (SEC) on or after May 9, 1995 are available free of charge through our Internet Website, www.dawson3d.com, as soon as reasonably practical after we have
electronically filed such material with, or furnished it to, the SEC. Information contained on our Internet Website is not incorporated by reference in this Annual Report on Form 10-K. In addition, the SEC maintains an Internet Website
containing reports, proxy and information statements, and other information filed electronically at www.sec.gov. You may also read and copy this information, for a copying fee, at the SECs Public Reference Room at 100 F Street, N.E.,
Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.
Item 1A.
RISK FACTORS
An investment in our common stock is subject to a
number of risks, including those discussed below. You should carefully consider these discussions of risk and the other information included in this Form 10-K. Although the risks described below are the risks that we believe are material to our
business, they are not the only risks that could affect our business. If any of the following events were to occur, our business, financial condition or results of operations could be materially adversely affected.
Our business depends on the level of exploration and production activities by the oil and natural gas industry. If oil and natural
gas prices or the level of capital expenditures by oil and gas companies were to decline, demand for our services would decline and our results of operations would be adversely affected.
Demand for our services depends upon the level of spending by oil and natural gas companies for exploration, production, development and
field management activities, which depend, in part, on oil and natural gas prices. Significant fluctuations in oil and natural gas exploration activities and commodity prices have adversely affected the demand for our services and our results of
operations in years past and would continue to do so if the level of such exploration activities and the prices for oil and natural gas were to decline in the future. In addition to the market prices of oil and natural gas, our clients
willingness to explore, develop and produce depends largely upon prevailing industry conditions that are influenced by numerous factors over which our management has no control, including general economic conditions and the availability of credit.
In particular, the market price of natural gas has been depressed for the past few years, and the demand for our services by
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clients seeking natural gas has sharply declined over the same period. There can be no assurance that the current level of energy prices will be maintained or that exploration and development
activities by our clients will be maintained at current levels. Any significant decline in exploration or production-related spending by our clients, whether due to a decrease in the market prices for oil and natural gas or otherwise, would have a
material adverse effect on our results of operations. Additionally, increases in oil and gas prices may not increase demand for our products and services or otherwise have a positive effect on our results of operations or financial condition.
Factors affecting the prices of oil and natural gas and our clients desire to explore, develop and produce include:
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the level of supply and demand for oil and natural gas;
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the level of prices, and expectations about future prices, for oil and natural gas;
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the ability of oil and gas producers to raise equity capital and debt financing;
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the worldwide political, military and economic conditions;
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the ability of the Organization of Petroleum Exporting Countries to set and maintain production levels and prices for oil;
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the rate of discovery of new oil and gas reserves and the decline of existing oil and gas reserves;
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the cost of exploring for, developing and producing oil and natural gas;
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the ability of exploration and production companies to generate funds or otherwise obtain capital for exploration, development and production
operations;
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technological advances affecting energy exploration, production and consumption;
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government policies, including environmental regulations and tax policies, regarding the exploration for, production and development of oil and natural
gas reserves and the use of fossil fuels and alternative energy sources; and
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weather conditions, including large-scale weather events such as hurricanes that affect oil and gas operations over a wide area or affect prices.
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The markets for oil and natural gas have historically been volatile and are likely to continue to be so in
the future. See Managements Discussion and Analysis of Financial Condition and Results of Operations Overview.
Weakness in the global economy during the past few years decreased demand for our seismic services, caused downward pressure on the prices we charge and affected our results of operations. Any
renewed weakness in the global economy would likely adversely affect us in a similar manner.
Beginning in August 2008,
disruptions and instability in the global financial markets and a worldwide recession forced many of our customers to abandon their development plans and to significantly reduce their capital expenditures during fiscal years 2009 and 2010. As a
consequence, we experienced a severe reduction in demand for our services, downward pressure on the prices we charged our customers for our services, and our results of operations were adversely affected during these years. During this period, we
also reduced the number of data acquisition crews we operated from sixteen in January 2009 to nine in October 2009, which reflects the decrease in demand for our services. Since the beginning of fiscal 2010, the financial crisis has eased, the price
of oil has stabilized and demand for our services and our financial performance has improved. However, if economic conditions were to once again worsen, forcing our customers to reduce their capital expenditures, demand for our seismic services
would decline and our results of operations would again be affected. See Managements Discussion and Analysis of Financial Condition and Results of Operations Overview.
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We face intense competition in our business that could result in downward pricing
pressure and the loss of market share.
The acquisition and processing of seismic data for the oil and natural gas
industry is a highly competitive business in the United States. Some of our competitors have financial resources that are significantly greater than our own. Additionally, the seismic data acquisition business is extremely price competitive and has
a history of periods in which seismic contractors bid jobs below cost and therefore adversely affect industry pricing. Many contracts are awarded on a bid basis, which may further increase competition based primarily on price. In addition, the
barriers to entry in the seismic industry are not prohibitive, and it would not be difficult for seismic companies outside of the United States to enter the United States market and compete with us. Competition from these and other competitors could
result in downward pricing pressure and the loss of market share. See Business Competition.
Our
clients could delay, reduce or cancel their service contracts with us on short notice, which may lead to lower than expected demand and revenues.
Our order book reflects client commitments at levels we believe are sufficient to maintain operations on our existing crews for the indicated periods. However, our clients can delay, reduce or cancel
their service contracts with us on short notice. In addition, the timing of the completion of projects and when projects are awarded and contracted for is also uncertain. As a result, our order book as of any particular date may not be indicative of
actual demand and revenues for any succeeding fiscal period. See Managements Discussion and Analysis of Financial Condition and Results of Operations Overview.
The high fixed costs of our operations could adversely affect our results of operations.
Our business has high fixed costs, which primarily consist of depreciation, maintenance expenses associated with our seismic data
acquisition and processing equipment and certain crew costs. In periods of reductions in crew utilization or low crew productivity, these fixed costs do not decline as rapidly as our revenues. As a result, any significant downtime or low
productivity caused by reduced demand, weather interruptions, equipment failures, permit delays or other causes could adversely affect our results of operations. See Managements Discussion and Analysis of Financial Condition and Results
of Operations Liquidity and Capital Resources.
Our revenues are subject to fluctuations that are beyond
our control which could adversely affect our results of operations in any financial period.
Our operating results vary
in material respects from quarter to quarter and will continue to do so in the future. Factors that cause variations include the timing of the receipt of contracts for data acquisition, timing of the commencement and completion of work under data
acquisition contracts, land access permit and weather delays, seasonal factors such as holiday schedules, shorter winter days or agricultural or hunting seasons, and crew repositioning and crew utilization and productivity. Should one or more of our
fourteen crews experience changes in timing due to one or more of these factors, our financial results could be subject to significant variations from period to period. Combined with our high fixed costs, these revenue fluctuations could also
produce unexpected adverse results of operations in any fiscal period. See Managements Discussion and Analysis of Financial Condition and Results of Operations Overview.
Inclement weather may adversely affect our ability to complete projects and could therefore adversely affect our results of
operations.
Our seismic data acquisition operations could be adversely affected by inclement weather conditions.
Delays associated with weather conditions could adversely affect our results of operations. For example, weather delays could affect our operations on a particular project or an entire region and could lengthen the time to complete data acquisition
projects. In addition, even if we negotiate weather protection provisions in our contracts, we may not be fully compensated by our clients for the delay caused by the inclement weather. Delays from adverse weather conditions have particularly
affected our results of operations in past periods and are likely to affect our results in future periods. See Business Contracts.
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Our operations are subject to delays related to obtaining land access rights from
third parties which could affect our results of operations.
Our seismic data acquisition operations could be adversely
affected by our inability to obtain timely right of way usage from both public and private land and/or mineral owners. We cannot begin surveys on property without obtaining permits from governmental entities as well as the permission of the private
landowners who own the land being surveyed. In recent years, it has become more difficult, costly and time-consuming to obtain access rights of way as drilling activities have expanded into more populated areas. Additionally, while landowners
generally are cooperative in granting access rights, some have become more resistant to seismic and drilling activities occurring on their property. In addition, governmental entities do not always grant permits within the time periods expected.
Delays associated with obtaining such rights of way have negatively affected our results of operations in past periods and may affect our results in future periods. See Business Data Acquisition.
Our profitability is determined, in part, by the utilization level and productivity of our crews and the type of contracts we enter
into and is affected by numerous external factors that are beyond our control.
Our revenue is determined, in part, by
the contract price we receive for our services, the level of utilization of our fourteen data acquisition crews, and the productivity of these crews. Crew utilization and productivity is partly a function of external factors, such as client
cancellation or delay of projects, or operating delays from inclement weather or in obtaining land access rights, over which we have no control. If our crews encounter operational difficulties or delays on any data acquisition survey, our results of
operations may vary, and in some cases, may be adversely affected.
In fiscal 2012, most of our projects were performed on a
turnkey basis for which we were paid a fixed price for a defined scope of work or unit of data acquired. The revenue, cost and gross profit realized under our turnkey contracts can vary from our estimates because of changes in job conditions,
variations in labor and equipment productivity or because of the performance of our subcontractors. Turnkey contracts may also cause us to bear substantially all of the risks of business interruption caused by external factors over which we may have
no control, such as weather, obtaining land access rights, crew downtime or operational delays. These variations, delays and risks inherent in turnkey contracts may result in reducing our profitability. See Business
Contracts.
