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, 1997
-----------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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For Quarter Ended March 31, 1997 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
- ---------------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
208 S. Marienfeld, Midland, Texas 79701
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 915/682-7356
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 March 31, 1997
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Common Stock, $.33 1/3 par value 4,199,150 shares
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DAWSON GEOPHYSICAL COMPANY
INDEX
Page No.
--------
Part I. Financial Information:
Statements of Operations --
Three Months and Six Months
ended March 31, 1997 and 1996 3
Balance Sheets --
March 31, 1997 and September 30, 1996 4
Statements of Cash Flows --
Six Months Ended March 31, 1997 and 1996 5
Notes to Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
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PART I. FINANCIAL INFORMATION
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
March 31 March 31
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Operating revenues $ 11,721,000 $ 8,572,000 $ 21,784,000 $ 15,930,000
Operating costs:
Operating expenses 7,913,000 5,935,000 14,713,000 11,554,000
General and administrative 346,000 355,000 666,000 738,000
Depreciation 1,906,000 1,351,000 3,771,000 2,651,000
------------ ------------ ------------ ------------
10,165,000 7,641,000 19,150,000 14,943,000
------------ ------------ ------------ ------------
Income from operations 1,556,000 931,000 2,634,000 987,000
Other income (expense):
Interest income 56,000 55,000 81,000 112,000
Interest expense (112,000) -- (230,000) --
Gain on disposal of assets 175,000 2,000 193,000 9,000
Other income 1,000 -- 9,000 --
------------ ------------ ------------ ------------
Income before income tax 1,676,000 988,000 2,687,000 1,108,000
Income tax expense:
Current (413,000) (162,000) (600,000) (297,000)
Deferred (173,000) (196,000) (340,000) (104,000)
------------ ------------ ------------ ------------
(586,000) (358,000) (940,000) (401,000)
------------ ------------ ------------ ------------
Net income $ 1,090,000 $ 630,000 $ 1,747,000 $ 707,000
============ ============ ============ ============
Net income per common share $ .26 $ .15 $ .42 $ .17
============ ============ ============ ============
Weighted average equivalent shares
outstanding 4,186,920 4,195,111 4,177,204 4,200,333
============ ============ ============ ============
See accompanying notes to the financial statements.
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DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
March 31, 1997 September 30,1996
-------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,249,000 $ 1,493,000
Marketable securities 3,632,000 988,000
Accounts receivable 7,240,000 6,161,000
Income taxes receivable -- 193,000
Prepaid expenses 277,000 148,000
------------ -------------
Total current assets 12,398,000 8,983,000
------------ -------------
Property, plant and equipment 54,396,000 56,368,000
Less accumulated depreciation (23,697,000) (23,442,000)
------------ -------------
Net property, plant and equipment 30,699,000 32,926,000
------------ -------------
$ 43,097,000 $ 41,909,000
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 857,000 $ 857,000
Accounts payable 1,197,000 2,079,000
Accrued liabilities:
Payroll and other taxes 611,000 560,000
Income taxes payable 162,000 --
Other 174,000 144,000
------------ -------------
Total current liabilities 3,001,000 3,640,000
------------ -------------
Long-term debt, less current maturities 4,429,000 4,857,000
Deferred income taxes 948,000 608,000
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,
4,199,150 and 4,161,550 shares
issued and outstanding 1,400,000 1,387,000
Additional paid-in capital 17,171,000 17,016,000
Retained earnings 16,148,000 14,401,000
------------ -------------
Total stockholders' equity 34,719,000 32,804,000
------------ -------------
$ 43,097,000 $ 41,909,000
============ =============
Contingencies (See Note 3)
See accompanying notes to the financial statements.
