Executive Overview
The Company is a leading provider of seismic data acquisition services throughout the continental United States and Canada. We added a crew after December 31, 2012, increasing the number of seismic crews to 15. These seismic crews supply seismic data to companies engaged in the exploration and development of oil and natural gas on land and in land-to-water transition areas. Our customers rely on seismic data to identify areas where subsurface conditions are favorable for the accumulation of existing hydrocarbons, to optimize the development and production of hydrocarbon reservoirs, to better delineate existing oil and natural gas fields, and to augment reservoir management techniques.
We acquire geophysical data using the latest in 3-D survey techniques. We introduce acoustic energy into the ground by using vibration equipment or dynamite detonation, depending on the surface terrain and subsurface requirements. The reflected energy, or echoes, is received through geophones, converted into a digital signal at a multi-channel recording unit, and then transmitted to a central recording vehicle. Subsurface requirements dictate the number of channels necessary to perform our services. With our state-of-the-art seismic equipment, including computer technology and multiple channels, we acquire, on a cost-effective basis, immense volumes of seismic data that when processed and interpreted produce more precise images of the earths subsurface. Our customers then use our seismic data to generate 3-D geologic models that help reduce finding costs and improve recovery rates from existing wells.
Currently, the seismic data acquisition industry is made up of a number of companies divided into two groups. The first group is made up of four publicly-traded companies with long operating histories which field numerous crews and work in a number of different regions and terrain. This group includes us, Dawson Geophysical Company, Geokinetics, Inc. and CGG-Veritas. These companies field approximately 50% of the seismic crews currently operating in the continental U.S. and Canada. The second group is made up of smaller companies who generally run one or two seismic crews and often specialize in specific regions or types of operation.
We provide our seismic data acquisition services primarily to onshore oil and natural gas exploration and development companies for use in the onshore drilling and production of oil and natural gas in the continental U.S. and Canada. The main factors influencing demand for seismic data acquisition services in our industry are the level of drilling activity by oil and natural gas companies and the sizes of such companies exploration and development budgets, which, in turn, depend largely on current and anticipated future crude oil and natural gas prices and depletion rates.
Our customers are major and independent oil and natural gas exploration and development companies. The services we provide to our customers vary according to the size and needs of each customer. Our services are marketed by sales, supervisory, and executive personnel who contact customers to determine their needs and respond to customer inquiries regarding the availability of crews. Contacts are based principally upon professional relationships developed over a number of years.
The acquisition of seismic data for the oil and natural gas industry is a highly competitive business. Contracts for such services generally are awarded on the basis of price quotations, crew experience, and the availability of crews to perform in a timely manner, although factors other than price, such as crew safety performance history and technological and operational expertise, are often determinative. Our competitors include companies with financial resources that are significantly greater than our own as well as companies of comparable and smaller size. Our primary competitors are Dawson Geophysical Company, Geokinetics, Inc., and CGG-Veritas. In addition to the previously named companies, we also compete for projects from time to time with smaller seismic companies which operate in local markets with only one or two crews. We believe that our long-term industry expertise, the customer relationships developed over our history, and our financial stability gives us an advantage over most of our competitors in the industry.
13
Results of Operations
Year Ended December 31, 2012, Compared to Year Ended December 31, 2011
Revenues
. Our revenues were $196,317,215 for the year ended December 31, 2012, compared to $151,028,582 for the same period of 2011, an increase of 30.0%. Approximately 74% of the increase in revenues was attributable to continued improvement in the North American land seismic acquisition market and increased efficiencies of new wireless recording technology, and approximately 26% of the increase in revenues was attributable to our operation of additional seismic crews. We operated eight seismic crews in the U.S. during the first and second quarters, added a ninth crew in the third quarter, and continued operating nine crews during the fourth quarter of 2012, as compared to seven seismic crews in the U.S. during the first quarter, the addition of an eighth crew in the second quarter, and the continued operating eight crews during the third and fourth quarters of 2011. We operated seven seismic crews in Canada during the first quarter, two crews during the second quarter, the equivalent of 1.5 crews during the third quarter, and five crews during the fourth quarter of 2012, as compared to six seismic crews during the first quarter, two crews during the second and third quarters, and four crews during the fourth quarter of 2011.
Cost of services
. Our cost of services was $135,279,937 for the year ended December 31, 2012, compared to $104,022,944 for the same period of 2011, an increase of 30.0%. Virtually all of this increase was attributable to strong revenue growth during 2012. As a percentage of revenues, cost of services was 68.9% for both the year ended December 31, 2012 and the year ended December 31, 2011.
Selling, general, and administrative expenses.
SG&A expenses were $8,755,270 for the year ended December 31, 2012, compared to $9,626,679 for the same period of 2011, a decrease of 9.0%. This decrease was primarily attributable to $2,117,950 of transaction costs incurred in 2011 related to terminated merger discussions, partially offset by increased compensation costs and recent staff additions to handle increased business activity. SG&A expense as a percentage of revenues was 4.5% for the year ended December 31, 2012, and 6.4% for the year ended December 31, 2011.
Depreciation and amortization expense
. Depreciation and amortization expense was $25,502,597 for the year ended December 31, 2012, compared to $19,214,069 for the same period of 2011, an increase of 32.7%. This increase was primarily attributable to capital expenditures of approximately $57,108,000 for the 12 months ended December 31, 2012. Depreciation and amortization expense as a percentage of revenues was 13.0% for the year ended December 31, 2012, compared to 12.7% for the same period of 2011.
Income from operations
. Income from operations was $26,779,411 for the year ended December 31, 2012, compared to $18,164,890 for the same period of 2011. The increase was attributable to an increase in revenues, partially offset by increases in cost of services and depreciation expenses discussed above. EBITDA increased $14,903,049 to $52,282,008 for the 12 months ended December 31, 2012, from $37,378,959 for the same period of 2011, an increase of 39.9%. This increase was primarily a result of a $4,838,664 increase in net income, a $6,288,528 increase in depreciation, and a $3,337,828 increase in income tax expense. For a definition of EBITDA, a reconciliation of EBITDA to net income, and discussion of EBITDA, refer to the section entitled EBITDA found below.
Interest expense
. Interest expense was $1,222,454 for the year ended December 31, 2012, compared to $784,425 for the same period of 2011, an increase of 55.8%. This increase was primarily attributable to additional debt of $22,202,000 incurred for the purchase of additional GSR and GSX systems, channels, and other seismic equipment and vehicles. The increase was partially offset by our continuing principal payments of $11,338,000 on notes payable and capital lease obligations.
Income tax expense
. Income tax expense was $9,885,078 for the year ended December 31, 2012, compared to $6,547,250 for the same period of 2011. This increase was attributable to the increase in pre-tax income in 2012 as compared to 2011. Income tax expense for the year ended December 31, 2012 reflects the impact of state taxes, net of federal benefit, and permanent tax differences, including share based compensation. See Note H of Notes to Financial Statements.
14
Year Ended December 31, 2011, Compared to Year Ended December 31, 2010
Revenues
. Our revenues were $151,028,582 for the year ended December 31, 2011, compared to $108,318,801 for the same period of 2010, an increase of 39.4%. Approximately 37% of the increase in revenues was attributable to continued improvement in the North American land seismic acquisition market and increased efficiencies of new wireless recording technology, and approximately 63% of the increase in revenues was attributable to our operation of additional seismic crews. We operated seven seismic crews in the U.S. during the first quarter, added an eighth crew in the second quarter, and continued operating eight crews during the third and fourth quarters of 2011, as compared to six seismic crews during each of the first three quarters and seven crews in the fourth quarter of 2010. We operated six seismic crews in Canada during the first quarter, two crews during the second and third quarters, and four crews during the fourth quarter of 2011, as compared to five seismic crews during the first quarter, no crews during the second quarter, two crews during the third quarter and four crews in the fourth quarter of 2010.
Cost of services
. Our cost of services was $104,022,944 for the year ended December 31, 2011, compared to $85,932,862 for the same period of 2010, an increase of 21.1%. Virtually all of this increase was attributable to strong revenue growth during 2011. Approximately 19% of the increase was offset by increased efficiencies of new wireless recording technology and a decrease in higher cost shot-hole contracts. As a percentage of revenues, cost of services was 68.9% for the year ended December 31, 2011, compared to 79.3% for the same period of 2010.
Selling, general, and administrative expenses.
SG&A expenses were $9,626,679 for the year ended December 31, 2011, compared to $6,894,500 for the same period of 2010, an increase of 39.6%. This increase was primarily attributable to $2,117,950 of transaction costs related to the terminated merger discussions with Dawson Geophysical Company. SG&A expense as a percentage of revenues was 6.4% for each of the years ended December 31, 2011, and December 31, 2010.
