UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2008
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission file number:
001-33460
GEOKINETICS
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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94-1690082
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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1500
CityWest Blvd., Suite 800
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Houston,
Texas
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77042
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(Address
of principal executive offices)
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(Zip
Code)
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(Telephone
Number)
(713)
850-7600
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Securities
registered pursuant to Section 12(b) of the
Act:
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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Common
Stock, $0.01 par value
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NYSE
Alternext US
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Securities
registered pursuant to Section 12(g) of the
Act: None
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Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes
o
No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large
accelerated filer
o
Accelerated
filer
x
Non-accelerated filer
o
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
o
No
x
State
the aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant.
Aggregate
market value of the common stock held by non-affiliates of the registrant as of
June 30, 2008, computed by reference to the closing sale price of the
registrant’s common stock on the NYSE Alternext US on such
date: $103.8 million.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.
Common
Stock, par value $0.01 per share. Shares outstanding on March 13,
2009: 10,470,133 shares
Documents
Incorporated by Reference
Portions
of the definitive proxy statement for the Registrant’s Annual Meeting of
Stockholders to be held on May 27, 2009, which the Registrant expects to file
with the Securities and Exchange Commission within 120 days after December 31,
2008, are incorporated by reference into Part III of this report.
GEOKINETICS
INC.
FORM 10-K
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008
TABLE
OF CONTENTS
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Page
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PART I
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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10
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Item
1B.
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Unresolved
Staff Comments
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18
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Item
2.
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Properties
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18
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Item
3.
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Legal
Proceedings
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19
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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19
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PART II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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19
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Item
6.
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Selected
Financial Data
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21
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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21
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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34
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Item
8.
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Financial
Statements and Supplementary Data
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34
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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35
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Item
9A.
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Controls
and Procedures
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35
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Item
9B.
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Other
Information
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36
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PART III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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36
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Item
11.
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Executive
Compensation
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36
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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36
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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37
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Item
14.
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Principal
Accounting Fees and Services
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37
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PART IV
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Item
15.
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Exhibits,
Signatures and Financial Statement Schedules
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38
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PART I
Unless the
context otherwise requires, references in this annual report to “the company,”
“our company,” “the registrant,” “we,” “our,” “us,” and “Geokinetics” shall mean
Geokinetics Inc. and its subsidiaries.
References in this annual
report to “Grant” or “Trace” refer to Grant Geophysical, Inc. and its
subsidiaries and to Geokinetics Exploration Inc. (formerly known as Trace Energy
Services Ltd.) and its subsidiaries, respectively. References to the Trace
acquisition refer to the Company’s acquisition of Trace and the related
financing of that acquisition which closed in December 2005.
References to the Grant acquisition refer to the
Company’s acquisition of Grant and the related senior loan and
subordinated loan used to finance that acquisition which closed in September
2006.
Forward
Looking Statements
Certain
matters discussed in this report, except for historical information contained
herein, are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). When used in this report, words such
as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,”
“projects,” and similar expressions, as they relate to the Company or
management, identify forward-looking statements. Forward-looking
statements include but are not limited to statements about business outlook for
the year, backlog and bid activity, business strategy and related financial
performance and statements with respect to future benefits. These
statements are based on certain assumptions made by the Company based on
management’s experience and perception of historical trends, industry
conditions, market position, future operations, profitability, liquidity,
backlog, capital resources and other factors believed to be
appropriate. Management’s expectations and assumptions regarding
Company operations and other anticipated future developments are subject to
risks, uncertainties and other factors, disclosed under Item 1A “Risk Factors”
and elsewhere in this report, that could cause actual results to differ
materially from the anticipated results or other expectations expressed in the
forward-looking statements. These include risks relating to job
delays or cancellations, impact from severe weather conditions, reduction in oil
and gas prices, the continued disruption in worldwide financial markets,
cancellation of existing backlog or failure to generate additional backlog, and
other important factors that could cause actual results to differ materially
from those projected. Backlog is an estimate and consists of written
orders and commitments for the Company’s services which the Company believes to
be firm, however, in many instances the contracts are cancelable by customers so
the Company may never realize some or all of its backlog, which may lead to
lower than expected financial performance. Although the Company
believes that the expectations reflected in such statements are reasonable,
there is no assurance that such expectations will be correct. All of
the Company’s forward-looking statements, whether written or oral, are expressly
qualified by these cautionary statements and any other cautionary statements
that may accompany such forward-looking statements. In addition, the
Company disclaims any obligation to update any forward-looking statements to
reflect events or circumstances after the date of this report.
Current
Business Operations
The
Company is an experienced full-service, global provider of seismic data
acquisition services complemented by seismic data processing and interpretation
services. As an acknowledged leader in land, marsh, swamp, transition
zone and shallow water (up to 500 feet water depths) ocean bottom cable or “OBC”
environments to the oil and natural gas industry, the Company has the capacity
to operate up to 25 seismic crews worldwide and the ability to process seismic
data collected throughout the world. Crew count, configuration and
location can change depending upon industry demand and
requirements.
The
Company provides a suite of geophysical services including both
three-dimensional (“3D”) and two-dimensional (“2D”) seismic data surveys, data
processing and interpretation services and other geophysical services for
customers in the oil and natural gas industry, which include many national oil
companies, major international oil companies and smaller independent exploration
and production companies (collectively “E&P companies”) in the Gulf Coast,
Mid-Continent, California, Appalachian and Rocky Mountain regions of the United
States, Western Canada, Canadian Arctic, Central and South America, Africa, the
Middle East, Australia/New Zealand and the Far East. Seismic data is
used by E&P companies to identify and analyze drilling prospects, maximize
drilling success, optimize field development and enhance production
economics. In addition, the Company performs work for seismic data
library companies that acquire seismic data to license to E&P companies
rather than for their own use. For the years ended December 31, 2008, 2007
and 2006, the Company generated total revenues of
$474.6 million, $357.7 million and $225.2 million,
respectively.
Leading provider with a global
footprint and balanced market presence
. The Company’s global
diversity and exposure to both oil and natural gas reserve opportunities provide
it with a balanced market presence, which increases new contract opportunities
while reducing its sensitivity to individual markets and commodity price
volatility. The Company has the equipment and trained personnel to deploy up to
25 seismic crews throughout the world. The Company’s size and operating
capability allow for improved crew and equipment utilization and the ability to
service its customers across the globe. The Company’s long operating history and
reputation for quality service encourages customers to continue to select it as
their provider of seismic data acquisition services.
Specialized expertise in difficult
environments and key high-growth markets
. The Company
specializes in seismic data acquisition services in transition zones and other
difficult land environments, which it believes to be underserved and one of the
fastest growing segments of the overall seismic services industry. The Company’s
extensive experience operating in such complex and challenging areas, including
its expertise in designing and utilizing special equipment customized for these
environments, provides it a significant competitive advantage. The Company also
has experience operating in local markets within key high growth regions around
the world, such as Central and South America, the Middle East and the Far East,
where it has been operating longer than many of its competitors. In addition,
the expertise required to operate in these areas and the difficult nature of the
work positions of the Company to potentially realize higher operating margins
than on more traditional land seismic projects.
Strong relationships with a globally
diversified customer base
. The Company has strong,
long-standing relationships with major and independent oil and natural gas
producers in over 20 countries, as well as with many state owned national oil
and gas companies (“NOC’s”) throughout the world. The Company’s global operating
capability and sizable crew count allow it to leverage relationships with its
customers and increase revenues by providing them services throughout the world
and tailoring crew sizes to meet their requirements. The Company’s customer base
is diversified and it is not dependent on any one customer. The Company’s top
ten customers collectively represented approximately 47% of total revenues for
the year ended December 31, 2008, with no single customer accounting for
more than 9% of its total revenues.
Strong backlog that provides
significant revenue visibility
. Even though the oil and gas
business is entering into a period of reduced spending on exploration and
development due to the current economic recession, the Company’s backlog
continues to remain strong. The Company estimates its total seismic
data acquisition and seismic data processing revenue backlog to be $548.3
million as of December 31, 2008, an increase of 8% since September 30,
2008, of which $84.7 million are North American projects and $463.6
million are international projects.
Highly experienced management team
and board of directors
. The Company draws on the global
experience of its management team to maintain its leading market position and
strong customer relationships. The Company’s senior executive management team
has many years of relevant industry experience in the seismic services sector as
well as in oil and gas exploration, with a demonstrated track record. The
Company’s board of directors includes members recognized individually for their
accomplishments in the fields of energy, international law, investment banking
and private equity, and who the Company believes affords it a valuable strategic
resource.
Maintain focus and specialization in
profitable, high-potential markets
. To maximize
profitability, the Company will continue to target its growth in areas in which
it believes it has a competitive advantage, such as transition zones and other
difficult land environments. The Company believes these areas continue to be
underserved and represent one of the fastest growing segments of the overall
seismic services market. The Company also plans to further expand its presence,
both geographically and in the types of services offered, in existing and new
high-potential markets throughout the world to diversify its customer base and
capitalize on opportunities in its areas of operations.
Prudently invest in new and
technologically-advanced equipment
. The Company believes
growth in demand for seismic services will continue to be enhanced by the
development and application of new technologies, particularly for use in
transition zones and other difficult land environments. The Company will
continue to acquire and develop expertise in utilizing technologically-advanced
equipment to perform its services. In addition, the Company has and will
continue to prudently upgrade its existing equipment to improve operating
efficiency and to equip it for larger crew sizes, which it expects to lead to
increased operating margins.
Provide a broad range of
services
. The Company believes there are significant global
opportunities in providing customers a broad range of seismic data services,
from acquisition and processing to interpretation and management. Customers are
increasingly seeking integrated solutions to better evaluate known reserves and
improve the yield of recoverable hydrocarbons. Given its size and technological
capabilities, the Company believes it has the infrastructure to significantly
expand these multiple service offerings that add value and efficiency for its
customers.
Enhance asset utilization and
operating efficiency
. Through greater customer and geographic
diversification, upgraded equipment and improved crew capabilities, the Company
seeks to enhance the continuity of its seismic crews, the utilization of its
equipment and its operating efficiency, which it expects will generate increased
revenues and higher margins. Additionally, continuing to expand its customer
base and presence internationally will allow it to better manage its resources
and minimize the reliance on certain customers, downtime between projects and
the effects of seasonality and cyclicality in its business.
Monitor opportunities for strategic
acquisitions
. The Company intends to monitor opportunities
for growth through strategic acquisitions. The Company seeks to identify and
complete acquisitions that will enhance its cash flow, complement its products
and services, improve its operating efficiency, expand its geographic footprint
and presence in key high-growth markets and further diversify its customer
base.
Recent
Developments
The
Company amended its existing $70 million revolving credit facility with PNC Bank
on February 11, 2009. Among other things, the amended agreement
increases the Company’s borrowing base that can come from eligible fixed assets
to $55.0 million, up from the original $45.0 million and deferred reductions to
this new amount until June 30, 2009, at which time, the amount of the borrowing
base that can come from eligible fixed assets will be reduced by $0.9 million
per month until maturity. Once started, the reduction will affect only the
amount of the borrowing base that can come from eligible fixed assets and will
not reduce the overall amount of the revolver. Based on the current
borrowing base calculation, the Company will have immediate access to the
maximum availability of $70.0 million. As of December 31, 2008,
outstanding borrowings on the revolver were $44.0 million.
The
Company’s Board of Directors has approved a capital expenditure budget for 2009
of $37.3 million, which is a reduction of over 50% from capital expenditures in
2008. The Company expects investments in 2009 to be targeted toward
maintenance and selective additions of vessels and other equipment to improve
the efficiency of the Company’s shallow water operations, support equipment for
long-term projects in South America and West Africa and the continued
implementation of new information technology systems.
In
addition, the Company’s Board of Directors approved a $12.7 million investment
in an interest in data that the Company will retain in conjunction with a data
acquisition survey that will be completed by the Company. The data
will be acquired in the United States and co-owned by the Company and its
customer. The Company expects that license revenues already committed
will be sufficient to cover the Company’s share of cash costs for data
acquisition.
Industry
Overview
Seismic surveys enable E&P companies to determine whether subsurface
conditions are favorable for finding oil and natural gas accumulations and to
determine the size and structure of previously identified oil and natural gas
fields. Seismic surveys consist of the acquisition and processing of 2D and 3D
seismic data, which is used to produce computer-generated, graphic
cross-sections, maps and 3D images of the subsurface. These resulting images are
then analyzed and interpreted by geophysicists and used by oil and natural gas
companies to acquire prospective oil and natural gas drilling rights, select
drilling locations on exploratory prospects and manage and develop producing
reservoirs.
Seismic data is acquired by crews operating in land, transition zone and marine
environments. Seismic data is generated by the propagation of sound waves near
the earth’s surface by controlled sources, such as dynamite or vibration
equipment. The waves radiate into the earth and are reflected back to the
surface and collected by data collection devices known in the industry as
“geophones.” Multiple geophones are strategically positioned,
according to client requirements, and connected as a single recording channel to
acquire data. This data is then input into a specialized data
processing system that enhances the recorded signal by reducing noise and
distortion, improving resolution and arranging the input data to produce an
image of the subsurface. 3D seismic surveys collect far more information and
generate significantly greater detail of the underlying reservoirs than
historically used seismic methods, in particular 2D surveys. 2D
seismic is shot in a straight line, 3D seismic is shot in a grid formation and
4D seismic is shot like 3D in a grid, but is repeated over a period of
time.
The overall demand for seismic data and related seismic services is dependent
upon spending by E&P companies for exploration, production, development and
field management activities, which, in turn, is driven largely by present and
expected future prices for oil and natural gas and the need to replenish
drilling prospects and reserves. This is impacted by supply and demand, global
and local events, as well as political, economic and environmental
considerations.
The
recent volatility in the equity and financial markets has led to increased
uncertainty regarding the outlook for the global economy. Due to the
deterioration of the credit markets and the ongoing challenges facing many
financial institutions, businesses have intensified their focus on liquidity and
access to capital. This heightened uncertainty, a worldwide decrease in
hydrocarbon demand, and a steep decline in commodity prices, have caused many
E&P companies to curtail planned capital spending. Despite this
financial market turmoil, the Company has continued to experience strong demand
for its services as reflected in its third and fourth quarter operating results
and backlog. This demand is in part driven by the need to replace
depleting reserves or find reserves in more favorable geographic locations
. Given the volatility and uncertainty in the macro economic environment,
it is difficult to predict to what extent these events will affect the Company’s
overall activity level in 2009. Generally, the long-term outlook for the
Company’s business remains favorable based on the following
factors:
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Global energy
demand.
Recent increases in the demand for oil and gas around the
world, particularly in China and India, generated increased energy demand
and lead to higher energy prices and increased exploration and production
efforts. The recent global financial crisis has reduced this
demand due to lower resulting commodity prices and a lack of access to the
capital markets. While there can be no assurance as to when, or
if, demand will rebound, the Company believes that this drop in demand is
temporary and that long-term demand for the Company’s services will
increase.
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E&P capital
spending.
The need to replace depleting reserves should encourage
capital expenditures by the Company’s clients in exploration and
production, which the Company expects will benefit the seismic services
industry. E&P companies, including the national oil companies in
certain countries, are under pressure to increase or replenish reserves
and are looking to unconventional resource plays, transition zones,
international locations and the optimization of current reserves with new
technology. Seismic data acquisition services are a key component of
E&P companies’ capital expenditure
programs.
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Technological
development.
The application and utilization of seismic services
have considerably increased over the last several years as a result of
significant technological advancements, such as the move from 2D to 3D and
from single-component to multi-component seismic data recording and
processing. Seismic services can now be applied to the entire sequence of
exploration, development and production, as opposed to exploration only,
allowing for a greater range of use for the Company’s
services. In addition, surveys previously shot 2D or
single-component are often being reshot with newer equipment or techniques
to give greater clarity to the subsurface which can be further enhanced by
the latest processing techniques.
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The
Company is organized into two reportable segments: seismic data
acquisition and seismic data processing and interpretation. The
Company further breaks down its seismic data acquisition segment into two
geographic reporting units: North American (excluding Mexico) seismic
data acquisition and international seismic data acquisition. For the
fiscal years ending December 31, 2008, 2007 and 2006, the Company’s North
American seismic data acquisition services represented 37%, 47%, and 72% of
total revenues, international seismic data acquisition services represented 60%,
50%, and 25%, and data processing and interpretation services represented 3%,
3%, and 3% of total revenues. The Company has recently focused on
diversifying and expanding into new international markets and would expect
international data acquisition revenues to continue to increase as a percentage
of total revenues.
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Seismic
Data Acquisition Services
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The
Company’s seismic data acquisition operations are conducted primarily by three
wholly-owned subsidiaries: Geokinetics USA, Inc., Geokinetics
Exploration, Inc. and Geokinetics International Holdings,
Inc. Through these subsidiaries, the Company engages in seismic data
acquisition services in land, transition zone and shallow water environments on
a contract basis for its customers. The Company’s equipment is capable of
collecting 2D, 3D and multi-component seismic data. The Company has a combined
recording capacity in excess of 122,500 channels that can be configured to
operate up to 25 crews worldwide. Most of the Company’s seismic data acquisition
services involve 3D surveys. The crews are scalable and
specially configured for each project; the number of individuals on each crew is
dependent upon the size and nature of the seismic survey requested by the
customer.
On a
typical North American land seismic survey, the seismic recording crew is
supported by a surveying crew and a drilling crew. The surveying crew lays out
the line locations to be recorded and identifies the sites for shot-hole
placement. The drilling crew creates the holes for the explosive charges that
produce the necessary acoustical impulse. A mechanical vibrating unit is used in
areas where explosives are not utilized. The seismic crew lays out the geophones
and recording instruments, directs shooting operations and records the
acoustical signal reflected from subsurface strata. In the United States and
Canada, the survey crew and drill crew are typically provided by third parties
and supervised by the Company’s personnel. Outside the United States and Canada,
the Company performs its own surveying and drilling. A fully staffed seismic
land crew typically consists of at least one party manager, observer, head
linesman and crew laborers. The number of individuals on each crew is dependent
upon the size and nature of the seismic survey requested by the customer but can
be extensive in certain parts of the world. A typical international
land crew may be up to ten times the size of a typical North American land crew.
The Company uses helicopters to assist the crews in seismic data acquisition
services in circumstances where such use will reduce overall costs and improve
productivity. A typical transition zone or OBC crew utilizes numerous
vessels and airguns as the energy source to record seismic data.
The
Company’s contracts currently provide that the seismic data acquired by the
Company is the exclusive property of the customer. For the years
ended December 31, 2008, 2007 and 2006, seismic data acquisition services
generated revenues of $462.6 million, $346.8 million, and $218.0 million,
respectively. Of these segment revenues, for the year ended
December 31, 2008, North American operations accounted for 38% and
international operations accounted for 62%. The Company does expect
to complete at least one survey in 2009 whereby it will retain a joint interest
in the data with its customer.
Seismic
data acquisition services contracts, whether bid or negotiated, provide for
payment on either a turnkey or term (also referred to as “day-rate”) basis, or
on a combination of both methods. A turnkey contract provides for a fixed fee to
be paid for data acquired. Such a contract causes the Company to bear varying
degrees of business interruption caused by weather delays and other hazards. The
Company’s seismic data acquisition services are performed outdoors and are
therefore subject to seasonality. Adverse weather negatively impacts the
Company’s ability to provide services in certain regions. Term contracts provide
for payments based on agreed rates per units of time, which may be expressed in
periods ranging from days to months. This type of contract causes the customer
to bear substantially all of the business interruption risks. When a combination
of both turnkey and term methods is used, the risk of business interruption is
shared by the Company and the customer. In either case, progress payments are
usually required unless it is expected the job can be accomplished in a short
period. Historically, the Company’s contracts for seismic data
acquisition services have been predominantly turnkey contracts, however, there
has been a recent trend towards more term contracts and a significant amount of
the Company’s work in 2008 was on a term basis.
Seismic
Data Processing
The Company
also provides a full suite of onshore and offshore proprietary seismic data
processing and interpretation products and services to complement its data
acquisition services. The Company’s seismic data processing operations are
conducted by Geokinetics Processing, Inc., a wholly-owned subsidiary.
Seismic data is processed
to produce an image of the earth’s subsurface using proprietary computer
software and internally developed techniques. The Company’s seismic data
processing and interpretation centers in the United States and the United
Kingdom process 2D and 3D seismic data acquired by the Company’s own crews as
well as data acquired by other seismic data acquisition
companies.
The Company’s
expansion into the United Kingdom in 2003 facilitated the penetration of a wider
range of geographic markets, provided access to worldwide technology trends and
strengthened the Company’s overall seismic and management expertise. A majority
of the Company’s seismic data processing and interpretation services are
performed on 3D seismic data. The Company also re-processes older seismic data
using new techniques designed to enhance the quality of the data. Substantially
all of the Company’s data processing services contracts are on a turnkey
basis.
The
seismic data processing services industry is highly technical and the
technological requirements for the acquisition and processing of seismic data
have increased continuously over time. Thus, the Company must continually take
steps to ensure that the Company’s technological capabilities are comparable or
superior to those of its competitors, whether through continuing research and
development, strategic alliances with equipment manufacturers or acquisitions of
technology through licenses from others. The Company has introduced several
technological innovations that have become industry-standard products in the
seismic data processing business, including its proprietary amplitude variation
with offset (“AVO”) reflectivity process. Since 2005, the Company has made
significant investments to upgrade its technology in the areas of pre-stack time
and depth imaging, multi-component and four-dimensional (“4D”) seismic data
processing through technology joint ventures and proprietary developments. The
Company’s Gulf of Mexico well log database and rock properties database continue
to be unique products offered in the seismic data processing and interpretation
services area. The Company actively markets its seismic data
processing and interpretation services in conjunction with its seismic data
acquisition services to enhance total value provided to the Company’s
customers. The Company has experienced improved operating results in
this segment, which is the result of continuous improvements in technology, job
mix, and cost structure throughout the year.
The
Company’s seismic data
acquisition
services and seismic data processing and interpretation services are marketed
from various offices around the world. The Company maintains offices
in Canada, Central and South America, Europe, the Middle East, Australia, Asia,
the Far East and its corporate headquarters in Houston, Texas, from which the
Company markets and/or performs services
.
While the
Company relies upon the utilization of its personnel to make sales calls, the
Company receives a significant amount of work through word-of-mouth referrals,
repeat customer sales, its industry reputation and the experience and skills of
its personnel.
Seismic
data acquisition services and seismic data processing and interpretation
services contracts are obtained either through competitive bidding in response
to invitations to bid, or by direct negotiation with a prospective customer. A
significant portion of the Company’s contracts result from competitive bidding.
Contracts are generally denominated in U.S. dollars and are awarded primarily on
the basis of price, experience, availability, technological expertise and
reputation for dependability and safety.
For the
year ended December 31, 2008, the Company’s top ten customers were Petroleo
Brasileiro S.A. – Petrobras (“Petrobras”), Total, Seismic Exchange, Inc.,
Apache, Sonangol, International Egyptian Oil Company (“IEOC”), Cepsa, EOG
Resources, Petrominerales, and Seitel. These top 10 customers
represented 47% of the Company’s revenue for 2008.
The
Company’s largest customer in 2008, Petrobras accounted for 9% of total revenue
from both data acquisition and processing services. The contract entered
into with Petrobras includes a master services agreement that is ordinarily
entered into for the provision of data acquisition and processing services and a
supplemental agreement which provides the specific details for a particular
job. Because of the nature of the Company’s contracts and customers’
projects, the Company’s largest customers can change from year to year and the
largest customers in any year may not be indicative of the largest customers in
any subsequent year.
The
Company has a large, diversified customer base. While the loss of one
customer or one particular contract may have a short-term negative impact, the
Company does not believe that any of its customers or contracts, including that
with Petrobras, is material, especially in light of the customer’s ability to
cancel the contracts as disclosed in the Risk Factors.
Even
though the oil and gas business is entering into a period of reduced spending on
exploration and development in certain markets due to the current economic
recession, the Company’s backlog continues to remain strong. At
December 31, 2008 , the Company estimated its total backlog of commitments
for services was approximately $548.3 million compared to estimated total
backlog of commitments for services of approximately $411.3 million at
December 31, 2007. Backlog at December 31, 2008 included $463.6
million from international operations, $78.8 million from North American
operations, including $72.7 million in the United States, and $5.9 million from
the data processing segment. It is anticipated that the majority of
the backlog at December 31, 2008, will be completed in 2009 with the
remaining amount to be completed in 2010. This backlog consists of
written orders or commitments believed to be firm. Contracts for services are
occasionally varied or modified by mutual consent and in many instances may be
cancelled by the customer on short notice without penalty. As a result, the
Company’s backlog as of any particular date may not be indicative of the
Company’s actual operating results for any succeeding fiscal
period.
The
acquisition and processing of seismic data for the oil and natural gas industry
are highly competitive businesses. Competition is based on the type and
capability of equipment used to conduct seismic surveys and the availability of
such equipment. In addition to these factors, price, experience, availability,
technological expertise and reputation for dependability and safety of a crew
significantly affect a potential customer’s decision to award a contract to the
Company or one of the Company’s competitors. The Company believes some of its
competitors have more extensive and diversified operations and also have
financial, operating and other resources substantially in excess of those
available to the Company.
The
Company’s principal competitors in the seismic data acquisition services segment
include Bureau of Geophysical Prospecting, WesternGeco, Compagnie Générale de
Géophysique-Veritas (“CGV”), Dawson Geophysical Company, Petroleum Geo-Services
ASA (“PGS”), Tidelands Geophysical Company and
Global Geophysical, Inc. In addition, in the international markets in
which the Company operates, the Company competes with various smaller local
competitors. The Company’s principal competitors in the seismic data processing
services segment include CGV, PGS, Geotrace Technologies, Inc., GX
Technology Corporation, WesternGeco and a number of smaller
companies.
The
Company’s operations are subject to numerous international, federal, state and
local laws and regulations. These laws and regulations govern various aspects of
operations, including the discharge of explosive materials into the environment,
requiring the removal and clean-up of materials that may harm the environment or
otherwise relating to the protection of the environment and access to private
and governmental land to conduct seismic surveys. The Company believes it has
conducted its operations in substantial compliance with applicable laws and
regulations governing its activities.
The
Company’s Quality, Health, Safety and Environmental (“QHSE”) department is
generally responsible for the Company meeting and remaining in compliance with
certain regulatory requirements. The Company has QHSE Advisors who maintain and
administer the Quality, Health, Safety and Environmental programs for its field
personnel. The costs of acquiring permits and remaining in compliance with
environmental laws and regulations, title research, environmental studies,
archeological surveys and cultured resource surveys are generally borne by the
Company’s customers.
