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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, 2001
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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, 2001 Commission File number 2-71058
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DAWSON GEOPHYSICAL COMPANY
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(Exact name of Registrant as specified in its Charter)
TEXAS 75-0970548
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
508 West Wall, Suite 800, Midland, Texas 79701
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 915/684-3000
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NONE
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(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, 2001
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Common Stock, $.33 1/3 par value 5,466,294 shares
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DAWSON GEOPHYSICAL COMPANY
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INDEX
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Page No.
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Part I. Financial Information:
Item I. Financial Statements
Statements of Operations --
Three Months Ended December 31,
2001 and 2000 3
Balance Sheets --
December 31, 2001 and September 30,
2001 4
Statements of Cash Flows --
Three Months Ended December 31,
2001 and 2000 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
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31
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2001 2000
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Operating revenues $ 8,220,000 $ 6,349,000
Operating costs:
Operating expenses 8,001,000 7,056,000
General and administrative 499,000 447,000
Depreciation 1,123,000 2,331,000
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9,623,000 9,834,000
Loss from operations (1,403,000) (3,485,000)
Other income (expense):
Interest income 158,000 188,000
Other 72,000 4,000
Gain on disposal of assets -- 1,000
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Loss before income tax (1,173,000) (3,292,000)
Income tax benefit -- --
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Net loss $(1,173,000) $(3,292,000)
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Net loss per common share $ (.22) $ (.61)
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Weighted average equivalent common
shares outstanding 5,450,028 5,433,229
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DAWSON GEOPHYSICAL COMPANY
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BALANCE SHEETS
December 31, 2001 September 30, 2001
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,492,000 $ 4,338,000
Short-term investments 8,948,000 10,952,000
Accounts receivable, net of allowance
for doubtful accounts of $121,000
for each period 5,001,000 8,695,000
Prepaid expenses 228,000 173,000
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Total current assets 23,669,000 24,158,000
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Property, plant and equipment 73,934,000 73,656,000
Less accumulated depreciation (53,547,000) (52,433,000)
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Net property, plant and equipment 20,387,000 21,223,000
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$ 44,056,000 $ 45,381,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 811,000 $ 1,181,000
Accrued liabilities:
Payroll costs and other taxes 439,000 315,000
Other 246,000 303,000
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Total current liabilities 1,496,000 1,799,000
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Stockholders' equity:
Preferred stock--par value $1.00 per share;
5,000,000 shares authorized, none outstanding -- --
Common stock - par value $.33 1/3 per share;
10,000,000 shares authorized, 5,466,294
and 5,445,794 issued and outstanding,
respectively 1,822,000 1,815,000
Additional paid-in capital 38,855,000 38,711,000
Retained earnings 1,883,000 3,056,000
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Total stockholders' equity 42,560,000 43,582,000
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$ 44,056,000 $ 45,381,000
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See accompanying notes to the financial statements.
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DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
December 31
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2001 2000
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Cash flows from operating activities:
Net loss $(1,173,000) $(3,292,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,123,000 2,331,000
Gain on disposal of assets -- (1,000)
Stock based compensation 151,000 92,000
Other 12,000 8,000
Change in current assets and liabilities:
Decrease in accounts receivable 3,694,000 1,274,000
Increase in prepaid expenses (55,000) (3,000)
Increase (decrease) in accounts payable (370,000) 259,000
Increase in accrued liabilities 67,000 120,000
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Net cash provided by operating activities 3,449,000 788,000
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Cash flows from investing activities:
Proceeds from disposal of assets -- (1,000)
Capital expenditures (287,000) (88,000)
Proceeds from maturity of short-term
investments 6,000,000 2,000,000
Investment in short-term investments (4,008,000) (2,000,000)
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Net cash provided by (used in)
investing activities 1,705,000 (89,000)
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Net increase in cash and cash equivalents 5,154,000 699,000
Cash and cash equivalents at beginning
of period 4,338,000 509,000
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Cash and cash equivalents at end of period $ 9,492,000 $ 1,208,000
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See accompanying notes to the financial statements.