A limited number of customers operating in a single industry account for a significant portion of our
revenues, and the loss of one of these customers could adversely affect our results of operations; we bear the risk if any of our clients become insolvent and fail to pay amounts owed to us, so any failure to pay by these clients could harm our
results of operations.
We derive a significant amount of our revenues from a relatively small number of oil and gas
exploration and development companies. Although our ten largest customers in fiscal 2012 and 2011 have varied, these customers accounted for approximately 67% and 78% of our total revenue for these respective periods. For the year ended
September 30, 2012, our largest client represented approximately 21% of total revenues. If this client, or any of our other significant clients, were to terminate their contracts or fail to contract for our services in the future because they
are acquired, alter their exploration or development strategy, experience financial difficulties or for any other reason, our results of operations could be adversely affected. See Business Clients.
We bear the credit risk if any of our clients become insolvent and fail to pay amounts owed to us. Although we perform ongoing credit
evaluations of our customers financial conditions, we generally require no collateral from our customers. Some of our clients have experienced financial difficulties in the past and even filed bankruptcy while others may do so in the future.
It is possible that one or more of our clients will become financially distressed, which could cause them to default on their obligations to us and could reduce the clients future need for seismic services provided by us. Our concentration of
customers may also increase our overall exposure to these credit risks. Our inability to collect our accounts receivable could have a materially adverse effect on our results of operations. In addition, from time to time, we experience contractual
disputes with our
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clients regarding the payment of invoices or other matters. While we seek to minimize these disputes and maintain good relations with our clients, we have in the past, and may in the future,
experience disputes that could negatively affect our relationship with a client and consequently affect our results of operations in future periods.
We may be unable to attract and retain skilled and technically knowledgeable employees which could adversely affect our business and our growth.
Our continued success depends upon attracting and retaining highly skilled professionals and other technical personnel. A number of our
employees are highly skilled scientists and highly trained technicians, and our failure to continue to attract and retain such individuals could adversely affect our ability to compete in the seismic services industry. We may experience significant
competition for these skilled and technically knowledgeable personnel, particularly during periods of increased demand for seismic services. None of our employees are under employment contracts, and we have no key man insurance.
Capital requirements for our operations are large. If we are unable to finance these requirements, we may not be able to maintain
our competitive advantage.
Seismic data acquisition and data processing technologies historically have progressed
rather rapidly, and we expect this trend to continue. In order to remain competitive, we must continue to invest additional capital to maintain, upgrade and expand our seismic data acquisition capabilities. Our working capital requirements continue
to increase, primarily due to the expansion of our infrastructure in response to client demand for more recording channels, which has increased as the industry strives for improved data quality with greater subsurface resolution images. Our sources
of working capital are limited. We have historically funded our working capital requirements with cash generated from operations, cash reserves and borrowings from commercial banks. Recently, we have funded some of our capital expenditures through
equipment term loans and capital leases. In the past, we have also funded our capital expenditures and other financing needs through public equity offerings. If we were to expand our operations at a rate exceeding operating cash flow, if current
demand or pricing of geophysical services were to decrease substantially or if technical advances or competitive pressures required us to acquire new equipment faster than our cash flow could sustain, additional financing could be required. If we
were not able to obtain such financing or renew our existing revolving line of credit when needed, our failure could have a negative impact on our ability to pursue expansion and maintain our competitive advantage. See Managements
Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources.
We rely on a limited number of key suppliers for specific seismic services and equipment.
We depend on a limited number of third parties to supply us with specific seismic services and equipment. From time to time, increased
demand for seismic data acquisition services has decreased the available supply of new seismic equipment, resulting in extended delivery dates on orders of new equipment. Any delay in obtaining equipment could delay our deployment of additional
crews and restrict the productivity of existing crews, adversely affecting our business and results of operation. In addition, any adverse change in the terms of our suppliers arrangements could affect our results of operations.
Some of our suppliers may also be our competitors. If competitive pressures were to become such that our suppliers would no longer sell
to us, we would not be able to easily replace the technology with equipment that communicates effectively with our existing technology, thereby impairing our ability to conduct our business.
Technological change in our business creates risks of technological obsolescence and requirements for future capital expenditures.
If we are unable to keep up with these technological advances, we may not be able to compete effectively.
Seismic data
acquisition and data processing technologies historically have progressed rather rapidly, and we expect this progression to continue. In order to remain competitive, we must continue to invest additional capital to maintain, upgrade and expand our
seismic data acquisition capabilities. However, due to potential advances in technology and the related costs associated with such technological advances, we may not be able to fulfill this strategy, thus possibly affecting our ability to compete.
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Our results of operations could be adversely affected by asset impairments.
We periodically review our portfolio of equipment for impairment. If we expect significant sustained decreases in oil
and natural gas prices and reduced demand for our services, we may be required to write down the value of our equipment if the future cash flows anticipated to be generated from the related equipment falls below net book value. If we are forced to
write down the value of our equipment, these noncash asset impairments could negatively affect our results of operations in the period in which they are recorded. See discussion of Impairment of Long-Lived Assets included in
Critical Accounting Policies.
We operate under hazardous conditions that subject us to risk of damage to
property or personnel injuries and may interrupt our business.
Our business is subject to the general risks inherent
in land-based seismic data acquisition activities. Our activities are often conducted in remote areas under extreme weather and other dangerous conditions, including the use of dynamite as an energy source. These operations are subject to risks of
injury to our personnel and third parties and damage to our equipment and improvements in the areas in which we operate. In addition, our crews often operate in areas where the risk of wildfires is present and may be increased by our activities. Our
crews are mobile, and equipment and personnel are subject to vehicular accidents. We use diesel fuel which is classified by the U.S. Department of Transportation as a hazardous material. These risks could cause us to experience equipment
losses, injuries to our personnel and interruptions in our business. Delays due to operational disruptions such as equipment losses, personnel injuries and business interruptions could adversely affect our profitability and results of operations.
We may be subject to liability claims that are not covered by our master service agreements or by insurance.
We could be subject to personal injury or real property damage claims in the normal operation of our business. Such
claims may not be covered under the indemnification provisions in our master service agreements to the extent that the damage was due to our or our subcontractors negligence, gross negligence or intentional misconduct.
Although we maintain what we believe is prudent insurance protection, we do not carry insurance against some of the risks that we could
experience, including business interruptions resulting from equipment losses or weather delays, and the insurance which we do maintain might not be sufficient or adequate to cover all losses or liabilities. We obtain insurance against certain
property and personal casualty and other risks when such insurance is available and when our management considers it advisable to do so. Such coverage is not always available or applicable and, when available, is subject to unilateral cancellation
by the insuring companies on very short notice. Liabilities for which we are not insured, or which exceed the policy limits of our applicable insurance, could have a materially adverse effect on our results of operations.
We may be held liable for the actions of our subcontractors.
We often work as the general contractor on seismic data acquisition surveys and consequently engage a number of subcontractors to perform
services and provide products. While we obtain contractual indemnification and insurance covering the acts of these subcontractors and require the subcontractors to obtain insurance for our benefit, we could be held liable for the actions of these
subcontractors. In addition, subcontractors may cause injury to our personnel or damage to our property that is not fully covered by insurance.
Our industry is subject to governmental regulation which may adversely affect our future operations.
Our operations are subject to a variety of federal, state and local laws and regulations, including laws and regulations relating to protection of the environment and archeological sites. We are required
to expend financial and managerial resources to comply with such laws and related permit requirements in our operations, and we anticipate that we will continue to be required to do so in the future. The fact that such laws or regulations change
frequently makes it impossible for us to predict the cost or impact of such laws and regulations on our future operations. The adoption of laws and regulations that have the effect of reducing or curtailing exploration and
12
production activities by energy companies could also adversely affect our results of operations by reducing the demand for our services. In particular, laws and regulations concerning climate
change or regulating hydraulic fracturing could adversely affect our operations and reduce demand for seismic services.
Current and future legislation or regulation relating to climate change or hydraulic fracturing could negatively affect the
exploration and production of oil and gas and adversely affect demand for our services.
In response to concerns
suggesting that emissions of certain gases, commonly referred to as greenhouse gases (GHG) (including carbon dioxide and methane) may be contributing to global climate change, legislative and regulatory measures to address the concerns
are in various phases of discussion or implementation at the national and state levels. At least one-third of the states, either individually or through multi-state regional initiatives, have already taken legal measures intended to reduce GHG
emissions, primarily through the planned development of GHG emission inventories and/or GHG cap and trade programs.
Although
various climate change legislative measures have been under consideration by the U.S. Congress, it is not possible at this time to predict whether or when Congress may act on climate change legislation. The U.S. Environmental Protection
Agency (the EPA) has promulgated a series of rulemakings and taken other actions that the EPA states will result in the regulation of GHG as air pollutants under the existing federal Clean Air Act. Furthermore, in 2010, EPA
regulations became effective that require monitoring and reporting of GHG emissions on an annual basis, including extensive GHG monitoring and reporting requirements. While this new rule does not control GHG emission levels from any facilities, it
will cause covered facilities to incur monitoring and reporting costs. Moreover, lawsuits have been filed seeking to require individual companies to reduce GHG emissions from their operations. These and other lawsuits relating to GHG emissions may
result in decisions by state and federal courts and agencies that could impact our operations.
