Results of Operations
The table below shows our revenues and expenses for the years ended December 31, 2016, 2015 and 2014:
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Year Ended December 31,
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2016
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2015
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2014
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(unaudited)
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Operating revenues
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$
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133,330,000
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$
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234,685,000
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$
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244,304,000
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Operating costs:
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Operating expenses
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121,661,000
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205,566,000
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207,185,000
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General and administrative
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16,822,000
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22,729,000
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17,012,000
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Depreciation and amortization
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44,283,000
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47,072,000
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40,028,000
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182,766,000
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275,367,000
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264,225,000
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Loss from operations
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(49,436,000)
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(40,682,000)
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(19,921,000)
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Other income
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3,195,000
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648,000
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252,000
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Loss before income tax
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(46,241,000)
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(40,034,000)
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(19,669,000)
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Income tax benefit
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6,449,000
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13,755,000
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4,955,000
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Net loss
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$
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(39,792,000)
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$
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(26,279,000)
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$
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(14,714,000)
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Year Ended December 31, 2016 versus Year Ended December 31, 2015
Operating Revenues.
Our operating revenues for the year ended December 31, 2016 were $133,330,000 as compared to $234,685,000 for the same period of 2015. The decrease was primarily due to the significant reduction in utilization rates in 2016 as demand for our services decreased as a result of decreased and uncertain commodity prices and reduced client expenditures. Severe weather conditions in several areas of operations during the first and second quarters also led to short term project delays. Client directed delays affected utilization of two to three crews during the third and fourth quarters. Reimbursed third‑party charges decreased consistently with the overall drop in revenues during the year ended December 31, 2016.
Operating Expenses.
Operating expenses for the year ended December 31, 2016 decreased to $121,661,000 as compared to $205,566,000 for the same period of 2015. The decrease in operating expenses and reimbursed third–party charges was primarily a result of significant reduction in utilization rates discussed in operating revenues above.
General and administrative expenses.
General and administrative expenses were 12.6% of revenues in the year ended December 31, 2016 compared to 9.7% of revenues in the same period of 2015. General and administrative expenses decreased to $16,822,000 during the year ended December 31, 2016 from $22,729,000 during the same period of 2015. The primary factors for the decrease in general and administrative expense were transaction costs of approximately $3,314,000 related to the Merger in 2015 and reduced administrative costs to support our operations.
Depreciation expense.
Depreciation for the year ended December 31, 2016 totaled $44,283,000 compared to $47,072,000 for the same period of 2015. The decrease in depreciation expense is a result of limiting capital expenditures to necessary maintenance capital requirements in recent years. Our depreciation expense is expected to remain flat during 2017 primarily due to limited capital expenditures to maintain our existing asset base.
Our total operating costs for the year ended December 31, 2016 were $182,766,000, representing a 33.6% decrease from the corresponding period of 2015. This change was primarily due to the factors described above.
Income Taxes.
Income tax benefit was $6,449,000 for the year ended December 31, 2016 as compared to $13,755,000 for the same period of 2015. The effective tax benefit rates for the years ended December 31, 2016 and 2015 were approximately 13.9% and 34.4%, respectively.
Our effective tax rates decreased as compared to the corresponding period from the prior year primarily due to the recording of a valuation allowance during the year against our federal net operating loss deferred tax asset and an increase in our valuation allowance against our state net operating loss deferred tax assets.
Our effective tax rates differ from the statutory federal rate of 35% for certain items such as state and local taxes, valuation allowances, non‑deductible expenses and discrete items.
Year Ended December 31, 2015 versus Year Ended December 31, 2014
Operating Revenues.
Our operating revenues for the year ended December 31, 2015 were $234,685,000 as compared to $244,304,000 for the same period of 2014. The decrease was primarily due to the reduction in utilization rates in 2015 as demand for our services has decreased as a result of decreasing and uncertain commodity prices and reduced client expenditures. Severe weather conditions in several areas of operation throughout 2015 also led to short‑term project delays. Reimbursed third‑party charges as a percentage of revenues were below our historical ranges of 25% to 35% during the year ended December 31, 2015.
Operating Expenses.
Operating expenses for the year ended December 31, 2015 decreased to $205,566,000 as compared to $207,185,000 for the same period of 2014. The decrease in operating expenses did not correlate to the decrease in operating revenues due to the process of internal reorganization and consolidation after the Merger. Although the dollar amount of operating expenses decreased between the two periods, operating expenses as a percentage of revenue increased between periods due to reduced revenue.
General and administrative expenses.
General and administrative expenses were 9.7% of revenues in the year ended December 31, 2015 compared to 7.0% of revenues in the same period of 2014. General and administrative expenses increased to $22,729,000 during the year ended December 31, 2015 from $17,012,000 during the same period of 2014. The primary factors for the increase in general and administrative expenses are salary costs that increased as a result of increased employee costs to support our combined company and additional accounting costs associated with the expanded Canadian operations acquired in the Merger. Accounting and consulting costs increased from the same period in 2014 relating to the Merger and new accounting software implementation.
Depreciation expense.
Depreciation for the year ended December 31, 2015 totaled $47,072,000 compared to $40,028,000 for the same period of 2014. The increase in depreciation expense is related to the additional assets acquired in the Merger.
Our total operating costs for the year ended December 31, 2015 were $275,367,000, representing a 4.2% increase from the corresponding period of 2014. This change was primarily due to the following: increased salary costs of the combined Company resulting from the Merger; an increase in depreciation related to the additional assets acquired in the Merger; and comparability of the periods reported which were the combined Company for most of 2015 and Legacy Dawson for 2014.
Income Taxes.
Income tax benefit was $13,755,000 for the year ended December 31, 2015 as compared to $4,955,000 for the same period of 2014. The effective tax benefit rates for the years ended December 31, 2015 and 2014 were approximately 34.4% and 25.2%, respectively. Our effective tax benefit rates increased as compared to the corresponding prior year primarily due to the increase in pre‑tax losses that were partially offset by the effect of permanent tax differences. Our effective tax rates differ from the statutory federal rate of 35% for certain items such as state and local taxes, valuation allowances, non‑deductible expenses and discrete items.
Use of EBITDA (Non‑GAAP measure)
We define EBITDA as net income (loss) plus interest expense, interest income, income taxes, and depreciation and amortization expense. Our management uses EBITDA as a supplemental financial measure to assess:
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the financial performance of our assets without regard to financing methods, capital structures, taxes or historical cost basis;
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·
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our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate EBITDA in a similar manner; and
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·
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the ability of our assets to generate cash sufficient for us to pay potential interest costs.
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We also understand that such data are used by investors to assess our performance. However, the term EBITDA is not defined under generally accepted accounting principles (“GAAP”), and EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP. When assessing our operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income (loss), cash flow from operating activities or other cash flow data calculated in accordance with GAAP. In addition, our
EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as us. Further, the results presented by EBITDA cannot be achieved without incurring the costs that the measure excludes: interest, taxes, and depreciation and amortization.
The reconciliation of our EBITDA to our net loss and net cash provided by operating activities, which are the most directly comparable GAAP financial measures, are provided in the tables below:
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Year Ended December 31,
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2016
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2015
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2014
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(unaudited)
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Net loss
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$
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(39,792,000)
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$
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(26,279,000)
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$
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(14,714,000)
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Depreciation and amortization
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44,283,000
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47,072,000
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40,028,000
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Interest (income) expense, net
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(87,000)
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450,000
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417,000
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Income tax benefit
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(6,449,000)
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(13,755,000)
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(4,955,000)
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EBITDA
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$
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(2,045,000)
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$
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7,488,000
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$
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20,776,000
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Year Ended December 31,
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2016
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2015
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2014
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(unaudited)
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Net cash provided by operating activities
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$
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8,742,000
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$
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20,612,000
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$
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30,472,000
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Changes in working capital and other items
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(9,908,000)
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(11,968,000)
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(8,424,000)
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Noncash adjustments to net loss
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(879,000)
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(1,156,000)
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(1,272,000)
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EBITDA
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$
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(2,045,000)
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$
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7,488,000
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$
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20,776,000
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Liquidity and Capital Resources
Introduction.
Our principal sources of cash are amounts earned from the seismic data acquisition services we provide to our clients. Our principal uses of cash are the amounts used to provide these services, including expenses related to our operations and acquiring new equipment. Accordingly, our cash position depends (as do our revenues) on the level of demand for our services. Historically, cash generated from our operations along with cash reserves and borrowings from commercial banks have been sufficient to fund our working capital requirements and, to some extent, our capital expenditures.
Cash Flows.
The following table shows our sources and uses of cash for the years ended December 31, 2016, 2015 and 2014:
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Year Ended December 31,
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2016
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2015
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2014
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(unaudited)
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Net cash provided by (used in):
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Operating activities
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$
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8,742,000
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$
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20,612,000
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$
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30,472,000
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Investing activities
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(22,729,000)
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15,787,000
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(13,438,000)
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Financing activities
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(8,483,000)
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(13,606,000)
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(13,870,000)
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Effect of exchange rate changes to cash and cash equivalents
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85,000
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(428,000)
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(380,000)
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Net change in cash and cash equivalents
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$
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(22,385,000)
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$
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22,365,000
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$
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2,784,000
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Year Ended December 31, 2016 versus Year Ended December 31, 2015
Net cash provided by operating activities was $8,742,000 and $20,612,000 for the years ended December 31, 2016 and 2015, respectively. This decrease primarily reflects our decline in revenues during the year ended December 31, 2016. Cash received from reductions in our overall operating level of accounts receivable to $16,031,000 as of December 31, 2016 from $35,700,000 as of December 31, 2015 provided $19,669,000 of operating cash flows for the year ended December 31, 2016. Such significant reductions in accounts receivable are not likely to occur for the year ended December 31, 2017.
Net cash used in investing activities was $22,729,000 for the year ended December 31, 2016 and includes $19,250,000 of cash reserves that were invested and cash capital expenditures of $8,251,000. These increases in cash used
in investing activities were offset by $1,922,000 of proceeds from disposal of assets and $2,850,000 of proceeds on flood insurance claims. Net cash provided by investing activities was $15,787,000 for the year ended December 31, 2015 and includes cash of $12,382,000 acquired in the Merger, $7,750,000 of short term investment maturities that were not reinvested, $1,501,000 of proceeds from disposal of assets and $1,000,000 of proceeds on flood insurance claims. These increases in cash provided by investing activities were offset by cash capital expenditures of $6,846,000.
Net cash used in financing activities was $8,483,000 for the year ended December 31, 2016 and includes principal payments of $7,554,000 on our notes, payments of $780,000 under our capital leases, and outflows of $149,000 associated with taxes related to stock vesting. Net cash used in financing activities was $13,606,000 for the year ended December 31, 2015 and included principal payments of $16,348,000 on our notes, payments of $1,535,000 under our capital leases, and outflows of $867,000 associated with taxes related to stock vesting offset by proceeds of $5,144,000 from our Credit Agreement (as defined below).
Year Ended December 31, 2015 versus Year Ended December 31, 2014
Net cash provided by operating activities was $20,612,000 and $30,472,000 for the years ended December 31, 2015 and 2014, respectively. This decrease primarily reflects our decline in revenues during the year ended December 31, 2015.
Net cash provided by investing activities was $15,787,000 for the year ended December 31, 2015 and represented cash of $12,382,000 acquired in the Merger, $7,750,000 of short-term investment maturities that were not reinvested, $1,501,000 of proceeds from disposal of assets and $1,000,000 of proceeds on flood insurance claims. These increases in cash provided by investing activities were offset by cash capital expenditures of $6,846,000. Net cash used in investing activities was $13,438,000 for the year ended December 31, 2014 and included cash capital expenditures of $14,001,000 and $2,750,000 of cash reserves invested. These decreases in cash used in investing activities were offset by $3,313,000 of proceeds from disposal of assets.
Net cash used in financing activities was $13,606,000 for the year ended December 31, 2015 and included principal payments of $16,348,000 on our notes, payments of $1,535,000 under our capital leases, and outflows of $867,000 associated with taxes related to stock vesting offset by proceeds of $5,144,000 from our Credit Agreement (as defined below). Net cash used in financing activities for the year ended December 31, 2014 was $13,870,000, primarily comprised of principal payments of $10,293,000 on term notes, payments of $1,014,000 under our capital leases, and cash dividends paid of $2,581,000.
Capital Expenditures.
During 2016, we made capital expenditures of $9,793,000. We limited our capital expenditures to necessary maintenance capital requirements. The Board of Directors approved an initial 2017 budget of $10,000,000 for capital expenditures, which is again limited primarily to necessary maintenance capital requirements and incremental recording channel replacement or increase. In recent years, we have funded some of our capital expenditures through cash reserves, equipment term loans and capital leases. In the past, we have also funded our capital expenditures and other financing needs through public equity offerings.
We continually strive to supply our clients with technologically advanced 3-D data acquisition recording services and data processing capabilities. We maintain equipment in and out of service in anticipation of increased future demand for our services.
Capital Resources
. Historically, we have primarily relied on cash generated from operations, cash reserves and borrowings from commercial banks to fund our working capital requirements and, to some extent, our capital expenditures. Recently, we have funded some of our capital expenditures through equipment term loans and capital leases. From time to time in the past, we have also funded our capital expenditures and other financing needs through public equity offerings.
Indebtedness.
