SECURITIES AND EXCHANGE COMMISSION
Amendment No. 1
Dawson Geophysical Company
Texas | 1382 | 75-0970548 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
508 West Wall, Suite 800
L. Decker Dawson
Copies to:
Neel Lemon Sarah Rechter Baker Botts L.L.P. 2001 Ross Avenue, Suite 700 Dallas, Texas 75201-2980 Telephone: (214) 953-6500 Facsimile: (214) 953-6503 |
Thomas P. Mason Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, Texas 77002 Telephone: (713) 758-2222 Facsimile: (713) 758-2346 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities, and it is not
soliciting any offer to buy these securities in any state where
the offer or sale is not permitted. |
Subject to Completion, dated January 19, 2005
PRELIMINARY PROSPECTUS
1,500,000 Shares
Common Stock
We are offering 1,500,000 shares of our common stock. Our shares are quoted on The Nasdaq National Market under the symbol DWSN. On January 14, 2004, the last reported sale price of our common stock on The Nasdaq National Market was $19.97 per share.
Investing in our securities involves risk. You should carefully consider the risk factors described under Risk Factors beginning on page 5 of this prospectus before buying shares of our common stock.
Per Share | Total | |||||||
Public offering price
|
$ | $ | ||||||
Underwriting discounts
|
$ | $ | ||||||
Proceeds to Dawson Geophysical Company, before
expenses
|
$ | $ |
The underwriters may purchase up to an additional 225,000 shares of common stock from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments, if any. The underwriters expect to deliver the shares to purchasers on or before , 2005.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
RAYMOND JAMES | A.G. EDWARDS |
The date of this prospectus is , 2005.
Vibrator energy source units operating in Utah.
Crew deploying geophones and cables.
Technician operating a seismic
recording system.
Analysts processing seismic data.
TABLE OF CONTENTS
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F-1 | ||||||||
Consent of KPMG LLP |
You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information different from that contained or incorporated by reference in this prospectus. We are offering to sell, and seeking offers to buy, common stock only in jurisdictions where offers and sales are permitted. The information contained or incorporated by reference in this prospectus is accurate only as of the date of this prospectus or the date of the incorporated document, regardless of the time of delivery of this prospectus or of any sale of our common stock.
ii
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. Because it is a summary, it may not contain all of the information that is important to you or that you should consider before investing in our common stock. You should read this entire prospectus carefully, including the risk factors appearing elsewhere in this prospectus and review the documents incorporated by reference, including our financial statements and related notes before you decide whether to invest in our common stock.
All references in this prospectus to we, us and our refer to Dawson Geophysical Company. Unless otherwise indicated, this prospectus assumes that the underwriters over-allotment option will not be exercised.
Dawson Geophysical Company
We are the leading provider of onshore seismic data acquisition services in the United States as measured by the number of active data acquisition crews. Founded in 1952, we acquire and process 2-D, 3-D and multi-component seismic data for our clients, ranging from major oil and gas companies to independent oil and gas operators as well as providers of multi-client data libraries. Our clients rely on seismic data to identify areas where subsurface conditions are favorable for the accumulation of hydrocarbons, as well as to optimize the development and production of hydrocarbon reservoirs. During fiscal 2004, substantially all of our revenues were derived from 3-D seismic data acquisition operations.
Benefits of incorporating high resolution 3-D seismic surveys into exploration and development programs include reducing drilling risk, decreasing oil and gas finding costs and increasing the efficiencies of reservoir location, delineation and management. In order to meet the requirements necessary to fully realize the benefits of 3-D seismic data, demand is increasing for improved data quality with greater subsurface resolution. We are prepared to meet such demands with the implementation of improved techniques and evolving technology.
With increasing demand for our services, we have expanded our business from six seismic data acquisition crews in 2000 with approximately 20,000 recording channels to the current configuration of ten crews with more than 44,000 channels.
Business Strategy
Our strategy is to maintain our leadership position in the U.S. onshore market. Key elements of our strategy include:
| Attracting and retaining skilled and experienced personnel for our data acquisition and processing operations; | |
| Providing integrated in-house services necessary in each phase of seismic data acquisition and processing, including project design, land access permitting, surveying and related support functions as well as continuing the enhancement of our in-house health, safety and environmental program; | |
| Maintaining the focus of our operations solely on the domestic onshore seismic market; | |
| Continuing to operate with conservative financial discipline; | |
| Updating our capabilities to incorporate advances in geophysical and supporting technologies; and | |
| Acquiring equipment to expand the recording channel capacity on each of our existing crews and equipping additional crews as customer demand dictates. | |
Recent Developments
In fiscal year 2003, higher commodity prices led to a significant increase in the level of spending for the domestic exploration and development of oil and natural gas reserves. This resulted in greater demand
1
Client demand for more recording channels continues to increase as the industry strives for improved data quality with greater subsurface resolution. In response to client demand, our recording channel capacity has more than doubled since 2000. Our ability to deploy a large number of recording channels provides us with the competitive advantages of operational versatility and increased productivity, in addition to improved data quality.
Principal Executive Offices and Internet Address
Our principal executive offices are located at 508 West Wall, Suite 800, Midland, Texas 79701 and our phone number is 432-684-3000. Our website is www.dawson3d.com. Information contained in our website is not incorporated by reference into this prospectus and you should not consider information contained in our website as part of this prospectus.
The Offering
Common stock offered | 1,500,000 shares | |
Common stock outstanding after this offering | 7,142,794 shares | |
Use of proceeds | We expect to use the net proceeds of this offering: | |
to complete the funding of our fiscal 2004 and January 2005 seismic data acquisition crew expansions; and | ||
for general corporate purposes, which may include further expansions of our seismic data acquisition operations and maintenance capital requirements. | ||
See Use of Proceeds. | ||
Over-allotment option | We have granted the underwriters an option to purchase up to an additional 225,000 shares of common stock solely to cover over-allotments. See Underwriting. | |
Risk Factors | See Risk Factors beginning on page 5 for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock. | |
Nasdaq National Market symbol | DWSN |
The number of shares outstanding after the offering is based upon our shares outstanding as of January 14, 2005 and excludes a total of 227,000 shares issuable under outstanding options granted under our stock option plans. The weighted average exercise price of these options is $6.75 per share.
2
Summary Financial Data
The following summary financial data for the three fiscal years ended September 30, 2004 was derived from the audited financial statements of the Company. This information should be read in conjunction with Selected Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, the financial statements and notes thereto and the other financial data included elsewhere in this Prospectus.
Year Ended September 30, | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(In thousands, except | ||||||||||||||
per share and operating data) | ||||||||||||||
Statement of Operations Data:
|
||||||||||||||
Operating revenues
|
$ | 36,078 | $ | 51,592 | $ | 69,346 | ||||||||
Operating costs:
|
||||||||||||||
Operating expenses
|
33,205 | 46,151 | 55,618 | |||||||||||
General and administrative
|
2,006 | 2,421 | 2,675 | |||||||||||
Depreciation
|
4,233 | 4,404 | 4,653 | |||||||||||
Income (loss) from operations
|
(3,366 | ) | (1,384 | ) | 6,400 | |||||||||
Other income:
|
||||||||||||||
Interest income
|
507 | 328 | 177 | |||||||||||
Other
|
96 | 209 | 505 | |||||||||||
Income (loss) before income tax
|
(2,763 | ) | (847 | ) | 7,082 | |||||||||
Income tax benefit (expense):
|
||||||||||||||
Current
|
400 | | (96 | ) | ||||||||||
Deferred
|
71 | (52 | ) | 1,632 | ||||||||||
Net income (loss)
|
(2,292 | ) | (899 | ) | 8,618 | |||||||||
Net Income (loss) per share assuming dilution
|
$ | (0.42 | ) | $ | (0.16 | ) | $ | 1.53 | ||||||
Operating Data (at period end):
|
||||||||||||||
Number of working crews
|
5 | 6 | 9 | |||||||||||
Available recording channels
|
22,720 | 26,400 | 38,742 | |||||||||||
Other Financial Data:
|
||||||||||||||
EBITDA
|
$ | 1,470 | $ | 3,557 | $ | 11,735 | ||||||||
Capital Expenditures
|
2,047 | 6,153 | 13,899 |
The following table sets forth a summary of our balance sheet data as of September 30, 2004 on a historical basis and on an as adjusted basis to reflect our receipt of estimated net proceeds of $ million from our sale of shares of common stock in this offering, after deducting underwriting discounts and estimated offering expenses, and the application of those net proceeds.
At September 30, 2004 | |||||||||
Historical | As Adjusted | ||||||||
(In thousands) | |||||||||
Balance Sheet Data (at period end):
|
|||||||||
Working capital
|
$ | 18,659 | $ | ||||||
Net property, plant and equipment
|
29,975 | ||||||||
Total assets
|
56,759 | ||||||||
Long-term debt
|
| | |||||||
Stockholders equity
|
50,282 |
3
Non-GAAP Financial Measure
We define EBITDA as net income plus interest expense, income taxes and depreciation and amortization expense. 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 costs. |
We also understand that such data is used by investors to assess our performance. However, the term EBITDA is not defined under generally accepted accounting principles and EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with generally accepted accounting principles. 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 generally accepted accounting principles. In addition, our EBITDA may not be comparable to EBITDA or similar titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as we do. 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 September 30, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(In thousands) | ||||||||||||
Net income (loss)
|
$ | (2,292 | ) | $ | (899 | ) | $ | 8,618 | ||||
Depreciation
|
4,233 | 4,404 | 4,653 | |||||||||
Income tax benefit (expense)
|
(471 | ) | 52 | (1,536 | ) | |||||||
EBITDA
|
$ | 1,470 | $ | 3,557 | $ | 11,735 |
The following table reconciles our EBITDA to our net cash provided by operating activities:
Year Ended September 30, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(In thousands) | ||||||||||||
Net cash provided by operating activities
|
$ | 3,628 | $ | 1,244 | $ | 8,812 | ||||||
Changes in working capital items and other
|
(1,541 | ) | 2,342 | 3,072 | ||||||||
Non-cash adjustments to income
|
(217 | ) | (29 | ) | (245 | ) | ||||||
Current income tax (benefit) expense
|
(400 | ) | | 96 | ||||||||
EBITDA
|
$ | 1,470 | $ | 3,557 | $ | 11,735 |
4
RISK FACTORS
You should carefully consider the following risk factors, together with all of the other information included or incorporated by reference in this prospectus, including our financial statements and related notes, in evaluating an investment in our common stock. If any of the following risks were actually to occur, our business, financial condition or results of operations could be materially adversely affected. The trading price of our common stock could decline due to the realization of these risks, and you could lose all or part of your investment.
If oil and gas prices or the level of capital expenditures by oil and gas companies were to decline, demand for our services would decline and our results of operations would be adversely affected. |
Demand for our services depends upon the level of spending by oil and gas companies for exploration, production, development and field management activities, which activities depend in part on oil and gas prices. Fluctuations in oil and gas exploration activities and commodity prices have adversely affected the demand for our services and our results of operations in years past and would do so again if prices for oil and gas were to decline. In particular, we incurred losses in fiscal years 2000 through 2003 as a result of decreased demand for seismic services during these years due to the effects of lower oil and gas prices. Any significant decline in oil and gas related spending on behalf of our clients could cause us to alter our capital spending plans and would have a material adverse effect on our results of operations. Additionally, increases in oil and gas prices may not increase demand for our products and services or otherwise have a positive effect on our results of operations or financial condition.
Factors affecting the price of oil and gas include:
| level of demand for oil and gas; | |
| worldwide political, military and economic conditions, including the ability of the Organization of Petroleum Exporting Countries to set and maintain production levels and prices for oil; | |
| level of oil and gas production; | |
| government policies regarding the exploration for, and production and development of, oil and gas reserves; | |
| level of taxation relating to the energy industry, including taxation of consumption of energy sources; and | |
| weather conditions. |
The markets for oil and gas have historically been volatile and are likely to continue to be so in the future.
The high fixed costs of our operations could result in operating losses. |
Our business has high fixed costs. As a result, any significant downtime or low productivity caused by reduced demand, weather interruptions, equipment failures, permit delays or other causes could adversely affect our results of operations.
Our revenues are subject to fluctuations that are beyond our control which could adversely affect our results of operations in any financial period. |
Our operating results vary in material respects from quarter to quarter and will continue to do so in the future. Factors that cause variations include the timing of the receipt and commencement of contracts for data acquisition, permit delays, weather delays and crew productivity. Combined with our high fixed costs, these revenue fluctuations could produce unexpected adverse results of operations in any fiscal period.
5
Our operations are subject to weather conditions which could adversely affect our results of operations. |
Our seismic data acquisition operations could be adversely affected by inclement weather conditions. Delays associated with weather conditions could adversely affect our results of operations. See Business Contracts.
Our operations are subject to delays related to obtaining land access rights of way from third parties which could affect our results of operations. |
Our seismic data acquisition operations could be adversely affected by our inability to obtain timely right of way usage from both public and private land and/or mineral owners. Delays associated with obtaining such rights of way could negatively affect our results of operations.
We face intense competition in our business that could result in downward pricing pressure and the loss of market share. |
The acquisition and processing of seismic data for the oil and gas industry is a highly competitive business in the United States. Some of our competitors have financial resources that are significantly greater than our own. Competition from these and other competitors could result in downward pricing pressure and the loss of market share. See Business Competition.
We may be unable to attract and retain skilled and technically knowledgeable employees which could adversely affect our business. |
Our success depends upon attracting and retaining highly skilled professionals and other technical personnel. A number of our employees are highly skilled scientists and highly trained technicians, and our failure to continue to attract and retain such individuals could adversely affect our ability to compete in the seismic services industry. We may confront significant and potentially adverse competition for these skilled and technically knowledgeable personnel, particularly during periods of increased demand for seismic services. None of our employees are under employment contracts and we have no key man insurance.
Capital requirements for our operations are large. If we are unable to finance these requirements our ability to continue our expansion and maintain our profitability could be affected. |
Our sources of working capital are limited. We have historically funded our working capital requirements with cash generated from operations, cash reserves and short term borrowings from commercial banks. In the past, we have also funded our capital expenditures and other financing needs through public equity offerings. Our working capital requirements continue to increase, primarily due to the expansion of our infrastructure. If we were to expand our operations at a rate exceeding operating cash flow, or if current demand or pricing of geophysical services were to decrease substantially, additional financing could be required. If we were not able to obtain such financing when needed, our failure could have a negative impact on our ability to pursue our expansion and maintain our profitability. See Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources.
Technological change in our business creates risks of technological obsolescence and requirements for future capital expenditures. If we are unable to keep up with these technological advances, we may not be able to compete effectively. |
Seismic data acquisition and processing technologies historically have progressed rather rapidly and we expect this progression to continue. Our strategy is to regularly upgrade our data acquisition and processing equipment to maintain our competitive position. However, due to potential advances in technology and the related costs associated with such technological advances, we might not be able to fulfill this strategy, thus possibly affecting our ability to compete.
6
We operate under hazardous conditions that subject us to risk of damage to property or personal injuries and may interrupt our business. |
Our business is subject to the general risks inherent in land-based seismic data acquisition activities. Our activities are often conducted in remote areas under extreme weather and other dangerous conditions. These operations are subject to risks of injury to personnel and equipment. Our crews are mobile, and equipment and personnel are subject to vehicular accidents. We use diesel fuel which is classified by the U.S. Department of Transportation as a hazardous material. These risks could cause us to experience equipment losses, injuries to our personnel and interruptions in our business.
In addition, we could be subject to personal injury or real property damage claims in the normal operation of our business. Such claims may not be covered under the indemnification provisions in our master service agreements to the extent that the damage was due to our negligence, gross negligence or intentional misconduct.
We do not carry insurance against certain risks that we could experience, including business interruption resulting from equipment losses or weather delays. We obtain insurance against certain property and personal casualty risks and other risks when such insurance is available and when our management considers it advisable to do so. Such coverage is not always available or applicable and, when available, is subject to unilateral cancellation by the insuring companies on very short notice.
Our business is subject to governmental regulation which may adversely affect our future operations. |
Our operations are subject to a variety of federal, state and local laws and regulations, including laws and regulations relating to the protection of the environment and archeological sites. We are required to expend financial and managerial resources to comply with such laws and related permit requirements in our operations, and we anticipate that we will continue to be required to do so in the future. The fact that such laws or regulations change frequently makes it impossible for us to predict the cost or impact of such laws and regulations on our future operations. The adoption of laws and regulations that have the effect of reducing or curtailing exploration and production activities by energy companies could also adversely affect our operations by reducing the demand for our services.
Certain provisions of our charter and bylaws and our shareholder rights plan may make it difficult for a third party to acquire us, even in situations that may be viewed as desirable by our shareholders. |
Our articles of incorporation and bylaws contain provisions that authorize the issuance of preferred stock and establish advance notice requirements for director nominations and actions to be taken at shareholder meetings. These provisions could discourage or impede a tender offer, proxy contest or other similar transaction involving control of us, even in situations that may be viewed as desirable by our shareholders. In addition, we have adopted a shareholder rights plan that would likely discourage a hostile attempt to acquire control of us.
Failure to spend or invest the proceeds of this offering in an effective manner could adversely affect our business. |
We have no current specific allocations for approximately $13 million of the aggregate net proceeds to be derived from this offering. Consequently, our board of directors and management will have substantial flexibility and broad discretion in applying this portion of the net proceeds of this offering, and investors will be relying on the judgment of our management regarding the application of these proceeds. The failure by management to apply such funds effectively could have a material adverse effect on our business and financial condition. We generally intend to use the unallocated net proceeds of this offering for general corporate purposes, which may include further expansions of our seismic data acquisition operations and maintenance capital requirements. Pending such uses, we intend to invest the unallocated net proceeds of this offering in short-term investments.
7
FORWARD-LOOKING STATEMENTS
This prospectus and the documents we incorporate by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements that are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. These statements can be identified by the use of forward-looking terminology including forecast, may, believe, will, expect, anticipate, estimate, continue or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other forward-looking information. We and our representatives may from time to time make other oral or written statements that are also forward-looking statements.
These forward-looking statements are made based upon our managements current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements as a result of certain factors, including but not limited to dependence upon energy industry spending, the volatility of oil and gas prices, weather interruptions, ability to obtain land access rights of way and the availability of capital resources.
Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under Risk Factors and elsewhere in this prospectus and the documents we incorporate by reference herein.
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately $ million, or approximately $ million if the underwriters over-allotment option is exercised in full, in each case after deducting underwriting discounts and the estimated offering expenses.
We intend to use our proceeds from this offering for the following:
| approximately $17 million to complete the funding of our fiscal 2004 and January 2005 seismic data acquisition crew expansions; and | |
| the balance of approximately $13 million for general corporate purposes which may include further expansions of our seismic data acquisition operations and maintenance capital requirements. | |
The amount and timing of our actual expenditures for general corporate purposes will vary significantly depending on a number of factors, including such factors as the amount of cash generated by our operations. Accordingly, our management will have broad discretion in the application of the unallocated portion of the net proceeds generated from this offering. You will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use these proceeds. Pending our use of the net proceeds we receive from this offering, we may invest such proceeds in short-term investments.
8
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is quoted on the Nasdaq National Market under the symbol DWSN. The following table shows the high and low per share sale prices for our common stock as reported on The Nasdaq National Market for the periods indicated.
Price Range of | ||||||||
Common Stock | ||||||||
High | Low | |||||||
Year Ended September 30, 2003
|
||||||||
First Quarter
|
$ | 7.18 | $ | 4.95 | ||||
Second Quarter
|
$ | 7.23 | $ | 5.20 | ||||
Third Quarter
|
$ | 8.53 | $ | 6.34 | ||||
Fourth Quarter
|
$ | 8.40 | $ | 6.56 | ||||
Year Ended September 30, 2004
|
||||||||
First Quarter
|
$ | 8.54 | $ | 6.46 | ||||
Second Quarter
|
$ | 12.47 | $ | 7.62 | ||||
Third Quarter
|
$ | 22.39 | $ | 12.00 | ||||
Fourth Quarter
|
$ | 26.24 | $ | 16.82 | ||||
Year Ended September 30, 2005
|
||||||||
First Quarter
|
$ | 27.66 | $ | 17.13 | ||||
Second Quarter (through January 14, 2005)
|
$ | 21.43 | $ | 18.97 |
On January 14, 2005, the last sale price of the common stock as reported on The Nasdaq National Market was $19.97 per share. At the close of business on December 31, 2004, there were approximately 200 holders of record of our common stock.