Depreciation and amortization expense
. Depreciation and amortization expense was $19,214,069 for the year ended December 31, 2011, compared to $15,343,804 for the same period of 2010, an increase of 25.2%. This increase was primarily attributable to capital expenditures of approximately $30,730,000 for the 12 months ended December 31, 2011. Depreciation and amortization expense as a percentage of revenues was 12.7% for the year ended December 31, 2011, compared to 14.2% for the same period of 2010.
Income from operations
. Income from operations was $18,164,890 for the year ended December 31, 2011, compared to $147,635 for the same period of 2010. The increase was attributable to several factors including strengthening demand, better contract terms with the continued improvement in the North American land seismic acquisition market, and the items previously discussed. EBITDA increased $21,887,520 to $37,378,959 for the 12 months ended December 31, 2011, from $15,491,439 for the same period of 2010, an increase of 141.3%. This increase was a result of factors discussed above. For a definition of EBITDA, a reconciliation of EBITDA to net income, and discussion of EBITDA, refer to the section entitled EBITDA found below.
Interest expense
. Interest expense was $784,425 for the year ended December 31, 2011, compared to $790,417 for the same period of 2010, a decrease of less than 1.0%. This decrease was primarily attributable to our continuing principal payments on notes payable and capital lease obligations partially offset by additional debt incurred during the first and third quarters of 2011 for the purchase of additional GSR channels and equipment.
Income tax expense
. Income tax expense was $6,547,250 for the year ended December 31, 2011, compared to $579,900 for the same period of 2010. This increase was primarily attributable to the substantial increase in pre-tax income in 2011 as compared to a pre-tax loss in 2010. Income tax expense for the year ended December 31, 2010 reflects the impact of state taxes, net of federal benefit, and permanent tax differences, including share based compensation. See Note H of Notes to Financial Statements.
15
Non-GAAP Financial Measure
We define EBITDA as net income plus expenses of interest, income taxes, depreciation, and amortization. We use EBITDA as a supplemental financial measure to assess:
·
the financial performance of our assets without regard to financing methods, capital structures, taxes, or historical cost basis;
·
our liquidity and operating performance over time and in relation to other companies that own similar assets and that we believe calculate EBITDA in a manner similar to us; and
·
the ability of our assets to generate cash sufficient for us to pay potential interest expenses.
We also understand that such data is used by investors to assess our performance. However, EBITDA is not a measure of operating income, operating performance, or liquidity presented in accordance with U.S. Generally Accepted Accounting Principles (GAAP). When assessing our operating performance or our liquidity, you should not consider this data in isolation or as a substitute for our net income, cash flow from operating activities, or other cash flow data calculated in accordance with GAAP. EBITDA excludes some, but not all, items that affect net income and operating income, and these measures may vary among other companies. Therefore, EBITDA as presented below may not be comparable to similarly titled measures of other companies. Further, the results presented by EBITDA cannot be achieved without incurring the costs that the measure excludes: interest, taxes, depreciation, and amortization.
The following table reconciles our EBITDA to our net income:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
15,671,879
|
|
$
|
10,833,215
|
|
$
|
(1,222,682
|
)
|
Depreciation and amortization expense
|
|
25,502,597
|
|
19,214,069
|
|
15,343,804
|
|
Interest expense
|
|
1,222,454
|
|
784,425
|
|
790,417
|
|
Income tax expense
|
|
9,885,078
|
|
6,547,250
|
|
579,900
|
|
EBITDA
|
|
$
|
52,282,008
|
|
$
|
37,378,959
|
|
$
|
15,491,439
|
|
Liquidity and Capital Resources
Liquidity
Cash flows from operating activities.
Net cash provided by operating activities was $39,283,062 for the year ended December 31, 2012, compared to $34,174,167 for the same period of 2011. The $5,108,895 increase was principally attributable to an increase in net income of $4,838,664 in 2012. The timing of billings and revenue recognition, the collections of accounts receivable, the timing of receipt and payment of invoices, federal and state income taxes payable, depreciation and amortization, and the mix of contracts account for the remainder of the increase.
Working capital decreased $7,640,436 to $12,216,093 as of December 31, 2012, from the December 31, 2011, working capital of $19,856,529. This decrease was due primarily to a decrease in cash and cash equivalents of $7,131,315, increases of $4,424,146 in trade accounts payable, $2,945,945 in accrued liabilities, $2,819,594 in billings in excess of costs and estimated earnings on uncompleted contracts, $2,552,247 in federal and state income taxes payable, and $4,812,766 in current maturities of notes payable, partially offset by increases in trade accounts receivable of $16,289,735 and in costs and estimated earnings in excess of billings on uncompleted contracts of $1,162,465.
Cash flows used in investing activities.
Net cash used in investing activities was $30,265,696 for the year ended December 31, 2012, and $21,270,845 for the year ended December 31, 2011. This $8,994,851 increase was due to an increase in capital expenditures of $9,958,915 offset by an increase in proceeds from the sale of property and equipment of $964,064.
Cash flows used in financing activities.
Net cash used in financing activities was $16,140,906 for the year ended December 31, 2012, and $10,172,831 for the year ended December 31, 2011. The $5,968,075 increase was due primarily to an increase in principal payments on notes payable of $2,331,996 and the payment of cash dividends of $3,099,014.
16
Capital expenditures.
During the year ended December 31, 2012, capital expenditures of $57,107,732 were used to acquire seismic equipment and vehicles, replace similar equipment and vehicles, and to purchase our fourth and fifth GSR systems consisting of a total of 14,200 channels and related equipment, our sixth GSR system with 13,000 channels, our first next-generation 3-channel GSX system with 8,000 stations, and seven new INOVA vibration vehicles. Cash of $31,970,418, notes of $22,201,800 from a commercial bank, and capital lease obligations from a vehicle leasing company of $2,935,514 were used to finance these acquisitions. This major investment should continue to bring us the benefits of these new technologies and allow us to be in a cash building mode in 2013. We may, however, purchase additional equipment during 2013 as the demand for our services warrants.
Capital Resources
Historically, we have relied on cash generated from operations, short-term borrowings from commercial banks and equipment lenders, and loans from directors to fund our working capital requirements and capital expenditures.
The Company has a revolving line of credit agreement with a commercial bank. The borrowing limit under the revolving line of credit agreement is $5,000,000 and was renewed on September 16, 2011, and again on September 16, 2012. The revolving line of credit agreement does not expire until September 16, 2013. Our obligations under this agreement are secured by a security interest in our accounts receivable. Interest on the outstanding amount under the line of credit loan agreement is payable monthly at the greater of the prime rate of interest or five percent. As of December 31, 2012, and since its inception, we have had no borrowings
outstanding under the line of credit loan agreement.
At December 31, 2012, the Company had seven outstanding notes payable to commercial banks for equipment purchases. The notes have interest rates between 3.50% and 6.35%, are due in monthly installments between $50,170 and $223,437 plus interest, have a total outstanding balance of $24,553,291 and are collateralized by equipment. Three notes payable with interest rates between 5.33% and 6.00% and monthly payments between $23,740 and $61,997 plus interest were paid off in 2012. These notes were collateralized by equipment.
The Company had, at December 31, 2011, three outstanding notes payable to equipment finance companies for equipment purchases. The notes have interest rates between 5.33% and 6.00%, were due in monthly installments between $23,740 and $61,997 plus interest, and were collateralized by equipment. All of these notes were paid off in 2012.
The Company had, at December 31, 2012, two outstanding notes payable to finance companies for corporate insurance. The notes have interest rates between 4.16% and 4.95%, are due in monthly installments between $16,861 and $302,892 including interest, and have a total outstanding balance of $474,587.
Our Houston sales office is in a 1,711-square foot facility. The monthly rent is currently $3,279. Our corporate offices in Plano, Texas were increased from 8,523 square feet to 10,137 square feet of office space in March of 2012. The monthly rent is currently $14,784. We lease an 800-square foot facility in Oklahoma City, Oklahoma, as a sales office on a month-to-month basis, and the current monthly rent is $665. We lease a 400-square foot facility in Pratt, Kansas, as a permit office on a month-to-month basis, and the current monthly rent is $500. In October 2012, we expanded our Denison, Texas, repair warehouse facility with the addition of a third 10,000-square foot building. The Denison, Texas, facility consists of one 5,000-square foot building, three 10,000-square foot adjacent buildings, and an outdoor storage area of approximately 60,500 square feet. The monthly rent is currently $16,547. We lease a 915-square foot office facility in Midland, Texas, as a sales office with a monthly rent of $915. Upon the acquisition of Eagle Canada, we assumed a lease entered into in August of 2008 for 3,030 square feet of office space located in Calgary, Alberta. The monthly rent is currently $12,817. In addition, Eagle Canada leases a 10,088-square foot facility, also located in Calgary, Alberta, that is used as a shop and warehouse. The monthly rent is currently $8,041. In April of 2012, we leased a storage and parking area adjacent to the Eagle Canada shop and warehouse. The monthly rent is currently $5,126. The Company is not responsible for insuring these facilities. The conditions of these facilities are good, and we believe that these properties are suitable and adequate for our foreseeable needs.