On June 30, 2015, we entered into an amendment to our Credit Agreement with our lender, Sovereign Bank, (as amended from time to time, the “Credit Agreement”) for the purpose of renewing, extending and increasing our line of credit under such agreement.
Credit Agreement.
Our Credit Agreement with Sovereign Bank includes a term loan feature and a revolving loan feature, and also allows for the issuance of letters of credit and other promissory notes. We can borrow up to a maximum of $20.0 million pursuant to the Credit Agreement, subject to the terms and limitations discussed below.
The Credit Agreement provides for a revolving loan feature (the “Line of Credit”) that permits us to borrow, repay and re-borrow, from time to time until June 30, 2017, up to the lesser of (i) $20.0 million or (ii) a sum equal to (a) 80% of our eligible accounts receivable (less the outstanding principal balance of term loans and letters of credit under the Credit Agreement) and (b) the lesser of (i) 50% of the value of certain of our core equipment or (ii) $12,500,000. We have not utilized the Line of Credit since its inception. Because our ability to borrow funds under the Line of Credit is tied to the amount of our eligible accounts receivable and value of certain of our core equipment, if our accounts receivable decrease materially for any reason, including delays, reductions or cancellations by clients, decreased demand for our services, or the value of our pledged core equipment decreases materially, our ability to borrow to fund operations or other obligations may be limited.
The Credit Agreement also provides for a term loan feature. We have no outstanding notes payable under the term loan feature of the Credit Agreement, and any notes outstanding under this feature would count towards the maximum amounts we may borrow under the Credit Agreement.
We have three outstanding notes payable under the Credit Agreement that are not under the term loan feature (and therefore do not count towards the maximum amounts that we may borrow) which were incurred to purchase (and/or are secured by) equipment, representing a remaining aggregate principal amount of $1,938,000 as of December 31, 2016.
Our obligations under the Line of Credit are secured by a security interest in our accounts receivable and certain of our core equipment, and the term notes are also secured by certain of our core equipment. Interest on amounts outstanding under the Credit Agreement accrues at the lesser of 4.5% or the prime rate (as quoted in the
Wall Street Journal
), subject to an interest rate floor of 2.5%. The Credit Agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets, mergers and other fundamental changes. We are also obligated to meet certain financial covenants, including (i) a ratio of (x) total liabilities
minus
subordinated debt to (y) tangible net worth
plus
subordinated debt not to exceed 1.00:1.00, (ii) a ratio of current assets to current liabilities of at least 1.50:1.00 and (iii) required tangible net worth of not less than $150,000,000. We were in compliance with all covenants under the Credit Agreement, including specified ratios, as of December 31, 2016.
Sovereign Bank has also issued a letter of credit in the amount of $1,767,000 in favor of AIG Assurance Company in order to support payment of our insurance obligations. The principal amount of this letter of credit is collateralized by certain of our core equipment and does not count as funds borrowed under our Line of Credit.
Other Indebtedness.
We paid in full, during August 2016, one note payable to a finance company for various insurance premiums.
In addition, we lease certain vehicles under leases classified as capital leases. Our consolidated balance sheet as of December 31, 2016 includes capital lease obligations of $419,000.
Contractual Obligations.
We believe that our capital resources, including our short‑term investments, funds available under our Line of Credit, and cash flow from operations, will be adequate to meet our current operational needs. We believe that we will be able to finance our 2017 capital expenditures through cash flow from operations, borrowings from commercial lenders, and the funds available under our Line of Credit. However, our ability to satisfy working capital requirements, meet debt repayment obligations, and fund future capital requirements will depend principally upon our future operating performance, which is subject to the risks inherent in our business, and will also depend on the extent to which the current economic climate adversely affects the ability of our customers, and/or potential customers, to promptly pay amounts owing to us under their service contracts with us.
The following table summarizes payments due in specific periods related to our contractual obligations with initial terms exceeding one year as of December 31, 2016.
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Payments Due by Period (in thousands)
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Contractual Obligations
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Total
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Within 1 Year
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2 - 3 Years
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4 - 5 Years
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After 5 Years
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Operating lease obligations (office space)
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$
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9,567
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$
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1,468
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$
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2,256
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$
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1,591
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$
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4,252
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Capital lease obligations
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419
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419
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—
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—
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—
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Debt obligations
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1,938
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1,938
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—
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—
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—
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Total
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$
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11,924
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$
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3,825
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$
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2,256
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$
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1,591
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$
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4,252
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Off‑Balance Sheet Arrangements
As of December 31, 2016, we had no off‑balance sheet arrangements under current GAAP. However, we do have operating leases discussed above in the “Liquidity and Capital Resources: Contractual Obligations” section and below in the “Recently Issued Accounting Pronouncements” section.
Critical Accounting Policies
The preparation of our financial statements in conformity with GAAP requires that certain assumptions and estimates be made that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting periods. Because of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.
Allowance for Doubtful Accounts.
We prepare our allowance for doubtful accounts receivable based on our review of past‑due accounts, our past experience of historical write‑offs and our current client base. While the collectability of outstanding client invoices is continually assessed, the inherent volatility of the energy industry’s business cycle can cause swift and unpredictable changes in the financial stability of our clients.
Impairment of Long‑Lived Assets.
We review long‑lived assets for impairment when triggering events occur suggesting deterioration in the assets’ recoverability or fair value. Recognition of an impairment charge is required if future expected undiscounted net cash flows are insufficient to recover the carrying value of the assets, and the fair value of the assets is below the carrying value of the assets. Our forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and expenses based on our anticipated future results while considering anticipated future oil and gas prices, which is fundamental in assessing demand for our services. If the carrying amounts of the assets exceed the estimated expected undiscounted future cash flows, we measure the amount of possible impairment by comparing the carrying amount of the asset to its fair value. No impairment charges were recognized for the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014.
Leases.
We lease certain vehicles under lease agreements. We evaluate 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 amortized using the straight‑line method over the initial lease term. Amortization of assets under capital leases is included in depreciation expense.
Revenue Recognition.
Our services are provided under cancelable service contracts. These contracts are either “turnkey” or “term” agreements. Under both types of agreements, we recognize revenues when revenue is realizable and services are performed. Services are defined as the commencement of data acquisition or processing operations. Revenues are considered realizable when earned according to the terms of the service contracts. Under turnkey agreements, revenue is recognized on a per-unit-of-data-acquired rate, as services are performed. Under term agreements, revenue is recognized on a per-unit-of-time-worked rate, as services are performed. In the case of a cancelled service contract, we recognize revenue and bill our client for services performed up to the date of cancellation.
We also receive reimbursements for certain out‑of‑pocket expenses under the terms of our service contracts. We record amounts billed to clients in revenue at the gross amount including out‑of‑pocket expenses that are reimbursed by the client.
In some instances, we bill clients in advance of the services performed. In those cases, we recognize the liability as deferred revenue. As services are performed, those deferred revenue amounts are recognized as revenue.
In some instances, the contract contains certain permitting, surveying and drilling costs that are incorporated into the per-unit-of-data-acquired rate. In these circumstances, these set‑up costs that occur prior to initiating revenue recognition are capitalized and amortized as data is acquired.
Income Taxes.
We account for our income taxes with the recognition of amounts of taxes payable or refundable for the current year and by using an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. We determine deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of an enacted rate change. The deferred tax asset is reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Our methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining our annual effective tax rate and the valuation of deferred tax assets, which can create a variance between actual results and estimates and could have a material impact on our provision or benefit for income taxes. Due to our recent operating losses and valuation allowances, we may recognize reduced or no tax benefits on future losses on the Consolidated Statements of Operations and Comprehensive Loss. Our effective tax rates differ from the statutory federal rate of 35% for certain items such as state and local taxes, valuation allowances, non‑deductible expenses and discrete items.
Recently Issued Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. We adopted ASU No. 2016-15 in the third quarter of 2016 with no material impact to our consolidated financial statements. However, certain reclassifications have been made to the Consolidated Statements of Cash Flows for the year ended December 31, 2015 in order to conform to the December 31, 2016 presentation.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify accounting for share-based payments awarded to employees, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for the annual period beginning after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted.
Adoption of ASU 2016-09 will not have a material effect on our consolidated financial statements
.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323), which stated additional qualitative disclosures should be considered to assess the significance of the impact upon adoption. This ASU is effective for the annual period beginning after December 15, 2018, and for annual and interim periods thereafter. Early adoption is permitted. We are currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements
and believe that the most significant change will be to our Consolidated Balance Sheets as our asset and liability balances will increase for operating leases that are currently off-balance sheet.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), which provides guidance on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and, in certain circumstances, to provide related footnote disclosures. We evaluated and adopted this guidance for the period ending December 31, 2016.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. Entities have the option of using either a full retrospective or modified approach to adopt ASU No. 2014-09. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net), amending the principal-versus-agent implementation guidance and clarifying that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which amends certain aspects of the guidance related to identifying performance obligations and licensing implementation. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients, to address certain issues in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends narrow aspects of the guidance such as disclosure of remaining performance obligations and prior-period performance obligations. In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323), which stated additional qualitative disclosures should be considered to assess the significance of the impact upon adoption. These updates do not change the core principle of the guidance under ASU No. 2014-09, but rather provide implementation guidance. In August 2015, ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, was issued and it amended the effective date of ASU No. 2014-09 for public companies to annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but only beginning after December 15, 2016. We are reviewing our customer contracts, revenue recognition policies, disclosures, and internal controls and comparing to the provisions of the new standard for our revenues to determine the potential impact on the timing and amounts of revenue recognition. While we have not identified any material differences from our review thus far, our evaluation is ongoing and we have not concluded on the overall impacts of adopting the new guidance. We believe we are following an appropriate timeline to allow for proper recognition, presentation and disclosure upon adoption.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. These risks arise primarily as a result of potential changes to operating concentration of credit risk and changes in interest rates. We have not entered into any hedge arrangements, commodity swap agreements, commodity futures, options or other derivative financial instruments. We conduct business in Canada which subjects our results of operations and cash flow to foreign currency exchange rate risk.
Concentration of Credit Risk.
Our principal market risks include fluctuations in commodity prices, which affect demand for and pricing of our services, and the risk related to the concentration of our clients in the oil and natural gas industry. Since all of our clients are involved in the oil and natural gas industry, there may be a positive or negative effect on our exposure to credit risk because our clients may be similarly affected by changes in economic and industry conditions. As an example, changes to existing regulations or the adoption of new regulations may unfavorably impact us, our suppliers or our clients. In the normal course of business, we provide credit terms to our clients. Accordingly, we perform ongoing credit evaluations of our clients and maintain allowances for possible losses. Our historical experience supports our allowance for doubtful accounts of $250,000 at December 31, 2016. This does not necessarily indicate that it would be adequate to cover a payment default by one large or several small clients.
We generally provide services to certain key clients that account for a significant percentage of our accounts receivable at any given time. Our key clients vary over time. We extend credit to various companies in the oil and natural gas industry, including our key clients, for the acquisition of seismic data, which results in a concentration of credit risk. This concentration of credit risk may be affected by changes in the economic or other conditions of our key clients and may accordingly impact our overall credit risk. If any of these significant clients were to terminate their contracts or fail to contract for our services in the future because they are acquired, alter their exploration or development strategy, or for any other reason, our results of operations could be affected. Because of the nature of our contracts and clients’ projects, our largest clients can change from year to year, and the largest clients in any year may not be indicative of the largest clients in any subsequent year. During the twelve months ended December 31, 2016, our largest client accounted for approximately 13% of revenue. The remaining balance of our revenue derived from varied clients and none represented more than 10% of revenue.
Interest Rate Risk.
We are exposed to the impact of interest rate changes on the outstanding indebtedness under our Credit Agreement. We generally have cash in the bank which exceeds federally insured limits. Historically, we have not experienced any losses in such accounts; however, volatility in financial markets may impact our credit risk on cash and short‑term investments. At December 31, 2016, cash and cash equivalents totaled $14,624,000.
For further information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Item 1A. Risk Factors.”
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears on pages F‑1 through F‑26 hereof and are incorporated herein by reference.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.
CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive, financial and accounting officers, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a‑15(e) and 15d‑15(e) under the Exchange Act as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Executive Officer, and our Executive Vice President, Chief Financial Officer, Secretary, and Treasurer concluded that, as of December 31, 2016, our disclosure controls and procedures were effective, in all material respects, with regard to the recording, processing, summarizing and reporting, within the time periods specified in the SEC’s rules and forms, for information required to be disclosed by us in the reports that we file or submit under the Exchange Act. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer, and our Executive Vice President, Chief Financial Officer, Secretary, and Treasurer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting.
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a‑15(f) and 15d‑15(f) of the Exchange Act) during the quarter ended December 31, 2016 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including our President and Chief Executive Officer, and Executive Vice President, Chief Financial Officer, Secretary, and Treasurer, we evaluated the effectiveness of our internal controls over financial reporting as of December 31, 2016 using the criteria set forth in
Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, we have concluded that, as of December 31, 2016, our internal control over financial reporting was effective. Our internal control over financial reporting as of December 31, 2016 has been audited by RSM US LLP, the independent registered public accounting firm who also audited our financial statements. Their attestation report appears on page F‑2.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a‑15(f) and 15d‑15(f) of the Exchange Act) during the quarter ended December 31, 2016 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Item 9B.