Although
the costs of complying with applicable laws and regulations have historically
not been material, the changing nature of such laws and regulations makes it
impossible to predict the cost or impact of such laws and regulations on the
Company’s future operations.
The
Company relies on certain proprietary information, proprietary software, trade
secrets and confidentiality and licensing agreements to conduct its current
operations. The Company’s future success will depend, in part, on its ability to
maintain and preserve its intellectual property, without infringing on the
rights of any third parties. There can be no assurance that the Company will be
successful in protecting its intellectual property or that its competitors will
not develop technologies that are substantially equivalent or superior to the
Company’s technologies. The Company is continuously working to improve its
technology and operating techniques, primarily through on-the-job learning and
advancement as well as working with its vendors to develop new technologies for
the Company. The Company did not have a formal company-wide research and
development program in place during the periods presented.
At
December 31, 2008, the Company had approximately 3,700 employees, all of
which were full-time employees. None of the Company’s employees are a party to a
collective bargaining agreement. The Company considers relations with its
employees to be good.
Through a
combination of the Company’s internal controls and its policy related to
conflicts of interest contained in its code of business conduct and ethics,
the Company was made aware in December 2008 of a previously unreported
related party transaction. In 2002, officers and other employees of
Grant
’s Colombian operations, together with a
third party,
formed Serandina, S.A., a catering company which has
provided food, drink and other catering services to Grant’s Colombian seismic
crews in the field since its inception. The Company acquired Grant
and its Colombian subsidiary in 2006, and since that date, Serandina has
continued to provide these services to the Company’s Colombian
subsidiary. Since the Grant acquisition, Serandina has been
substantially owned by nine current non-executive officers or employees of
Grant, or following its acquisition, the Company’s Colombian
operations. Based on the Company’s independent investigation of the
formation of Serandina and its contracts with the Company, the provision of
these services was not properly disclosed to Grant management or the Company
when it acquired Grant or thereafter, and this relationship was not approved by
the Company’s audit committee as required by the Company’s internal
policies. The Company’s audit committee has approved the Colombian
subsidiary’s continuing to operate under existing contracts with Serandina until
existing seismic contracts with the Company’s clients in Colombia terminate,
which the Company anticipates will occur mid 2009. The Company does
not plan to enter into any new contracts with Serandina unless the ownership
structure changes. For the twelve months ended December 31, 2008,
2007 and 2006, the Company spent approximately $6.3 million, $3.0 million and
$1.4 million, respectively with this company. Based on the Company’s review
of the terms of the contracts with Serandina, the Company believes that these
services were provided at a fair market value and the charges were
reasonable.
At this
time, the Company has not made any decision on how to replace the services
provided by Serandina. The Company’s 2009 business plan anticipated a
reduction of the operations in Colombia as a result of increasing competition
and heightened security concerns. Substantially all of the
Company’s year-end 2008 backlog attributable to Colombia will have been earned
when the existing contracts expire mid 2009. The Company had,
however, intended to continue its operations in Colombia after
2009. It is possible that the Company’s termination of its business
relationship with Serandina, or actions taken with respect to its employees who
own Serandina, may substantially reduce or eliminate its operations in Colombia,
temporarily or permanently.
As part of
the Company’s business strategy, equipment and crews
are frequently
re-deployed to different geographic regions in response to changing business
conditions.
If the Company
decides to substantially reduce or eliminate its Colombian operations, the
Company believes that it will be able to re-deploy its Colombian crews and
equipment to other geographic regions. This re-deployment of crews
and equipment may result in a temporary reduction in revenues, however, while
the Company’s Colombian operations have historically been significant, the
Company does not expect the future impact to be material.
Available Information
All of
the Company’s reports and materials filed with the SEC, are available free of
charge through its website, http://www.geokinetics.com, as soon as reasonably
practical, after the Company has electronically filed such material with the
SEC. Information about the Company’s Board Members, Board’s Standing
Committee Charters, and Code of Business Conduct and Ethics are also available,
free of charge, through the Company’s website. Information contained
on the Company’s website is not part of this annual report.
The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC, available at http://www.sec.gov.
The following risk factors, which are not all-inclusive, should be carefully
considered, together with all of the other information included in this
Form 10-K, including the Company’s financial statements and related notes,
in evaluating the Company. Other factors not specifically discussed
in this report may also have a material adverse effect on the Company’s
results. If any of the following risks were actually to occur, the
Company’s business, financial condition or results of operations could be
materially adversely affected.
Economic
conditions could negatively impact the Company’s business.
The Company’s operations are affected by local, national and worldwide economic
conditions and the condition of the oil and gas industry. Recent disruptions in
the credit markets and concerns about global economic growth
have had
a significant adverse impact on global financial markets and commodity prices,
both of which have contributed to a decline in the Company stock price and
corresponding market capitalization.
Continued
market deterioration could also jeopardize the performance of certain
counterparty obligations, including those of the Company’s insurers, suppliers,
customers and financial institutions. Although the Company monitors the
creditworthiness of its counterparties, the current disruptions could lead to
sudden changes in the counterparty’s liquidity. In the event any such party
fails to perform, the Company’s financial results could be adversely affected
and the Company could incur losses and its liquidity could be negatively
impacted.
The
consequences of a prolonged recession may include a lower level of economic
activity, decreased exploration and drilling and increased uncertainty regarding
energy prices and the capital and commodity markets. A lower level in capital
expenditure budgets of E&P companies could have a material adverse effect on
the demand for its services. In addition, a general decline in the level of
economic activity might result in lower commodity prices, which may also
adversely affect its revenues.
The
Company’s business largely depends on the exploration and development
activity in the oil and natural gas industry.
The
Company’s business is substantially dependent upon the condition of the oil and
natural gas industry and, in particular, the willingness of E&P companies to
make capital expenditures for exploration, development and production
operations. The level of capital expenditures generally depends on the
prevailing views of future oil and natural gas prices, which are influenced by
numerous factors, including but not limited to:
|
·
changes in United States and international economic conditions,
including the potential for a
recession;
|
|
·
demand for oil and natural gas, especially in the United States, China and
India;
|
|
·
worldwide political conditions, particularly in significant
oil-producing regions such as the Middle East, West Africa and Latin
America;
|
|
·
|
actions
taken by the Organization of Petroleum Exporting Countries, or
OPEC;
|
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·
|
the
availability and discovery rate of new oil and natural gas
reserves;
|
|
·
|
the
rate of decline of existing and new oil and gas
reserves;
|
|
·
|
the
cost of exploration for, and production and transportation of, oil and
natural gas;
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·
|
the
ability of E&P companies to generate funds or otherwise obtain
external capital for exploration, development, construction and production
operations;
|
|
·
|
the
sale and expiration dates of leases in the United States and
overseas;
|
|
·
|
technological
advances affecting energy exploration, production, transportation and
consumption;
|
|
·
|
environmental
or other government regulations both domestic and
foreign;
|
|
·
|
domestic
and foreign tax policies; and
|
|
·
|
the
pace adopted by foreign governments for the exploration, development and
production of their oil and gas
reserves.
|
Oil and natural gas prices
were at historically high levels until experiencing a sharp decline during the
second half of 2008. The recent volatility in the equity and financial
markets has led to increased uncertainty regarding the outlook for the global
economy. This heightened uncertainty, a worldwide decrease in hydrocarbon
demand, and a steep decline in commodity prices, have caused many E&P
companies to curtail planned capital spending, which may negatively affect the
Company’s operations. A sustained period of low drilling and production
activity, low commodity prices or reductions in industry budgets could reduce
demand for the Company’s services and would likely have a material adverse
effect on the Company’s business, financial condition and results of
operations.
The
Company may not be able to obtain funding on acceptable terms or at all because
of the deterioration of the credit and capital markets. This may hinder or
prevent the Company from meeting its future capital
needs.
Global
financial markets and economic conditions have been, and continue to be,
disrupted and volatile due to a variety of factors. As a result, the cost of
raising money in the debt and equity capital markets has increased substantially
while the availability of funds from those markets has diminished significantly.
Although the Company has been able to successfully amend its revolving credit
facility in the current economic climate, the Company may not be successful in
the future. In particular, as a result of concerns about the stability of
financial markets generally and the solvency of lending counterparties
specifically, the cost of obtaining money from the credit markets generally has
increased as many lenders and institutional investors have increased interest
rates, enacted tighter lending standards, refused to refinance existing debt on
similar terms or at all and reduced, or in some cases ceased, to provide funding
to borrowers. In addition, lending counterparties under existing revolving
credit facilities and other debt instruments may be unwilling or unable to meet
their funding obligations. Due to these factors, the Company cannot be
certain that new debt or equity financing will be available on acceptable terms.
If funding is not available when needed, or is available only on unfavorable
terms, the Company may be unable to meet its obligations as they come due.
Moreover, without adequate funding, the Company may be unable to execute its
growth strategy, take advantage of other business opportunities or respond to
competitive pressures, any of which could have a material adverse effect on its
revenues and results of operations.
The
seismic data acquisition services industry is capital intensive and sources of
cash to finance the Company’s capital expenditures may not always be
available.
Seismic
data acquisition equipment is continually being improved with new technology. In
order to remain competitive, the Company must continue to invest additional
capital to maintain, upgrade and expand its seismic data acquisition
capabilities. Seismic data acquisition equipment is expensive and the Company’s
ability to operate and expand its business operations is dependent upon the
availability of internally generated cash flow and financing alternatives. Such
financing may consist of bank or commercial debt, equity or debt securities or
any combination thereof. There can be no assurance that the Company will be
successful in obtaining sufficient capital to upgrade and expand its current
operations through cash from operations or additional financing or other
transactions if and when required on terms acceptable to the Company. Due to the
uncertainties surrounding the changing market for seismic services, increases in
capital and technological requirements, and other matters associated with the
Company’s operations, the Company is unable to estimate the amount or terms of
any financing that the Company may need to acquire, upgrade and maintain seismic
equipment. If the Company is unable to obtain such financing, if and when
needed, the Company may be forced to curtail its business objectives, and to
finance its business activities with only such internally generated funds as may
then be available.
The
Company’s seismic data acquisition services are often conducted in extreme
weather, in difficult terrain and marine environments. As a result, these
operations are subject to risks of injury to Company personnel and loss of
seismic data acquisition equipment and operating in these environments can
adversely affect the Company’s profitability.
The
Company operates outdoors in difficult terrain and marine environments,
including mountainous areas and transition zones such as beaches, swamps and
marshes. The Company is exposed to and adversely affected by severe weather
conditions. The Company maintains insurance against the destruction
of its seismic data acquisition equipment and injury to personnel and property
that may result from its operations. However, the Company is not fully insured
for all risks (including business interruption), either because such insurance
is not available or because the Company elects not to obtain insurance coverage
due to cost. In addition, under the Company’s turnkey contracts, the Company
bears substantially all of the risk of loss due to adverse weather and operating
conditions or loss of equipment. Delays due to hazardous weather and operating
conditions, equipment losses or injury to Company personnel
could have a material adverse effect on the Company’s profitability
and results of operations.
The
Company’s operating results from seismic data acquisition services can be
significantly impacted from quarter to quarter due to a change in the timing of
a few large jobs occurring at any one time.
The
Company currently has the capacity to field up to 25 seismic data
acquisition crews. However, in any given period, the Company could have idle
crews which result in a significant portion of its revenues, cash flows and
earnings coming from a relatively small number of crews. Additionally, due to
location, service line or particular job, some of the Company’s individual crews
may achieve results that are a significant percentage of consolidated operating
results. Should one or more of these crews experience significant changes in
timing, the Company’s financial results would be subject to significant
variations from period to period. Factors that may result in these changes in
timing include, but are not limited to, weather, permits, customer requirements
and political unrest. Historically, the Company has been dependent on a
few customers operating in a single industry; the loss of one or more customers
could adversely affect its financial condition and results of
operations.
The
Company’s customers are engaged in the oil and natural gas drilling business
throughout the world. Historically, the Company has been dependent upon a few
customers for a significant portion of its revenue. For the year ended
December 31, 2008, 2007 and 2006, the Company’s top ten customers
collectively represented approximately 47%, 55% and 39% of total revenues,
respectively. The Company’s three largest customers in 2008 accounted
for 9%, 5% and 5% of total revenues, respectively. This concentration of
customers may increase the Company’s overall exposure to credit risk, and
customers will likely be similarly affected by changes in economic and industry
conditions. If any of these significant clients were to terminate their
contracts or fail to contract for the Company's services in the future
because they are acquired, alter their exploration or development strategy, or
for any other reason, the Company's results of operations could be
affected.
Current or future
distressed financial conditions of customers could have an adverse impact on the
Company in the event these customers are unable to pay the Company for the
services it provides.
Some
of the Company’s customers are experiencing, or may experience in the future,
severe financial problems that have had or may have a significant impact on
their creditworthiness. Although the Company performs ongoing credit
evaluations of its customers’ financial conditions, the Company generally
requires no collateral from its customers. The Company cannot provide assurance
that one or more of its financially distressed customers will not default on
their obligations to the Company or that such a default or defaults will not
have a material adverse effect on its business, financial position, future
results of operations, or future cash flows. Furthermore, the bankruptcy of one
or more of its customers, or some other similar proceeding or liquidity
constraint, might make it unlikely that the Company would be able to collect all
or a significant portion of amounts owed by the distressed entity or entities.
In addition, such events might force such customers to reduce or curtail their
future use of the Company’s products and services, which could have a material
adverse effect on its results of operations and financial
condition.
The
Company’s seismic data acquisition services revenues are subject to seasonal
conditions and customers’ budgeting cycles.
The
Company’s seismic data acquisition services are performed outdoors and are
therefore subject to seasonality. Shorter winter days and adverse weather
negatively impact the Company’s ability to provide services in certain regions.
Additionally, the Company has limited control over the timing of its
international operations due to the extensive planning and preparation required
to perform a seismic survey. The Company’s international operations have also
been affected historically by the budgeting cycle of its customers, at times
resulting in higher activity levels early in the year when available exploration
budgets are high, and late in the year when its customers are trying to utilize
their remaining budgets.
The
Company’s high level of fixed costs can leave it vulnerable to downturns in
revenues, which can result in losses.
Fixed
costs, including costs associated with labor, depreciation and interest expense
account for a substantial percentage of the Company’s costs and expenses.
Accordingly, downtime or low productivity resulting from weather interruptions,
reduced demand, equipment failures or other causes can result in significant
losses.
The
Company faces intense competition in its business that could result in downward
pricing pressure and the loss of market share.
Competition
among seismic contractors historically has been, and likely will continue to be,
intense. Competitive factors have in recent years included price, crew
experience, equipment availability, technological expertise and reputation for
quality and dependability. The Company also faces increasing competition from
nationally-owned companies in various international jurisdictions that operate
under less significant financial constraints than those the Company experiences.
Many of the Company’s competitors have greater financial and other resources,
more clients, greater market recognition and more established relationships and
alliances in the industry than the Company does. Additionally, the seismic data
acquisition services business is extremely price competitive and has a history
of protracted periods of months or years where seismic contractors under
financial duress bid jobs below cost and therefore adversely impact industry
pricing. Competition from these and other competitors could result in downward
pricing pressure and the loss of market share.
The
Company relies on a limited number of key suppliers for specific seismic
services and equipment.
The
Company depends on a limited number of third parties to supply it with specific
seismic services and equipment. The increased demand for seismic data
acquisition services has decreased the supply of seismic equipment, resulting in
extended delivery dates on orders of new equipment. Any delay in obtaining
equipment could delay the Company’s implementation of additional crews and
restrict the productivity of its existing crews, adversely affecting the
Company’s business and results of operations. In addition, any adverse change in
the terms of the Company’s supplier arrangements could affect its results of
operations.
The
profitability of many of the Company’s contracts depends significantly on its
ability to perform the services without delays, which is often subject to
factors beyond the Company’s control.
A
significant portion of the Company’s seismic data acquisition services are
performed pursuant to turnkey contracts, under which the Company is paid a fixed
fee per square mile of data acquired. Turnkey contracts cause the Company to
bear substantially all of the risks of business interruption caused by weather
delays and other hazards. Any event that causes delay in the Company’s
performance on the contract will reduce the Company’s profitability or even lead
to losses.
The Company's
clients could delay, reduce or cancel their commitments or service contracts
with the Company on short notice, which may lead to lower than
expected demand and revenues.
The
Company’s backlog consists of written orders or commitments for its services
that the Company believes to be firm. At December 31, 2008, the Company
estimates its backlog for its seismic data acquisition and seismic data
processing and interpretation segments to be approximately $548.3
million. Contracts for services are occasionally varied or modified
by mutual consent and in many instances are cancelable by the customer on short
notice without penalty. As a result, the Company’s backlog as of any particular
date may not be indicative of its actual revenues for any succeeding fiscal
period and even if its backlog is realized, it may not be
profitable.
The
Company’s results of operations can be significantly affected by currency
fluctuations.
As a
company that derives a substantial amount of its revenue from sales
internationally, the Company is subject to risks relating to fluctuations in
currency exchange rates. Fluctuations in the exchange rate of the U.S. dollar
against such other currencies have had in the past, and can be expected in
future periods to have, a significant effect upon the Company’s results of
operations. While the Company attempts to reduce the risks associated with such
exchange rate fluctuations, the Company cannot assure investors that it will be
effective in doing so or that fluctuations in the value of the currencies in
which the Company operates will not materially affect its results of operations
in the future.
The
Company’s operations outside of the United States are subject to additional
political, economic, and other uncertainties that could adversely affect its
business, financial condition or results of operations, and its exposure to such
risks will increase as the Company expands its international
operations.
For the
year ended December 31, 2008, 62% or $285.1 million, of the Company’s revenues
from its seismic data acquisition services segment were derived outside of North
America. In addition, an element of the Company’s business strategy
is to expand the scope of its operations in international oil and natural gas
producing areas such as the Middle East, Southeast Asia, the Mediterranean,
Australia and Latin America. The Company’s operations outside of the
United States are subject to risks inherent in foreign operations, including but
not limited to:
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·
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political,
social and economic instability;
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·
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the
loss of revenue, property and equipment from hazards such as
expropriation, nationalization, war, insurrection, acts of terrorism and
other political risks;
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increased
operating costs;
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increases
in taxes and governmental
royalties;
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renegotiation
or abrogation of contracts with governmental
entities;
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changes
in laws and policies governing operations of foreign-based
companies;
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currency
restrictions and exchange rate
fluctuations;
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other
uncertainties arising out of foreign government sovereignty over its
international operations; and
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compliance
with the Foreign Corrupt Practices Act and similar
laws.
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In addition,
laws and policies of the United States affecting foreign trade and taxation may
also adversely affect the Company’s international operations.
The
Company’s operations are subject to government regulation which may adversely
affect its future operations.
The
Company is subject to numerous federal, state and local laws and regulations
that govern various aspects of its operations. These laws regulate the discharge
of explosive materials into the environment, require the removal and clean-up of
materials that may harm the environment and otherwise relate to the protection
of the environment, and regulate access to private and governmental land to
conduct seismic surveys.
Although
the costs of complying with applicable laws and regulations have historically
not been material, the changing nature of such laws and regulations makes it
impossible to predict the cost or impact of such laws and regulations on the
Company’s future operations.
The
Company may be unable to retain and attract management and skilled and
technically knowledgeable employees.
The
Company’s continued success depends upon retaining and attracting highly skilled
employees. A number of the Company’s employees possess many years of industry
experience and are highly skilled and the Company’s inability to retain such
individuals could adversely affect its ability to compete in the seismic service
industry. The Company may face significant and adverse competition for such
skilled personnel, particularly during periods of increased demand for seismic
services. Although the Company utilizes employment agreements, stock-based
compensation and other incentives to retain certain of its key employees, there
is no guarantee that the Company will be able to retain its key
personnel.
The
Company’s stock price may be volatile and may decrease in response to various
factors, which could adversely affect its business and cause its stockholders to
suffer significant losses.
Although
the Company is listed on a national exchange, its common stock is illiquid and
its price has been and may continue to be volatile in the future. The market
price of the Company’s common stock may be influenced by many factors, many of
which are beyond the Company’s control, including the risks described in this
“Risk Factors” section and the following:
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decreases
in prices for oil and natural gas resulting in decreased demand for the
Company’s services;
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variations
in the Company’s operating results and failure to meet expectations of
investors and analysts;
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the
public’s reaction to the Company’s press releases, other public
announcements and its filings with the Securities and Exchange Commission
(“SEC”);
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increases
in interest rates;
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overcapacity
within industry;
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illiquidity
of the market for the Company’s common
stock;
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sales
of common stock by existing stockholders;
and
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other
developments affecting the Company or the financial
markets.
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The Company
is unable to predict the extent to which investor interest in the Company will
affect the liquidity of the Company’s shares of common stock. If
liquidity remains low, stockholders may have difficulty selling the Company’s
common stock.
A
majority of the Company’s voting stock is controlled by a small number of
stockholders whose interests may conflict with those of other holders and
consent of the holders of the Company’s Series B Preferred Stock will be
required to take certain actions.
Steven A.
Webster, William R. Ziegler, Avista Capital Partners, L.P. (“Avista”) and their
respective affiliates collectively own approximately 26% of the Company’s
outstanding shares of common stock as of December 31, 2008. In addition,
as of December 31, 2008, Avista and its affiliates own 367,274 shares of
the Company’s Series B Preferred Stock. Because the holders of the
Company’s Series B Preferred Stock have the right to vote on an
as-converted basis with the holders of the Company’s common stock, voting
together as a single class as of December 31, 2008, Avista and the stockholders
named above have approximately 48% of the voting power of any matter brought for
the vote of stockholders at a meeting. As a result of this ownership, these
stockholders are able to decide any matter requiring the approval of holders of
the Company’s common stock. Subject to the right of the holders of the Company’s
Series B Preferred Stock as discussed below, such matters include the
election of directors, the adoption of amendments to the Company’s certificate
of incorporation, by-laws and approval of mergers or sales of substantially all
of the Company’s assets.
As long
as at least 55,000 shares of the Company’s Series B Preferred Stock are
outstanding, the consent of the holders of a majority of the Series B
Preferred Stock will be required to, among other things, make any material
change to the Company’s certificate of incorporation or by-laws, declare a
dividend on the Company’s common stock, increase or decrease the size of the
Company board of directors or enter into a business combination. Accordingly,
Avista and its affiliates presently have the ability to control these
matters.
Messrs.
Webster and Ziegler are also members of the Company’s Board of
Directors. Additionally, in accordance with the terms and provisions
of the Securities Purchase Agreement, dated as of September 8, 2006, by and
among the purchasers of the Company’s Series B Preferred Stock and the
Company, Avista received the right to appoint one director to the Company’s
board of directors. Accordingly, Robert L. Cabes, Jr.
was appointed to the Company’s Board of Directors on November 2,
2006.
The
Company’s various credit agreements and capital leases contain various
restrictive covenants that limit management’s discretion in operating the
Company’s business. In particular, these covenants limit the Company’s ability
to, among other things:
|
·
|
incur
additional debt, including secured
debt;
|
|
·
|
make
certain investments or pay dividends or distributions on the Company’s
capital stock or purchase or redeem or retire capital
stock;
|
|
·
|
sell
assets, including capital stock of the Company’s restricted
subsidiaries;
|
|
·
|
cause
its restricted subsidiaries to make certain
payments;
|
|
·
|
invest
in capital expenditures;
|
|
·
|
enter
into transactions with affiliates;
and
|
|
·
|
merge
or consolidate with another
company.
|
Certain
credit agreements also require the Company to maintain specified financial
ratios and satisfy certain financial tests. The Company’s ability to maintain or
meet such financial ratios and tests may be affected by events beyond the
Company’s control, including changes in general economic and business
conditions, and the Company cannot assure investors that it will maintain or
meet such ratios and tests or that the lenders under the credit agreements will
waive any failure to meet such ratios or tests.
These
covenants could materially and adversely affect the Company’s ability to finance
its future operations or capital needs. Furthermore, they may restrict the
Company’s ability to expand, to pursue its business strategies and otherwise to
conduct its business. The Company’s ability to comply with these covenants may
be affected by circumstances and events beyond the Company’s control, such as
prevailing economic conditions and changes in regulations, and the Company
cannot provide assurance that it will be able to comply with them. A breach of
these covenants could result in a default under some or all of the Company’s
various credit agreements. If there were an event of default under the Company’s
debt instruments, the affected creditors could cause all amounts borrowed under
these instruments to be due and payable immediately. Additionally, if the
Company fails to repay indebtedness under its credit agreements when they become
due, the lenders under the credit agreement could proceed against the assets
which the Company has pledged as security.
The
Company’s original estimates of the costs associated with its turnkey projects
may be incorrect and result in reduced profitability, losses or cost over-runs
on those projects.
Many of
the Company’s projects are performed on a turnkey basis where a defined work
scope is delivered for a fixed price and extra work, which is subject to
customer approval, is billed separately. The revenue, cost and gross profit
realized on a turnkey contract can vary from the estimated amount because of
changes in job conditions, variations in labor and equipment productivity from
the original estimates, and the performance of subcontractors. These variations
and risks inherent in the business may result in the Company experiencing
reduced profitability or losses on projects. In addition, estimates for
capital projects, may be inadequate, resulting in cost over-runs, due to unknown
factors associated with the work to be performed and market
conditions.
There are
inherent limitations in all control systems and failure of the Company’s
controls and procedures to detect error or fraud could seriously harm its
business and results of operations.
The
Company’s management, including its Chief Executive Officer and Chief Financial
Officer, does not expect that its internal controls and disclosure controls will
prevent all possible error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. In addition, the design of a
control system must reflect the fact that there are resource constraints and the
benefit of controls must be relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of the Company’s controls can
provide absolute assurance that all control issues and instances of fraud, if
any, in the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Further, controls can be
circumvented by the individual acts of some persons or by collusion of two or
more persons. The design of any system of controls is based in part upon the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its intended goals under all potential future conditions.
Over time, a control may become inadequate because of changes in conditions or
the degree of compliance with its policies or procedures may deteriorate.
Because of inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur without
detection.
If
the Company fails to manage its growth effectively, its results of operations
could be harmed.
The
Company has a history of growing through acquisitions of companies and assets.
The Company must plan and manage its acquisitions effectively to achieve revenue
growth and maintain profitability in its evolving market. If the Company fails
to manage current and future acquisitions effectively, its results of operations
could be adversely affected. The Company’s growth has placed, and is expected to
continue to place, significant demands on its personnel, management and other
resources. The Company must continue to improve its operational, financial,
management and legal/compliance information systems to keep pace with the growth
of its business.