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DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31
----------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 1,747,000 $ 707,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 3,771,000 2,651,000
Gain on disposal of assets (193,000) (9,000)
Other 2,000 (57,000)
Deferred income taxe expense 340,000 104,000
Change in current assets and liabilities:
Increase in accounts receivable (1,079,000) (1,107,000)
Decrease (increase) in prepaid expenses (129,000) 227,000
Decrease (increase) in income taxes receivable 193,000 (109,000)
Decrease in accounts payable (882,000) (169,000)
Increase in accrued liabilities 81,000 113,000
Increase in federal and state income
taxes payable 162,000 --
------------ ------------
Net cash provided by operating activities 4,013,000 2,351,000
------------ ------------
Cash flows from investing activities:
Proceeds from disposal of assets 285,000 31,000
Capital expenditures (1,636,000) (3,443,000)
Proceeds from sale of marketable securities 742,000 745,000
Investment in marketable securities (3,377,000) --
------------ ------------
Net cash used in investing activities (3,986,000) (2,667,000)
------------ ------------
Cash flows from financing activities:
Principal payments on debt (428,000) --
Proceeds from exercise of stock options 157,000 --
------------ ------------
Net cash used in financing activities (271,000) --
------------ ------------
Net decrease in cash and cash equivalents (244,000) (316,000)
Cash and cash equivalents at beginning of period 1,493,000 1,671,000
------------ ------------
Cash and cash equivalents at end of period $ 1,249,000 $ 1,355,000
============ ============
See accompanying notes to the financial statements.
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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
period presented. The results of operations for the three months and the six
months ended March 31, 1997, are not necessarily indicative of the results to
be expected for the fiscal year.
2. NOTES PAYABLE
As of April 1, 1996, two notes payable exist under a loan agreement with a
bank. The loan agreement consists of (1) a revolving line of credit of
$5,000,000 which matured April 15, 1997 with funding availability determined by
a borrowing base calculation; and (2) a term note of $6,000,000 to mature March
15, 2003. Both notes are secured by eligible accounts receivable and equipment
purchased from loan proceeds. The loan agreement contains various restrictive
covenants and compliance requirements. Among others, the agreement requires
that no liens exist upon any of the collateral nor any vehicle owned by the
Company. The notes bear interest at the bank's prime rate (8.50% at March 31,
1997). The term note requires monthly principal and interest payments.
The Company is negotiating with a bank to amend the loan agreement of April 1,
1996. The amendment to the loan agreement includes: (1) a renewal and increase
of the principal amount of the revolving line of credit to $6,000,000 with a
maturity date of April 15, 1999; and (2) an additional six year term facility
for the purchase of capital equipment of $5,000,000.
During fiscal 1996, the Company was advanced $6,000,000 on the term note for
the purchase of capital equipment. For the fiscal years 1997 through 2002, the
annual maturity is $857,000, and for fiscal 2003 the balance will be due. The
Company did not utilize the revolving line of credit which expired April 15,
1997.
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3. CONTINGENCIES
On July 1, 1995, an accident involving an automobile owned by the Company
claimed the lives of four employees. The Company is a defendant in a lawsuit by
the families of two of the employees whose deaths resulted from the accident.
The families filed suit against the Company under the gross negligence
provisions of the Texas Workers' Compensation Act. Accordingly, the Company
believes its exposure is limited to claimed exemplary damages of $36 million.
The litigation is currently in the discovery stage. The Company has
approximately $12 million of insurance coverage available to provide against an
unfavorable outcome in this matter. Due to the uncertainties inherent in
litigation, no absolute assurance can be given as to the ultimate outcome of
this suit. However, the Company believes, based on knowledge of the facts to
date and consultation with its legal advisors, that liabilities, if any, from
this suit should not have a material adverse effect on the Company's financial
position.
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 operations, as
the Company believes it is adequately insured.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's performance for the quarter ended March 31, 1997 set records for
revenues, income from operations and net income. The results of the six month
period ended March 31, 1997 as compared to the same period of the prior year,
reflect the benefit of five operating crews versus four and improved conditions
with regard to weather and permit problems.
Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors which may cause the actual results, performance, or
achievements of the Company to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: weather, the
volatility of oil and gas prices, and the availability of capital resources.