OTHER INFORMATION
None.
Part III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 of Form 10‑K is hereby incorporated by reference from the earlier filed of: (i) an amendment to this annual report on Form 10‑K or (ii) the Company’s definitive proxy statement which will be filed pursuant to Regulation 14A within 120 days after the Company’s year-end for the year covered by this report.
Item 11.
EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10‑K is hereby incorporated by reference from the earlier filed of: (i) an amendment to this annual report on Form 10‑K or (ii) the Company’s definitive proxy statement which will be filed pursuant to Regulation 14A within 120 days after the Company’s year-end for the year covered by this report.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required with respect to our equity compensation plans is set forth in Item 5 of this Form 10‑K. Other information required by Item 12 of Form 10‑K is hereby incorporated by reference from the earlier filed of: (i) an amendment to this annual report on Form 10‑K or (ii) the Company’s definitive proxy statement which will be filed pursuant to Regulation 14A within 120 days after the Company’s year-end for the year covered by this report.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Item 13 of Form 10‑K is hereby incorporated by reference from the earlier filed of: (i) an amendment to this annual report on Form 10‑K or (ii) the Company’s definitive proxy statement which will be filed pursuant to Regulation 14A within 120 days after the Company’s year-end for the year covered by this report.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 of Form 10‑K is hereby incorporated by reference from the earlier filed of: (i) an amendment to this annual report on Form 10‑K or (ii) the Company’s definitive proxy statement, which will be filed pursuant to Regulation 14A within 120 days after the Company’s year-end for the year covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Midland, and the State of Texas, on the 13
th
day of March, 2017.
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DAWSON GEOPHYSICAL COMPANY
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By:
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/s/ Stephen C. Jumper
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Stephen C. Jumper
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Chairman of the Board of Directors
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President and Chief Executive Officer
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Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
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Title
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Date
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/s/ Stephen C. Jumper
Stephen C. Jumper
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President, Chief Executive Officer and Chairman of the Board of Directors
(principal executive officer)
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03-13-17
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/s/ Wayne A. Whitener
Wayne A. Whitener
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Vice Chairman of the Board of Directors
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03-13-17
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/s/ William J. Barrett
William J. Barrett
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Director
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03-13-17
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/s/ Craig W. Cooper
Craig W. Cooper
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Director
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03-13-17
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/s/ Gary M. Hoover
Gary M. Hoover
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Director
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03-13-17
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/s/ Allen T. McInnes
Allen T. McInnes
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Director
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03-13-17
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/s/ Ted R. North
Ted R. North
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Director
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03-13-17
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/s/ Mark A. Vander Ploeg
Mark A. Vander Ploeg
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Director
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03-13-17
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/s/ James K. Brata
James K. Brata
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Executive Vice President, Chief Financial Officer, Secretary, and Treasurer
(principal financial and accounting officer)
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03-13-17
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Consolidated Financial Statements of Dawson Geophysical Company
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Page
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Reports of Independent Registered Public Accounting Firms
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F‑2
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Consolidated Balance Sheets as of December 31, 2016 and 2015
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F‑5
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Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014
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F‑6
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Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014
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F‑7
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Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014
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F‑8
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Notes to Consolidated Financial Statements
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F‑9
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Dawson Geophysical Company
We have audited Dawson Geophysical Company's internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Dawson Geophysical Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the internal control over financial reporting of Dawson Geophysical Company based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Dawson Geophysical Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Dawson Geophysical Company as of December 31, 2016, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2016 and our report dated March 13, 2017 expressed an unqualified opinion.
Houston, Texas
March 13, 2017
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Dawson Geophysical Company
We have audited the accompanying consolidated balance sheet of Dawson Geophysical Company and related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dawson Geophysical Company, the consolidated results of its operations, and its consolidated cash flows for the year ended December 31, 2016, in conformity with accounting principles generally accepted in United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Dawson Geophysical Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 13, 2017 expressed an unqualified opinion on the effectiveness of Dawson Geophysical Company’s internal control over financial reporting.
Houston, Texas
March 13, 2017
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Dawson Geophysical Company
We have audited the accompanying consolidated balance sheet of Dawson Geophysical Company as of December 31, 2015, and the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for the year ended December 31, 2015, the three months ended December 31, 2014, and the year ended September 30, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dawson Geophysical Company at December 31, 2015, and the consolidated results of its operations and its cash flows for the year ended December 31, 2015, the three months ended December 31, 2014, and the year ended September 30, 2014, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Dallas, Texas
March 15, 2016
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED BALANCE SHEETS
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December 31,
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December 31,
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2016
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2015
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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14,624,000
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$
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37,009,000
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Short-term investments
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40,250,000
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21,000,000
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Accounts receivable, net of allowance for doubtful accounts of $250,000
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at December 31, 2016 and 2015
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16,031,000
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35,700,000
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Prepaid expenses and other assets
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4,822,000
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6,150,000
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Total current assets
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75,727,000
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99,859,000
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Property and equipment
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324,950,000
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345,619,000
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Less accumulated depreciation
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(214,033,000)
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(198,052,000)
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Net property and equipment
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110,917,000
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147,567,000
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Intangibles
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487,000
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361,000
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Long-term deferred tax assets, net
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535,000
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—
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Total assets
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$
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187,666,000
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$
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247,787,000
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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5,617,000
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$
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8,401,000
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Accrued liabilities:
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Payroll costs and other taxes
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885,000
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1,074,000
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Other
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2,983,000
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4,604,000
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Deferred revenue
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3,155,000
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6,146,000
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Current maturities of notes payable and obligations under capital leases
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2,357,000
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8,585,000
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Total current liabilities
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14,997,000
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28,810,000
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Long-term liabilities:
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Notes payable and obligations under capital leases less current maturities
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—
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2,106,000
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Deferred tax liabilities, net
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146,000
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5,319,000
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Other accrued liabilities
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1,639,000
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1,834,000
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Total long-term liabilities
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1,785,000
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9,259,000
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Commitments and contingencies
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Stockholders’ equity:
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Preferred stock-par value $1.00 per share; 4,000,000 shares authorized,
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—
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—
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none outstanding
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Common stock-par value $0.01 per share; 35,000,000 shares authorized,
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21,704,851 and 21,629,310 shares issued, and 21,656,406 and 21,580,865
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shares outstanding at December 31, 2016 and 2015, respectively
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217,000
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216,000
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Additional paid-in capital
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142,998,000
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142,269,000
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Retained earnings
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29,265,000
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69,057,000
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Treasury stock, at cost; 48,445 shares at December 31, 2016 and 2015
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—
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—
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Accumulated other comprehensive loss, net
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(1,596,000)
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(1,824,000)
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Total stockholders’ equity
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170,884,000
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209,718,000
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Total liabilities and stockholders’ equity
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$
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187,666,000
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$
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247,787,000
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See accompanying notes to the consolidated financial statements.
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Ended December 31,
|
|
Year Ended September 30,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
133,330,000
|
|
$
|
234,685,000
|
|
$
|
50,802,000
|
|
$
|
261,683,000
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
121,661,000
|
|
|
205,566,000
|
|
|
42,957,000
|
|
|
223,336,000
|
|
General and administrative
|
|
|
16,822,000
|
|
|
22,729,000
|
|
|
5,093,000
|
|
|
16,083,000
|
|
Depreciation and amortization
|
|
|
44,283,000
|
|
|
47,072,000
|
|
|
9,736,000
|
|
|
40,168,000
|
|
|
|
|
182,766,000
|
|
|
275,367,000
|
|
|
57,786,000
|
|
|
279,587,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(49,436,000)
|
|
|
(40,682,000)
|
|
|
(6,984,000)
|
|
|
(17,904,000)
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
347,000
|
|
|
159,000
|
|
|
20,000
|
|
|
73,000
|
|
Interest expense
|
|
|
(260,000)
|
|
|
(609,000)
|
|
|
(93,000)
|
|
|
(535,000)
|
|
Other income
|
|
|
3,108,000
|
|
|
1,098,000
|
|
|
154,000
|
|
|
466,000
|
|
Loss before income tax
|
|
|
(46,241,000)
|
|
|
(40,034,000)
|
|
|
(6,903,000)
|
|
|
(17,900,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
396,000
|
|
|
(291,000)
|
|
|
(39,000)
|
|
|
(787,000)
|
|
Deferred
|
|
|
6,053,000
|
|
|
14,046,000
|
|
|
1,951,000
|
|
|
6,067,000
|
|
|
|
|
6,449,000
|
|
|
13,755,000
|
|
|
1,912,000
|
|
|
5,280,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(39,792,000)
|
|
$
|
(26,279,000)
|
|
$
|
(4,991,000)
|
|
$
|
(12,620,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized income (loss) on foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange rate translation, net
|
|
$
|
228,000
|
|
$
|
(1,480,000)
|
|
$
|
(127,000)
|
|
$
|
(217,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(39,564,000)
|
|
$
|
(27,759,000)
|
|
$
|
(5,118,000)
|
|
$
|
(12,837,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share attributable to common stock
|
|
$
|
(1.84)
|
|
$
|
(1.27)
|
|
$
|
(0.36)
|
|
$
|
(0.90)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to common stock
|
|
$
|
(1.84)
|
|
$
|
(1.27)
|
|
$
|
(0.36)
|
|
$
|
(0.90)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared per share of common stock
|
|
$
|
—
|
|
$
|
—
|
|
$
|
0.05
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average equivalent common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
21,611,562
|
|
|
20,688,185
|
|
|
14,019,813
|
|
|
14,008,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average equivalent common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding - assuming dilution
|
|
|
21,611,562
|
|
|
20,688,185
|
|
|
14,019,813
|
|
|
14,008,635
|
|
See accompanying notes to the consolidated financial statements.
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Common Stock
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
Number
|
|
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
|
|
|
|
Of Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
(Loss) Income
|
|
Total
|
|
Balance September 30, 2013
|
|
14,180,220
|
|
$
|
142,000
|
|
$
|
97,390,000
|
|
$
|
115,528,000
|
|
$
|
—
|
|
$
|
213,060,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(12,620,000)
|
|
|
|
|
|
(12,620,000)
|
|
Unrealized loss on foreign exchange rate translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(345,000)
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,000
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(217,000)
|
|
|
(217,000)
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
1,054,000
|
|
|
|
|
|
|
|
|
1,054,000
|
|
Issuance of common stock as compensation
|
|
9,706
|
|
|
—
|
|
|
171,000
|
|
|
|
|
|
|
|
|
171,000
|
|
Issuance of common stock under stock compensation plans
|
|
2,640
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
Shares exchanged for taxes on stock-based compensation
|
|
(836)
|
|
|
—
|
|
|
(15,000)
|
|
|
|
|
|
|
|
|
(15,000)
|
|
Exercise of stock options
|
|
3,080
|
|
|
—
|
|
|
32,000
|
|
|
|
|
|
|
|
|
32,000
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(1,935,000)
|
|
|
|
|
|
(1,935,000)
|
|
Balance September 30, 2014
|
|
14,194,810
|
|
|
142,000
|
|
|
98,632,000
|
|
|
100,973,000
|
|
|
(217,000)
|
|
|
199,530,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(4,991,000)
|
|
|
|
|
|
(4,991,000)
|
|
Unrealized loss on foreign exchange rate translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(203,000)
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,000
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127,000)
|
|
|
(127,000)
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
287,000
|
|
|
|
|
|
|
|
|
287,000
|
|
Issuance of common stock as compensation
|
|
21,730
|
|
|
—
|
|
|
165,000
|
|
|
|
|
|
|
|
|
165,000
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(646,000)
|
|
|
|
|
|
(646,000)
|
|
Balance December 31, 2014
|
|
14,216,540
|
|
|
142,000
|
|
|
99,084,000
|
|
|
95,336,000
|
|
|
(344,000)
|
|
|
194,218,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(26,279,000)
|
|
|
|
|
|
(26,279,000)
|
|
Unrealized loss on foreign exchange rate translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,106,000)
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
626,000
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,480,000)
|
|
|
(1,480,000)
|
|
Shares exchanged for taxes on stock-based compensation
|
|
(41,855)
|
|
|
—
|
|
|
(248,000)
|
|
|
|
|
|
|
|
|
(248,000)
|
|
Stock consideration issued in merger
|
|
7,381,476
|
|
|
74,000
|
|
|
42,828,000
|
|
|
|
|
|
|
|
|
42,902,000
|
|
Issuance of common stock under stock compensation plans
|
|
14,212
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
Tax deficit recorded to hypothetical apic pool
|
|
|
|
|
|
|
|
(551,000)
|
|
|
|
|
|
|
|
|
(551,000)
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
890,000
|
|
|
|
|
|
|
|
|
890,000
|
|
Issuance of common stock as compensation
|
|
58,937
|
|
|
—
|
|
|
266,000
|
|
|
|
|
|
|
|
|
266,000
|
|
Balance December 31, 2015
|
|
21,629,310
|
|
|
216,000
|
|
|
142,269,000
|
|
|
69,057,000
|
|
|
(1,824,000)
|
|
|
209,718,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(39,792,000)
|
|
|
|
|
|
(39,792,000)
|
|
Unrealized gain on foreign exchange rate translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496,000
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(268,000)
|
|
|
|
|
Other comprehensive gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,000
|
|
|
228,000
|
|
Shares exchanged for taxes on stock-based compensation
|
|
(10,880)
|
|
|
—
|
|
|
(72,000)
|
|
|
|
|
|
|
|
|
(72,000)
|
|
Issuance of common stock under stock compensation plans
|
|
20,221
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Tax deficit recorded to hypothetical apic pool
|
|
|
|
|
|
|
|
(77,000)
|
|
|
|
|
|
|
|
|
(77,000)
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
462,000
|
|
|
|
|
|
|
|
|
462,000
|
|
Issuance of common stock as compensation
|
|
66,200
|
|
|
1,000
|
|
|
416,000
|
|
|
|
|
|
|
|
|
417,000
|
|
Balance December 31, 2016
|
|
21,704,851
|
|
$
|
217,000
|
|
$
|
142,998,000
|
|
$
|
29,265,000
|
|
$
|
(1,596,000)
|
|
$
|
170,884,000
|
|
See accompanying notes to the consolidated financial statements.