Since our initial public offering in 1981, we have not declared or paid any dividends on our common stock. We presently intend to retain earnings for use in our operations and to finance our business. Any change in our dividend policy is within the discretion of our board of directors and will depend, among other things, on our earnings, debt service and capital requirements, restrictions in financing agreements, if any, business conditions and other factors that our board of directors deems relevant. Our revolving line of credit does not permit us to pay dividends without the prior approval of the lending bank.
9
CAPITALIZATION
The following table sets forth our cash and cash equivalents and our capitalization as of September 30, 2004 on a historical basis and on an as adjusted basis. The as adjusted basis reflects our receipt of estimated net proceeds of $ million from our sale of shares of common stock in this offering, after deducting underwriting discounts and estimated offering expenses, and the application of those net proceeds as described in Use of Proceeds.
The as adjusted column does not include the exercise of the underwriters over-allotment option of 225,000 shares. You should read this table together with Use of Proceeds, Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and notes thereto included elsewhere in this prospectus.
September 30, 2004 | ||||||||||||
Historical | As Adjusted | |||||||||||
(In thousands, | ||||||||||||
except share data) | ||||||||||||
Cash and cash equivalents
|
$ | 3,587 | $ | |||||||||
Long-term debt, less current maturities(1)
|
$ | | $ | | ||||||||
Stockholders equity:
|
||||||||||||
Preferred Stock, par value $1.00 per share:
|
||||||||||||
5,000,000 shares authorized, none issued or
outstanding
|
| | ||||||||||
Common Stock, par value $0.33 1/3 per share:
|
||||||||||||
10,000,000 shares authorized,
5,633,794 shares issued and
outstanding; shares
issued and outstanding as adjusted(2)
|
1,878 | |||||||||||
Additional paid-in capital
|
39,949 | |||||||||||
Other comprehensive income, net of tax
|
(28 | ) | ||||||||||
Retained earnings
|
8,483 | |||||||||||
Total stockholders equity
|
$ | 50,282 | $ | |||||||||
Total capitalization
|
$ | 50,282 | $ | |||||||||
(1) | Does not include $5.0 million of borrowings that were incurred in January 2005 under our revolving line of credit. |
(2) | Excludes 227,000 shares reserved for issuance upon exercise of employee stock options at September 30, 2004. |
10
SELECTED FINANCIAL DATA
The following summary of our selected financial data includes data for the three fiscal years ended September 30, 2004 and was derived from the audited financial statements of the Company. This information should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations, the financial statements and notes thereto and the other financial data included elsewhere in this Prospectus. Additional selected financial data for the two fiscal years preceding September 30, 2004 can be found in our annual reports previously filed with the SEC. See Where You Can Find More Information.
Year Ended September 30, | ||||||||||||||
2002 | 2003 | 2004 | ||||||||||||
(In thousands, except | ||||||||||||||
per share and operating data) | ||||||||||||||
Statement of Operations Data:
|
||||||||||||||
Operating revenues
|
$ | 36,078 | $ | 51,592 | $ | 69,346 | ||||||||
Operating costs:
|
||||||||||||||
Operating expenses
|
33,205 | 46,151 | 55,618 | |||||||||||
General and administrative
|
2,006 | 2,421 | 2,675 | |||||||||||
Depreciation
|
4,233 | 4,404 | 4,653 | |||||||||||
Income (loss) from operations
|
(3,366 | ) | (1,384 | ) | 6,400 | |||||||||
Other income:
|
||||||||||||||
Interest income
|
507 | 328 | 177 | |||||||||||
Other
|
96 | 209 | 505 | |||||||||||
Income (loss) before income tax
|
(2,763 | ) | (847 | ) | 7,082 | |||||||||
Income tax benefit (expense):
|
||||||||||||||
Current
|
400 | | (96 | ) | ||||||||||
Deferred
|
71 | (52 | ) | 1,632 | ||||||||||
Net income (loss)
|
(2,292 | ) | (899 | ) | 8,618 | |||||||||
Net Income (loss) per share assuming dilution
|
$ | (0.42 | ) | $ | (0.16 | ) | $ | 1.53 | ||||||
Operating Data (at period end):
|
||||||||||||||
Number of working crews
|
5 | 6 | 9 | |||||||||||
Available recording channels
|
22,720 | 26,400 | 38,742 | |||||||||||
Other Financial Data:
|
||||||||||||||
EBITDA
|
$ | 1,470 | $ | 3,557 | $ | 11,735 | ||||||||
Capital Expenditures
|
2,047 | 6,153 | 13,899 |
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The following table sets forth a summary of our balance sheet data as of September 30, 2004 on a historical basis and on an as adjusted basis to reflect our receipt of estimated net proceeds of $ million from our sale of shares of common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses, and the application of those net proceeds.
At September 30, 2004 | |||||||||
Historical | As Adjusted | ||||||||
(In thousands) | |||||||||
Balance Sheet Data (at period end):
|
|||||||||
Working capital
|
$ | 18,659 | $ | ||||||
Net property, plant and equipment
|
29,975 | ||||||||
Total assets
|
56,759 | ||||||||
Long-term debt
|
| | |||||||
Stockholders equity
|
50,282 |
Non-GAAP Financial Measure
We define EBITDA as net income plus interest expense, income taxes and depreciation and amortization expense. 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 costs. |
We also understand that such data is used by investors to assess our performance. However, the term EBITDA is not defined under generally accepted accounting principles and EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with generally accepted accounting principles. 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 generally accepted accounting principles. In addition, our EBITDA may not be comparable to EBITDA or similar titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as we do. 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 September 30, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(In thousands) | ||||||||||||
Net income (loss)
|
$ | (2,292 | ) | $ | (899 | ) | $ | 8,618 | ||||
Depreciation
|
4,233 | 4,404 | 4,653 | |||||||||
Income tax benefit (expense)
|
(471 | ) | 52 | (1,536 | ) | |||||||
EBITDA
|
$ | 1,470 | $ | 3,557 | $ | 11,735 |
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The following table reconciles our EBITDA to our net cash provided by operating activities:
Year Ended September 30, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
(In thousands) | ||||||||||||
Net cash provided by operating activities
|
$ | 3,628 | $ | 1,244 | $ | 8,812 | ||||||
Changes in working capital items and other
|
(1,541 | ) | 2,342 | 3,072 | ||||||||
Non-cash adjustments to income
|
(217 | ) | (29 | ) | (245 | ) | ||||||
Current income tax (benefit) expense
|
(400 | ) | | 96 | ||||||||
EBITDA
|
$ | 1,470 | $ | 3,557 | $ | 11,735 |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
The following discussion and analysis should be read in conjunction with Selected Financial Data and our financial statements and related notes thereto included elsewhere in this prospectus. Portions of this document that are not statements of historical or current fact are forward-looking statements. This discussion contains forward-looking statements that involve risk and uncertainties, such as statements of our plans, objections, expectations and intentions. The cautionary statements made in this prospectus should be read as applying to all related forward-looking statements wherever they appear in this prospectus. Our actual results could differ materially from those anticipated in the forward-looking statements. Factors that could cause our actual results to differ materially from those anticipated include those discussed in Risk Factors, as well as those discussed elsewhere. See Risk Factors and Forward-Looking Statements.
Overview
We are the leading provider of onshore seismic data acquisition services in the United States as measured by the number of active data acquisition crews. Substantially all of our revenues are derived from the seismic data acquisition services we provide to our clients, mainly domestic oil and gas companies. Demand for our services depends upon the level of spending by these oil and gas companies for exploration, production, development and field management activities, which activities depend, in part, on oil and natural gas prices. Fluctuations in domestic oil and natural gas exploration activities and commodity prices have affected the demand for our services and our results of operations in years past and continue to be the single most important factor affecting our business and results of operations.
Accordingly, our return to profitability in fiscal 2004 after several years of losses is directly related to an increase in the level of exploration for domestic oil and natural gas reserves by the petroleum industry since 2003. The increased level of exploration is a function of higher prices for oil and natural gas. As a result of the increase in domestic exploration spending, we have experienced an increased demand for our seismic data acquisition and processing services. While the markets for oil and natural gas have historically been volatile and are likely to continue to be so in the future and we can make no assurances as to future levels of domestic exploration or commodity prices, we believe opportunities exist for us to expand our position as the leading provider of onshore seismic data acquisition services in the United States as measured by the number of active data acquisition crews.
We continue to focus on increasing revenues and profitability. While our revenues are mainly affected by the level of client demand for our services, our revenues are also affected by the pricing for our services that we negotiate with our clients and the productivity of our data acquisition crews, including crew downtime related to inclement weather or delays in acquiring land access permits. Consequently, our successful efforts to negotiate more favorable weather protection provisions in our supplemental service agreements, to mitigate access permit delays and to improve overall crew productivity may contribute to growth in our revenues. Although our clients may cancel their supplemental service agreement with us on short notice, we believe we currently have a sufficient order book to sustain operations at full capacity well into fiscal 2005.
Fiscal 2004 Highlights
Our financial performance for fiscal 2004 significantly improved when compared to our financial performance for fiscal 2003 as a result of increased demand for our services due to increased exploration and development activity by domestic oil and gas companies and increases in oil and gas prices. This increased demand had the following principal effects:
| In response to increased demand for our services, we added capacity to existing crews and fielded three additional data acquisition crews. These additions, funded primarily from cash flow and cash reserves, helped increase our revenues during fiscal 2004. |
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| As a result of increased demand for our services, we experienced price improvements and more favorable contract terms in our agreements with clients. These factors helped improve our revenues during fiscal 2004. | |
| Approximately $0.29 per share of our earnings for fiscal 2004 were due to a deferred income tax benefit resulting from our elimination of a valuation allowance on a deferred tax asset generated from net operating loss carryforwards. We believe that our past five profitable quarters and a continued favorable environment for our services now will enable us to use the deferred tax asset. |
Fiscal Year Ended September 30, 2004 Versus Fiscal Year Ended September 30, 2003 |
Operating Revenues. Our operating revenues increased 34% from $51,592,000 in fiscal 2003 to $69,346,000 in fiscal 2004 as a result of increased demand for our services. As a result of this increased demand, we were able to field three additional data acquisition crews, obtain price improvements in the markets for our services and negotiate favorable contract provisions. We began fiscal 2004 with six data acquisition crews. The seventh crew was added in March and the eighth and ninth crews were fielded in the fourth quarter of fiscal 2004. Approximately $375,000 of our revenue is related to a negotiated release from contract performance by one customer. The release was at the request of the client and did not involve any performance issues.
Operating Costs. Our operating expenses increased 21% from $46,151,000 in fiscal 2003 to $55,618,000 in fiscal 2004 due to the start-up and ongoing expenses of the three new crews added during the year.
General and administrative expenses were 3.9% of revenues in fiscal 2004 as compared to 4.7% in fiscal 2003. The reduction in the percentage of general and administrative expenses to revenues in fiscal 2004 reflects our relatively fixed operating costs and the increase in our revenues during this period. General and administrative expenses are expected to increase to support expanded field operations and to assimilate Sarbanes-Oxley reporting requirements. In fiscal 2004, we increased our allowance for doubtful accounts by $100,000 in response to the increase in business activity and accounts receivable. Historically, we have had no significant write-offs of trade accounts receivable; however, we believe that it is prudent to increase the allowance for doubtful accounts in response to the business from new customers that the increases in the prices of oil and natural gas have generated.
We recognized $4,653,000 of depreciation expense in fiscal 2004 as compared to $4,404,000 in fiscal 2003. Our depreciation expense is expected to increase in fiscal 2005 as a result of our significant capital expenditures in fiscal 2004. Approximately 39% of the fiscal 2004 capital expenditures occurred in the fourth quarter. During fiscal 2005, we will reflect a full year of depreciation expense for these fourth quarter 2004 capital expenditures.
Our total operating costs for fiscal 2004 were $62,946,000, an increase of 19% from fiscal 2003 primarily due to the factors described above.
Taxes. Because of our past five profitable quarters and the continued favorable environment for our services, we believe that we will now be able to fully use our net operating loss carryforwards. Approximately $0.29 per share of our reported earnings for fiscal 2004 resulted from a deferred income tax benefit resulting from the elimination of a valuation allowance on our deferred tax asset generated from these net operating loss carryforwards. Current tax expense reflects alternative minimum tax (AMT) calculated on net income not eligible for offset by AMT loss carryforwards.
Fiscal Year Ended September 30, 2003 Versus Fiscal Year Ended September 30, 2002 |
Operating Revenues. Our operating revenues increased 43% from $36,078,000 in fiscal 2002 to $51,592,000 in fiscal 2003 principally as a result of increased demand for our services. We began fiscal 2003 with five crews and increased to six operating crews in November. During the months of May, June and July, our production was severely impaired by rain and we operated five crews during this time. During fiscal 2003, we saw slight price improvements for our services and were able to maintain the price improvements gained in fiscal 2002.
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Operating Costs. Our operating expenses increased 39% in fiscal 2003 as compared to fiscal 2002 due to the start up expenses associated with activating a crew, our expanded operations geographically within the contiguous United States and an increased demand for dynamite energy sources, which require an expensive drilling component, and for the use of helicopters to achieve efficient operations. The last two factors are reimbursable out-of-pocket expenses and are reported in both our revenue and expense lines.
Our general and administrative expenses were 4.7% of revenues in fiscal 2003 as compared to 5.5% in fiscal 2002. We increased our allowance for doubtful accounts by $60,000 in fiscal 2003 in response to working for new clients in new areas. However, relatively favorable prices for crude oil and natural gas benefited our clients and, therefore, helped us in the collection of accounts receivable.
We recognized $4,404,000 of depreciation expense in fiscal 2003, an increase of 4% from fiscal 2002. The increase in depreciation expense reflects our increase in capital expenditures during fiscal 2003 and 2002, principally for recording equipment.
Our total operating costs for fiscal 2003 were $52,976,000, an increase of 34.3% from fiscal 2002 primarily due to the factors described above. The year over year increase in our revenues of 43% as compared to the year over year increase in our operating expenses of 39% reflects the high proportion of relatively fixed total operating expenses, including personnel costs of active crews, inherent in our business.
Taxes. We recorded a deferred tax expense due to an increase in the income tax valuation allowance. The tax expense is related to the tax effect of the unrealized loss on investments recorded in other comprehensive income.
Liquidity and Capital Resources
Introduction. Our principal source of cash is amounts earned from the seismic data acquisition services we provide to our clients. Our principal uses of cash are the amounts used to provide these services, including expenses related to our operations and acquiring new equipment. Accordingly, our cash position depends (as do our revenues) on the level of demand for our services. Historically, cash generated from our operations along with cash reserves and short term borrowings from commercial banks has been sufficient to fund our working capital requirements, and to some extent, our capital expenditures.
Cash Flows. Net cash provided by operating activities was $8,813,000 for fiscal 2004, $1,244,000 for fiscal 2003 and $3,628,000 for fiscal 2002. These amounts primarily reflect results of operations offset by changes in working capital components. The increase in cash provided by operating activities in fiscal 2004 resulted primarily from the increase in net income.
Net cash used in investing activities was $9,571,000 in fiscal 2004 and $6,657,000 in fiscal 2002. Net cash provided from investing activities was $836,000 in fiscal 2003. These results primarily represent capital expenditures and activity in the short-term investment portfolio. Capital expenditures were made with cash generated from operations and short-term investments.
Net cash provided by financing activities in fiscal 2004 was $957,000 and reflects proceeds from the exercise of stock options by officers and other key employees.
Capital Expenditures. Capital expenditures during fiscal 2004 were $13,889,000, which was used to acquire additional recording channels, energy source units, three new seismic data acquisition crews and maintenance capital requirements.
We have budgeted capital expenditures of approximately $20 million in fiscal year 2005, of which approximately $17 million will be used to complete the fiscal 2004 and January 2005 crew expansions, and the remainder will be used for maintenance capital requirements.
We continually strive to supply market demand with technologically advanced 3-D seismic data acquisition recording systems and data processing capabilities. We maintain equipment in and out of service in anticipation of increased future demand for our services.
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Capital Resources. Historically, we have primarily relied on cash generated from operations, cash reserves and short term borrowings from commercial banks to fund our working capital requirements and, to some extent, capital expenditures. In the past, we have also funded our capital expenditures and other financing needs through public equity offerings.
On December 22, 2004, we entered into a revolving line of credit loan agreement with Western National Bank under which we may borrow, repay and reborrow, from time to time until December 22, 2005, up to $10.0 million. Our obligations under this agreement are secured by a security interest in our accounts receivable and related collateral. Interest on the outstanding amount under the line of credit loan agreement is payable monthly (beginning on January 22, 2005) at a rate equal to the greater of (i) the Prime Rate and (ii) 5.0%. On January 12, 2005 we borrowed $5.0 million under the loan agreement. The loan agreement contains customary covenants for credit facilities of this type, including limitations on distributions and dividends, disposition of assets and mergers and acquisitions. We are also obligated to meet certain financial covenants under the loan agreement, including maintaining a minimum tangible net worth (as defined in the loan agreement) of $40.0 million and maintaining specified ratios with respect to cash flow coverage, current assets and liabilities, and debt to tangible net worth.
The following table summarizes payments due in specific periods related to our contractual obligations as of January 1, 2005:
Payments Due by Period | |||||||||||||||||||||
Within | After | ||||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||||
(In thousands) | |||||||||||||||||||||
Long-term debt obligations(1)
|
$ | 5,000 | $ | 5,000 | $ | 0 | $ | 0 | $ | 0 | |||||||||||
Operating lease obligations
|
500 | 143 | 357 | 0 | 0 | ||||||||||||||||
Total
|
$ | 5,500 | $ | 5,143 | $ | 357 | $ | 0 | $ | 0 |
(1) | Amounts represent our current borrowings under our revolving line of credit loan agreement and do not include interest payments required under the agreement. |
We believe that our capital resources, including our short-term investments and cash flow from operations are adequate to meet our current operational needs. We believe we will be able to finance our fiscal 2005 capital requirements through our short-term investments and cash flow from operations and through borrowings under our new revolving line of credit and the proceeds of this offering. However, our ability to satisfy our working capital requirements and to fund future capital requirements will depend principally upon our future operating performance, which is subject to the risks inherent in our business and discussed elsewhere in this prospectus.
Off-Balance Sheet Arrangements
As of September 30, 2004, we had no off-balance sheet arrangements.
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.
Critical Accounting Policies
The preparation of our financial statements in conformity with generally accepted accounting principles 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. Our services are provided under cancelable service contracts. These contracts are either turnkey or term agreements. The Company recognizes revenues when services are
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In some instances, we bill clients in advance of the services performed. In those cases, we recognize the liability as deferred revenue.
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.
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 future gross margins based on our historical results and analysis of future oil and gas prices which is fundamental in assessing demand for our services. If we are unable to achieve these cash flows, our estimates would be revised potentially resulting in an impairment charge in 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 estimation of this useful life is based on circumstances that exist in the seismic industry and information available at the time of the purchase of the asset. 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.
Tax Accounting. We account for our income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires 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 variance between actual results and estimates. The process involves making forecasts of current and future years taxable income and unforeseen events may significantly effect these estimates. Those factors, among others, could have a material impact on our provision or benefit for income taxes.
Stock Based Compensation. In accordance with the Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, we do not record compensation for stock options or other stock-based awards that are granted to employees or non-employee directors with an exercise price equal to or above the common stock market price on the grant date.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has announced it will require all public companies to expense the fair value of employee stock awards. The final requirements will be effective for periods beginning after June 15, 2005. The impact to our financial statements will be in the form of
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Quantitative and Qualitative Disclosure About Market Risk
The primary sources of market risk include fluctuations in commodity prices which affect demand for and pricing of our services and interest rate fluctuations. At September 30, 2004, we had no indebtedness. Our short-term investments were fixed-rate and we do not necessarily intend to hold them to maturity, and therefore, the short-term investments expose us to the risk of earnings or cash flow loss due to changes in market interest rates. As of September 30, 2004, the carrying value of our investments approximates fair value. We have not entered into any hedge arrangements, commodity swap agreements, commodity futures, options or other derivative financial instruments. We do not currently conduct business internationally, so we are generally not subject to foreign currency exchange rate risk.