17
Contractual Obligations
The following table summarizes payments due in specific periods related to our contractual obligations as of December 31, 2012:
|
|
Payments Due by Period
|
|
|
|
|
|
Within
|
|
|
|
|
|
After
|
|
Contractual Obligations
|
|
Total
|
|
1 Year
|
|
1-2 Years
|
|
3-5 Years
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
$
|
1,951
|
|
$
|
718
|
|
$
|
519
|
|
$
|
714
|
|
$
|
|
|
Debt obligations
|
|
$
|
25,028
|
|
$
|
10,615
|
|
$
|
7,934
|
|
$
|
6,479
|
|
$
|
|
|
Capital lease obligations
|
|
$
|
3,845
|
|
$
|
1,960
|
|
$
|
1,280
|
|
$
|
605
|
|
$
|
|
|
Total
|
|
$
|
30,824
|
|
$
|
13,293
|
|
$
|
9,733
|
|
$
|
7,798
|
|
$
|
|
|
We believe that our capital resources, including our short-term investments, funds available under our line of credit loan agreement, and cash flow from operations, are adequate to meet our current operational needs. We believe that we will be able to finance our 2013 capital expenditures through cash flow from operations, borrowings from commercial lenders, and the funds available under our line of credit loan agreement. However, our ability to satisfy working capital requirements, meet debt repayment obligations, and fund future capital requirements will depend principally upon our future operating performance which is subject to the risks inherent in our business.
Off-Balance Sheet Arrangements
As of December 31, 2012, we had no off-balance sheet arrangements.
Critical Accounting Policies
The preparation of our financial statements in conformity with GAAP requires us to make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.
Revenue Recognition
Seismic Surveys
The Company provides seismic data acquisition survey services to its customers under general service agreements which define certain obligations for the Company and for its customers. A supplemental agreement setting forth the terms of a specific project, which may be cancelled by either party upon 30 days advance written notice, is entered into for every project. These supplemental agreements are either turnkey agreements providing for a fixed fee to be paid for each unit of seismic data acquired or term agreements providing for a fixed hourly, daily, or monthly fee during the term of the project. The duration of these projects will vary from a few days to several months. The Company recognizes revenue when services are performed under both types of agreements. Services are defined as the commencement of data acquisition, which is the physical act of laying out seismic equipment or recording contractually determined data points. Under turnkey agreements, the total number of units of seismic data to be gathered is set forth in the agreement. TGC recognizes revenue on turnkey agreements as services are performed on a per unit of seismic data acquired rate based on the number of data points per square mile obtained as compared to the number of square miles set forth in the agreement. Eagle Canada recognizes revenue on turnkey agreements as services are performed on a per unit of seismic data laid-out rate, which is standard industry practice in Canada, based on the number of receiver lines laid out as compared to the estimated total lines to be laid out for the project pursuant to the agreement. Under term agreements, revenue is recognized, by both TGC and Eagle Canada, as services are performed based on the time worked rate provided in the term agreement. Under both turnkey and term agreements, cost of earned revenue is recognized by multiplying total estimated agreement cost by the percentage-of-completion of the agreement. The excess of that amount over the cost of earned revenue reported in prior periods is recognized as cost of earned revenue for the period. Agreements are not segmented nor combined for purposes of calculating percentage of completion. The asset Cost and estimated earnings in excess of billings on uncompleted contracts represents cost incurred on turnkey agreements in excess of billings on those agreements. The liability Billings in excess of costs and estimated earnings on uncompleted contracts represents billings on turnkey agreements in excess of cost on those agreements. Claims have been negligible in the years ended December 31, 2012, 2011, and 2010.
18
Business Combinations
We allocate the purchase price of acquired companies to the tangible assets acquired, liabilities assumed, and intangible assets acquired, based on their estimated fair values. The excess of the purchase price over these fair values is recorded as goodwill. We engage independent third-party appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed. Such valuations require management to make significant estimates and assumptions.
Allowance for Doubtful Accounts
We prepare our allowance for doubtful accounts receivable based on our past experience of historical write-offs, our current customer base, and our review of past due accounts. The inherent volatility of the energy industrys business cycle can cause swift and unpredictable changes in the financial stability of our customers. In the fourth quarter of 2009, we recorded an allowance against the account of a slow paying customer. In the third quarter of 2010, this allowance was reversed because we determined an allowance was no longer required. In 2012 and 2011, no allowances were necessary.
Impairment of Long-lived Assets
We review long-lived assets for impairment when triggering events occur suggesting deterioration in the assets recoverability or fair value. Recognition of an impairment charge is required if future expected net cash flows are insufficient to recover the carrying value of the asset. Our forecast of future cash flows used to perform impairment analysis includes estimates of future revenues and profitability based on our historical results and analysis of future oil and natural gas prices which are fundamental to assessing demand for our services. If we are unable to achieve these cash flows, our estimates will be revised which could result in an impairment charge for the period of revision.
Depreciable Lives of Property, Plant, and Equipment
Our property, plant, and equipment are capitalized at historical cost and depreciated over the useful life of the asset. Our estimate of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. The technology of the equipment used to gather data in the seismic industry has historically evolved such that obsolescence does not occur quickly. As circumstances change and new information becomes available, these estimates could change. We amortize these capitalized items using the straight-line method. Capital assets are depreciated over their useful lives ranging from one to seven years, depending on the classification of the asset.
Tax Accounting
We account for our income taxes in accordance with the recognition of amounts of taxes payable or refundable for the current year and an asset and liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. We determine deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate, and reducing the deferred tax asset by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Our methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining our annual effective tax rate and the valuation of deferred tax assets, which can create a variance between actual results and estimates and could have a material impact on our provision or benefit for income taxes.
Stock-Based Compensation
We recognize the fair value of the stock-based compensation awards, including stock options and restricted stock, as wages in the consolidated statements of earnings on a straight-line basis over the vesting period of the related stock options or restricted stock awards. This has resulted in the recognition of compensation expense, relative to stock-based awards, in wages in the consolidated statements of earnings of approximately $601,000 or approximately $0.03 per share for the year ended December 31, 2012, and $424,000, or approximately $0.02 per share, for the year ended December 31, 2011.
19
Shares of restricted stock were issued to employees of the Company under the 2006 Stock Awards Plan as follows: 18,900 in August of 2007; 10,000 in June of 2008; 5,000 in July 2009; 5,000 in May of 2010; 25,331 in November of 2011; 21,520 in December of 2011; 6,000 in January of 2012; and 213,125 in August of 2012. In addition, stock options were issued to employees of the Company under the 2006 Stock Awards Plan as follows: 335,000 in October of 2008; 135,000 in November of 2009; and 15,000 in November of 2011. No stock options were granted to employees in 2010 or 2012. As of December 31, 2012, there was approximately $1,141,400 of unrecognized compensation expense related to our share-based compensation plan.
Recently Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards,
to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 became effective in our first quarter of 2012 and has not had a material effect on our financial statements.
In June 2011, the FASB issued ASU No. 2011-05,
Comprehensive Income (Topic 220): Presentation of Comprehensive Income
, to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. This update does not change what items are reported in other comprehensive income or the requirement to report reclassification of items from other comprehensive income to net income. ASU 2011-05 became effective in our first quarter of 2012 and has not had a material effect on our financial statements.
In September 2011, the FASB issued ASU 2011-08,
Intangibles-Goodwill and Other (Topic 350): Testing for Impairment
. ASU 2011-08 amends the guidance in FASB Accounting Standards Codification Topic (ASC) 350-20,
Intangibles-Goodwill and Other-Goodwill
. The intent of this ASU is to simplify how entities test goodwill for impairment by allowing an entity to use a qualitative approach to test goodwill for impairment. The amendments in the ASU permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC 350-20. The amendments do not change the current guidance for testing other indefinite-lived assets for impairment. ASU 2011-08 was effective for goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early application was permitted. The Company adopted this standard early and effective as of December 31, 2011 in its year-end goodwill impairment analysis.