This increasing governmental
focus on global warming may result in new environmental laws or regulations that may negatively affect us, our suppliers and our customers. This could cause us to incur additional direct costs in complying with any new environmental regulations, as
well as increased indirect costs resulting from our customers, suppliers or both incurring additional compliance costs that get passed on to us. Moreover, passage of climate change legislation or other federal or state legislative or regulatory
initiatives that regulate or restrict emissions of GHG may curtail production and demand for fossil fuels such as oil and gas in areas where our customers operate and thus adversely affect future demand for our services. Reductions in our revenues
or increases in our expenses as a result of climate control initiatives could have adverse effects on our business, financial position, results of operations and prospects.
Hydraulic fracturing is an important and commonly used process in the completion of oil and gas wells. Hydraulic fracturing involves the injection of water, sand and chemical additives under pressure into
rock formations to stimulate gas production. Due to public concerns raised regarding potential impacts of hydraulic fracturing on groundwater quality, legislative and regulatory efforts at the federal level and in some states have been initiated to
require or make more stringent the permitting and compliance requirements for hydraulic fracturing operations. At the federal level, a bill was introduced in Congress in March 2011 entitled, the Fracturing Responsibility and Awareness of
Chemicals Act, or the FRAC Act, that would amend the federal Safe Drinking Water Act, or the SDWA, to repeal an exemption from regulation for hydraulic fracturing. If the FRAC Act or similar legislation in the next
Congress were enacted, the definition of underground injection in the SDWA would be amended to encompass hydraulic fracturing activities. Such a provision could require hydraulic fracturing operations to meet permitting and financial
assurance requirements, adhere to certain construction specifications, fulfill monitoring, reporting, and recordkeeping obligations and meet plugging and abandonment requirements. The FRAC Act also proposes to require the reporting and public
disclosure of chemicals used in the fracturing process, which could make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process
could adversely affect groundwater. In early 2010, the EPA indicated in a website posting that it intended to regulate hydraulic fracturing under the SDWA and require permitting for any well where hydraulic fracturing was conducted with the use of
diesel as an additive. While industry groups have challenged the EPAs website
13
posting as improper rulemaking, the Agencys position, if upheld, could require additional permitting. In addition, the EPA has commenced a study of the potential adverse effects that
hydraulic fracturing may have on water quality and public health, and a committee of the U.S. House of Representatives has commenced its own investigation into hydraulic fracturing practices. These legislative and regulatory initiatives imposing
additional reporting obligations on, or otherwise limiting, the hydraulic fracturing process could make it more difficult or costly to complete natural gas wells. Shale gas cannot be economically produced without extensive fracturing. In the event
such legislation is enacted, demand for our seismic acquisition services may be adversely affected.
We
are subject to Canadian foreign currency exchange rate risk.
We have recently begun to operate in Canada. Conducting
business in Canada subjects us to foreign currency exchange rate risk. We do not hold or issue foreign currency forward contracts, option contracts or other derivative financial instruments for speculative purposes or to mitigate the currency
exchange rate risk. If our operations in Canada are successful and the amount of business we do there grows, our results of operations and our cash flows could be impacted by changes in foreign currency exchange rates.
Certain provisions of our charter and bylaws and our shareholder rights plan may make it difficult for a third party to acquire us,
even in situations that may be viewed as desirable by shareholders.
Our articles of incorporation and bylaws contain
provisions that authorize the issuance of preferred stock and establish advance notice requirements for director nominations and actions to be taken at shareholder meetings. These provisions could discourage or impede a tender offer, proxy contest
or other similar transaction involving control of the Company, even in situations that may be viewed as desirable by our shareholders. In addition, we have adopted a shareholder rights plan that would likely discourage a hostile attempt to acquire
control of the Company.
Failure to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on our stock price.
If, in the future, we fail to maintain the
adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could have a material adverse effect on the price of our common stock.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
Our principal facilities are summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Owned or
Leased
|
|
|
Purpose
|
|
Building Area
Square Feet
|
|
Midland, TX
|
|
|
Leased
|
|
|
Executive offices and data processing
|
|
|
29,960
|
|
Midland, TX
|
|
|
Owned
|
|
|
Field office
|
|
|
61,402
|
|
|
|
|
|
|
|
Equipment fabrication facility
|
|
|
|
|
|
|
|
|
|
|
Maintenance and repairs shop
|
|
|
|
|
We have operating leases for domestic office space in Midland, Houston, Denver, Oklahoma City and
Pittsburgh and foreign office space in Calgary, Canada.
Our operations are limited to one industry segment in the United
States and Canada. We believe that our existing facilities are being appropriately utilized in line with past experience and are well maintained, suitable for their intended use and adequate to meet our current and future operating requirements.
14
Item 3.
LEGAL PROCEEDINGS
From time to time, we are a party to various legal proceedings arising in the ordinary course of business. Although we cannot
predict the outcomes of any such legal proceedings, our management believes that the resolution of pending legal actions will not have a material adverse effect on our financial condition, results of operations or liquidity.
For a discussion of certain contingencies affecting the Company, please refer to Note 13, Commitments and Contingencies
to the Consolidated Financial Statements included herein, which is incorporated by reference herein.
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
57,373,000
|
|
|
$
|
26,077,000
|
|
Short-term investments
|
|
|
4,000,000
|
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $250,000 and $155,000 at September 30, 2012 and
September 30, 2011, respectively
|
|
|
53,719,000
|
|
|
|
86,716,000
|
|
Prepaid expenses and other assets
|
|
|
762,000
|
|
|
|
4,254,000
|
|
Current deferred tax asset
|
|
|
1,925,000
|
|
|
|
1,236,000
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
117,779,000
|
|
|
|
118,283,000
|
|
|
|
|
Property, plant and equipment
|
|
|
326,030,000
|
|
|
|
302,647,000
|
|
Less accumulated depreciation
|
|
|
(164,634,000
|
)
|
|
|
(156,106,000
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
161,396,000
|
|
|
|
146,541,000
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
279,175,000
|
|
|
$
|
264,824,000
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
18,544,000
|
|
|
$
|
18,732,000
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Payroll costs and other taxes
|
|
|
1,802,000
|
|
|
|
1,436,000
|
|
Other
|
|
|
6,425,000
|
|
|
|
9,230,000
|
|
Deferred revenue
|
|
|
3,467,000
|
|
|
|
9,616,000
|
|
Current maturities of notes payable and obligations under capital leases
|
|
|
9,131,000
|
|
|
|
5,290,000
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
39,369,000
|
|
|
|
44,304,000
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Notes payable and obligations under capital leases less current maturities
|
|
|
11,179,000
|
|
|
|
10,281,000
|
|
Deferred tax liability
|
|
|
27,678,000
|
|
|
|
22,076,000
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
38,857,000
|
|
|
|
32,357,000
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock-par value $1.00 per share;
5,000,000 shares authorized, none outstanding
|
|
|
|
|
|
|
|
|
Common stock-par value $.33 1/3 per share;
50,000,000 shares authorized, 8,031,369 and 7,910,885 shares issued and
outstanding at September 30, 2012 and September 30, 2011, respectively
|
|
|
2,677,000
|
|
|
|
2,637,000
|
|
Additional paid-in capital
|
|
|
93,224,000
|
|
|
|
91,591,000
|
|
Retained earnings
|
|
|
105,048,000
|
|
|
|
93,935,000
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
200,949,000
|
|
|
|
188,163,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
279,175,000
|
|
|
$
|
264,824,000
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-4
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Operating revenues
|
|
$
|
319,274,000
|
|
|
$
|
333,279,000
|
|
|
$
|
205,272,000
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
258,970,000
|
|
|
|
292,519,000
|
|
|
|
185,588,000
|
|
General and administrative
|
|
|
11,205,000
|
|
|
|
13,550,000
|
|
|
|
7,131,000
|
|
Depreciation
|
|
|
32,498,000
|
|
|
|
30,536,000
|
|
|
|
27,126,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
302,673,000
|
|
|
|
336,605,000
|
|
|
|
219,845,000
|
|
Income (loss) from operations
|
|
|
16,601,000
|
|
|
|
(3,326,000
|
)
|
|
|
(14,573,000
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
28,000
|
|
|
|
35,000
|
|
|
|
185,000
|
|
Interest expense
|
|
|
(629,000
|
)
|
|
|
(167,000
|
)
|
|
|
|
|
Other income
|
|
|
516,000
|
|
|
|
651,000
|
|
|
|
398,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
16,516,000
|
|
|
|
(2,807,000
|
)
|
|
|
(13,990,000
|
)
|
Income tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(490,000
|
)
|
|
|
2,929,000
|
|
|
|
7,102,000
|
|
Deferred
|
|
|
(4,913,000
|
)
|
|
|
(3,368,000
|
)
|
|
|
(2,464,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,403,000
|
)
|
|
|
(439,000
|
)
|
|
|