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BUSINESS
General
Dawson Geophysical Company is the leading provider of onshore seismic data acquisition services in the United States as measured by the number of active data acquisition crews. Founded in 1952, we acquire and process 2-D, 3-D and multi-component seismic data for our clients, ranging from major oil and gas companies to independent oil and gas operators as well as providers of multi-client data libraries. Our clients rely on seismic data to identify areas where subsurface conditions are favorable for the accumulation of hydrocarbons, as well as to optimize the development and production of hydrocarbon reservoirs. During fiscal 2004, substantially all of our revenues were derived from 3-D seismic data acquisition operations.
We operate ten 3-D seismic data acquisition crews in the lower 48 states of the United States, and a seismic data processing center. We market and supplement our services from our headquarters in Midland, Texas and from additional offices in Houston, Denver and Oklahoma City. Our geophysicists perform data processing in our Midland and Houston offices and our field operations are supported from our field office facility in Midland. The results of a seismic survey conducted for a client belong to that client. To avoid potential conflicts of interest with our clients, we do not acquire seismic data for our own account nor do we participate in oil and gas ventures.
In fiscal year 2003, higher commodity prices led to a significant increase in the level of spending for domestic exploration and development of oil and natural gas reserves. This resulted in greater demand for newly-acquired seismic data by many oil and gas companies. These factors and changes in the competitive landscape in our market enabled us to expand our data acquisition and processing capacity by adding new personnel with technical and operational expertise to our existing highly skilled workforce. We believe these additions fortified our position as the leading provider of onshore seismic data acquisition services in the United States and resulted in increased market share in terms of the number of active crews operating. We accelerated this expansion during fiscal 2004 with the addition of three data acquisition crews, increased recording capacity company-wide and improvements to our data processing center. We anticipate further growth in fiscal 2005 and added a tenth data acquisition crew in January. These expansions are in response to continued demand for our high-resolution 3-D seismic services as well as our clients recognition of our technical and operational expertise.
Business Strategy
Our strategy is to maintain our leadership position in the U.S. onshore market. Key elements of our strategy include:
| Attracting and retaining skilled and experienced personnel for our data acquisition and processing operations; | |
| Providing integrated in-house services necessary in each phase of seismic data acquisition and processing, including project design, land access permitting, surveying and related support functions as well as continuing the enhancement of our in-house health, safety and environmental program; | |
| Maintaining the focus of our operations solely on the domestic onshore seismic market; | |
| Continuing to operate with conservative financial discipline; | |
| Updating our capabilities to incorporate advances in geophysical and supporting technologies; and | |
| Acquiring equipment to expand the recording channel capacity on each of our existing crews and equipping additional crews as customer demand dictates. | |
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Business Description
Geophysical Services Overview. Our business consists of the acquisition and processing of seismic data to produce an image of the earths subsurface. The seismic method involves the recording of reflected acoustic or sonic waves from below the ground. In our operations, we introduce acoustic energy into the ground by using an acoustic energy source, usually large vibrating machines or occasionally through the detonation of dynamite. We then record the subsequent reflected energy, or echoes, with recording devices placed along the earths surface. These recording devices, or geophones, are placed on the ground in groups of six of more and connected together as a single recording channel. We generally use multiple recording channels in our seismic surveys. Additional recording channels enhance the clarity of the seismic survey much in the same way as additional pixels add resolution to televisions and computer monitors.
We are able to collect seismic data using either 2-D or 3-D methods. The 2-D method involves the collection of seismic data in a linear fashion thus generating a single plane of subsurface seismic data. Recent technological advances in seismic equipment and computing allow us to economically acquire and process data by placing large numbers of energy sources and recording channels over a broad area. The industry refers to the technique of broad distribution of energy sources and recording channels as the 3-D seismic method. The 3-D method produces an immense volume of seismic data which produces more precise images of the earths subsurface. Geophysicists use computer workstations to interpret 3-D seismic data volumes, generate geologic models of the earths subsurface, and identify subsurface anomalies which are favorable for the accumulation of hydrocarbons.
3-D seismic data are used in the exploration for new reserves and enable oil and gas companies to better delineate existing fields and to augment their reservoir management techniques. Benefits of incorporating high resolution 3-D seismic surveys into exploration and development programs include reducing drilling risk, decreasing oil and gas finding costs and increasing the efficiencies of reservoir location, delineation and management. In order to meet the requirements necessary to fully realize the benefits of 3-D seismic data, there is an increasing demand for improved data quality with greater subsurface resolution. We are prepared to meet such demands with the implementation of improved techniques and evolving technology. One such technique is better survey design integrating a greater number of recording channels, more dense energy source distribution, and improved seismic data processing technology. Our geophysicists perform these design tasks.
We continue to pursue the use of multi-component seismic technologies, which utilize shear wave seismic data. Shear waves vary from the acoustic wave generally used in seismic surveys in the manner in which they travel through the earth. The use of shear waves in seismic surveys is relatively new in our industry, and it is believed that the analysis of shear wave data may allow for a more detailed model of the earths subsurface. Shear wave seismic data are acquired using both 2-D and 3-D methods. We have been involved in several shear wave projects. Our equipment includes energy sources and geophones capable of generating and recording shear waves.
Data Acquisition. The seismic survey begins at the time a client requests that we formulate a proposal to acquire seismic data on its behalf. Geophysicists then assist the client in designing the specifications of the proposed 3-D survey. If the client accepts our proposal, a permit agent then obtains access right of way from the landowners where the survey is to be conducted.
Utilizing electronic surveying equipment, survey personnel precisely locate the energy source and receiver positions from which the seismic data are collected. We utilize the satellite global positioning system, known as GPS, to properly locate the seismic survey positions. We primarily use vibrator energy sources which are mounted on vehicles, each of which weighs 50,000 to 62,000 pounds, to generate seismic energy but occasionally we detonate dynamite charges placed in drill holes below the earths surface. We use third party contractors for the drilling of holes and the purchasing, handling and disposition of dynamite charges.
In 2000, we had an operating capacity of six land-based seismic data acquisition crews with an aggregate recording channel count of approximately 20,000 and 52 vibrator energy source units. We
21
Client demand for more recording channels continues to increase as the industry strives for improved data quality with greater subsurface resolution. We believe our ability to deploy a large number of recording channels provides us with the competitive advantages of operational versatility and increased productivity, in addition to improved data quality.
Data Processing. We currently operate a computer center located in Midland, Texas and provide additional processing services through our Houston office. Such data processing primarily involves the enhancement of seismic data by improving reflected signal resolution, removing ambient noise and establishing proper spatial relationships of geological features. The data are then formatted in such a manner that computer graphic technology may be employed for examination and interpretation of the data by the user.
We continue to improve data processing efficiency and accuracy with the addition of improved processing software and high-speed computer technology. We purchase, develop or lease, under non-exclusive licensing arrangements, seismic data processing software.
Our computer center processes seismic data collected by our crews, as well as by other geophysical contractors. In addition, we reprocess previously recorded seismic data using current technology to enhance the data quality. Our processing contracts may be awarded jointly with, or independently from, data acquisition services. Data processing services comprise a small portion of our overall revenues.
Integrated Services. We maintain integrated in-house operations necessary to the development and completion of seismic surveys. Our experienced personnel have the capability to conduct or supervise the seismic survey design, permitting, surveying, data acquisition and processing functions for each seismic program. In-house support operations include a health, safety and environmental program as well as facilities for automotive repair, automotive paint and body repair, electronics repair, electrical engineering and software development. In addition, we maintain a fleet of tractor trailers to transport our seismic acquisition equipment to our survey sites. We believe that maintaining these functions in-house contributes to better quality control and improved efficiency in our operations. Our clients generally undertake to provide their own interpretation of the seismic data provided by us.
Equipment Acquisition and Capital Expenditures
We monitor and evaluate advances in geophysical technology and commit capital funds to purchase equipment we deem most promising in order to maintain our competitive position. Purchasing new assets and continually upgrading capital assets require a continuing commitment to capital spending. For fiscal year 2004, we made capital expenditures of $13,889,000 to fund the deployment of three new data acquisition crews, expand the capacity of existing crews, improve our data processing center and meet other necessary operational capital expenses. We have an approved budget of $20 million for fiscal 2005 to fund the remainder of the fiscal 2004 and January 2005 expansions and meet other necessary operational capital requirements.
Clients
Our services are marketed by supervisory and executive personnel who contact clients to determine geophysical needs and respond to client inquiries regarding the availability of crews or processing schedules. These contacts are based principally upon professional relationships developed over a number of years.
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Our clients range from major oil companies to small independent oil and gas operators and also include providers of multi-client data libraries. The services we provide to our clients vary according to the size and needs of each client. We believe that the loss of any one of our clients would not have a material impact on our business. During 2004, sales to our two largest clients represented 17% and 12% of our revenues, respectively. The largest client acts as an agent for other entities that are the actual purchasers of our services. Sales to each of the actual purchasers represented less than 10% of our total revenues. Because of our relatively large client base, our largest clients have varied from year to year.
In order to avoid potential conflicts of interest with our clients, we do not acquire data for our own account or for future sale, maintain any multi-client data library or participate in oil and gas ventures. The results of a seismic survey conducted for a client belong to that client. It is also our policy that none of our officers, directors or employees participate in any oil and gas venture. All of our clients information is maintained in strictest confidence.
Contracts
Our services are conducted under master service contracts with our clients. These master service contracts define certain obligations for us and for our clients. A supplemental agreement setting forth the terms of a specific project, which may be cancelled by either party on short notice, is entered into for every project. The supplemental agreements are either turnkey agreements that provide for a fixed fee to be paid to us for each unit of data acquired, or term agreements that provide for a fixed hourly, daily or monthly fee during the term of the project or projects. Turnkey agreements generally provide us more profit potential, but involve more risks because of the potential of crew downtime or operational delays. We attempt to negotiate on a project by project basis, some level of weather downtime protection within the turnkey agreements. Under the term agreements, we forego an increased profit potential in exchange for a more consistent revenue stream with improved protection from crew downtime or operational delays.
We currently operate under both turnkey and term supplemental agreements. Currently, the majority of our supplemental agreements are turnkey agreements.
Competition
The acquisition and processing of seismic data for the oil and gas industry is a highly competitive business in the United States. Contracts for such services generally are awarded on the basis of price quotations, crew experience and availability of crews to perform in a timely manner, although factors other than price, such as crew safety performance history, 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. Since the departure of our principal competitor, Western GECO, a subsidiary of Schlumberger N.V., from our market in 2003, our primary competitors have been Veritas DGC, Petroleum Geo Services, Trace Energy Services, Quantum Geophysical and Tidelands Geophysical.
Employees
We employ approximately 616 persons, of which 557 are engaged in providing energy sources and acquiring data, 9 are engaged in data processing, 11 are administrative personnel, 30 are engaged in equipment maintenance and transport and 9 are executive officers. Of the employees listed above, 10 are geophysicists. Our employees are not represented by a labor union. We believe we have good relations with our employees.
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MANAGEMENT
Executive Officers and Directors
The following table identifies our executive officers and directors and indicates their ages and positions as of December 1, 2004:
Name | Age | Position | ||||
L. Decker Dawson
|
84 | Chairman of the Board of Directors and Chief Executive Officer | ||||
Stephen C. Jumper
|
43 | President, Chief Operating Officer and Director | ||||
Howell W. Pardue
|
68 | Executive Vice President and Director | ||||
C. Ray Tobias
|
47 | Executive Vice President and Director | ||||
Christina W. Hagan
|
49 | Executive Vice President, Secretary, Treasurer and Chief Financial Officer | ||||
Edward L. Huff
|
67 | Senior Vice President | ||||
Frank D. Brown
|
49 | Vice President | ||||
K. S. Forsdick
|
53 | Vice President | ||||
A. Mark Nelson
|
44 | Vice President | ||||
Paul H. Brown
|
73 | Director | ||||
Gary M. Hoover, Ph.D.
|
64 | Director | ||||
Tim C. Thompson
|
70 | Director | ||||
Calvin J. Clements
|
83 | Director | ||||
Matthew P. Murphy
|
74 | Director |
Our next annual meeting of stockholders will be held on January 25, 2005. Our Board of Directors has authorized a reduction in the size of our Board to five members, effective as of such date, as permitted by our bylaws. Calvin J. Clements and Matthew P. Murphy are retiring from our Board of Directors as of January 25, 2005. Howell W. Pardue and C. Ray Tobias are expected to continue to serve us as executive officers; however, they are not nominated for election as directors at our next annual meeting of stockholders due to the reduction in the size of our Board to five members.
Set forth below is biographical information for our executive officers and directors.
L. Decker Dawson. Mr. Dawson founded our company in 1952. He served as our President until being elected as Chairman of our Board of Directors and Chief Executive Officer in January 2001. Prior to 1952, Mr. Dawson was a geophysicist with Republic Exploration Company, a geophysical company. Mr. Dawson served as President of the Society of Exploration Geophysicists from 1989 to 1990, received its Enterprise Award in 1997 and was awarded honorary membership in 2002. He was Chairman of the Board of Directors of the International Association of Geophysical Contractors in 1981 and is an honorary life member of such association. He was inducted into the Permian Basin Petroleum Museums Hall of Fame in 1997.
Stephen C. Jumper. Mr. Jumper, a geophysicist, joined us in 1985, was elected Vice President of Technical Services in September 1997 and was subsequently elected our President and Chief Operating Officer and Director in January 2001. Prior to 1997, Mr. Jumper served us as manager of technical services with an emphasis on 3-D processing. Mr. Jumper has served the Permian Basin Geophysical Society as Second Vice President in 1991, First Vice President in 1992 and as President in 1993.
Howell W. Pardue. Mr. Pardue joined us in 1976 as Vice President of Data Processing and Director. Mr. Pardue was elected Executive Vice President of Data Processing in 1997. Prior to joining us, Mr. Pardue was employed in data processing for 17 years by Geosource, Inc. and its predecessor geophysical company.
24
C. Ray Tobias. Mr. Tobias joined us in 1990, was elected Vice President in September 1997 and has been an Executive Vice President and Director since January 2001. Mr. Tobias supervises our client relationships and our survey cost quotations to clients. He has served on the Board of Directors of the International Association of Geophysical Contractors and is Past President of the Permian Basin Geophysical Society. Prior to joining us, Mr. Tobias was employed by Geo-Search Corporation where he was an operations supervisor.
Christina W. Hagan. Ms. Hagan joined us in 1988 and was elected Chief Financial Officer and Vice President in September 1997 and Senior Vice President and Secretary in January 2003. In January 2004, Ms. Hagan was elected Executive Vice President. Prior thereto, Ms. Hagan served as our Controller and Treasurer. Ms. Hagan is a certified public accountant.
Edward L. Huff. Mr. Huff joined us in 1956, and was elected Vice President in September 1997 and Senior Vice President in January 2004. Prior to his election as Vice President, Mr. Huff served as instrument operator, crew manager and field supervisor for us. He has managed our field operation since 1987.
Frank D. Brown. Mr. Brown, a geophysicist, joined us in 1988 and was elected Vice President in January 2001. Mr. Brown is responsible for client relationships and submitting survey cost quotations as well as providing survey design services to our clients. He is a past President of the Permian Basin Geophysical Society. Mr. Brown currently serves as Chairman of the Society of Exploration Geophysics Continuing Education Committee. Prior to joining us, Mr. Brown was employed by Permian Exploration Corporation as a geophysicist responsible for acquisition and interpretation projects.
K. S. Forsdick. Mr. Forsdick joined us in 1993 and was elected Vice President in January 2001. Mr. Forsdick is responsible for soliciting, designing and bidding seismic surveys for prospective clients. Prior to joining us, Mr. Forsdick was employed by Grant Geophysical Company and Western Geophysical Company and was responsible for marketing and managing land and marine seismic surveys for domestic and international operations. He has served on the Governmental Affairs Committee of the International Association of Geophysical Contractors.
A. Mark Nelson. Mr. Nelson joined us in 1993 as manager of our health, safety and environmental program and was elected Vice President in January 2004. Mr. Nelson has over twenty-five years of seismic experience, holds a masters degree in Environmental Science and is a registered environmental professional. He has also served as the Chairman of the Health, Safety and Environmental Committee of the International Association of Geophysical Contractors and is a member of the National Registry of Environmental Professionals and of the American Society of Safety Engineers.
Paul H. Brown. Mr. Brown has served us as a director since September 1999. Mr. Brown, an independent management consultant with various companies since May 1998, was President and Chief Executive Officer of WEDGE Energy Group, Inc. from January 1985 to May 1998.
Gary M. Hoover, Ph.D. Dr. Hoover has served us as a director since December 2002. Prior to his retirement in October 2002, Dr. Hoover was Senior Principal Geophysicist with Phillips Petroleum Company. His responsibilities for the previous ten years with Phillips included geophysical research management, geoscience technology coordination, exploration and production technology consultation and active research into new seismic data acquisition techniques. Dr. Hoover served as Vice President of the Society of Exploration Geophysicists (1990-1991) and received its Life Membership Award in 2000. Dr. Hoover holds a doctorate in physics from Kansas State University.
Tim C. Thompson. Mr. Thompson has served us as a director since 1995. Mr. Thompson, an independent management consultant with various companies since May 1993, was President and Chief Executive Officer of Production Technologies International, Inc. from November 1989 to May 1993.
Calvin J. Clements. Mr. Clements has served us as a director since 1972. Prior thereto and until his retirement in 1987, Mr. Clements was employed by us as Vice President of Data Acquisition Operations.
25
Matthew P. Murphy. Mr. Murphy has served us as director since 1993. Until his retirement in 1991, Mr. Murphy was employed as an executive of NCNB Texas, now known as Bank of America (and predecessor banks), and from 1986 to 1991, Mr. Murphy served the bank as District Director West Texas.
DESCRIPTION OF OUR CAPITAL STOCK
The following is a description of our capital stock and a summary of the material provisions of our articles of incorporation and bylaws. You should also refer to our articles of incorporation and bylaws, which are incorporated herein by reference, and to Texas law.
General
Our authorized capital stock consists of 5,000,000 shares of preferred stock, $1.00 par value per share, and 10,000,000 shares of common stock, $0.33 1/3 par value per share. As of November 26, 2004, there were 5,638,044 shares of our common stock issued and outstanding and no shares of preferred stock issued and outstanding. The outstanding shares of our common stock are, and the shares of our common stock to be sold by us as described herein will be when issued, fully paid and nonassessable.
Common Stock
Each share of our common stock has one vote on all matters presented to our shareholders. Since our common stock does not have cumulative voting rights, the holders of more than 50% of our common stock may, if they choose to do so, elect all of the directors and, in that event, the holders of the remaining shares of our common stock will not be able to elect any directors. Subject to the rights and preferences of any preferred stock that may be designated and issued, the holders of our common stock are entitled to dividends when and as declared by our board of directors and are entitled on liquidation to all assets remaining after payment of liabilities, subject to the liquidation preferences of any shares of preferred stock. Our common stock has no preemptive or other subscription rights. There are no conversion rights or redemption or sinking fund provisions with respect to our common stock.
Preferred Stock
Our preferred stock may be issued in series, and shares of each series shall have such rights and preferences as shall be fixed by our board of directors in the resolution or resolutions authorizing the issuance of that particular series. In designating any series of preferred stock, our board of directors has authority, without further action by the holders of our common stock, to fix the rights, dividend rate, conversion rights, rights and terms of redemption (including any sinking fund provisions) and the liquidation preferences of that series of preferred stock. The issuance of preferred stock by us could adversely affect the voting power of holders of our common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control of us. We have no present plans to issue any shares of preferred stock.