Effect of Inflation
We do not believe that inflation has had a material effect on our business, results of operations, or financial condition during the past three years.
20
Information Regarding Forward-Looking Statements
This Form 10-K includes forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our view with respect to future events. We base these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties, and assumptions about the Company, including:
·
dependence upon energy industry spending for seismic data acquisition services;
·
the unpredictable nature of forecasting weather;
·
the potential for contract delay or cancellation;
·
the potential for fluctuations in oil and natural gas prices; and
·
the availability of capital resources.
We use the words may, will, can, could, should, expect, anticipate, estimate, believe, target, continue, intend, plan, budget, and other similar words to identify forward-looking statements. You should read statements that contain these words carefully because they discuss future expectations, contain projections of results of operations or of our financial condition, and/or state other forward-looking information. We do not undertake any obligation to update or revise publicly any forward-looking statements, except as required by law. These statements also involve risks and uncertainties that could cause our actual results or financial condition to differ materially from our expectations in this Form 10-K.
We believe that it is important to communicate our expectations of future performance to our investors. However, events may occur in the future that we are unable to accurately predict or over which we have no control. When considering our forward-looking statements, you should keep in mind the risk factors and other cautionary statements contained in this Form 10-K and other factors noted throughout this Form 10-K. There are many risks, uncertainties, and events that may cause our actual results to differ materially from those contained in any forward-looking statement. Please read the section entitled Risk Factors for a discussion of certain risks of our business and an investment in our common stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have not entered into any hedging agreements or swap agreements. Our principal market risk is the risk related to the concentration of our customers in the oil and natural gas industry. Since our customers are involved in the oil and natural gas industry, there may be a positive or a negative effect on our exposure to credit risk in that our customers may be similarly affected by changes in economic and industry conditions. For the year ended December 31, 2012, our largest customer accounted for approximately 16% of revenues. For the year ended December 31, 2011, our largest customer accounted for approximately 17% of revenues. For the year ended December 31, 2010, our top customer accounted for approximately 15% of our revenues. We conduct business in Canada which subjected us to a foreign currency exchange rate risk. Our results of operations and our cash flows could be impacted by changes in foreign currency exchange rates.
For further information see Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, and Item 1A. Risk Factors.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Financial Statements
December 31, 2012, 2011, and 2010
CONTENTS
22
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
TGC Industries, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of TGC Industries, Inc. and Subsidiary (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of earnings, comprehensive income, shareholders equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Our audit of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TGC Industries, Inc. and Subsidiary as of December 31, 2012 and 2011, and the consolidated results of their operations and comprehensive income and their cash flows for each of the years in the three year period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), TGC Industries, Inc. and Subsidiarys internal control over financial reporting as of December 31, 2012, based on criteria established in
Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2013 expressed an unqualified opinion thereon.
/s/ LANE GORMAN TRUBITT, PLLC
|
|
|
|
|
|
Dallas, Texas
|
|
March 15, 2013
|
|
23
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
TGC Industries, Inc. and Subsidiary
We have audited the TGC Industries, Inc. and Subsidiarys (the Company) internal control over financial reporting as of December 31, 2012, based on criteria established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys 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 Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, 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 companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A companys 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 consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the consolidated 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, TGC Industries, Inc. and Subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of TGC Industries, Inc. and Subsidiary as of December 31, 2012 and 2011, and the related consolidated statements of earnings, comprehensive income, shareholders equity and cash flows for each of the three years in the period ended December 31, 2012 of TGC Industries, Inc. and Subsidiary and our report dated March 15, 2013 expressed an unqualified opinion thereon.
/s/ LANE GORMAN TRUBITT, PLLC
|
|
|
|
|
|
Dallas, Texas
|
|
March 15, 2013
|
|
24
TGC Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
|
|
2012
|
|
2011
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,614,244
|
|
$
|
15,745,559
|
|
Trade accounts receivable
|
|
35,640,758
|
|
19,351,023
|
|
Cost and estimated earnings in excess of billings on uncompleted contracts
|
|
6,263,943
|
|
5,101,478
|
|
Prepaid expenses and other
|
|
1,824,779
|
|
1,606,936
|
|
|
|
|
|
|
|
Total current assets
|
|
52,343,724
|
|
41,804,996
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT - at cost
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
190,943,331
|
|
139,017,290
|
|
Automobiles and trucks
|
|
15,265,627
|
|
12,616,608
|
|
Furniture and fixtures
|
|
488,779
|
|
434,146
|
|
Leasehold improvements
|
|
14,994
|
|
14,994
|
|
|
|
206,712,731
|
|
152,083,038
|
|
Less accumulated depreciation and amortization
|
|
(117,326,964
|
)
|
(94,286,207
|
)
|
|
|
89,385,767
|
|
57,796,831
|
|
|
|
|
|
|
|
Goodwill
|
|
201,530
|
|
201,530
|
|
Other assets
|
|
96,817
|
|
77,870
|
|
|
|
298,347
|
|
279,400
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
142,027,838
|
|
$
|
99,881,227
|
|
The accompanying notes are an integral part of these statements
25
TGC Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS Continued
December 31,
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
13,680,538
|
|
$
|
9,256,392
|
|
Accrued liabilities
|
|
5,544,071
|
|
2,598,126
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
3,757,349
|
|
937,755
|
|
Federal and state income tax payable
|
|
4,569,891
|
|
2,017,644
|
|
Current maturities of notes payable
|
|
10,615,279
|
|
5,802,513
|
|
Current portion of capital lease obligations
|
|
1,960,503
|
|
1,336,037
|
|
|
|
|
|
|
|
Total current liabilities
|
|
40,127,631
|
|
21,948,467
|
|
|
|
|
|
|
|
NOTES PAYABLE, less current maturities
|
|
14,412,598
|
|
5,328,892
|
|
|
|
|
|
|
|
CAPITAL LEASE OBLIGATIONS, less current portion
|
|
1,884,937
|
|
1,626,612
|
|
|
|
|
|
|
|
LONG-TERM DEFERRED TAX LIABILITY
|
|
7,617,111
|
|
7,257,576
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par value; 4,000,000 shares authorized; issued - none
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 25,000,000 shares authorized; 20,732,500 and 19,348,436 shares issued and outstanding in each period
|
|
207,325
|
|
193,484
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
29,573,986
|
|
28,176,922
|
|
|
|
|
|
|
|
Retained earnings
|
|
48,073,556
|
|
35,499,541
|
|
|
|
|
|
|
|
Treasury stock, at cost; 80,076 and 37,820 shares in each period
|
|
(691,009
|
)
|
(257,394
|
)
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
821,703
|
|
107,127
|
|
|
|
|
|
|
|
|
|
77,985,561
|
|
63,719,680
|
|
Total liabilities and shareholders equity
|
|
$
|
142,027,838
|
|
$
|
99,881,227
|
|
The accompanying notes are an integral part of these statements
26
TGC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
196,317,215
|
|
$
|
151,028,582
|
|
$
|
108,318,801
|
|
|
|
|
|
|
|
|
|
Cost and expenses
|
|
|
|
|
|
|
|
Cost of services
|
|
135,279,937
|
|
104,022,944
|
|
85,932,862
|
|
Selling, general and administrative
|
|
