Back to GetFilings.com
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended June 30, 2002 Commission File number 2-71058
------------- -------
DAWSON GEOPHYSICAL COMPANY
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
TEXAS 75-0970548
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
508 West Wall, Suite 800, Midland, Texas 79701
---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 915/684-3000
------------
NONE
(Former Name, Former Address & Former Fiscal Year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at June 30, 2002
-------------------------------- ----------------------------
Common Stock, $.33 1/3 par value 5,467,294 shares
-1-
DAWSON GEOPHYSICAL COMPANY
INDEX
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements:
Statements of Operations --
Three Months and Nine Months
ended June 30, 2002 and 2001 3
Balance Sheets --
June 30, 2002 and September 30,
2001 4
Statements of Cash Flows --
Nine Months Ended June 30,
2002 and 2001 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 11
Part II. Other Information 12
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
-2-
PART I. FINANCIAL INFORMATION
DAWSON GEOPHYSICAL COMPANY
Item 1. Financial Statements
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30 June 30
-------------------------------- --------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Operating revenues $ 9,096,000 $ 12,051,000 $ 26,278,000 $ 28,471,000
-------------- -------------- -------------- --------------
Operating costs:
Operating expenses 8,102,000 9,216,000 23,690,000 24,640,000
General and administrative 496,000 439,000 1,550,000 1,355,000
Depreciation 1,048,000 2,071,000 3,248,000 6,740,000
-------------- -------------- -------------- --------------
9,646,000 11,726,000 28,488,000 32,735,000
-------------- -------------- -------------- --------------
Income (loss) from operations (550,000) 325,000 (2,210,000) (4,264,000)
Other income (expense):
Interest income 119,000 169,000 394,000 573,000
Gain (loss) on disposal
of assets -- 5,000 5,000 8,000
Other income 3,000 1,000 76,000 15,000
-------------- -------------- -------------- --------------
Income (loss) before income tax (428,000) 500,000 (1,735,000) (3,668,000)
Income tax benefit -- -- -- --
-------------- -------------- -------------- --------------
Net income (loss) $ (428,000) $ 500,000 $ (1,735,000) $ (3,668,000)
============== ============== ============== ==============
Net income (loss) per common share $ (.08) $ .09 $ (.32) $ (.67)
============== ============== ============== ==============
Net income (loss) per common share--
assuming dilution $ (.08) $ .09 $ (.32) $ (.67)
============== ============== ============== ==============
Weighted average equivalent common
shares outstanding 5,467,294 5,445,794 5,461,468 5,441,513
============== ============== ============== ==============
Weighted average equivalent common
shares outstanding--
assuming dilution 5,467,294 5,516,671 5,461,468 5,441,513
============== ============== ============== ==============
See accompanying notes to the financial statements.
-3-
DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
June 30, 2002 September 30, 2001
------------- ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,905,000 $ 4,338,000
Short-term investments 13,978,000 10,952,000
Accounts receivable, net of allowance for
doubtful accounts of $121,000 in each period 6,276,000 8,695,000
Prepaid expenses 485,000 173,000
------------- -------------
Total current assets 24,644,000 24,158,000
------------- -------------
Property, plant and equipment 74,522,000 73,656,000
Less accumulated depreciation (55,639,000) (52,433,000)
------------- -------------
Net property, plant and equipment 18,883,000 21,223,000
------------- -------------
$ 43,527,000 $ 45,381,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 838,000 $ 1,181,000
Accrued liabilities:
Payroll costs and other taxes 522,000 315,000
Other 161,000 303,000
------------- -------------
Total current liabilities 1,521,000 1,799,000
------------- -------------
Stockholders' equity:
Preferred stock--par value $1.00 per share;
5,000,000 shares authorized, none outstanding -- --
Common stock - par value $.33 1/3 per share;
10,000,000 shares authorized, 5,467,294
and 5,445,794 shares issued and outstanding
respectively 1,822,000 1,815,000
Additional paid-in capital 38,863,000 38,711,000
Retained earnings 1,321,000 3,056,000
------------- -------------
Total stockholders' equity 42,006,000 43,582,000
------------- -------------
$ 43,527,000 $ 45,381,000
============= =============
See accompanying notes to the financial statements.