Limitation of Director Liability
Our restated articles of incorporation provide that our directors will have no personal liability to us or our shareholders for monetary damages for breach or alleged breach of our directors duty of care. This provision in our restated articles of incorporation does not eliminate our directors fiduciary duty of care, and in appropriate circumstances, equitable remedies such as an injunction or other forms of non-monetary relief should remain available under Texas law. Furthermore, each of our directors will continue to be subject to liability for (i) a breach of the directors duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, (iii) any transaction from which a director derives an improper personal benefit or (iv) an act or omission for which the liability of a director is expressly provided by an applicable statute. This provision does not affect a directors responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws.
26
Shares Eligible for Future Sale
Sales of a substantial number of shares of our common stock in the open market after this offering could adversely affect the trading price of our common stock. Upon consummation of this offering, we will have shares of common stock outstanding, excluding 227,000 shares of our common stock issuable upon exercise of outstanding employee stock options. Of such outstanding shares, we estimate that approximately shares will be freely tradeable without restriction or further registration under the Securities Act unless purchased by an affiliate of us, as that term is defined in Rule 144 under the Securities Act. The remaining shares of our common stock were acquired in transactions exempt from registration under the Securities Act and are or formerly were restricted securities within the meaning of Rule 144 and may not be resold unless they are registered under the Securities Act or are sold pursuant to an applicable exemption from registration, including Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares for at least one year from the later of the date the shares were acquired from us or from an affiliate of us, is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of one percent of the then outstanding shares of our common stock or the average weekly trading volume in our common stock during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to the availability of certain public information about us, restrictions on the manner of sale and notice requirements. A person who is not deemed an affiliate of us under the Securities Act, has not been an affiliate during the preceding 90 days and has beneficially owned shares for at least two years from the later of the date the shares were acquired from us or from an affiliate of us is entitled to sell such shares under Rule 144(k) without regard to the volume limitations and other restrictions described above.
We and each of our executive officers and directors have agreed with the underwriters, for a period of 120 days from the date of this prospectus, not to directly or indirectly sell, offer or contract to sell, or otherwise dispose of or transfer any shares of our common stock or any rights to purchase our common stock, without the prior written consent of Raymond James & Associates, Inc. See Underwriting.
Shareholder Rights Plan
On July 13, 1999, our Board of Directors authorized and declared a dividend to the holders of record on July 23, 1999 of one Right (a Right) for each outstanding share of our common stock. When exercisable, each Right will entitle the holder to purchase one one-hundredth of a share of our Series A Junior Participating Preferred Stock, par value $1.00 per share (the Preferred Shares), at an exercise price of $50.00 per Right. The rights are not currently exercisable and will become exercisable only if a person or group acquires beneficial ownership of 20% or more of our outstanding common stock or announces a tender offer or exchange offer, the consummating of which would result in attaining the triggering percentage. We may redeem the Rights for $0.01 per Right at any time prior to the tenth day after the first public announcement of a triggering acquisition.
27
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, which will be filed as an exhibit to the registration statement relating to this prospectus, Raymond James & Associates, Inc. and A.G. Edwards & Sons, Inc., our underwriters, have agreed to purchase from us the number of shares of common stock set forth below:
Number of | ||||
Underwriter | Shares | |||
Raymond James & Associates,
Inc.
|
||||
A.G. Edwards & Sons, Inc.
|
||||
Total
|
1,500,000 | |||
The underwriting agreement provides that the obligation of the underwriters to purchase and accept delivery of the shares of common stock offered by this prospectus is subject to certain customary closing conditions and to other conditions set forth in the underwriting agreement. The underwriters are obligated to purchase and accept delivery of all of the shares of common stock that they have agreed to purchase under the underwriting agreement, if any of the shares of common stock are purchased, other than those covered by the over-allotment option described below. We will amend the disclosure regarding the underwriting arrangements to reflect any material changes.
Commissions and Expenses
The following table shows the amount per share and total underwriting discounts and commissions we will pay to the underwriters. The amounts are shown assuming both no exercise and full exercise of the underwriters over-allotment option.
Total | ||||||||||||
Per Share | No Exercise | Full Exercise | ||||||||||
Public offering price
|
$ | $ | $ | |||||||||
Underwriting discount to be paid by us
|
$ | $ | $ | |||||||||
Proceeds, before expenses, to us
|
$ | $ | $ |
The underwriters propose to offer the shares of our common stock directly to the public at the public offering price indicated on the cover page of this prospectus and to various dealers at that price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may re-allow, a concession not in excess of $ per share to other dealers. If all of the shares of our common stock are not sold at the public offering price, the underwriters may change the public offering price and other selling terms. The shares of our common stock are offered by the underwriters as stated in this prospectus, subject to receipt by the underwriters and satisfaction of certain customary closing conditions. The underwriters reserve the right to reject an order from their customers for the purchase of shares of our common stock in whole or in part.
Over-Allotment Option
We have granted the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase from time to time up to an aggregate of 225,000 additional shares of our common stock to cover over-allotments, if any, at the public offering price less the underwriting discounts set forth on the cover page of this prospectus. If the underwriters exercise this option, the underwriters, subject to certain conditions, will become obligated to purchase these additional shares of our common stock. The underwriters may exercise the over-allotment option only to cover over-allotments made in connection with the sale of the common shares offered in this offering.
28
Indemnification
Under our underwriting agreement, we have agreed to indemnify the underwriters for (or contribute to losses with respect to) various liabilities, including liabilities under the Securities Act of 1933 for errors and omissions in this prospectus or the registration statement of which this prospectus is a part. However, we will not indemnify the underwriters if the error or omission was the result of information the underwriters supplied to us in writing for inclusion in this prospectus or the registration statement. If we cannot indemnify the underwriters, we have agreed to contribute to payments the underwriters may be required to make in respect of those liabilities. Our contribution would be in the proportion that the proceeds (after underwriting discounts and commissions) that we receive from this offering bear to the proceeds (from underwriting discounts and commissions) that the underwriters receive. If we cannot contribute in this proportion, we will contribute based on the respective faults and benefits, as set forth in the underwriting agreement.
Lock-Up Agreement
We and each of our officers and directors have agreed with the underwriters, for a period of 120 days after the date of this prospectus, not to directly or indirectly sell, offer or contract to sell, or otherwise dispose of or transfer any shares of our common stock or any rights to purchase our common stock (other than pursuant to the over-allotment option granted to the underwriters and pursuant to our equity compensation plans), or file any registration statement with the Securities and Exchange Commission (the SEC), without the prior written consent of Raymond James & Associates, Inc. However, Raymond James & Associates, Inc. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to this agreement.
Trading Market, Stabilization, Short Positions and Penalty Bids
Until the offering is completed, rules of the SEC may limit the ability of the underwriters and various selling group members to bid for and purchase our common shares. As an exception to these rules, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including:
| short sales, | |
| syndicate covering transactions, | |
| imposition of penalty bids, and | |
| purchases to cover positions created by short sales. |
Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while the offering is in progress. Stabilizing transactions may include making short sales of our common stock, which involve the sale by the underwriters of a greater number of shares of common stock than it is required to purchase in the offering, and purchasing common stock from us or in the open market to cover positions created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters over-allotment option referred to above, or may be naked shorts, which are short positions in excess of that amount.
The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares pursuant to the over-allotment option.
A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover such position.
29
The underwriters may also impose a penalty bid on selling group members. This means that if the underwriters purchase shares in the open market in stabilizing transactions or to cover short sales, the underwriters can require the selling group members that sold those shares as part of this offering to repay the selling concession received by them.
As a result of these activities, the price of our common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them without notice at any time. The underwriters may carry out these transactions on The Nasdaq National Market, in the over-the-counter market or otherwise.
Electronic Distribution
A prospectus in electronic format may be available on the Internet sites or through other online services maintained by the underwriters or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view the preliminary prospectus and the final prospectus online and, depending upon the underwriters or particular selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representative on the same basis as other allocations. In addition, the underwriters participating in this offering may distribute prospectuses electronically.
Other than the prospectus in electronic format, the information on the underwriters or any selling group members website and any information contained in any other website maintained by the underwriters or any selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters or any selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.
LEGAL MATTERS
The validity of the securities offered in this prospectus will be passed upon for us by Baker Botts L.L.P., Dallas, Texas. Certain matters will be passed upon for the underwriters by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The financial statements in this prospectus have been included in reliance on the report of KPMG LLP, independent registered public accounting firm, given on the authority of such firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the Securities Act of 1933 that registers the securities offered by this prospectus. The registration statement, including the attached exhibits, contains additional relevant information about us. The rules and regulations of the SEC allow us to omit some information included in the registration statement from this prospectus.
In addition, we file annual, quarterly and other reports and other information with the SEC. You may read and copy any document we file at the SECs public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for further information on the operation of the SECs public reference room. Our SEC filings are available on the SECs web site at www.sec.gov. We also make available free of charge on our website, at www.dawson3d.com, all materials that we file electronically with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 reports and amendments to these reports as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC. Information
30
INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference into this prospectus the information we have filed with the SEC. This means that we can disclose important information to you without actually including the specific information in this prospectus by referring you to other documents filed separately with the SEC. These other documents contain important information about us, our financial condition and results of operations. The information incorporated by reference is an important part of this prospectus. Information that we file later with the SEC will automatically update and may replace information in this prospectus and information previously filed with the SEC.
We incorporate by reference in this prospectus the documents listed below:
| our annual report on Form 10-K for the year ended September 30, 2004 filed with the SEC on December 10, 2004; | |
| our proxy statement on Schedule 14A filed with the SEC on December 10, 2004; | |
| our current report on Form 8-K filed with the SEC on December 23, 2004; and | |
| all documents filed by us under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between the date of this prospectus and the termination of the registration statement (excluding any portions thereof that are deemed to be furnished and not filed). |
You may obtain any of the documents incorporated by reference in this prospectus from the SEC through the SECs web site at the address provided above. You also may request a copy of any document incorporated by reference in this prospectus (including exhibits to those documents specifically incorporated by reference in this document), at no cost, by visiting our internet website at www.dawson3d.com, or by writing or calling us at the following address and telephone number:
Dawson Geophysical Company
31
INDEX TO FINANCIAL STATEMENTS
Page | ||||
Report of Independent Registered Public
Accounting Firm
|
F-2 | |||
Balance Sheets as of September 30, 2004 and
2003
|
F-3 | |||
Statements of Operations for the years ended
September 30, 2004, 2003 and 2002
|
F-4 | |||
Statements of Changes in Stockholders Equity for
the years ended September 30, 2004, 2003 and 2002
|
F-5 | |||
Statements of Cash Flows for the years ended
September 30, 2004, 2003 and 2002
|
F-6 | |||
Notes to Financial Statements
|
F-7 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
We have audited the accompanying balance sheets of Dawson Geophysical Company (the Company) as of September 30, 2004 and 2003, and the related statements of operations, stockholders equity and comprehensive income, and cash flows for each of the years in the three-year period ended September 30, 2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dawson Geophysical Company as of September 30, 2004 and 2003, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2004, in conformity with U.S. generally accepted accounting principles.
Midland, Texas | |
November 11, 2004 |
F-2
DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
September 30, | |||||||||||
2004 | 2003 | ||||||||||
ASSETS | |||||||||||
Current assets:
|
|||||||||||
Cash and cash equivalents
|
$ | 3,587,000 | $ | 3,389,000 | |||||||
Short-term investments
|
4,130,000 | 8,623,000 | |||||||||
Accounts receivable, net of allowance for
doubtful accounts of $199,000 in 2004 and $127,000 in 2003
|
16,979,000 | 9,713,000 | |||||||||
Prepaid expenses and other assets
|
440,000 | 287,000 | |||||||||
Total current assets
|
25,136,000 | 22,012,000 | |||||||||
Deferred tax asset
|
1,648,000 | | |||||||||
Property, plant and equipment
|
94,050,000 | 81,585,000 | |||||||||
Less accumulated depreciation
|
(64,075,000 | ) | (60,805,000 | ) | |||||||
Net property, plant and equipment
|
29,975,000 | 20,780,000 | |||||||||
$ | 56,759,000 | $ | 42,792,000 | ||||||||
LIABILITIES AND STOCKHOLDERS EQUITY | |||||||||||
Current liabilities:
|
|||||||||||
Accounts payable
|
$ | 3,357,000 | $ | 931,000 | |||||||
Accrued liabilities:
|
|||||||||||
Payroll costs and other taxes
|
742,000 | 478,000 | |||||||||
Other
|
971,000 | 415,000 | |||||||||
Deferred revenue
|
1,407,000 | 306,000 | |||||||||
Total current liabilities
|
6,477,000 | 2,130,000 | |||||||||
Stockholders equity:
|
|||||||||||
Preferred stock par value $1.00 per
share; 5,000,000 shares authorized, none outstanding
|
| | |||||||||
Common stock par value $0.33 1/3 per
share; 10,000,000 shares authorized, 5,633,794 and 5,487,794
shares issued and outstanding in 2004 and 2003, respectively
|
1,878,000 | 1,829,000 | |||||||||
Additional paid-in capital
|
39,949,000 | 38,931,000 | |||||||||
Other comprehensive income, net of tax
|
(28,000 | ) | 37,000 | ||||||||
Retained earnings (deficit)
|
8,483,000 | (135,000 | ) | ||||||||
Total stockholders equity
|
50,282,000 | 40,662,000 | |||||||||
$ | 56,759,000 | $ | 42,792,000 | ||||||||
See accompanying notes to the financial statements.
F-3
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS
Years Ended September 30, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Operating revenues
|
$ | 69,346,000 | $ | 51,592,000 | $ | 36,078,000 | |||||||
Operating costs:
|
|||||||||||||
Operating expenses
|
55,618,000 | 46,151,000 | 33,205,000 | ||||||||||
General and administrative
|
2,675,000 | 2,421,000 | 2,006,000 | ||||||||||
Depreciation
|
4,653,000 | 4,404,000 | 4,233,000 | ||||||||||
62,946,000 | 52,976,000 | 39,444,000 | |||||||||||
Income (loss) from operations
|
6,400,000 | (1,384,000 | ) | (3,366,000 | ) | ||||||||
Other income:
|
|||||||||||||
Interest income
|
177,000 | 328,000 | 507,000 | ||||||||||
Other
|
505,000 | 209,000 | 96,000 | ||||||||||
Income (loss) before income tax
|
7,082,000 | (847,000 | ) | (2,763,000 | ) | ||||||||
Income tax benefit (expense):
|
|||||||||||||
Current
|
(96,000 | ) | | 400,000 | |||||||||
Deferred
|
1,632,000 | (52,000 | ) | 71,000 | |||||||||
1,536,000 | (52,000 | ) | 471,000 | ||||||||||
Net income (loss)
|
$ | 8,618,000 | $ | (899,000 | ) | $ | (2,292,000 | ) | |||||
Net income (loss) per common share
|
$ | 1.55 | $ | (0.16 | ) | $ | (0.42 | ) | |||||
Net income (loss) per common share-assuming
dilution
|
$ | 1.53 | $ | (0.16 | ) | $ | (0.42 | ) | |||||
Weighted average equivalent common shares
outstanding
|
5,558,646 | 5,484,593 | 5,462,936 | ||||||||||
Weighted average equivalent common shares
outstanding-assuming dilution
|
5,631,397 | 5,484,593 | 5,462,936 | ||||||||||
See accompanying notes to the financial statements.
F-4
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Common Stock | Accumulated | |||||||||||||||||||||||||
Additional | Other | Retained | ||||||||||||||||||||||||
Number | Paid-in | Comprehensive | Earnings | |||||||||||||||||||||||
of Shares | Amount | Capital | Income | (deficit) | Total | |||||||||||||||||||||
Balance, September 30, 2001
|
5,445,794 | $ | 1,815,000 | $ | 38,711,000 | $ | 3,056,000 | $ | 43,582,000 | |||||||||||||||||
Net loss
|
(2,292,000 | ) | (2,292,000 | ) | ||||||||||||||||||||||
Other comprehensive income net of tax:
|
||||||||||||||||||||||||||
Unrealized gain on securities:
|
||||||||||||||||||||||||||
Unrealized holding gains arising during period
|
$ | 208,000 | ||||||||||||||||||||||||
Income tax benefit
|
(71,000 | ) | ||||||||||||||||||||||||
Other comprehensive income
|
137,000 | |||||||||||||||||||||||||
Comprehensive income
|
41,427,000 | |||||||||||||||||||||||||
Issuance of common stock as compensation
|
21,500 | 7,000 | 152,000 | 159,000 | ||||||||||||||||||||||
Balance, September 30, 2002
|
5,467,294 | 1,822,000 | 38,863,000 | 137,000 | 764,000 | 41,586,000 | ||||||||||||||||||||
Net loss
|
(899,000 | ) | (899,000 | ) | ||||||||||||||||||||||
Other comprehensive income net of tax:
|
||||||||||||||||||||||||||
Unrealized loss on securities:
|
||||||||||||||||||||||||||
Unrealized holding losses arising during period
|
(145,000 | ) | ||||||||||||||||||||||||
Less: Reclassification adjustment for gain
included in net income
|
(7,000 | ) | ||||||||||||||||||||||||
Income tax expense
|
52,000 | |||||||||||||||||||||||||
Other comprehensive income
|
(100,000 | ) | (100,000 | ) | ||||||||||||||||||||||
Comprehensive income
|
40,587,000 | |||||||||||||||||||||||||
Issuance of common stock as compensation
|
20,500 | 7,000 | 68,000 | 75,000 | ||||||||||||||||||||||
Balance, September 30, 2003
|
5,487,794 | 1,829,000 | 38,931,000 | 37,000 | (135,000 | ) | 40,662,000 | |||||||||||||||||||
Net income
|
8,618,000 | 8,618,000 | ||||||||||||||||||||||||
Other comprehensive income net of tax:
|
||||||||||||||||||||||||||
Unrealized loss on securities:
|
||||||||||||||||||||||||||
Unrealized holding losses arising during period
|
(126,000 | ) | ||||||||||||||||||||||||
Less: Reclassification adjustment for gain
included in net income
|
47,000 | |||||||||||||||||||||||||
Income tax expense
|
14,000 | |||||||||||||||||||||||||
Other comprehensive income
|
(65,000 | ) | (65,000 | ) | ||||||||||||||||||||||
Comprehensive income
|
49,215,000 | |||||||||||||||||||||||||
Issuance of common stock as compensation
|
8,500 | 3,000 | 107,000 | 110,000 | ||||||||||||||||||||||
Exercise of stock options
|
137,500 | 46,000 | 911,000 | 957,000 | ||||||||||||||||||||||
Balance, September 30, 2004
|
5,633,794 | $ | 1,878,000 | $ | 39,949,000 | $ | (28,000 | ) | $ | 8,483,000 | $ | 50,282,000 | ||||||||||||||
See accompanying notes to the financial statements.
F-5
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
Years Ended September 30, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|||||||||||||
Net income (loss)
|
$ | 8,618,000 | $ | (899,000 | ) | $ | (2,292,000 | ) | |||||
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
|
|||||||||||||
Depreciation
|
4,653,000 | 4,404,000 | 4,233,000 | ||||||||||
Non-cash compensation
|
110,000 | 75,000 | 159,000 | ||||||||||
Deferred income tax (benefit) expense
|
(1,632,000 | ) | 52,000 | (71,000 | ) | ||||||||
Other
|
135,000 | (46,000 | ) | 58,000 | |||||||||
Change in current assets and liabilities:
|
|||||||||||||
Decrease (increase) in accounts receivable
|
(7,266,000 | ) | (2,100,000 | ) | 1,082,000 | ||||||||
Increase in prepaid expenses
|
(153,000 | ) | (67,000 | ) | (47,000 | ) | |||||||
Decrease (increase) in income taxes receivable
|
400,000 | (400,000 | ) | ||||||||||
Increase (decrease) in accounts payable
|
2,426,000 | (747,000 | ) | 784,000 | |||||||||
Increase in accrued liabilities
|
820,000 | 254,000 | 21,000 | ||||||||||
Increase (decrease) in deferred revenue
|
1,101,000 | (82,000 | ) | 101,000 | |||||||||
Net cash provided by operating activities
|
8,812,000 | 1,244,000 | 3,628,000 | ||||||||||
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|||||||||||||
Proceeds from disposal of assets
|
40,000 | 27,000 | 10,000 | ||||||||||
Capital expenditures
|
(13,889,000 | ) | (6,153,000 | ) | (2,047,000 | ) | |||||||
Proceeds from sale of short-term investments
|
2,973,000 | 5,964,000 | | ||||||||||
Proceeds from maturity of short-term investments
|
7,550,000 | 4,000,000 | 10,598,000 | ||||||||||
Acquisition of short-term investments
|
(6,245,000 | ) | (3,002,000 | ) | (15,218,000 | ) | |||||||
Net cash provided by (used in) investing
activities
|
(9,571,000 | ) | 836,000 | (6,657,000 | ) | ||||||||
CASH FLOW FROM FINANCING ACTIVITIES
|
|||||||||||||
Proceeds from exercise of stock options
|
957,000 | | | ||||||||||
Net increase (decrease) in cash and cash
equivalents
|
198,000 | 2,080,000 | (3,029,000 | ) | |||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR
|
3,389,000 | 1,309,000 | 4,338,000 | ||||||||||
CASH AND CASH EQUIVALENTS AT END OF
YEAR
|
$ | 3,587,000 | $ | 3,389,000 | $ | 1,309,000 | |||||||
NON CASH INVESTING ACTIVITIES:
|
|||||||||||||
UNREALIZED GAIN (LOSS) ON
INVESTMENTS
|
$ | (42,000 | ) | $ | (145,000 | ) | $ | 208,000 | |||||
See accompanying notes to the financial statements.
