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 March 31, 1998
------------------
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, 1998 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)
208 S. Marienfeld, Midland, Texas 79701
---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 915/682-7356
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, 1998
- -------------------------------- -----------------------------
Common Stock, $.33 1/3 par value 5,351,000 shares
-1-
2
DAWSON GEOPHYSICAL COMPANY
INDEX
Page No.
--------
Part I. Financial Information:
Statements of Operations --
Three Months and Six Months
ended March 31, 1998 and 1997 3
Balance Sheets --
March 31, 1998 and September 30,
1997 4
Statements of Cash Flows --
Six Months Ended March 31, 1998
and 1997 5
Notes to Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II. Other Information
-2-
3
PART I. FINANCIAL INFORMATION
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
March 31 March 31
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Operating revenues $ 13,557,000 $ 11,721,000 $ 27,344,000 $ 21,784,000
Operating costs:
Operating expenses 9,808,000 7,913,000 18,901,000 14,713,000
General and administrative 483,000 346,000 965,000 666,000
Depreciation 2,244,000 1,906,000 4,355,000 3,771,000
------------ ------------ ------------ ------------
12,535,000 10,165,000 24,221,000 19,150,000
------------ ------------ ------------ ------------
Income from operations 1,022,000 1,556,000 3,123,000 2,634,000
Other income (expense):
Interest income 223,000 56,000 370,000 81,000
Interest expense -- (112,000) (125,000) (230,000)
Gain on disposal of assets 3,000 175,000 148,000 193,000
Other income 8,000 1,000 23,000 9,000
------------ ------------ ------------ ------------
Income before income tax 1,256,000 1,676,000 3,539,000 2,687,000
Income tax expense:
Current (281,000) (413,000) (947,000) (600,000)
Deferred (158,000) (173,000) (292,000) (340,000)
------------ ------------ ------------ ------------
(439,000) (586,000) (1,239,000) (940,000)
------------ ------------ ------------ ------------
Net income $ 817,000 $ 1,090,000 $ 2,300,000 $ 1,747,000
============ ============ ============ ============
Net income per common share $ .15 $ .26 $ .46 $ .42
============ ============ ============ ============
Net income per common share--
assuming dilution $ .15 $ .26 $ .45 $ .42
============ ============ ============ ============
Weighted average equivalent shares
outstanding 5,351,000 4,171,122 5,028,187 4,166,524
============ ============ ============ ============
Weighted average equivalent shares
outstanding--assuming dilution 5,376,636 4,188,012 5,057,918 4,189,456
============ ============ ============ ============
See accompanying notes to the financial statements.
-3-
4
DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
March 31, 1998 September 30, 1997
-------------- ------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 3,508,000 $ 4,774,000
Marketable securities 13,025,000 3,968,000
Accounts receivable 10,315,000 8,724,000
Income taxes receivable 520,000 --
Prepaid expenses 555,000 288,000
------------ ------------
Total current assets 27,923,000 17,754,000
------------ ------------
Property, plant and equipment 68,977,000 63,267,000
Less accumulated depreciation (31,579,000) (27,460,000)
------------ ------------
Net property, plant and equipment 37,398,000 35,807,000
------------ ------------
$ 65,321,000 $ 53,561,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ -- $ 1,690,000
Accounts payable 1,588,000 3,956,000
Accrued liabilities:
Payroll and other taxes 587,000 566,000
Other 244,000 494,000
------------ ------------
Total current liabilities 2,419,000 6,706,000
------------ ------------
Long-term debt, less current maturities -- 7,893,000
Deferred income taxes 1,709,000 1,417,000
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,
5,351,000 and 4,199,250 shares
issued and outstanding 1,784,000 1,400,000
Additional paid-in capital 38,183,000 17,174,000
Retained earnings 21,226,000 18,971,000
------------ ------------
Total stockholders' equity 61,193,000 37,545,000
------------ ------------
$ 65,321,000 $ 53,561,000
============ ============
Contingencies (See Note 3)
See accompanying notes to the financial statements.