4,638,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
11,113,000
|
|
|
$
|
(3,246,000
|
)
|
|
$
|
(9,352,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
1.42
|
|
|
$
|
(0.42
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share
|
|
$
|
1.40
|
|
|
$
|
(0.42
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average equivalent common shares outstanding
|
|
|
7,841,722
|
|
|
|
7,809,561
|
|
|
|
7,777,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average equivalent common shares outstanding assuming dilution
|
|
|
7,931,593
|
|
|
|
7,809,561
|
|
|
|
7,777,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-5
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Retained
Earnings
|
|
|
Total
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
|
|
|
Balance September 30, 2009
|
|
|
7,822,994
|
|
|
$
|
2,608,000
|
|
|
$
|
89,220,000
|
|
|
$
|
18,000
|
|
|
$
|
106,533,000
|
|
|
$
|
198,379,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,352,000
|
)
|
|
|
(9,352,000
|
)
|
Other comprehensive loss net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realization of losses on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,000
|
)
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,000
|
)
|
|
|
|
|
|
|
(14,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,366,000
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,398,000
|
|
|
|
|
|
|
|
|
|
|
|
1,398,000
|
|
Issuance of common stock as compensation
|
|
|
8,340
|
|
|
|
3,000
|
|
|
|
182,000
|
|
|
|
|
|
|
|
|
|
|
|
185,000
|
|
Issuance of restricted stock awards and unearned compensation
|
|
|
84,100
|
|
|
|
28,000
|
|
|
|
(28,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
250
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
Shares exchanged for taxes on stock-based compensation
|
|
|
(13,578
|
)
|
|
|
(5,000
|
)
|
|
|
(370,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(375,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2010
|
|
|
7,902,106
|
|
|
|
2,634,000
|
|
|
|
90,406,000
|
|
|
|
4,000
|
|
|
|
97,181,000
|
|
|
|
190,225,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,246,000
|
)
|
|
|
(3,246,000
|
)
|
Other comprehensive loss net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realization of losses on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,250,000
|
)
|
Tax deficit resulting from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
(453,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(453,000
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,485,000
|
|
|
|
|
|
|
|
|
|
|
|
1,485,000
|
|
Issuance of common stock as compensation
|
|
|
6,479
|
|
|
|
2,000
|
|
|
|
184,000
|
|
|
|
|
|
|
|
|
|
|
|
186,000
|
|
Forfeiture of restricted stock awards
|
|
|
(4,000
|
)
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
Shares exchanged for taxes on stock-based compensation
|
|
|
(9,400
|
)
|
|
|
(3,000
|
)
|
|
|
(323,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(326,000
|
)
|
Exercise of stock options
|
|
|
15,700
|
|
|
|
5,000
|
|
|
|
292,000
|
|
|
|
|
|
|
|
|
|
|
|
297,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2011
|
|
|
7,910,885
|
|
|
|
2,637,000
|
|
|
|
91,591,000
|
|
|
|
|
|
|
|
93,935,000
|
|
|
|
188,163,000
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,113,000
|
|
|
|
11,113,000
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,245,000
|
|
|
|
|
|
|
|
|
|
|
|
1,245,000
|
|
Issuance of common stock as compensation
|
|
|
7,234
|
|
|
|
3,000
|
|
|
|
241,000
|
|
|
|
|
|
|
|
|
|
|
|
244,000
|
|
Exercise of stock options
|
|
|
9,750
|
|
|
|
3,000
|
|
|
|
181,000
|
|
|
|
|
|
|
|
|
|
|
|
184,000
|
|
Issuance of restricted stock awards and unearned compensation
|
|
|
103,500
|
|
|
|
34,000
|
|
|
|
(34,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2012
|
|
|
8,031,369
|
|
|
$
|
2,677,000
|
|
|
$
|
93,224,000
|
|
|
$
|
|
|
|
$
|
105,048,000
|
|
|
$
|
200,949,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-6
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
11,113,000
|
|
|
$
|
(3,246,000
|
)
|
|
$
|
(9,352,000
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
32,498,000
|
|
|
|
30,536,000
|
|
|
|
27,126,000
|
|
Noncash compensation
|
|
|
1,489,000
|
|
|
|
1,671,000
|
|
|
|
1,583,000
|
|
Deferred income tax expense
|
|
|
4,913,000
|
|
|
|
3,368,000
|
|
|
|
2,464,000
|
|
Provision for bad debts
|
|
|
327,000
|
|
|
|
231,000
|
|
|
|
256,000
|
|
Other
|
|
|
192,000
|
|
|
|
(516,000
|
)
|
|
|
(343,000
|
)
|
Change in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
32,670,000
|
|
|
|
(30,613,000
|
)
|
|
|
(17,876,000
|
)
|
Decrease (increase) in prepaid expenses and other assets
|
|
|
3,359,000
|
|
|
|
3,402,000
|
|
|
|
(37,000
|
)
|
(Decrease) increase in accounts payable
|
|
|
(1,593,000
|
)
|
|
|
3,628,000
|
|
|
|
6,181,000
|
|
Decrease in accrued liabilities
|
|
|
(2,439,000
|
)
|
|
|
(922,000
|
)
|
|
|
(1,732,000
|
)
|
(Decrease) increase in deferred revenue
|
|
|
(6,149,000
|
)
|
|
|
9,412,000
|
|
|
|
(2,026,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
76,380,000
|
|
|
|
16,951,000
|
|
|
|
6,244,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net of noncash capital expenditures
summarized below in noncash investing and financing
activities
|
|
|
(44,832,000
|
)
|
|
|
(58,550,000
|
)
|
|
|
(18,835,000
|
)
|
Proceeds from maturity of short-term investments
|
|
|
500,000
|
|
|
|
22,500,000
|
|
|
|
20,000,000
|
|
Acquisition of short-term investments
|
|
|
(4,500,000
|
)
|
|
|
(2,500,000
|
)
|
|
|
(14,964,000
|
)
|
Proceeds from disposal of assets
|
|
|
252,000
|
|
|
|
741,000
|
|
|
|
434,000
|
|
Partial proceeds on fire insurance claim
|
|
|
|
|
|
|
1,392,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(48,580,000
|
)
|
|
|
(36,417,000
|
)
|
|
|
(13,365,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
9,346,000
|
|
|
|
16,427,000
|
|
|
|
|
|
Principal payments on notes payable
|
|
|
(5,814,000
|
)
|
|
|
(856,000
|
)
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(220,000
|
)
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
184,000
|
|
|
|
297,000
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,496,000
|
|
|
|
15,868,000
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
31,296,000
|
|
|
|
(3,598,000
|
)
|
|
|
(7,117,000
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
26,077,000
|
|
|
|
29,675,000
|
|
|
|
36,792,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
57,373,000
|
|
|
$
|
26,077,000
|
|
|
$
|
29,675,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
618,000
|
|
|
$
|
115,000
|
|
|
$
|
|
|
Cash paid for income taxes
|
|
$
|
262,000
|
|
|
$
|
509,000
|
|
|
$
|
839,000
|
|
Cash received for income taxes
|
|
$
|
3,258,000
|
|
|
$
|
7,366,000
|
|
|
$
|
8,125,000
|
|
NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued purchases of property and equipment
|
|
$
|
1,405,000
|
|
|
$
|
830,000
|
|
|
$
|
1,127,000
|
|
Equipment purchase through asset trade in
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,260,000
|
|
Capital lease obligations incurred
|
|
$
|
1,427,000
|
|
|
$
|
|
|
|
$
|
|
|
Unrealized gain on investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,000
|
|
See accompanying notes to the consolidated financial statements
F-7
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Nature of Operations
Founded in 1952, the Company acquires and processes 2-D, 3-D and multi-component seismic data for its clients, ranging from major oil and
gas companies to independent oil and gas operators as well as providers of multi-client data libraries.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Dawson Seismic Services
Holdings, Inc. and Dawson Seismic Services ULC. All significant intercompany balances and transactions have been eliminated in consolidation.
Cash Equivalents
For purposes of the financial statements, the Company considers demand deposits, certificates of deposit, overnight investments, money
market funds and all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents.
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 collectability of outstanding client invoices is continually assessed, the inherent volatility of the energy industrys business cycle can cause swift and unpredictable changes in the
financial stability of the Companys clients.
Property, Plant and Equipment
Property, plant and equipment is capitalized at historical cost and depreciated over the useful life of the asset. Managements
estimation of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. As circumstances change and new information becomes available, these estimates could
change.
Depreciation is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in the results of operations for the period.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when triggering events occur suggesting deterioration in the assets recoverability or
fair value. Recognition of an impairment charge is required if future expected undiscounted net cash flows are insufficient to recover the carrying value of the assets and the fair value of the assets is below the carrying value of the assets.
Managements forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and expenses based on the Companys anticipated future results while considering anticipated future oil and natural gas
prices which is fundamental in assessing demand for the Companys services. If the carrying amounts of the assets exceed the estimated expected undiscounted future cash flows, the Company measures the amount of possible impairment by comparing
the carrying amount of the assets to the fair value. No impairment charges were recognized in the Consolidated Statements of Operations for the years ended September 30, 2012, 2011 or 2010.
F-8
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Leases
The Company leases certain equipment and vehicles under lease agreements. The Company evaluates each lease to determine its appropriate classification as an operating or capital lease for financial
reporting purposes. Any lease that does not meet the criteria for a capital lease is accounted for as an operating lease. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or
the fair market value of the related assets. Assets under capital leases are depreciated using the straight-line method over the initial lease term.