F-6
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS
1. | Summary of Significant Accounting Policies |
Organization and Nature of Operations |
Dawson Geophysical Company (the Company), which was founded in Texas in 1952, has been listed and traded on the NASDAQ National Market System (NMS) under the symbol DWSN since 1981.
The Company acquires and processes 2-D, 3-D and multi-component seismic data for major and intermediate-sized oil and gas companies and independent oil operators. The Company operates nine seismic data acquisition crews in the lower 48 states of the United States, and a seismic data processing center.
Cash Equivalents |
For purposes of the statements of cash flows, the Company considers demand deposits, certificates of deposit and all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents.
Short-Term Investments |
The Company accounts for its short-term investments in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (Statement 115). In accordance with Statement 115, the Company has classified its investment portfolio consisting of U.S. Treasury Securities as available-for-sale and records the net unrealized holding gains and losses as accumulated comprehensive income in stockholders equity. The cost of short-term investments sold is based on the specific identification method.
Fair Value of Financial Instruments |
The carrying amounts for cash and cash equivalents, accounts receivable, other current assets, accounts payable and other current liabilities approximate their fair values based on their short-term nature. The fair value of investments are based on quoted market prices.
Concentrations of Credit Risk |
Financial instruments which potentially expose the Company to concentrations of credit risk, as defined by Statement of Financial Accounting Standards No. 105, consist primarily of trade accounts receivable and short-term investments. The Companys sales are to clients whose activities relate to oil and gas exploration and production. However, accounts receivable are well diversified among many clients, and a significant portion of the receivables are from major oil companies, which management believes minimizes potential credit risk. The Company generally extends unsecured credit to these clients; therefore, collection of receivables may be affected by the economy surrounding the oil and gas industry. The Company closely monitors extensions of credit and initiated an allowance for doubtful accounts in fiscal 1999 as a result of the downturn in oil prices which occurred during the year and negatively impacted the Companys clients. The Company invests primarily in short-term U.S. Treasury Securities which it believes are a low risk investment.
Property, Plant and Equipment |
Property, plant and equipment are capitalized at historical cost and depreciated over the useful life of the asset. Managements estimation of this useful life is based on circumstances that exist in the seismic
F-7
NOTES TO FINANCIAL STATEMENTS (Continued)
industry and information available at the time of the purchase of the asset. As circumstances change and new information becomes available these estimates could change.
Depreciation is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in the results of operations for the period.
Impairment of Long-Lived Assets |
Long-lived assets are reviewed for impairment when triggering events occur suggesting a deterioration in the assets recoverability or fair value. Recognition of an impairment is required if future expected net cash flows are insufficient to recover the carrying value of the amounts. Managements forecast of future cash flow used to perform impairment analysis includes estimates of future revenues and future gross margins. If the Company is unable to achieve these cash flows, managements estimates would be revised, potentially resulting in an impairment charge in the period of revision. No impairment charges were recognized in the Statement of Operations for the years ended September 30, 2004, 2003 and 2002.
Revenue Recognition |
Contracts for service are provided for under cancelable contracts. These contracts are either turnkey or term agreements. The Company recognizes revenues when services are performed under both types of agreements. Services are defined as the commencement of data acquisition or processing operations. Under turnkey agreements, revenue is recognized on a per unit of data acquired rate, as services are performed. Under term agreements, revenue is recognized on a per unit of time worked rate, as services are performed. In the case of a cancelled contract, revenue is recognized and the customer is billed for services performed up to the date of cancellation. In the current year, approximately $375,000 of the Companys revenue is related to a negotiated release from one contract.
The Company also receives reimbursements for certain out-of-pocket expenses under the terms of its master contracts. Amounts billed to clients are recorded in revenue at the gross amount including out-of-pocket expenses which are reimbursed by the client.
In some instances, customers are billed in advance of services performed, and the Company recognizes the liability as deferred revenue.
Allowance for Doubtful Accounts |
Management prepares its allowance for doubtful accounts receivable based on its past experience of historical write-offs, its current customer base and 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 the Companys clients.
Income Taxes |
The Company accounts for state and federal income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement 109). Under the asset and liability method of Statement 109, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
F-8
NOTES TO FINANCIAL STATEMENTS (Continued)
Use of Estimates in the Preparation of Financial Statements |
Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications |
Certain prior year numbers have been reclassified in the current year in order to be consistent with the current year presentation.
Stock-Based Compensation |
In accordance with the Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), no compensation is recorded for stock options or other stock-based awards that are granted to employees or non-employee directors with an exercise price equal to or above the common stock price on the grant date.
The Company accounts for stock-based compensation utilizing the intrinsic value method prescribed by APB 25 and related interpretations. The following pro forma information, as required by Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation (SFAS 123), as amended by Statement of Financial Accounting Standards No. 148 (SFAS 148), presents net income and earnings per share information as if the stock options or other stock-based awards issued since September 30, 1997 were accounted for using the fair value method. The fair value of stock options issued for each year was estimated at the date of grant using the Black-Scholes option pricing model.
The SFAS 123 pro forma information for the fiscal years ended September 30, 2004, 2003 and 2002 is as follows:
September 30, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Net income (loss), as reported
|
$ | 8,618,000 | $ | (899,000 | ) | $ | (2,292,000 | ) | |||||
Add Stock-based employee compensation expense
included in net income (loss), net of tax
|
110,000 | 75,000 | 159,000 | ||||||||||
Deduct: Stock-based employee compensation expense
determined under fair value based method (SFAS 123), net of
tax
|
(426,000 | ) | (434,000 | ) | (516,000 | ) | |||||||
Net income (loss), pro forma
|
$ | 8,302,000 | $ | (1,258,000 | ) | $ | (2,649,000 | ) | |||||
Basic:
|
|||||||||||||
Net income (loss) per common share, as
reported
|
$ | 1.55 | $ | (0.16 | ) | $ | (0.42 | ) | |||||
Net income (loss) per common share, pro forma
|
$ | 1.49 | $ | (0.23 | ) | $ | (0.48 | ) | |||||
Diluted:
|
|||||||||||||
Net income (loss) per common share, as
reported
|
$ | 1.53 | $ | (0.16 | ) | $ | (0.42 | ) | |||||
Net income (loss) per common share, pro forma
|
$ | 1.47 | $ | (0.23 | ) | $ | (0.48 | ) | |||||
F-9
NOTES TO FINANCIAL STATEMENTS (Continued)
2. | Short-Term Investments |
Investment in securities consists of U.S. Treasury Securities. At September 30, 2004, the Company reported an unrealized loss on short-term investments of $28,000, which was $42,000 net of the tax effect of $14,000 and is in Other comprehensive income, net of tax.
Short-term investments held at September 30, 2004 consisting of U.S. Treasury Securities have contractual maturities from December, 2005 through May, 2006.
3. | Property, Plant and Equipment |
Property, plant and equipment, together with annual depreciation rates, consist of the following:
September 30, | ||||||||||||
2004 | 2003 | Useful Lives | ||||||||||
Land, building and other
|
$ | 3,213,000 | $ | 2,975,000 | 5 to 40 years | |||||||
Recording equipment
|
65,269,000 | 55,885,000 | 6 to 10 years | |||||||||
Vibrator energy sources
|
15,312,000 | 13,730,000 | 10 to 15 years | |||||||||
Vehicles
|
9,427,000 | 7,957,000 | 5 to 10 years | |||||||||
Equipment in process(a)
|
829,000 | 1,038,000 | ||||||||||
94,050,000 | 81,585,000 | |||||||||||
Less accumulated depreciation
|
(64,075,000 | ) | (60,805,000 | ) | ||||||||
Net property, plant and equipment
|
$ | 29,975,000 | $ | 20,780,000 | ||||||||
(a) | Equipment in process has not been placed into service and accordingly is not yet subject to depreciation. |
4. | Stock Options |
The Company adopted the 2000 Incentive Stock Plan during fiscal 1999, which provides options to purchase 500,000 shares of authorized but unissued common stock of the Company. The option price is the market value of the Companys common stock at date of grant. Options are exercisable 25% annually from the date of the grant and the options expire five years from date of grant. The 2000 Plan provides that 50,000 of the 500,000 shares of authorized but unissued common stock may be awarded to officers, directors and employees of the Company for the purpose of additional compensation.
In fiscal 2004, the Company adopted the 2004 Incentive Stock Plan which provides 375,000 shares of authorized but unissued common stock of the Company. The 2004 Incentive Stock Plan operates like the 2000 Incentive Stock Plan except that of the 375,000 shares, up to 125,000 shares may be awarded to officers, directors, and employees of the Company for the purpose of additional compensation and up to 125,000 shares may be awarded with restrictions.
F-10
NOTES TO FINANCIAL STATEMENTS (Continued)
The transactions under the Plans are summarized as follows:
Weighted | Number of | |||||||||
Average Price | Optioned Shares | |||||||||
Balance as of September 30, 2002
|
$ | 7.25 | 319,000 | |||||||
Granted
|
$ | 5.21 | 105,000 | |||||||
Cancelled or expired
|
$ | 7.02 | (17,000 | ) | ||||||
Balance as of September 30, 2003
|
$ | 6.72 | 407,000 | |||||||
Granted
|
$ | 7.06 | 40,000 | |||||||
Cancelled or expired
|
$ | 6.48 | (82,500 | ) | ||||||
Exercised
|
$ | 6.96 | (137,500 | ) | ||||||
Balance as of September 30, 2004
|
$ | 6.75 | 227,000 | |||||||
Options for 55,500, 204,750 and 130,750 shares were exercisable with weighted average exercise prices of $7.42, $6.94 and $6.79 as of September 30, 2004, 2003 and 2002, respectively.
Outstanding options at September 30, 2004 expire between April, 2006 and October, 2008 and have exercise prices ranging from $5.21 to $8.65.
Options for 40,000 shares were granted in fiscal year 2004. The expected life of the options granted is five years. The weighted average fair value of options granted during 2004 is $1.24. The fair value of each option grant is estimated on the date of grant, using the Black-Scholes options-pricing model.
The model assumed expected volatility of .5% and risk-free interest rate of 3.14% for grants in 2004. As the Company has not declared dividends since it became a public entity, no dividend yield was used. Actual value realized, if any, is dependent on the future performance of the Companys common stock and overall stock market conditions. There is no assurance the value realized by an optionee will be at or near the value estimated by the Black-Scholes model.
5. Employee Benefit Plans
The Company had an employee stock purchase plan to invest in the Companys common stock for the benefit of eligible employees. Participants were entitled to contribute a percentage, not to exceed 5%, of their bi-weekly salary to the plan. On a bi-weekly basis, the Company matched the participants contributions and directed the purchase of shares of the Companys common stock. There were no vesting requirements for the participants. The Company contributed $56,116 to the plan during the fiscal first quarter of 2002. The Company discontinued the Plan effective January 1, 2002.
Effective January 1, 2002, the Company initiated a 401(k) plan as part of its employee benefits package in order to retain quality personnel. During 2004, 2003 and 2002, the Company elected to match 100% of employee contributions up to a maximum of 5% of the participants gross salary. The Companys matching contributions for fiscal 2004, 2003 and 2002 were approximately $438,000, $373,000 and $259,000, respectively.
6. Income Taxes
The Company recorded an income tax benefit in the current year of approximately $1,536,000. The benefit is due to the elimination of the income tax valuation allowance. Current US. federal tax is related to the tax effect of the unrealized loss on investments recorded in other comprehensive income and alternative minimum tax.
F-11
NOTES TO FINANCIAL STATEMENTS (Continued)
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Based on the Companys return to profitability and budgeted expectations, management has determined that taxable income of the Company will more likely than not be sufficient to fully utilize available net operating loss carryforwards prior to their ultimate expiration. As such, the Company has eliminated the valuation allowance of $4,232,000 to reflect the realizability of its net deferred tax assets.
Income tax expense (benefit) attributable to income before extraordinary item consists of:
Year Ended September 30, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Current:
|
|||||||||||||
U.S. federal
|
$ | 96,000 | $ | | $ | (400,000 | ) | ||||||
State
|
| | | ||||||||||
96,000 | | (400,000 | ) | ||||||||||
Deferred: U.S. Federal
|
(1,632,000 | ) | 52,000 | (71,000 | ) | ||||||||
Total
|
$ | (1,536,000 | ) | $ | 52,000 | $ | (471,000 | ) | |||||
F-12
NOTES TO FINANCIAL STATEMENTS (Continued)
Income tax expense varies from the amount computed by multiplying income before taxes by the statutory income tax rate. The reason for these differences and the related tax effects are as follows:
Year Ended September 30, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Expense (benefit) computed at statutory rates
|
$ | 2,585,000 | $ | (287,000 | ) | $ | (939,000 | ) | |||||
Effect of:
|
|||||||||||||
Change in valuation allowance
|
(4,232,000 | ) | 297,000 | 428,000 | |||||||||
Other
|
111,000 | 42,000 | 40,000 | ||||||||||
Income tax expense (benefit)
|
$ | (1,536,000 | ) | $ | 52,000 | $ | (471,000 | ) | |||||
September 30, | |||||||||
2004 | 2003 | ||||||||
Deferred tax assets:
|
|||||||||
Net operating loss carryforwards
|
$ | 4,555,000 | $ | 6,687,000 | |||||
Alternative minimum tax credit carryforwards
|
509,000 | 413,000 | |||||||
Receivables
|
71,000 | 45,000 | |||||||
Other
|
209,000 | 116,000 | |||||||
Total deferred tax assets
|
5,344,000 | 7,261,000 | |||||||
Less valuation allowance
|
| (4,232,000 | ) | ||||||
Total gross deferred tax assets
|
5,344,000 | 3,029,000 | |||||||
Deferred tax liabilities:
|
|||||||||
Other property and equipment
|
(3,645,000 | ) | (2,938,000 | ) | |||||
Investments
|
(23,000 | ) | (21,000 | ) | |||||
Other
|
(28,000 | ) | (70,000 | ) | |||||
Total gross deferred tax liabilities
|
(3,696,000 | ) | (3,029,000 | ) | |||||
Net deferred tax asset (liability)
|
$ | 1,648,000 | $ | | |||||
As of September 30, 2004, the Company had a net operating loss carryforward for US. federal income tax purposes of approximately $13,277,000, which is available to offset future regular taxable income, if any. Net operating loss carryforward will begin to expire in 2022. The Company has alternative minimum tax credit carryforwards totaling $509,000 to offset regular income tax, which have no scheduled expiration date.
7. Net Income (Loss) per Common Share
The Company accounts for earnings per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share (Statement 128). Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities.
F-13
NOTES TO FINANCIAL STATEMENTS (Continued)
The following table sets forth the computation of basic and diluted net income per common share:
2004 | 2003 | 2002 | |||||||||||
Numerator:
|
|||||||||||||
Net income (loss) and numerator for basic
and diluted net income (loss) per common share
income available to common stockholders
|
$ | 8,618,000 | $ | (899,000 | ) | $ | (2,292,000 | ) | |||||
Denominator:
|
|||||||||||||
Denominator for basic net income (loss) per
common share weighted average common shares
|
5,558,646 | 5,484,593 | 5,462,936 | ||||||||||
Effect of dilutive securities-employee stock
options
|
72,751 | | | ||||||||||
Denominator for diluted net income
(loss) per common share adjusted weighted
average common shares and assumed conversions
|
5,631,397 | 5,484,593 | 5,462,936 | ||||||||||
Net income (loss) per common share
|
$ | 1.55 | $ | (0.16 | ) | $ | (0.42 | ) | |||||
Net income (loss) per common
share assuming dilution
|
$ | 1.53 | $ | (0.16 | ) | $ | (0.42 | ) | |||||
Employee stock options to purchase shares of common stock were outstanding during fiscal year 2003 but were not included in the computation of diluted net loss per share because either (i) the employee stock options exercise price was greater than the average market price of the common stock of the Company, or (ii) the Company had a net loss from continuing operations and, therefore, the effect would be antidilutive.
8. Major Customers
The Company operates in only one business segment, contract seismic data acquisition and processing services. During 2004, sales to the Companys two largest clients represented 17% and 12% of the Companys revenues, respectively. During 2003 and 2002, sales to only one client, which was not the same client in each year or in 2004, exceeded 10% of operating revenues.
9. Contingencies
The Company is party to various legal actions arising in the ordinary course of its business, none of which management believes will result in a material adverse effect on the Companys financial position or results of operation, as the Company believes it is adequately insured.
On February 18, 1998 the Company entered into a five year, non-cancellable operating lease for office space. On June 30, 2003, the lease was amended to extend the term of the lease for five years beginning July 1, 2003 and ending June 30, 2008. Future minimum lease commitments under the lease at September 30 of each year are $142,716 through 2007, and $107,037 in fiscal year 2008.
10. Rights Agreement
On July 13, 1999, the Board of Directors of the Company authorized and declared a dividend to the holders of record on July 23, 1999 of one Right (a Right) for each outstanding share of the Companys common stock. When exercisable, each Right will entitle the holder to purchase one one-hundredth of a share of a Series A Junior Participating Preferred Stock, par value $1.00 per share, of the Company (the
F-14
NOTES TO FINANCIAL STATEMENTS (Continued)
Preferred Shares) at an exercise price of $50.00 per Right. The rights are not currently exercisable and will become exercisable only if a person or group acquires beneficial ownership of 20% or more of the Companys outstanding common stock or announces a tender offer or exchange offer, the consummating of which would result in attaining the triggering percentage. The Rights are subject to redemption by the Company for $.01 per Right at any time prior to the tenth day after the first public announcement of a triggering acquisition.
If the Company is acquired in a merger or other business combination transaction after a person has acquired beneficial ownership of 20% or more of the Companys common stock, each Right will entitle its holder to purchase, at the Rights then current exercise price, a number of the acquired Companys shares of common stock having a market value of two times such price. In addition, if a person or group acquires beneficial ownership of 20% or more of the Companys common stock, each Right will entitle its holder (other than the acquiring person or group) to purchase, at the Rights then current exercise price, a number of the Companys shares of common stock having a market value of two times the exercise price.
Subsequent to the acquisition by a person or group of beneficial ownership of 20% or more of the Companys common stock and prior to the acquisition of beneficial ownership of 50% or more of the Companys common stock, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such acquiring person or group, which will have become null and void and nontransferable), in whole or in part, at an exchange ratio of one share of the Companys common stock (or one one-hundredth of a Preferred Share) per Right.
The Rights dividend distribution was made on July 23, 1999, payable to shareholders of record at the close of business on that date. The Rights will expire on July 23, 2009.
11. Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has announced it will require all public companies to expense the fair value of employee stock awards. The final requirements will be effective for fiscal years beginning after December 31, 2004. The impact to the Companys financial statements will be in the form of additional compensation expense upon the award of any stock options. The amount of the compensation expense recognized by the Company is dependent on the value of the Companys common stock and the number of options awarded.
12. Subsequent Events
In November of 2004, the Company received a commitment letter from a bank for a revolving line of credit to be secured by eligible accounts receivable up to $10 million to be used for capital expenditures and working capital.
