News Release
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DAWSON GEOPHYSICAL CO Files SEC form 10-Q, Quarterly Report
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Quarterly Report
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 fluctuate in response to activity levels in the oil and gas exploration and production sector and additionally fluctuations in the Company's results of operations may occur due to commodity prices, weather, land use permitting and other factors.
Operating expenses for the six months ended March 31, 2003 totaled $22,716,000 versus $15,514,000 for the same period of fiscal 2002. For the quarter ended March 31, 2003, operating expenses totaled $11,880,000 versus $7,513,000. The Company began fiscal 2002 with five crews operating and reduced to four during the quarter ended December 31, 2001. In fiscal 2003 the Company began with five crews in operation and expanded to six in November 2002. The increase in operating expenses consists primarily of costs associated with the increase in personnel necessary to operate six crews and the increasing costs of insurance inherent in the insurance industry.
Depreciation for the six months ended March 31, 2003 totaled $2,123,000 as compared to $2,200,000 for the six months ended March 31, 2002. For the quarter ended March 31, 2003 depreciation of $1,120,000 is $43,000 more than the quarter ended March 31, 2002. Assets purchased during the years with relatively large capital expenditures before the restricted budgets beginning in fiscal 1999 are becoming fully depreciated. Conversely, capital expenditures purchased in fiscal 2003 are beginning to impact current year depreciation. Total operating costs for the first six months of fiscal 2003 were $26,034,000, an increase of 38.2%, from the same period of fiscal 2002 due to the factors described above. For the quarter ended March 31, 2003, total operating costs of $13,617,000 represent a 47.7% increase from the same period of the prior fiscal year. There is a high proportion of relatively fixed total operating costs (including personnel costs of active crews and depreciation costs) inherent in the Company's business. No income tax expense was recorded for the first six months of fiscal 2003 or 2002 due to a pretax loss. The Company has not recognized a net income tax benefit due to the establishment of a valuation allowance.
CASH FLOWS
Net cash provided by investing activities in the first six months of fiscal 2003 represents management of short-term investments and use of proceeds for capital expenditures and working capital. There are no cash flows resulting from financing activities for the first quarters of fiscal 2003 or 2002.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition - The Company recognizes revenues when services are performed. The Company also receives reimbursements for certain out-of-pocket expenses under the terms of its master contracts. Amounts billed to clients are recorded in revenue at the gross amount including out-of-pocket expenses which will be reimbursed by the client. 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 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 forecast of future cash flow used to perform impairment analysis includes estimates of future revenues and future gross margins. If the Company is unable to achieve these cash flows, management's estimates would be revised potentially resulting in an impairment charge in the period of revision. 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. Stock-Based Compensation In accordance with the Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, no compensation is recorded for stock options or other stock-based awards that are granted to employees or non-employee directors with an exercise price equal to or above the common stock price on the grant date. There were no stock-based awards granted in the current quarter. For the six month period ended March 31, 2003, compensation expense was recognized for the fair value of the stock awards granted; therefore, pro forma amounts are the same as reported amounts.
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
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. SFAS No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE, amends SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The statement also amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The statement is required to be adopted for fiscal years ending after December 15, 2002. The Company currently accounts for stock-based compensation in accordance with ABP Opinion No. 25 which allows the Company to recognize compensation expense only to the extent that the fair market value is greater than the option price. On April 22, 2003 the FASB announced its decision to require all companies to expense the value of employee stock options. Companies will be required to measure the cost according to the fair value of the options. The new guidelines have not been released but are expected to be finalized and to become effective in 2004. When final rules are announced, the Company will assess the impact to its financial statements. FIN No. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS. FIN No. 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of certain guarantees. Initial recognition and measurement of the liability will be applied on a prospective basis to guarantees issued or modified after December 31, 2002. FIN No. 45 also requires disclosures abut guarantees in financial statements for interim or annual periods ending after December 15, 2002. The Company does not expect the adoption of FIN No. 45 to have a material impact on its financial statements. FIN No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION
OF ACCOUNTING RESEARCH BULLETIN NO. 51. FIN No. 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity
if the equity investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without financial support from other parties. The Company
does not expect the adoption of FIN No. 46 to have a material impact on its
financial statements. |