Revenue Recognition
Services are provided under cancelable service contracts. These contracts are either turnkey or term agreements.
Under both types of agreements, the Company recognizes revenues when revenue is realizable and services have been performed. Services are defined as the commencement of data acquisition or processing operations. Revenues are considered realizable
when earned according to the terms of the service contracts. Under turnkey agreements, revenue is recognized on a per unit of data acquired rate as services are performed. Under term agreements, revenue is recognized on a per unit of time worked
rate as services are performed. In the case of a cancelled service contract, revenue is recognized and the customer is billed for services performed up to the date of cancellation.
The Company receives reimbursements for certain out-of-pocket expenses under the terms of the service contracts. Amounts billed to clients
are recorded in revenue at the gross amount including out-of-pocket expenses that are reimbursed by the client.
In some
instances, customers are billed in advance of services performed. In those cases, the Company recognizes the liability as deferred revenue. As services are performed, those deferred revenue amounts are recognized as revenue.
When it becomes evident that the estimates of total costs to be incurred on a contract will exceed the total estimates of revenue to be
earned, an estimated contract loss is recognized in the period in which the loss is identifiable.
Stock-Based Compensation
The Company measures all employee stock-based compensation awards, which include stock options and restricted stock, using the fair value
method and recognizes compensation cost, net of estimated forfeitures, in its financial statements. The Company records compensation expense as operating or general and administrative expense as appropriate in the Consolidated Statements of
Operations on a straight-line basis over the vesting period of the related stock options or restricted stock awards.
Income Taxes
The Company accounts for income taxes by recognizing amounts of taxes payable or refundable for the current year and by using an asset and
liability approach in recognizing the amount of deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Companys financial statements or tax returns. Management determines deferred taxes
by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate in effect for the year in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of an enacted rate change. The deferred tax asset is reduced by a valuation allowance if, based on available evidence, it is more
likely than not that some portion or all of the deferred tax asset will not be realized. Managements methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including
F-9
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
determining the annual effective tax rate and the valuation of deferred tax assets, which can create variances between actual results and estimates and could have a material impact on the
Companys provision or benefit for income taxes.
Use of Estimates in the Preparation of Financial Statements
Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Because of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.
2. Short-Term Investments
The Company had short-term investments at September 30, 2012 consisting of certificates of deposit with original
maturities greater than three months, but less than a year. Certificates of deposit are limited to one per banking institution and no single investment exceeded the FDIC insurance limit at September 30, 2012. There were no outstanding
short-term investments at September 30, 2011.
3. Fair Value of Financial Instruments
At September 30, 2012 and 2011, the Companys financial instruments included cash and cash equivalents, trade
and other receivables, other current assets, accounts payable, other current liabilities and the Term Note. At September 30, 2012, the Companys financial instruments also included short-term investments in certificates of deposit and the
Second Term Note. Due to the short-term maturities of cash and cash equivalents, short-term investments in certificates of deposit, trade and other receivables, other current assets, accounts payables and other current liabilities, the carrying
amounts approximate fair value at the respective balance sheet dates. The Companys Term Note and Second Term Note approximate their fair value due to the fact that the interest rates on the Term Note and Second Term Note are reset each
month based on the prevailing market interest rate.
4. Property, Plant and Equipment
Property, plant and equipment, together with the related estimated useful lives, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Useful Lives
|
|
Land, building and other
|
|
$
|
8,641,000
|
|
|
$
|
7,532,000
|
|
|
|
3 to 40 years
|
|
Recording equipment
|
|
|
206,642,000
|
|
|
|
199,347,000
|
|
|
|
5 to 10 years
|
|
Line clearing equipment
|
|
|
913,000
|
|
|
|
|
|
|
|
5 years
|
|
Vibrator energy sources
|
|
|
76,813,000
|
|
|
|
65,175,000
|
|
|
|
5 to 15 years
|
|
Vehicles
|
|
|
32,429,000
|
|
|
|
30,337,000
|
|
|
|
1.5 to 10 years
|
|
Other(a)
|
|
|
592,000
|
|
|
|
256,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,030,000
|
|
|
|
302,647,000
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(164,634,000
|
)
|
|
|
(156,106,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
161,396,000
|
|
|
$
|
146,541,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Other represents accumulated costs associated with equipment fabrication and modification not yet completed.
|
F-10
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Supplemental Consolidated Balance Sheet Information
Accounts receivable consist of the following at September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Trade and accrued trade receivables
|
|
$
|
53,268,000
|
|
|
$
|
82,676,000
|
|
Allowance for doubtful accounts
|
|
|
(250,000
|
)
|
|
|
(155,000
|
)
|
Accrued receivable for workers compensation stop loss policy
|
|
|
623,000
|
|
|
|
3,852,000
|
|
Other
|
|
|
78,000
|
|
|
|
343,000
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable
|
|
$
|
53,719,000
|
|
|
$
|
86,716,000
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets consist of the following at September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Prepaid expenses and other assets
|
|
$
|
762,000
|
|
|
$
|
943,000
|
|
Income tax receivable
|
|
|
|
|
|
|
3,311,000
|
|
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other assets
|
|
$
|
762,000
|
|
|
$
|
4,254,000
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities consist of the following at September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Accrued self-insurance reserves
|
|
$
|
2,181,000
|
|
|
$
|
5,567,000
|
|
Income and franchise taxes payable
|
|
|
1,096,000
|
|
|
|
897,000
|
|
Other accrued expenses and current liabilities
|
|
|
3,148,000
|
|
|
|
2,766,000
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
6,425,000
|
|
|
$
|
9,230,000
|
|
|
|
|
|
|
|
|
|
|
6. Debt
The Companys revolving line of credit loan agreement is with Western National Bank. The agreement was renewed
June 2, 2011 under the same terms as the previous agreement. The agreement permits the Company to borrow, repay and reborrow, from time to time until June 2, 2013, up to $20.0 million based on the borrowing base calculation as defined in
the agreement. The Companys 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 the 30-day LIBOR,
plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent, as the Company directs monthly, subject to an interest rate floor of 4%. Interest on the outstanding amount under the loan agreement is payable monthly. The loan
agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets, mergers and reorganizations. The Company is also obligated to meet certain financial covenants under the loan agreement,
including maintaining specified ratios with respect to cash flow coverage, current assets and liabilities and debt to tangible net worth. The Company was in compliance with all covenants including specified ratios as of September 30, 2012 and
December 5, 2012 and has the full line of credit available for borrowing. The Company has not utilized the revolving line of credit during the fiscal years ended September 30, 2012 or September 30, 2011.
The Company amended its credit loan agreement with Western National Bank on June 30, 2011 to add the Term Note provision, under which
the Company obtained $16,427,000 in financing for the purchase of Geospace Technologies GSR equipment. The Term Note is repayable over a period of 36 months at $485,444 per month plus any applicable interest. Interest on the Term Note accrues at an
annual rate equal to either the 30-day
F-11
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
LIBOR, plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent, as the Company directs monthly, subject to an interest rate floor of 4%, and otherwise has the same terms
as the revolving line of credit. The Term Note is collateralized by a security interest in the Companys accounts receivable, equipment and related collateral and matures with all outstanding balances due on June 30, 2014. The fair value
of the Term Note approximates its carrying value at September 30, 2012 due to the fact that the interest rate on the Term Note is reset each month based on the prevailing market interest rate.
On May 11, 2012, the Company entered into the Second Term Note under its credit loan agreement with Western National Bank. The Second
Term Note allows the Company to borrow from time to time up to $15.0 million to purchase equipment. The outstanding principal under the Second Term Note will be amortized over a period of 36 months. The Second Term Note bears interest at an annual
rate equal to either the 30-day LIBOR, plus two and one-quarter percent, or the Prime Rate, minus three-quarters percent, as the Company directs monthly, subject to an interest rate floor of 3.75%, and otherwise has the same terms as the revolving
line of credit. The Second Term Note is collateralized by a security interest in the Companys accounts receivable, equipment and related collateral and matures with all outstanding balances due on May 2, 2015. On July 5, 2012, the
Company borrowed $9,346,000 under the Second Term Note to purchase Geospace Technologies GSR recording equipment. The fair value of the Second Term Note approximates its carrying value at September 30, 2012 due to the fact that the interest
rate on the Second Term Note is reset each month based on the prevailing market interest rate.
In the second quarter of fiscal
2012, the Company began leasing vehicles from Enterprise Fleet Management under capital leases. These capital lease obligations are payable in 36 to 60 monthly installments and mature between December 2014 and February 2017. At September 30,
2012, the Company had leased 42 vehicles under these capital leases.