F-15
NOTES TO FINANCIAL STATEMENTS (Continued)
13. Quarterly Financial Data (Unaudited)
Quarter Ended | |||||||||||||||||
December 31 | March 31 | June 30 | September 30 | ||||||||||||||
Fiscal 2004:
|
|||||||||||||||||
Operating revenues
|
$ | 15,475,000 | $ | 15,203,000 | $ | 17,112,000 | $ | 21,556,000 | |||||||||
Income from operations
|
$ | 438,000 | $ | 1,843,000 | $ | 1,804,000 | $ | 2,315,000 | |||||||||
Net income
|
$ | 506,000 | $ | 1,999,000 | $ | 1,989,000 | $ | 4,124,000 | |||||||||
Net income per common share
|
$ | 0.09 | $ | 0.36 | $ | 0.36 | $ | 0.73 | |||||||||
Net income per common share assuming dilution
|
$ | 0.09 | $ | 0.36 | $ | 0.35 | $ | 0.72 | |||||||||
Fiscal 2003:
|
|||||||||||||||||
Operating revenues
|
$ | 11,410,000 | $ | 14,196,000 | $ | 11,291,000 | $ | 14,695,000 | |||||||||
Income (loss) from operations
|
$ | (1,007,000 | ) | $ | 579,000 | $ | (1,483,000 | ) | $ | 527,000 | |||||||
Net income (loss)
|
$ | (893,000 | ) | $ | 844,000 | $ | (1,407,000 | ) | $ | 557,000 | |||||||
Net income (loss) per common share
|
$ | (0.16 | ) | $ | 0.15 | $ | (0.26 | ) | $ | 0.10 | |||||||
Net income (loss) per common share assuming
dilution
|
$ | (0.16 | ) | $ | 0.15 | $ | (0.26 | ) | $ | 0.10 |
F-16
TABLE OF CONTENTS
Page | ||||
Prospectus Summary
|
1 | |||
Risk Factors
|
5 | |||
Forward-Looking Statements
|
8 | |||
Use of Proceeds
|
8 | |||
Price Range of Common Stock and Dividend Policy
|
9 | |||
Capitalization
|
10 | |||
Selected Financial Data
|
11 | |||
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
14 | |||
Business
|
20 | |||
Management
|
24 | |||
Description of our Capital Stock
|
26 | |||
Underwriting
|
28 | |||
Legal Matters
|
30 | |||
Experts
|
30 | |||
Where You Can Find More Information
|
30 | |||
Incorporation by Reference
|
31 | |||
Index to Financial Statements
|
F-1 |
1,500,000 Shares
DAWSON
Common Stock
PRELIMINARY PROSPECTUS
RAYMOND JAMES
A.G. EDWARDS
, 2005
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. | Other Expenses of Issuance and Distribution |
Set forth below are the expenses (other than underwriting discounts) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration fee, the amounts set forth below are estimates:
Securities and Exchange Commission registration
fee
|
$ | 4,464 | ||
NASD filing fee
|
$ | 4,292 | ||
Legal fees and expenses
|
$ | * | ||
Accounting fees and expenses
|
$ | * | ||
Printing and engraving expenses
|
$ | * | ||
Miscellaneous
|
$ | * | ||
Total
|
$ | * | ||
* To be supplied by amendment.
Item 15. | Indemnification of Directors and Officers |
Article Seven of our articles of incorporation, as amended, provides as follows:
A director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages from an act or omission in such directors capacity as a director, except for liability for (i) a breach of a directors duty of loyalty to the corporation or its shareholders; (ii) an act or omission not in good faith or that involves intentional misconduct or a knowing violation of the law; (iii) a transaction from which a director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the directors office; (iv) an act or omission for which the liability of a director is expressly provided by statute; or (v) an act related to an unlawful stock repurchase or payment of a dividend. If the laws of the State of Texas are hereafter amended to authorize corporate action further eliminating or limiting the personal liability of a director of the corporation, then the liability of a director of the corporation shall thereupon be automatically eliminated or limited to the fullest extent permitted by such laws. Any repeal or modification of this Article Seven by the shareholders of the corporation shall not adversely affect any right or protection of a director existing at the time of such repeal or modification with respect to events or circumstances occurring or existing prior to such time. |
Article IX of our bylaws provides that:
To the extent permitted by Texas Business Corporation Act Article 2.02-1, the corporation shall indemnify any present or former Director, officer, employee, or agent of the corporation against judgments, penalties (including excise and similar taxes), fines, settlements, and reasonable expenses actually incurred by the person in connection with a proceeding in which the person was, is, or is threatened to be made a named defendant or respondent because the person is or was a Director, officer, employee, or agent of the corporation. |
Article 2.02-1 of the Texas Business Corporation Act permits corporations to indemnify a person who was or is a director, officer, employee or agent of a corporation or who serves at the corporations request as a director, officer, partner, proprietor, trustee, employee, or agent of another corporation, partnership, trust, joint venture, or other enterprise (an outside enterprise), who was, is, or is threatened to be named a defendant in a legal proceeding by virtue of such persons position in the corporation or in an outside enterprise, but only if the person acted in good faith and reasonably believed, in the case of conduct in the persons official capacity, that the conduct was in or, in the case of all other conduct, that the conduct was
II-1
Indemnification can be made by the corporation only upon a determination made in the manner prescribed by the statute that indemnification is proper in the circumstances because the party seeking indemnification has met the applicable standard of conduct as set forth in Article 2.02-1 of the Texas Business Corporation Act.
Article 2.02-1 of the Texas Business Corporation Act also permits a corporation to purchase and maintain insurance or to make other arrangements on behalf of any of the above persons against any liability asserted against and incurred by the person in such capacity, or arising out of the persons status as such a person, whether or not the corporation would have the powers to indemnify the person against the liability under applicable law.
Item 16. | Exhibits and Financial Statement Schedules |
(a) Exhibits. The following documents are filed as exhibits to this registration:
Exhibit | ||||
Number | Description | |||
1 | .1 | Form of Underwriting Agreement. | ||
3 | .1 | Restated Articles of Incorporation of the Company (filed on December 10, 2004 as Exhibit 3.1 to the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2004 (File No. 000-10144) and incorporated herein by reference). | ||
3 | .2 | Bylaws of the Company, as amended (filed on December 11, 2003 as Exhibit 3 to the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2003 (File No. 000-10144) and incorporated herein by reference). | ||
4 | .1 | Rights Agreement by and between the Company and Mellon Investor Services, LLC (f/k/a Chasemellon Shareholder Services, L.L.C.), as Rights Agent, dated July 13, 1999 (filed on December 11, 2003 as Exhibit 4 to the Registrants Annual Report on Form 10-K for the fiscal year ended September 30, 2003 (File No. 000-10144) and incorporated herein by reference). | ||
5 | .1 | Opinion of Baker Botts L.L.P. | ||
23 | .1 | Consent of Baker Botts L.L.P (included in Exhibit 5.1). | ||
23 | .2* | Consent of KPMG LLP, an independent registered public accounting firm. | ||
24 | .1** | Power of Attorney. |
* | Filed herewith. |
** | Previously filed. |
| To be filed by amendment. |
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the information is included in the consolidated financial statements, and have therefore been omitted. |
II-2
(c) Reports, Opinions, and Appraisals
The following reports, opinions, and appraisals are included herein: None. |
Item 17. | Undertakings |
(a) Each undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrants annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plans annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of any registrant pursuant to the provisions described in Item 15 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, each registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. | |
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Midland, State of Texas, on January 19, 2005.
DAWSON GEOPHYSICAL COMPANY. |
By: | /s/ L. DECKER DAWSON |
|
|
Name: L. Decker Dawson |
Title: | Chairman of the Board of Directors and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated below.
Signature | Title | Date | ||||
/s/ L. DECKER DAWSON L. Decker Dawson |
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | January 19, 2005 | ||||
/s/ STEPHEN C. JUMPER Stephen C. Jumper |
President, Chief Operating Officer and Director | January 19, 2005 | ||||
* Howell W. Pardue |
Executive Vice President and Director | January 19, 2005 | ||||
* C. Ray Tobias |
Executive Vice President and Director | January 19, 2005 | ||||
* Paul H. Brown |
Director | January 19, 2005 | ||||
* Calvin J. Clements |
Director | January 19, 2005 | ||||
* Gary M. Hoover |
Director | January 19, 2005 | ||||
* Mathew P. Murphy |
Director | January 19, 2005 |
II-4
Signature | Title | Date | ||||
* Tim C. Thompson |
Director | January 19, 2005 | ||||
/s/ CHRISTINA W. HAGAN Christina W. Hagan |
Executive Vice President, Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) | January 19, 2005 | ||||
*By |
/s/ STEPHEN C. JUMPER Stephen C. Jumper Attorney-in-Fact |
II-5
INDEX TO EXHIBITS
Exhibit | ||||
Number | Description | |||
1 | .1 | Form of Underwriting Agreement. | ||
3 | .1 | Restated Articles of Incorporation of the Company (filed on December 10, 2004 as Exhibit 3.1 to the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2004 (File No. 000-10144) and incorporated herein by reference). | ||
3 | .2 | Bylaws of the Company, as amended (filed on December 11, 2003 as Exhibit 3 to the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2003 (File No. 000-10144) and incorporated herein by reference). | ||
4 | .1 | Rights Agreement by and between the Company and Mellon Investor Services, LLC (f/k/a Chasemellon Shareholder Services, L.L.C.), as Rights Agent, dated July 13, 1999 (filed on December 11, 2003 as Exhibit 4 to the Registrants Annual Report on Form 10-K for the fiscal year ended September 30, 2003 (File No. 000-10144) and incorporated herein by reference). | ||
5 | .1 | Opinion of Baker Botts L.L.P. | ||
23 | .1 | Consent of Baker Botts L.L.P (included in Exhibit 5.1). | ||
23 | .2* | Consent of KPMG LLP, an independent registered public accounting firm. | ||
24 | .1** | Power of Attorney. |
* | Filed herewith. |
** | Previously filed. |
| To be filed by amendment. |
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Dawson Geophysical Company
We consent to the use of our report dated November 11, 2004, with respect to the balance sheets of Dawson Geophysical Company as of September 30, 2004 and 2003, and the related statements of operations, changes in stockholders equity and comprehensive income, and cash flows for each of the years in the three-year period ended September 30, 2004 included herein and to the reference to our firm under the heading Experts in the prospectus.
/s/ KPMG LLP | |
Midland, Texas
January 19, 2005
[BAKER BOTTS L.L.P. LOGO] 2001 ROSS AVENUE AUSTIN DALLAS, TEXAS BAKU 75201-2980 DALLAS 214.953.6500 HOUSTON FAX 214.953.6503 LONDON MOSCOW NEW YORK RIYADH WASHINGTON January 19, 2005 VIA EDGAR TRANSMISSION U.S. Securities and Exchange Commission Division of Corporate Finance 450 Fifth Street, N.W. Mail Stop 0405 Washington, D.C. 20549 Re: DAWSON GEOPHYSICAL COMPANY REGISTRATION STATEMENT ON FORM S-3 FILE NO. 333-121236 FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 2004 FILED DECEMBER 10, 2004 FILE NO. 0-10144 DEFINITIVE PROXY STATEMENT ON SCHEDULE 14A FILED DECEMBER 10, 2004 Ladies and Gentlemen: On behalf of Dawson Geophysical Company (the "Company"), we have electronically transmitted herewith Amendment No. 1 to the above-referenced Registration Statement ("Amendment No. 1"), which has been marked to indicate the changes in the Amendment. In addition, we have today forwarded, by way of overnight delivery, five marked copies of the Amendment No. 1, c/o Jason Wynn, for the convenience of the Staff. This letter responds to the Staff's letter of comment, dated January 12, 2005, on behalf of the Company. The numbering below corresponds to the numbering used in the comment letter. General 1. COMMENT: Because some of our comments might apply to disclosure that appears in more than one place, please make corresponding changes to all affected disclosure, wherever it appears in your documents. For example, make corresponding revisions to the Risk Factors disclosure that appears in your Form 10-K.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 2 - January 19, 2005 RESPONSE: Where the staff's comments apply to more than one section of the Registration Statement, we will make the indicated change in each section. In addition, we acknowledge that a number of the staff's comments apply both to the Company's Registration Statement and to its Form 10-K. As a result, we intend to file an amendment to our Form 10-K reflecting these changes as soon as we have resolved all of the Staff's comments. 2. COMMENT: You frequently use industry or technical terms without explaining the terms to the reader. Whenever possible, provide disclosure regarding your business that will be comprehensible to those without industry expertise. For example, at page 19 of the prospectus, you refer without explanation to "vibrator energy sources" and also indicate: "Shear waves are another type of seismic energy propagation, analysis of which may allow for a more detailed picture of the earth's subsurface. Our equipment includes energy sources and geophones capable of generating and recording shear waves." RESPONSE: At the request of the Staff, we have reviewed the description of our business contained in the prospectus for industry or technical terms that might not be comprehensible to a reader without industry expertise. As a result, we have added substantial disclosure under the caption "Business Description" beginning on page 21 of Amendment No. 1 to help readers understand the Company's business and how it operates. In such disclosure and elsewhere, we have also clarified the meaning of such terms, including the meaning of "vibrator energy sources," "geophones," "shear waves," "seismic data," the "2-D" and "3-D" methods and "recording channels." FORM S-3 General 3. COMMENT: Fill in blanks, provide updated and current disclosure and supply all omitted exhibits. For example, we refer you to pages 1 (new crew scheduled for January 2005), page 8 (proceeds), page 23 (five year experience with titles or positions held by Mr. Nelson), page II-1 (estimated amounts), as well as exhibits 1.1 and 5.1. We may have additional comments once you provide this information. If any of this information might change prior to effectiveness of the registration statement, you may include brackets or other means to make this clear.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 3 - January 19, 2005 RESPONSE: We have updated the information on page 1 and elsewhere in the prospectus (on pages 2, 8, 16, 20 and 22) to reflect the fact that the Company added a tenth seismic data acquisition crew in January 2005. We have also updated the "Use of Proceeds" section on page 8 of Amendment No. 1 to reflect our current plans and intentions. Likewise, we have added the five-year experience title and position information for Mr. Nelson on page 25 of Amendment No. 1 per the Staff's request. For the Staff's information, we intend to file an additional amendment prior to circulation of a preliminary prospectus. That amendment will include numbers and disclosure relating to the Company's fiscal first quarter. Accordingly, to the extent that any blanks remain or exhibits not filed in Amendment No. 1 (other than pricing information), these will be completed or filed in the next filing. Table of Contents, page ii 4. COMMENT: The first and last sentences in the paragraph following the table are inappropriate. For example, you incorporate information by reference yet suggest that readers may only rely on the prospectus. Another example of inappropriate language is the suggestion at page 24 that the descriptions of your stock and corporate documents are incomplete, rather than making clear that you have summarized accurately the material provisions in each case. Please revise accordingly. RESPONSE: We have revised the first and last sentence of the paragraph following the Table of Contents on page ii of Amendment No. 1 to reference information incorporated by reference into the prospectus and to make it clear that readers may rely on such information as well as the information contained in the prospectus. In addition, we have revised the language in the first paragraph under the caption "Description of Our Capital Stock" on page 26 to clarify that the information presented is a summary of the material provisions of the certificate of incorporation and bylaws. Prospectus Summary, page 1 5. COMMENT: You include assertions at pages 1, 2 and 13 regarding your status as "the" leading provider, although the disclosure at page 13 includes an additional limitation on the assertion. Provide us with independent supplemental support for these assertions, and revise the disclosure as appropriate. For example, clarify whether your leadership status
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 4 - January 19, 2005 is based upon total revenues, market share or some other criteria. We may have additional comments. RESPONSE: The assertions regarding the Company's status as the leading provider contained on pages 1, 14 and 20 have been revised to read substantially as follows: "We are the leading provider of onshore seismic data acquisition services in the United States as measured by the number of active data acquisition crews." We have added this disclosure to make it clear to readers that the basis for our assertion of a leading position is the number of active crews. Additionally, the Company has provided, supplementally for the staff's review, independent support for this assertion. Please find attached as Annex A a copy of World Geophysical News, Volume 16, Number 23 (December 15, 2004). World Geophysical News is widely recognized as the leading third-party publication in the seismic data acquisition industry. Page 7 of this publication demonstrates that, as of October 2004, there were 41 onshore seismic data acquisition crews operating in the United States. At this time, the Company had 9 of such crews (as reported on page 11), all of which operated onshore. The closest competitor operating in the United States, Veritas DGC, is listed (on page 12) as having 9 crews total, 2 of which are offshore crews operating in the Gulf of Mexico and not part of our market segment (see pages 14-15). All other companies operating crews in the United States onshore market are reported as having between 1 and 4 active crews. As demonstrated by the focus of this publication, the Company believes that crew count is the accepted method of recognizing leaders in the Company's industry, and is essentially representative of market share in the industry. In addition, the Company believes that the crew count measure for the seismic survey industry is comparable to "rig count" which is widely recognized as a key measure of oil and gas company strength in the drilling industry. We note that the Company also believes that it would be the leader in its industry if the measure of its leading position were in terms of revenues or recording channel count (both important factors in measuring dominance in the seismic data acquisition industry). However, because there are no independent third-party sources reporting this type of information for the industry, the Company believes that crew count is the best measure of its leading position and has reflected this in the disclosure.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 5 - January 19, 2005 6. COMMENT: Because you need to include a discussion of all material risk factors in your Risk Factors section, revise the disclosure at page 2 to eliminate the suggestion that the reader might need to read through all the materials in order to find this information. RESPONSE: Per your request, the disclosure at page 2 (suggesting that the reader might need to read through all the materials in order to find Risk Factor information) has been eliminated. Risk Factors, page 5 7. COMMENT: Eliminate language that tends to mitigate the risk you discuss. Examples include "[h]owever, we have attempted to reduce," "we have not suffered any material losses of equipment," "[w]e have not experienced any material loss," we carry "adequate insurance" and "[a]lthough such expenditures have historically not been material." Also, rather than indicating that there is no "assurance" or that you "cannot assure" a particular outcome, instead focus on the potential harm to you or this investor. RESPONSE: At the request of the Staff, we have reviewed the language contained in the "Risk Factors" section beginning on page 5 of the prospectus and have eliminated language that tends to mitigate the risks discussed. We have also revised the disclosure to focus on the potential harm to us or investors rather than indicating that we cannot assure a particular outcome. These revisions have been reflected in changes to the first, fourth, sixth, eighth, ninth, tenth and eleventh risk factors. 8. COMMENT: Focus your subheadings and text to identify the risk and potential harm concisely and precisely. You provide excess detail in the first risk factor, for example. Several captions merely state facts and fail to describe the risk that follows, including without limitation, "Our business is dependent on prices for oil and gas," "We face intense competition in our business," "Capital requirements for our operations are large and our ability to finance these requirements could be affected" and "Certain provisions of our charter and bylaws and our shareholder rights plan may make it difficult."