Any
future acquisitions could present a number of risks, including but not limited
to:
|
|
·
|
incorrect
assumptions regarding the future results of acquired operations or assets
or expected cost reductions or other synergies expected to be realized as
a result of acquiring operations or
assets;
|
|
|
·
|
failure
to integrate the operations or management of any acquired operations or
assets successfully and timely;
|
|
|
·
|
diversion
of management’s attention from existing operations or other priorities;
and
|
|
|
·
|
the
Company’s inability to secure, on terms it finds acceptable, sufficient
financing that may be required for any such acquisition or
investment.
|
|
The
Company’s business plan anticipates, and is based upon, its ability to
successfully complete acquisitions of other businesses or assets.
The Company’s failure to do so, or to successfully integrate its
acquisitions in a timely and cost effective manner, could have an adverse
affect on its business, financial condition or results of
operations.
|
|
The
Company’s operations are subject to delays related to obtaining land
access rights of way from third parties which could affect its results of
operations.
|
The
Company’s seismic data acquisition operations could be adversely affected by its
inability to obtain timely right of way usage from both public and private land
and/or mineral owners. In recent years, it has become more difficult, costly and
time-consuming to obtain access rights of way as drilling activities have
expanded into more populated areas, and landowners have become more resistant to
seismic and drilling activities occurring on their property. Delays associated
with obtaining such rights of way could negatively affect the Company’s
results.
The
Company’s
results of
operations could be adversely affected by asset
impairments.
The
Company periodically reviews its portfolio of equipment for impairment. If the
Company expects significant sustained decreases in oil and natural gas prices in
the future, it may be required to write down the value of its equipment if the
future cash flows anticipated to be generated from the related equipment falls
below net book value. The recent decline in oil and natural gas prices, if
sustained, could result in future impairments. If the Company is forced to write
down the value of its equipment, these non-cash asset impairments could
negatively affect its results of operations in the period in which they are
recorded. See discussion of “Impairment of Long-Lived Assets” included in
“Critical Accounting Policies.”
The
cyclical nature of, or a prolonged downturn in, the Company’s industry, could
affect the carrying value of the Company’s goodwill or other intangible assets
and negatively impact the Company’s earnings.
As of
December 31, 2008, the Company had $73.4 million of goodwill or 16.7% of total
assets. The Company has recorded goodwill because the Company paid
more for some of its businesses than the fair market value of the tangible and
measurable intangible net assets of those businesses at the time of
acquisition. Upon the Company's annual review of its goodwill
balance, if management determines that the carrying value of these long-lived
assets may not be recoverable, the Company's goodwill could be reduced
and therefore adversely impact its earnings. The Company did not have
any impairments in the year ended December 31, 2008. This assessment
includes many management assumptions including, but not limited to, business
forecasts, risk premiums, cost of capital and market factors. Should
any one or combination of these factors change, it could negatively impact the
Company’s future assessments of the carrying values of these
assets.
|
Item
1B.
|
Unresolved
Staff Comments
|
None.
The
Company’s facilities are summarized in the table below:
|
Location
|
|
|
|
Owned/
Leased
|
|
Purpose/Segment
|
|
Approx.
Square
Feet
|
|
|
Houston,
Texas
(1500
CityWest Blvd.)
|
|
Leased
|
|
Corporate
headquarters, finance and accounting, seismic data acquisition operations;
and seismic data processing and interpretation operations
|
|
61,605
|
|
|
Houston,
Texas (West Rd.)
|
|
Leased
|
|
Repair,
shipping and receiving facility
|
|
50,000
|
|
|
Midland,
Texas
|
|
Leased
|
|
North
American seismic data acquisition operations, maintenance
facility
|
|
7,642
|
|
|
Old
Woking, Surrey, United Kingdom
|
|
Leased
|
|
Geokinetics
Processing, UK LTD seismic data processing operations
|
|
2,811
|
|
|
Calgary,
Alberta, Canada
|
|
Leased
|
|
North
American seismic data acquisition operations, maintenance
facility
|
|
30,272
|
|
|
Abu
Dhabi, United Arab Emirates
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
323
|
|
|
Bogota,
Colombia
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
3,228
|
|
|
Brisbane,
Australia
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
258
|
|
|
Buenos
Aires, Argentina
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
200
|
|
|
Cairo,
Egypt
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
2,475
|
|
|
Dhaka,
Bangladesh
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
12,000
|
|
|
Dubai,
United Arab Emirates
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
5,972
|
|
|
Jakarta,
Indonesia
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
1,041
|
|
|
Kwata,
Suriname
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
3,000
|
|
|
Lima,
Peru
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
1,280
|
|
|
Luanda,
Angola
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
8,719
|
|
|
Onslow,
Australia
|
|
Leased
|
|
Warehouse
facility
|
|
2,500
|
|
|
Quito,
Ecuador
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
215
|
|
|
Rio
de Janeiro, Brazil
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
4,088
|
|
|
Santa
Cruz, Bolivia
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
16,146
|
|
|
Singapore,
Singapore
|
|
Leased
|
|
International
seismic data acquisition operations
|
|
4,648
|
|
|
Singapore,
Singapore
|
|
Leased
|
|
Warehouse
facility
|
|
11,900
|
|
|
Singapore,
Singapore
|
|
Leased
|
|
Warehouse
facility
|
|
4650
|
|
|
Yopal,
Colombia
|
|
Owned
|
|
Warehouse
facility
|
|
16,140
|
|
|
|
|
|
|
|
|
|
|
|
Item
3.
|
Legal
Proceedings
|
Neither
the Company nor any of its subsidiaries is a party to any pending legal
proceedings other than certain routine litigation that is incidental to the
Company’s business and that the Company believes is unlikely to materially
impact the Company. Moreover, the Company is not aware of any such legal
proceedings that are contemplated by governmental authorities with respect to
the Company, any of its subsidiaries, or any of their respective properties that
the Company believes would have a material impact to the Company’s financial
position or results of operation.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
None.
PART II
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
The
Company’s common stock, $0.01 par value per share, is listed on the NYSE
Alternext US (formerly the American Stock Exchange) under the trading
symbol “GOK.” As of December 31, 2008, the Company had over 780
stockholders of record, however, since many shares may be held by investors in
nominee names such as the name of their broker or their broker’s nominee, the
number of record holders often bears little relationship to the number of
beneficial owners of the common stock.
The
following table sets forth the high and low closing bid for the common stock
during the Company’s most recent two fiscal years, as reported by the NYSE
Alternext US, except the fiscal quarter ending March 31, 2007 as reported by the
National Association of Security Dealers on the NASDAQ OTC Bulletin Board. The
following quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
|
Quarter Ended
|
|
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
March 31,
2007
|
|
$33.00
|
|
$24.99
|
|
|
June 30,
2007
|
|
34.50
|
|
22.45
|
|
|
September 30,
2007
|
|
31.60
|
|
16.80
|
|
|
December 31,
2007
|
|
25.24
|
|
18.48
|
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
$20.40
|
|
$14.81
|
|
|
June 30,
2008
|
|
21.10
|
|
17.39
|
|
|
September 30,
2008
|
|
27.15
|
|
14.83
|
|
|
December 31,
2008
|
|
19.00
|
|
2.00
|
|
|
|
|
|
|
|
|
The
Company has never paid cash dividends on the Company’s common stock and the
Board of Directors intends to retain all of its earnings, if any, to finance the
development and expansion of its business. There can be no assurance that the
Company’s operations will prove profitable to the extent necessary to pay cash
dividends. Moreover, even if such profits are achieved, the future dividend
policy will depend upon the Company’s earnings,
capital
requirements, financial condition, debt covenants and other factors considered
relevant by the Company’s Board of Directors.
The
information included under the caption “Stock Performance Graph” in this Item 5
of this annual report is not deemed to be “soliciting material” or to be “filed”
with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to
the liabilities of Section 18 of the Exchange Act, and will not be deemed to be
incorporated by reference into any filings the Company makes under the
Securities Act of 1933 or the Exchange Act, except to the extent the Company
specifically incorporates it by reference into such a filing.
The
following graph depicts the five-year cumulative total return of the Company’s
common stock as compared with the S&P 500 Stock Index and a peer group made
up of companies on the PHLX Oil Services Index (OSX). The PHLX Index consists of
larger companies that perform a variety of services as compared to land based
acquisition and processing of seismic data performed by the
Company.
Comparison
of 5-year Cumulative Total Return*
Among
Geokinetics Inc., the S&P 500 Index and the PHLX Oil Service Sector
Index
* $100
invested on 12/31/03 in stock or index – including investment of
dividends
|
|
12/03
|
|
12/04
|
|
12/05
|
|
12/06
|
|
12/07
|
|
12/08
|
|
Geokinetics
|
100.0
|
|
280.0
|
|
1020.0
|
|
1,298.8
|
|
778.0
|
|
98.8
|
|
PHLX
Oil Service Index
|
100.0
|
|
131.9
|
|
193.9
|
|
212.8
|
|
321.0
|
|
129.2
|
|
S&P
500
|
100.0
|
|
109.0
|
|
112.3
|
|
127.6
|
|
132.1
|
|
81.2
|
Securities
Authorized for Issuance under Equity Compensation Plans
As of
December 31, 2008, the Company had two active equity compensation plan approved
by security holders: the 2002 Stock Awards Plan (“2002 Plan”) and the
2007 Stock Awards Plan (“2007 Plan”). Adopted in March 2003 and
amended in November 2006, the 2002 Plan has 800,000 shares of common stock
authorized for issuance and the 2007 Plan, adopted on May 23, 2007, has 750,000
shares of common stock authorized for issuance.
|
Plan
Category
|
|
Number
of Securities to be Issued upon Exercise of Outstanding Options, Warrants
and Rights
(a)
|
|
Weighted-average
Exercise Price of Outstanding Options,
Warrants
and Rights
(b)
|
|
Number
of Securities Remaining Available for Future Issuances Under Equity
Compensation Plans (Excluding Securities Reflected in Column
(a))
(c)
|
|
Equity
Compensation Plans Approved by Security Holders
|
|
376,979
|
|
$26.75
|
|
469,992
|
|
Equity
Compensation Plans Not Approved by Security Holders
|
|
-
|
|
-
|
|
-
|
|
Total
|
|
376,979
|
|
$26.75
|
|
469,992
|
Item
6.
Selected Financial Data
The
following selected financial data should be read in conjunction with Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” and with the Company’s consolidated financial statements and
related notes included in Item 8. “Financial Statements and Supplementary
Data.”
Selected
Financial Data
|
|
|
As
of and for the Year Ended December 31,
|
|
|
|
|
2008
|
|
2007
|
|
2006
(1)
|
|
2005
(2)
|
|
2004
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Net
operating revenues
|
$
|
474,598
|
$
|
357,677
|
$
|
225,183
|
$
|
62,175
|
$
|
43,145
|
|
|
Net
(loss) income
|
|
986
|
|
(15,936
|
)
(3)
|
(4,176
|
)
|
(1,922
|
)
|
(441
|
)
|
|
Loss
applicable to common stockholders
|
|
(5,339
|
)
|
(20,802
|
)
(3)
|
(4,382
|
)
|
(2,081
|
)
|
(2,956
|
)
|
|
Loss
per common share, basic and diluted
|
|
(0.51
|
)
|
(2.44
|
)
(3)
|
(0.81
|
)
|
(0.95
|
)
|
(1.56
|
)
|
|
Total
assets
|
|
439,716
|
|
354,321
|
|
299,633
|
|
74,723
|
|
11,577
|
|
|
Long-term
debt and capital leases, net of current portion
|
|
57,850
|
|
60,352
|
|
113,617
|
|
8,297
|
|
2,504
|
|
|
Current
portion of long-term debt and capital lease obligations
|
|
33,096
|
|
19,560
|
|
3,552
|
|
9,078
|
|
2,378
|
|
|
Mezzanine
and temporary equity
|
|
94,862
|
|
60,926
|
|
56,077
|
|
25,648
|
|
2,398
|
|
|
Total
stockholders equity (excluding preferred stock)
|
|
129,680
|
|
130,965
|
|
28,595
|
|
1,150
|
|
2,378
|
|
|
(1)
|
Includes
operating results of Grant Geophysical Inc. (now known as Geokinetics
International, Inc.) since September 8,
2006.
|
|
(2)
|
Includes
one month of operating results of Trace Energy Services Ltd. (now known as
Geokinetics Exploration, Inc.)
|
|
(3)
|
Includes
severance costs of $3.2 million (including $2.6 million related to
departure of Company’s President and CEO) as well as $6.9 million loss on
the redemption of floating rate
notes.
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
The following discussion of the
Company’s financial condition and results of operations should be read in
conjunction with the financial statements and notes to those financial
statements included elsewhere in this Form 10-K. This discussion
contains forward looking statements that involve risks and
uncertainties. Please see “Risk Factors” and “Forward Looking
Statements” elsewhere in this Form 10-K.
The
Company’s customers are primarily international and domestic E&P companies
and state-owned national oil companies. Demand for the Company’s
seismic services depends upon the level of spending by these companies, which in
turn has historically been dependent on the prices for oil and
gas. In the past, fluctuation in oil and gas prices has affected the
demand for the Company’s services and its results of operations, and the Company
expects this to continue into the future. The majority of exploration
in North America is targeted at natural gas while international exploration is
mostly focused on oil.
The
Company’s management continually monitors industry trends and market conditions
to enable it to best react as changes occur. Additionally, Company’s
management consistently monitors and assesses the risk factors and opportunities
that may affect the Company. More specifically, while demand for the
Company’s services has increased significantly in recent years, the Company
continues to experience price competition in the marketplace which has prevented
it from benefiting from significant increased pricing for its
services. In spite of this, the Company has and will continue to
aggressively compete for seismic projects from both existing and prospective
customers. In international markets, the Company has seen increasing
demand from state-owned national oil companies (“NOCs”) and believes changing
global dynamics relative to the oil and gas industry will result in increased
opportunities with the NOCs and given its existing relationships, the Company
believes it is well positioned to take advantage of these
opportunities. The Company also recognizes that the seismic industry
is cyclical and through the acquisitions of Trace Energy Services, Ltd. (now
known as Geokinetics Exploration, Inc.) and Grant Geophysical, Inc. (now known
as Geokinetics International, Inc.), the Company has built a foundation for
growth that is highly diversified and should be beneficial during times of
contraction.
The
Company continues to focus on increasing its revenues and profitability by
taking the following steps:
|
|
·
|
Updating
its technology and increasing its channel count per crew to allow it
to compete for larger projects, which typically are more
profitable;
|
|
|
·
|
Standardizing
its equipment across its crews to allow them to move from country to
country as conditions dictate and reduce crew
downtime;
|
|
|
·
|
Lowering
its general and administrative costs as a percentage of revenues by
reorganizing management and by increasing operational efficiencies;
and
|
|
|
·
|
Invest
in systems to standardize and automate
processes.
|
Recent
Developments
Net
Income in 2008
During 2008, the Company reported its
first net income (before preferred stock dividend and accretion costs) in four
years. The losses in prior periods were caused primarily by
non-recurring costs related to its acquisitions in 2005 and 2006 and their
related financings.
Global
Economic Recession and Reduced Oil and Gas Prices
The
United States and global economies are currently undergoing a
recession. The reduced economic activity associated with this
recession has resulted in lower oil and gas prices. In addition,
natural gas production in the United States has increased as new technologies
have allowed the successful exploration for and production of previously
inaccessible gas deposits. This has resulted in depressed prices for
natural gas, which may remain depressed even if economic activity increases as
the recession ends.
If oil
and gas prices remain depressed, the Company’s clients are likely to reduce the
amounts they spend on exploration and production activities, including its
seismic data acquisition services. The Company has seen some contract
cancellations and reduced demand in North America, however international demand
remains strong.
Disruption
in the Financial Markets
The
global capital and financial markets are experiencing severe
disruptions. Many financial institutions have liquidity concerns
prompting intervention from governments. The Company’s exposure to
the disruptions in the financial markets include its credit facilities, its
ability to access the capital markets and the safety of its cash
investments. Its credit facility is committed until
2012. If the disruptions in the capital markets were to continue
until then, replacement of the facility may be unavailable or more
expensive. Difficulties in the credit markets may also cause the
lenders under its credit facilities to be more restrictive in calculating the
amounts available under those facilities.
The
Company’s cash and cash equivalents, which totaled $13.3 million on December 31,
2008, consist of cash deposits primarily with Wells Fargo Bank and other local
banks. If one of these banks were to fail, the Company could suffer
losses.
In the
past, the Company has accessed the equity markets to finance
growth. The Company’s stock price, like the equity markets in
general, has declined substantially over the last several months. In
addition, current disruptions in the financial markets have made it unlikely
that the Company could access the equity markets, unless conditions improve
dramatically. Until these conditions improve, the Company is unlikely
to be able to access the public equity markets, which may limit the Company’s
ability to pursue its growth strategy.
The seismic services industry is
dependent upon the spending levels of E&P companies for exploration,
development, exploitation and production of oil and natural gas. These spending
levels have traditionally been heavily influenced by the prices of oil and
natural gas. During the past three years, the oil and natural gas industry has
seen significant increases in activity resulting from continuing high commodity
prices for oil and natural gas. The Company’s seismic data acquisition services
segment has benefited from these increased levels of activity and from its
reputation as a provider of high-quality seismic surveys. The Company has seen
its seismic data acquisition services revenues and operating margins improve
over the past several years as a result of increased demand and improved pricing
for its services, improved contract terms with its customers as well as the
acquisitions of Trace and Grant. However, oil and natural gas prices
have recently seen a significant decline. To the extent that the
decline in oil and gas prices results in a decrease in oil and gas exploration
activities, the Company’s cash flows from operations could be adversely
affected. If a global recession continues for an extended period of
time, commodity prices may remain depressed for an extended period of time,
which could reduce the Company’s revenues and cash flows, and adversely affect
its growth strategy. The Company believes the following industry
fundamentals will allow it to capture upside while managing for downside
risk:
|
·
|
Foreign
state-owned national oil companies are a primary driver for seismic
growth
|
|
·
|
Seismic
crew activity is still less than the lowest levels in the 1990s when oil
prices were near $20 per barrel
|
|
·
|
Pressure
for continued growth in activity, even if lower commodity prices
exist
|
·
Oil
companies are reloading prospect
inventories
·
Resource
plays are big drivers
·
Technical
advances drive activity and create barriers to
entry
·
Recent
trends for more specialized crews and
equipment
·
Desire to
replace 2D data with 3D or 4D
data
·
Improved
processing drives demand for better data
|
·
|
Long-term
fundamentals are strong but the Company is continually monitoring for
trend toward overcapacity
|
As of
December 31, 2008, the Company’s core operating business segments
were seismic data acquisition and seismic data processing and
interpretation. The Company’s corporate activities include its
general and administrative functions.
Summary of
Overall Performance for 2008.
During 2008, the Company
experienced improved operating margins, income from operations and net
income. The data acquisition segment experienced substantial earnings
growth and continued to provide a strong base of earnings and cash flow, both
domestically and internationally. The data processing and
interpretation segment also contributed improved results. The table
below provides further analysis of the Company’s operating results and
significant highlights by segment/reporting unit/area of
operation:
|
Segment/Reporting Units/Area of
Operation
|
|
Significant Highlights for
2008
|
|
North
American Seismic Data Acquisition
|
|
(1)Revenue
growth of 7%
(2)Negative
impact of reducing demand late in the year
(3)Realized
benefits of previously upgraded crews with new equipment
|
|
International
Seismic Data Acquisition
|
|
(1)Revenue
growth of 58%
(2)Expansion
of shallow water capacity
(3)Significant
investments in new capacity
|
|
Data
Processing and Interpretation
|
|
(1)Revenue
growth of 11%
(2)Improved
operating margins
(3)Realized
benefits of restructuring segment in
2007
|
The
Company spent approximately $77.1 million in 2008 for state-of-the-art equipment
to expand its recording capacity internationally and to outfit crews for
expansion into new countries. The Company’s recording capacity
increased from 108,000 channels at December 31, 2007, to over 122,500 channels
at December 31, 2008, a 13.4% increase.
Results
of Operations for Year Ended December 31, 2008 compared to
2007
Operating
Revenues
.
Revenues for
the twelve months ended December 31, 2008 totaled $474.6 million as
compared to $357.7 million for the same period of 2007, an increase of 33%. This
increase in revenue is attributable primarily to the Company’s seismic data
acquisition segment. For the twelve months ended December 31, 2008, seismic
data acquisition revenue totaled $462.6 million as compared to $346.8 million
for the same period of 2007, an increase of 33%. This increase in seismic data
acquisition revenue is primarily attributable to improved contract terms,
investment in additional crew capacity and continued strong demand for the
Company’s services. Seismic data acquisition revenues for the twelve
months ended December 31, 2008 includes $177.5 million or 38% from North
America, and $285.1 million or 62% from international. Seismic data processing
revenue totaled $12.0 million
at December 31,
2008 as compared to $10.8 million for the same period of 2007, an increase of
11% due to increased demand for processing of seismic data combined with
increased marketing efforts.
Operating
Expenses
.
Operating
expenses for the twelve months ended December 31, 2008 totaled $370.2
million as compared to $290.8 million for the same period of 2007, an increase
of 27%. This increase in operating expenses is primarily attributable to the
Company’s seismic data acquisition segment. Seismic data acquisition operating
expenses totaled $361.3 million for the twelve months ended December 31,
2008, as compared to $280.2 million for the same period of 2007, an increase of
29%. Increased operating expenses at the Company’s seismic data acquisition
segment are primarily the result of increased seismic data acquisition
activity. Seismic data acquisition operating expenses for the twelve
months ended December 31, 2008 includes $138.2 million, or 38%, from North
America, and $223.1 million, or 62% from International. Seismic data
processing operating expenses totaled $8.9 million for the twelve months ended
December 31, 2008, as compared to $10.6 million
for the same period of
2007, an decrease of 16% primarily due to cost reduction efforts implemented in
late 2007 and improved productivity of existing resources.
General and
Administrative Expenses
.
General and
administrative expenses for the twelve months ended December 31, 2008 were
$39.3 million
as compared to $35.7
million
for the
same period of 2007, an increase of $3.6 million or 10%. This increase is
primarily the result of salary expenses associated with increased personnel
levels due to the Company’s overall growth; information systems implementation
costs and increased bonus accruals due to higher activity levels under the
Company’s incentive plans.
Depreciation and
Amortization Expenses
.
Depreciation and
amortization expense for the twelve months ended December 31, 2008 totaled
$49.0 million as compared to $32.4 million for the same period of 2007, an
increase of $16.6 million or 51%. This is primarily attributable to depreciation
expense associated with high levels of capital expenditures in the second half
of 2007 and all of 2008. The Company incurred capital expenditures of
$77.1 million in 2008 as compared to $94.7 million in 2007. The
Company’s capital expenditures in 2008 included additional recording capacity
internationally, expansion of the Company’s shallow water operations and
investments in new information systems.
Interest
Expense
.
Interest expense
(net of interest income) for the twelve months ended December 31, 2008 decreased
by $9.0 million or 59% to $6.2 million as compared to approximately $15.2
million for the same period of 2007. This decrease is primarily due to the
elimination of interest incurred on the Company's Floating Rate Notes
(the “Notes”), which were issued in December 2006 and redeemed in June
2007. In addition, the Company recorded a $6.9 million loss on the
redemption of the Notes which consisted of a $3.3 million premium and
recognition of $3.6 million of unamortized finance costs in 2007.
Income
Tax
.
Provision for
income taxes for the twelve months ended December 31, 2008 was $9.3 million, as
compared to $2.3 million for the same period of 2007, an increase of $6.9
million or 300%. The increase is mainly due to increased
profitability in foreign jurisdications and related withholding taxes and
decreased profitability in the U.S.
EBITDA and Net
Loss.
EBITDA increased to $65.0 million for 2008 compared to
$31.2 million for 2007. The Company had a loss applicable to common
stockholders of $5.3 million, or ($0.51) per share, for the twelve months ended
December 31, 2008, as compared to loss applicable to common stockholders of
$20.8 million, or ($2.44) per share, for the same period of 2007. The
decrease in the Company’s loss applicable to common stockholders of $15.5
million is primarily due to decreased interest expense, loss on the redemption
of the Notes and one-time severance and reorganization costs in 2007 and
improved operations in 2008.
The
Company defines EBITDA as net income (loss) (the most directly generally
accepted accounting principle or "GAAP" financial measure) before Interest,
Taxes, Other Income (Expense) (including foreign exchange gains/losses,
gains/losses on sale of equipment and insurance proceeds, warrant expense and
other income/expense), and Depreciation and Amortization. “EBITDA,” as used and
defined by the Company, may not be comparable to similarly titled measures
employed by other companies and is not a measure of performance calculated in
accordance with GAAP. EBITDA should not be considered in isolation or as a
substitute for operating income, net income or loss, cash flows provided by
operating, investing and financing activities, or other income or cash flow
statement data prepared in accordance with GAAP. However, the Company’s
management believes EBITDA is useful to an investor in evaluating its operating
performance because this measure: (1) is widely used by investors in the energy
industry to measure a company’s operating performance without regard to items
excluded from the calculation of such term, which can vary substantially from
company to company depending upon accounting methods and book value of assets,
capital structure and the method by which assets were acquired, among other
factors; (2) helps investors to more meaningfully evaluate and compare the
results of the Company’s operations from period to period by removing the effect
of the Company’s capital structure and asset base from its operating structure;
and (3) is used by the Company’s management for various purposes, including as a
measure of operating performance, in presentations to the Company’s board of
directors, as a basis for strategic planning and forecasting, and as a component
for setting incentive compensation. There are significant limitations to using
EBITDA as a measure of performance, including the inability to analyze the
effect of certain recurring and non-recurring items that materially affect the
Company’s net income or loss, and the lack of comparability of results of
operations of different companies.
See below
for reconciliation from net income to common stockholders to EBITDA
:
|
|
|
For the Year Ended December 31 (in
thousands)
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Net
Loss Applicable to Common Stockholders
|
|
$
|
(5,339
|
)
|
|
$
|
(20,802
|
)
|
|
Preferred
Stock Dividends
|
|
|
6,325
|
|
|
|
4,866
|
|
|
Net
Income (Loss)
|
|
|
986
|
|
|
|
(15,936
|
)
|
|
Income
Tax Expense
|
|
|
9,268
|
|
|
|
2,252
|
|
|
Interest
Expense, net
|
|
|
6,176
|
|
|
|
15,184
|
|
|
Other
Expense (Income) (as defined above)
|
|
|
(401
|
)
|
|
|
(2,692
|
)
|
|
Depreciation
and Amortization
|
|
|
48,990
|
|
|
|
32,352
|
|
|
EBITDA
|
|
$
|
65,019
|
|
|
$
|
31,160
|
|
Update of Credit
Metrics
.