The Companys notes payable and obligations under
capital leases consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
Term Note
|
|
$
|
10,281,000
|
|
|
$
|
15,571,000
|
|
Second Term Note
|
|
|
8,821,000
|
|
|
|
|
|
Revolving line of credit
|
|
|
|
|
|
|
|
|
Obligations under capital leases
|
|
|
1,208,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,310,000
|
|
|
$
|
15,571,000
|
|
Less current maturities of notes payable and obligations under capital leases
|
|
|
(9,131,000
|
)
|
|
|
(5,290,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,179,000
|
|
|
$
|
10,281,000
|
|
|
|
|
|
|
|
|
|
|
The aggregate maturities of the notes payable and obligations under capital leases at September 30, 2012 are as
follows:
|
|
|
|
|
October 2012 September 2013
|
|
$
|
9,131,0000
|
|
October 2013 September 2014
|
|
|
8,530,000
|
|
October 2014 September 2015
|
|
|
2,545,000
|
|
October 2015 September 2016
|
|
|
73,000
|
|
October 2016 September 2017
|
|
|
31,000
|
|
|
|
|
|
|
|
|
$
|
20,310,000
|
|
|
|
|
|
|
F-12
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Stock-Based Compensation
At September 30, 2012, the Company had one stock-based compensation plan. The awards outstanding under this plan
and the associated accounting treatment are discussed below.
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 of the Companys stock. The expected term represents the average period that the Company expects stock options to be outstanding and is determined based on the Companys
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 Companys
common stock and overall stock market conditions. There is no assurance the value realized by an optionee will be at or near the value estimated by the Black-Scholes model.
A summary of the Companys employee stock options as of September 30, 2012, as well as activity during the year then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Optioned
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term in Years
|
|
|
Aggregate
Intrinsic
Value ($000)
|
|
Balance as of September 30, 2011
|
|
|
135,300
|
|
|
$
|
18.91
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(9,750
|
)
|
|
|
18.91
|
|
|
|
|
|
|
$
|
173
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2012
|
|
|
125,550
|
|
|
$
|
18.91
|
|
|
|
6.17
|
|
|
$
|
797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of September 30, 2012
|
|
|
87,800
|
|
|
$
|
18.91
|
|
|
|
6.17
|
|
|
$
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No options were granted during fiscal 2012, 2011 or 2010. The total intrinsic value of options exercised during fiscal
2012, 2011 and 2010 was $173,000, $318,000 and $1,000, respectively. The total fair value of options vested during fiscal 2012, 2011 and 2010 was $362,000, $362,000 and $364,000, respectively.
A summary of the status of the Companys nonvested stock option awards as of September 30, 2012 and changes during the year then
ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
Number of
Nonvested
Share Awards
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Nonvested option awards outstanding September 30, 2011
|
|
|
75,500
|
|
|
$
|
9.59
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(37,750
|
)
|
|
|
9.59
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested option awards outstanding September 30, 2012
|
|
|
37,750
|
|
|
$
|
9.59
|
|
|
|
|
|
|
|
|
|
|
F-13
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Outstanding options at September 30, 2012 expire in December 2018 and have an
exercise price of $18.91. As of September 30, 2012, there was approximately $61,000 of unrecognized compensation cost related to nonvested stock option awards to be recognized over a weighted average period of 0.17 years.
Stock options issued under the Companys 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 years ended September 30, 2012, 2011 and 2010, there were no excess tax benefits from disqualifying
dispositions.
Cash received from option exercises under all share-based payment arrangements during the years ended
September 30, 2012, 2011 and 2010 was $184,000, $297,000 and $4,000, respectively.
The Company recognized compensation
expense associated with stock option awards of $362,000, $362,000 and $363,000 in fiscal 2012, 2011 and 2010, respectively. This amount is included in operating or general and administrative expense as appropriate in the Consolidated Statements of
Operations.
Stock Awards:
The Company granted 103,500 and 84,100 shares of restricted stock to employees in fiscal 2012 and 2010, respectively. The weighted average grant date fair value of restricted stock awards in fiscal 2012
and 2010 was $23.55 and $23.33, respectively. The fair value of the restricted stock granted equals the market price on the grant date and vests after three years. There were no restricted stock grants in 2011.
A summary of the status of the Companys nonvested restricted stock awards as of September 30, 2012 and changes during the year
then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
Number of
Restricted
Share Awards
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Nonvested restricted shares outstanding September 30, 2011
|
|
|
81,100
|
|
|
$
|
23.33
|
|
Granted
|
|
|
103,500
|
|
|
$
|
23.55
|
|
Vested
|
|
|
|
|
|
$
|
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested restricted shares outstanding September 30, 2012
|
|
|
184,600
|
|
|
$
|
23.45
|
|
|
|
|
|
|
|
|
|
|
The Companys 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 in fiscal 2012. As a result, the compensation expense recorded for restricted stock resulted in a deferred tax
asset for the Company equal to the tax effect of the amount of compensation expense recorded.
The Company recognized
compensation expense related to restricted stock awards of $883,000, $1,123,000 and $1,035,000 in fiscal 2012, 2011 and 2010, respectively. This amount is included in operating or general and administrative expense as appropriate in the Consolidated
Statements of Operations. As of September 30, 2012, there was approximately $2,603,000 of unrecognized compensation cost related to nonvested restricted stock awards granted. This cost is expected to be recognized over a weighted average period
of 2.32 years.
The Company granted common shares with immediate vesting to outside directors and employees in fiscal
years 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares Granted
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
2012
|
|
|
7,234
|
|
|
$
|
33.64
|
|
2011
|
|
|
6,479
|
|
|
$
|
28.69
|
|
2010
|
|
|
8,340
|
|
|
$
|
22.11
|
|
F-14
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company recognized expense of $244,000, $186,000 and $185,000 in fiscal 2012, 2011
and 2010, respectively, as well as the related tax benefit associated with these awards.
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 fiscal years 2012, 2011 and 2010, the Company elected to match 100% of the employee contributions up to a maximum of 6% of the participants gross salary. The Companys matching contributions for fiscal 2012, 2011 and 2010 were
approximately $1,521,000, $1,366,000 and $1,270,000, respectively.
9. Advertising Costs
Advertising costs are charged to expense as incurred. Advertising costs totaled $340,000, $370,000 and $256,000 during
the fiscal years ended September 30, 2012, 2011 and 2010, respectively.
10. Income Taxes
The Company recorded income tax expense in the current year of $5,403,000, as compared to income tax expense of
$439,000 in 2011 and income tax benefit of $4,638,000 in 2010.
Income tax expense (benefit) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Current federal
|
|
$
|
(10,000
|
)
|
|
$
|
(3,167,000
|
)
|
|
$
|
(7,342,000
|
)
|
Current state
|
|
|
500,000
|
|
|
|
238,000
|
|
|
|
240,000
|
|
Deferred federal
|
|
|
4,737,000
|
|
|
|
3,920,000
|
|
|
|
2,817,000
|
|
Deferred state
|
|
|
176,000
|
|
|
|
(552,000
|
)
|
|
|
(353,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,403,000
|
|
|
$
|
439,000
|
|
|
$
|
(4,638,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to income
(losses) from continuing operations before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Tax expense (benefit) computed at statutory rate of 35%
|
|
$
|
5,781,000
|
|
|
$
|
(982,000
|
)
|
|
$
|
(4,896,000
|
)
|
Change in valuation allowance
|
|
|
|
|
|
|
(19,000
|
)
|
|
|
(39,000
|
)
|
State income tax expense (benefit), net of federal tax
|
|
|
433,000
|
|
|
|
(284,000
|
)
|
|
|
(82,000
|
)
|
Transaction costs
|
|
|
(1,353,000
|
)
|
|
|
1,353,000
|
|
|
|
|
|
Other
|
|
|
542,000
|
|
|
|
371,000
|
|
|
|
379,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
5,403,000
|
|
|
$
|
439,000
|
|
|
$
|
(4,638,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The principal components of the Companys net deferred tax liability are as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
1,265,000
|
|
|
$
|
550,000
|
|
Restricted stock
|
|
|
579,000
|
|
|
|
258,000
|
|
Workers compensation
|
|
|
270,000
|
|
|
|
331,000
|
|
State tax net operating loss (NOL) carry forward
|
|
|
691,000
|
|
|
|
853,000
|
|
Federal tax NOL carry forward
|
|
|
12,776,000
|
|
|
|
13,625,000
|
|
Self-insurance
|
|
|
298,000
|
|
|
|
298,000
|
|
Canadian start-up costs
|
|
|
153,000
|
|
|
|
|
|
AMT credit carry forward
|
|
|
177,000
|
|
|
|
177,000
|
|
Other
|
|
|
210,000
|
|
|
|
262,000
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
16,419,000
|
|
|
|
16,354,000
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(42,172,000
|
)
|
|
|
(37,194,000
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(42,172,000
|
)
|
|
|
(37,194,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(25,753,000
|
)
|
|
$
|
(20,840,000
|
)
|
|
|
|
|
|
|
|
|
|
Current portion of net deferred tax asset/liability
|
|
$
|
1,925,000
|
|
|
$
|
1,236,000
|
|
Non-current portion of net deferred tax asset/liability
|
|
|
(27,678,000
|
)
|
|
|
(22,076,000
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax liability
|
|
$
|
(25,753,000
|
)
|
|
$
|
(20,840,000
|
)
|
|
|
|
|
|
|
|
|
|
At September 30, 2012, the Company had a gross NOL for U.S. federal income tax purposes of approximately
$36,502,000. This NOL expires in 2031. The Company will carry forward the net federal NOL of approximately $12,776,000. The Company also had net state NOLs that will affect state taxes of approximately $691,000 at September 30, 2012. State NOLs
will begin to expire in 2015. Carryback provisions are not allowed by all states, so the entire state NOLs give rise to a deferred tax asset. The Company believes, based on past levels of income, it is more likely than not that the results of future
operations will generate sufficient taxable income in which to realize these deferred tax assets. As such, no valuation allowance was considered necessary related to the federal or state NOLs.