8,755,270
|
|
9,626,679
|
|
6,894,500
|
|
Depreciation and amortization expense
|
|
25,502,597
|
|
19,214,069
|
|
15,343,804
|
|
|
|
169,537,804
|
|
132,863,692
|
|
108,171,166
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
26,779,411
|
|
18,164,890
|
|
147,635
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
1,222,454
|
|
784,425
|
|
790,417
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
25,556,957
|
|
17,380,465
|
|
(642,782
|
)
|
|
|
|
|
|
|
|
|
Income tax expense:
|
|
|
|
|
|
|
|
Current
|
|
9,525,543
|
|
4,077,297
|
|
433,350
|
|
Deferred
|
|
359,535
|
|
2,469,953
|
|
146,550
|
|
Income tax expense
|
|
9,885,078
|
|
6,547,250
|
|
579,900
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
15,671,879
|
|
$
|
10,833,215
|
|
$
|
(1,222,682
|
)
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.76
|
|
$
|
0.54
|
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
0.75
|
|
$
|
0.53
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
20,489,179
|
|
20,205,524
|
|
20,162,944
|
|
Diluted
|
|
20,855,596
|
|
20,522,287
|
|
20,162,944
|
|
The accompanying notes are an integral part of these statements
27
TGC Industries, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
15,671,879
|
|
$
|
10,833,215
|
|
$
|
(1,222,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
714,576
|
|
(641,538
|
)
|
882,381
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss),
net of tax
|
|
$
|
16,386,455
|
|
$
|
10,191,677
|
|
$
|
(340,301
|
)
|
The accompanying notes are an integral part of these statements
28
TGC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Common stock
|
|
Paid-in
|
|
Retained
|
|
Treasury
|
|
Comprehensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Stock
|
|
Income (Loss)
|
|
Total
|
|
Balances at December 31, 2009
|
|
18,323,091
|
|
$
|
183,231
|
|
$
|
27,014,078
|
|
$
|
25,889,008
|
|
$
|
(257,323
|
)
|
$
|
(133,716
|
)
|
$
|
52,695,278
|
|
5% common stock dividend
|
|
914,160
|
|
9,142
|
|
(9,573
|
)
|
|
|
|
|
|
|
(431
|
)
|
Issuance of restricted common stock
|
|
5,000
|
|
50
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
Amortization of unearned compensation restricted stock awards
|
|
|
|
|
|
86,230
|
|
|
|
|
|
|
|
86,230
|
|
Amortization of compensation cost of unvested stock options
|
|
|
|
|
|
422,024
|
|
|
|
|
|
|
|
422,024
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
882,381
|
|
882,381
|
|
Net loss
|
|
|
|
|
|
|
|
(1,222,682
|
)
|
|
|
|
|
(1,222,682
|
)
|
Balances at December 31, 2010
|
|
19,242,251
|
|
192,423
|
|
27,512,709
|
|
24,666,326
|
|
(257,323
|
)
|
748,665
|
|
52,862,800
|
|
Issuance of common stock awards
|
|
31,851
|
|
318
|
|
224,681
|
|
|
|
|
|
|
|
224,999
|
|
Issuance of restricted common stock
|
|
15,000
|
|
150
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
59,334
|
|
593
|
|
180,912
|
|
|
|
|
|
|
|
181,505
|
|
Amortization of unearned compensation restricted stock awards
|
|
|
|
|
|
28,603
|
|
|
|
|
|
|
|
28,603
|
|
Amortization of compensation cost of unvested stock options
|
|
|
|
|
|
230,167
|
|
|
|
|
|
|
|
230,167
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
(71
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
(641,538
|
)
|
(641,538
|
)
|
Net income
|
|
|
|
|
|
|
|
10,833,215
|
|
|
|
|
|
10,833,215
|
|
Balances at December 31, 2011
|
|
19,348,436
|
|
193,484
|
|
28,176,922
|
|
35,499,541
|
|
(257,394
|
)
|
107,127
|
|
63,719,680
|
|
5% common stock dividend
|
|
971,990
|
|
9,720
|
|
(10,870
|
)
|
|
|
|
|
|
|
(1,150
|
)
|
Cash dividend
|
|
|
|
|
|
|
|
(3,097,864
|
)
|
|
|
|
|
(3,097,864
|
)
|
Issuance of restricted common stock
|
|
219,125
|
|
2,191
|
|
(2,191
|
)
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
192,949
|
|
1,929
|
|
809,066
|
|
|
|
(433,615
|
)
|
|
|
377,380
|
|
Amortization of unearned compensation restricted stock awards
|
|
|
|
|
|
317,109
|
|
|
|
|
|
|
|
317,109
|
|
Amortization of compensation cost of unvested stock options
|
|
|
|
|
|
283,950
|
|
|
|
|
|
|
|
283,950
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
714,576
|
|
714,576
|
|
Net income
|
|
|
|
|
|
|
|
15,671,879
|
|
|
|
|
|
15,671,879
|
|
Balances at December 31, 2012
|
|
20,732,500
|
|
$
|
207,325
|
|
$
|
29,573,986
|
|
$
|
48,073,556
|
|
$
|
(691,009
|
)
|
$
|
821,703
|
|
$
|
77,985,561
|
|
The accompanying notes are an integral part of these statements
29
TGC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
15,671,879
|
|
$
|
10,833,215
|
|
$
|
(1,222,682
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
25,502,597
|
|
19,214,069
|
|
15,343,804
|
|
Gain on disposal of property and equipment
|
|
(1,069,766
|
)
|
(441,524
|
)
|
(39,725
|
)
|
Stock-based compensation
|
|
601,059
|
|
483,769
|
|
508,254
|
|
Deferred income taxes
|
|
359,535
|
|
2,469,953
|
|
146,550
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
(16,021,574
|
)
|
(2,442,223
|
)
|
(7,377,921
|
)
|
Cost and estimated earnings in excess of billings on uncompleted contracts
|
|
(1,121,420
|
)
|
(589,429
|
)
|
(4,098,234
|
)
|
Prepaid expenses and other
|
|
2,820,516
|
|
2,326,499
|
|
1,384,007
|
|
Prepaid federal and state income tax
|
|
78,268
|
|
1,145,437
|
|
(239,844
|
)
|
Other assets
|
|
(17,991
|
)
|
(18,035
|
)
|
(27,495
|
)
|
Trade accounts payable
|
|
4,328,707
|
|
2,763,004
|
|
1,944,647
|
|
Accrued liabilities
|
|
2,911,755
|
|
823,278
|
|
443,628
|
|
Billings in excess of cost and estimated earnings on uncompleted contracts
|
|
2,814,863
|
|
(4,550,293
|
)
|
(1,604,706
|
)
|
Federal and state income tax payable
|
|
2,424,634
|
|
2,156,447
|
|
|
|
Net cash provided by operating activities
|
|
39,283,062
|
|
34,174,167
|
|
5,160,283
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(31,970,418
|
)
|
(22,011,503
|
)
|
(8,220,293
|
)
|
Proceeds from sale of property and equipment
|
|
1,704,722
|
|
740,658
|
|
164,323
|
|
Net cash used in investing activities
|
|
(30,265,696
|
)
|
(21,270,845
|
)
|
(8,055,970
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Principal payments on notes payable
|
|
(11,338,097
|
)
|
(9,006,101
|
)
|
(8,448,138
|
)
|
Principal payments on capital lease obligations
|
|
(2,081,176
|
)
|
(1,348,164
|
)
|
(1,101,242
|
)
|
Proceeds from exercise of stock options
|
|
377,381
|
|
181,505
|
|
|
|
Purchase of treasury shares
|
|
|
|
(71
|
)
|
|
|
Payment of dividends
|
|
(3,099,014
|
)
|
|
|
(431
|
)
|
Net cash used in financing activities
|
|
(16,140,906
|
)
|
(10,172,831
|
)
|
(9,549,811
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
(7,123,540
|
)
|
2,730,491
|
|
(12,445,498
|
)
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
(7,775
|
)
|
(57,435
|
)
|
13,852
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
15,745,559
|
|
13,072,503
|
|
25,504,149
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
8,614,244
|
|
$
|
15,745,559
|
|
$
|
13,072,503
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1,222,454
|
|
$
|
784,425
|
|
$
|
790,417
|
|
Income taxes paid
|
|
$
|
7,022,640
|
|
$
|
774,136
|
|
$
|
1,479,446
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities
|
|
|
|
|
|
|
|
Capital lease obligations incurred
|
|
$
|
2,935,514
|
|
$
|
1,953,263
|
|
$
|
2,030,175
|
|
Financed equipment purchase
|
|
$
|
22,201,800
|
|
$
|
6,765,619
|
|
$
|
4,975,110
|
|
Financed insurance premiums
|
|
$
|
3,050,024
|
|
$
|
2,336,121
|
|
$
|
2,206,655
|
|
Restricted stock awards to employees, net of cancellations
|
|
$
|
1,334,014
|
|
$
|
101,475
|
|
$
|
20,750
|
|
Stock awards to employees
|
|
$
|
|
|
$
|
225,000
|
|
$
|
|
|
Treasury shares issued for stock options exercised
|
|
$
|
433,615
|
|
$
|
|
|
$
|
|
|
The accompanying notes are an integral part of these statements
30
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
NOTE A - NATURE OF OPERATIONS
TGC Industries, Inc. (TGC or the Company) is engaged in the geophysical services business and primarily conducts seismic surveys and sells gravity data to companies engaged in exploration in the oil and gas industry in the U.S. and Canada.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of TGC Industries, Inc. and its wholly-owned subsidiary, Eagle Canada, Inc. We have eliminated all significant intercompany accounts and transactions.
Business Combinations
We record acquisitions using the purchase method of accounting and, accordingly, have included the results of operations of acquired businesses in our consolidated results from the date of each acquisition. We allocate the purchase price of our acquisitions to the tangible assets, liabilities, and intangible assets acquired based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. The fair value assigned to assets acquired is based on valuations provided by independent consultants and using managements estimates and assumptions.
