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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 March 31, 2002
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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 March 31, 2002 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 Identification No.)
incorporation or organization)
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
(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 March 31, 2002
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Common Stock, $.33 1/3 par value 5,467,294 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 1. Financial Statements
Statements of Operations --
Three Months and Six Months
ended March 31, 2002 and 2001 3
Balance Sheets --
March 31, 2002 and September 30,
2001 4
Statements of Cash Flows --
Six Months Ended March 31,
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 11
About Market Risk
Part II. Other Information 12
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PART I. FINANCIAL INFORMATION
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DAWSON GEOPHYSICAL COMPANY
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STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
March 31 March 31
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Operating revenues $ 8,962,000 $10,071,000 $17,182,000 $16,420,000
----------- ----------- ----------- -----------
Operating costs:
Operating expenses 7,513,000 8,368,000 15,514,000 15,424,000
General and administrative 629,000 469,000 1,128,000 916,000
Depreciation 1,077,000 2,338,000 2,200,000 4,669,000
----------- ----------- ----------- -----------
9,219,000 11,175,000 18,842,000 21,009,000
----------- ----------- ----------- -----------
Loss from operations (257,000) (1,104,000) (1,660,000) (4,589,000)
Other income (expense):
Interest income 117,000 216,000 275,000 404,000
Gain on disposal of assets 5,000 2,000 5,000 3,000
Other income 1,000 10,000 73,000 14,000
----------- ----------- ----------- -----------
Loss before income tax (134,000) (876,000) (1,307,000) (4,168,000)
Income tax benefit - - - -
----------- ----------- ----------- -----------
Net loss $ (134,000) $ (876,000) $(1,307,000) $(4,168,000)
=========== =========== =========== ===========
Net loss per common share $(.02) $(.16) $(.24) $(.77)
===== ===== ===== =====
Weighted average equivalent common
shares outstanding 5,467,272 5,445,794 5,458,555 5,439,442
=========== =========== =========== ===========
See accompanying notes to the financial statements.
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DAWSON GEOPHYSICAL COMPANY
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BALANCE SHEETS
March 31, September 30,
2002 2001
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,070,000 $ 4,338,000
Short-term investments 16,051,000 10,952,000
Accounts receivable,net of allowance
for doubtful accounts of $121,000
in each period 6,638,000 8,695,000
Prepaid expenses 496,000 173,000
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Total current assets 24,255,000 24,158,000
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Property, plant and equipment 73,938,000 73,656,000
Less accumulated depreciation (54,599,000) (52,433,000)
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Net property, plant and equipment 19,339,000 21,223,000
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$ 43,594,000 $ 45,381,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 602,000 $ 1,181,000
Accrued liabilities:
Payroll costs and other taxes 376,000 315,000
Other 182,000 303,000
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Total current liabilities 1,160,000 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 $.33 1/3 per share;
10,000,000 shares authorized, 5,467,294
and 5,445,794 issued and outstanding
respectively 1,822,000 1,815,000
Additional paid-in capital 38,863,000 38,711,000
Retained earnings 1,749,000 3,056,000
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Total stockholders' equity 42,434,000 43,582,000
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$ 43,594,000 $ 45,381,000
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See accompanying notes to the financial statements.
