1
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 December 31, 2000
-----------------
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 December 31, 2000 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 December 31, 2000 .
-------------------------------- ----------------------------------
Common Stock, $.33 1/3 par value 5,445,794 shares
2
DAWSON GEOPHYSICAL COMPANY
INDEX
Page No.
--------
Part I. Financial Information:
Item I. Financial Statements
Statements of Operations --
Three Months Ended December 31,
2000 and 1999 3
Balance Sheets --
December 31, 2000 and September 30,
2000 4
Statements of Cash Flows --
Three Months Ended December 31,
2000 and 1999 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 10
Part II. Other Information 11
-2-
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31
------------------------------
2000 1999
------------ ------------
Operating revenues $ 6,349,000 $ 4,893,000
Operating costs:
Operating expenses 7,056,000 5,530,000
General and administrative 447,000 763,000
Depreciation 2,331,000 2,463,000
------------ ------------
9,834,000 8,756,000
------------ ------------
Loss from operations (3,485,000) (3,863,000)
Other income (expense):
Interest income 188,000 228,000
Other 4,000 --
Gain on disposal of assets 1,000 --
------------ ------------
Loss before income tax (3,292,000) (3,635,000)
Income tax benefit -- 1,236,000
------------ ------------
Net loss $ (3,292,000) $ (2,399,000)
============ ============
Net loss per common share $ (.61) $ (.44)
============ ============
Weighted average equivalent common
shares outstanding 5,433,229 5,414,560
============ ============
-3-
4
DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
December 31, 2000 September 30, 2000
----------------- ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,208,000 $ 509,000
Short-term investments 11,018,000 11,025,000
Accounts receivable, net of allowance
for doubtful accounts of $226,000
and $300,000 respectively 5,293,000 6,567,000
Income taxes receivable 2,165,000 2,165,000
Prepaid expenses 203,000 200,000
------------ ------------
Total current assets 19,887,000 20,466,000
------------ ------------
Property, plant and equipment 73,194,000 73,132,000
Less accumulated depreciation (46,121,000) (43,817,000)
------------ ------------
Net property, plant and equipment 27,073,000 29,315,000
------------ ------------
$ 46,960,000 $ 49,781,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,297,000 $ 1,038,000
Accrued liabilities:
Payroll costs and other taxes 395,000 253,000
Other -- 22,000
------------ ------------
Total current liabilities 1,692,000 1,313,000
------------ ------------
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, 5,445,794
and 5,428,794 issued and outstanding
respectively 1,815,000 1,810,000
Additional paid-in capital 38,711,000 38,624,000
Retained earnings 4,742,000 8,034,000
------------ ------------
Total stockholders' equity 45,268,000 48,468,000
------------ ------------
Contingencies (see note 2)
$ 46,960,000 $ 49,781,000
============ ============
See accompanying notes to the financial statements.
-4-
5
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
December 31
------------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $ (3,292,000) $ (2,399,000)
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation 2,331,000 2,463,000
Gain on disposal of assets (1,000) --
Non-cash compensation 92,000 99,000
Deferred income taxes -- (509,000)
Other 8,000 103,000
Change in current assets and liabilities:
Decrease in accounts receivable 1,274,000 1,000
Increase in income taxes receivable -- (727,000)
Increase in prepaid expenses (3,000) (122,000)
Increase in accounts payable 259,000 190,000
Increase (decrease) in accrued
liabilities 120,000 (254,000)
------------ ------------
Net cash provided by (used in)
operating activities 788,000 (1,155,000)
------------ ------------
Cash flows from investing activities:
Proceeds from disposal of assets (1,000) --
Capital expenditures (88,000) (25,000)
Proceeds from maturity of short-term
investments 2,000,000 1,000,000
Investment in short-term investments (2,000,000) (998,000)
------------ ------------
Net cash used in investing activities (89,000) (23,000)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options -- 32,000
------------ ------------
Net cash provided by financing activities -- 32,000
------------ ------------
Net increase in cash and cash equivalents 699,000 (1,146,000)
Cash and cash equivalents at beginning
of period 509,000 4,993,000
------------ ------------
Cash and cash equivalents at end of period $ 1,208,000 $ 3,847,000
============ ============
See accompanying notes to the financial statements.