In
2008, the Company strengthened its credit metrics as a result of several actions
taken during the course of the year including
|
|
·
|
Issuance
of $30.0 million of convertible Preferred
Stock
|
|
|
·
|
Restructured
revolving credit facilities and capital leases with improved
terms
|
These
actions taken during 2008 improved the Company’s balance sheet and provided
financial flexibility for future, focused growth.
Results
of Operations for Year Ended December 31, 2007 compared to
2006
Operating
Revenues
.
Revenues for the
twelve months ended December 31, 2007 totaled $357.7 million as compared to
$225.2 million for the same period of 2006, an increase of 59%. This increase in
revenue is attributable primarily to the Company’s seismic data acquisition
segment and the acquisition of Grant. For the twelve months ended
December 31, 2007, seismic data acquisition revenue totaled $346.8 million
as compared to $218.0 million for the same period of 2006, an increase of 59%.
This increase in seismic data acquisition revenue is primarily attributable to
the Company’s acquisition of Grant, completed in September of 2006,
improved contract terms, investment in additional crew capacity and continued
strong demand for the Company’s services. Seismic data acquisition
revenues for the twelve months ended December 31, 2007 includes $166.6
million or 48%, from North America, and $180.3 million or 52% from
International. Seismic data processing revenue totaled $10.8 million
at December 31,
2007, as compared to $7.2 million for the same period of 2006, an increase of
50% due to increased demand for processing of seismic data combined with
increased marketing efforts.
Operating
Expenses
.
Operating
expenses for the twelve months ended December 31, 2007 totaled $290.8
million as compared to $185.8 million for the same period of 2006, an increase
of 56%. This increase in operating expenses is primarily attributable
to the Company’s seismic data acquisition segment. Seismic data acquisition
operating expenses totaled $280.2 million for the twelve months ended
December 31, 2007 as compared to $177.0 million for the same period of
2006, an increase of 58%. Increased operating expenses at the Company’s seismic
data acquisition segment are primarily the result of the addition
of Grant operations and increased seismic data acquisition
activity. Seismic data acquisition operating expenses for the twelve
months ended December 31, 2007 includes $135.6 million, or 48%, from North
America, and $144.6 million, or 52% from International. Seismic data
processing operating expenses totaled $10.6 million for the twelve months ended
December 31, 2007, as compared to $8.8 million
for the same period of
2006, an increase of 20% due to increased primarily due to increased levels of
activity.
General and
Administrative Expenses
.
General and
administrative expenses for the twelve months ended December 31, 2007 were
$35.7 million
as compared to $17.5
million
for the
same period of 2006, an increase of $18.2 million or 104%. This increase is the
result of the Company’s acquisition of Grant and the related general and
administrative expenses acquired; Sarbanes-Oxley implementation costs; increased
sales and administrative cost in the Company’s data processing segment and
increased bonus accruals due to higher activity levels under the Company’s
incentive plans. In addition, the Company incurred $2.9 million costs
related to severances (including $2.6 million for the departure of the President
and CEO) and data processing reorganization costs incurred in August and
September 2007.
Depreciation and
Amortization Expenses
.
Depreciation and
amortization expense for the twelve months ended December 31, 2007 totaled
$32.4 million as compared to $13.0 million for the same period of 2006, an
increase of $19.4 million or 149%. This is primarily attributable to
depreciation expense associated with the acquisition of Grant, additional
capital equipment and amortization of acquired intangibles from Grant
acquisition. The Company incurred capital expenditures of
$94.7 million in 2007, as compared to $32.7 million in 2006. The
Company’s capital expenditures in 2007included upgrading of the Company’s first
OBC crew in Australia.
Interest
Expense
.
Interest expense
(net of interest income) for the twelve months of 2007 increased by $4.4 million
or 41% to $15.2 million as compared to approximately $10.8 million for the same
period of 2006. This increase is primarily due to interest incurred on the
Notes, which were issued in December 2006 and redeemed in June
2007. In addition, the Company recorded a $6.9 million loss on the
redemption of the Floating Rate Notes which consisted of $3.3 million premium
and recognition of $3.6 million of unamortized finance cost.
Income
Tax.
Provision for the income tax for the twelve months ended
December 31, 2007 was $2.3 million, as compared to $3.2 million for the same
period of 2006, a decrease of $0.9 million or 28%. The decrease is
mainly due to lower taxes in the Company’s international locations.
EBITDA and Net
Loss.
EBITDA increased to $31.2 million for 2007 compared to
$21.9 million for 2006. The Company had a loss applicable to
common stockholders of $20.8 million, or ($2.44) per share, for the twelve
months ended December 31, 2007, as compared to loss applicable to common
stockholders of $4.4 million, or ($0.81) per share, for the same period of 2006.
The increase in the Company’s loss applicable to common stockholders of $16.4
million is primarily due to increased interest expense, loss on the redemption
of the Notes and one-time severance and reorganization costs.
The
Company defines EBITDA as net income (loss) (the most directly GAAP financial
measure) before Interest, Taxes, Other Income (Expense) (including foreign
exchange gains/losses, gains/losses on sale of equipment and insurance proceeds,
warrant expense and other income/expense), and Depreciation and Amortization.
“EBITDA,” as used and defined by the Company, may not be comparable to similarly
titled measures employed by other companies and is not a measure of performance
calculated in accordance with GAAP. EBITDA should not be considered in isolation
or as a substitute for operating income, net income or loss, cash flows provided
by operating, investing and financing activities, or other income or cash flow
statement data prepared in accordance with GAAP. However, the Company’s
management believes EBITDA is useful to an investor in evaluating its operating
performance because this measure: (1) is widely used by investors in the energy
industry to measure a company’s operating performance without regard to items
excluded from the calculation of such term, which can vary substantially from
company to company depending upon accounting methods and book value of assets,
capital structure and the method by which assets were acquired, among other
factors;
(2) helps
investors to more meaningfully evaluate and compare the results of the Company’s
operations from period to period by removing the effect of the Company’s capital
structure and asset base from its operating structure; and (3) is used by the
Company’s management for various purposes, including as a measure of operating
performance, in presentations to the Company’s board of directors, as a basis
for strategic planning and forecasting, and as a component for setting incentive
compensation. There are significant limitations to using EBITDA as a measure of
performance, including the inability to analyze the effect of certain recurring
and non-recurring items that materially affect the Company’s net income or loss,
and the lack of comparability of results of operations of different
companies.
See below
for reconciliation from net loss to common stockholders to EBITDA:
|
|
|
For the Year Ended December 31 (in
thousands)
|
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
Net
Loss Applicable to Common Stockholders
|
|
$
|
(20,802
|
)
|
|
$
|
(4,382
|
)
|
|
Preferred
Stock Dividends
|
|
|
4,866
|
|
|
|
206
|
|
|
Net
Loss
|
|
$
|
(15,936
|
)
|
|
$
|
(4,176
|
)
|
|
Income
Tax Expense
|
|
|
2,252
|
|
|
|
3,234
|
|
|
Interest
Expense, net
|
|
|
15,184
|
|
|
|
10,819
|
|
|
Other
Expense (Income) (as defined above)
|
|
|
(2,692
|
)
|
|
|
(973
|
)
|
|
Depreciation
and Amortization
|
|
|
32,352
|
|
|
|
12,965
|
|
|
EBITDA
|
|
$
|
31,160
|
|
|
$
|
21,869
|
|
Inflation
and Price Changes
The
Company does not believe that inflation has had a significant effect on its
business, financial condition, or results of operations during the most recent
three years.
Liquidity
and Capital Resources
The
Company’s primary sources of cash have been cash flow generated by its seismic
data acquisition and seismic data processing segments, debt and equity
transactions, equipment financing and trade credit. The Company’s primary uses
of cash have been for operating expenses associated with its seismic data
acquisition and seismic data processing segments, expenditures associated with
upgrading and expanding the Company’s capital asset base and debt
service. The Company’s ability to maintain adequate cash balances is
dependent upon future levels of demand for the services it provides to its
customers.
Available
liquidity. As of December 31, 2008, the Company had available
liquidity as follows:
Total
borrowing capacity under revolving credit facility: $63.0
million
Available
cash: $13.3 million
Undrawn
borrowing capacity under revolving credit facility: $16.7
million
Net
available liquidity at December 31, 2008: $30.0 million
The
Company has certain foreign overdraft facilities which were undrawn at December
31, 2008. However, due to limitations on the ability to remit funds
to the United States, these have been excluded in the available liquidity table
above.
The table
below summarizes certain measures of liquidity and capital expenditures, as well
as the Company’s sources of capital from internal and external sources, for the
past three years.
Liquidity
and Capital Resources
|
Financial Measure
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
(in thousands)
|
|
|
Cash
and equivalents, at December 31
|
$
|
13,341
|
$
|
15,125
|
$
|
20,404
|
|
|
Working
capital, at December 31
|
|
7,085
|
|
12,636
|
|
14,466
|
|
|
Cash
flow from operating activities
|
|
37,597
|
|
5,299
|
|
12,591
|
|
|
Cash
flow used in investing activities
|
|
(43,343
|
)
|
(54,474
|
)
|
(
137
,870
|
)
|
|
Cash
flow from financing activities
|
|
3,962
|
|
43,924
|
|
134,621
|
|
|
Capital
expenditures (including capital leases)
|
|
77,096
|
|
94,679
|
|
32,702
|
|
|
Cash
paid for interest
|
|
6,769
|
|
11,926
|
|
2,301
|
|
Net cash
provided by operating activities was $37.6 million for the twelve months ended
December 31, 2008 compared to net cash provided by operating activities of
$5.3 million for the twelve months ended December 31, 2007. These amounts
result from the Company’s operating results adjusted by changes in working
capital and depreciation. The increase in net cash provided by operating
activities was primarily the result of higher activity levels and improved
operating results.
Net cash
used in investing activities was $43.3 million for the twelve months ended
December 31, 2008 and $54.5 million for the twelve months ended
December 31, 2007. These amounts primarily represent capital expenditures
made during the respective twelve month period. The decrease in net
cash used in investing activities during the twelve months ended
December 31, 2008 was primarily the result of reduced purchases of seismic
data acquisition equipment from 2007.
Net cash
provided by financing activities was $4.0 million for the twelve months ended
December 31, 2008 as compared to net cash provided by financing activities
of $43.9 million for the twelve months ended December 31, 2007. These
totals represent the net proceeds and net payments from the Company’s debt and
equity transactions. The decrease in net cash provided by financing activities
is primarily due to fewer funds raised in 2008 as compared to 2007.
Preferred
Stock
On July 28, 2008,
a
related party of the Company purchased 120,000 shares of Series B Senior
Convertible Preferred Stock, $10.00 par value (“Series B-2 Preferred Stock”) and
warrants to purchase 240,000 shares of Geokinetics common stock for net proceeds
of $29.3 million, which will be used to execute the Company’s growth strategy of
upgrading equipment and expanding crew capacity around the world.
Revolving
Credit Facilities
On June
12, 2006, the Company and four of its subsidiaries (collectively, the
“Borrowers”) completed the closing of a credit facility under the terms of a
Revolving Credit, Term Loan and Security Agreement (collectively, the “Credit
Agreement”) dated as of June 8, 2006 with PNC Bank, National Association
(“PNC”), as lender. The Borrowers pledged as security the assets of
the Company to PNC. The Credit Agreement contains certain restrictive
covenants limiting the Company’s ability to incur additional debt and purchase
additional assets. On September 8, 2006, the $12.0 million term
credit facility had a balance of $11.6 million outstanding and was fully paid
off and no amounts were outstanding under the revolving credit
facility. This Credit Agreement has been amended several times to
among other things increase the revolving credit and expenditures
facilities.
The
financial covenants for the credit facility include the
following: the Company must maintain (i) net worth (defined as assets
less liabilities in accordance with generally accepted accounting principles in
the United States of America) of not less than $175.0 million and (ii) a fixed
charge coverage ratio of not less than 1.10 to 1.0. Other covenants
include: (1) no mergers or sale of assets without reinvestment; (2)
no conflicting liens on the collateral; (3) no guarantees of other
indebtedness; (4) investments are permitted as to only specified forms of
investments; (5) capital expenditures are limited; (6) no dividends other than
dividends on preferred stock; (7) no additional indebtedness except as permitted
by the credit facility; (8) no changes in business activities; (9) no changes in
constituent documents; (10) no prepayment of debt except under certain
circumstances; (11) no material adverse change; and (12) no change of
control.
The
amount available to borrow under the revolver is dependent upon the calculation
of a monthly borrowing base that is composed of eligible accounts receivables
and eligible fixed assets. The borrowing base can fluctuate from time
to time due to fluctuations in accounts receivable
balances. Additionally, a portion of the borrowing base is composed
of eligible fixed assets. Based on the Company’s borrowing base at
December 31, 2008, the Company had available credit under this facility of $63.0
million reduced by standby letters of credit totaling $2.3 million issued by PNC
under the revolver. At December 31, 2008, the Company had a balance
of $44.0 million drawn under the revolver. Amounts available to be
drawn under the revolver are subject to borrowing base limitations; therefore,
the Company may not always have access to the maximum amount. The
rate of the PNC facility is currently the prime rate plus 1.5%.
The
Company further amended the Credit Agreement with PNC on February 11,
2009. Among other things, the amended agreement increased the
Company’s borrowing base that can come from eligible fixed assets to $55.0
million and deferred any reductions to this new amount until June 30, 2009, at
which time, the amount of the borrowing base that can come from eligible fixed
assets will be reduced by $0.9 million per month until maturity. Once
started, the reduction will affect only the amount of the borrowing base that
can come from eligible fixed assets and will not reduce the overall amount of
the revolver. Based on the current borrowing base calculation, the
Company has immediate access to the maximum availability of $70.0
million.
Capital
Lease Obligations
In July
2006, Geokinetics USA, Inc. (formerly Quantum Geophysical, Inc.), a wholly-owned
subsidiary of the Company, entered into an equipment lease agreement with CIT
Group/Equipment Financing, Inc. (“CIT”). The parties entered into the
lease with respect to the purchase of seismic data acquisition
equipment. The term of the lease is three years, with a purchase
option at the expiration of the lease term. The original amount of
the lease was approximately $6.0 million and monthly payments were approximately
$190,000. In August 2008, the Company had reduced the principal
amount of this lease to $2.2 million and refinanced this equipment lease with a
new facility from CIT in the amount $5.0 million at a rate of 8.26% per annum
for 24 months yielding $2.8 million of new funds to the Company. The
unpaid balance of this lease as of December 31, 2008 was approximately $4.2
million.
On
November 8, 2007, the Company entered into an additional capital lease facility
with CIT Equipment/Financing, Inc. with a commitment of $25.0
million. The interest rate was based on the three (3) or four (4)
year swap rate reported by the Federal Reserve plus 325 basis points or
3.25%. Initially, the Company executed four (4) equipment schedules
totaling approximately $16.0 million with an interest rate of 7.72% and monthly
payments totaling approximately $0.5 million. On December 21, 2007,
the Company executed an additional four (4) equipment schedules totaling $9.0
million with an interest rate of 7.36% and monthly payments totaling
approximately $0.3 million. The balance at December 31, 2008 was $16.9
million.
In April
2008, the Company entered into an additional equipment lease agreement with CIT
for up to $10.0 million to finance seismic equipment purchases for its shallow
water ocean bottom cable (“OBC”) operations in Australia. As of
December 31, 2008, the Company executed two equipment schedules totaling
approximately $9.9 million with an interest rate ranging from 7.08% to
7.64% and monthly payments totaling approximately $0.4 million. The
unpaid balance of these schedules at December 31, 2008 was approximately $6.9
million. The equipment securing this lease has moved to Angola, which
required a waiver to move the equipment out
of Australia. The current waiver expires on April 30,
2009. At this time, the Company does not know whether it will receive
an extension on this waiver. If the waiver is not extended, the
Company may have to put in place a standby letter of credit estimated at
approximately $4 million in order for the equipment to remain outside of
Australian waters.
Other
From time
to time, the Company enters into vendor financing arrangements to purchase
certain equipment. The equipment purchased from these vendors is paid
over a period of time. The total balance of vendor financing
arrangements at December 31, 2008 was approximately $19.0 million.
The
Company maintains various foreign bank overdraft facilities used to fund
short-term working capital needs. At December 31, 2008, there were no
outstanding balances under these facilities and the Company had approximately
$9.0 million of availability.
The
Company has made, and expects to continue to make, significant investments in
capital expenditures. In 2008, the Company incurred $77.1 million in capital
expenditures. Based on current plans, the Company anticipates making capital
expenditures of $37.3 million for 2009, including $25.8 million in the first
half of 2009, subject to compliance with debt covenants and operational
requirements.
In
addition, the Company’s Board of Directors approved a $12.7 million investment
in an interest in data that the Company will retain in conjunction with a data
acquisition survey that will be completed by the Company. The data
will be acquired in the United States and co-owned by the Company and its
customer. The Company expects that license revenues already committed
will be sufficient to cover the Company’s share of cash costs for data
acquisition.
The
Company believes that its current cash balances and anticipated cash flow from
its seismic data acquisition and seismic data processing operations, combined
with available debt financing, will provide sufficient liquidity to continue
operations throughout 2009. Should the Company’s current sources of
liquidity not meet its operating requirements, the Company would be forced to
seek outside sources of capital to meet its operating and capital requirements
and/or curtail its capital expenditure program.
|
|
Critical
Accounting Policies
|
Principles
of Consolidation
The
consolidated financial statements include the accounts of Geokinetics Inc. and
its wholly-owned subsidiaries. All significant intercompany items and
transactions have been eliminated in consolidation.
Use
of Estimates in Preparing Consolidated Financial Statements
Management
uses estimates and assumptions in preparing consolidated financial statements in
accordance with accounting principles generally accepted in the U.S. Those
estimates and assumptions are included in the Company’s consolidated financial
statements and accompanying notes. The more significant areas requiring the use
of management estimates relate to accounting for contracts in process,
evaluating the outcome of uncertainties involving claims against or on behalf of
the Company, determining useful lives for depreciation and amortization
purposes, cash flow projections and fair values used in the determination of
asset impairment. While management believes current estimates are reasonable and
appropriate, actual results could differ materially from current
estimates.
Fair
Values of Financial Instruments
Effective
January 1, 2008, the Company adopted SFAS No. 157,
Fair
Value Measurements
, (“SFAS No. 157”) as it relates to financial assets
and financial liabilities. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principals and expands disclosures about fair value
measurements. The provisions of this standard apply to other
accounting pronouncements that require or permit fair value
measurements.
SFAS No.
157 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS No. 157 establishes a fair
value hierarchy that distinguishes between market participant assumptions
developed based on market data obtained from independent sources (observable
inputs) and an entity’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three
board levels, which gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). The three levels of the
fair value hierarchy under SFAS No. 157 are described below:
Level 1 –
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
Level 2 –
Inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly, including quoted prices
for similar assets or liabilities in active markets; quoted prices for identical
or similar assets or liabilities in markets that are not active; inputs other
than quoted prices that are observable for the asset
or
liability (e.g., interest rates); and inputs that are derived principally from
or corroborated by observable market data by correlation or other
means.
Level 3 – Inputs that
are
both
significant to the fair value measurement and
unobservable.
Financial Instruments
Financial
instruments are recorded at fair values. The reported fair values for
financial instruments that use Level 2 and Level 3 inputs to determine fair
value are based on a variety of factors and assumptions. Accordingly,
certain fair values may not represent actual values of the financial instruments
that could have been realized as of December 31, 2008 or that will be realized
in the future and do not include expenses that could be incurred in an actual
sale or settlement. The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable and short-term debt
approximate their fair value due to the short maturity of those
instruments. The carrying amount of long-term debt approximates fair
value. Due to the recent market events and the recent trading range
of the Company’s common stock, the Company believes the fair value of its
preferred stock to be approximately $66.0 million.
Revenue
Recognition
The
Company’s services are provided under cancelable service contracts. Customer
contracts for services vary in terms and conditions. Contracts are either
“turnkey” or “term” agreements or a combination of the two. Under turnkey
agreements or the turnkey portions thereof, the Company recognizes revenue based
upon output measures as work is performed. This method requires that the Company
recognize revenue based upon quantifiable measures of progress, such as square
miles or linear kilometers shot. With respect to those contracts where the
customer pays separately for the mobilization of equipment, the Company
recognizes such mobilization fees as revenue during the performance of the
seismic data acquisition, using the same performance method as for the
acquisition work. The Company also receives revenue for certain third party
charges under the terms of the service contracts. The Company records amounts
billed to customers in revenue as the gross amount including third party
charges, if applicable, that are paid by the customer. The Company’s turnkey or
term contracts generally do not contain cancellation provisions that would
prevent the Company from being compensated for work performed prior to
cancellation due to milestones not being met or work not being performed within
a particular timeframe. In some instances, customers are billed in advance of
work performed and the Company recognizes the advance billing as deferred
revenue.
As a
result of the nature of the Company’s services, the Company from time to time
engages with customers in renegotiations or revisions of service contracts,
which represent contingent revenues that are recognized only when the amounts
have been received or awarded.
Deferred
revenue consists primarily of customer payments made in advance of work done,
milestone billings and mobilization revenue, amortized over the term of the
related contract.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the respective
assets or the lesser of the lease term, as applicable. Repairs and maintenance,
which are not considered betterments and do not extend the useful life of
property, are charged to expense as incurred. When property and equipment are
retired or otherwise disposed of, the asset and accumulated depreciation or
amortization are removed from the accounts and the resulting gain or loss is
reflected in operations.
The
Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment recognized is measured
by the amount by which the carrying amount of the assets exceeds either the fair
value or the estimated discounted cash flows of the assets, whichever is more
readily measurable. At December 31, 2008 and 2007, management deemed no
such assets were impaired.
Goodwill
and Intangible Assets
Goodwill
represents the excess of the purchase price over the estimated fair value of the
assets acquired net of the fair value of liabilities assumed. Statement of
Financial Accounting Standards (“SFAS”) No. 142,
Goodwill and Other Intangible
Assets
requires that intangible assets with indefinite lives, including
goodwill, be evaluated on an annual basis for impairment or more frequently if
an event occurs or circumstances change which could potentially result in an
impairment.
The
impairment test requires the allocation of goodwill and all other assets and
liabilities to reporting units. If the fair value of the reporting unit is less
than the book value (including goodwill), then goodwill is reduced to its
implied fair value and the amount of any write-down is reflected in operations.
All of the Company’s goodwill is related to its data acquisition
segment. While this segment consists of various geographical markets,
the Company has concluded that it has only one reporting unit for purposes of
the impairment test. The Company performs impairment tests on the carrying value
of its goodwill on an annual basis as of December 31st. Historically, the
Company has used the Income Approach or the Discounted Cash Flow Method, which
focuses on expected cash flows. In applying this approach, the expected cash
flow is projected based on assumptions regarding revenues, direct costs, general
and administrative expenses, depreciation, applicable income taxes , capital
expenditures and working capital requirements for a finite period of years,
which was five years in the Company’s test. The projected cash flows and the
terminal value, which is an estimate of the value at the end of the finite
period and assumes a long-term growth rate, are then discounted to present value
to derive an indication of the value of the reporting unit. For the Company’s
annual assessment as of December 31, 2008, due to the economic conditions
affecting the industry, the Company also utilized the Subject Company Valuation
Method, which makes a comparison of the Company’s projections to reasonably
similar publicly traded companies. In weighting the results of the
various valuation approaches, the Company placed more emphasis on the income
approach. For the years ended December 31, 2007 and 2008, the
Company’s annual impairment test indicated the fair value of its reporting
unit’s goodwill exceeded the carrying amount.
Intangible
assets that do not have indefinite lives are amortized over their estimated
useful lives and also reviewed for impairment at least annually. No impairment
was deemed necessary.
At
December 31, 2008 and 2007, intangible assets were presented at a net book
value of approximately $2.7 million and $3.8 million with accumulated
amortization of $3.4 million and $2.3 million, respectively.
Income
Taxes
Effective
January 1, 2007, the Company adopted FASB Interpretation Number 48, “
Accounting for Uncertainty in Income
Taxes
” (FIN 48), which is intended to clarify the accounting for income
taxes by prescribing a minimum recognition threshold for a tax position before
being recognized in the financial statements. The Company has
concluded that there are no tax deductions taken in previous tax returns that do
not meet the more likely than not recognition threshold. Therefore
there was no impact on our financial statements and no cumulative impact on
retained earnings upon adoption.
The
Company follows SFAS No. 109,
Accounting for Income Taxes,
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Under this method, deferred
tax assets and liabilities are computed using the liability method based on the
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
A
valuation allowance is provided, if necessary, to reserve the amount of net
operating loss and tax credit carryforwards which the Company may not be able to
use as a result of the expiration of maximum carryover periods allowed under
applicable tax codes.
Presentation
On
November 3, 2006, the Company completed a reverse stock split of the
Company’s common stock outstanding at a ratio of one share for every ten shares.
All share amounts and per share amounts for all periods presented have been
adjusted to reflect the reverse split.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
SFAS 157 defines fair value, establishes a framework for measuring fair value in
GAAP, and expands disclosures about fair measurements. This Statement
applies under other accounting pronouncements that require or permit fair value
measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
However, for some entities, the application of this Statement will change
current practice.
SFAS
No. 157 becomes effective for the fiscal years beginning after November 15,
2007.
In February
2008, the FASB issued FASB Staff Positions (“FSP”) No. 157-1, “Application of
FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements that Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13” and FSP No. 157-2, “Effective
Date of FASB Statement No. 157”. FSP No. 157-1 amends SFAS No. 157 to exclude
SFAS No. 13, “Accounting for Leases,” and its related interpretive
accounting pronouncements that address leasing transactions, while FSP No. 157-2
delays the effective date of SFAS No. 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually) until
the beginning of the first quarter of 2009. The Company’s adoption of SFAS
157 has not had a material effect on the Company’s consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities including an amendment of FASB
Statement No. 115.” SFAS
159 permits entities to
choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is expected to expand the
use of fair value measurement, which is consistent with the Board’s long-term
measurement objectives for accounting for financial instruments. The
adoption of SFAS No. 159, has not had a material effect on the Company’s
financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”
SFAS
141(R)
established
revised principles and requirements for how the Company will recognize and
measure assets and liabilities acquired in a business combination. The objective
of this Statement is to improve the relevance, representational faithfulness,
and comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects.
The
Statement is effective for business combinations completed on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008, which begins January 1, 2009 for the Company. The adoption of
SFAS 141(R) is expected to have an impact on the Company’s results from
operations as the use of fully valued net operating loss carry forwards will
reduce income tax expense rather than reduce goodwill.
The
following table summarizes the Company’s obligations and commitments to make
future payments of principal and interest under its long-term debt, capital
leases and operating leases for the periods specified as of December 31,
2008 (in thousands).