-4-
5
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31
----------------------------
1998 1997
------------ -----------
Cash flows from operating activities:
Net income $ 2,300,000 $ 1,747,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,355,000 3,771,000
Gain on disposal of assets (148,000) (193,000)
Non-cash interest income (31,000) (6,000)
Deferred income taxes 292,000 340,000
Other 83,000 8,000
Change in current assets and liabilities:
Increase in accounts receivable (1,591,000) (1,079,000)
Increase in prepaid expenses (267,000) (129,000)
Decrease (increase) in income taxes receivable (520,000) 193,000
Decrease in accounts payable (2,368,000) (882,000)
Increase (decrease) in accrued liabilities (229,000) 81,000
Increase in federal and state income
taxes payable -- 162,000
------------ -----------
Net cash provided by operating activities 1,876,000 4,013,000
------------ -----------
Cash flows from investing activities:
Proceeds from disposal of assets 240,000 285,000
Capital expenditures (6,154,000) (1,636,000)
Proceeds from maturity of marketable
securities 5,500,000 --
Proceeds from sale of marketable securities -- 742,000
Investment in marketable securities (14,523,000) (3,377,000)
------------ -----------
Net cash used in investing activities (14,937,000) (3,986,000)
------------ -----------
Cash flows from financing activities:
Principal payments on debt (9,583,000) (428,000)
Proceeds from exercise of stock options 7,000 157,000
Issuance of common stock 21,371,000 --
------------ -----------
Net cash provided by (used in) financing activities 11,795,000 (271,000)
------------ -----------
Net decrease in cash and cash equivalents (1,266,000) (244,000)
Cash and cash equivalents at beginning of period 4,774,000 1,493,000
------------ -----------
Cash and cash equivalents at end of period $ 3,508,000 $ 1,249,000
============ ===========
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 and the six
months ended March 31, 1998, are not necessarily indicative of the results to
be expected for the fiscal year.
2. NOTES PAYABLE
In April 1997, the Company entered into a loan agreement, as amended
(the "Loan Agreement"), with a bank. The Loan Agreement consists of (1) a
revolving line of credit of $6,000,000 which matures on April 15, 1999, (2) a
term note in the aggregate principal amount of $6,000,000 bearing interest at
the bank's prime rate and which matures on March 25, 2003 and (3) a term note
in the aggregate principal amount of $5,000,000 bearing interest at the prime
rate as published in The Wall Street Journal and which matures on April 15,
2003. The notes are secured by eligible accounts receivable and equipment
purchased from loan proceeds.
On November 25, 1997, the Company repaid all outstanding principal and
interest on the two Term Promissory Notes which have no reborrowing capacity.
The Company has not utilized the revolving line of credit.
3. CONTINGENCIES
The Company is a defendant in two lawsuits pending in the 112th and
83rd District Courts of Pecos County, Texas 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
-6-
7
Notes to Financial Statements (continued)
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 provided against an unfavorable outcome. 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 is 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.
4. PUBLIC OFFERING
On November 21, 1997, the Company completed an offering of 1,150,000
shares. The proceeds of the offering were approximately $21,371,000 after
deducting costs payable by the Company.
5. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted
net income per common share:
Six Months ended Three Months ended
------------------------ ------------------------
December 31 March 31
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Numerator:
Net income and numerator for basic
and diluted net income per
common share-income available
to common stockholders $2,300,000 $1,747,000 $ 817,000 $1,090,000
---------- ---------- ---------- ----------
Denominator:
Denominator for basic net income
per common share-weighted
average common shares 5,028,187 4,166,524 5,351,000 4,171,122
Effect of dilutive securities-
employee stock options 29,731 22,932 25,636 16,890
---------- ---------- ---------- ----------
Denominator for diluted net
income per common share-
adjusted weighted average
common shares and assumed
conversions 5,057,918 4,189,456 5,376,636 4,188,012
---------- ---------- ---------- ----------
Basic net income per common share $ .46 $ .42 $ .15 $ .26
========== ========== ========== ==========
Diluted net income per common
share $ .45 $ .42 $ .15 $ .26
========== ========== ========== ==========
-7-
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The results of operations for the six months ended March 31, 1998 compare
favorably to the same period of the prior year despite operating interruptions
due to weather and permitting problems, which negatively impacted the quarter
ended March 31, 1998. The Company is experiencing favorable weather during the
third quarter of fiscal 1998. In November 1997, the Company completed a
secondary public offering of 1,150,000 common shares with net proceeds of
$21,371,000. In reviewing the Company's financial statements it should be
noted that quarterly fluctuations in the Company's results of operations can
occur due to weather, land use permitting and other factors.
RESULTS OF OPERATIONS
The Company's operating revenues for the first six months of 1998 totaled
$27,344,000 versus $21,784,000 for the same period of fiscal 1997, an increase
of 25.5%. For the three months ended March 31, 1998, operating revenues
totaled $13,557,000 versus $11,721,000 for the same period of fiscal 1997, an
increase of 15.7%. The increase for the six-month period reflects the
Company's added production capacity in response to continued strong demand for
3-D seismic services. In August 1997, the Company added a new, sixth data
acquisition crew. To further complement capacity, the Company has continually
added channels to each of its crews. The increase in the quarter ended March
31, 1998 versus the same period of fiscal 1997 indicates the effect of weather
and permitting problems.