Foreign Currency
The functional currency of the Companys international subsidiary is the local currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. The resulting translation adjustments are recorded directly into a separate component of stockholders equity and represents the only component of accumulated other comprehensive income.
Cash Equivalents
The Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. The Company maintains its accounts at financial institutions located in Texas and Alberta, Canada. The Texas bank accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. The Alberta bank accounts are insured by the Canadian Depository Insurance Corporation up to $100,000 Canadian dollars.
Trade Accounts Receivable
Trade accounts receivable are recorded in accordance with terms and amounts as specified in the related contracts on an ongoing basis. The Company evaluates the collectability of accounts receivable on a specific account basis using a combination of factors including the age of the outstanding balances, evaluation of the customers financial condition, and discussions with relevant Company personnel and with the customers directly. An allowance for doubtful accounts or direct write-off is recorded when it is determined that the receivable may not be collected, depending on the facts known and the probability of collection of the outstanding amount.
31
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the individual assets ranging from 1 to 7 years. The depreciation expense on assets acquired under capital leases is included with depreciation expense on owned assets. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted cash flows estimated to be generated by those assets. No impairment charge was necessary at December 31, 2012, 2011, and 2010.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, in accordance with ASC Topic 740 (Topic 740). Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax expense or benefit is the result of changes in deferred tax assets and liabilities. The components of the deferred tax assets and liabilities are individually classified as current or non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In accordance with Topic 740, the Company recognizes in its financial statements the impact of a tax position if that position is more likely than not to be sustained on audit, based on the technical merits of the position. The Companys estimate of the potential outcome of any uncertain tax issue is subject to managements assessment of relevant risks, facts, and circumstances existing at that time. Topic 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. Interest and penalties related to unrecognized tax benefits, if any, are recorded as income tax expense. See Note H for further information.
Revenue Recognition
Seismic Surveys
The Company provides seismic data acquisition survey services to its customers under general service agreements which define certain obligations for the Company and for its customers. A supplemental agreement setting forth the terms of a specific project, which may be cancelled by either party upon 30 days advance written notice, is entered into for every project. These supplemental agreements are either turnkey agreements providing for a fixed fee to be paid for each unit of seismic data acquired or term agreements providing for a fixed hourly, daily, or monthly fee during the term of the project. The duration of these projects will vary from a few days to several months. The Company recognizes revenue when services are performed under both types of agreements. Services are defined as the commencement of data acquisition which is the physical act of laying out seismic equipment or recording contractually determined data points. Under turnkey agreements, the total number of units of seismic data to be gathered is set forth in the agreement. TGC recognizes revenue on turnkey agreements, as services are performed on a per unit of seismic data acquired rate based on the number of data points per square mile obtained as compared to the number of square miles set forth in the agreement. Eagle Canada recognizes revenue on turnkey agreements as services are performed on a per unit of seismic data laid-out rate, which is standard industry practice in Canada,
32
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
-
Seismic Surveys - Continued
based on the number of receiver lines laid out as compared to the estimated total lines to be laid out for the project pursuant to the agreement. Under term agreements, revenue is recognized, by both TGC and Eagle Canada, as services are performed based on the time worked rate provided in the term agreement. Under both turnkey and term agreements, cost of earned revenue is recognized by multiplying total estimated agreement cost by the percentage-of-completion of the agreement. The excess of that amount over the cost of earned revenue reported in prior periods is recognized as cost of earned revenue for the period. Agreements are not segmented nor combined for purposes of calculating percentage of completion. The asset Cost and estimated earnings in excess of billings on uncompleted contracts represents cost incurred on turnkey agreements in excess of billings on those agreements. The liability Billings in excess of costs and estimated earnings on uncompleted contracts represents billings on turnkey agreements in excess of cost on those agreements. Claims have been negligible in the years ended December 31, 2012, 2011, and 2010.
Reclassifications
Certain reclassifications have been made to the 2011 financial statements to conform to the 2012 presentation.
Share-Based Compensation
The Company has two stock-based compensation plans, which are described more fully in Note G. The Company recognizes the fair value of the share-based compensation awards as wages in the Statements of Earnings on a straight-line basis over the vesting period. As a result, during the years ended December 31, 2012, 2011, and 2010, the Company recognized compensation expense for unvested stock options of $283,950, $230,167, and $422,024, respectively, and restricted stock of $317,109, $28,603, and $86,230, respectively.
No options were granted during the year ended December 31, 2012. For the year ended December 31, 2011, the fair value of the single option grant was estimated on the date of the grant using the Binomial Lattice option pricing model with the following assumptions used for the outstanding grants: risk-free interest rate of 0.40%; expected dividend yield of 0.0%; expected life of 5.0 years; and expected volatility of 61.0%. No options were granted during the year ended December 31, 2010.
Financial Instruments
The Companys financial instruments recorded on the consolidated balance sheet include cash and cash equivalents, accounts receivable, accounts payable, and debt. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short-term nature of these items. The carrying amounts of debt obligations approximate fair value due to their relative short-term maturities and their contract rates which approximate market.
Earnings Per Share
Basic earnings per common share are based upon the weighted average number of shares of common stock outstanding. Diluted earnings per share are based upon the weighted average number of common shares outstanding and, when dilutive, common shares issuable for stock options, warrants, and convertible securities.
All share and per share amounts for the years ended December 31, 2012, 2011 and 2010, have been adjusted to reflect 5% stock dividends paid May 14, 2012 and May 14, 2010 to shareholders of record as of April 30, 2012, and April 30, 2010, respectively. No stock dividends were declared or paid during the year ended December 31, 2011.
33
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONCLUDED
Use of Estimates
The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Standards
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards,
to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 became effective in our first quarter and has not had a material effect on our financial statements.
In June 2011, the FASB issued ASU No. 2011-05,
Comprehensive Income (Topic 220): Presentation of Comprehensive Income,
to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. This update does not change what items are reported in other comprehensive income or the requirement to report reclassification of items from other comprehensive income to net income. ASU 2011-05 became effective in our first quarter of 2012 and has not had a material effect on our financial statements.
In September 2011, the FASB issued ASU 2011-08,
Intangibles-Goodwill and Other (Topic 350): Testing for Impairment
. ASU 2011-08 amends the guidance in FASB Accounting Standards Codification Topic (ASC) 350-20,
Intangibles-Goodwill
and
Other-Goodwill
. The intent of this ASU is to simplify how entities test goodwill for impairment by allowing an entity to use a qualitative approach to test goodwill for impairment. The amendments in the ASU permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC 350-20. The amendments do not change the current guidance for testing other indefinite-lived assets for impairment. ASU 2011-08 was effective for goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early application was permitted. The Company adopted this standard early and effective as of December 31, 2011 in its year-end goodwill impairment analysis.
NOTE C COSTS, BILLINGS, AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The components of uncompleted contracts are as follows at December 31:
|
|
2012
|
|
2011
|
|
Costs incurred on uncompleted contracts and estimated earnings
|
|
$
|
11,299,753
|
|
$
|
5,785,132
|
|
Less billings to date
|
|
(8,793,159
|
)
|
(1,621,409
|
)
|
|
|
$
|
2,506,594
|
|
$
|
4,163,723
|
|
34
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
NOTE C COSTS, BILLINGS, AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS - CONCLUDED
The components of uncompleted contracts are reflected in the consolidated balance sheets as follows at December 31:
|
|
2012
|
|
2011
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
6,263,943
|
|
$
|
5,101,478
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
(3,757,349
|
)
|
(937,755
|
)
|
|
|
$
|
2,506,594
|
|
$
|
4,163,723
|
|
NOTE D - ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
|
|
2012
|
|
2011
|
|
Compensation and payroll taxes
|
|
$
|
2,004,444
|
|
$
|
1,364,810
|
|
Accrued sales and use tax
|
|
336,870
|
|
114,601
|
|
Insurance
|
|
335,412
|
|
176,676
|
|
Accrued interest
|
|
73,105
|
|
73,105
|
|
Other
|
|
2,794,239
|
|
868,934
|
|
|
|
$
|
5,544,071
|
|
$
|
2,598,126
|
|
NOTE E - DEBT
Line of Credit
In September of 2011, and again in September of 2012, the Company renewed its revolving line of credit allowing the Company to borrow, repay, and re-borrow, from time to time, up to $5,000,000. Interest on the outstanding amount under the line of credit loan agreement is payable monthly at the greater of the prime rate of interest or five percent. The credit loan agreement is secured by a security interest in our accounts receivable. As of December 31, 2012, and since its inception, we have had no borrowings outstanding under the line of credit loan agreement.