Contractual
Obligations Table
|
|
|
Total
|
|
|
Less
than
1
year
|
|
|
1
– 3
years
|
|
|
4
– 5
years
|
|
|
Over
5
years
|
|
|
Long
Term Debt
(1)
|
|
$
|
62,956
|
|
|
$
|
17,275
|
|
|
$
|
1,702
|
|
|
$
|
43,979
|
|
|
$
|
-
|
|
|
Capital
Leases
|
|
|
27,990
|
|
|
|
15,821
|
|
|
|
12,169
|
|
|
|
-
|
|
|
|
-
|
|
|
Operating
Leases
(2)
|
|
|
48,893
|
|
|
|
35,365
|
|
|
|
10,244
|
|
|
|
3,284
|
|
|
|
-
|
|
|
Total
|
|
$
|
139,839
|
|
|
$
|
68,461
|
|
|
$
|
24,115
|
|
|
$
|
47,263
|
|
|
$
|
-
|
|
Amount of Commitment Expiration Per Period
|
Other Commercial
|
|
Total Amounts
|
|
|
|
|
Commitments
|
|
Committed
|
|
|
Less than 1 year
|
|
|
1 - 3 years
|
|
|
4 - 5 years
|
|
|
Over 5 years
|
|
Standby
Letters of Credit
|
|
$
|
2,300
|
|
|
$
|
2,300
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
(1)
Includes
at expiration only principal balance for PNC Revolver outstanding as of December
31, 2008 and vendor financed capital expenditures. The Revolving
Credit and Security Agreement with PNC expires May 24, 2012.
(2)
Includes
minimum obligation for marine vessels on renewable 12 month
time-charter.
During
2008, the Company entered into various financing activities as further described
in “Liquidity and Capital Resources.”
Off-Balance
Sheet Arrangements
The
Company had no off-balance sheet arrangements for the twelve months ended
December 31, 2008, that have or are reasonably likely to have a current or
future effect on the Company’s financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources that are material to investors.
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market
Risks
|
In the
normal course of operations, the Company is exposed to market risks primarily
from credit risk, changes in interest rates and foreign currency exchange rate
risks.
Credit
Risk
Financial
instruments, which potentially subject the Company to concentration of credit
risk, consist primarily of unsecured trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been within the range
of management’s expectations. Management believed that its unreserved trade
receivables at December 31, 2008, are collectible and that its allowance
for doubtful accounts is adequate.
The
Company generally provides services to a relatively small group of key customers
that account for a significant percentage of its accounts receivable at any
given time. The Company’s key customers vary over time. The Company extends
credit to various companies in the oil and natural gas industry, including its
key customers, 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 the Company’s key customers
and may accordingly impact its overall credit risk.
The
Company has cash in bank and restricted cash which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts. The Company believes that, in light of the recent financial
crisis, it does have some credit risk on cash and short-term
investments.
Interest Rate
Risk
Fluctuations
in the general level of interest rates on the Company’s current and future fixed
and variable debt obligations expose the Company to market risk. The Company is
vulnerable to significant fluctuations in interest rates affecting its
adjustable rate debt, and any future refinancing of its fixed rate debt and its
future debt. At December 31, 2008, the Company was exposed to interest rate
fluctuations on its credit facilities carrying variable interest
rates.
Foreign
Currency Exchange Rate Risk
The
Company currently conducts business in many foreign countries. As a company that
derives a substantial amount of its revenue from sales internationally, the
Company is subject to risks relating to fluctuations in currency exchange rates.
Fluctuations in the exchange rate of the U.S. dollar against such other
currencies have had in the past and can be expected in future periods to have a
significant effect upon the Company’s results of operations. While the Company
attempts to reduce the risks associated with such exchange rate fluctuations,
the Company cannot provide assurance that it will be effective in doing so or
that fluctuations in the value of the currencies in which the Company operates
will not materially affect its results of operations in the future.
|
Item
8.
|
Financial
Statements and Supplementary Data
|
The
Company’s Annual Consolidated Financial Statements, Notes to Consolidated
Financial Statements and the reports of UHY LLP (“UHY”), the Company’s
independent registered public accounting firm, with respect thereto, referred to
in the Table of Contents to Consolidated Financial Statements, appear elsewhere
in this document beginning on Page F-1 and are incorporated herein by
reference.
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
During
the years ended December 31, 2008, 2007 and 2006, there were no
disagreements with UHY on any accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of UHY, would have caused it to make reference
thereto in connection with their respective reports on the Company’s financial
statements for such years. No reportable event as described in
paragraph (a)(1)(v) of item 304 of Regulation S-K occurred during
the years ended December 31, 2008 and 2007.
|
Item
9A.
|
Controls
and Procedures
|
(a) Evaluation of
Disclosure Controls and Procedures.
Disclosure controls and
procedures are designed to provide reasonable assurance that information
required to be disclosed by the Company in reports filed or submitted under the
Exchange Act, is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Disclosure controls
and procedures include without limitation, controls and procedures designed to
ensure that information required to be disclosed under the Exchange Act is
accumulated and communicated to management, including the principal executive
officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure. There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of controls and procedures.
The Company’s management carried out an
evaluation of the effectiveness and design and operation of disclosure controls
and procedures (as defined in Rule 14a-15(e) under the Exchange Act) as of
December 31, 2008. Based upon the evaluation, the Company’s principal
executive officer and principal financial officer believe that the Company’s
disclosure controls and procedures were designed to provide reasonable assurance
of achieving their objectives and were effective as of December 31,
2008.
(b)
Management’s Report on Internal
Control Over Financial Reporting.
The Company’s management is
responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) under the Exchange
Act. The Company’s internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The
Company’s internal control over financial reporting includes those policies and
procedures that:
(i)
pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Company;
(ii)
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 Company management and
directors; and
(iii)
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 the 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 policies or procedures may deteriorate.
Under the supervision and with the participation of the Company’s management,
including the Company’s principal executive officer and principal financial
officer, the Company assessed the effectiveness of internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control – Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Management believes that as of December
31, 2008, it maintained effective internal control over financial reporting
based on COSO criteria. Management’s assessment of the effectiveness
of the Company’s internal control over financial reporting as of December 31,
2008, has been audited by UHY LLP, the independent registered public accounting
firm that also audited the Company’s financial statements. UHY’s
attestation report appears on page
F-3.
(c)
Changes in internal
control.
There have not been any changes in the Company’s
internal control (as defined in the Exchange Act Rule 13a-15(f) during the
quarter ending December 31, 2008, that have materially affected or are
reasonably likely to materially affect its internal control over financial
reporting. The Company continually seeks to improve aspects of its
system of internal controls as noted below; however, none of these improvements
rise to the level to materially affect the Company’s internal control over
financial reporting.
At the
direction of the Board of Directors and the Audit Committee, the Company has
invested and continues to invest a significant amount of time and resources to
strengthen its control environment. The Company is committed to
instilling strong internal control policies and procedures and ensuring that the
“tone at the top” fully supports accuracy and completeness in all financial
reporting. In support of this position, management continues to have
open dialogue and communication with the Audit Committee on matters to improve
the design and effectiveness of the Company’s internal control over financial
reporting for both organizational and process-focused initiatives.
The
Company has continued implementing measures to enhance its policies, controls
and procedures including an implementation of a global enterprise resource
management system to capture and report accounting transactions.
The
Company has enhanced the corporate accounting and reporting functions with the
addition of a Chief Accounting Officer and has increased internal audit and
international and corporate accounting staff highly experienced in their
respective areas of expertise.
The
Company believes that the measures taken to date and planned for the future will
further improve both the effectiveness and efficiency of its internal control
over financial reporting. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the internal control system are met. Because
of the inherent limitations of any internal control system, no evaluation of
controls can provide absolute assurance that all control issues, if any, within
a company have been detected.
Item
9B.
Other Information
None.
PART III
|
Item
10.
|
Directors
and Executive Officers of the
Registrant
|
The
information required by Item 10 is incorporated by reference to the Company’s
definitive proxy statement for its Annual Meeting of Stockholders to be held on
May 27, 2009, which the Company expects to file with the SEC within 120 days
after December 31, 2008.
The
Company’s Code of Business Conduct and Ethics was adopted by the Board of
Directors on December 28, 2006, and applies to the Company’s directors, officers
and employees, including the principal executive officer and principal financial
officer. The Company’s Code of Business Conduct and Ethics is
available on the Company’s website and www.geokinetics.com under “Investor
Relations” and “Corporate Governance.”
The
certifications of the Company’s chief executive officer and chief financial
officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached
as Exhibits 31.1 and 31.2 to this report.
|
Item
11.
|
Executive
Compensation
|
The
information required by Item 11 is incorporated by reference to the Company’s
definitive proxy statement for its Annual Meeting of Stockholders to be held on
May 27, 2009, which the Company expects to file with the SEC within 120 days
after December 31, 2008.
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
The
information required with respect to the Company’s equity compensation plans is
set forth in Item 5 of this Form 10-K. The information
required by Item 12 is incorporated by reference to the
Company’s definitive proxy statement for its Annual Meeting of Stockholders to
be held on May 27, 2009, which the Company expects to file with the SEC within
120 days after December 31, 2008.
Item
13. Certain
Relationships and Related Transactions and Director Independence
The
information required by Item 13 is incorporated by reference to the Company’s
definitive proxy statement for its Annual Meeting of Stockholders to be held on
May 27, 2009, which the Company expects to file with the SEC within 120 days
after December 31, 2008.
|
Item
14.
|
Principal
Accounting Fees and Services
|
The
information required by Item 14 is incorporated by reference to the Company’s
definitive proxy statement for its Annual Meeting of Stockholders to be held on
May 27, 2009, which the Company expects to file with the SEC within 120 days
after December 31, 2008.
PART IV
Item
15. Exhibits
and Financial Statement Schedules
(a) List
of documents as part of this Report:
(1) Consolidated
Financial Statements and Report of Independent Public Accounting
Firm: See Index on page F-1.
(2) Financial
Statements Schedule
All other
schedules are omitted as they are inapplicable or the required information is
furnished in the Company’s Consolidated Financial Statements or the Notes
thereto.
(3) Exhibits
(items indicated by an (*) are filed herewith)
|
3.1
|
|
Certificate
of Incorporation of the Company (incorporated by reference from
Exhibit 3(a) to Amendment No. 1 to the Company’s
Registration Statement on Form S-3 filed on March 25, 1980 (file
no. 000-09268)).
|
|
3.2
|
|
Certificate
of Amendment of Certificate of Incorporation of the Company (incorporated
by reference from Exhibit 3.2 to Form 10-KSB filed on
April 24, 1996 (file no. 000-09268)).
|
|
3.3
|
|
Certificate
of Amendment of Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on July 14, 1997 (incorporated by
reference from Exhibit 3.3 to Form 10-KSB on March 31, 1998
(file no. 000-09268)).
|
|
3.4
|
|
Certificate
of Amendment of Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on November 24, 1997 (incorporated by
reference from Exhibit 3.4 to Form 10-KSB filed on
March 31, 1998 (file no. 000-09268)).
|
|
3.5
|
|
Certificate
of Amendment of Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on November 3,
2006.
|
|
3.6
|
|
Amended
and Restated Bylaws of the Company (incorporated by reference from
Exhibit 3.5 to Form 10-KSB filed on March 31, 1998 (file
no. 000-09268)).
|
|
3.7
|
|
Amendment
to the Amended and Restated Bylaws of the Company (incorporated by
reference from Exhibit 3.1 to Form 8-K filed on May 17, 2007
(file no. 000-09268)).
|
|
3.8
|
|
Amended Certificate of Designation of Series B
Senior Convertible Preferred Stock as filed with the Secretary of State of
Delaware on July 28, 2008. (incorporated by reference from Exhibit 4.1 to
Form 8-K filed on July 30, 2008
(file no. 001-33460)
).
|
|
3.9
|
|
Second
Amended Certificate of Designation of Series B Senior Convertible
Preferred Stock of Geokinetics Inc.
(incorporated by reference from Exhibit 3.1 to Form 8-K/A filed on
February 27, 2009
(file no. 001-33460)
).
|
|
4.4
|
|
Geokinetics
Inc. 2002 Stock Awards Plan (incorporated by reference from
Exhibit 4.1 to Form S-8 filed on November 23, 2004 (file
no. 333-120694)).
|
|
4.5
|
|
Certificate
of Designation of Series B Senior Convertible Preferred Stock as
filed with the Secretary of State of Delaware on September 8, 2006
(Incorporated by reference from Exhibit 10.8 to Form 8-K filed
on September 14, 2006 (file no. 000-09268)).
|
|
10.30
|
|
Employment
Agreement, dated August 16, 2006 between Geokinetics Inc. and
Scott A. McCurdy (Incorporated by reference from Exhibit 10.2 to
Form 10-Q filed on November 14, 2006 (file no.
000-09268)).
|
|
10.36
|
|
Joinder
and Amendment No. 1 to Revolving Credit, Term Loan and Security
Agreement (without exhibits) by and among Geokinetics, its principal
subsidiaries and PNC Bank, National Association (Incorporated by reference
from Exhibit 10.5 to Form 8-K filed on September 14, 2006
(file no. 000-09268)).
|
|
10.42
|
|
Amended
and Restated Revolving Credit, Capex Loan and Security Agreement dated
December 15, 2006 by and among PNC Bank, National Association,
Geokinetics Inc. and its principal subsidiaries (Incorporated by reference
from Exhibit 10.4 to Form 8-K filed on December 21, 2006
(file no. 000-09268)).
|
|
10.43
|
|
Intercreditor
Agreement, among PNC Bank, National Association (“PNC”), Wells Fargo Bank,
National Association, and Geokinetics Inc. (Incorporated by reference from
Exhibit 10.5 to Form 8-K filed on December 21, 2006 (file
no. 000-09268)).
|
|
10.45
|
|
Underwriting
Agreement, dated May 10, 2007 among Geokinetics Inc., RBC Capital Markets
Corporation, UBS Securities LLC, Howard Weil Incorporated, and Raymond
James & Associates, Inc. (Incorporated by reference from
Exhibit 1.1 to Form 8-K filed on May 17, 2007 (file no.
000-09268)).
|
|
10.46
|
|
Second
Amended and Restated Revolving Credit, Capex Loan and Security Agreement
dated May 24, 2007 by and among PNC Bank, National Association,
Geokinetics Inc. and its principal subsidiaries (Incorporated by reference
from Exhibit 10.1 to Form 8-K filed on June 1, 2007 (file no.
000-09268)).
|
|
10.52
|
|
Securities
Purchase Agreement (without exhibits), dated September 8, 2006, by and
among Geokinetics Inc. and the purchasers named therein (incorporated by
reference from Exhibit 10.1 to Form 8-K filed on September 14, 2006 (file
no. 000-09268))
.
|
|
10.53
|
|
Registration
Rights Agreement, dated September 8, 2006, by and among Geokinetics Inc.
and the holders named therein (incorporated by reference from Exhibit 10.2
to Form 8-K filed on September 14, 2006 (file no. 000-09268))
.
|
|
10.54
|
|
Offer
letter for Mark Hess
(incorporated by
reference from Exhibit 10.1 to Form 8-K filed on April 7, 2008
(file no. 001-33460)
).
|
|
10.55
|
|
Fourth
Amendment to Second Amended and Restated Revolving Credit and Security
Agreement dated June 26, 2008 by and among PNC Bank, National Association,
Geokinetics Inc. and its principal subsidiaries.
(incorporated by reference from Exhibit 10.1 to
Form 8-K filed on July 2, 2008
(file no. 001-33460)
)
|
|
10.56
|
|
Series
B-2 and Warrant Purchase Agreement, dated July 28, 2008, by and among
Geokinetics Inc. and the purchasers named therein.
(incorporated by reference from Exhibit 10.3 to
Form 8-K filed on July 30, 2008
(file no. 001-33460)
)
.
|
|
10.57
|
|
Amended
and Restated Registration Rights Agreement, dated July 28, 2008, by and
among Geokinetics Inc. and the holders named therein.
(incorporated by reference from Exhibit 10.4 to
Form 8-K filed on July 30, 2008
(file no. 001-33460)
)
.
|
|
10.58
|
|
Warrant,
dated July 28, 2008, issued by Geokinetics Inc. to Avista Capital
Partners, L.P.
(incorporated by reference
from Exhibit 10.5 to Form 8-K filed on July 30, 2008
(file no.
001-33460)
)
.
|
|
10.59
|
|
Warrant,
dated July 28, 2008, issued by Geokinetics Inc. to Avista Capital Partners
(Offshore), L.P.
(incorporated by reference
from Exhibit 10.5 to Form 8-K filed on July 30, 2008
(file no.
001-33460)
).
|
|
10.60
|
|
Employment
agreement by and between Geokinetics, Inc. and Richard F. Miles dated
October 21, 2008
(incorporated by reference
from Exhibit 10.1 to Form 8-K filed on October 27, 2008
(file no.
001-33460)
).
|
|
10.61
|
|
Sixth
Amendment to Second Amended and Restated Revolving Credit and Security
Agreement dated February 11, 2009, by and among PNC Bank, National
Association, Geokinetics Inc. and its principal subsidiaries
(incorporated by reference from Exhibit 10.1 to
Form 8-K filed on February 17, 2009
(file no. 001-33460)
).
|
|
21.1
|
|
Subsidiaries
of the Company.
|
|
24.2
|
|
Power
of Attorney (incorporated by reference).
|
|
31.1*
|
|
Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) and
15d-14(a) of the Securities Exchange Act of 1934, as amended, filed
herewith.
|
|
31.2*
|
|
Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) and
15d-14(a) of the Securities Exchange Act of 1934, as amended, filed
herewith.
|
|
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,
filed herewith.
|
|
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,
filed herewith.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
Geokinetics
Inc.
|
|
Date:
March 16, 2009
|
By:
|
/s/
Richard F. Miles
|
|
|
|
Richard
F. Miles
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
Date:
March 16, 2009
|
By:
|
/s/
Scott A. McCurdy
|
|
|
|
Scott
A. McCurdy
|
|
|
|
Vice
President and Chief Financial Officer
|
|
|
|
|
|
Date:
March 16, 2009
|
By:
|
/s/
Mark A. Hess
|
|
|
|
Mark
A. Hess
|
|
|
|
Vice
President and Chief Accounting Officer
|
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
|
|
Signature
|
|
|
|
Title
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Richard F. Miles
|
|
President,
Chief Executive Officer, and
|
|
March 16,
2009
|
|
Richard
F. Miles
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/
Scott A. McCurdy
|
|
Vice
President and Chief Financial Officer
|
|
March 16.
2009
|
|
Scott
A. McCurdy
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Mark A. Hess
|
|
Vice
President and Chief Accounting Officer
|
|
March 16,
2009
|
|
Mark
A. Hess
|
|
|
|
|
|
|
|
|
|
|
|
/s/
William R. Ziegler
|
|
Director
(Non-executive Chairman)
|
|
March 16,
2009
|
|
William
R. Ziegler
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Steven A. Webster
|
|
Director
|
|
March 16,
2009
|
|
Steven
A. Webster
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Christopher M. Harte
|
|
Director
|
|
March 16,
2009
|
|
Christopher
M. Harte
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Gary M. Pittman
|
|
Director
|
|
March 16,
2009
|
|
Gary
M. Pittman
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Robert L. Cabes, Jr.
|
|
Director
|
|
March 16,
2009
|
|
Robert
L. Cabes, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Christopher D. Strong
|
|
Director
|
|
March 16,
2009
|
|
Christopher
D. Strong
|
|
|
|
|
TABLE
OF CONTENTS
CONSOLIDATED
FINANCIAL STATEMENTS
|
|
|
Page
|
|
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
|
|
F-2
|
|
REPORTS
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
|
|
F-3
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
F-5
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
F-7
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND OTHER COMPREHENSIVE
INCOME (LOSS)
|
|
F-8
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
F-9
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
F-10
|
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) under the
Exchange Act. 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 accounting principles generally accepted in the United States of
America.
Because
of the 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 policies or procedures may deteriorate.
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we assessed the
effectiveness of internal control over financial reporting as of December 31,
2008 based on criteria established in
Internal Control – Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Management believes that as of December
31, 2008, we maintained effective internal control over financial reporting
based on COSO criteria.
Management’s
Certifications.
The
Certifications of Geokinetics’ Chief Executive Officer and Chief Financial
Officer required by the Sarbanes Oxley Act of 2002 have been included as Exhibit
31.1, 31.2, 32.1 and 32.2 in Geokinetics’ Form 10-K.
|
|
Geokinetics
Inc.
|
|
Date:
March 16, 2009
|
By:
|
/s/
Richard F. Miles
|
|
|
|
Richard
F. Miles
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
Date:
March 16, 2009
|
By:
|
/s/
Scott A. McCurdy
|
|
|
|
Scott
A. McCurdy
|
|
|
|
Vice
President and Chief Financial
Officer
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Geokinetics
Inc. and Subsidiaries;
We have
audited the accompanying consolidated balance sheets of Geokinetics Inc. and
subsidiaries (the “Company”) as of December 31, 2008 and 2007 and the
related consolidated statements of operations, stockholders’ equity and other
comprehensive income and cash flows for the three years in the period ended
December 31, 2008. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated 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 audits 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 consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Geokinetics
Inc. and subsidiaries as of December 31, 2008 and 2007 and the consolidated
results of their operations and their cash flows for each of the years in the
period ended December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America.
As
discussed in Note 11 to the consolidated financial statements, effective January
1, 2007, the Company adopted FASB Interpretations FIN 48:
Accounting for Uncertainty in Income
Taxes an Interpretation of FASB Statement No. 109.
We also
have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Geokinetics
Inc. and subsidiaries’ internal control over financial reporting as of December
31, 2008, based on criteria established in
Internal Control-Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 11, 2009 expressed an
unqualified opinion there on.
|
UHY
LLP
|
|
|
Houston,
Texas
|
|
|
March 11,
2009
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Geokinetics
Inc. and Subsidiaries;
We have
audited Geokinetics Inc. and Subsidiaries’ internal control over financial
reporting as of December 31, 2008, based on criteria established in
Internal Control-Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Geokinetics Inc. and
Subsidiaries’ management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting of 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, testing and evaluating the design and operating effectiveness
of internal control based on the assesses risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
Company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the Company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Geokinetics Inc. and Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on the COSO criteria.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Geokinetics
Inc. and Subsidiaries as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the three years in the period ended December 31, 2008, and our report dated
March 11, 2009 expressed an unqualified opinion thereon.
|
UHY
LLP
|
|
|
Houston,
Texas
|
|
|
March 11,
2009
|
|
GEOKINETICS
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
Thousands)
ASSETS
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
13,341
|
|
$
|
15,125
|
|
Restricted
cash
|
|
|
9,921
|
|
|
1,358
|
|
Accounts
receivable:
|
|
|
|
|
|
|
|
Trade,
net of allowance for doubtful accounts of $3,944 and $1,271
as
of December 31, 2008 and 2007, respectively
|
|
|
73,803
|
|
|
57,425
|
|
Unbilled
|
|
|
11,244
|
|
|
6,201
|
|
Other
|
|
|
6,706
|
|
|
4,192
|
|
Inventories
|
|
|
1,412
|
|
|
600
|
|
Deferred
costs
|
|
|
25,372
|
|
|
4,860
|
|
Prepaid
expenses and other current assets
|
|
|
9,002
|
|
|
7,335
|
|
Total
current assets
|
|
|
150,801
|
|
|
97,096
|
|
Property
and equipment
|
|
|
269,836
|
|
|
231,105
|
|
Less:
Accumulated depreciation and amortization
|
|
|
(64,551
|
)
|
|
(53,804
|
)
|
|
Property
and equipment, net
|
|
|
205,285
|
|
|
177,301
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
Goodwill
|
|
|
73,414
|
|
|
73,414
|
|
Intangible
assets, net
|
|
|
2,656
|
|
|
3,767
|
|
Investments,
at cost
|
|
|
6,163
|
|
|
984
|
|
Deferred
financing costs, net
|
|
|
1,038
|
|
|
880
|
|
Other
assets, net
|
|
|
359
|
|
|
879
|
|
Total
other assets
|
|
|
83,630
|
|
|
79,924
|
|
Total
assets
|
|
$
|
439,716
|
|
$
|
354,321
|
See
accompanying notes to the consolidated financial statements.
GEOKINETICS
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (Continued)
GEOKINETICS
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
Thousands)
(In
Thousands, except share and per share data)
LIABILITIES,
MEZZANINE
AND
STOCKHOLDERS’ EQUITY
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt and current portion of long-term debt and capital lease
obligations
|
|
$
|
33,096
|
|
|
$
|
19,560
|
|
|
|
Accounts
payable
|
|
|
49,056
|
|
|
|
19,379
|
|
|
|
Accrued
liabilities
|
|
|
29,968
|
|
|
|
25,949
|
|
|
|
Deferred
revenue
|
|
|
29,995
|
|
|
|
14,562
|
|
|
|
Income
taxes
payable
|
|
|
1,601
|
|
|
|
5,010
|
|
|
|
Total
current
liabilities
|
|
|
143,716
|
|
|
|
84,460
|
|
|
|
Long-term
debt and capital lease obligations, net of current
portion
|
|
|
57,850
|
|
|
|
60,352
|
|
|
|
Deferred
income
taxes
|
|
|
13,608
|
|
|
|
16,521
|
|
|
|
Other
liabilities
|
|
|
-
|
|
|
|
1,097
|
|
|
|
Total
liabilities
|
|
|
215,174
|
|
|
|
162,430
|
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
Mezzanine
equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, Series B Senior Convertible, $10.00 par value;
391,629 shares issued and outstanding as of December 31, 2008
and
247,529 shares issued and outstanding as of December 31,
2007
|
|
|
94,862
|
|
|
|
60,926
|
|
|
|
Total
mezzanine
equity
|
|
|
94,862
|
|
|
|
60,926
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value; 100,000,000 shares authorized,
10,580,601 shares issued
and 10,470,233 shares outstanding as of December 31, 2008 and
10,471,944 shares issued
and 10,315,982 shares outstanding as of December 31, 2007
|
|
|
106
|
|
|
|
105
|
|
|
|
Additional
paid-in
capital
|
|
|
188,940
|
|
|
|
191,212
|
|
|
|
Accumulated
deficit
|
|
|
(59,386
|
)
|
|
|
(60,372
|
)
|
|
|
Accumulated
other comprehensive
income
|
|
|
20
|
|
|
|
20
|
|
|
|
Total
stockholders’ equity
|
|
|
129,680
|
|
|
|
130,965
|
|
|
|
Total
liabilities, mezzanine and stockholders’ equity
|
|
$
|
439,716
|
|
|
$
|
354,321
|
|
|
See
accompanying notes to the consolidated financial statements.