Operating expenses for the six months ended March 31, 1998 totaled $18,901,000,
an increase of $4,188,000, or 28.5%, over the same period of fiscal 1997. For
the quarter ended March 31, 1998, operating expenses increased $1,895,000, or
23.9%. Operating expenses increased primarily as a result of increased
personnel and other expenses associated with equipment acquisitions and
technological upgrades. The Company experienced two "one time" events during
the first quarter of fiscal 1998. The Company received insurance proceeds of
approximately $380,000 resulting from livestock induced damages to equipment,
which was recognized as expense in fiscal 1997; and incurred approximately
$160,000 in equipment rental expense.
General and administrative expenses for the six months ended March 31, 1998
totaled $965,000, an increase of $299,000 from the same period of fiscal 1997.
For the quarter ended March 31, 1998, general and administrative expenses
totaled $483,000, an increase of $137,000 from the same quarter of fiscal 1997.
The increase primarily reflects additional personnel required to support
expanding operations. General and administrative expenses totaled 3.5% of
operating revenues for the six months ended March 31, 1998 versus 3.1% of
operating revenues for the same period of the prior year.
Depreciation for the six months ended March 31, 1998 totaled $4,355,000, an
increase of $584,000 from the same period of fiscal 1997. For the quarter
ended March 31, 1998, depreciation increased $338,000, or 17.7%. Depreciation
increased as a result of the capital expansion discussed below in "Liquidity
and Capital Resources."
Total operating costs for the first six months of fiscal 1998 totaled
$24,221,000, an increase of 26.5%, from the same period of fiscal 1997 due to
the factors described above. For the quarter ended March 31, 1998, operating
costs increased 23.3% from the same period of the prior year. These increases
are consistent with the high proportion of relatively fixed total operating
costs (including personnel costs and depreciation) in conjunction with the
addition of the Company's sixth crew in August 1997. Due to the unfavorable
circumstances described above, income from operations of $1,022,000 represents
7.5% of revenues for the three months ended March 31, 1998 as compared to a
ratio of 13.3% for the
-8-
9
same period of the prior year. For the six-month periods of fiscal years 1998
and 1997, the ratios of income from operations to revenues of 11.4% and 12.0%
respectively, indicate the ability of results from operations to absorb some
degree of negative impacts.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by operating activities for the six months ended March 31,
1998 of $1,876,000 as compared to $4,013,000 for the same period of the prior
year is a decrease of $2,137,000. While net income and depreciation resulted
in increases for fiscal 1998 from fiscal 1997, the net decrease is due to
fluctuations in working capital components.
Net cash used in investing activities increased to $14,937,000 from $3,986,000
resulting from investment of offering proceeds and increased capital
expenditures in the first six months of fiscal 1998 as compared to the same
period of fiscal 1997.
The cash flows provided by financing activities for the quarter ended December
31, 1998 represent the net of the offering proceeds reduced by the retirement
of debt.
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. In April of 1998 the Company announced the purchase
of a 3,100- channel Input/Output System Two Remote Recording System to replace
the Halliburton MDS-18X recording system. The approximate cost of the new
system is $5,000,000. Capital expenditures to date, as well as an additional
$7,800,000 committed for the remainder of fiscal 1998, are for various
additions and replacements of cables and geophones, the continuous effort to
sustain a safe fleet of vehicles, the next generation of mainframe computers
for data processing, and leasehold improvements for the move of our corporate
office. Depreciation has increased as a new crew has been placed into service
each year for the past several years.
Capital Resources
The Company believes that its capital resources including its holdings of
marketable securities, the availability of bank borrowings, 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.
-9-
10
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
President
/s/ Christina W. Hagan
--------------------------
Christina W. Hagan
Vice President and Chief
Financial Officer
DATE: April 22, 1998
----------------------
-10-
11
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
5
6-MOS
SEP-30-1998
MAR-31-1998
3,508,000
13,025,000
10,315,000
0
0
27,923,000
68,977,000
(31,579,000)
65,321,000
2,419,000
0
0
0
1,784,000
0
65,321,000
27,344,000
27,344,000
24,221,000
24,221,000
0
0
(125,000)
3,539,000
(1,239,000)
2,300,000
0
0
0
2,300,000
0.46
0.45