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 6 - January 19, 2005 RESPONSE: At the request of the Staff, we have examined the captions used for each of the risk factors and modified certain of those captions to ensure that the precise risk identified by the Company, as well as the possible consequence of the risk should it materialize, are clearly stated. We have also revised the first risk factor to eliminate excess detail. The old and new captions for the renamed risk factors are restated below: Old Caption New Caption OUR BUSINESS IS DEPENDENT ON PRICES IF OIL AND GAS PRICES OR THE LEVEL OF FOR OIL AND GAS AND THE LEVEL OF CAPITAL EXPENDITURES BY OIL AND GAS CAPITAL EXPENDITURES BY OIL AND GAS COMPANIES WERE TO DECLINE, DEMAND FOR COMPANIES. OUR SERVICES WOULD DECLINE AND OUR RESULTS OF OPERATIONS WOULD BE ADVERSELY AFFECTED. WE FACE INTENSE COMPETITION IN OUR WE FACE INTENSE COMPETITION IN OUR BUSINESS. BUSINESS THAT COULD RESULT IN DOWNWARD PRICING PRESSURE AND THE LOSS OF MARKET SHARE. WE MAY BE UNABLE TO ATTRACT AND RETAIN WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES WHICH COULD ADVERSELY SKILLED AND TECHNICALLY KNOWLEDGEABLE AFFECT OUR BUSINESS. EMPLOYEES WHICH COULD ADVERSELY AFFECT OUR BUSINESS. CAPITAL REQUIREMENTS FOR OUR CAPITAL REQUIREMENTS FOR OUR OPERATIONS ARE LARGE AND OUR ABILITY OPERATIONS ARE LARGE. IF WE ARE UNABLE TO FINANCE THESE REQUIREMENTS COULD BE TO FINANCE THESE REQUIREMENTS OUR AFFECTED. ABILITY TO CONTINUE OUR EXPANSION AND MAINTAIN OUR PROFITABILITY COULD BE AFFECTED. TECHNOLOGICAL CHANGE IN OUR BUSINESS TECHNOLOGICAL CHANGE IN OUR BUSINESS CREATES RISKS OF TECHNOLOGICAL CREATES RISKS OF TECHNOLOGICAL OBSOLESCENCE AND REQUIREMENTS FOR OBSOLESCENCE AND REQUIREMENTS FOR FUTURE CAPITAL EXPENDITURES WHICH WE FUTURE CAPITAL EXPENDITURES. IF WE ARE MAY NOT BE ABLE TO MEET. UNABLE TO KEEP UP WITH THESE TECHNOLOGICAL ADVANCES, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY. CERTAIN PROVISIONS OF OUR CHARTER AND CERTAIN PROVISIONS OF OUR CHARTER AND BYLAWS AND OUR SHAREHOLDER RIGHTS PLAN BYLAWS AND OUR SHAREHOLDER RIGHTS PLAN MAY MAKE IT DIFFICULT FOR A THIRD MAY MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE US. PARTY TO ACQUIRE US, EVEN IN SITUATIONS THAT MAY BE VIEWED AS DESIRABLE BY OUR SHAREHOLDERS.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 7 - January 19, 2005 9. COMMENT: We note as a part of your operations you must obtain right of way usage from both public and private land and/or mineral owners. Please supplementally tell us how you account for the acquired rights of way usage and how they are presented in the financial statements. RESPONSE: Although a small percentage of clients opt to obtain such rights of way directly, the Company frequently obtains such rights of way for its clients. However, if payments are required or other costs are incurred in obtaining rights of way usage, these costs are reimbursed by the clients. Accordingly, the expense of these rights of way are included in the Company's revenues and in its operating expenses. We may be unable to attract and retain key employees, page 6 10. COMMENT: Disclose if any of your "key personnel" are not under contract, and make clear how many employees you consider to be "key." If you do not have "key person" insurance for these individuals, so indicate. RESPONSE: Because the Company does not consider any particular individual to be "key," we have revised the risk factor to eliminate the reference to "key personnel" and to focus the risk on the Company's need to find skilled and technically knowledgeable employees generally. We have also revised the risk factor to disclose that none of the Company's employees are under employment contracts and that the Company has no key man insurance. Selected Financial Data, page 11 11. COMMENT: Indicate the information you are presenting is a summary of the selected financial data required by Item 301 of Regulation S-K, or alternatively, include selected financial data for the two years preceding September 30, 2002. RESPONSE: Per your request, we have indicated on page 11 that the information presented is a summary of the selected financial data required by Item 301 of Regulation S-K.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 8 - January 19, 2005 Management's Discussion and Analysis of Financial Condition and results of Operations, page 13 Fiscal Year Ended September 30, 2004 Versus Fiscal year Ended September 30, 2003, page 13 12. COMMENT: Your discussion provides limited insight into the underlying reasons for the variances depicted in you results of operations. Therefore, the extent to which your financial information is indicative of expected future results is unclear. Your disclosures should provide information about the quality and potential variability of earnings and cash flow, so that readers may ascertain the likelihood that past performance is indicative of future performance. Please revise your results of operations discussion to include the facts and circumstances underlying material trends, uncertainties, demands, events and commitments. Please refer to Instructions 3 and 4 to Paragraph (a) of Items 303 of Regulation S-K, and FRC Section 501.12.b.4 for further guidance. Additionally, when you attribute changes in significant items to more than one factor or element, breakdown and quantify the impact of each factor or element. Please refer to FRC Section 501.04 for further guidance. RESPONSE: In response to the Staff's comment, the disclosure in the MD&A under the caption "Overview" and "Fiscal 2004 Highlights" has been revised to focus readers on the principal trends, etc. affecting our results of operations. In the discussion of its results of operations, the Company has described that its fiscal 2004 revenues were greater than fiscal 2003 revenues as a result of increased demand for its services which allowed the Company to (1) field three new data acquisition crews, (2) obtain price improvements in its markets and (3) negotiate favorable contract provisions. However, the Company is unable to quantify with precision the actual dollar amount of each factor. While the Company is confident in identifying these effects, the calculation of the actual impact is not so clear and depends on the methodology used. Moreover, the Company believes that ascribing a dollar amount to these factors would lead investors to believe that such dollar amounts were as reliable as the other amounts disclosed in results of operations, which is not the case. As a result, the Company has disclosed that these factors affected its revenues, but has not ascribed a dollar number to each of the factors.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 9 - January 19, 2005 Liquidity and Capital Resources, page 16 13. COMMENT: The discussion of your operating and investing activities appears to be brief and focuses on changes that are evident in your consolidated statements of cash flows. For example, your discussion of cash provided by operating activities , activities in the short-term investment portfolio and capital expenditures essentially reiterates the basic changes depicted in your consolidated statements of cash flows. Because you provide only limited insight into the reasons underlying the variances identified, the indicative value of your reported results is unclear. You provide no or limited discussion of the underlying drivers (e.g., cash receipts from the sale of goods and services and cash payments to acquire materials or labor). Please refer to the guidance in FRC Section 501.13, and revise your disclosure accordingly. RESPONSE: In response to the Staff's comment, we have added a new introductory section in Liquidity and Capital Resources to discuss the principal factors underlying the Company's liquidity position. 14. COMMENT: Please include a tabular disclosure of your contractual obligations, such as your operating lease and other obligations. Please refer to Instruction 5 to Paragraph (a) of Item 303 of Regulation S-K. RESPONSE: We have included the tabular disclosure of contractual obligations as required by Item 303 of Regulation S-K. Critical Accounting Policies, page 16 15. COMMENT: The disclosures of your critical accounting policies appear to be more descriptive of the accounting policies utilized, rather than any specific uncertainties underlying your estimates. These critical accounting policies appear to have critical judgment and estimation attributes, but the disclosures you provide do not sufficiently address these attributes.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 10 - January 19, 2005 Please revise your disclosures to address the material implications of the uncertainties that are associated with the methods, assumptions and estimates underlying your critical accounting estimates. Specifically, you should provide the following: (a) An analysis of the uncertainties involved in applying the principle and the variability that is reasonably likely to result from its application. (b) An analysis of how you arrived at the measure and how accurate the estimate or underlying assumptions have been in the past. (c) An analysis of your specific sensitivity to change based on outcomes that are reasonably likely to occur and have a material effect. Please refer to FRC Section 501.14 for further guidance. RESPONSE: In response to the Staff's comment, the discussion of our critical accounting policies on page 17 and 18 has been expanded. 16. COMMENT: In addition, it would appear you should address in your critical accounting policies discussion the estimates, variables and assumptions you utilize to determine your income tax provision. In this regard, we note a change in these attributes resulted in the elimination of your valuation allowance in 2004. RESPONSE: We have added a new section entitled "Tax Accounting" in the discussion of the Company's critical accounting policies to address the matters raised in the Staff's comment. Underwriting, page 26 17. COMMENT: You include a number of statements purporting to limit or qualify the obligation of your underwriter to purchase shares, including reference to approval by "its counsel," and you indicate it might reject an order in whole or in part. Revise to make clear that you will amend the disclosure as necessary to reflect any material changes to the arrangements you describe. Also describe in necessary detail any provisions that are not commonly found in underwriting agreements. In the alternative, eliminate any potential for the reader to infer that the underwriter might not be fully committed once the agreement has been signed.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 11 - January 19, 2005 RESPONSE: The Company has revised its disclosure to make it clear that the Registration Statement will be amended to reflect any material changes to the underwriting arrangements. The Company does not believe that the Underwriting Agreement contains any provisions that are not commonly found in underwriting agreements. The Company has also revised the Registration Statement to explain that the obligation of the underwriters to purchase and accept delivery of the shares of common stock is subject to customary closing conditions. These customary closing conditions include an opinion of counsel. The Company has revised the Registration Statement to indicate that the Underwriters might reject an order from their customers in whole or in part. The ability of the Underwriters to reject an order from their customers does not effect the underwriting arrangements between the Company and the Underwriters. Electronic Distribution, page 28 18. COMMENT: The second paragraph includes internally inconsistent and inappropriate disclosure. For example, you suggest that, among other things, "the information on the underwriter's website . . . has not been approved or endorsed by us or the underwriter . . . and should not be relied upon . . . " Please revise accordingly. RESPONSE: The Company believes that the disclosure in the second paragraph conveys the appropriate information. Any information other than the prospectus that is maintained on the underwriters' or any selling group member's websites is not part of the prospectus or the registration statement; therefore, neither the Company nor the Underwriters are required to approve or endorse the information. The investors should not rely on any information contained in the websites other than the prospectus in electronic format. Financial Statements, page F-1 Note 1 - Summary of Significant Accounting Policies, page F-7 Revenue Recognition, page F-8 19. COMMENT: On page 20 you indicate you provide services under either a turnkey agreement or a term agreement. Tell us and disclose in further detail how you recognize revenue under each of these types of contracts.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 12 - January 19, 2005 RESPONSE: The disclosure on page 17 under "Revenue Recognition" and in Note 1 on F-8 has been revised to reflect that revenues are recognized only when services are performed under both the Company's "turnkey" and "term" form of agreements. Note 3 - Property, Plant and Equipment, page F-10 20. COMMENT: Tell us what the property, plant and equipment amount you refer to as "Energy sources" represents. RESPONSE: The property, plant and equipment discussed under the caption "Energy Sources" consist of the vibrator energy sources used in seismic surveys and discussed in the "Business" section. We have revised the table caption in Note 3 on page F-10 to disclose that the Company is referring to these vibrator energy sources. Note 8- Major Customers, page F-13 21. COMMENT: Disclose the total amount of revenues from each major customer as required by paragraph 39 of SFAS 131. RESPONSE: We have revised Note 8 to the Financial Statements on page F-14 to disclose the percentages of revenue from each major customer in 2004. Exhibits and Financial Statement Schedules, page II-2 22. COMMENT: To the extent that you incorporate any exhibits by reference from previously filed documents with the Commission, identify the filing date of the document from which you are incorporating by reference. RESPONSE: We have revised the information on page II-2 under Item 16 (Exhibits and Financial Statement Schedules) and in the Index to Exhibits to identify the filing date of the documents from which exhibits are incorporated by reference.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 13 - January 19, 2005 FORM 10-K FOR THE PERIOD ENDED SEPTEMBER 30, 2004 Exhibits, Financial Statement Schedules and Reports on Form 8-K, page 12 23. COMMENT: Please include a schedule of the valuation and qualifying account for the accounts receivable valuation allowance and other accounts that would qualify. Refer to Rules 5-04(c) and 12-09 of Regulation S-X. RESPONSE: We have supplementally included as Annex B the schedule of valuation and qualifying accounts requested by the Commission and the Company will file the schedule with its amendment to the 10-K. 24. COMMENT: File as exhibits all employment and other agreements with any of your executive officers, as Item 601(b)(10) of Regulation S-K requires. Ensure that you discuss all of the material terms of any employment agreements you have with executive officers. Also, if there have been any material changes to the form of "master geophysical data acquisition agreement" that you filed as an exhibit more than a year ago, please file the new agreement as an exhibit rather than incorporating by reference the outdated version. RESPONSE: The Company has not entered into any employment or other agreements with any of its executive officers. The Company also confirms that there have been no changes to the form of "master geophysical data acquisition agreement" that was filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2003 filed on December 11, 2003 (File No. 000-10144). DEFINITIVE PROXY STATEMENT ON SCHEDULE 14A FILED DECEMBER 10, 2004 Security Ownership, page 9 25. COMMENT: If known or readily ascertainable, disclose the natural person(s) who exercise voting and/or investment power with respect to each of the entities you list in the table. Include appropriate entries in the table, with explanatory notes if appropriate. See Exchange Act Rule 13d-3.
[BAKER BOTTS L.L.P. LOGO] Securities and Exchange Commission - 14 - January 19, 2005 RESPONSE: The information regarding the natural person(s) who exercise voting and/or investment power with respect to each of the entities listed in the table are not known or readily ascertainable by the Company. We believe that we have included appropriate entries in the table, with explanatory footnotes, for each such entity. Consistent with our disclosure obligations under Item 403 of Regulation S-K, we have included all information available from the publicly filed documents (the Schedule 13G or Form 13F-HR) for each such entity as of the most recent practicable date. In only one instance did an entity (Athena Capital Management, Inc.) provide information regarding a natural person (David P. Cohen) who was deemed to be a beneficial owner of the shares represented in the table. We have already included this information in footnote 6 to the table. Accordingly, we believe that no changes to the table are necessary. Please do not hesitate to contact me at 214.953.6419, or my partner Neel Lemon at 214.953.6954, if we can be of any further assistance in reviewing the above responses. Very truly yours, /s/ Sarah Rechter Sarah Rechter Annex A - Industry support - Comment No. 5 Annex B - Valuation Account Schedule - Comment No. 23 cc: L. Decker Dawson Stephen C. Jumper Christina W. Hagan Nicholas C. Taylor, Esq. Thomas P. Mason, Esq. Neel Lemon, Esq.
Annex A (GLOBE GRAPHIC) World Geophysical News (GLOBE GRAPHIC) VOLUME 16, NUMBER 23 DECEMBER 15, 2004 U.S. SEISMIC TRENDS SHOW BIG CHANGES IN 2004 The map of seismic crew activity in the United States changed this year. Long dominated by work on- and offshore Texas and Louisiana, seismic surveys shifted north in 2004. The year ends with The Rockies and Mid-Continent regions topping the list with the largest number of active crews. As the Gulf of Mexico recovers from a battering of multiple hurricanes, its vessel count has dwindled from 10 a year ago to seven this month. Onshore, the Gulf Coast Region and the Southwest Region, which last December accounted for a total of 15 crews, now host 13 active surveys. Meanwhile, 11 crews are at work in the Mid-Continent Region, up from just 8 last year at this time. And 8 crews are at work in the Rockies - more than double last December's tally of 3 active crews. For details and specific current locations, see pages 13-15. REMINDER: THERE IS NO JANUARY 1 ISSUE OF "WORLD GEOPHYSICAL NEWS." PUBLICATION WILL RESUME ON JANUARY 15, 2005. MEANWHILE, WE WISH YOU ALL A VERY HAPPY HOLIDAY SEASON AND A PROSPEROUS NEW YEAR! Inside This Issue: Statistical Summaries...............................3 Global Activity..................................3 U.S. Activity....................................8 Contractor Activity.............................11 U.S. Crews Working Crews...................................13 Available Crews.................................16 International Crews Working Crews...................................17 Available Crews.................................27 The International seismic crew count is UNCHANGED... at 152 from month-ago. Details inside. (DOWN ARROW GRAPHIC)(UP ARROW GRAPHIC) The U.S. seismic crew count is DOWN...by 1 to 48 from month-ago. Details inside. (DOWN ARROW GRAPHIC) (IHS ENERGY LOGO) IHS ENERGY(TM) ANYWHERE YOU GO, THE POWER TO KNOW.(TM) 15 Inverness Way East, Englewood, CO 80112 303/736-3000 Copyright 2004. All rights reserved. IHS Energy. All trademarks belong to IHS Energy unless otherwise noted.