At September 30, 2011, the Company released all of the valuation allowance held at September 30, 2010 related to the
Companys deferred tax assets for capital loss carry forwards. The Company has no valuation allowances as of September 30, 2012.
The following presents a roll forward of the Companys unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Balance at beginning of fiscal year
|
|
$
|
161,000
|
|
|
$
|
235,000
|
|
Expiration of statutes of limitations
|
|
|
(161,000
|
)
|
|
|
(74,000
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of fiscal year
|
|
$
|
|
|
|
$
|
161,000
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2012, the Company did not recognize any liabilities for unrecognized tax benefits. All of the
liabilities for unrecognized tax benefits lapsed in the statutes of limitations during fiscal 2012. The Company did not record any changes in prior year tax positions, current year tax positions or settlements with taxing authorities related to
uncertain tax positions during fiscal 2012 or 2011.
F-16
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Companys practice is to recognize interest and penalties related to
unrecognized tax benefits in income tax expense. In fiscal years 2012 and 2011, the Companys net accrued interest and penalties decreased by approximately $98,000 and $11,000, respectively.
11. Income (loss) per Common Share
Basic 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 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 income (loss) per common share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) and numerator for basic and diluted income (loss) per common share income available to common
shareholders
|
|
$
|
11,113,000
|
|
|
$
|
(3,246,000
|
)
|
|
$
|
(9,352,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic income (loss) per common share-weighted average common shares
|
|
|
7,841,722
|
|
|
|
7,809,561
|
|
|
|
7,777,404
|
|
Effect of dilutive securities-employee stock options and restricted stock grants
|
|
|
89,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted income (loss) per common share-adjusted weighted average common shares and assumed
conversions
|
|
|
7,931,593
|
|
|
|
7,809,561
|
|
|
|
7,777,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
1.42
|
|
|
$
|
(0.42
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share
|
|
$
|
1.40
|
|
|
$
|
(0.42
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had a net loss in 2011 and 2010; therefore the denominator for diluted loss per common share is the same as
the denominator for basic loss per common share for these periods.
The following weighted average numbers of certain
securities have been excluded from the calculation of diluted income (loss) per common share, as their effects would be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Stock options
|
|
|
|
|
|
|
140,487
|
|
|
|
151,710
|
|
Restricted stock
|
|
|
46,273
|
|
|
|
105,655
|
|
|
|
54,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
46,273
|
|
|
|
246,142
|
|
|
|
206,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Major Customers
The Company operates in only one business segment, contract seismic data acquisition and processing services. The major
customers in fiscal 2012, 2011 and 2010 have varied. Sales to these customers, as a percentage of operating revenues that exceeded 10%, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
A
|
|
|
21
|
%
|
|
|
27
|
%
|
|
|
32
|
%
|
B
|
|
|
|
|
|
|
24
|
%
|
|
|
|
|
F-17
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Commitments and Contingencies
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 Companys financial condition, results of operations
or liquidity as the Company believes it is adequately indemnified and insured.
The Company experiences contractual disputes
with its clients from time to time regarding the payment of invoices or other matters. While the Company seeks to minimize these disputes and maintain good relations with its clients, the Company has in the past, and may in the future, experience
disputes that could affect its revenues and results of operations in any period.
The Company has non-cancelable operating
leases for domestic office space in Midland, Houston, Denver, Oklahoma City and Pittsburgh and foreign office space in Calgary, Canada.
The following table summarizes payments due in specific periods related to the Companys contractual obligations with initial terms exceeding one year as of September 30, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period (in 000s)
|
|
|
|
Total
|
|
|
Within
1 Year
|
|
|
1-2 Years
|
|
|
3-5 Years
|
|
|
After
5 Years
|
|
Operating lease obligations (office space)
|
|
$
|
3,288
|
|
|
$
|
865
|
|
|
$
|
1,720
|
|
|
$
|
703
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Some of the Companys operating leases contain predetermined fixed increases of the minimum rental rate during the
initial lease term. For these leases, the Company recognizes the related expense on a straight-line basis and records deferred rent as the difference between the amount charged to expense and the rent paid. Rental expense under the Companys
operating leases with initial terms exceeding one year was $805,000, $717,000 and $619,000 for fiscal 2012, 2011 and 2010, respectively.
As of November 30, 2012, the Company had unused letters of credit totaling approximately $1,580,000. The Companys letters of credit principally back obligations associated with the
Companys self-insured retention on workers compensation claims. Effective in fiscal 2012, the Company was no longer self-insured for workers compensation claims after October 1, 2011. The unused letters of credit outstanding
at November 30, 2012 are associated with workers compensation claims outstanding prior to October 1, 2011.
14. Rights Agreement
On July 8, 2009, the Board of Directors of the Company authorized and declared a dividend to the holders of record
at the close of business on July 23, 2009 of one Right (a Right) for each outstanding share of the Companys common stock. When exercisable, each Right will entitle the registered holder to purchase from the Company a unit
consisting of one one-hundredth of a share (a Fractional Share) of Series A Junior Participating Preferred Stock, par value $1.00 per share, of the Company (the Preferred Shares), at a purchase price of $130.00 per
Fractional Share, subject to adjustment (the Purchase Price). The description and terms of the Rights are set forth in a Rights Agreement (the Rights Agreement) effective as of the close of business on July 23, 2009 as
it may from time to time be supplemented or amended between the Company and Computershare Shareowner Services LLC (formerly Mellon Investor Services LLC), 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
F-18
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
or associated persons (an Acquiring Person) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock, or
(ii) ten business days following the commencement of a tender offer or exchange offer that would result in a persons 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.
In the event (a Flip-Over Event) that, at any
time from and after the time an Acquiring Person becomes such, (i) the Company is acquired in a merger or other business combination transaction (other than certain mergers that follow a Permitted Offer), or (ii) 50% or more of the
Companys assets, cash flow or earning power is sold or transferred, each holder of a Right (except Rights that are voided as set forth above) shall thereafter have the right to receive, upon exercise, a number of shares of common stock of the
acquiring company having a Current Market Price equal to two times the exercise price of the Right. Flip-In Events and Flip-Over Events are collectively referred to as Triggering Events.
At any time until ten days following the first date of public announcement of the occurrence of a Flip-In Event, the Company may redeem
the Rights in whole, but not in part, at a price of $0.01 per Right, payable, at the option of the Company, in cash, shares of Common Stock or such other consideration as the Board of Directors may determine. After a person becomes an Acquiring
Person, the right of redemption is subject to certain limitations in the Rights Agreement.
At any time after the occurrence of
a Flip-In Event and prior to a persons becoming the beneficial owner of 50% or more of the shares of Common Stock then outstanding or the occurrence of a Flip-Over Event, the Company may exchange the Rights (other than Rights owned by an
Acquiring Person or an affiliate or an associate of an Acquiring Person, which will have become void), in whole or in part, at an exchange ratio of one share of Common Stock, and/or other equity securities deemed to have the same value as one share
of Common Stock, per Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends.
15. Recently Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards, to provide a consistent definition of fair value and ensure
that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04
F-19
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
changes certain fair value measurement principles and enhances disclosure requirements, particularly for Level 3 fair value measurements. The enhanced disclosures and fair value measurement
principles were effective for the Company as of January 1, 2012. The adoption of this guidance did not have a material impact on the Companys financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to require an entity to present the total of comprehensive income,
the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components
of other comprehensive income as part of the statement of equity. This update does not change what items are reported in other comprehensive income or the requirement to report reclassification of items from other comprehensive income to net income.
However, in December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05, that deferred the specific requirement within ASU 2011-05 to present on the face of the financial statements items that are reclassified from accumulated other comprehensive income to net income
separately with their respective components of net income and other comprehensive net income. Entities should continue to report reclassifications out of accumulated other comprehensive income using guidance in effect before ASU 2011-05 was issued.
ASU 2011-05 will be effective for the Company in its first quarter of fiscal 2013, though earlier adoption is permitted. The update will be applied retrospectively upon adoption, and the Company believes the adoption will not have a material effect
on its financial statements.
16. Concentrations of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk at any given time may
consist of cash and cash equivalents, money market funds and overnight investment accounts, short-term investments in certificates of deposit, trade and other receivables and other current assets. At September 30, 2012 and 2011, the Company had
deposits with domestic banks in excess of federally insured limits. Management believes the credit risk associated with these deposits is minimal. Money market funds seek to preserve the value of the investment, but it is possible to lose money
investing in these funds. The Company invests funds overnight under a repurchase agreement with its bank which is collateralized by securities of the United States Federal agencies. The Company generally invests primarily in short-term
U.S. Treasury Securities. The Company believes its investments are of high credit quality.