GEOKINETICS
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
Thousands, except share and per share data)
|
|
|
Year Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Seismic
acquisition
|
$
|
462,576
|
|
$
|
346,829
|
|
$
|
217,997
|
|
|
Data
processing
|
|
12,022
|
|
|
10,848
|
|
|
7,186
|
|
|
Total
revenue
|
|
474,598
|
|
|
357,677
|
|
|
225,183
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Seismic
acquisition
|
|
361,377
|
|
|
280,238
|
|
|
177,009
|
|
|
Data
processing
|
|
8,861
|
|
|
10,562
|
|
|
8,780
|
|
|
Depreciation
and amortization
|
|
48,990
|
|
|
32,352
|
|
|
12,965
|
|
|
General
and administrative
|
|
39,341
|
|
|
35,717
|
|
|
17,525
|
|
|
Total
expenses
|
|
458,569
|
|
|
358,869
|
|
|
216,279
|
|
|
Loss
on disposal of property and equipment
|
|
(1,255
|
)
|
|
(1,556
|
)
|
|
(798
|
)
|
|
Gain
on insurance claim
|
|
1,125
|
|
|
2,128
|
|
|
2,145
|
|
|
Income
(loss) from operations
|
|
15,899
|
|
|
(620
|
)
|
|
10,251
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
815
|
|
|
1,017
|
|
|
479
|
|
|
Interest
expense
|
|
(6,991
|
)
|
|
(9,265
|
)
|
|
(11,298
|
)
|
|
Loss
on redemption of floating rate notes
|
|
-
|
|
|
(6,936
|
)
|
|
-
|
|
|
Warrant
expense
|
|
-
|
|
|
-
|
|
|
(376
|
)
|
|
Foreign
exchange gain (loss)
|
|
835
|
|
|
1,574
|
|
|
(231
|
)
|
|
Other,
net
|
|
(304
|
)
|
|
546
|
|
|
233
|
|
|
Total
other income (expenses), net
|
|
(5,645
|
)
|
|
(13,064
|
)
|
|
(11,193
|
)
|
|
Income
(loss) before income taxes
|
|
10,254
|
|
|
(13,684
|
)
|
|
(942
|
)
|
|
Provision
for income taxes:
|
|
|
|
|
|
|
|
|
|
|
Current
expense
|
|
12,186
|
|
|
2,245
|
|
|
2,414
|
|
|
Deferred
expense
|
|
(2,918
|
)
|
|
7
|
|
|
820
|
|
|
Total
provision for income taxes
|
|
9,268
|
|
|
2,252
|
|
|
3,234
|
|
|
Net
income (loss)
|
|
986
|
|
|
(15,936
|
)
|
|
(4,176
|
)
|
|
Returns
to preferred stockholders:
|
|
|
|
|
|
|
|
|
|
|
Dividend
and accretion costs
|
|
(6,325
|
)
|
|
(4,866
|
)
|
|
(206
|
)
|
|
Loss
applicable to common stockholders
|
$
|
(5,339
|
)
|
$
|
(20,802
|
)
|
$
|
(4,382
|
)
|
|
For
Basic and Diluted Shares:
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share
|
$
|
(0.51
|
)
|
$
|
(2.44
|
)
|
$
|
(0.81
|
)
|
|
Weighted
average common shares outstanding
|
|
10,389,969
|
|
|
8,512,862
|
|
|
5,384,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the consolidated financial statements.
GEOKINETICS
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
AND
OTHER COMPREHENSIVE INCOME
(In
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
|
Additional
|
|
|
|
Other
|
|
Total
|
|
|
|
|
Shares
|
|
Common
|
|
Paid-In
|
|
Accumulated
|
|
Comprehensive
|
|
Stockholders
|
|
|
|
|
Issued
|
|
Stock
|
|
Capital
|
|
Deficit
|
|
Income (Loss)
|
|
Equity
(Deficit)
|
|
|
Balance
at December 31, 2005
|
|
5,350,309
|
|
|
535
|
|
|
|
38,588
|
|
|
|
(40,260
|
)
|
|
|
(13)
|
|
|
(1,150
|
)
|
|
Exercise
of
options
|
|
193,062
|
|
|
16
|
|
|
|
219
|
|
|
|
—
|
|
|
|
—
|
|
|
235
|
|
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
|
1,627
|
|
|
|
—
|
|
|
|
—
|
|
|
1,627
|
|
|
Effect
of reverse stock split
|
|
—
|
|
|
(496
|
)
|
|
|
496
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Restricted
stock issued
|
|
189,900
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
2
|
|
|
Reclassification
of temporary equity and warrants
|
|
—
|
|
|
—
|
|
|
|
32,223
|
|
|
|
—
|
|
|
|
—
|
|
|
32,223
|
|
|
Accretion
of preferred issuance costs
|
|
—
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(6
|
)
|
|
Accrual
of preferred dividend
|
|
—
|
|
|
—
|
|
|
|
(200
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(200
|
)
|
|
Costs
of issuance of common stock
|
|
(44
|
)
|
|
—
|
|
|
|
(21
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(21
|
)
|
|
Currency
translation adjustment
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61
|
|
|
61
|
|
|
Net
loss
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,176)
|
|
|
|
—
|
|
|
(4,176
|
)
|
|
Balance
at December 31, 2006
|
|
5,733,227
|
|
|
57
|
|
|
|
72,926
|
|
|
|
(44,436
|
)
|
|
|
48
|
|
|
28,595
|
|
|
Exercise
of options
|
|
94,500
|
|
|
1
|
|
|
|
595
|
|
|
|
—
|
|
|
|
—
|
|
|
596
|
|
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
|
3,714
|
|
|
|
—
|
|
|
|
—
|
|
|
3,714
|
|
|
Restricted
stock issued
|
|
79,010
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
1
|
|
|
Issuance
of common stock
|
|
4,565,207
|
|
|
46
|
|
|
|
127,671
|
|
|
|
—
|
|
|
|
—
|
|
|
127,717
|
|
|
Costs
of issuance of common stock
|
|
—
|
|
|
—
|
|
|
|
(8,828
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(8,828
|
)
|
|
Accretion
of preferred issuance costs
|
|
—
|
|
|
—
|
|
|
|
(138
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(138
|
)
|
|
Accrual
of preferred dividend
|
|
—
|
|
|
—
|
|
|
|
(4,728
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(4,728
|
)
|
|
Currency
translation adjustment
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(28)
|
|
|
(28
|
)
|
|
Net
loss
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,936
|
)
|
|
|
—
|
|
|
(15,936
|
)
|
|
Balance
at December 31, 2007
|
|
10,471,944
|
|
|
105
|
|
|
|
191,212
|
|
|
|
(60,372
|
)
|
|
|
20
|
|
|
130,965
|
|
|
Exercise
of options
|
|
84,863
|
|
|
1
|
|
|
|
577
|
|
|
|
—
|
|
|
|
—
|
|
|
578
|
|
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
|
1,934
|
|
|
|
—
|
|
|
|
—
|
|
|
1,934
|
|
|
Restricted
stock
issued
|
|
23,794
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Issuance
of common
stock/warrants
|
|
—
|
|
|
__
|
|
|
|
1,547
|
|
|
|
—
|
|
|
|
—
|
|
|
1,547
|
|
|
Costs
of issuance of common stock
|
|
—
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(5
|
)
|
|
Accretion
of preferred issuance costs
|
|
—
|
|
|
—
|
|
|
|
(184
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(184
|
)
|
|
Accrual
of preferred dividend
|
|
—
|
|
|
—
|
|
|
|
(6,141
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(6,141
|
)
|
|
Currency
translation adjustment
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Net
loss
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
986
|
|
|
|
—
|
|
|
986
|
|
|
Balance
at December 31, 2008
|
|
10,580,601
|
|
$
|
106
|
|
|
$
|
188,940
|
|
|
$
|
(59,386
|
)
|
|
$
|
20
|
|
$
|
129,680
|
|
See
accompanying notes to the consolidated financial statements.
GEOKINETICS
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands, unless otherwise noted)
|
|
|
Year Ended December 31,
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
$
|
986
|
$
|
(15,936
|
) $
|
(4,176
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and
amortization
|
|
48,990
|
|
32,352
|
|
12,965
|
|
|
Loss
on redemption of floating rate notes and amortization of deferred
financing costs
|
|
336
|
|
7,811
|
|
(4,608
|
)
|
|
Stock-based
compensation
|
|
1,934
|
|
3,714
|
|
1,627
|
|
|
Loss
(gain) on sale of assets and insurance
claims
|
|
130
|
|
(572
|
)
|
(1,347
|
)
|
|
Conversion
of bridge loan interest to preferred
stock
|
|
—
|
|
—
|
|
2,171
|
|
|
Deferred
income
taxes
|
|
(2,918
|
)
|
7
|
|
781
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
(8,563
|
)
|
297
|
|
(1,272
|
)
|
|
Accounts
receivable
|
|
(23,935
|
)
|
(3,003
|
)
|
(17,095
|
)
|
|
Prepaid
expenses and other
assets
|
|
(23,988
|
)
|
(2,788
|
)
|
(2,348
|
)
|
|
Accounts
payable
|
|
29,677
|
|
(24,808
|
)
|
19,973
|
|
|
Accrued
liabilities, deferred revenue and other
liabilities
|
|
14,948
|
|
8,225
|
|
5,920
|
|
|
Net
cash provided by operating
activities
|
|
37,597
|
|
5,299
|
|
12,591
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from disposal of property and equipment and insurance
claim
|
|
3,047
|
|
3,939
|
|
40
|
|
|
Purchases
and acquisition of property and equipment
|
|
(40,289
|
)
|
(58,413
|
)
|
(24,882
|
)
|
|
Purchases
of property and equipment under capital lease obligations
|
|
—
|
|
—
|
|
(278
|
)
|
|
Oil
and gas interests obtained in conjunction with seismic
surveys
|
|
(6,101
|
)
|
—
|
|
—
|
|
|
Purchase
of Grant Geophysical, net of cash acquired
|
|
—
|
|
—
|
|
(112,750
|
)
|
|
Net
cash used in investing
activities
|
|
(43,343
|
)
|
(54,474
|
)
|
(137,870
|
)
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of debt
|
|
223,847
|
|
198,455
|
|
284,060
|
|
|
Preferred
stock conversion premium
|
|
—
|
|
—
|
|
(1,100
|
)
|
|
Proceeds
from exercised options and restricted stock
|
|
593
|
|
596
|
|
237
|
|
|
Proceeds
from stock issuance, net
|
|
29,137
|
|
118,889
|
|
—
|
|
|
Payments
on capital lease obligations and vendor financing
|
|
(29,192
|
)
|
(8,845
|
)
|
(7,747
|
)
|
|
Payments
on debt
|
|
(220,423
|
)
|
(151,856
|
)
|
(140,829
|
)
|
|
Redemption
of floating rate notes
|
|
—
|
|
(113,315
|
)
|
—
|
|
|
Net
cash provided by financing
activities
|
|
3,962
|
|
43,924
|
|
134,621
|
|
|
Effects
of exchange rate changes on cash and cash equivalents
|
|
0
|
|
(28
|
)
|
61
|
|
|
Net
(decrease) increase in cash
|
|
(1,784
|
)
|
(5,279
|
)
|
9,403
|
|
|
Cash
at beginning of year
|
|
15,125
|
|
20,404
|
|
11,001
|
|
|
Cash
at end of year
|
$
|
13,341
|
$
|
15,125
|
$
|
20,404
|
|
Supplemental
disclosures of cash flows information (in thousands):
|
|
Year
ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Effect
of reverse stock split
|
$
|
-
|
|
$
|
-
|
|
$
|
496
|
|
Purchases
of property and equipment under capital lease obligations and vendor
financings, net of down payments
|
|
36,807
|
|
|
36,264
|
|
|
6,620
|
|
Purchases
of property and equipment through trade-in of equipment
|
|
-
|
|
|
-
|
|
|
1,200
|
|
Conversion
of long-term debt to preferred stock
|
|
-
|
|
|
-
|
|
|
57,171
|
|
Trace
purchase price adjustments
|
|
-
|
|
|
-
|
|
|
1,929
|
|
Reclassification
of temporary equity and warrants
|
|
-
|
|
|
-
|
|
|
32,223
|
|
Interest
paid (includes $3.3 million for redemption of floating rate notes in
2007)
|
|
6,769
|
|
|
11,926
|
|
|
2,301
|
|
Income
taxes paid
|
|
7,284
|
|
|
392
|
|
|
2,416
|
See
accompanying notes to the consolidated financial statements.
Geokinetics Inc.
(collectively with its subsidiaries, the “Company”), a Delaware corporation,
founded in 1980, is based in Houston, Texas. The Company is a global provider of
seismic data acquisition services and leader in land, marsh and swamp
(“Transition Zone”) and shallow water environments to the oil and natural gas
industry. In addition, the Company provides seismic data processing
and interpretation services to complement its data acquisition services. Seismic
data is used by oil and natural gas exploration and production (“E&P”)
companies to identify and analyze drilling prospects and maximize successful
drilling. The Company, which has been operating in some regions for over twenty
years, provides seismic data acquisition services in the Gulf Coast,
Mid-Continent, California, Appalachian and Rocky Mountain regions of the United
States, Western Canada, Canadian Arctic, as well as internationally in Central
and South America, Africa, the Middle East, Australia/New Zealand and the Far
East. The Company primarily performs three-dimensional (“3D”) seismic data
surveys for customers in the oil and natural gas industry, which include many
national oil companies, major international oil companies and smaller
independent E&P companies. The Company’s crews performing the
surveys are scalable and specifically configured for every
project. In addition, the Company performs a significant amount of
work for seismic data library companies that acquire seismic data to license to
E&P companies rather than for their own use.
|
|
NOTE
2: Basis of Presentation and Significant Accounting
Policies
|
Principles
of Consolidation
The
consolidated financial statements include the accounts of Geokinetics Inc. and
its wholly-owned subsidiaries. All significant intercompany items and
transactions have been eliminated in consolidation.
Basis
of Accounting
The
consolidated financial statements of the Company have been prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles in the United States of America.
Cash
and Cash Equivalents
For
purposes of the consolidated statements of cash flows, the Company considers all
highly liquid instruments purchased with a maturity of three months or less to
be cash equivalents.
Restricted
Cash
Restricted
cash consists of short-term investments, primarily certificates of deposit,
carried at cost, which approximate market value. Restricted cash
serves as collateral for standby letters of credit and performance guarantees
that provide financial assurance the Company will fulfill its obligations
related primarily to international contracts. Due to acquisition
contract requirements for the start up of a new acquisition survey in Egypt, the
Company’s restricted cash at December 31, 2008, was $9.9 million as compared to
$1.4 million at December 31, 2007.
Allowance
for Doubtful Accounts
The
Company performs credit evaluations of its customers’ current credit worthiness,
as determined by the review of available credit information. Such credit losses
have historically been within expectations and the provisions established by the
Company. The cyclical nature of the Company’s industry may affect the Company’s
customers’ operating performance and cash flows, which could impact the
Company’s ability to collect on these obligations. Additionally, some of the
Company’s customers are located in certain international areas that are
inherently subject to economic, political and civil risks, which may impact the
Company’s ability to collect receivables. The Company reviews
accounts receivable on a quarterly basis to determine the reasonableness of the
allowance. Provisions for doubtful accounts were $3.5, $1.0 and $0.8
million and write-offs against the allowance for doubtful accounts were $0.9,
$0.4 and $0.1 million for the years ended December 31, 2008, 2007, and 2006,
respectively. The allowance for doubtful accounts was $3.9 and $1.3
million at December 31, 2008, and 2007, respectively.
Inventories
Inventories
include only items necessary for the Company to provide seismic data acquisition
services to its customers, and are carried at cost.
Property
and Equipment
Property
and equipment is recorded at cost. Property and equipment acquired in a business
combination is recorded at fair value at the date of acquisition. Depreciation
and amortization are provided using the straight-line method over the estimated
useful lives of the respective assets or the lesser of the lease term, as
applicable. Repairs and maintenance, which are not considered betterments and do
not extend the useful life of property, are charged to expense as incurred. When
property and equipment are retired or otherwise disposed of, the asset and
accumulated depreciation or amortization are removed from the accounts and the
resulting gain or loss is reflected in operations.
The
Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment recognized is measured by
the amount by which the carrying amount of the assets exceeds either the fair
value or the estimated discounted cash flows of the assets, whichever is more
readily measurable. At December 31, 2008 and 2007, management deemed no
such assets were impaired.
Goodwill and Intangible Assets
Goodwill
represents the excess of the purchase price over the estimated fair value of the
assets acquired net of the fair value of liabilities assumed. Statements of
Financial Accounting Standards (“SFAS”) No. 142,
Goodwill and Other Intangible
Assets,
requires intangible assets with indefinite lives,
including goodwill, be evaluated on an annual basis for impairment or more
frequently if an event occurs or circumstances change which could potentially
result in an impairment.
The
impairment test requires the allocation of goodwill and all other assets and
liabilities to reporting units. If the fair value of the reporting unit is less
than the book value (including goodwill), then goodwill is reduced to its
implied fair value and the amount of any write-down is reflected in operations.
All of the Company’s goodwill is related to its data acquisition
segment. While this segment consists of various geographical markets,
the Company has concluded that it has only one reporting unit for purposes of
the impairment test. The Company performs impairment tests on the carrying value
of its goodwill on an annual basis as of December 31st. Historically, the
Company has used the Income Approach or the Discounted Cash Flow Method, which
focuses on expected cash flows. In applying this approach, the expected cash
flow is projected based on assumptions regarding revenues, direct costs, general
and administrative expenses, depreciation, applicable income taxes , capital
expenditures and working capital requirements for a finite period of years,
which was five years in the Company’s test. The projected cash flows and the
terminal value, which is an estimate of the value at the end of the finite
period and assumes a long-term growth rate, are then discounted to present value
to derive an indication of the value of the reporting unit. For the Company’s
annual assessment as of December 31, 2008, due to the economic conditions
affecting the industry, the Company also utilized the Subject Company Valuation
Method, which makes a comparison of the Company’s projections to reasonably
similar publicly traded companies. In weighting the results of the
various valuation approaches, the Company placed more emphasis on the income
approach. For the years ended December 31, 2007 and 2008, the
Company’s annual impairment test indicated the fair value of its reporting
unit’s goodwill exceeded the carrying amount.
Intangible
assets that do not have indefinite lives are amortized over their estimated
useful lives and also reviewed for impairment at least annually. No impairment
was deemed necessary.
The
Company’s intangible assets, excluding goodwill, consists of customer
relationships acquired through the acquisition of Trace Energy Services, Ltd.
(“Trace”) in December 2005 originally valued at $1.2
million and customer relationships and data library acquired through
the acquisition of Grant Geophysical, Inc (“Grant”) in September 2006 originally
valued at $2.4 million and $2.4 million, respectively.
At
December 31, 2008 and 2007, the Company’s intangible assets are presented
at a net book value of approximately $2.7 million and $3.8 million,
respectively, with accumulated amortization of $3.4 million and $2.3
million.
Investments
The
Company’s subsidiary in Colombia is engaged in two joint venture agreements to
provide drilling, shooting and recording of 3D seismic services, whereby the
Company will be entitled to royalties equivalent to 3.2% and 2.0% respectively,
of the net profits on 100% of the production of petroleum substances from any
successful wells over the contracted areas. Both ventures are in the development
stage. The Company’s subsidiary in Australia completed a survey in
2008 whereby it will receive multiple opportunities for future revenues as
determined by interest in the area surveyed or successful drilling efforts in
exchange for reduced initial acquisition costs. The Company accounts
for such investments using the cost method of accounting.
Deferred
Financing Costs
Deferred
financing costs include costs related to the issuance of debt which are
amortized to interest expense using the straight-line method, which approximates
the interest method, over the maturity periods of the related debt.
During
2008, the Company amortized $0.4 million of deferred financing
costs.
Income Taxes
The
Company follows SFAS No. 109,
Accounting for Income Taxes
,
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns.
Under
this method, deferred tax assets and liabilities are computed using the
liability method based on the differences between the financial statement and
tax basis of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
A
valuation allowance is provided, if necessary, to reserve the amount of net
operating loss and tax credit carryforwards which the Company may not be able to
use as a result of the expiration of maximum carryover periods allowed under
applicable tax codes.
Fair Values of Financial Instruments
Effective
January 1, 2008, the Company adopted SFAS No. 157,
Fair Value Measurements
,
(“SFAS No. 157”) as it relates to financial assets and financial
liabilities. SFAS No. 157 defines fair value, establishes a framework
for measuring fair value under generally accepted accounting principals and
expands disclosures about fair value measurements. The provisions of
this standard apply to other accounting pronouncements that require or permit
fair value measurements.
SFAS No.
157 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS No. 157 establishes a fair
value hierarchy that distinguishes between market participant assumptions
developed based on market data obtained from independent sources (observable
inputs) and an entity’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three
board levels, which gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). The three levels of the
fair value hierarchy under SFAS No. 157 are described below:
Level 1 –
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
Level 2 –
Inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly, including quoted prices
for similar assets or liabilities in active markets; quoted prices for identical
or similar assets or liabilities in markets that are not active; inputs other
than quoted prices that are observable for the asset or liability (e.g.,
interest rates); and inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
Level 3 –
Inputs that are both significant to the fair value measurement and
unobservable.
Financial
Instruments
Financial
instruments are recorded at fair values. The reported fair values for
financial instruments that use Level 2 and Level 3 inputs to determine fair
value are based on a variety of factors and assumptions. Accordingly,
certain fair values may not represent actual values of the financial instruments
that could have been realized as of December 31, 2008 or that will be realized
in the future and do not include expenses that could be incurred in an actual
sale or settlement. The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable and short-term debt
approximate their fair value due to the short maturity of those
instruments. The carrying amount of long-term debt approximates fair
value. Due to the recent market events and the recent trading range
of the Company’s common stock, the Company believes the fair value of its
preferred stock to be approximately $66.0 million.
Revenue
Recognition
The
Company’s services are provided under cancelable service contracts. Customer
contracts for services vary in terms and conditions. Contracts are either
“turnkey” or “term” agreements or a combination of the two. Under turnkey
agreements or the turnkey portions thereof, the Company recognizes revenue based
upon output measures as work is performed. This method requires that the Company
recognize revenue based upon quantifiable measures of progress, such as square
miles or linear kilometers shot. With respect to those contracts where the
customer pays separately for the mobilization of equipment, the Company
recognizes such mobilization fees as revenue during the performance of the
seismic data acquisition, using the same performance method as for the
acquisition work. The Company also receives revenue for certain third
party charges under the terms of the service contracts. The Company records
amounts billed to customers in revenue as the gross amount including third party
charges, if applicable, that are paid by the customer. The Company’s turnkey or
term contracts do not contain cancellation provisions, which would prevent the
Company from being compensated for work performed prior to cancellation due to
milestones not being met or work not being performed within a particular
timeframe. In some instances, customers are billed in advance of work performed
and the Company recognizes the liability as deferred revenue.
As a
result of the nature of the Company’s services, the Company from time to time
engages with customers in renegotiations or revisions of service contracts,
which represent contingent revenues that are recognized only when the amounts
have been received or awarded. Deferred revenue consists primarily of
customer payments made in advance of work done, milestone billings and
mobilization revenue amortized over the term of the related
contract.
Foreign
Exchange Gains and Losses
The U.S.
dollar is the Company’s primary functional currency in all foreign locations
with the exception of the Company’s United Kingdom (“UK”) operation. In
accordance with SFAS No. 52,
Foreign Currency Translation
,
those foreign entities (other than the UK) translate property and equipment (and
related depreciation) and inventories into U.S. dollars at the exchange rate in
effect at the time of their acquisition, while other assets and liabilities are
translated at year-end rates. Operating results (other than depreciation) are
translated at the average rates of exchange prevailing during the year.
Re-measurement gains and losses are included in the determination of net income
(loss) and are reflected in “Other income (expenses)” in the accompanying
consolidated statements of operations. The UK subsidiary uses the UK
sterling as the functional currency and translates all monetary assets and
liabilities at year-end exchange rates, and operating results at average
exchange rates prevailing during the year. Adjustments resulting from the
translation of UK assets and liabilities are presented as “Accumulated Other
Comprehensive Income (Loss)” in the accompanying consolidated statements of
stockholders’ equity (deficit) and other comprehensive income (loss) (See Note
7).
Effective
January 1, 2007, changed its functional currency from the Canadian dollar to the
U.S. dollar.
Accumulated Other Comprehensive
Income (Loss)
reported in the consolidated statements of stockholders’
equity (deficit) and other comprehensive income (loss) before January 1, 2007,
totaled approximately $48,000 of cumulative foreign currency translation
adjustment related to the Canadian subsidiary prior to changing the functional
currency.
Effective
January 1, 2008, the functional currency of the UK subsidiary was changed from
the UK sterling to the U.S. dollar.
Accumulated Other Comprehensive
Income (Loss)
reported in the consolidated statements of stockholder’s
equity (deficit) and other comprehensive income (loss) before January 1, 2008,
totaled approximately ($20,000) of cumulative foreign currency translation
adjustment related to the UK subsidiary prior to changing the functional
currency.
Income
(Loss) Per Common Share
The
Company presents earnings per share in accordance with SFAS No. 128,
Earnings Per Share
. SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share are similar to
the previously reported fully diluted earnings per share. Basic income (loss)
per common share is computed based on the weighted average number of common
shares outstanding during the respective years. Stock options, stock warrants
and convertible preferred stock are included in the calculation of diluted
income (loss) per common share.
Stock-Based Compensation
The
Company adopted SFAS No. 123(R),
Share-Based Payment
,
effective January 1, 2006. SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their grant date fair
values. Compensation cost for awards granted prior to, but not vested, as of
January 1, 2006, would be based on the grant date attributes originally
used to value those awards for pro forma purposes under SFAS No. 123,
Accounting for Stock-Based
Compensation
. The Company adopted SFAS No. 123(R) using the
modified prospective transition method, utilizing the Black-Scholes option
pricing model for the calculation of the fair value of employee stock options.
Under the modified prospective method, the Company would record compensation
cost related to unvested stock awards at December 31, 2005, by recognizing
the unamortized grant date fair value of these awards over the remaining vesting
periods of those awards with no change in historical reported
earnings.
The weighted average estimated fair value of options granted during the years
ended December 31, 2007 and 2006 was $11.62 and $30.10,
respectively. The Company did not issue stock options in
2008. The fair value of each option granted is estimated on the date
of grant, using the Black-Scholes option pricing model. The model
assumes the following volatility and risk-free interest rates:
|
|
2008
|
|
2007
|
|
2006
|
|
Volatility
|
N/A
|
|
57%
|
|
159%
|
|
Risk-free
interest rate
|
N/A
|
|
3.62%
|
|
4.51%
|
As the
Company has not declared dividends on its common stock since it became a public
entity, no dividend yield was used. The expected life of the options granted is
a weighted average term of
6 years
and 10 years for 2007 and 2006.