WORLD GEOPHYSICAL NEWS - CUSTOMIZED - GEOPHYSICAL CREW COUNTS available now! CALL STEVE TRAMMEL 1-800-OIL DATA WORLD GEOPHYSICAL NEWS SUBSCRIPTION FORM I want to subscribe to WORLD GEOPHYSICAL NEWS for one year, billed __$542 for customers inside U.S. (2nd class) __print __email __disk __$642 for customers outside the U.S. (1st class) __print __email __disk __$732 for combination print/electronic subscription - ship both (U.S.) __$832 for combination print/electronic subscription - ship both (not U.S.) For combination subscribers: __e-mail or __disk Name ___________________________________________________________________________ Title __________________________________________________________________________ Company ________________________________________________________________________ Mailing address ________________________________________________________________ ________________________________________________________________________________ City, State, ___________________________________________________________________ Country ________________________ Zip/Postal Code _______________________________ Phone number ______________________________ Fax ________________________________ MAIL OR FAX TO: WORLD GEOPHYSICAL NEWS, IHS Energy Circulation Dept., 15 Inverness Way E, Englewood CO 80112, USA. Fax: 303/736-3605. PHONE ORDERS ALSO TAKEN: 1-800-OIL DATA, ext. 3589 (inside the continental U.S.) or 303/736-3589 outside the U.S. e-mail news to World Geophysical News WORLD GEOPHYSICAL NEWS is published twice monthly (except January l) by IHS ENERGY. The material and data contained herein have been compiled for the exclusive use of subscribers of IHS Energy, and no part thereof shall be reproduced, quoted or published in any manner without the written consent of IHS Energy. Editor Dana Cain Contributing Ed. Steve Trammel Programmer Laura Hagan Consultant Cindy Speer We want to provide the industry with accurate statistics on seismic and nonseismic geophysical activity, worldwide. If you know of any crews not being reported, please call us toll free at 1-800-OILDATA. Note: While our sources are extremely reliable, some crews move within our two-week reporting period. We cannot, therefore, guarantee all information. World Geophysical News (ISSN 1053-9859) (Subscriptions: $542 per year for customers inside the U.S.; $642 annually for customers outside the U.S.) Published by IHS Energy (twice monthly except monthly in January). 15 Inverness Way E, Englewood CO 80112-5776. Periodicals postage paid at Englewood CO 80112 and additional offices. POSTMASTER: Send address changes to: World Geophysical News, IHS Energy, 15 Inverness Way E, Englewood CO 80112-5776. pg 2...Dec. 15, 2004
WORLD GEOPHYSICAL NEWS Statistical Summaries: Global Activity World Region Crew Counts* Seismic Working December 15, 2004 Month Year Work Avail Total Ago Ago Africa 27 19 46 26 28 Canada 19 18 37 15 19 CIS 19 22 41 19 28 Europe 7 19 26 10 13 Far East 45 44 89 45 38 Middle East 20 20 40 21 15 Latin America 15 26 41 16 15 United States 48 13 61 49 41 Totals 200 181 381 201 197 * Counts for CIS, China and India are estimates based on partial data. World Share of Geophysical Activity (PIE CHART) United States 24% Far East 22% Africa 13% Middle East 10% CIS 10% Europe 8% Latin America 8% Europe 4% Dec, 15, 2004...pg 3
WORLD GEOPHYSICAL NEWS Seismic Crew Counts by Country (excluding U.S.) Seismic Working December 15, 2004 Month Year Work Avail Total Ago Ago Algeria 9 2 11 9 11 Chad 1 0 1 1 0 Congo 0 0 0 0 0 Egypt 0 4 4 1 0 Gabon 0 1 1 0 0 Libya 7 1 8 7 3 Morocco 0 1 1 0 0 Nigeria 1 3 4 1 3 Tunisia 1 1 2 0 0 Alberta 13 13 26 13 17 British Columbia 1 3 4 0 0 New Brunswick 0 0 0 O 1 Nova Scotia 0 1 1 1 0 Saskatchewan 3 1 4 1 1 Azerbaijan 0 0 0 0 0 Kazakhstan 1 1 2 1 2 Kyrgystan 1 0 1 1 0 Russia 16 12 28 16 15 Ukraine 0 0 0 0 0 Uzbekistan 0 4 4 0 4 Albania 0 1 1 0 1 Austria 0 1 1 0 1 Bulgaria 0 1 1 0 0 Czech Republic 0 0 0 0 0 England 1 0 1 1 0 Germany 0 1 1 1 0 Hungary 2 1 3 2 1 Lithuania 0 2 2 0 1 Poland 3 3 6 3 4 Romania 0 3 3 0 3 Slovakia 0 0 0 1 0 Yugoslavia 0 0 0 0 0 Australia 1 4 5 3 1 Bangladesh 1 0 1 1 0 China 14 0 14 14 15 India 7 23 30 7 3 Indonesia 3 7 10 3 1 Malaysia 0 0 0 0 1 New Zealand 1 0 1 0 0 Papua New Guinea 0 0 0 0 0 Taiwan 0 0 0 0 0 Iran 3 6 9 4 0 Iraq 0 0 0 0 0 Oman 3 2 5 3 3 Pakistan 8 2 10 8 7 Saudi Arabia 0 4 4 0 0 Turkey 4 1 5 4 0 United Arab Emirates 0 0 0 0 1 pg 4...Dec. 15, 2004
WORLD GEOPHYSICAL NEWS Seismic Crew Counts by Country (continued) (excluding U.S.) Seismic Working December 15, 2004 Month Year Work Avail Total Ago Ago Yemen 1 2 3 1 2 Argentina 3 8 11 4 6 Bolivia 0 1 1 1 0 Brazil 1 0 1 1 0 Chile 1 0 1 0 0 Colombia 1 1 2 1 1 Ecuador 2 1 3 2 1 Mexico 2 2 4 2 1 Peru 0 0 0 0 0 Venezuela 1 2 3 1 0 Sub-Totals 117 127 244 120 111 African Waters 8 6 14 7 11 Canadian Waters 2 0 2 0 0 CIS Waters 1 5 6 1 7 European Waters 1 6 7 2 2 Far Eastern Waters 18 10 28 17 17 Middle Eastern Waters 1 3 4 1 2 Latin American Waters 4 11 15 4 6 Sub-Totals 35 41 76 32 45 Totals 152 168 320 152 156 * Canadian counts are shown by province. Dec. 15, 2004...pg 5
WORLD GEOPHYSICAL NEWS Historical Monthly Crew Counts Western Hemisphere (LINE CHART) Historical Monthly Crew Counts Europe, Africa, Middle East (LINE CHART) pg 6...Dec. 15, 2004
WORLD GEOPHYSICAL NEWS Historical Monthly Crew Counts - Far East/Australia (LINE CHART) Global Onshore/Offshore Comparison (BAR CHART) 3-D vs. 2-D Survey Summary 4-D 3-D 2-D Unknown Total Africa 0 10 9 0 19 Canada 0 10 7 0 17 CIS 0 3 15 0 18 Europe 0 2 4 0 6 Far East 0 8 17 2 27 Middle East 0 4 15 0 19 Latin America 0 10 1 0 11 Sub-Totals 0 47 68 2 117 Africa Offshore 0 4 4 0 8 Canada Offshore 0 1 1 0 2 CIS Offshore 0 1 0 0 1 Europe Offshore 0 1 0 0 1 Far East Offshore 0 10 8 0 18 Middle East Offshore 0 0 1 0 1 Latin America Offshore 1 1 2 0 4 Sub-Totals 1 18 16 0 35 Totals 1 65 84 2 152 Dec. 15, 2004...pg 7
WORLD GEOPHYSICAL NEWS U.S. Activity Regional Crew Counts Seismic Working December 15, 2004 Month Year Work Avail Total Ago Ago West Coast Region 0 0 0 1 2 Alaska 2 2 4 2 0 Rockies Region 8 5 13 10 3 Mid-Continent 11 0 11 9 8 Southwest Region 6 0 6 6 9 Gulf Coast Region 7 3 10 9 6 Ark-La-Tex 6 0 6 4 1 Illinois Basin 1 0 1 1 1 Michigan Basin 0 0 0 1 0 Appalachian Basin/Northeas 0 0 0 1 1 Offshore 7 3 10 5 10 Totals 48 13 61 49 41 Regional Comparison of Active Crews (BAR CHART) pg 8...Dec. 15, 2004
WORLD GEOPHYSICAL NEWS State Crew Counts SEISMIC WORKING DECEMBER 15, 2004 MONTH YEAR WORK AVAIL TOTAL AGO AGO Alaska 2 2 4 2 0 California 0 0 0 1 2 Colorado 2 2 4 2 1 Gulf of Mexico 7 3 10 5 10 Illinois 1 0 1 1 1 KANSAS 6 0 6 4 5 Louisiana - South 2 1 3 2 3 Michigan 0 0 0 1 0 Montana 0 2 2 0 0 New Mexico - Southeast 1 0 1 1 2 North Dakota 1 0 1 1 0 Ohio 0 0 0 1 1 Oklahoma 3 0 3 4 3 South Dakota 0 0 0 0 1 Texas - East 6 0 6 4 1 Texas - West 5 0 5 5 7 Texas Gulf Coast 5 2 7 7 3 Texas Panhandle 2 0 2 1 0 Utah 3 1 4 4 0 Wyoming 2 0 2 3 1 Totals 48 13 61 49 41 U.S. 3-D vs. 2-D Survey Summary Alaska 0 2 0 0 2 Colorado 0 1 1 0 2 Gulf of Mexico 0 4 3 0 7 Illinois 0 0 1 0 1 Kansas 0 3 3 0 6 Louisiana - South 0 2 0 0 2 New Mexico - SE 0 1 0 0 1 North Dakota 0 1 0 0 1 Oklahoma 0 2 1 0 3 Texas - East 0 6 0 0 6 Texas - West 0 3 2 0 5 Texas Gulf Coast 0 5 0 0 5 Texas Panhandle 0 2 0 0 2 Utah 0 3 0 0 3 Wyoming 0 2 0 0 2 Totals 0 37 11 0 48 Dec. 15, 2004...pg 9
WORLD GEOPHYSICAL NEWS Seismic Breakdown by State DYNAMITE VIBROSEIS OTHER WORK AVAIL TOTAL WORK AVAIL TOTAL WORK AVAIL TOTAL Alaska 1 0 1 1 2 3 0 0 0 Colorado 2 0 2 0 2 2 0 0 0 Gulf of Mexico 0 0 0 0 0 0 7 3 10 Illinois 1 0 1 0 0 0 0 0 0 Kansas 0 0 0 5 0 5 1 0 1 Louisiana - South 2 1 3 0 0 0 0 0 0 Montana 0 0 0 0 1 1 0 1 1 New Mexico - SE 0 0 0 1 0 1 0 0 0 North Dakota 0 0 0 1 0 1 0 0 0 Oklahoma 2 0 2 1 0 1 0 0 0 Texas - East 2 0 2 4 0 4 0 0 0 Texas - West 4 0 4 1 0 1 0 0 0 Texas Gulf Coast 3 2 5 2 0 2 0 0 0 Texas Panhandle 0 0 0 2 0 2 0 0 0 Utah 1 1 2 1 0 1 1 0 1 Wyoming 0 0 0 2 0 2 0 0 0 Totals 18 4 22 21 5 26 9 4 13 pg 10...Dec. 15, 2004
WORLD GEOPHYSICAL NEWS Contractor Activity UNITED LATIN MIDDLE FAR STATES CANADA AMERICA EUROPE AFRICA EAST EAST CIS TOTAL AGESCO 0 0 0 0 3 0 0 0 3 Bashneftegeofizikia 0 0 0 0 0 0 0 3 3 Basin Geo. 1 0 0 0 0 0 0 0 1 Bur. Geophys. Prosp. 0 0 1 0 3 2 0 0 6 Breckenridge Exp 2 0 0 0 0 0 0 0 2 CGG 0 0 0 0 2 0 2 0 4 Fugro (Chance) 2 0 2 0 0 0 0 0 4 Conquest 0 4 0 0 0 0 0 0 4 China Offshore Oil 0 1 0 0 0 0 3 0 4 Dank 0 0 0 0 0 0 0 1 1 Daqing Geophysical 0 0 0 0 0 0 1 0 1 Datum 0 2 0 0 0 0 0 0 2 Dawson Geophysical 9 0 0 0 0 0 0 0 9 Eagle Geophysical 0 2 0 0 0 0 0 0 2 Elnusa 0 0 0 0 0 0 2 0 2 ENAGEO 0 0 0 0 8 0 0 0 8 Fairfield 2 0 0 0 0 0 0 0 2 Fugro-Geoteam 0 0 0 0 1 1 0 0 2 Geofizyka Krakow 0 0 0 2 0 0 0 0 2 Grant/Solid State 1 0 4 0 0 0 2 0 7 Great Lakes 1 0 0 0 0 0 0 0 1 Geophysical Svcs Ltd 0 0 0 1 0 0 0 0 1 GSI 0 1 0 0 0 0 0 0 1 GeoStrata 0 2 0 0 0 0 0 0 2 Geofizyka Torun 0 0 0 2 0 0 0 0 2 Henan Explor. Bureau 0 0 0 0 0 0 3 0 3 Intl Mining Consult. 0 0 0 1 0 0 0 0 1 Oil India 0 0 0 0 0 0 1 0 1 Integrated Data Svcs 0 0 0 0 1 0 0 0 1 Irkutskgeofizika 0 0 0 0 0 0 0 2 2 JiangHan Geophysical 0 0 0 0 0 0 2 0 2 JOECO, SINOPEC 0 0 0 0 0 0 1 0 1 Kyrgyzneftgeofizika 0 0 0 0 0 0 0 1 1 La Mesa Geophysical 1 0 0 0 0 0 0 0 1 LARGE 0 0 0 0 0 0 1 0 1 Lebap Expedition 0 0 0 0 0 1 0 0 1 Lockhart Geophysical 4 0 0 0 0 0 0 0 4 MultiWave Geophys. 0 0 0 0 0 0 1 0 1 Nageco 0 0 0 0 2 0 0 0 2 NIOC 0 0 0 0 0 1 0 0 1 Norcana 0 2 0 0 0 0 0 0 2 Norex 0 1 0 0 0 0 0 0 1 OESCO 0 0 0 0 0 2 0 0 2 OSS 0 0 0 0 1 0 0 0 1 OGDC 0 0 0 0 0 7 0 0 7 ONGC 0 0 0 0 0 0 6 0 6 Paragon Geophysical 2 0 0 0 0 0 0 0 2 Dec. 15, 2004...pg 11
WORLD GEOPHYSICAL NEWS Contractor Activity (continued) United Latin Middle Far States Canada America Europe Africa East East CIS Total Perneftgeofizika 0 0 0 0 0 0 0 4 4 Petro-Alliance Svc. 0 0 0 0 0 0 0 1 1 PGS Exploration 3 0 2 1 1 0 1 0 8 Polaris 0 1 0 0 0 0 0 0 1 Profile 0 1 0 0 0 0 0 0 1 Quantum 2 0 0 0 0 0 0 0 2 Racal/Thales Survey 1 0 0 0 0 0 0 0 1 Samaraneftegazgeofiz 0 0 0 0 0 0 0 1 1 Saratov Geophysical 0 0 0 0 0 0 0 1 1 Shanghai Offshore 0 0 0 0 0 0 2 0 2 Sichuan Petroleum 0 0 0 0 0 0 4 0 4 Spetsgeofizika 0 0 0 0 0 0 0 1 1 Subsurface Explor. 2 0 0 0 0 0 0 0 2 Terrex Seismic 0 0 0 0 0 0 1 0 1 Tesla 1 2 0 0 0 0 0 0 3 TGS-NOPEC 0 0 0 0 1 0 2 0 3 Tidelands 3 0 0 0 0 0 0 0 3 Trace 1 0 0 0 0 0 0 0 1 Tuha Geophysical 0 0 0 0 0 0 3 0 3 Turkiye Petrolleri 0 0 0 0 0 3 0 0 3 Tyumenneftegazgeofiz 0 0 0 0 0 0 0 2 2 Velseis 0 0 0 0 0 0 1 0 1 Veritas DGC 9 0 2 0 1 2 3 0 17 Volgogradneftegazgeo 0 0 0 0 0 0 0 1 1 Vostokgeologiya 0 0 0 0 0 0 0 1 1 Western GECO 0 0 4 0 3 1 3 0 11 Wooten & Associates 1 0 0 0 0 0 0 0 1 Totals: 48 19 15 7 27 20 45 19 200 pg 12...Dec. 15, 2004
WORLD GEOPHYSICAL NEWS U.S. CREW ACTIVITY REPORT WORKING CREWS SOURCE EQUIPMENT TOWN BASE COMMENTS CONTRACTOR CREW CHANNELS COVERAGE SURVEY AREA OPERATOR ---------- ---- -------- -------- ----------- -------- Alaska Alaska Veritas DGC 21 Dynamite 3-D RSR Prudhoe &2800 Chan Veritas DGC 25 Vibroseis 3-D MRX Vibroseis Anchorage &1200 Chan Rockies Region Colorado Tesla 4 Dynamite SN-Eagle 88 2-D&& Veritas DGC 24 Dynamite 3-D I/O System Two Rifle Garfield &3700 Chan County North Dakota Grant/Solid State 953 Vibroseis 3-D MRX-I/O System Two Bowman County &6000 Chan Utah Dawson Geophysical 21 Vibroseis 3-D I/O System Two Sevier County &4000 Chan Dawson Geophysical 27 Dynamite proprietary 3-D&& Veritas DGC 41 Vib/Dyna 3-D I/O RSR Vernal Uintah &2700 Chan County Wyoming Dawson Geophysical 19 Vibroseis 3-D I/O System Two &5000 Chan PGS Exploration 330 Vibroseis 3-D I/O RSR Riverton Fremont &4000 Chan County Mid-Continent Kansas La Mesa Geophysical 1 ** Vibroseis 2-D weight drop Hodgeman County new && 72 Chan site Lockhart Geophysica 1 ** Vibroseis 3-D Ellis County new &&560 Chan site Lockhart Geophysica 2 ** Vibroseis 3-D Russell County new &&120 Chan site Lockhart Geophysica 3 ** Vibroseis 2-D digipulse weight dro Norton County new &&120 Chan site Lockhart Geophysica 4 ** Vibroseis ARAM Ness County new 3-D && site Paragon Geophysical 1 Vib/Dyna Sercel 408 UL 2-D && Oklahoma Paragon Geophysical 2 Dynamite I/O System II, DFS V 2-D&& Tidelands 330 ** Dynamite 3-D Opseis Eagle transition zone new &2000 Chan Carter County site Shallow Waters Veritas DGC 23 Vibroseis 3-D MRX Vibroseis Poteau Haskell &4500 Chan County Texas Panhandle Dawson Geophysical 22 Vibroseis 3-D I/O system Two Hutchinson County &4000 Chan Subsurface Explor. 43 Vibroseis 3-D Briscoe County &&640 Chan Dec. 15, 2004 ... pg 13
WORLD GEOPHYSICAL NEWS U.S. CREW ACTIVITY REPORT WORKING CREWS SOURCE EQUIPMENT TOWN BASE COMMENTS CONTRACTOR CREW CHANNELS COVERAGE SURVEY AREA OPERATOR ---------- ---- -------- -------- ----------- -------- Southwest Region New Mexico - Southeast Dawson Geophysical 20 Vlbroseis I/O System Two Lea County proprietary 3-D &2000 Chan Texas - West Basin Geo. 1 ** new Dynamite 3-D EWG -- Weight Hood County site &&360 Chan Drop Breckenridge Exp 101 ** Dynamite 3-D Opseis Archer County new site &1200 Chan Breckenridge Exp 201 Dynamite 2-D Opseis Young County &1200 Chan Dawson Geophysical 26 McMullen County Vibroseis 3-D&& Wooten & Associates 101 Dynamite 2-D&& Gulf Coast Region Louisiana - South Veritas DGC 43 Dynamite 3-D I/O RSR Abbeville &&700 Chan Cameron Parish Veritas DGC 45 Dynamite 3-D I/O RSR Franklin &1800 Chan Iberia Parish Texas Gulf Coast Dawson Geophysical 24 Vibroseis I/O System Two Hidalgo County 3-D &5000 Chan PGS Exploration 300 Dynamite 3-D I/O RSR Ft. Bend, Harris &4000 Chan counti PGS Exploration 320 Vlbroseis SN 408 Kingsville 3-D &7000 Kleberg County Chan Quantum 103 ** Dynamite 3-D I/O System Two Dayton new site &6000 Chan - RSR Tidelands 310 Dynamite 3-D 388 Eagle Opseis Port Lavaca ** new &2500 Chan Calhoun County site Ark-La-Tex Texas - East Dawson Geophysical 23 Vibroseis I/O System Two Johnson County 3-D &5000 - RSR proprietary Chan Dawson Geophysical 25 Vibroseis Johnson County 3-D&& Quantum 101 ** Vlbroseis MRX- I/O Weatherford new site 3-D &3000 System Two Chan Subsurface Explor. 42 Vibroseis high resolution Ft. Worth 3-D &1500 Chan Tidelands 320 Dynamite Clebume Johnson 3-D&& County Trace 1 ** Dynamite Weatherford new site 3-D&& Illinois Basin Illinois Great Lakes 1 ** new Dynamite 2-D Sercel 388 Illinois site &1200 Chan Offshore Gulf of Mexico Fugro (Chance) Geodetic Watergun analog - South Pass ** new 2-D && 1 bottom prof site Chan Deep Waters pg 14 ... Dec. 15, 2004
WORLD GEOPHYSICAL NEWS U.S. CREW ACTIVITY REPORT WORKING CREWS SOURCE EQUIPMENT TOWN BASE COMMENTS CONTRACTOR CREW CHANNELS COVERAGE SURVEY AREA OPERATOR ---------- ---- -------- -------- ----------- -------- Fugra (Chance) L'Appenteur Watergun 2-D West Cameron ** new && 48 Chan site Deep Waters Fairfield 105/New Airgun 3-D&& OBS - telseis West Cameron Hurricane - Venture at dock Fairfield 107/ Airgun 3-D OBC - 4 boats, High Island Explorer &1500 Chan 3-D 4 radiotelemetry Shallow Waters Racal/Thales Survey Albuquerque Airgun single ** new 2-D && 48 Chan streamer-600m Viosca Knoll site Veritas DGC Vantage Airgun 3-D&& ** new site Deep Waters Veritas DGC Viking I Airgun 3-D&& 6 streamers ** new site Deep Waters Dec. 15, 2004 ... pg 15
WORLD GEOPHYSICAL NEWS U.S. CREW ACTIVITY REPORT WORKING CREWS SOURCE EQUIPMENT TOWN BASE COMMENTS CONTRACTOR CREW CHANNELS COVERAGE SURVEY AREA OPERATOR ---------- ---- -------- -------- ----------- -------- Alaska Alaska PGS Exploration 357 Vibroseis 3-D SN 408 *Available* &8000 Chan PGS Exploration 358 Vibroseis 2-D SN-408 - *Available* &2000 Chan Rockies Region Colorado Grant/Solid State 952 Vibroseis Rifle *Available* 3-D&& Grant/Solid State 954 Vibroseis 2-D MRX-I/O System Two &6000 Chan San Luis County *Available* Montana Polaris 5 Vibroseis 2-D&& Aram-24 rained out *Available* Tesla 5 Vib/Dyna 3-D&& Hardln *Available* Utah Trace 2 Dynamite 3-D&& in transit *Available* Gulf Coast Region Louisiana - South Quantum 104 Dynamite 3-D&& St. Martin Parish *Available* Texas Gulf Coast Grant/Solid State 347 Dynamite 3-D RSR-I/O System Two San Patricio *Available* &5700 Chan County Grant/Solid State 350 Dynamite 3-D I/O System Two - Livingston County *Available* &3500 Chan RSR Offshore Gulf of Mexico Fugro (Chance) Brooks Airgun 2-D&& Autonomous Underwate dock leased boat McCall *Available* Racal/Thales Meg Skansl Airgun 3-D&& Main Pass *Available* Survey Racal/Thales Reflection Airgun single high resolution Survey streamer-600m pg 16 ... Dec. 15, 2004
Annex B Dawson Geophysical Company Valuation Account Balance at Charged to Balance at beginning of period cost and expenses Deductions end of period Allowance for doubtful accounts: 2004 127,000 100,000 28,000 199,000 2003 71,000 56,000 -- 127,000 2002 121,000 -- 50,000 71,000