DAWSON GEOPHYSICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended December 31,
|
|
Year Ended September 30,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2014
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(39,792,000)
|
|
$
|
(26,279,000)
|
|
$
|
(4,991,000)
|
|
$
|
(12,620,000)
|
|
Adjustments to reconcile net loss to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
44,283,000
|
|
|
47,072,000
|
|
|
9,736,000
|
|
|
40,168,000
|
|
Noncash compensation
|
|
|
879,000
|
|
|
1,156,000
|
|
|
452,000
|
|
|
1,225,000
|
|
Deferred income tax benefit
|
|
|
(6,053,000)
|
|
|
(14,046,000)
|
|
|
(1,951,000)
|
|
|
(6,067,000)
|
|
Gain on insurance proceeds from insurance settlements
|
|
|
(2,269,000)
|
|
|
(407,000)
|
|
|
—
|
|
|
—
|
|
Change in other long-term liabilities
|
|
|
(195,000)
|
|
|
1,834,000
|
|
|
—
|
|
|
—
|
|
(Gain) loss on disposal of assets
|
|
|
(167,000)
|
|
|
815,000
|
|
|
—
|
|
|
(108,000)
|
|
Other
|
|
|
186,000
|
|
|
(81,000)
|
|
|
(614,000)
|
|
|
51,000
|
|
Change in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
19,669,000
|
|
|
15,883,000
|
|
|
2,862,000
|
|
|
(2,507,000)
|
|
Decrease (increase) in prepaid expenses and other assets
|
|
|
1,328,000
|
|
|
1,752,000
|
|
|
(3,283,000)
|
|
|
(1,683,000)
|
|
Decrease in accounts payable
|
|
|
(4,326,000)
|
|
|
(3,128,000)
|
|
|
(4,923,000)
|
|
|
(3,467,000)
|
|
(Decrease) increase in accrued liabilities
|
|
|
(1,810,000)
|
|
|
(4,579,000)
|
|
|
78,000
|
|
|
(1,909,000)
|
|
(Decrease) increase in deferred revenue
|
|
|
(2,991,000)
|
|
|
620,000
|
|
|
951,000
|
|
|
(2,637,000)
|
|
Net cash provided by (used in) operating activities
|
|
|
8,742,000
|
|
|
20,612,000
|
|
|
(1,683,000)
|
|
|
10,446,000
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash acquired from merger
|
|
|
—
|
|
|
12,382,000
|
|
|
—
|
|
|
—
|
|
Capital expenditures, net of noncash capital expenditures summarized below
|
|
|
(8,251,000)
|
|
|
(6,846,000)
|
|
|
(2,555,000)
|
|
|
(35,281,000)
|
|
Proceeds from maturity of short-term investments
|
|
|
91,750,000
|
|
|
34,500,000
|
|
|
7,750,000
|
|
|
29,250,000
|
|
Acquisition of short-term investments
|
|
|
(111,000,000)
|
|
|
(26,750,000)
|
|
|
(9,500,000)
|
|
|
(32,750,000)
|
|
Proceeds from disposal of assets
|
|
|
1,922,000
|
|
|
1,501,000
|
|
|
631,000
|
|
|
2,686,000
|
|
Proceeds on flood insurance claims
|
|
|
2,850,000
|
|
|
1,000,000
|
|
|
—
|
|
|
—
|
|
Net cash (used in) provided by investing activities
|
|
|
(22,729,000)
|
|
|
15,787,000
|
|
|
(3,674,000)
|
|
|
(36,095,000)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory note
|
|
|
—
|
|
|
5,144,000
|
|
|
—
|
|
|
—
|
|
Proceeds from notes payable
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,000,000
|
|
Principal payments on notes payable
|
|
|
(7,554,000)
|
|
|
(16,348,000)
|
|
|
(1,783,000)
|
|
|
(10,823,000)
|
|
Principal payments on capital lease obligations
|
|
|
(780,000)
|
|
|
(1,535,000)
|
|
|
(288,000)
|
|
|
(932,000)
|
|
Excess tax benefit from share-based payment arrangement
|
|
|
(77,000)
|
|
|
(551,000)
|
|
|
—
|
|
|
—
|
|
Tax withholdings related to stock-based compensation awards
|
|
|
(72,000)
|
|
|
(316,000)
|
|
|
—
|
|
|
—
|
|
Proceeds from exercise of stock options
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32,000
|
|
Dividends paid
|
|
|
—
|
|
|
—
|
|
|
(646,000)
|
|
|
(1,935,000)
|
|
Net cash used in financing activities
|
|
|
(8,483,000)
|
|
|
(13,606,000)
|
|
|
(2,717,000)
|
|
|
(3,658,000)
|
|
Effect of exchange rate changes in cash and cash equivalents
|
|
|
85,000
|
|
|
(428,000)
|
|
|
(35,000)
|
|
|
(345,000)
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(22,385,000)
|
|
|
22,365,000
|
|
|
(8,109,000)
|
|
|
(29,652,000)
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
37,009,000
|
|
|
14,644,000
|
|
|
22,753,000
|
|
|
52,405,000
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
14,624,000
|
|
$
|
37,009,000
|
|
$
|
14,644,000
|
|
$
|
22,753,000
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
260,000
|
|
$
|
620,000
|
|
$
|
93,000
|
|
$
|
537,000
|
|
Cash paid for income taxes
|
|
$
|
33,000
|
|
$
|
692,000
|
|
$
|
—
|
|
$
|
735,000
|
|
Cash received for income taxes
|
|
$
|
348,000
|
|
$
|
752,000
|
|
$
|
18,000
|
|
$
|
3,000
|
|
NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in accrued purchases of property and equipment
|
|
$
|
1,542,000
|
|
$
|
(52,000)
|
|
$
|
52,000
|
|
$
|
(1,693,000)
|
|
Capital lease obligations incurred
|
|
$
|
—
|
|
$
|
126,000
|
|
$
|
651,000
|
|
$
|
485,000
|
|
Stock consideration to consummate the merger
|
|
$
|
—
|
|
$
|
42,902,000
|
|
$
|
—
|
|
$
|
—
|
|
Financed insurance premiums
|
|
$
|
—
|
|
$
|
1,046,000
|
|
$
|
—
|
|
$
|
—
|
|
See accompanying notes to the consolidated financial statements
.
DAWSON GEOPHYSICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 11, 2015, the Company, which was formerly known as TGC Industries, Inc. (“Legacy TGC”), consummated a strategic business combination (the “Merger”) with Dawson Operating Company LLC, which was formerly known as Dawson Geophysical Company (“Legacy Dawson”). Unless the context requires otherwise, all references in the Notes to Consolidated Financial Statements of this Form 10-K to the “Company,” “we,” “us” or “our” refer to (i) Legacy Dawson and its consolidated subsidiaries, for periods through February 10, 2015 and (ii) the merged company for periods on or after February 11, 2015.
1. Summary of Significant Accounting Policies
Organization and Nature of Operations
The Company is a leading provider of onshore seismic data acquisition and processing services. 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. The Company operates in the lower 48 states of the U.S. and in Canada.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Dawson Operating LLC, Eagle Canada, Inc., Dawson Seismic Services Holdings, Inc., Eagle Canada Seismic Services ULC, Tidelands Geophysical Co., Inc. and Exploration Surveys, Inc. 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 industry’s business cycle can cause swift and unpredictable changes in the financial stability of the Company’s clients.
Property and Equipment
Property and equipment is capitalized at historical cost and depreciated over the useful life of the asset. Management’s estimation of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. As circumstances change and new information becomes available, these estimates could change. During the year ended December 31, 2016, we recognized approximately $1,300,000 in depreciation expense associated with changes in the estimated life of certain recording equipment assets.
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. Management’s forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and expenses based on the Company’s anticipated future results, while considering anticipated future oil and natural gas prices which is fundamental in assessing demand for the Company’s services. If the carrying 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 for the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014.
Leases
The Company leases certain 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 amortized using the straight-line method over the initial lease term. Amortization of assets under capital leases is included in depreciation expense.
Intangibles
The Company has non-amortizing assets consisting primarily of trademarks/tradenames resulting from a business combination. The Company tests for impairment on an annual basis during the fourth quarter, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. No impairment charges were recognized for the years ended December 31, 2016 and 2015.
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 client 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, clients 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.
In some instances, the contract contains certain permitting, surveying and drilling costs that are incorporated into the per-unit-of-data-acquired rate. In these circumstances, these set-up costs that occur prior to initiating revenue recognition are capitalized and amortized as data is acquired.
Stock-Based Compensation
The Company measures all stock-based compensation awards, which include stock options, restricted stock, restricted stock units and common stock, using the fair value method and recognizes compensation expense, net of estimated forfeitures, in its consolidated 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 awards.
Foreign Currency Translation
The U.S. Dollar is the reporting currency for all periods presented. The functional currency of the Company’s foreign subsidiaries is generally the local currency. All assets and liabilities denominated in a foreign currency are
translated into U.S. Dollars at the exchange rate on the balance sheet date. Income and expenses are translated using the exchange rate applicable to each transaction. Equity transactions are translated using historical exchange rates. Adjustments resulting from translation are recorded as a separate component of accumulated other comprehensive income (loss) in the consolidated balance sheets. Foreign currency transaction gains (losses) are included in the consolidated statements of operations as other income (expense).
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 Company’s financial statements or tax returns. Management determines deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of an enacted rate change. The deferred tax asset is reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Management’s methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining the annual effective tax rate and the valuation of deferred tax assets, which can create variances between actual results and estimates and could have a material impact on the Company’s provision or benefit for income taxes. Due to recent operating losses and valuation allowances, the Company may recognize reduced or no tax benefits on future losses on the Consolidated Statements of Operations and Comprehensive Loss. The Company’s effective tax rates differ from the statutory federal rate of 35% for certain items such as state and local taxes, valuation allowances, non-deductible expenses and discrete items.
Use of Estimates in the Preparation of Financial Statements
Preparation of the accompanying financial statements in conformity with GAAP 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.
Reclassifications
Certain reclassifications have been made to the year ended December 31, 2015, the three months ended December 31, 2014 and the year ended September 30, 2014 consolidated financial statements to conform to the 2016 presentation. See Footnote 17, Recently Issued Accounting Pronouncements ASU No. 2016-05 Statement of Cash Flows (Topic 230): Classifications of Certain Cash Receipts and Cash Payments for further discussion.
2. Short-Term Investments
The Company had short-term investments at December 31, 2016 and 2015 consisting of certificates of deposit with original maturities greater than three months but less than a year. Certificates of deposits with any given banking institution did not exceed the FDIC insurance limit at December 31, 2016 or 2015.
3. Fair Value of Financial Instruments
At December 31, 2016 and 2015, the Company’s financial instruments included cash and cash equivalents, short-term investments in certificates of deposit, trade and other receivables, other current assets, accounts payable, other current liabilities and notes payable. Due to the short-term maturities of cash and cash equivalents, trade and other receivables, other current assets, accounts payables and other current liabilities, the carrying amounts approximate fair value at the respective balance sheet dates. The carrying value of the notes payable approximate their fair value based on a comparison with the prevailing market interest rate. Due to the short-term maturities of the Company’s investments in certificates of deposit, the carrying amounts approximate fair value at the respective balance sheet dates. The fair values of the Company’s notes payable and investments in certificates of deposit are level 2 measurements in the fair value hierarchy.
4. Merger
On February 11, 2015, the Company completed the Merger. Immediately prior to the effective time of the Merger, Legacy TGC effected a reverse stock split with respect to its common stock, par value $0.01 per share, on a one-for-three ratio (the “Reverse Stock Split”) to reduce the total number of shares of Legacy TGC Common Stock outstanding. After giving effect to the Reverse Stock Split, at the effective time of the Merger, without any action on the part of any shareholder, each issued and outstanding share of Legacy Dawson’s common stock, par value $0.33-1/3 per share (the “Legacy Dawson Common Stock”), including shares underlying Legacy Dawson’s outstanding equity awards (but excluding any shares of Legacy Dawson Common Stock owned by Legacy TGC, Merger Sub or Legacy Dawson or any wholly-owned subsidiary of Legacy Dawson), were converted into the right to receive 1.760 shares of Legacy TGC Common Stock (the “Exchange Ratio”).