-4-
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30
------------------------------
2002 2001
------------- -------------
Cash flows from operating activities:
Net loss $ (1,735,000) $ (3,668,000)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 3,248,000 6,740,000
Gain on disposal of assets (5,000) (8,000)
Non-cash compensation 178,000 92,000
Other 101,000 31,000
Change in current assets and liabilities:
Decrease (increase) in accounts receivable 2,419,000 (3,055,000)
Increase in prepaid expenses (312,000) (114,000)
Decrease in income taxes receivable -- 2,165,000
Increase (decrease) in accounts payable (343,000) 220,000
Increase in accrued liabilities 65,000 300,000
------------- -------------
Net cash provided by operating activities 3,616,000 2,703,000
------------- -------------
Cash flows from investing activities:
Proceeds from disposal of assets 10,000 49,000
Capital expenditures (939,000) (629,000)
Proceeds from maturity of short-term
investments 10,059,000 3,500,000
Investment in short-term investments (13,179,000) (5,474,000)
------------- -------------
Net cash used in investing activities (4,049,000) (2,554,000)
------------- -------------
Net increase (decrease) in cash and cash
equivalents (433,000) 149,000
Cash and cash equivalents at beginning
of period 4,338,000 509,000
------------- -------------
Cash and cash equivalents at end of period $ 3,905,000 $ 658,000
============= =============
See accompanying notes to the financial statements.
-5-
DAWSON GEOPHYSICAL COMPANY
NOTES TO FINANCIAL STATEMENTS
1. OPINION OF MANAGEMENT
Although the information furnished is unaudited, in the opinion of
management of the Registrant, the accompanying financial statements reflect all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the financial condition and results of operations for the
periods pre- sented. The results of operations for the three months and the nine
months ended June 30, 2002, are not necessarily indicative of the results to be
expected for the fiscal year.
2. PLANT, PROPERTY AND EQUIPMENT
Management of the Registrant has revised the estimated lives of certain
assets based on the technology of certain seismic data recording equipment
consisting of the central electronic components and of energy source units.
Management believes that the central electronics components contained in the
field recording units of the Company's six crews remain state of the art.
Management believes that advancements in the foreseeable future will consist of
upgrades that may require replacements of modules of the central electronics.
Management does not believe that the current systems will become obsolete at the
end of the original estimate and has revised the estimated life of these assets.
Management believes that the current fleet of energy source units will
provide service beyond the life originally estimated due to actual performance
of units in the past and to the redesign of the unit. Accordingly, the estimated
life of this class of asset has been revised.
The change of estimate was made as of October 1, 2001. The effect to
depreciation and to the net loss for the three months and the nine months ended
June 30, 2002 is:
Pro Forma
As Reported (As If No Change)
------------------------------ ------------------------------
Three Months Nine Months Three Months Nine Months
------------- ------------- ------------- -------------
Depreciation $ 1,048,000 $ 3,248,000 $ 1,896,000 $ 5,832,000
============= ============= ============= =============
Net Loss $ (428,000) $ (1,735,000) $ (1,276,000) $ (4,319,000)
============= ============= ============= =============
Net loss per share $ (.08) $ (.32) $ (.24) $ (.79)
============= ============= ============= =============
-6-
3. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net
income per common share:
Three Months Ended Nine Months Ended
June 30 June 30
------------------------------ ------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Numerator:
Net income (loss) and numerator for basic
and diluted net income per
common share-income available
to common stockholders $ (428,000) $ 500,000 $ (1,735,000) $ (3,668,000)
------------- ------------- ------------- -------------
Denominator:
Denominator for basic net income (loss)
per common share-weighted
average common shares 5,467,294 5,445,794 5,461,468 5,441,513
Effect of dilutive securities-
employee stock options -- 70,877 -- --
------------- ------------- ------------- -------------
Denominator for diluted net income
(loss) per common share-
adjusted weighted average
common shares and assumed
conversions 5,467,294 5,516,671 5,461,468 5,441,513
------------- ------------- ------------- -------------
Net income (loss) per common share $ (.08) $ .09 $ (.32) $ (.67)
============= ============= ============= =============
Net income (loss) per common
share--assuming dilution $ (.08) $ .09 $ (.32) $ (.67)
============= ============= ============= =============
Employee stock options to purchase shares of common stock were
outstanding during fiscal year 2001 and 2000 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.
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements. In addition, in reviewing the Company's financial
statements it should be noted that the Company's revenues relate to oil and gas
exploration and production activity and fluctuations in the Company's results of
operations may occur due to commodity prices, weather, land use permitting and
other factors.
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this report,
including without limitation, statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. When used in this report, words such as
"anticipate", "believe", "estimate", "expect", "intend", and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain factors, including but not limited to
dependence upon energy industry spending, weather problems, inability to obtain
land use permits, the volatility of oil and gas prices, and the availability of
capital resources. Such statements reflect the current views of the Company with
respect to future events and are subject to these and other risks, uncertainties
and assumptions relating to the operations, results of operations, growth
strategy and liquidity of the Company. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this paragraph. The Company
assumes no obligation to update any such forward-looking statements.
OVERVIEW
The Company has experienced improved pricing over the last eighteen months even
though excess capacity and price competition prevail in the land-based seismic
industry. The Company's revenues were negatively impacted due to unfavorable
weather and difficulty in obtaining permits for rights-of-way during the nine
months ended June 30, 2002. Production increases obtainable with favorable
weather and timely permits for rights-of-way will significantly improve the
Company's operating results. Demand for the Company's services is related to
crude oil and natural gas prices.