The Companys sales are
to clients whose activities relate to oil and natural gas exploration and production. The Company generally extends unsecured credit to these clients; therefore, collection of receivables may be affected by the economy surrounding the oil and
natural gas industry or other economic conditions. The Company closely monitors extensions of credit and may negotiate payment terms that mitigate risk. For the year ended September 30, 2012, sales to the Companys largest client
represented 21% of both its revenues and revenues net of third-party charges as compared to 27% and 18%, respectively, at September 30, 2011. The remaining balance of the Companys fiscal 2012 revenues was derived from varied clients and
none represented 10% or more of its fiscal 2012 revenues.
17. Subsequent Events
The Company evaluates subsequent events through the date the financial statements are issued in conformity with
generally accepted accounting principles. The Company considers its financial statements issued when they are widely distributed to users, such as filing with the SEC.
F-20
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Quarterly Consolidated Financial Data
18. Quarterly Consolidated Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
December 31
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
Fiscal 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
72,653,000
|
|
|
$
|
78,337,000
|
|
|
$
|
98,033,000
|
|
|
$
|
84,256,000
|
|
(Loss) income from operations
|
|
$
|
(2,817,000
|
)
|
|
$
|
(6,545,000
|
)
|
|
$
|
898,000
|
|
|
$
|
5,138,000
|
|
Net (loss) income
|
|
$
|
(1,667,000
|
)
|
|
$
|
(4,857,000
|
)
|
|
$
|
334,000
|
|
|
$
|
2,944,000
|
|
Basic (loss) income per common share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
0.04
|
|
|
$
|
0.38
|
|
Diluted (loss) income per common share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
0.04
|
|
|
$
|
0.37
|
|
Fiscal 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
92,382,000
|
|
|
$
|
85,546,000
|
|
|
$
|
68,348,000
|
|
|
$
|
72,998,000
|
|
Income from operations
|
|
$
|
3,226,000
|
|
|
$
|
9,446,000
|
|
|
$
|
1,798,000
|
|
|
$
|
2,131,000
|
|
Net income
|
|
$
|
3,231,000
|
|
|
$
|
5,589,000
|
|
|
$
|
1,141,000
|
|
|
$
|
1,152,000
|
|
Basic income per common share
|
|
$
|
0.41
|
|
|
$
|
0.71
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
Diluted income per common share
|
|
$
|
0.41
|
|
|
$
|
0.70
|
|
|
$
|
0.14
|
|
|
$
|
0.15
|
|
Basic income per share and diluted income per share are computed independently for each of the quarters presented.
Therefore, the sum of quarterly basic and diluted per share information may not equal the annual basic and diluted earnings per share.
F-21
Schedule
Schedule II
Dawson Geophysical Company
Consolidated Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of Period
|
|
|
Charged to
Costs and
Expenses
|
|
|
Deductions
|
|
|
Balance at
End of
Period
|
|
Allowance for doubtful accounts*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
155,000
|
|
|
$
|
327,000
|
|
|
$
|
232,000
|
|
|
$
|
250,000
|
|
2011
|
|
|
639,000
|
|
|
|
231,000
|
|
|
|
715,000
|
|
|
|
155,000
|
|
2010
|
|
|
533,000
|
|
|
|
256,000
|
|
|
|
150,000
|
|
|
|
639,000
|
|
Valuation allowance for deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
2011
|
|
|
19,000
|
|
|
|
(19,000
|
)
|
|
|
|
|
|
|
|
|
2010
|
|
|
58,000
|
|
|
|
(39,000
|
)
|
|
|
|
|
|
|
19,000
|
|
*
|
Deductions related to allowance for doubtful accounts represent amounts that have been deemed uncollectible and written off by the Company.
|
F-22
INDEX TO EXHIBITS
|
|
|
Number
|
|
Exhibit
|
|
|
3.1
|
|
Second Restated Articles of Incorporation of the Company, as amended (filed on February 9, 2007 as Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for
the first quarter ended December 31, 2006 (File No. 000-10144) and incorporated herein by reference and filed on November 28, 2007 as Exhibit 3.1 to the Companys Current Report on Form 8-K (File No. 000-10144) and
incorporated herein by reference).
|
|
|
3.2
|
|
Second Amended and Restated Bylaws of the Company, as amended (filed on November 23, 2010 as Exhibit 3.2 to the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 2010 (File No. 001-34404) and incorporated herein by reference).
|
|
|
3.3
|
|
Amendment No. 2 to Second Amended and Restated Bylaws, as amended, of the Company (filed on March 21, 2011 as Exhibit 3.1 to the Companys Current Report on Form 8-K (File No.
001-34404) and incorporated herein by reference).
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3.4
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Amendment No. 3 to Second Amended and Restated Bylaws, as amended, of the Company (filed on November 30, 2012 as Exhibit 3.1 to the Companys Current Report on Form 8-K (File
No. 001-34404) and incorporated herein by reference).
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3.5
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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
Companys Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference).
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4.1
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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 Companys Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference).
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10.1
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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 Companys Current Report on Form 8-K (File No. 000-10144) and incorporated herein by reference).
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10.2
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Dawson Geophysical Company 2004 Incentive Stock Plan (filed on March 12, 2004 as Exhibit 10.1 to the Companys Registration Statement on Form S-8 (File
No. 333-113576) and incorporated herein by reference).
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10.3
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Form of Restricted Stock Agreement for the 2006 Plan (filed on February 11, 2008 as Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q (File
No. 000-10144) and incorporated herein by reference).
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10.4
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Form of Stock Option Agreement for the 2006 Plan (filed on February 11, 2008 as Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q (File
No. 000-10144) and incorporated herein by reference).
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10.5
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Form of Restricted Stock Agreement for the 2006 Plan (filed on August 6, 2007 as Exhibit 10.1 to the Companys Current Report on Form 8-K (File
No. 000-10144) and incorporated herein by reference).
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10.6
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Form of Stock Option Agreement for the 2006 Plan (filed on August 6, 2007 as Exhibit 10.2 to the Companys Current Report on Form 8-K (File No. 000-10144)
and incorporated herein by reference).
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10.7
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Description of Profit Sharing Plan (filed on December 3, 2007 as Exhibit 10.1 to the Companys Current Report on Form 8-K (File No. 000-10144) and
incorporated herein by reference).
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10.8
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Description of Profit Sharing Plan (filed on September 29, 2008 as Exhibit 10.1 to the Companys Current Report on Form 8-K (File No. 000-10144) and
incorporated herein by reference).
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10.9
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Summary of Non-Employee Director Compensation (filed on February 9, 2009 as Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q (File No. 000-10144)
and incorporated herein by reference).
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Number
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Exhibit
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10.10*
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Form of Master Geophysical Data Acquisition Agreement.
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10.11*
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Form of Supplemental Agreement to Master Geophysical Data Acquisition Agreement.
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10.12
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Form of Indemnification Agreement with Directors and Officers of the Company (filed on March 21, 2011 as Exhibit 10.1 to the Companys Current Report on Form 8-K (File No.
001-34404) and incorporated herein by reference).
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10.13
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Revolving Line of Credit and Term Loan Agreement, dated as of June 30, 2011, between the Company and Western National Bank (filed on August 9, 2011 as Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q (File No. 001-34404) and incorporated herein by reference).
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10.14
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Security Agreement, dated as of June 30, 2011, between the Company and Western National Bank (filed on August 9, 2011 as Exhibit 10.3 to the Companys Quarterly
Report on Form 10-Q (File No. 001-34404) and incorporated herein by reference).
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10.15
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Multiple Advance Term Note Agreement, dated as of May 11, 2012, between the Company and Western National Bank (filed on August 9, 2012 as Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q (File No. 001-34404) and incorporated herein by reference).
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10.16
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Security Agreement, dated as of May 11, 2012, between the Company and Western National Bank (filed on August 9, 2012 as Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q (File No. 001-34404) and incorporated herein by reference).
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21.1*
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List of Subsidiaries.
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23.1*
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Consent of Independent Registered Public Accounting Firm.
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31.1*
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Certification of Chief Executive Officer of Dawson Geophysical Company pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as
amended.
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31.2*
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Certification of Chief Financial Officer of Dawson Geophysical Company pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as
amended.
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32.1*
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Certification of Chief Executive Officer of Dawson Geophysical Company pursuant to Rule 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 Release 34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be filed.
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32.2*
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Certification of Chief Financial Officer of Dawson Geophysical Company pursuant to Rule 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 Release 34-47551, this Exhibit is furnished to the SEC and shall not be deemed to be filed.
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**101
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The following materials from the Companys Annual Report on Form 10-K for the year ended September 30, 2012, formatted in XBRL (Extensible Business Reporting Language):
(i) Consolidated Balance Sheets at September 30, 2012 and September 30, 2011, (ii) Consolidated Statements of Operations for the years ended September 30, 2012, 2011 and 2010, (iii) Consolidated Statements of Stockholders Equity and Other
Comprehensive Income (Loss) for the years ended September 30, 2012, 2011 and 2010, (iv) Consolidated Statements of Cash Flows for the years ended September 30, 2012, 2011 and 2010, and (v) Notes to Consolidated Financial Statements.
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**
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Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11
or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.
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Identifies exhibit that consists of or includes a management contract or compensatory plan or arrangement.
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Dawson Geophysical (NASDAQ:DWSN)
과거 데이터 주식 차트
부터 6월(6) 2024 으로 7월(7) 2024
Dawson Geophysical (NASDAQ:DWSN)
과거 데이터 주식 차트
부터 7월(7) 2023 으로 7월(7) 2024