Research and Development Costs
Research
and development costs are expensed as incurred as data processing expenses and
totaled approximately $776,000, $1,012,000 and $1,082,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.
Advertising
Costs
Advertising
and promotional costs are expensed as incurred. Total advertising and
promotional expenses for the years ended December 31, 2008, 2007 and 2006
were approximately $1,079,000, $573,000, and $390,000,
respectively.
Use
of Estimates
Management
uses estimates and assumptions in preparing consolidated financial statements in
accordance with accounting principles generally accepted in the U.S. Those
estimates and assumptions are included in the Company’s consolidated financial
statements and accompanying notes. The more significant areas requiring the use
of management estimates relate to accounting for contracts in process,
evaluating the outcome of uncertainties involving claims against or on behalf of
the Company, determining useful lives for depreciation and amortization
purposes, cash flow projections and fair values used in the determination of
asset impairment. While management believes current estimates are reasonable and
appropriate, actual results could differ materially from current
estimates.
Reclassifications
and Additional Disclosures
Certain
reclassifications of previously reported information have been made to conform
to the current year presentation.
On
November 3, 2006, the Company completed a reverse stock split of the
Company’s common stock outstanding at a ratio of one share for every ten shares.
All share amounts and per share amounts for all periods presented have been
adjusted to reflect the reverse split.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
SFAS 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. SFAS No. 157 became effective as
of January 1, 2008.
In February 2008, the FASB issued FASB Staff Positions (“FSP”) No. 157-1,
“Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13” and FSP No. 157-2,
“Effective Date of FASB Statement No. 157”. FSP No. 157-1 amends SFAS No. 157 to
exclude SFAS No. 13, “Accounting for Leases,” and its related interpretive
accounting pronouncements that address leasing transactions, while FSP No. 157-2
delays the effective date of SFAS No. 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually) until
the beginning of the first quarter of 2009. The Company adoption of SFAS
157 has not had a material effect on the Company’s consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities including an amendment of FASB
Statement No. 115.” SFAS
159 permits entities to
choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is expected to expand the
use of fair value measurement, which is consistent with the Board’s long-term
measurement objectives for accounting for financial instruments. The
adoption of SFAS No. 159, has not had a material effect on the Company’s
financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”
SFAS
141(R)
established
revised principles and requirements for how the Company will recognize and
measure assets and liabilities acquired in a business combination. The objective
of this Statement is to improve the relevance, representational faithfulness,
and comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects.
The
Statement is effective for business combinations completed on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008, which begins January 1, 2009 for the Company. The adoption of
SFAS 141(R) is expected to have an impact on the Company’s results from
operations as the use of fully valued net operating loss carry forwards will
reduce income tax expense rather than reduce goodwill.
|
|
NOTE
3: Segment Information
|
Description
of Reportable Segments
The
Company has two reportable segments: seismic data acquisition and seismic
data processing and interpretation. The Company further breaks down its
seismic data acquisition segment into two geographic reporting
units: North American seismic data acquisition and international
seismic data acquisition. The North American and international seismic
data acquisition reporting units acquire data for customers by
conducting seismic shooting operations in the Gulf Coast, Mid-Continent,
California, Appalachian and Rocky Mountain regions of the United States, Western
Canada, Canadian Arctic, Central and South America, Africa, the Middle East,
Australia/New Zealand and the Far East. The data processing and interpretation
segment operates processing centers in Houston, Texas and London, United Kingdom
to process seismic data for oil and gas exploration companies
worldwide.
Measurement
of Segment Profit or Loss and Segment Assets
The
accounting policies of the segments are the same as those described in Note
2: “Basis of Presentation and Significant Accounting Policies.” The
Company evaluates performance based on earnings or loss before interest, taxes,
other income (expense) depreciation and amortization. There are no inter-segment
sales or transfers.
Factors
Management Used to Identify Reportable Segments
The
Company’s reportable segments are strategic business units that offer different
services to customers. Each segment is managed separately, has a different
customer base, and requires unique and sophisticated technology.
The
following table sets forth significant information concerning the Company’s
reportable segments and geographic reporting units at and for the years
ended December 31, 2008, 2007 and 2006. North American data acquisition
operations accounted for 37%, 47%, and 72% of total revenue for the years ended
December 31, 2008, 2007 and 2006, respectively, and International data
acquisition operations accounted for 60%, 50%, and 25% of total revenue for the
years ended December 31, 2008, 2007 and 2006, respectively. Data processing
operations accounted for 3%, 3%, and 3% of total revenue for the years ended
December 31, 2008, 2007 and 2006, respectively.
|
|
|
As
of and
for the Year Ended December 31, 2008
|
|
|
|
Data Acquisition
|
|
Data
|
|
|
|
|
|
|
|
North America
|
International
|
|
Processing
|
|
Corporate
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
177,448
|
$
|
285,128
|
$
|
12,022
|
$
|
-
|
$
|
474,598
|
|
Segment
income (loss)
|
|
$
|
15,474
|
$
|
18,738
|
$
|
1,135
|
$
|
(34,361
|
)
|
$
|
986
|
|
Segment
assets
|
|
$
|
113,757
|
$
|
299,055
|
$
|
7,307
|
$
|
19,597
|
$
|
439,716
|
|
|
|
As
of and
for the Year Ended December 31, 2007
|
|
|
|
Data Acquisition
|
|
Data
|
|
|
|
|
|
|
|
North America
|
International
|
|
Processing
|
|
Corporate
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
166,592
|
$
|
180,237
|
$
|
10,848
|
$
|
-
|
$
|
357,677
|
|
Segment
income (loss)
|
|
$
|
12,515
|
$
|
16,921
|
$
|
(1,502)
|
$
|
(43,870
|
)
|
$
|
(15,936)
|
|
Segment
assets
|
|
$
|
143,669
|
$
|
191,870
|
$
|
7,122
|
$
|
11,660
|
$
|
354,321
|
|
|
|
As
of and
for the Year Ended December 31, 2006
|
|
|
|
Data Acquisition
|
|
Data
|
|
|
|
|
|
|
|
North America
|
International
|
|
Processing
|
|
Corporate
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
163,153
|
$
|
54.844
|
$
|
7,186
|
$
|
-
|
$
|
225,183
|
|
Segment
income (loss)
|
|
$
|
10,230
|
$
|
7,721
|
$
|
(2,993)
|
$
|
(19,134
|
)
|
$
|
(4,176)
|
|
Segment
assets
|
|
$
|
104,149
|
$
|
165,116
|
$
|
6,214
|
$
|
24,154
|
$
|
299,633
|
NOTE
4: Debt and Capital Lease Obligations
Long-term
debt and capital lease obligations were as follows (in thousands):
|
|
|
December
31,
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Revolving
credit lines-LIBOR plus 3.0% or prime plus 1.5%
|
$
|
43,979
|
|
$
|
40,537
|
|
|
Capital
lease obligations—7.08% to 12.68%
|
|
27,990
|
|
|
28,229
|
|
|
Notes
payable from vendor financing arrangements—7.94% to 11.69%
|
|
18,977
|
|
|
11,146
|
|
|
|
|
90,946
|
|
|
79,912
|
|
|
Less:
current portion
|
|
(33,096
|
)
|
|
(19,560
|
)
|
|
|
$
|
57,850
|
|
$
|
60,352
|
|
Revolving
Credit Facilities
On June
12, 2006, the Company and four of its subsidiaries (collectively, the
“Borrowers”) completed the closing of a credit facility under the terms of a
Revolving Credit, Term Loan and Security Agreement (collectively, the “Credit
Agreement”) dated as of June 8, 2006 with PNC Bank, National Association
(“PNC”), as lender. The Borrowers pledged as security the assets of
the Company to PNC. The Credit Agreement contains certain restrictive
covenants limiting the Company’s ability to incur additional debt and purchase
additional assets. On September 8, 2006, the $12.0 million term
credit facility had a balance of $11.6 million outstanding and was fully paid
off and no amounts were outstanding under the revolving credit
facility. This Credit Agreement has been amended several times to
among other things increase the revolving credit and expenditures
facilities.
The
financial covenants for the credit facility include the
following: the Company must maintain (i) net worth (defined as assets
less liabilities in accordance with generally accepted accounting principles in
the United States of America) of not less than $175.0 million and (ii) a fixed
charge coverage ratio of not less than 1.10 to 1.0. Other covenants
include: (1) no mergers or sale of assets without reinvestment; (2)
no conflicting liens on the collateral; (3) no guarantees of other
indebtedness; (4) investments are permitted as to only specified forms of
investments; (5) capital expenditures are limited; (6) no dividends other than
dividends on preferred stock; (7) no additional indebtedness except as permitted
by the credit facility; (8) no changes in business activities; (9) no changes in
constituent documents; (10) no prepayment of debt except under certain
circumstances; (11) no material adverse change; and (12) no change of
control.
The
amount available to borrow under the revolver is dependent upon the calculation
of a monthly borrowing base that is composed of eligible accounts receivables
and eligible fixed assets. The borrowing base can fluctuate from time
to time due to fluctuations in accounts receivable
balances. Additionally, a portion of the borrowing base is composed
of eligible fixed assets. Based on the Company’s borrowing base at
December 31, 2008, the Company had available credit under this facility of $63.0
million reduced by standby letters of credit totaling $2.3 million issued by PNC
under the revolver. At December 31, 2008, the Company had a balance
of $44.0 million drawn under the revolver. Amounts available to be
drawn under the revolver are subject to borrowing base limitations; therefore,
the Company may not always have access to the maximum amount. The
rate of the PNC facility is currently the prime rate plus 1.5%.
The
Company further amended the Credit Agreement with PNC on February 11,
2009. Among other things, the amended agreement increased the
Company’s borrowing base that can come from eligible fixed assets to $55.0
million and deferred any reductions to this new amount until June 30, 2009, at
which time, the amount of the borrowing base that can come from eligible fixed
assets will be reduced by $0.9 million per month until maturity. Once
started, the reduction will affect only the amount of the borrowing base that
can come from eligible fixed assets and will not reduce the overall amount of
the revolver. Based on the current borrowing base calculation, the
Company has immediate access to the maximum availability of $70.0
million.
Capital
Lease Obligations
In July
2006, Geokinetics USA, Inc. (formerly Quantum Geophysical, Inc.), a wholly-owned
subsidiary of the Company, entered into an equipment lease agreement with CIT
Group/Equipment Financing, Inc. (“CIT”). The parties entered into the
lease with respect to the purchase of seismic data acquisition
equipment. The term of the lease is three years, with a purchase
option at the expiration of the lease term. The original amount of
the lease was approximately $6.0 million and monthly payments were approximately
$190,000. In August 2008, the Company reduced the principal amount of
this lease to $2.2 million and refinanced this equipment lease with a new
facility from CIT in the amount $5.0 million at a rate of 8.26% per annum for 24
months yielding $2.8 million of new funds to the Company. The unpaid
balance of this lease as of December 31, 2008 was approximately $4.2
million.
On
November 8, 2007, the Company entered into an additional capital lease facility
with CIT Equipment/Financing, Inc. with a commitment of $25.0
million. The interest rate was based on the three (3) or four (4)
year swap rate reported by the Federal Reserve plus 325 basis points or
3.25%. Initially, the Company executed four (4) equipment schedules
totaling approximately $16.0 million with an interest rate of 7.72% and monthly
payments totaling approximately $0.5 million. On December 21, 2007,
the Company executed an additional four (4) equipment schedules totaling $9.0
million with an interest rate of 7.36% and monthly payments totaling
approximately $0.3 million. The balance at December 31, 2008 was $16.9
million.
In April
2008, the Company entered into an additional equipment lease agreement with CIT
for up to $10.0 million to finance seismic equipment purchases for its shallow
water ocean bottom cable (“OBC”) operations in Australia. As of
December 31, 2008, the Company executed two equipment schedules totaling
approximately $9.9 million with an interest rate ranging from 7.08% to
7.64% and monthly payments totaling approximately $0.4 million. The
unpaid balance of these schedules at December 31, 2008 was approximately $6.9
million. The equipment securing this lease has moved to Angola, which
required a waiver to move the equipment out
of Australia. The current waiver expires on April 30,
2009. At this time, the Company does not know whether it will receive
an extension on this waiver. If the waiver is not extended, the
Company may have to put in place a standby letter of credit estimated at
approximately $4 million in order for the equipment to remain outside of
Australian waters.
Other
From time
to time, the Company enters into vendor financing arrangements to purchase
certain equipment. The equipment purchased from these vendors is paid
over a period of time. The total balance of vendor financing
arrangements at December 31, 2008 was approximately $19.0 million.
The
Company maintains various foreign bank overdraft facilities used to fund
short-term working capital needs. At December 31, 2008, there were no
outstanding balances under these facilities and the Company had approximately
$9.0 million of availability.
Future Maturities
At
December 31, 2008, future maturities (principal only) of long-term debt, capital
lease obligations and notes payable are as follows (in thousands):
|
For
the Years Ending
December
31
|
|
Long Term Debt
(1)
|
|
Capital
Lease Obligations
|
|
Notes
Payable
|
|
Total
|
|
2009
|
$
|
-
|
$
|
15,821
|
$
|
17,275
|
$
|
33,096
|
|
2010
|
|
-
|
|
12,167
|
|
1,341
|
|
13,508
|
|
2011
|
|
-
|
|
2
|
|
361
|
|
363
|
|
2012
|
|
43,979
|
|
-
|
|
-
|
|
43,979
|
|
2013
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
$
|
43,979
|
$
|
27,990
|
$
|
18,977
|
$
|
90,946
|
(1)
Includes
principal balance only at maturity for PNC Revolver outstanding as of December
31, 2008.
At
December 31, 2008, the Company was in compliance with all
covenants.
NOTE
5: Common and Preferred Stock
Common Stock
The holders of common stock have full
voting rights on all matters requiring stockholder action, with each share of
common stock entitled to one vote. Holders of common stock are not
entitled to cumulate votes in elections of directors. No stockholder
has any preemptive right to subscribe to an additional issue of any stock or to
any security convertible into such stock.
In addition, as long as any shares of
the Series B Preferred Stock discussed below are outstanding, the Company may
not pay or declare any dividends on common stock unless the Company has paid, or
at the same time pays or provides for the payment of, all accrued and unpaid
dividends on the Series B Preferred Stock. In addition, the credit
facility restricts the Company’s ability to pay dividends on common
stock. No dividends on common stock have been declared for any
periods presented.
As part
of the Trace acquisition in December 2005, the Company issued 274,105 warrants
at an exercise price of $20.00, which expire on December 1, 2010. As
part of the issuance of Series B Preferred Stock on July 28, 2008, the Company
issued 240,000 warrants at an exercise price of $20.00, which expire on July 28,
2013.
Preferred
Stock
On
December 15, 2006, in connection with the repayment of the $55.0 million
subordinated loan, the Company issued 228,683 shares of its Series B Preferred
Stock, $10.00 par value, pursuant to the terms of the Securities Purchase
Agreement dated September 8, 2006, with Avista Capital Partners, L.P.
(“Avista”), an affiliate of Avista and another institutional
investor. On July 28, 2008, the Company issued 120,000 shares of its
Series B Preferred Stock, $10.00 par value and warrants to purchase 240,000
shares of Geokinetics common stock to Avista and an affiliate of Avista for net
proceeds of $29.3 million. The Company recorded the preferred stock
net of the fair value of the warrants issued and recorded the warrants as
additional paid in capital. The value of the warrants will accrete
back to the preferred stock through December 2014. The preferred
stock is presented as mezzanine debt due to the characteristics described
below:
Each
holder of Series B Preferred Stock is entitled to receive cumulative dividends
at the rate of 8.0% per annum on the liquidation preference of $250.00 per
share, compounded quarterly. At the Company’s option through October
31, 2011, dividends may be paid in additional shares of Series B Preferred
Stock. After such date, dividends are required to be paid in cash if
declared.
Each
holder of Series B Preferred Stock, in the event of the Company’s liquidation,
is entitled to a preference over the holders of shares of common stock, equal to
$250.00 per share, subject to certain adjustments, plus any accrued
dividends.
After
March 31, 2014, holders of not less than a majority of outstanding shares of
Series B Preferred Stock may require payment, upon written notice of the
redemption of all outstanding shares of Series B Preferred Stock, in cash, at a
price equal to $250.00 per share, plus any accrued dividends.
The Series B Preferred Stock is initially convertible into 10 shares of the
Company’s common stock at the option of the holder, subject to adjustment, from
time to time, on the terms described in the Company’s certificate of
incorporation.
At the Company’s option, each share of
Series B Preferred Stock is convertible into shares of common stock, immediately
upon the sale of common stock at a price per share yielding net proceeds to the
Company of not less than $35.00 per share in an under written public offering
pursuant to an effective registration statement under the Securities Act of 1933
(the “Securities Act”), which provides net proceeds to the Company and selling
stockholders, if any, of not less than $75,000,000.
As long as at least 55,000 shares of
Series B Preferred Stock are outstanding, the consent of the holders of a
majority of the Company’s Series B Preferred Stock is required to, among other
things, make any material change to the Company’s certificate of incorporation
or by-laws, declare a dividend on the Company’s common stock, enter into a
business combination, increase or decrease the six of its board of directors and
they are allowed to elect one member of the board of directors.
If the Company authorizes the issuance
and sale of additional shares of its common stock other than pursuant to an
underwritten public offering registered under the Securities Act, or for
non-cash consideration pursuant to a merger or consolidation approved by its
board of directors, the Company must first offer in writing to sell to each
holder of its Series B Preferred Stock an equivalent pro rata portion of the
securities being issued.
Dividends on the Series B Preferred
Stock have been paid in kind exclusively to date.
NOTE
6: Employee Benefits
Stock-Based
Compensation
The
Company adopted the 2007 Stock Awards Plan (“2007 Plan”) during May 2007 and the
2002 Stock Awards Plan (“ 2002 Plan”) during March 2003. Both
Plans provide for granting of (i) incentive stock options,
(ii) nonqualified stock options, (iii) stock appreciation rights,
(iv) restricted stock awards, (v) phantom stock awards or
(vi) any combination of the foregoing to directors, officers and select
employees. The Company is authorized to grant a total of 1,550,000
shares of common stock under these two plans: 750,000 shares under
the 2007 Plan and 800,000 shares under the 2002 Plan. At December 31,
2008, approximately 356,485 shares remain available for grant under the 2007
Plan and 113,507 shares under the 2002 Plan. Stock option exercises
and restricted stock are funded through the issuance of new common
shares.
Stock
Options
The
Company granted both incentive stock options and non-qualified stock options to
employees and non-employee directors. The incentive stock options
awarded in December 2007 have contractual terms of six years and vest over four
years starting November 15, 2008, in increments of 15%, 15%, 30% and
40%. These options have a strike price of $28.00 per
share. For the non-qualified stock options awarded in December 2005
with an exercise price of $12.50, the contractual terms of 10 years was modified
in December 2007 to three years and one month or the options were repriced to an
exercise price of $20.00, the market price on the date of award, to address
deferred compensation issues, but the options were fully vested when the
contractual term was modified. The remaining incentive stock options
granted over the time period from November 2003 through February 2006, have
contractual terms of 10 years and vest in equal amounts over three years from
the grant date.
The price
at which a share of common stock may be purchased upon exercise of an incentive
stock option or a nonqualified stock option is determined by the Board of
Directors of the Company (the “Board”), but may not be less than, in the case of
incentive stock options, the fair market value of common stock subject to the
stock option on the date the stock option is granted. Option activity
for the years ended December 31, 2008, 2007 and 2006, is summarized as
follows:
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
|
Balance
at December 31, 2005
|
|
|
524,512
|
|
|
$
|
6.10
|
|
|
-
|
$
|
1,910,734
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
-
|
|
|
Forfeited
|
|
|
(30,000
|
)
|
|
|
11.37
|
|
|
-
|
|
-
|
|
|
Exercised
|
|
|
(193,062
|
)
|
|
|
2.20
|
|
|
-
|
|
-
|
|
|
Granted
|
|
|
15,000
|
|
|
|
24.41
|
|
|
-
|
|
-
|
|
|
Balance
at December 31, 2006
|
|
|
316,450
|
|
|
$
|
12.12
|
|
|
7.85
years
|
$
|
6,853,144
|
|
|
Exercisable
at December 31, 2006
|
|
|
231,133
|
|
|
$
|
8.45
|
|
|
7.85
years
|
$
|
5,265,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
316,450
|
|
|
$
|
12.12
|
|
|
7.85
years
|
$
|
6,853,144
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
-
|
|
|
Forfeited
|
|
|
(8,166
|
)
|
|
|
26.46
|
|
|
-
|
|
-
|
|
|
Exercised
|
|
|
(94,500
|
)
|
|
|
6.30
|
|
|
-
|
|
-
|
|
|
Granted
|
|
|
345,812
|
|
|
|
28.00
|
|
|
-
|
|
-
|
|
|
Balance
at December 31, 2007
|
|
|
559,596
|
|
|
$
|
21.27
|
|
|
6.40
years
|
$
|
1,941,859
|
|
|
Exercisable
at December 31, 2007
|
|
|
210,284
|
|
|
$
|
10.37
|
|
|
6.70
years
|
|
1,910,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
559,596
|
|
|
$
|
21.27
|
|
|
6.40
years
|
$
|
1,910,734
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
-
|
|
|
Forfeited
|
|
|
(98,917
|
)
|
|
|
13.13
|
|
|
-
|
|
-
|
|
|
Exercised
|
|
|
(83,700
|
)
|
|
|
7.12
|
|
|
-
|
|
-
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
-
|
|
|
Balance
at December 31, 2008
|
|
|
376,979
|
|
|
$
|
26.55
|
|
|
5.04
years
|
$
|
-
|
|
|
Exercisable
at December 31, 2008
|
|
|
86,437
|
|
|
|
21.67
|
|
|
5.36
years
|
|
-
|
|
The
weighted average grant-date fair value of options granted during the years ended
December 31, 2007 and 2006 was $11.62, and $30.10, respectively.
The total intrinsic value of options exercised during the years ended
December 31, 2008, 2007, and 2006 was approximately $0.0 million, $1.2
million and $4.6 million, respectively.
Options
outstanding at December 31, 2008, expire between January 2009 and
February 2016, and have exercise prices ranging from $2.50 to
$28.00.
Total
compensation expense related to stock options recognized during 2008, 2007 and
2006 totaled $0.6 million, $1.3 million, and $1.4 million, respectively, under
SFAS No. 123(R).
The fair
value of each option award is estimated on the date of grant using a
Black-Scholes option pricing model. Expected volatilities are based on a number
of factors, including historical volatility of the Company’s stock. The Company
uses historical data to estimate option exercise and employee termination for
determining the estimated forfeitures. The Company uses the “shortcut” method
described in SAB Topic 14D.2 for determining the expected life used in the
valuation model. The risk-free rate for periods within the contractual life of
the option is based on the U.S. Treasury yield curve in effect at the time of
the grant. As the Company has not declared dividends since it became a public
entity, no dividend yield is used in the calculation. For the options granted
during the second quarter of 2006, under the 2002 Plan, the following criteria
were utilized: (i) an average risk free interest rate of 4.5%, (ii) an
average volatility of 159% and (iii) an average contractual life of 6.0
years.
Restricted
Stock
Restricted
stock expense is calculated by multiplying the stock price on the date of award
by the number of shares awarded and amortizing this amount over the vesting
period of the stock. This is straight line in the case that the stock
vests equally, otherwise it is recognized pro-rata with the percentage of stock
vesting in each period.
The
Company recorded compensation expense of approximately $1.3 million or $0.13 per
common share, $2.6 million or $0.31 per common share , and $0.3
million or $0.06 per common share for the years ended December 31, 2008,
2007 and 2006, related to these restricted stock awards whose activity is
summarized below:
|
|
|
Number of
Shares of
Restricted
Stock
|
|
|
Balance
at December 31, 2005
|
|
|
-
|
|
|
|
Forfeited
|
|
|
(4,000
|
)
|
|
|
Vested
|
|
|
-
|
|
|
|
Granted
to management
|
|
|
95,000
|
|
|
|
Granted
to non-management employees
|
|
|
83,750
|
|
|
|
Granted
to non-employee directors
|
|
|
15,150
|
|
|
|
Balance
at December 31, 2006
|
|
|
189,900
|
|
|
|
Forfeited
|
|
|
(6,500
|
)
|
|
|
Vested
|
|
|
(112,948
|
)
|
|
|
Granted
to management
|
|
|
53,500
|
|
|
|
Granted
to non-management employees
|
|
|
21,300
|
|
|
|
Granted
to non-employee directors
|
|
|
10,710
|
|
|
|
Balance
at December 31, 2007
|
|
|
155,962
|
|
|
|
Forfeited
|
|
|
(6,329
|
)
|
|
|
Vested
|
|
|
(70,451
|
)
|
|
|
Granted
to management
|
|
|
10,000
|
|
|
|
Granted
to non-management employees
|
|
|
21,186
|
|
|
|
Granted
to non-employee directors
|
|
|
-
|
|
|
|
Balance
at December 31, 2008
|
|
|
110,368
|
|
|
Because
the Company maintained a full valuation allowance on its U.S. deferred tax
assets, the Company did not recognize any tax benefit related to stock-based
compensation expense for the years ended December 31, 2008, 2007 and
2006.
The
Company’s future compensation cost related to non-vested stock options and
restricted stock not yet recognized at December 31, 2008 is $4.7 million which
will be recognized over a weighted average period of 1.56 years.
Employee
Retirement Plans
At
December 31, 2008, the Company maintained two retirement plans in
which the Company’s employees were eligible to participate.
U.S.
domestic employees participated in a 401(k) plan in which the Company made
matching contributions of approximately $811,800, $645,300 and $85,000 for 2008,
2007 and 2006, respectively, whereby the Company matched 100% on the first 3% of
the employee’s contribution and 50% on the second 3% of the employee’s
contribution. 2006 was the first year in which matching contributions
were made to this plan.
International
employees participated in an international retirement plan in which the Company
made matching contributions of approximately $224,300, $179,800 and $92,000 for
2008, 2007 and 2006, respectively, whereby the Company matched 100% on the first
3% of the employee’s contribution and 50% on the second 3% of the employee’s
contribution.
All
employees of the Company paid out of the United States, both domestically and
internationally, are eligible to participate effective the first of the month
following three months from their hire date.