The Merger was accounted for as a reverse acquisition under the acquisition method of accounting in accordance with ASC No. 805, “Business Combinations.” The Company accounted for the transaction by using Legacy Dawson’s historical information and accounting policies and adding the assets and liabilities of Legacy TGC at their respective fair values. Consequently, Legacy Dawson’s assets and liabilities retained their carrying values and Legacy TGC’s assets acquired and liabilities assumed by Legacy Dawson as the accounting acquirer in the Merger were recorded at their fair values measured as of February 11, 2015, the effective date of the Merger.
In the fourth quarter of 2015, management finalized its valuation of assets acquired and liabilities assumed in connection with the Merger. As a result, the fair value of acquired property and equipment was ultimately concluded to be $5,055,000 higher than preliminarily estimated, the fair value of current liabilities assumed was higher by $943,000, the fair value of current assets was lower by $625,000, and the fair value of intangible assets was lower by $2,953,000. Further, the net deferred tax asset as a result of these adjustments was $534,000 lower. In the fourth quarter of 2015, we recorded a $628,000 increase to depreciation expense and a $697,000 reduction to amortization expense as compared to what we would have recorded had the final valuations of assets acquired and liabilities assumed been recorded as of the acquisition date.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the Merger date:
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
Value (in thousands)
|
|
Stock consideration
|
|
$
|
42,902
|
|
Interest bearing debt assumed
|
|
|
12,048
|
|
Debt-free current liabilities
|
|
|
13,590
|
|
Total purchase price consideration including liabilities assumed
|
|
$
|
68,540
|
|
|
|
|
|
|
Value of current assets:
|
|
|
|
|
Current assets excluding cash and cash equivalents
|
|
$
|
15,531
|
|
Cash and cash equivalents
|
|
|
12,382
|
|
Total current assets
|
|
|
27,913
|
|
|
|
|
|
|
Identified tangible assets:
|
|
|
|
|
Fair value of property and equipment
|
|
|
33,867
|
|
|
|
|
|
|
Identified intangible assets:
|
|
|
|
|
Trademarks/trade names
|
|
|
400
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
6,360
|
|
|
|
|
|
|
Total indicated value of assets
|
|
$
|
68,540
|
|
The value of the stock consideration was determined based on the closing price of Legacy TGC on the February 11, 2015 closing date and the 7,381,476 shares outstanding. As a result of the consideration transferred being less than the book value of net assets acquired, the Company was required to analyze the purchase price allocation and the potential reasonableness of reflecting a bargain purchase. Upon completing this analysis, the Company determined that the Merger was not an acquisition of a distressed business or a bargain purchase and accordingly reflected a substantial reduction in
the property and equipment to its fair value which was reflected by the value of the consideration transferred. Furthermore, in allocating the remainder of the purchase price to the indicated fair value of the property and equipment, there was not any excess purchase price to be allocated to goodwill. Measurements used to determine fair value were deemed to be level 3 fair value measurements.
Trade receivables and payables, as well as other current and non-current assets and liabilities, were recorded at their expected settlement amounts as they approximate the fair value of those items at the time of the Merger, based on management’s judgments and estimates.
Property and equipment were valued using a combination of the income approach, the market approach and the cost approach which was based on current replacement and/or reproduction cost of the asset as new, less depreciation attributable to physical, functional, and economic factors. Useful lives of the property and equipment were estimated to be between eighteen months and twelve years.
Trademarks were valued using the relief from royalty method. Relief from royalty method under the income approach estimates the cost savings that accrue to the Company which would otherwise have to pay royalties or license fees on revenues earned through the use of the asset. Trademarks are considered to have an indefinite life and, as a result, are not amortizable.
Existing long term debt assumed in the Merger was recorded at fair valued based on a current market rate.
Deferred income tax assets and liabilities as of the acquisition date represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. At the acquisition date, the Company accrued approximately $865,000 for uncertain tax positions and contingencies related to certain tax matters.
The Company incurred approximately $3,314,000 in merger-related costs on a pretax basis during the year ended December 31, 2015. This amount is reflected in the accompanying consolidated statements of operations.
The Company has integrated the operations of Legacy TGC. Additionally, the Company operates in one segment and has a single company-wide management team that administers all service contracts as a whole rather than by discrete operating segments. The Company tracks only basic operational data by area and does not track results by legacy origin. Therefore, it is impracticable to disclose the amount of revenues and earnings or losses attributable to Legacy TGC during the year ended December 31, 2015.
Pro Forma Information
The following unaudited pro forma condensed financial information for the year ended December 31, 2015, the three months ended December 31, 2014 and the year ended September 30, 2014 gives effect to the Merger as if it had occurred on January l, 2014. The unaudited pro forma condensed financial information has been included for comparative purposes only. It is not necessarily indicative of the results that might have occurred had the transactions taken place on the dates indicated and is not intended to be a projection of future results. The unaudited pro forma financial information reflects certain adjustments related to the acquisition, such as (1) to record certain incremental expenses resulting from purchase accounting adjustments, such as reduced depreciation expense in connection with the fair value adjustments to property and equipment; and (2) to record the related tax effects. Shares used in the calculations of earnings per share in the table below were 21,537,480 for the year ended December 31, 2015, 21,400,593 for the three months ended December 31, 2014 and 21,367,677 for the year ended September 30, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Three Months Ended
|
|
Year Ended
|
|
|
|
December 31,
|
|
December 31,
|
|
September 30,
|
|
|
|
2015
|
|
2014
|
|
2014
|
|
Pro forma total revenues
|
|
$
|
248,295,000
|
|
$
|
76,897,000
|
|
$
|
373,544,000
|
|
Pro forma net loss
|
|
$
|
(30,256,000)
|
|
$
|
(7,722,000)
|
|
$
|
(13,383,000)
|
|
Pro forma net loss per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.40)
|
|
$
|
(0.36)
|
|
$
|
(0.63)
|
|
Diluted
|
|
$
|
(1.40)
|
|
$
|
(0.36)
|
|
$
|
(0.63)
|
|
5. Property and Equipment
Property and equipment, together with the related estimated useful lives at December 31, 2016 and 2015, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Useful Lives
|
|
Land, building and other
|
|
$
|
15,777,000
|
|
$
|
16,357,000
|
|
|
3 to 40 years
|
|
Recording equipment
|
|
|
199,068,000
|
|
|
212,541,000
|
|
|
5 to 10 years
|
|
Line clearing equipment
|
|
|
1,071,000
|
|
|
1,071,000
|
|
|
5 years
|
|
Vibrator energy sources
|
|
|
79,162,000
|
|
|
80,454,000
|
|
|
5 to 15 years
|
|
Vehicles
|
|
|
29,872,000
|
|
|
35,196,000
|
|
|
1.5 to 10 years
|
|
|
|
|
324,950,000
|
|
|
345,619,000
|
|
|
|
|
Less accumulated depreciation
|
|
|
(214,033,000)
|
|
|
(198,052,000)
|
|
|
|
|
Net property and equipment
|
|
$
|
110,917,000
|
|
$
|
147,567,000
|
|
|
|
|
6. Supplemental Consolidated Balance Sheet Information
Other current liabilities consist of the following at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
Accrued self-insurance reserves
|
|
$
|
1,422,000
|
|
$
|
1,830,000
|
|
Income and franchise taxes payable
|
|
|
39,000
|
|
|
21,000
|
|
Other accrued expenses and current liabilities
|
|
|
1,522,000
|
|
|
2,753,000
|
|
Total other current liabilities
|
|
$
|
2,983,000
|
|
$
|
4,604,000
|
|
7. Debt
On June 30, 2015, we entered into an amendment to the Company’s Credit Agreement with its lender, Sovereign Bank for the purpose of renewing, extending and increasing the Company’s line of credit under such agreement.
Credit Agreement
The Company’s Credit Agreement includes term loan and revolving loan features, and also allows for the issuance of letters of credit and other promissory notes. The Company can borrow up to a maximum of $20.0 million pursuant to the Credit Agreement, subject to the terms and limitations discussed below.
The Credit Agreement provides for a revolving loan feature, or Line of Credit, that permits the Company to borrow, repay and re-borrow, from time to time until June 30, 2017, up to the lesser of (i) $20.0 million or (ii) a sum equal to (a) 80% of our eligible accounts receivable (less the outstanding principal balance of term loans and letters of credit under the Credit Agreement) and (b) the lesser of (i) 50% of the value of certain of the Company’s core equipment or (ii) $12,500,000. The Company has not utilized the Line of Credit since its inception. Because the Company’s ability to borrow funds under the Line of Credit is tied to the amount of the Company’s eligible accounts receivable and value of certain of its core equipment, if the Company’s accounts receivable decrease materially for any reason, including delays, reductions or cancellations by clients or decreased demand for the Company’s services, or the Company’s value of its pledged core equipment decreases materially, the Company’s ability to borrow to fund operations or other obligations may be limited.
The Credit Agreement also provides for a term loan feature. The Company has no outstanding notes payable under the term loan feature of the Credit Agreement, and any notes outstanding under this feature would count towards the maximum amounts the Company may borrow under the Credit Agreement.
The Company has three outstanding notes payable under the Credit Agreement that are not under the term loan feature (and therefore do not count towards the maximum amounts that the Company may borrow) which were incurred to purchase (and/or are secured by) equipment, representing a remaining aggregate principal amount of $1,938,000 as of December 31, 2016.
The Company’s obligations under the Line of Credit are secured by a security interest in the Company’s accounts receivable and certain of the Company’s core equipment, and the term loans are also secured by certain of the Company’s core equipment. Interest on amounts outstanding under the Credit Agreement accrues at the lesser of 4.5% or the prime rate (as quoted in the
Wall Street Journal
), subject to an interest rate floor of 2.5%. The Credit Agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets, mergers and other fundamental changes. The Company is also obligated to meet certain financial covenants, including (i) a ratio of (x) total liabilities
minus
subordinated debt to (y) tangible net worth
plus
subordinated debt not to exceed 1.00:1.00, (ii) a ratio of current assets to current liabilities of at least 1.50:1.00 and (iii) required tangible net worth of not less than $150,000,000. The Company was in compliance with all covenants under the Credit Agreement, including specified ratios, as of December 31, 2016.
Sovereign Bank has also issued a letter of credit in the amount of $1,767,000 in favor of AIG Assurance Company in order to support payment of certain insurance obligations of the Company. The principal amount of this letter of credit is collateralized by certain of the Company’s core equipment and does not count as funds borrowed under the Company’s Line of Credit.
Other Indebtedness
The Company paid in full, during August 2016, one note payable to a finance company for various insurance premiums. This note had a remaining principal balance of $838,000 at December 31, 2015.
In addition, the Company leases certain vehicles under leases classified as capital leases. The Company’s balance sheets as of December 31, 2016 and 2015 includes capital lease obligations of $419,000 and $1,199,000, respectively.
Maturities of Debt
The following tables set forth the Company’s aggregate principal amount of outstanding notes payable and the interest rates and monthly payments as of December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
Notes payable to commercial banks
|
|
|
|
|
|
|
|
Aggregate principal amount outstanding
|
|
$
|
1,938,000
|
|
$
|
8,654,000
|
|
Interest rates
|
|
|
3.5% - 4.5%
|
|
|
3.5% - 4.5%
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Notes payable to finance company for insurance
|
|
|
|
|
|
|
|
Aggregate principal amount outstanding
|
|
$
|
—
|
|
$
|
838,000
|
|
Interest rates
|
|
|
—
|
|
|
2.35%
|
|
The aggregate maturities of the notes payable at December 31, 2016 are as follows:
|
|
|
|
|
|
|
|
January 2017 - December 2017
|
|
|
|
|
$
|
1,938,000
|
|
The Company leases vehicles and certain specialized seismic equipment under leases classified as capital leases.
The aggregate maturities of obligations under capital leases at December 31, 2016 are as follows:
|
|
|
|
|
|
|
|
January 2017 - December 2017
|
|
|
|
|
$
|
419,000
|
|
Interest rates on these leases ranged from 3.16% to 6.72%.
8. Stock-Based Compensation
Since the date of its effectiveness on May 5, 2016, the Company issues new grants of stock-based awards pursuant to the Dawson Geophysical Company 2016 Stock and Performance Incentive Plan (the “2016 Plan”). Upon its
effectiveness, the 2016 Plan replaced: (i) the Amended and Restated Dawson Geophysical Company 2006 Stock and Performance Incentive Plan (the “Legacy Dawson Plan”), which originated from Legacy Dawson and (ii) the Amended and Restated 2006 Stock Awards Plan of Dawson Geophysical Company (formerly known as the TGC Industries, Inc. 2006 Stock Awards Plan) (the “Legacy TGC Plan”), which originated from Legacy TGC (the Legacy Dawson Plan and the Legacy TGC Plan are referred to collectively as, (the “Prior Plans”). The Company administered both of the Prior Plans as a result of the Merger, and per the 2016 Plan, no new grants of awards have been permitted under the Prior Plans after the effectiveness of the 2016 Plan. Further, the Legacy Dawson Plan and the Legacy TGC Plan expired pursuant to their terms on November 28, 2016 and March 29, 2016, respectively. Any outstanding awards previously granted under the Prior Plans continue to remain outstanding in accordance with their terms. The awards outstanding and available under the 2016 Plan and the awards outstanding under each of the Prior Plans and their associated accounting treatment are discussed below.