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DAWSON GEOPHYSICAL COMPANY
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STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31
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2002 2001
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Cash flows from operating activities:
Net loss $ (1,307,000) $ (4,168,000)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,200,000 4,669,000
Gain on disposal of assets (5,000) (3,000)
Non-cash compensation 178,000 92,000
Other 54,000 13,000
Change in current assets and liabilities:
Decrease in accounts receivable 2,057,000 601,000
Decrease (increase) in prepaid expenses (323,000) 5,000
Decrease in income taxes receivable - 2,165,000
Increase (decrease) in accounts payable (579,000) 28,000
Increase (decrease) in accrued liabilities (60,000) 70,000
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Net cash provided by operating activities 2,215,000 3,472,000
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Cash flows from investing activities:
Proceeds from disposal of assets 10,000 14,000
Capital expenditures (333,000) (411,000)
Proceeds from maturity of short-term
investments 6,000,000 2,000,000
Investment in short-term investments (11,160,000) (3,538,000)
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Net cash used in investing activities (5,483,000) (1,935,000)
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Net increase (decrease) in cash and cash
equivalents (3,268,000) 1,537,000
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 $ 1,070,000 $ 2,046,000
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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 all
adjustments, consisting only 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 and six months
ended March 31, 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 six months ended
March 31, 2002 is:
Pro Forma
As Reported (As if No Change)
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Three Months Six Months Three Months Six Months
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Depreciation $ 1,077,000 $ 2,200,000 $ 1,937,000 $ 3,936,000
============ ============ ============ ============
Net loss $ (134,000) $ (1,307,000) $ (994,000) $ (3,043,000)
============ ============ ============ ============
Net loss per share $(.02) $(.24) $(.18) $(.56)
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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 Six Months Ended
March 31 March 31
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2002 2001 2002 2001
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NUMERATOR:
Net loss and numerator for basic
and diluted net income per
common share-income available
to common stockholders $ (134,000) $ (876,000) $ (1,307,000) $ (4,168,000)
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ENOMINATOR:
Denominator for basic net loss
per common share-weighted
average common shares 5,467,272 5,445,794 5,458,555 5,439,442
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 5,467,272 5,445,794 5,458,555 5,439,442
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Net loss per common share $(.02) $(.16) $(.24) $(.77)
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Net loss per common share-
assuming dilution $(.02) $(.16) $(.24) $(.77)
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Employee stock options to purchase shares of common stock were outstanding
during fiscal year 2002 and 2001 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
The Company has maintained improvement in pricing that has been gained over the
last eighteen months even though excess capacity remains in the land-based
seismic industry and price competition prevails. The Company's revenues were
negatively impacted due to unfavorable weather and difficulty in obtaining
permits for rights-of-way during the six months ended March 31, 2002 and to a
lesser extent in 2001. 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; however, there has been a delay in demand for geophysical
services due to a period of intense drilling. The unusually warm winter of
2001-2002 depressed 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 six months ended March 31, 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 six months of fiscal 2002
increased 4.6% to $17,182,000 from $16,420,000 for the same period of fiscal
2001. For the three months ended March 31, 2002, operating revenues totaled
$8,962,000 versus $10,071,000 for the same period of fiscal 2001, an 11%
decrease. The Company has continually operated four crews in fiscal 2002 as
compared to five crews for the same period of fiscal 2001.
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Operating expenses for the six months ended March 31, 2002 totaled $15,514,000,
a slight increase from the same period of fiscal 2001. For the quarter ended
March 31, 2002, operating expenses totaled $7,513,000 versus $8,368,000 for the
same period of fiscal 2001, a 10.2% decrease. In January 2001 the Company
restored salary reductions that had been enacted in January 1999.
General and administrative expenses for the six months ended March 31, 2002
totaled $1,128,000 as compared to $916,000 for the same period of fiscal 2001.
For the quarter ended March 31, 2002, general and administrative expenses
totaled $629,000, an increase of $160,000 from the same period of fiscal 2001. A
significant factor of the increase consists of the Company's match to employees'
contributions to the Company's 401(k) Plan that was implemented January 1, 2002.
Depreciation for the six months and for the quarter ended March 31, 2002
decreased approximately 53%. 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 $1,736,000 for the six month period and $860,000 for
the quarter ended March 31, 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 six months of fiscal 2002 were $18,842,000,
a decrease of 10.3%, from the same period of fiscal 2001 due to the factors
described above. For the quarter ended March 31, 2002, total operating costs of
$9,219,000 represent a 17.5% decrease from the same period of the prior fiscal
year. The 4.6% increase of revenues as compared to the 10.3% decrease of total
operating costs for the first six 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 six months ended
March 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 $2,215,000 for the six months ended
March 31, 2002 primarily reflects the net loss for the quarter offset by
depreciation and changes in working capital components.
Net cash provided by investing activities in the first six months of fiscal 2002
represents management of short-term investments and limited capital
expenditures. Proceeds from and investment in short-term investments at March
31, 2002 reflect a timing difference between the purchase of a Treasury note and
settlement of the maturing instrument it replaced in the portfolio. The
Company's capital expenditures in fiscal 2002 consist primarily of vehicles to
maintain efficient field operations.
There are no cash flows resulting from financing activities for the first six
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
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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 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 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 $860,000 for
the three months and $1,736,000 for the six months ended March 31, 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 March 31, 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
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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, with earlier application encouraged. As of
March 31, 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.
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 March 31, 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 March 31, 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.
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Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2002.
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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
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(REGISTRANT)
By: /s/ L. Decker Dawson
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L. Decker Dawson
Chairman of the Board of Directors
and Chief Executive Officer
/s/ Christina W. Hagan
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Christina W. Hagan
Chief Financial Officer
DATE: April 23, 2002
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