-5-
6
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 presented. The results of operations for the three months ended December
31, 2000, are not necessarily indicative of the results to be expected for the
fiscal year.
2. CONTINGENCIES
The Company is a defendant in two lawsuits pending in the 112th and
83rd District Courts of Pecos County, Texas (respectively, Cause No. 8812,
Ernestine Bernal, et al. vs. Javier Antonio Orona, et al.; and Cause No.
P5565-83-CV, Carla Jaquez, et al. vs. Javier Antonio Orona, et al.) relating to
a July 1995 accident involving a van owned by the Company which was used to
transport employees to various job sites and a non-Company owned vehicle. The
accident resulted in the deaths of four Company employees who were passengers in
such van. The Company is one of several named defendants in such suits. Other
named defendants include the estate of the deceased driver of such van, who was
an employee of the Company, the driver of such non-Company owned vehicle, who
was then an employee of the Company, the owner of such vehicle, and Ford Motor
Company, the manufacturer of the Company van involved in such accident. In
general, the claims against the Company include allegations of negligence, gross
negligence and/or intentional tort as a result of, among other things, the
Company's alleged failure to provide safe transportation for its employees and
to properly select, train and supervise the deceased driver of such van. The
plaintiffs in such suits are seeking actual damages from the defendants of $15.5
million, additional unspecified actual damages, prejudgment and post-judgment
interest and costs of suit as well as exemplary and punitive damages in an
amount not to exceed four times the amount of actual damages. The Company
believes that it has meritorious defenses to the claims asserted against it in
such suits and it intends to continue to vigorously defend itself against such
claims. In addition, the Company believes that it has approximately $11 million
of liability insurance coverage to provide against an unfavorable outcome. Such
suits are currently pending trial, and the Company's motion for summary judgment
in Cause No. 8812 has been denied. A trial date has been set both in Cause No.
8812 and consolidated Cause No. P5565-83-CV for March 26, 2001. Due to the
uncertainties inherent in litigation, no assurance can be given as to the
ultimate outcome of such suits or the adequacy or availability of the Company's
liability insurance to cover the damages, if any, which may be assessed against
the Company in such suits. A judgment awarding plaintiffs an amount
significantly exceeding the Company's available insurance coverage could have a
material adverse effect on the Company's financial condition, results of
operations and liquidity.
The Company is party to other legal actions arising in the ordinary
course of its business, none of which management believes will result in a
material adverse effect on the Company's financial position or results of
operation, as the Company believes it is adequately insured.
-6-
7
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
December 31
------------------------------
2000 1999
------------ ------------
Numerator:
Net loss and numerator for basic
and diluted net income per
common share-income available
to common stockholders $ (3,292,000) $ (2,399,000)
------------ ------------
Denominator:
Denominator for basic net loss
per common share-weighted
average common shares 5,433,229 5,414,560
Effect of dilutive securities-
employee stock options -- --
------------ ------------
Denominator for diluted net
loss per common share-
adjusted weighted average
common shares and assumed
conversions 5,433,229 5,414,560
------------ ------------
Net loss per common share $ (.61) $ (.44)
============ ============
Net loss per common share-
assuming dilution $ (.61) $ (.44)
============ ============
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-
8
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
Although crude oil and natural gas prices have led to increased exploration
budgets among our petroleum industry clients, the Company's revenues were
negatively impacted during the quarter ended December 31, 2000 due to
unfavorable weather. Demand for the Company's services is related to crude oil
and natural gas prices; however, there has been a prolonged delay in demand for
geophysical services which has had a negative impact on price recovery.
Accordingly the Company is experiencing some improvement in pricing; however,
during the quarter ended December 31,2000, the Company was completing some
projects that were bid at last year's low rates.