In 2016, the Company adopted the 2016 Plan. The 2016 Plan, which provides for the issuance of up to 1,000,000 shares of authorized Company common stock. As of December 31, 2016, there were approximately 971,514 shares available for future issuance. The 2016 Plan provides for the issuance of stock-based compensation awards, including stock options, common stock, restricted stock, restricted stock units and other forms. Stock option grant prices awarded under the 2016 Plan may not be less than the fair market value of the common stock subject to such option on the grant date, and the term of stock options shall extend no more than ten years after the grant date. The 2016 Plan terminates May 5, 2026.
In 2006, Legacy Dawson adopted the Legacy Dawson Plan, which was amended and restated in connection with the Merger. The Legacy Dawson Plan provided for the issuance of stock-based compensation awards, including stock options, common stock, restricted stock, restricted stock units and other forms. Stock option grant prices awarded under the Legacy Dawson Plan were required to be no less than the fair market value of the common stock subject to such option on the grant date, and the term of stock options was limited to no more than ten years after the grant date. The Legacy Dawson Plan terminated on November 28, 2016 and, upon the effectiveness of the 2016 Plan on May 5, 2016, no shares have been available under the Legacy Dawson Plan for future issuance.
In 2006, the Company adopted the Legacy TGC Plan, which was amended and restated in connection with the Merger. The Legacy TGC Plan provided for the issuance of stock-based compensation awards, including stock options, common stock, and restricted stock. Stock option grant prices awarded under the Legacy TGC Plan were required to be no less than the fair market value of the common stock subject to such option on the grant date, and the term of stock options was limited to no more than ten years after the grant date. The Legacy TGC Plan terminated on March 29, 2016 and, since such time, has had no shares available for future issuance.
Historically, the Company’s employees and officers that held unvested restricted stock were entitled to dividends when the Company paid dividends (“participating”). The Company’s employees and officers that hold unvested restricted stock awarded during 2016 are not entitled to dividends when the Company pays dividends (“non-participating”).
Impact of Stock-Based Compensation:
The following table summarizes stock-based compensation expense, which is included in operating or general and administrative expense, as appropriate, in the Consolidated Statements of Operations and Comprehensive Loss, for the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and year ended September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended December 31,
|
|
Year Ended September 30,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2014
|
|
Stock options
|
|
$
|
42,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Restricted stock awards
|
|
|
347,000
|
|
|
363,000
|
|
|
213,000
|
|
|
821,000
|
|
Restricted stock unit awards
|
|
|
73,000
|
|
|
526,000
|
|
|
74,000
|
|
|
233,000
|
|
Common stock awards
|
|
|
417,000
|
|
|
267,000
|
|
|
165,000
|
|
|
171,000
|
|
Total compensation expense
|
|
$
|
879,000
|
|
$
|
1,156,000
|
|
$
|
452,000
|
|
$
|
1,225,000
|
|
Stock Options:
Legacy Dawson estimated the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. Legacy TGC estimated the fair value of each stock option on the date of grant using the Binomial Lattice Model. Actual value realized with stock options, if any, is dependent on the future performance of the Company’s common stock and overall stock market conditions.
A summary of the outstanding stock options as of December 31, 2016 as well as activity during the year then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stock Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term in Years
|
|
Balance as of December 31, 2015 (1)
|
|
|
428,430
|
|
$
|
13.01
|
|
|
|
|
Forfeited (1)
|
|
|
(22,519)
|
|
$
|
11.05
|
|
|
|
|
Expired (1)
|
|
|
(36,447)
|
|
$
|
17.34
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
369,464
|
|
$
|
12.70
|
|
|
2.09
|
|
Exercisable as of December 31, 2016
|
|
|
369,464
|
|
$
|
12.70
|
|
|
2.09
|
|
|
(1)
|
|
Balance of stock options and weighted average exercise price adjusted to reflect the Merger Exchange Ratio of 1.76.
|
Stock options issued under the Legacy TGC plan are a combination of incentive stock options and non-qualified stock options, and stock options issued under the Legacy Dawson plans are incentive stock options. For 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.
Outstanding options at December 31, 2016 expire during the period from August 2017 to July 2019. The intrinsic value of the outstanding options at December 31, 2016 was zero. There were no unrecognized compensation costs related to stock options as of December 31, 2016.
There were no options granted or vested, and there were no excess tax benefits from disqualifying dispositions during the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014. No options were exercised during the years ended December 31, 2016 and 2015 or the three months ended December 31, 2014. The total intrinsic value of options exercised during the year ended September 30, 2014 was $13,000.
No cash was received from option exercises during the years ended December 31, 2016 and 2015, or the three months ended December 31, 2014. Cash received from option exercises during the year ended September 30, 2014 was $32,000.
Restricted Stock Awards:
The Company granted 87,000 non-participating (as defined above) restricted stock awards during the year ended December 31, 2016 with a weighted average grant date fair value of $2.96. There were no restricted stock grants in the year ended December 31, 2015, the three months ended December 31, 2014 or the year ended September 30, 2014. The
fair value of non-participating restricted stock awards equals the market price of the Company’s stock on the grant date and generally vest in three years or in annual increments over three years.
A summary of the status of the Company’s nonvested non-participating restricted stock awards as of December 31, 2016 and activity during the year then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Awards
|
|
|
Weighted Average Grant Date Fair Value
|
|
Nonvested as of December 31, 2015
|
|
|
—
|
|
$
|
—
|
|
Grants
|
|
|
87,000
|
|
$
|
2.96
|
|
Nonvested as of December 31, 2016
|
|
|
87,000
|
|
$
|
2.96
|
|
As of December 31, 2016, there were approximately $173,000 of unrecognized compensation costs related to nonvested non-participating restricted stock awards. These costs are expected to be recognized over a weighted average period of 2.12 years.
Restricted Stock Unit Awards:
The Company granted 196,400, 10,000, 94,898 and 38,555 restricted stock unit awards during the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014, respectively, with a weighted average grant date fair value of $2.96, $5.76, $6.79 and $18.02, respectively. The fair value of restricted stock unit awards equals the market price of the Company’s stock on the grant date and generally vest in one to three years or in annual increments over three years.
A summary of the Company’s nonvested restricted stock unit awards as of December 31, 2016 and activity during the year then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Unit Awards
|
|
|
Weighted Average Grant Date Fair Value
|
|
Nonvested as of December 31, 2015 (1)
|
|
|
129,247
|
|
$
|
8.85
|
|
Grants
|
|
|
196,400
|
|
$
|
2.96
|
|
Vested (1)
|
|
|
(20,221)
|
|
$
|
18.15
|
|
Forfeited (1)
|
|
|
(52,111)
|
|
$
|
5.45
|
|
Nonvested as of December 31, 2016
|
|
|
253,315
|
|
$
|
4.24
|
|
|
(1)
|
|
Balance of restricted stock unit awards and weighted average grant date fair value adjusted to reflect the Merger Exchange Ratio of 1.76.
|
As of December 31, 2016, there were approximately $514,000 of unrecognized compensation costs related to nonvested restricted stock unit awards. These costs are expected to be recognized over a weighted average period of 1.72 years.
Common Stock Awards:
The Company granted common stock awards with immediate vesting to outside directors and employees during the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014 as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Common Stock Awards
|
|
|
Weighted Average Grant Date Fair Value
|
|
Year Ended December 31, 2016
|
|
|
66,200
|
|
$
|
6.31
|
|
Year Ended December 31, 2015
|
|
|
58,937
|
|
$
|
4.53
|
|
Three Months Ended December 31, 2014
|
|
|
21,730
|
|
$
|
7.59
|
|
Year Ended September 30, 2014
|
|
|
9,706
|
|
$
|
17.61
|
|
9. Dividends
The Company has not paid dividends during calendar years 2016 and 2015. While there are currently no restrictions prohibiting the Company from paying dividends, the board of directors, after consideration of economic and market conditions affecting the energy industry in general, and the oilfield services business in particular, determined that the Company would not pay a dividend in respect of the Company’s common stock for the foreseeable future. Payment of any dividends in the future will be at the discretion of the Company’s board and will depend on our financial condition, results of operations, capital and legal requirements, and other factors deemed relevant by the board.
10. Employee Benefit Plans
The Company provides a 401(k) plan as part of its employee benefits package in order to retain quality personnel. Legacy Dawson elected to match 100% of the employee contributions up to a maximum of 6% of the participant’s applicable compensation under the Legacy Dawson 401(k) plan for the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014. Legacy Dawson's 401(k) plan was retained in connection with the Merger. Legacy TGC’s 401(k) plan, which was terminated in connection with the Merger, is consistent with Legacy Dawson’s 401(k) plan except Legacy TGC matched 50% of the employee’s contribution up to a maximum of 6% of the participant’s applicable compensation. The Company’s matching contributions under Legacy Dawson’s 401(k) plan for the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014 were approximately $1,658,000, $1,849,000, $462,000 and $1,895,000, respectively. Legacy TGC’s employees rolled into the Legacy Dawson 401(k) plan during 2015. In addition, the Company’s matching contributions to the Legacy TGC 401(k) plan (prior to such plan’s termination) during 2015 were $98,000.
11. Advertising Costs
Advertising costs are charged to expense as incurred. Advertising costs for the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 31, 2014, respectively, totaled $372,000, $466,000, $62,000 and $223,000, respectively.
12. Income Taxes
The Company’s components of loss before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended December 31,
|
|
Year Ended September 30,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2014
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(41,162,000)
|
|
$
|
(36,230,000)
|
|
$
|
(6,249,000)
|
|
$
|
(11,671,000)
|
|
Foreign
|
|
|
(5,079,000)
|
|
|
(3,804,000)
|
|
|
(654,000)
|
|
|
(6,229,000)
|
|
Total
|
|
$
|
(46,241,000)
|
|
$
|
(40,034,000)
|
|
$
|
(6,903,000)
|
|
$
|
(17,900,000)
|
|
The Company recorded income tax benefit of $6,449,000 and $13,755,000 in the years ended December 31, 2016 and 2015, respectively. The Company recorded income tax benefit of $1,912,000 and $5,280,000 in the three months ended December 31, 2014 and year ended September 30, 2014 respectively.
Income tax benefit was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended December 31,
|
|
Year Ended September 30,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2014
|
|
Current federal benefit
|
|
$
|
215,000
|
|
$
|
280,000
|
|
$
|
—
|
|
$
|
74,000
|
|
Current state benefit (expense)
|
|
|
181,000
|
|
|
(571,000)
|
|
|
(39,000)
|
|
|
(633,000)
|
|
Current foreign expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(228,000)
|
|
Deferred federal benefit
|
|
|
5,795,000
|
|
|
12,499,000
|
|
|
1,783,000
|
|
|
5,489,000
|
|
Deferred state (expense) benefit
|
|
|
(847,000)
|
|
|
860,000
|
|
|
168,000
|
|
|
578,000
|
|
Deferred foreign benefit
|
|
|
1,105,000
|
|
|
687,000
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
6,449,000
|
|
$
|
13,755,000
|
|
$
|
1,912,000
|
|
$
|
5,280,000
|
|
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to losses before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended December 31,
|
|
Year Ended September 30,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2014
|
|
Tax benefit computed at statutory rate of 35%
|
|
$
|
16,184,000
|
|
$
|
14,012,000
|
|
$
|
2,416,000
|
|
$
|
6,265,000
|
|
Change in valuation allowance
|
|
|
(10,200,000)
|
|
|
(502,000)
|
|
|
(170,000)
|
|
|
(1,506,000)
|
|
State income tax (expense) benefit, net of federal tax
|
|
|
(433,000)
|
|
|
423,000
|
|
|
83,000
|
|
|
(32,000)
|
|
Foreign losses
|
|
|
985,000
|
|
|
954,000
|
|
|
170,000
|
|
|
1,506,000
|
|
Transaction costs
|
|
|
—
|
|
|
(445,000)
|
|
|
(522,000)
|
|
|
(332,000)
|
|
Other
|
|
|
(87,000)
|
|
|
(687,000)
|
|
|
(65,000)
|
|
|
(621,000)
|
|
Income tax benefit
|
|
$
|
6,449,000
|
|
$
|
13,755,000
|
|
$
|
1,912,000
|
|
$
|
5,280,000
|
|
The principal components of the Company’s net deferred tax assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Federal tax net operating loss ("NOL") carry forward
|
|
$
|
32,746,000
|
|
$
|
23,002,000
|
|
Foreign tax NOL carry forward
|
|
|
4,486,000
|
|
|
3,694,000
|
|
Deferred revenue
|
|
|
462,000
|
|
|
1,193,000
|
|
Restricted stock
|
|
|
318,000
|
|
|
214,000
|
|
Workers’ compensation
|
|
|
74,000
|
|
|
144,000
|
|
State tax NOL carry forward
|
|
|
1,223,000
|
|
|
850,000
|
|
Self-insurance
|
|
|
219,000
|
|
|
260,000
|
|
Canadian start-up costs
|
|
|
275,000
|
|
|
296,000
|
|
Alternative Minimum Tax credit carry forward
|
|
|
315,000
|
|
|
315,000
|
|
Foreign tax credit
|
|
|
1,874,000
|
|
|
1,874,000
|
|
Other comprehensive income
|
|
|
786,000
|
|
|
1,055,000
|
|
Uncertain tax positions
|
|
|
512,000
|
|
|
562,000
|
|
Other
|
|
|
(264,000)
|
|
|
(91,000)
|
|
Total gross deferred tax assets
|
|
|
43,026,000
|
|
|
33,368,000
|
|
Less valuation allowances
|
|
|
(13,602,000)
|
|
|
(3,707,000)
|
|
Total net deferred tax assets
|
|
|
29,424,000
|
|
|
29,661,000
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(29,035,000)
|
|
|
(34,980,000)
|
|
Total net deferred tax assets (liabilities)
|
|
$
|
389,000
|
|
$
|
(5,319,000)
|
|
Noncurrent portion of foreign deferred tax assets
|
|
$
|
535,000
|
|
$
|
—
|
|
Noncurrent portion of domestic deferred tax liabilities
|
|
|
(146,000)
|
|
|
(5,319,000)
|
|
Total net deferred tax assets (liabilities)
|
|
$
|
389,000
|
|
$
|
(5,319,000)
|
|
At December 31, 2016, the Company had a gross NOL for U.S. federal income tax purposes of approximately $93,802,000. This NOL will begin to expire in 2027. The Company will carry forward the net federal NOL of approximately $32,746,000. The Company also had state NOL’s that will affect state taxes of approximately $1,881,000 at December 31, 2016. State NOL’s began to expire in 2015. The Company also has a Canadian NOL of $17,253,000 that will begin to expire in 2032.