The
Company does not offer pension or other retirement benefits.
|
|
NOTE
7: Comprehensive Income (Loss)
|
SFAS
No. 130,
Reporting
Comprehensive Income,
establishes standards for the reporting of
comprehensive income (loss) and its components in a full set of general purpose
financial statements. Comprehensive income (loss) generally represents all
changes in stockholders’ equity (deficit) during the period except those
resulting from investments by, or distributions to, stockholders. The Company
has comprehensive income (loss) related to changes in foreign currency to U.S.
dollar exchange rates, which is recorded as follows (in thousands):
|
|
|
Year Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net
income (loss)
|
|
$
|
986
|
|
|
$
|
(15,936
|
)
|
$
|
|
(4,176
|
)
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
(28
|
)
|
|
|
61
|
|
|
Comprehensive
loss
|
|
$
|
986
|
|
|
$
|
(15,964
|
)
|
$
|
|
(4,115
|
)
|
|
|
NOTE
8: Income (Loss) per Common Share
|
The
following table sets forth the computation of basic and diluted loss per common
share (in thousands except share and per share data):
|
|
|
Year Ended December 31,
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
applicable to common stockholders
|
|
$
|
(5,339
|
)
|
|
$
|
|
(20,802
|
)
|
|
$
|
|
(4,382
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic and diluted loss per common share
|
|
|
10,389,969
|
|
|
|
|
8,512,862
|
|
|
|
|
5,384,388
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Warrants
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Restricted
stock
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Convertible
preferred stock
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Denominator
for diluted loss per common share
|
|
|
10,389,969
|
|
|
|
|
8,512,862
|
|
|
|
|
5,384,388
|
|
|
Loss
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.51
|
)
|
|
$
|
|
(2.44
|
)
|
|
$
|
|
(0.81
|
)
|
|
Diluted
|
|
$
|
(0.51
|
)
|
|
$
|
|
(2.44
|
)
|
|
$
|
|
(0.81
|
)
|
The
calculation of diluted loss per common share for the years ended
December 31, 2008, 2007 and 2006, excludes options to purchase 376,979
shares, 559,596 shares and 316,450 shares of common stock, respectively;
warrants to purchase 514,105 shares, 274,605 shares and 275,605
shares, of common stock, respectively; 110,368 and
155,962 shares of restricted stock for the years ended
December 31, 2008 and 2007; and preferred stock convertible into 3,916,290
and 2,475,290 shares of common stock for the years ended December 31, 2008
and 2007, respectively, because the effect would be anti-dilutive.
|
|
NOTE
9: Property and Equipment
|
Property
and equipment is comprised of the following (in thousands):
|
|
|
Estimated
|
|
December 31,
|
|
|
|
|
Useful Life
|
|
2008
|
|
2007
|
|
|
Field
operating equipment
|
|
3-10
years
|
$
|
210,937
|
$
|
165,002
|
|
|
Vehicles
|
|
3-10
years
|
|
22,034
|
|
17,702
|
|
|
Buildings
and improvements
|
|
6-39
years
|
|
6,057
|
|
1,076
|
|
|
Software
|
|
3-5
years
|
|
5,856
|
|
4,040
|
|
|
Data
processing equipment
|
|
5
years
|
|
7,630
|
|
5,583
|
|
|
Furniture
and equipment
|
|
3-5
years
|
|
603
|
|
40
|
|
|
|
|
|
|
253,117
|
|
193,443
|
|
|
Less:
accumulated depreciation and amortization
|
|
|
|
(64,551
|
)
|
(53,804
|
)
|
|
|
|
|
|
188,566
|
|
139,639
|
|
|
Land
|
|
|
|
-
|
|
23
|
|
|
Operating
equipment and vehicles in-transit or under construction
|
|
|
|
16,719
|
|
37,639
|
|
|
|
|
|
$
|
205,285
|
$
|
177,301
|
|
The
Company reviews the useful life and residual values of property and equipment on
an ongoing basis considering the effect of events or changes in
circumstances.
NOTE
10:
Accrued Liabilities
Accrued
liabilities include the following (in thousands):
|
|
|
December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Accrued
operating expenses
|
|
$
|
8,417
|
|
|
$
|
9,041
|
|
|
Accrued
payroll, bonuses and employee benefits
|
|
|
17,614
|
|
|
|
13,264
|
|
|
Sales
tax payable
|
|
|
967
|
|
|
|
931
|
|
|
Accrued
interest payable
|
|
|
220
|
|
|
|
384
|
|
|
Preferred
dividends
|
|
|
347
|
|
|
|
217
|
|
|
Other
|
|
|
2,403
|
|
|
|
2,112
|
|
|
|
|
$
|
29,968
|
|
|
$
|
25,949
|
|
Income
(Loss) before income taxes attributable to U.S. and foreign operations are as
follows:
|
|
Year
ended December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
2006
|
|
|
(in thousands)
|
|
U.S.
|
|
$
|
(12,098
|
)
|
$
|
(6,754
|
)
|
|
$
|
(8,320
|
)
|
|
Foreign
|
|
|
22,352
|
|
|
(6,930
|
)
|
|
|
7,378
|
|
|
Total
|
|
$
|
10,254
|
|
$
|
(13,684
|
)
|
|
$
|
(942
|
)
|
The
provision for income taxes shown in the consolidated statements of operations
consists of current and deferred expense (benefit) as follows:
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.—federal
and state
|
|
$
|
1,844
|
|
|
$
|
(571
|
)
|
|
$
|
1,279
|
|
|
Foreign
|
|
|
10,342
|
|
|
|
2,816
|
|
|
|
1,135
|
|
|
Total
current
|
|
|
12,186
|
|
|
|
2,245
|
|
|
|
2,414
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.—federal
and state
|
|
|
15
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
Foreign
|
|
|
(2,933
|
)
|
|
|
7
|
|
|
|
827
|
|
|
Total
deferred
|
|
|
(2,918
|
)
|
|
|
7
|
|
|
|
820
|
|
|
Total
provision for income taxes
|
|
$
|
9,268
|
|
|
$
|
2,252
|
|
|
$
|
3,234
|
|
The
provision for income taxes differs from the amount of income tax determined by
applying the U.S. statutory rate to loss before income taxes for the years ended
December 31, 2008, 2007 and 2006 as follows:
|
|
|
Year
ended December 31,
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(in thousands)
|
|
U.S.
statutory rate
|
|
$
|
3,944
|
|
|
$
|
(4,789
|
)
|
|
$
|
(330
|
)
|
|
Non-deductible
expenses
|
|
|
366
|
|
|
|
182
|
|
|
|
466
|
|
|
State
taxes, net of benefit
|
|
|
420
|
|
|
|
(399
|
)
|
|
|
595
|
|
|
Effect
of foreign tax rate differential
|
|
|
(3,739
|
)
|
|
|
(2,174
|
)
|
|
|
(932
|
)
|
|
Foreign
withholding taxes
|
|
|
8,628
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
Return
to Accrual Items
|
|
|
(1,675
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Change
in valuation allowance
|
|
|
1,324
|
|
|
|
9,432
|
|
|
|
3,443
|
|
|
Total
provision for income taxes
|
|
$
|
9,268
|
|
|
$
|
2,252
|
|
|
$
|
3,234
|
|
Following
is a summary of deferred tax assets and liabilities:
|
|
|
December
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
(in thousands)
|
|
|
Current
deferred tax assets:
|
|
|
|
|
|
|
|
Allowance
for doubtful amounts
|
|
$
|
55
|
|
|
$
|
118
|
|
|
Other
|
|
|
179
|
|
|
|
(45
|
)
|
|
Total
current deferred tax assets
|
|
|
234
|
|
|
|
73
|
|
|
Noncurrent
deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
288
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
carryforwards—U.S.
|
|
|
48,541
|
|
|
|
45,775
|
|
|
Loss
carryforwards— foreign
|
|
|
19,619
|
|
|
|
8,982
|
|
|
Debt
on foreign subsidiary capital leases
|
|
|
1,887
|
|
|
|
2,239
|
|
|
Total
noncurrent deferred tax assets
|
|
|
70,335
|
|
|
|
57,382
|
|
|
Total
deferred tax assets
|
|
$
|
70,569
|
|
|
$
|
57,455
|
|
|
Current
deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property
and equipment—foreign
|
|
$
|
5,932
|
|
|
$
|
—
|
|
|
Accrued
insurance
|
|
|
—
|
|
|
|
(3
|
)
|
|
Total
current deferred tax liabilities
|
|
|
5,932
|
|
|
|
(3
|
)
|
|
Noncurrent
deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property
and equipment—foreign
|
|
|
3,825
|
|
|
|
2,395
|
|
|
Property
and equipment—U.S.
|
|
|
8,778
|
|
|
|
5,497
|
|
|
Property—equipment—acquisitions
|
|
|
12,333
|
|
|
|
12,362
|
|
|
Total
noncurrent deferred tax liabilities
|
|
|
24,936
|
|
|
|
20,254
|
|
|
Total
deferred tax liabilities
|
|
|
30,868
|
|
|
|
20,251
|
|
|
|
|
|
39,701
|
|
|
|
37,204
|
|
|
Valuation
allowance
|
|
|
(53,309
|
)
|
|
|
(53,725
|
)
|
|
Net
deferred income taxes
|
|
$
|
(13,608
|
)
|
|
$
|
(16,521
|
)
|
The
Company assesses the likelihood that deferred taxes will be recovered from the
existing deferred tax liabilities or future taxable income in each jurisdiction.
To the extent that the Company believes that the Company does not meet the test
that recovery is “more likely than not,” the Company establishes a valuation
allowance. The Company has recorded valuation allowances for net deferred tax
assets since management believes it is “more likely than not’’ that these assets
will not be realized. The valuation allowance for deferred tax assets increased
by approximately $1.3 million in 2008. The increase in this allowance was
primarily due to an increase of US net operating losses. Any benefit
realized from the future reversal of the valuation allowance recorded in
connection with the Grant acquisition will be recorded as a reduction first to
goodwill, then to intangible assets and then to provision for income
taxes.
At
December 31, 2008, the Company had U.S. tax loss carryforwards of
approximately $138.7 million and non-U.S. tax loss carryforwards of
approximately $65.9 million, which will expire in various amounts beginning in
2011 and ending in 2027.
Section 382
of the Internal Revenue Code (“Section 382”) imposes limitations on a
corporation’s ability to utilize net operating loss carryforwards (“NOLs’’) if
the Company experiences an “ownership change.” In general terms, an ownership
change may result from transactions increasing the ownership percentage of
certain stockholders in the stock of the corporation by more than 50 percent
over a three year period. In the event of an ownership change, utilization of
NOLs would be subject to an annual limitation under Section 382 determined
by multiplying the value of the Company at the time of the ownership change by
the applicable long-term tax-exempt rate. Any unused annual limitation may be
carried over to later years. The amount of the limitation may, under certain
circumstances, be increased by built-in gains held by the Company at the time of
the ownership change that are recognized in the five year period after the
ownership change.
The
Company has undistributed earnings of its foreign subsidiaries. Those earnings
are considered to be indefinitely reinvested; accordingly, no provision for U.S.
federal and state income tax or for any potential foreign withholding taxes has
been provided. Upon repatriation of those earnings, the Company would be subject
to both U.S. income taxes and withholding tax payable to the various foreign
countries. Determination of the amount of the unrecognized deferred tax
liability is not practicable; however, unrecognized foreign tax credits may be
available to reduce the U.S. liability.
Through
2007, the Company operated under a tax holiday in Colombia. However,
2007 was the final year of the holiday and the Company has begun to pay local
income taxes in 2008. Additionally, the Company is operating under a
tax holiday in certain parts of Egypt through 2010.
FASB
Interpretation (“FIN”) No. 48,
Accounting for Uncertainty in Income
Taxes,
is an interpretation of SFAS No. 109 and prescribes a minimum
recognition threshold and measurement methodology that a tax position taken or
expected to be taken in a tax return is required to meet before being recognized
in the financial statements. It also provides guidance for derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The Company recognizes interest and penalties
related to unrecognized tax benefits within the provision for income taxes on
continuing operations in the consolidated statements of income. There were no
unrecognized tax benefits as of the date of adoption. There are no
unrecognized tax benefits that if recognized would affect the tax rate for the
year ended December 31, 2008. There are no interest or penalties recognized as
of the date of adoption or for the year ended December 31, 2008.
NOTE
12:
Related Party Transactions
William
R. Ziegler (non-executive Chairman of Board of Directors)
Mr.
Ziegler is of counsel to the New York based law firm of Satterlee Stephens
Burke & Burke, LLP. During the fiscal years ended December 31,
2008, 2007 and 2006, such firm billed the Company approximately $56,400, $30,300
and $19,000 respectively, for services rendered.
During
2007, the Company performed a seismic survey for Somerset Production Company,
LLC (“Somerset”). The project was bid to Somerset at prevailing
market rates and the survey was conducted according to industry
standards. The seismic survey generated revenue of approximately $1.3
million for the Company. Mr. Zeigler serves as an officer, director
and shareholder of Somerset.
At
December 31, 2005, the Company owed approximately $390,000 in consulting fees to
Mr. Ziegler pursuant to a three-year consulting agreement which expired on April
25, 2000, which was paid in September 2006.
Steven
A. Webster (Director on Board of Directors)
On July
28, 2008, the Company sold 120,000 shares of Series B Senior Convertible
Preferred Stock, $10.00 par value (“Series B-2 Preferred Stock”) and warrants to
purchase 240,000 shares of Geokinetics common stock to Avista and affiliate of
Avista for net proceeds of $29.3 million. Mr. Webster is a managing
partner of Avista. At December 31, 2008, Avista and an affiliate of
Avista held 123,702 shares of the Company’s Series B-2 preferred
stock.
On May
11, 2007, in conjunction with the Company’s public equity offering of 4,500,000
shares of common stock, Avista Capital Partners (offshore), purchased 1,000,000
shares at a price of $26.32, which is the public offering price of $28 less
underwriting discounts and commissions.
On
December 15, 2006, the Company sold 228,683 shares of its Series B
preferred stock to Avista, an affiliate of Avista and one other institutional
investor, the proceeds of such sale were used to repay the $55.0 million
original principal amount under its subordinated loan, together with capitalized
and accrued interest. In accordance with the terms and provisions of the
Securities Purchase Agreement, dated as of September 8, 2006, by and among
the purchasers of the Company’s Series B preferred stock and the Company,
Avista received the right to appoint one director to the Company’s board of
directors. Robert L. Cabes, Jr. was appointed to the Company’s
board of directors on November 2, 2006. At December 31, 2008,
Avista and an affiliate of Avista held 243,572 shares of the Company’s Series B
preferred stock.
In
September 2006, the Company paid approximately $163,000 in consulting fees to
Blackhawk Capital Partners pursuant to an Investment Monitoring Agreement
whereby Blackhawk Capital Partners, the managing member of Blackhawk Investors,
LLC, was appointed to oversee Blackhawk Investors, LLC’s investment in the
Company. At December 2003, Blackhawk Investors, LLC, had divested
itself of its original investment in the Company. Mr. Webster was a
partner of Blackhawk Investors LLC, sole managing partner.
Other
The
Company receives food, drink and other catering services for its crews in one of
its international locations from a company that is substantially owned by
certain employees of the Company. For the twelve months ended
December 31, 2008, 2007 and 2006 the Company spent approximately $6.3 million,
$3.0 million and $1.4 million, respectively with this company. The
Company believes that all transactions have been arms-length on terms at least
as favorable as market rates.
|
|
NOTE
13: Commitments and
Contingencies
|
The
Company is involved in various claims and legal actions arising in the ordinary
course of business. Management is of the opinion that none of the claims and
actions will have a material adverse impact on the Company’s financial position,
results of operations or cash flows.
At
December 31, 2008, the Company has non-cancelable operating leases for
office, warehouse space and equipment with remaining terms ranging from
approximately one to seven years. Aggregate future minimum lease payments under
the various non-cancelable operating leases are as follows (in
thousands):
|
Year Ended December 31,
|
|
|
|
Amount
|
|
|
|
2009
|
$
|
35,365
|
|
|
|
2010
|
|
8,264
|
|
|
|
2011
|
|
1,979
|
|
|
|
2012
|
|
1,644
|
|
|
|
2013
|
|
1,641
|
|
|
|
Thereafter
|
|
-
|
|
|
|
|
$
|
48,893
|
|
|
Rental
expense in the consolidated financial statements amounted to approximately $81.4
million, $37.3 million, and $22.0 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
The
Company is currently in discussions with one of its international customers
regarding certain amounts the Company believes it is owed under a contract with
this customer. The Company believes that the estimated amounts it
expects to receive under such contracts are properly reflected in its financial
statements and that such estimates are reasonable. However, if the
Company is entirely unsuccessful in its discussions with this customer, the
Company could be required to recognize losses of up to $1.0 million in one or
more subsequent periods.
|
|
NOTE
14: Significant Risks and Management’s
Plans
|
The
liquidity of the Company should be considered in light of the cyclical nature of
demand for land and transition zone seismic services. These fluctuations have
impacted the Company’s liquidity as supply and demand factors directly affect
pricing.
Market
The
Company’s ability to meet its obligations depends on its future performance,
which in turn is subject to general economic conditions, activity levels in the
oil and gas exploration sector, and other factors beyond the Company’s
control. The Company’s ability to sustain profitability in the future
is dependent upon several factors, including but not limited to,
the following:
Competition
The
Company’s products and services are highly competitive and characterized by
continual changes in technology. Competitive pressures or other factors also may
result in significant price competition that could have a material adverse
effect on the Company’s operations and financial condition.
Technology
Future
technological advances could require the Company to make significant capital
expenditures to remain competitive. The Company competes in a capital intensive
industry. The development of seismic data acquisition equipment has been
characterized by rapid technological advancements in recent years, and the
Company expects this trend to continue.
There can
be no assurance that manufacturers of seismic equipment will not develop new
systems that have competitive advantages over systems now in use that either
render the Company’s current equipment obsolete or require the Company to make
significant capital expenditures to maintain its competitive position. There can
be no assurance that the Company will have the capital necessary to upgrade its
equipment to maintain its competitive position or that any required financing
therefore will be available on favorable terms. If the Company is unable to
raise the capital necessary to update its data acquisition systems to the extent
necessary, it may be materially and adversely affected.
For the
years ended December 31, 2008 and 2006, no individual customer represented
more than 10% of total revenue. For the year ended December 31, 2007,
one individual customer represented 12% of total revenue. For the
years ended December 31, 2008, 2007 and 2006, revenue from the top three
major customers was approximately $88.0 million, $97.0 million and $35.0
million, representing approximately 19%, 27% and 15% of total revenue,
respectively.
|
|
NOTE
16: Concentration of Credit
Risk
|
The
Company generally provides services to a relatively small group of key customers
that account for a significant percentage of accounts receivable of the Company
at any given time. The Company’s key customers vary over time. The Company
extends credit to various companies in the oil and gas industry, including its
key customers, for the acquisition of seismic data, which results in a
concentration of risk. This concentration of credit risk may be affected by
changes in the economic or other conditions of the Company’s key customers and
may accordingly impact the Company’s overall credit risk.
The
Company has cash in banks and short-term investments, including restricted cash,
which, at times, may exceed federally insured limits, established in the United
States and foreign countries. The Company has not experienced any losses in such
accounts and management believes it is not exposed to any significant credit
risk on cash and short-term investments.
The
Company conducts operations outside the United States in both its seismic data
acquisition and data processing segments. These operations expose the Company to
market risks from changes in foreign exchange rates. However, to date, the level
of activity has not been of a material nature.
|
|
NOTE
17: Management Incentive Program
|
The Board
of Directors has adopted an incentive compensation program, pursuant to which
the Company’s senior executives and key employees may earn annual bonus
compensation based upon the Company’s performance in relation to its
goals.
The Board
of Directors will allocate the bonus pool among the participants in the
incentive program at its sole discretion, subject to the terms of any employment
agreements with the participants in the program and in accordance with
established bonus targets. Bonuses, if any, awarded under the incentive program
will be determined by the Board of Directors and paid within 75 days after
the end of the fiscal year for which bonuses have been earned.
For the
year ended December 31, 2008, minimum criteria for the incentive plan were
met. In March 2009, bonuses will be paid to senior executives and key
employees under the plan parameters. These bonus amounts, which were accrued for
the year ended December 31, 2008, earned based on the Company’s 2008
operating results and incentive program criteria that were approved by the
Compensation Committee of the Company’s Board of Directors. A new
incentive compensation program will be in place for 2009.
|
NOTE
18:
|
Unaudited
Quarterly Financial Data
|
Summarized
quarterly financial data for the years ended December 31, 2008 and 2007 are
as follows:
|
|
|
Quarter
Ended 2008
|
|
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
|
|
|
(In
thousands, except per share data)
|
|
|
|
Revenue
|
|
$
|
120,154
|
|
$
|
113,579
|
|
$
|
123,107
|
|
|
$
|
117,758
|
|
|
|
Income
(loss) from operations
|
|
$
|
7,365
|
|
$
|
932
|
|
$
|
5,465
|
|
|
$
|
2,137
|
|
|
|
Interest
income and interest and debt expense, net
|
|
$
|
(1,321
|
)
|
$
|
(1,456
|
)
|
$
|
(1,722
|
)
|
|
$
|
(1,677
|
)
|
|
|
Net
income (loss)
|
|
$
|
3,863
|
|
$
|
(545
|
)
|
$
|
1,978
|
|
|
$
|
(4,310
|
)
|
|
|
Income
(loss) applicable to common shareholders
|
|
$
|
2,587
|
|
$
|
(1,846
|
)
|
$
|
212
|
|
|
$
|
(6,292
|
)
|
|
|
Income
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
$
|
(0.18
|
)
|
$
|
0.02
|
|
|
$
|
(0.60
|
)
|
|
|
Diluted
|
|
$
|
0.24
|
|
$
|
(0.18
|
)
|
$
|
0.02
|
|
|
$
|
(0.60
|
)
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,316
|
|
|
10,355
|
|
|
10,418
|
|
|
|
10,470
|
|
|
|
Diluted
|
|
|
10,594
|
|
|
10,355
|
|
|
10,518
|
|
|
|
10,470
|
|
|
|
|
|
Quarter Ended
2007
|
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
|
|
(In thousands,
except per share data)
|
|
|
Revenue
|
|
$
|
110,964
|
|
$
|
71,604
|
|
$
|
89,580
|
|
|
$
|
85,529
|
|
|
|
Income
(loss) from operations
|
|
$
|
12,625
|
|
$
|
(6,982
|
)
|
$
|
606
|
|
|
$
|
(6,869
|
)
|
|
|
Interest
income and interest and debt expense, net
|
|
$
|
(3,887
|
)
|
$
|
(9,875
|
)
|
$
|
(413
|
)
|
|
$
|
(1,009
|
)
|
|
|
Net
income (loss)
|
|
$
|
6,304
|
|
$
|
(14,246
|
)
|
$
|
(278
|
)
|
|
$
|
(7,716
|
)
|
|
|
Income
(loss) applicable to common shareholders
|
|
$
|
5,126
|
|
$
|
(15,450
|
)
|
$
|
(1,510
|
)
|
|
$
|
(8,968
|
)
|
|
|
Income
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.89
|
|
$
|
(1.95
|
)
|
$
|
(0.15
|
)
|
|
$
|
(0.87
|
)
|
|
|
Diluted
|
|
$
|
0.75
|
|
$
|
(1.95
|
)
|
$
|
(0.15
|
)
|
|
$
|
(0.87
|
)
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,758
|
|
|
7,918
|
|
|
10,187
|
|
|
|
10,307
|
|
|
|
Diluted
|
|
|
8,377
|
|
|
7,918
|
|
|
10,187
|
|
|
|
10,307
|
|
|
NOTE
19: Subsequent Events
The
Company amended its existing $70 million revolving credit facility with PNC Bank
on February 11, 2009. Among other things, the amended agreement
increases the Company’s borrowing base that can come from eligible fixed assets
to $55.0 million, up from the original $45.0 million and deferred any reductions
to this new amount until June 30, 2009, at which time, the amount of the
borrowing base that can come from eligible fixed assets will be reduced by $0.9
million per month until maturity. Once started, the reduction will affect only
the amount of the borrowing base that can come from eligible fixed assets and
will not reduce the overall amount of the revolver. Based on the
current borrowing base calculation, the Company has immediate access to the
maximum availability of $70.0 million reduced by $2.3 million in letters of
credit. As of December 31, 2008, outstanding borrowings on the
revolver were $44.0 million.
Exhibit
31.1
CERTIFICATION
BY CHIEF EXECUTIVE OFFICER
PURSUANT
TO RULES 13a-14(a) AND 15d-14(a)
OF
THE SECURITIES EXCHANGE ACT OF 1934
(Section
302 of the Sarbanes-Oxley Act of 2002)
I,
Richard F. Miles, certify that:
|
|
1.
|
I
have reviewed this Annual Report on Form 10-K of Geokinetics
Inc.
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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;
|
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
|
Date:
March 16, 2009
|
|
/s/
Richard F. Miles
|
|
|
|
Richard
F. Miles
|
|
|
|
President
and Chief Executive Officer
|
Exhibit
31.2
CERTIFICATION
BY CHIEF FINANCIAL OFFICER
PURSUANT
TO RULES 13a-14 AND 15d-14
OF
THE SECURITIES EXCHANGE ACT OF 1934
(Section
302 of the Sarbanes-Oxley Act of 2002)
I, Scott
A. McCurdy, certify that:
|
|
1.
|
I
have reviewed this Annual Report on Form 10-K of Geokinetics
Inc.
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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;
|
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
|
Date:
March 16, 2009
|
|
/s/
Scott A. McCurdy
|
|
|
|
Scott
A. McCurdy
|
|
|
|
Vice
President and Chief Financial
Officer
|
Exhibit
32.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. § 1350
(Section
906 of Sarbanes-Oxley Act of 2002)
In
connection with the Annual Report of Geokinetics Inc. (the “Company”) on Form
10-K for the period ended December 31, 2008, as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Richard F. Miles,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
A signed
original of this written statement required by Section 906 has been provided to
the Company and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.
|
Dated:
March 16, 2009
|
|
/s/
Richard F. Miles
|
|
|
|
Richard
F. Miles
|
|
|
|
President
and Chief Executive Officer
|
Exhibit
32.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350
(Section
906 of Sarbanes-Oxley Act of 2002)
In
connection with the Annual Report of Geokinetics Inc. (the “Company”) on Form
10-K for the period ended December 31, 2008, as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Scott A. McCurdy, Vice
President and Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
A signed
original of this written statement required by Section 906 has been provided to
the Company and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.
|
Dated:
March 16, 2009
|
|
/s/
Scott A. McCurdy
|
|
|
|
Scott
A. McCurdy
|
|
|
|
Vice
President and Chief Financial
Officer
|
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