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DAWSON GEOPHYSICAL COMPANY
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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
adjustments, consisting of normal recurring accruals and the change of estimate
in the lives of certain assets (see Note 2), 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, 2001, 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 ended December 31, 2001
is:
Pro Forma
As Reported (As if No Change)
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Depreciation $ 1,123,000 $ 1,999,000
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Net loss $(1,173,000) $(2,049,000)
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Net loss per share $ (.22) $ (.38)
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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
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2001 2000
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NUMERATOR:
Net loss and numerator for basic
and diluted net income per
common share-income available
to common stockholders $(1,173,000) $(3,292,000)
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DENOMINATOR:
Denominator for basic net loss
per common share-weighted
average common shares 5,450,028 5,433,229
Effect of dilutive securities-
employee stock options -- --
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Denominator for diluted net
loss per common share-
adjusted weighted average
common shares and assumed
conversions 5,450,028 5,433,229
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Net loss per common share $ (.22) $ (.61)
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Net loss per common share-
assuming dilution $ (.22) $ (.61)
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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.
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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
While excess capacity remains in the land-based seismic industry, the Company
experienced some improvement in pricing during fiscal 2001 continuing through
the first quarter of fiscal 2002. For the quarters ended December 31, 2001 and
2000, the Company's revenues were negatively impacted due to unfavorable weather
and difficulty in obtaining permits for rights-of-way. Demand for the Company's
services is related to crude oil and natural gas prices; however, there has been
a delay in demand for geophysical services due to a period of intense drilling.
This delay has had a negative impact on price recovery for the Company's
services.
As discussed below in Results of Operations and in Note 2 of the "Notes to
Financial Statements," depreciation expense was reduced in the quarter ended
December 31, 2001 due to a change in the estimate of the lives of certain
assets.
RESULTS OF OPERATIONS
The Company's operating revenues for the first quarter of fiscal 2002 increased
29.5% from $6,349,000 to $8,220,000. Revenues were positively impacted in fiscal
2001 and continuing into fiscal 2002 by moderate improvements in the pricing of
its services. Inclement weather and permit delays had a negative impact on the
first quarter revenues of fiscal 2002.
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Operating expenses increased 13.4% in the first quarter of fiscal 2002 as
compared to the same period of fiscal 2001 as a result of increased demand for
the Company's services. The Company operated five crews throughout fiscal 2001
and began fiscal 2002 with five crews reducing to four during the quarter ended
December 31, 2001. While the unfavorable weather experienced in the quarter
ended December 31, 2001 had a negative impact on revenues, the impact was
minimal to operating expenses.
General and administrative expenses for the quarter ended December 31, 2001
totaled $499,000, an increase of $52,000 from the same period of fiscal 2001.
General and administrative expenses represent six percent of the revenues of the
quarter ended December 31, 2001 and seven percent of the revenues for the same
period of the prior fiscal year.
Depreciation for the quarter ended December 31, 2001 totaled $1,123,000, as
compared to $2,331,000 from the same period of fiscal 2001. 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 $876,000 for the
quarter ended December 31, 2001. 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 quarter of fiscal 2002 totaled $9,623,000, a
decrease of 2.1% from the same period of fiscal 2001 due to the factors
described above. The 29.5% increase of revenues as compared to the 13.4%
increase of total operating costs for the first quarter 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 first quarter of fiscal 2002 or 2001
due to a pretax loss. The Company has no income tax benefit remaining due to the
establishment of a valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities of $3,449,000 in the quarter ended
December 31, 2001 primarily reflects the net loss for the quarter offset by
changes in working capital components.
Net cash provided by investing activities in the first quarter of fiscal 2002
represents management of short-term investments and limited capital
expenditures. At December 31, 2001, proceeds from a matured Treasury note had
not been reinvested and are included in the balance of cash and cash
equivalents.
There are no cash flows resulting from financing activities for the first
quarters 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 three component seismic
approach. The Company believes that it is in position to respond to demand for
this technological advancement of the seismic industry.
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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
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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
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Long-lived assets are reviewed for impairment when triggering events occur
suggesting a 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
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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 $876,000 for
the quarter ended December 31, 2001.
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 December 31, 2001 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 with asset retirements. The standard is
effective for fiscal years beginning after June 15, 2002,
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with earlier application encouraged. As of December 31, 2001 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.
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, 2001 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 December 31, 2001, 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.
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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, 2001.
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SIGNATURES
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
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(REGISTRANT)
By: /s/ L. Decker Dawson
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L. Decker Dawson
President
/s/ Christina W. Hagan
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Christina W. Hagan
Chief Financial Officer
DATE: January 28, 2002
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