In evaluating the possible sources of taxable income during 2016, the Company determined it is more likely than not that the remaining deferred tax assets will not be realizable. As a result, the Company recorded full valuation allowances against its federal, state, and foreign deferred tax assets with the exception of its trademark intangible and the foreign deferred tax assets associated with NOL’s that can be carried back against prior losses.
A summary of the Company’s gross uncertain tax positions at December 31, 2016 and 2015 as well as activity for the years then ended are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
Balance at beginning of year
|
|
$
|
1,684,000
|
|
$
|
—
|
|
Established at Merger date
|
|
|
—
|
|
|
715,000
|
|
(Decrease) increase in prior year tax positions
|
|
|
(14,000)
|
|
|
455,000
|
|
Increase in current year tax positions
|
|
|
157,000
|
|
|
514,000
|
|
Liability statute expiration
|
|
|
(338,000)
|
|
|
—
|
|
Balance at end of year
|
|
$
|
1,489,000
|
|
$
|
1,684,000
|
|
There were no uncertain tax positions for the three months ended December 31, 2014 and the year ended September 30, 2014. The tax years generally subject to future examination by tax authorities are for the years ended December 31, 2013 and after. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense.
Due to the potential resolution of amended federal, state and foreign tax returns and the expiration of various statutes of limitations, it is reasonably possible that the full uncertain tax positions balance at December 31, 2016 may reverse within the next 12 months.
13. Net (Loss) Income per Share Attributable to Common Stock
Net loss per share attributable to common stock is calculated using the two-class method. The two-class method is an allocation method of calculating loss per share when a company’s capital structure includes participating securities that have rights to undistributed earnings. Historically, the Company’s employees and officers that held unvested restricted stock were entitled to dividends when the Company paid dividends (“participating”). The Company’s employees and officers that hold unvested restricted stock awarded during 2016 are not entitled to dividends when the Company pays dividends (“non-participating”). The Company’s basic net loss per share attributable to common stock is computed by reducing the Company’s net loss by the income allocable to unvested restricted stockholders that have a right to participate in earnings. The Company’s employees and officers that hold unvested restricted stock do not participate in losses because they are not contractually obligated to do so. The undistributed earnings are allocated based on the relative percentage of the weighted average unvested participating restricted stock awards. The basic net loss per share attributable to common stock is computed by dividing the net loss attributable to common stock by the weighted average shares outstanding. The weighted average shares outstanding for the year ended December 31, 2015 was calculated by totaling (i) the product of (x) the weighted shares of Legacy Dawson Common Stock outstanding at the beginning of the year multiplied by (y) the Exchange Ratio, plus (ii) the number of shares associated with awards of Legacy Dawson participating restricted stock and restricted stock units that vested in conjunction with the Merger, weighted as of February 11, 2015, plus (iii) the number of shares of Legacy TGC Common Stock outstanding immediately prior to the Merger, weighted to reflect that such shares were outstanding from February 11, 2015 until December 31, 2015. The weighted average number of shares outstanding for the three months ended December 31, 2014 and for the year ended September 30, 2014 were calculated as if the Merger had occurred at the beginning of the respective period, and the components of the weighted average shares calculation were multiplied by the Exchange Ratio. The Company’s diluted loss per share attributable to common stock is
computed by adjusting basic loss per share attributable to common stock by income allocable to unvested participating restricted stock, if any, divided by weighted average diluted shares outstanding.
A reconciliation of the loss per share attributable to common stock is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended December 31,
|
|
Year Ended September 30,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2014
|
|
|
|
(in thousands, except share and per share data)
|
|
Net loss
|
|
$
|
(39,792)
|
|
$
|
(26,279)
|
|
$
|
(4,991)
|
|
$
|
(12,620)
|
|
Income allocable to unvested restricted stock
|
|
|
—
|
|
|
—
|
|
|
(9)
|
|
|
(26)
|
|
Basic loss attributable to common stock
|
|
$
|
(39,792)
|
|
$
|
(26,279)
|
|
$
|
(5,000)
|
|
$
|
(12,646)
|
|
Reallocation of participating earnings
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted loss attributable to common stock
|
|
$
|
(39,792)
|
|
$
|
(26,279)
|
|
$
|
(5,000)
|
|
$
|
(12,646)
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,611,562
|
|
|
20,688,185
|
|
|
14,019,813
|
|
|
14,008,635
|
|
Dilutive common stock options, restricted stock unit awards and non-participating restricted stock awards
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted
|
|
|
21,611,562
|
|
|
20,688,185
|
|
|
14,019,813
|
|
|
14,008,635
|
|
Basic loss attributable to a share of common stock
|
|
$
|
(1.84)
|
|
$
|
(1.27)
|
|
$
|
(0.36)
|
|
$
|
(0.90)
|
|
Diluted loss attributable to a share of common stock
|
|
$
|
(1.84)
|
|
$
|
(1.27)
|
|
$
|
(0.36)
|
|
$
|
(0.90)
|
|
The Company had a net loss in the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014. As a result, all stock options, restricted stock unit awards, and non-participating restricted stock awards were anti-dilutive and excluded from weighted average shares used in determining the diluted loss attributable to a share of common stock for the respective periods. The following weighted average numbers of stock options, restricted stock unit awards, and non-participating restricted stock awards have been excluded from the calculation of diluted loss per share attributable to common stock, as their effect would be anti-dilutive for the years ended December 31, 2016 and 2015, the three months ended December 31, 2014 and the year ended September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended December 31,
|
|
Year Ended September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2014
|
|
Stock options
|
|
|
411,763
|
|
|
425,981
|
|
|
160,434
|
|
|
162,107
|
|
Restricted stock unit awards
|
|
|
268,461
|
|
|
126,596
|
|
|
66,405
|
|
|
33,373
|
|
Non-participating restricted stock awards
|
|
|
76,303
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
756,527
|
|
|
552,577
|
|
|
226,839
|
|
|
195,480
|
|
The following shares of participating restricted stock awards were included in common stock outstanding as such shares have a nonforfeitable right to participate in any dividends that might be declared and have the right to vote:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended December 31,
|
|
Year Ended September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2014
|
|
Participating restricted stock awards
|
|
|
—
|
|
|
—
|
|
|
182,160
|
|
|
182,160
|
|
14. Major Clients
The Company operates in only one business segment, contract seismic data acquisition and processing services. Sales to these clients, as a percentage of operating revenues that exceeded 10%, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Three Months Ended December 31,
|
|
Year Ended
September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2014
|
|
A
|
|
|
13%
|
|
|
21%
|
|
|
14%
|
|
|
16%
|
|
B
|
|
|
—
|
|
|
15%
|
|
|
10%
|
|
|
13%
|
|
C
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12%
|
|
The Company does not believe that the loss of any client listed above would have a material adverse effect on the Company.
15. Areas of Operation
The U.S. and Canada are the only countries of operation for the Company.
Revenues for the year ended December 31, 2016 were $133,330,000 with $122,522,000 earned in the U.S. and $10,808,000 earned in Canada. Revenues for the year ended December 31, 2015 were $234,685,000 with $222,154,000 earned in the U.S. and $12,531,000 earned in Canada. Revenues for the three months ended December 31, 2014 were $50,802,000, all earned in the U.S. Revenues for the year ended September 30, 2014 were $261,683,000 with $256,110,000 earned in the U.S. and $5,573,000 earned in Canada.
Net long-lived assets as of December 31, 2016 were approximately $110,917,000, with $105,059,000 located in the U.S. and $5,858,000 located in Canada. Net long-lived assets as of December 31, 2015 were approximately $147,567,000, with $136,758,000 located in the U.S. and $10,809,000 located in Canada.
16. 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 Company’s financial condition, results of operations or liquidity, as the Company believes it is adequately indemnified and insured.
The Company experiences contractual disputes with its clients from time to time regarding the payment of invoices or other matters. While the Company seeks to minimize these disputes and maintain good relations with its clients, the Company has experienced in the past, and may experience in the future, disputes that could affect its revenues and results of operations in any period.
The Company has non-cancelable operating leases for office and shop space in Midland, Plano, Denison, Houston, Denver, Oklahoma City and Calgary, Alberta.
The following table summarizes payments due in specific periods related to the Company’s contractual obligations with initial terms exceeding one year as of December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period (in thousands)
|
|
|
|
|
|
|
Within
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
1 Year
|
|
2-3 Years
|
|
4-5 Years
|
|
5 Years
|
|
Operating lease obligations (office space)
|
|
$
|
9,567
|
|
$
|
1,468
|
|
$
|
2,256
|
|
$
|
1,591
|
|
$
|
4,252
|
|
Some of the Company’s operating leases contain predetermined fixed increases of the minimum rental rate during the initial lease term. For these leases, the Company recognizes the related expense on a straight-line basis and records deferred rent as the difference between the amount charged to expense and the rent paid. Rental expense under the Company’s operating leases with initial terms exceeding one year was $1,907,000 for the year ended December 31, 2016, $1,691,000 for the year ended December 31, 2015, $242,000 for the three months ended December 31, 2014 and $965,000 for the year ended September 30, 2014.
As of December 31, 2016, the Company had unused letters of credit of $1,767,000 associated with the Company's existing insurance coverage.
Also as of December 31, 2016, the Company had unused letters of credit of $233,000 associated with the Company’s self-insured retention on workers’ compensation claims outstanding prior to October 1, 2011. Effective in fiscal 2012, the Company was no longer self-insured for workers’ compensation claims after October 1, 2011.
17. Recently Issued Accounting Pronouncements
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. The Company adopted ASU No. 2016-15 in the third quarter of 2016 with no material impact to its consolidated financial statements. However, certain reclassifications have been made to the Consolidated Statements of Cash Flows for the year ended December 31, 2015 in order to conform to the December 31, 2016 presentation.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify accounting for share-based payments awarded to employees, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for the annual period beginning after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted.
Adoption of ASU 2016-09 will not have a material effect on the Company’s consolidated financial statements
.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323), which stated additional qualitative disclosures should be considered to assess the significance of the impact upon adoption. This ASU is effective for the annual period beginning after December 15, 2018, and for annual and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements
and believes that the most significant change will be to its Consolidated Balance Sheets as its asset and liability balances will increase for operating leases that are currently off-balance sheet.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), which provides guidance on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and, in certain circumstances, to provide related footnote disclosures. The Company evaluated and adopted this guidance for the period ending December 31, 2016.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. Entities have the option of using either a full retrospective or modified approach to adopt ASU No. 2014-09. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Gross versus Net), amending the principal-versus-agent implementation guidance and clarifying that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which amends certain aspects of the guidance related to identifying performance obligations and licensing implementation. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients, to address certain issues in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends narrow aspects of the guidance such as disclosure of remaining performance obligations and prior-period performance obligations. In January 2017, the FASB issued ASU No. 2017-03,
Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323), which stated additional qualitative disclosures should be considered to assess the significance of the impact upon adoption. These updates do not change the core principle of the guidance under ASU No. 2014-09, but rather provide implementation guidance. In August 2015, ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, was issued and it amended the effective date of ASU No. 2014-09 for public companies to annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but only beginning after December 15, 2016. The Company is reviewing its customer contracts, revenue recognition policies, disclosures, and internal controls and comparing to the provisions of the new standard for its revenues to determine the potential impact on the timing and amounts of revenue recognition. While the Company has not identified any material differences from its review thus far, the evaluation is ongoing and the Company has not concluded on the overall impacts of adopting the new guidance. The Company believes it is following an appropriate timeline to allow for proper recognition, presentation and disclosure upon adoption.
18. 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 December 31, 2016 and 2015, the Company had deposits with domestic and international 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’s sales are to clients whose activities relate to oil and natural gas exploration and production. The Company generally extends unsecured credit to these clients; therefore, collection of receivables may be affected by the economy surrounding the oil and natural gas industry or other economic conditions. The Company closely monitors extensions of credit and may negotiate payment terms that mitigate risk.