RESULTS OF OPERATIONS
The Company's operating revenues for the first quarter of fiscal 2001 increased
29.8% from $4,893,000 to $6,349,000. Demand for the Company's services has
improved as
-8-
9
compared to the same quarter of the prior year due to the continuing high prices
for crude oil and natural gas. The Company is beginning to experience some
success in securing improved bid prices; however, revenues for the quarter ended
December 31, 2000, were negatively impacted by unfavorable weather and the
completion of projects that were bid at last year's low rates.
Operating expenses increased 27.6% in the first quarter of fiscal 2001 as
compared to the same period of fiscal 2000 as a result of increased demand for
the Company's services. The Company was operating five crews throughout the
first quarter of fiscal 2001 as compared to four crews throughout the same
quarter of the prior year. While the unfavorable weather experienced in the
quarter ended December 31, 2000 had a negative impact on revenues, the impact
was minimal to operating expenses.
General and administrative expenses for the quarter ended December 31, 2000
totaled $447,000, a decrease of $316,000 from the same period of fiscal 2000.
The decrease primarily consists of a provision for doubtful accounts recognized
during the quarter ended December 31, 1999.
Depreciation for the quarter ended December 31, 2000 totaled $2,331,000, a
decrease of $132,000 from the same period of fiscal 2000. Depreciation decreased
as a result of a suspension of capital expansion during fiscal 1999 and fiscal
2000 due to industry conditions.
Total operating costs for the first quarter of fiscal 2001 totaled $9,834,000,
an increase of 12.3% from the same period of fiscal 2000 due to the factors
described above. The 29.8% increase of revenues as compared to the 12.3%
increase of total operating costs for the first quarter of fiscal 2001 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.
The Company has no income tax benefit due to the establishment of a valuation
allowance offset by an increase in pretax loss.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by operating activities of $788,000 in the quarter ended
December 31, 2000 primarily reflects the net loss for the quarter offset by
changes in working capital components. The decrease in deferred income taxes in
fiscal 2000 is a result of the reversal of temporary differences due to
depreciation and recognition of net operating loss carryback.
Net cash used in investing activities in the first quarter of fiscal 2001 is
consistent with the same period of the prior year representing management of
short-term investments and limited capital expenditures.
The cash flows provided by financing activities for the first quarter of fiscal
2000 represent the proceeds from the exercise of a stock option.
-9-
10
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. Depreciation increased each fiscal year through 1999 as a new crew
as well as additions and replacements of cables and geophones, vehicles, and
other data acquisition peripheral equipment had been placed into service each
year for the past several years. Depreciation for fiscal 2001 is expected to be
less than in fiscal 2000. The Company will maintain 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 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, cash flow from operations, and relationships with financial
entities, are adequate to meet its current operational needs and finance capital
needs as determined by market demand and technological developments.
LITIGATION
The Company is a defendant in two lawsuits relating to a July 1995 accident
involving a van owned by the Company in which four Company employees died. The
Company believes that it has meritorious defenses to the claims asserted against
it in such suits. Further, while the plaintiffs seek damages in excess of the
Company's liability insurance policies, the Company believes that its liability
insurance should provide adequate coverage of the damages, if any, which may be
assessed against the Company in such litigation. Due to the uncertainties
inherent in litigation, no assurance can be given as to the ultimate outcome of
such suits or the adequacy or availability of the Company's liability insurance
to cover any such damages. A judgment awarding plaintiffs an amount
significantly exceeding the Company's available insurance coverage could have a
material adverse effect on the Company's financial condition, results of
operations and liquidity.
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 December 31, 2000 the Company had no indebtedness and in
addition the Company's short-term investments were fixed-rate and, therefore, do
not expose the Company to significant risk of earnings or cash flow loss due to
changes in market interest rate. 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.
-10-
11
Part II. OTHER INFORMATION
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 December 31, 2000.
-11-
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
Chief Executive Officer
/s/ Christina W. Hagan
-----------------------------------
Christina W. Hagan
Chief Financial Officer
DATE: January 24, 2001 .
-------------------------