Notes Payable
Notes payable consists of the following at December 31:
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
Notes Payable to commercial banks,
|
|
|
|
|
|
|
|
|
|
|
|
Seven outstanding notes payable as of 12/31/2012 with Interest between 3.50% and 6.35%, due in monthly installments between $50,170 and $223,437 plus interest; collateralized by equipment
|
|
$
|
24,553,291
|
|
$
|
9,827,949
|
|
|
|
|
|
|
|
Notes Payable to finance companies,
|
|
|
|
|
|
|
|
|
|
|
|
Three outstanding notes payable as of 12/31/2011 with Interest between 5.33% and 6.00%, due in monthly installments between $23,740 and $61,997 plus interest; collateralized by equipment. The notes were paid off during 2012.
|
|
$
|
|
|
$
|
904,103
|
|
|
|
|
|
|
|
Notes Payable to finance companies for insurance
|
|
|
|
|
|
|
|
|
|
|
|
Two outstanding notes payable as of 12/31/2012 with interest between 4.16% and 4.95%, due in monthly installments between $16,861 and $302,892 plus interest
|
|
$
|
474,586
|
|
$
|
399,353
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,027,877
|
|
$
|
11,131,405
|
|
Less Current Maturities
|
|
$
|
(10,615,279
|
)
|
$
|
(5,802,513
|
)
|
|
|
$
|
14,412,598
|
|
$
|
5,328,892
|
|
35
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
Aggregate annual maturities of notes payable at December 31, 2012 are as follows:
Year Ending
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2013
|
|
$
|
10,615,279
|
|
2014
|
|
$
|
7,933,416
|
|
2015
|
|
$
|
4,810,458
|
|
2016
|
|
$
|
1,540,360
|
|
2017
|
|
$
|
128,364
|
|
|
|
$
|
25,027,877
|
|
NOTE F LEASES
Capital Lease Obligations
The Company leases vehicles and certain specialized seismic equipment under leases classified as capital leases. The following is a schedule showing the future minimum lease payments under capital leases by years and the present value of the minimum lease payments as of December 31, 2012.
Year Ending
|
|
|
|
December 31,
|
|
|
|
2013
|
|
$
|
2,146,272
|
|
2014
|
|
1,356,995
|
|
2015
|
|
586,123
|
|
2016
|
|
35,340
|
|
Total minimum lease payments required
|
|
4,124,730
|
|
Less: Amount representing interest
|
|
(279,290
|
)
|
Present value of minimum lease payments
|
|
3,845,440
|
|
Less current maturities
|
|
(1,960,503
|
)
|
|
|
$
|
1,884,937
|
|
The net book value of the capital assets leased was approximately $4,957,000 and $3,604,000 as of December 31, 2012 and 2011, respectively. Total accumulated depreciation for fixed assets under capital lease with remaining obligations was approximately $5,114,466 and $3,743,000 as of December 31, 2012, and 2011, respectively. Interest rates on these leases range from 5.11% to 10.51%.
36
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
NOTE F LEASES - CONCLUDED
Operating Lease Obligations
The Company leases six offices and two warehouse facilities under operating leases that expire at various dates between April 2013 and September 2017 with two leases on a month-to-month basis. One of the office facilities, used by the Company as its corporate headquarters, is located in Plano, Texas. One of the office facilities, used by Eagle Canada, is located in Calgary, Alberta. The warehouse facilities, used as warehouse and equipment repair facilities, are located in Denison, Texas, and Calgary, Alberta. Three office facilities are used as sales offices and are located in Houston, Texas, Midland, Texas, and Oklahoma City, Oklahoma. The remaining office facility, located in Pratt, Kansas, is used as a permitting office. Rent expense for these facilities for the years ended December 31, 2012, 2011, and 2010 was approximately $700,000, $605,000, and $580,000, respectively.
The following is a schedule by years of future minimum rental payments required under the operating leases as of December 31, 2012:
2013
|
|
$
|
717,834
|
|
2014
|
|
519,082
|
|
2015
|
|
349,532
|
|
2016
|
|
245,434
|
|
2017 and thereafter
|
|
118,924
|
|
Total minimum payments required
|
|
$
|
1,950,806
|
|
NOTE G SHAREHOLDERS EQUITY
Income (loss) Per Share
The following is a reconciliation of net income (loss) and weighted average common shares outstanding for purposes of calculating basic and diluted net income (loss) per share:
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
15,671,879
|
|
$
|
10,833,215
|
|
$
|
(1,222,682
|
)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Basic - weighted average common shares outstanding
|
|
20,489,179
|
|
20,205,524
|
|
20,162,944
|
|
Effect of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
366,417
|
|
317,063
|
|
|
|
|
|
20,855,596
|
|
20,522,587
|
|
20,162,944
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.76
|
|
$
|
0.54
|
|
$
|
(0.06
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.75
|
|
$
|
0.53
|
|
$
|
(0.06
|
)
|
Outstanding options that were not included in the diluted calculation because their effect would be anti-dilutive. Totals were 44,370 and 161,835 for the years ended December 31, 2012 and 2011, respectively.
All share and per share amounts have been adjusted to reflect 5% stock dividends paid May 14, 2012 and May 14, 2010, to shareholders of record as of April 30, 2012 and April 30, 2010.
37
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
NOTE G SHAREHOLDERS EQUITY CONTINUED
Share-Based Compensation Plans
The Company currently has in effect a 2006 stock award plan (the 2006 Plan). At the June 11, 2010 Annual Meeting of Shareholders, the shareholders approved an increase of 2,000,000 shares of common stock for issuance under the 2006 Plan. This increased the total aggregate number of shares of common stock under the 2006 Plan to 3,000,000 shares. The 2006 Plan provides for the granting of stock options, common stock, and restricted stock. The 2006 Plan is administered by a committee of the Board of Directors (the Committee). Currently the Committee is comprised of three directors. Any stock options granted under the 2006 Plan will be exercisable as set forth in the option agreements pursuant to which they are issued, but in no event will stock options be exercisable after the expiration of five (5) years from the date of grant. Outstanding options, under the 2006 Plan at December 31, 2012, have vesting periods ranging from the date of grant to the third annual anniversary of the grant.
During 2012, 93,750 options were granted and 192,949 options were exercised or cancelled under the 2006 Plan. During 2011, 99,185 options were granted and 80,334 options were exercised or cancelled under the 2006 Plan. During 2010, no options were granted and 3,308 options were canceled under the 2006 Plan. Restricted stock consists of shares that are transferred by the Company to a participant, but are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the participant. Any restricted stock granted or issued under the 2006 Plan will vest as set forth in the restricted stock agreement pursuant to which it was issued or granted. The provisions of the restricted stock agreements need not be the same with respect to each participant. In May of 2010, November of 2011, December of 2011, January of 2012, and August of 2012, the Committee granted 5,000, 25,331, 21,520, 6,000 and 213,125 shares of restricted stock, respectively. The shares of restricted stock were issued in the names of the grantees and had restrictive legends prohibiting their sales prior to vesting. Vesting periods, for restricted stock issued to date, range from at grant date to the third annual anniversary of the grant. Upon vesting, a new certificate is issued for the vested portion without the restrictive legend.
During the years ended December 31, 2012, 2011, and 2010, the Company recognized compensation expense associated with the restricted stock of $317,109, $28,603, and $86,230, respectively. During the years ended December 31, 2012, 2011, and 2010, no unamortized deferred stock-based compensation was related to any employee that left the Company.
During the years ended December 31, 2012, 2011, and 2010, the Company recognized compensation expense associated with unvested options of $283,950, $230,167, and $422,024, respectively.