As discussed below in Results of Operations and in Note 2 of the "Notes to
Financial Statements," depreciation expense was reduced for the three months and
for the nine months ended June 30, 2002 due to a change in the estimate of the
lives of certain assets.
RESULTS OF OPERATIONS
The Company's operating revenues for the first nine months of fiscal 2002
decreased 7% to $26,278,000 from $28,471,000 for the same period of fiscal 2001.
For the three months ended June 30, 2002, operating revenues totaled $9,096,000
versus $12,051,000 for the same period of fiscal 2001, a 24% decrease. The net
profit of the third quarter of fiscal 2001 reflects the production results
obtainable even though continued price competition and excess capacity in the
land-based seismic industry have existed since the Company's previous profitable
quarter, ending September 1998. The Company continually operated five crews in
fiscal 2001. During
-8-
the first nine months of fiscal 2002, the Company has operated four or five
crews depending on weather conditions and the ability to obtain permits for
rights-of-way. At June 30, 2002, the Company was operating three crews due to
these factors.
Operating expenses for the nine months ended June 30, 2002 totaled $23,550,000,
a 4% decrease from the same period of fiscal 2001. For the quarter ended June
30, 2002, operating expenses totaled $8,036,000 versus $9,216,000 for the same
period of fiscal 2001, a 12% decrease. In January 2001 the Company restored
salary reductions that had been enacted in January 1999.
General and administrative expenses for the nine months ended June 30, 2002
totaled $1,550,000 as compared to $1,355,000 for the same period of fiscal 2001.
For the quarter ended June 30, 2002, general and administrative expenses totaled
$496,000 as compared to $439,000 in the same quarter of fiscal 2001. Insurance
premiums primarily account for these increases.
Depreciation for the nine months and for the quarter ended June 30, 2002
decreased approximately 50%. As discussed in Note 2 of the "Notes to Financial
Statements," the Company revised the estimated lives of two classes of seismic
equipment. The effect of the change is a reduction in depreciation expense and
net loss of approximately $2,584,000 for the nine month period and $848,000 for
the quarter ended June 30, 2002. The decrease in depreciation expense includes a
modest effect resulting from a suspension of capital expansion beginning in
fiscal 1999 due to industry conditions.
Total operating costs for the first nine months of fiscal 2002 were $28,488,000,
a decrease of 13%, from the same period of fiscal 2001 due to the factors
described above. For the quarter ended June 30, 2002, total operating costs of
$9,646,000 represent a 17% decrease from the same period of the prior fiscal
year. The 7% decrease of revenues as compared to the relatively flat total of
operating expenses and general and administrative expense for the first nine
months of fiscal 2002 reflects the high proportion of relatively fixed total
operating costs (including personnel costs of active crews and depreciation
costs) inherent in the Company's business and continued price competition in the
bidding process for geophysical services due to the remaining over-capacity in
our industry.
No income tax expense was recorded for the three months or the nine months ended
June of fiscal 2002 or 2001 due to a pretax loss. The Company has no income tax
benefit due to the establishment of a valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by operating activities of $3,616,000 for the nine months
ended June 30, 2002 primarily reflects the net loss offset by depreciation and
changes in working capital components.
Net cash used in investing activities in the first nine months of fiscal 2002
represents management of short-term investments and capital expenditures. The
Company's capital expenditures in fiscal 2002 consist primarily of the purchase
of geophones and vehicles to maintain efficient field operations.
There are no cash flows resulting from financing activities for the first nine
months of fiscal 2002 or 2001.
Capital Expenditures
The Company continually strives to supply market demand with technologically
advanced 3-D data acquisition recording systems and leading edge data processing
capabilities. The Company maintains equipment in and out of service in
anticipation of increased future demand of the Company's services. In addition
the Company continues to monitor the development of the
-9-
three-component seismic approach. The Company believes that it is in position to
respond to demand for this technological advancement of the seismic industry.
Capital Resources
The Company believes that its capital resources including its short-term
investments and cash flow from operations are adequate to meet its current
operational needs and finance capital needs as determined by market demand and
technological developments. The Company is currently not subject to any
financing arrangements; however, it believes that financing through traditional
sources is available.
CRITICAL ACCOUNTING POLICIES
The following accounting policies require management assumptions and estimates
which could result in materially different amounts to be reported if conditions
or underlying circumstances were to change.
Allowance for Doubtful Accounts
Management prepares its allowance for doubtful accounts receivable based on its
past experience of historical write-offs and review of past due accounts. The
inherent volatility of the energy industry's business cycle can cause swift and
unpredictable changes in the financial stability of the Company's customers.