19. Quarterly Consolidated Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
Year Ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
47,055,000
|
|
$
|
28,086,000
|
|
$
|
28,122,000
|
|
$
|
30,067,000
|
|
Loss from operations
|
|
$
|
(10,631,000)
|
|
$
|
(13,266,000)
|
|
$
|
(14,257,000)
|
|
$
|
(11,282,000)
|
|
Net loss
|
|
$
|
(8,600,000)
|
|
$
|
(11,589,000)
|
|
$
|
(12,416,000)
|
|
$
|
(7,187,000)
|
|
Basic loss per share attributable to common stock
|
|
$
|
(0.40)
|
|
$
|
(0.54)
|
|
$
|
(0.57)
|
|
$
|
(0.33)
|
|
Diluted loss per share attributable to common stock
|
|
$
|
(0.40)
|
|
$
|
(0.54)
|
|
$
|
(0.57)
|
|
$
|
(0.33)
|
|
Year Ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
73,722,000
|
|
$
|
43,335,000
|
|
$
|
62,498,000
|
|
$
|
55,130,000
|
|
Loss from operations
|
|
$
|
(9,814,000)
|
|
$
|
(18,065,000)
|
|
$
|
(4,662,000)
|
|
$
|
(8,141,000)
|
|
Net loss
|
|
$
|
(6,592,000)
|
|
$
|
(11,877,000)
|
|
$
|
(2,870,000)
|
|
$
|
(4,940,000)
|
|
Basic loss per share attributable to common stock
|
|
$
|
(0.37)
|
|
$
|
(0.55)
|
|
$
|
(0.13)
|
|
$
|
(0.23)
|
|
Diluted loss per share attributable to common stock
|
|
$
|
(0.37)
|
|
$
|
(0.55)
|
|
$
|
(0.13)
|
|
$
|
(0.23)
|
|
Basic and diluted loss per share attributable to common stock are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted information may not equal the annual basic and diluted loss per share attributable to common stock. In addition, all loss per share calculations have been adjusted (as applicable) to reflect the Merger Exchange Ratio of 1.76.
INDEX TO EXHIBITS
EXHIBIT NO.
|
|
DESCRIPTION
|
2.1
|
|
Agreement and Plan of Merger, dated October 8, 2014, by and among Dawson Operating Company (f/k/a Dawson Geophysical Company), the Registrant and Riptide Acquisition Corp., filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8‑K, filed on October 9, 2014, and incorporated herein by reference.
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Formation, as amended February 11, 2015, filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10‑K, filed on March 16, 2015, and incorporated herein by reference.
|
|
|
|
3.2
|
|
Bylaws, as amended February 11, 2015 filed as Exhibit 3.2 to the Registrant’s Annual Report on Form 10‑K, filed on March 16, 2015, and incorporated herein by reference.
|
|
|
|
4.1
|
|
Form of Specimen Stock Certificate, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8‑K, filed on February 11, 2015, and incorporated herein by reference.
|
|
|
|
10.1
|
|
Amended and Restated Loan and Security Agreement by and between the Registrant and Sovereign Bank, dated September 16, 2009, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8‑K, filed on September 22, 2009 (File No. 001‑32472), and incorporated herein by reference.
|
|
|
|
10.2
|
|
Amended and Restated Promissory Note, by and between the Registrant and Sovereign Bank, dated September 16, 2009, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8‑K, filed on September 22, 2009 (File No. 001‑32472), and incorporated herein by reference.
|
|
|
|
10.3
|
|
Amendment to Amended and Restated Loan and Security Agreement and Amended and Restated Promissory Note by and between the Registrant and Sovereign Bank, dated September 16, 2010, filed as Exhibit 10.1 to the Registrant’s Form 10‑Q for the quarterly period ended September 30, 2010, and incorporated herein by reference.
|
|
|
|
10.4
|
|
Third Amendment to Amended and Restated Loan and Security Agreement and Amendment to Amended and Restated Promissory Note, by and between the Registrant and Sovereign Bank, dated September 16, 2011, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8‑K, filed on September 22, 2011, and incorporated herein by reference.
|
|
|
|
10.5
|
|
Fourth Amendment to Amended and Restated Loan and Security Agreement by and between the Registrant and Sovereign Bank, dated January 26, 2012, filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10‑Q for the quarterly period ended September 30, 2012, and incorporated herein by reference.
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10.6
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Fifth Amendment to Amended and Restated Loan and Security Agreement by and between the Registrant and Sovereign Bank, dated September 16, 2012, filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10‑Q for the quarterly period ended September 30, 2012, and incorporated herein by reference.
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10.7
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Sixth Amendment to Amended and Restated Loan and Security Agreement, by and between the Registrant and Sovereign Bank, dated as of October 11, 2012, filed as Exhibit 10.1 to the Registrant’s Form 10‑Q for the quarterly period ended September 30, 2013, and incorporated herein by reference.
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10.8
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Seventh Amendment to Amended and Restated Loan and Security Agreement and Amendment to Amended and Restated Promissory Note, by and between the Registrant and Sovereign Bank, dated as of September 16, 2013, filed as Exhibit 10.2 to the Registrant’s Form 10‑Q for the quarterly period ended September 30, 2013, and incorporated herein by reference.
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10.9
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Eighth Amendment to Amended and Restated Loan and Security Agreement and Amendment to Amended and Restated Promissory Note, by and between the Registrant and Sovereign Bank, dated September 16, 2014, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8‑K, filed on September 19, 2014, and incorporated herein by reference.
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EXHIBIT NO.
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DESCRIPTION
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10.10
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Ninth Amendment to Amended and Restated Loan and Security Agreement, filed on July 2, 2015 as Exhibit 10.1 to the Registrant’s Current Report on Form 8‑K (File No. 001‑32472), and incorporated herein by reference.
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10.11
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Tenth Amendment to Amended and Restated Loan and Security Agreement, filed on March 16, 2016 as Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K, and incorporated herein by reference.
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10.12
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Eleventh Amendment to Amended and Restated Loan and Security Agreement, by and between Dawson Geophysical Company and Sovereign Bank, dated September 30, 2016, filed on October 6, 2016 as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, and incorporated herein by reference.
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+10.13
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The Executive Nonqualified “Excess” Plan Adoption Agreement, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8‑K, filed on January 8, 2013, and incorporated herein by reference.
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+10.14
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The Executive Nonqualified Excess Plan Document, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8‑K filed on January 8, 2013, and incorporated herein by reference.
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+10.15
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Form of Indemnification Agreement entered with directors and executive officers, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8‑K, filed on October 9, 2014, and incorporated herein by reference.
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+10.16
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Employment Agreement, dated October 8, 2014, by and between the Registrant and Stephen C. Jumper, filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8‑K, filed on October 9, 2014, and incorporated herein by reference.
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+10.17
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Employment Agreement, dated October 8, 2014, by and between the Registrant and Wayne A. Whitener, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8‑K, filed on October 9, 2014, and incorporated herein by reference.
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+10.18
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Employment Agreement, dated October 8, 2014, by and between the Registrant and C. Ray Tobias, filed as Exhibit 10.6 to the Registrant’s Current Report on Form 8‑K, filed on October 9, 2014, and incorporated herein by reference.
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+10.19
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Employment Agreement, dated October 8, 2014, by and between the Registrant and Daniel G. Winn, filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8‑K, filed on October 9, 2014, and incorporated herein by reference.
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+10.20
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Employment Agreement, dated October 8, 2014, by and between the Registrant and James K. Brata, filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8‑K, filed on October 9, 2014, and incorporated herein by reference.
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+10.21
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Employment Agreement, dated October 8, 2014, by and between the Registrant and Christina W. Hagan, filed as Exhibit 10.7 to the Registrant’s Current Report on Form 8‑K, filed on October 9, 2014, and incorporated herein by reference.
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+10.22
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|
Employment Agreement, dated October 8, 2014, by and between the Registrant and James W. Thomas, filed as Exhibit 10.8 to the Registrant’s Current Report on Form 8‑K, filed on October 9, 2014, and incorporated herein by reference.
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+10.23
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|
Letter Agreement, dated February 15, 2016, by and between James K. Brata and the Company, filed as Exhibit 10.1 to the Company’s Current Report on Form 8‑K, filed on February 19, 2016, and incorporated herein by reference.
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+10.24
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|
Letter Agreement, dated February 15, 2016, by and between Christina W. Hagan and the Company, filed as Exhibit 10.2 to the Company’s Current Report on Form 8‑K, filed on February 19, 2016, and incorporated herein by reference.
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EXHIBIT NO.
|
|
DESCRIPTION
|
+10.25
|
|
Letter Agreement, dated February 15, 2016, by and between Stephen C. Jumper and the Company, filed on February 19, 2016 as Exhibit 10.3 to the Company’s Current Report on Form 8‑K (File No. 001‑32472), and incorporated herein by reference.
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|
+10.26
|
|
Letter Agreement, dated February 15, 2016, by and between James W. Thomas and the Company, filed as Exhibit 10.4 to the Company’s Current Report on Form 8‑K, filed on February 19, 2016, and incorporated herein by reference.
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+10.27
|
|
Letter Agreement, dated February 15, 2016, by and between C. Ray Tobias and the Company, filed as Exhibit 10.5 to the Company’s Current Report on Form 8‑K, filed on February 19, 2016, and incorporated herein by reference.
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|
+10.28
|
|
Letter Agreement, dated February 15, 2016, by and between Wayne A. Whitener and the Company, filed as Exhibit 10.6 to the Company’s Current Report on Form 8‑K, filed on February 19, 2016, and incorporated herein by reference.
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|
+10.29
|
|
Letter Agreement, dated February 15, 2016, by and between Daniel G. Winn and the Company, filed as Exhibit 10.7 to the Company’s Current Report on Form 8‑K, filed on February 19, 2016, and incorporated herein by reference.
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+10.30
|
|
Letter Agreement, dated May 5, 2016, between the Company and Christina W. Hagan, filed on May 5, 2016 as Exhibit 10.1 to the Registrant’s Current Report on Form 8‑K, and incorporated herein by reference.
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|
+10.31
|
|
Amended and Restated Dawson Geophysical Company 2006 Stock and Performance Incentive Plan, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8‑K, filed on February 11, 2015, and incorporated herein by reference.
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+10.32
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|
Form of Restricted Stock Agreement for the Legacy Dawson Plan, filed as Exhibit 10.3 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Quarterly Report on Form 10‑Q, filed on February 11, 2008 (File No. 001‑34404), and incorporated herein by reference.
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+10.33
|
|
Form of Restricted Stock Agreement for the Legacy Dawson Plan, filed as Exhibit 10.5 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Annual Report on Form 10‑K, filed on December 11, 2013 (File No. 001‑34404), and incorporated herein by reference.
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|
+10.34
|
|
Form of Restricted Stock Unit Agreement for the Legacy Dawson Plan, filed as Exhibit 10.5 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Annual Report on Form 10‑K, filed on December 11, 2013 (File No. 001‑34404), and incorporated herein by reference.
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|
|
|
+10.35
|
|
Form of Stock Option Agreement for the Legacy Dawson Plan, filed as Exhibit 10.4 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Quarterly Report on Form 10‑Q, filed on February 11, 2008 (File No. 001‑34404), and incorporated herein by reference.
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|
|
|
+10.36
|
|
Form of Stock Option Agreement for the Legacy Dawson Plan, filed as Exhibit 10.9 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Annual Report on Form 10‑K, filed on December 11, 2013 (File No. 001‑34404), and incorporated herein by reference.
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|
+10.37
|
|
Dawson Geophysical 2014 Annual Incentive Plan, filed as Exhibit 10.1 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Current Report on Form 8‑K, filed on November 25, 2013 (File No. 001‑34404), and incorporated herein by reference.
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10.38
|
|
Form of Master Geophysical Data Acquisition Agreement, filed as Exhibit 10.10 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Annual Report on Form 10‑K, filed on December 5, 2012 (File No. 001‑34404), and incorporated herein by reference.
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|
EXHIBIT NO.
|
|
DESCRIPTION
|
10.39
|
|
Form of Supplemental Agreement to Master Geophysical Data Acquisition Agreement, filed as Exhibit 10.11 to Dawson Operating Company’s (f/k/a Dawson Geophysical Company) Annual Report on Form 10‑K, filed on December 5, 2012 (File No. 001‑34404), and incorporated herein by reference.
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|
+10.40
|
|
Amended and Restated 2006 Stock Awards Plan of the Company (formerly known as the TGC Industries, Inc. 2006 Stock Awards Plan, i.e., the Legacy TGC Plan), filed on June 5, 2015 as Exhibit 10.1 to the Company’s Current Report on Form 8‑K (File No. 001‑32472), and incorporated herein by reference.
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|
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|
+10.41
|
|
Dawson Geophysical Company 2016 Stock and Performance Incentive Plan, filed on May 5, 2016 as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, and incorporated herein by reference.
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*21.1
|
|
Subsidiaries of the Registrant.
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*23.1
|
|
Consent of RSM US LLP, independent registered public accountants to incorporation of report by reference.
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*23.2
|
|
Consent of Ernst & Young LLP, independent registered public accountants to incorporation of report by reference.
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*31.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.
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*31.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.
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|
*32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
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|
*32.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
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|
101.INS*
|
|
XBRL Instance Document.
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101.SCH*
|
|
XBRL Taxonomy Extension Schema Document.
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|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
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|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
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|
101.LAB*
|
|
XBRL Taxonomy Extension Labels Linkbase Document.
|
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
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