The following table summarizes activity under the Plans:
|
|
|
|
Weighted
|
|
|
|
Shares under
|
|
Average
|
|
|
|
Option
|
|
exercise price
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
875,039
|
|
$
|
3.69
|
|
Granted
|
|
|
|
$
|
|
|
Exercised
|
|
|
|
$
|
|
|
Canceled
|
|
(87,366
|
)
|
$
|
4.27
|
|
Balance at December 31, 2010
|
|
787,673
|
|
$
|
3.63
|
|
Granted
|
|
104,145
|
|
$
|
6.07
|
|
Exercised
|
|
(59,334
|
)
|
$
|
3.06
|
|
Canceled
|
|
(21,000
|
)
|
$
|
4.10
|
|
Balance at December 31, 2011
|
|
811,484
|
|
$
|
3.97
|
|
Granted
|
|
138,120
|
|
$
|
7.13
|
|
Exercised
|
|
(192,949
|
)
|
$
|
4.20
|
|
Canceled
|
|
(51,496
|
)
|
$
|
8.94
|
|
Balance at December 31, 2012
|
|
705,159
|
|
$
|
4.16
|
|
38
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
NOTE G SHAREHOLDERS EQUITY
Share-Based Compensation Plans - Concluded
The following information applies to options outstanding and exercisable at December 31, 2012:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
remaining
|
|
Weighted
|
|
|
|
Range of
|
|
Number
|
|
contractual
|
|
average
|
|
|
|
Exercise prices
|
|
outstanding
|
|
life (in years)
|
|
exercise price
|
|
Outstanding options
|
|
$2.80 $9.87
|
|
705,159
|
|
2.06
|
|
$
|
4.16
|
|
Exercisable options
|
|
$2.80 $9.87
|
|
653,034
|
|
1.86
|
|
$
|
4.02
|
|
NOTE H - INCOME TAXES
The income tax provision charged to continuing operations for the years ended December 31, 2012, 2011, and 2010, was as follows:
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
3,947,400
|
|
$
|
35,561
|
|
$
|
(190,869
|
)
|
Foreign
|
|
5,313,874
|
|
3,343,374
|
|
250,190
|
|
State and local
|
|
264,269
|
|
698,362
|
|
374,029
|
|
|
|
9,525,543
|
|
4,077,297
|
|
433,350
|
|
|
|
|
|
|
|
|
|
Deferred expense
|
|
359,535
|
|
2,469,953
|
|
146,550
|
|
|
|
$
|
9,885,078
|
|
$
|
6,547,250
|
|
$
|
579,900
|
|
The components of the Companys income before income tax expense attributable to domestic and foreign operations amounted to $6,018,971 and $19,537,986, respectively, for the year ended December 31, 2012. The components of the Companys income before income tax expense attributable to domestic and foreign operations amounted to $6,085,192 and $11,295,273, respectively, for the year ended December 31, 2011. The components of the Companys loss before income tax expense attributable to domestic and foreign operations amounted to $(3,002,790) and $2,360,008, respectively, for the year ended December 31, 2010. The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate (35% for 2012, 34% for 2011 and 2010) to pretax income (loss) from continuing operations for the years ended December 31, 2012, 2011, and 2010, due to the following:
|
|
2012
|
|
2011
|
|
2010
|
|
Computed expected tax expense
|
|
$
|
8,944,935
|
|
$
|
5,909,358
|
|
$
|
(218,546
|
)
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
Change in effective rates used for deferred taxes
|
|
|
|
(503,693
|
)
|
|
|
Nondeductible expenses and other
|
|
768,652
|
|
534,742
|
|
548,943
|
|
State and local taxes, net of federal benefit
|
|
171,491
|
|
606,843
|
|
249,503
|
|
|
|
$
|
9,885,078
|
|
$
|
6,547,250
|
|
$
|
579,900
|
|
39
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
NOTE H - INCOME TAXES CONCLUDED
Net deferred tax liabilities consist of the following components as of December 31, 2012 and 2011:
|
|
2012
|
|
2011
|
|
Deferred tax assets
|
|
|
|
|
|
Foreign tax credits
|
|
$
|
473,405
|
|
$
|
2,034,130
|
|
Net operating loss carry forwards
|
|
462,548
|
|
776,647
|
|
Other
|
|
92,983
|
|
|
|
Total deferred tax assets
|
|
1,028,936
|
|
2,810,777
|
|
Deferred tax liability
|
|
|
|
|
|
Property, equipment, and intangible asset
|
|
(8,646,047
|
)
|
(10,068,353
|
)
|
Total deferred tax liabilities
|
|
$
|
(7,617,111
|
)
|
$
|
(7,257,576
|
)
|
The components giving rise to the net deferred tax items described above have been included in the accompanying balance sheets as of December 31, 2012 and 2011, as follows:
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
|
|
$
|
|
|
Noncurrent (liabilities)
|
|
(7,617,111
|
)
|
(7,257,576
|
)
|
|
|
$
|
(7,617,111
|
)
|
$
|
(7,257,576
|
)
|
As of December 31, 2012, the Company has U.S. net operating loss carry forwards for U.S. federal income tax purposes of approximately $1.4 million. These net operating losses are available to offset future federal taxable income, if any, and expire from 2027 through 2030. The amount of net operating loss carry forwards that may reduce federal income taxes in any given year are subject to annual limitations and taxable income requirements. The foreign tax credit of $473,405 expires in 2020.
The Company files a U.S. consolidated federal income tax return for operating activities in the U.S. and Canada. The Company also files federal and local tax returns in Canada, as well as state tax returns in a number of state and local jurisdictions in the U.S. The Companys U.S. federal income tax returns filed for 2009 through 2011 are subject to audit by the IRS. The Companys income tax returns filed in Canada for 2009 through 2011 remain subject to examination by Canadian authorities. As of December 31, 2012 and 2011, the Company had no unrecognized tax benefits within its provision for income taxes.
NOTE I - 401(k) PLAN
The Company has a 401(k) salary deferral plan which covers all employees who have reached the age of 20.5 years and have been employed by the Company for at least one year. The covered employees may elect to have an amount deducted from their wages for investment in the retirement plan. The Company makes contributions to the plan equal to 50% of each participants salary reduction contributions to the plan up to 6% of the participants compensation. The Companys matching contribution to the plan was approximately $113,000, $98,000, and $79,000, for the years ended December 31, 2012, 2011, and 2010, respectively.
NOTE J - CONCENTRATION OF CREDIT RISK
The Company sells its geophysical services primarily to large independent oil and gas companies operating in the U.S. and Canada. The Company performs ongoing credit evaluations of its customers financial condition and, generally, requires no collateral from its customers.
40
TGC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, 2011, and 2010
NOTE J - CONCENTRATION OF CREDIT RISK - CONCLUDED
During the years ended December 31, 2012, 2011, and 2010, our largest customers accounted for approximately 16%, 17%, and 15% of revenues, respectively. As of December 31, 2012, 2011, and 2010, two customers accounted for 29% and 23%, 13% and 12%, and 18% and 11% of outstanding accounts receivable, respectively. During 2012, one vendor represented 12% of our purchases. During 2011 and 2010, no vendor represented over 10% of our purchases.
NOTE K - CONTINGENCIES
In conducting its activities, the Company from time to time is the subject of various claims arising from the ordinary course of business. In the opinion of management, it is remote that these claims will be material, including to the Companys results of operations and liquidity.
NOTE L QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly financial information for the two years ended December 31, 2012 and 2011 (in thousands, except per share amounts):
|
|
Three Months Ended
|
|
2012
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
67,045
|
|
$
|
30,384
|
|
$
|
41,835
|
|
$
|
57,053
|
|
Income (loss) from operations
|
|
20,475
|
|
(2,860
|
)
|
2,096
|
|
7,069
|
|
Net Income (loss)
|
|
12,384
|
|
(1,974
|
)
|
1,112
|
|
4,150
|
|
Net income (loss) per share basic
|
|
.61
|
|
(.10
|
)
|
.05
|
|
.20
|
|
Net income (loss) per share diluted
|
|
.60
|
|
(.10
|
)
|
.05
|
|
.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
2011
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
50,247
|
|
$
|
30,216
|
|
$
|
31,013
|
|
$
|
39,552
|
|
Income from operations
|
|
9,014
|
|
1,214
|
|
1,889
|
|
6,048
|
|
Net Income
|
|
5,764
|
|
587
|
|
1,047
|
|
3,436
|
|
Net income per share basic
|
|
.29
|
|
.03
|
|
.05
|
|
.17
|
|
Net income per share diluted
|
|
.28
|
|
.03
|
|
.05
|
|
.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable
.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Company maintains controls and procedures to ensure that it is able to collect the information it is required to disclose in the reports it files with the Securities and Exchange Commission, and to process, summarize, and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report conducted by the Companys management, with the participation of the Chief Executive and Chief Financial Officers, the Chief Executive and Chief Financial Officers believe that these controls and procedures are effective to ensure that the Company is able to record, process, summarize, and report information required to be included in reports filed or submitted under the Securities Exchange Act of 1934, as amended, within the required time period. There were no changes in the Companys internal controls over financial reporting during the year ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Managements Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework. Based on our assessment, we believe that, as of December 31, 2012, the Companys internal control over financial reporting is effective based on those criteria.
The effectiveness of internal control over financial reporting as of December 31, 2012, has been audited by Lane Gorman Trubitt, PLLC, the independent registered public accounting firm which audited the Companys consolidated financial statements. Lane Gorman Trubitt, PLLCs attestation report on effectiveness of the Companys internal control over financial reporting appears in their Report of Independent Registered Public Accounting Firm.
ITEM 9B. OTHER INFORMATION.
Not Applicable.
42