Impairment of Long-lived Assets
Long-lived assets are reviewed for impairment when triggering events occur
suggesting deterioration in the asset's 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. Management's estimate
of future cash flows is based on historical experience in the energy industry's
volatile business cycle which is difficult to predict.
Depreciable Lives of Property, Plant and Equipment
Property, Plant and Equipment is capitalized at historical cost and depreciated
over the useful life of the asset. Management's estimation of this useful life
is based on circumstances that exist in the seismic industry and information
available at the time of the purchase of the asset. As circumstances change and
new information becomes available these estimates could change. As described in
Note 2 of the "Notes to Financial Statements," the Company has revised the
estimated lives of two classes of seismic equipment. The effect of the change is
a reduction of depreciation expense and net loss of approximately $848,000 for
the three months and $2,584,000 for the nine months ended June 30, 2002.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141 "Business Combinations" and
No. 142 "Goodwill and Other Intangible Assets". Statement 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and Statement 142 requires that goodwill no longer be amortized
to earnings, but instead be reviewed for impairment. As of June 30, 2002 the
Company expects no impact to the financial statements, upon adoption, as no
business combinations have been entered into, thus the potential for associated
goodwill does not currently exist.
In June 2001, the FASB issued Statement No. 143 "Accounting for Asset
Retirement Obligations" which establishes requirements for the accounting of
removal-type costs associated
-10-
with asset retirements. The standard is effective for fiscal years beginning
after June 15, 2002, with earlier application encouraged. As of June 30, 2002
the Company expects no impact to the financial statements, upon adoption, as we
have not incurred any obligations associated with asset retirements.
On October 3, 2001, the FASB issued Statement No. 144 "Accounting for
the Impairment or Disposal of Long-Lived Assets". This pronouncement supercedes
FAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed" and eliminates the requirement of Statement 121 to
allocate goodwill to long-lived assets to be tested for impairment. Statement
144 also describes a probability-weighted cash flow estimation approach to deal
with situations in which alternative courses of action to recover the carrying
amount of a long-lived asset are under consideration or a range is estimated for
the amount of possible future cash flows. The statement also establishes a
"primary-asset" approach to determine the cash flow estimation period for a
group of assets and liabilities that represents the unit of accounting for a
long-lived asset to be held and used. The provisions of this Statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early
adoption encouraged. The Company is currently assessing the impact to its
financial statements.
In April, 2002, the FASB issued Statement No. 145, "Recission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No.13, and Technical
Corrections." Most significantly, this Statement eliminates the requirement
under Statement 4 to aggregate all gains and losses from extinguishment of debt,
and if material, be classified as an extraordinary item. As a result, gains and
losses from extinguishment of debt should be classified as extraordinary items
only if they meet the criteria in Opinion 30. Applying the provisions of Opinion
30 will distinguish transactions that are part of an entity's recurring
operations from those that are unusual or infrequent or that meet the criteria
for classification as an extraordinary item. There is no current impact to the
Company as there is no debt.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Statement 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company expects no impact to its
financial statements as the Company does not anticipate exiting or disposing of
any of its activities.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The primary sources of market risk include fluctuations in commodity prices
which effect demand for and pricing of the Company's services and interest rate
fluctuations. At June 30, 2002 the Company had no indebtedness. The Company's
short-term investments were fixed-rate and the Company does not necessarily
intend to hold them to maturity, and therefore, the short-term investments
expose the Company to the risk of earnings or cash flow loss due to changes in
market interest rates. As of June 30, 2002, the carrying value of the
investments approximate fair value. The Company has not entered into any hedge
arrangements, commodity swap agreements, commodity futures, options or other
derivative financial instruments. The Company does not currently conduct
business internationally so it is generally not subject to foreign currency
exchange rate risk.
-11-
Part II. OTHER INFORMATION
Item 5. Other Information
Dawson Geophysical Company (the Company) is furnishing herewith the
Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 of its Principal
Executive Officer and its Principal Financial Officer regarding facts
and circumstances relating to Exchange Act filings as Exhibits 99.1 and
99.2, respectively, which are included herein. L. Decker Dawson,
Chairman and Chief Executive Officer of the Company, and Christina W.
Hagan, Vice President and Chief Financial Officer of the Company,
signed these statements on August 9, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The information required by this Item 6(a) is set forth in the
Index to Exhibits accompanying this quarterly report and is
incorporated herein by reference.
(b) No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 2002.
-12-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DAWSON GEOPHYSICAL COMPANY
--------------------------
(REGISTRANT)
By: /s/ L. Decker Dawson
--------------------------
L. Decker Dawson
Chairman of the Board, CEO
/s/ Christina W. Hagan
--------------------------
Christina W. Hagan
Chief Financial Officer
DATE: August 12, 2002
---------------
-13-
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002