RESULTS OF OPERATIONS
The Company's operating revenues for the first six months 1997 totaled
$21,784,000 versus $15,930,000 for the same period of fiscal 1996, an increase
of 36.7%. For the three months ended March 31, 1997, operating revenues
increased $3,149,000 or 36.7%. During the third quarter of fiscal 1996, the
Company's capacity increased from four to five crews. In addition the revenues
of the first quarter of fiscal 1996 were negatively impacted by inclement
weather and permit problems. The Company believes that the revenues of the
quarter ended March 31, 1997 are indicative of a level of operations that may
be sustained for the remainder of fiscal 1997 based on continued demand, the
current complement of equipment, favorable weather, and other factors. Minimal
revenues were generated through the acquisition and processing of 2-D seismic
data.
Operating expenses for the six months ended March 31, 1997 totaled $14,713,000,
an increase of $3,159,000, or 27.3%, over the same period of fiscal 1996. For
the quarter ended March 31, 1997, operating expenses increased $1,978,000, or
33.3%. Operating expenses increased primarily as a result of increased
personnel and other expenses associated with the equipment acquisitions and
technological upgrades made primarily during the third quarter of fiscal 1996.
General and administrative expenses for the six months ended March 31, 1997
totaled $666,000, a decrease of $72,000 from the same period of fiscal 1996.
For the quarter ended March 31, 1997, general and administrative expenses
totaled $346,000, a decrease of
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$9,000 over the same period of fiscal 1996. The decrease for fiscal year 1997
is primarily due to timing adjustments of certain expenses. General and
administrative expenses totaled 3.1% of operating revenues for the six months
ended March 31, 1997 versus 4.6% of operating revenues for the same period of
the prior year.
Depreciation for the six months ended March 31, 1997 totaled $3,771,000, an
increase of $1,120,000 from the same period of fiscal 1996. For the quarter
ended March 31, 1997, depreciation increased $555,000, or 41.1%. 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 1997 totaled
$19,150,000, an increase of 28.2%, over the first six months of fiscal 1996 due
to the factors described above. Income from operations increased to
$2,634,000, 12.1% of revenues, from $987,000, 6.2% of revenues, in the
comparable six month period of the prior year. For the quarter ended March 31,
1997, income from operations is 13.3% of operating revenues as compared to
10.9% in the comparable quarter of fiscal 1996. This increase is the direct
result of the Company's operating expenses being relatively fixed as compared
to revenue trends. Because of the high proportion of relatively fixed total
operating costs (including personnel costs for active crews and depreciation
costs), income from operations in fiscal 1997 reflects the benefit of efficient
production with steady demand for five crews.
Interest is paid monthly at prime rate on the principal of the term note
described below in "Credit Agreement."
Federal and state income tax expense is calculated at the rates of 35% and 36%
in fiscal years 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by operating activities increased to $4,013,000 for the six
months ended March 31, 1997 from $2,351,000 for the same period of the prior
year due to the increase in net income to $1,747,000 from $707,000 and the
increase in depreciation combined with fluctuations in working capital
components.
Net cash used in investing activities increased to $3,986,000 for the first six
months of fiscal 1997 from $2,667,000 in the same period of fiscal 1996.
During the second quarter of fiscal 1997, the Company invested cash generated
from operations in U. S. Treasury instruments. As discussed below in "Capital
Expenditures," the Company is positioning for possible future expansion.
Net cash used in financing activities primarily reflects principal payments on
debt. As discussed below in "Credit Agreement," the Company is servicing a
term note with monthly principal payments of $71,400.
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Capital Expenditures
Capital expenditures of $15,597,000 during fiscal year 1996 in addition to
capital expenditures during fiscal 1995 and 1994 have positioned the Company to
supply market demand with technologically advanced 3-D data acquisition
recording systems and leading edge data processing capabilities. Depreciation
has increased as a new crew has been placed into service each year for the past
several years.
Capital expenditures of $1,636,000 for the six months ended March 31, 1997
include additions and replacements to the myriad of cables and geophones,
enhancements to the surveying operation, and additions in support of quality
control and operational safety efforts. The capital expenditures to date in
fiscal 1997 illustrate an opportunity to examine and fine tune various areas of
operation after several years of aggressive expansion.
The Company is currently assessing the market and anticipating the introduction
of pending developments as announced by an instrument supplier. The Company's
next major expansion may be influenced by an evaluation of this new seismic
instrumentation.
Credit Agreement
As of April 1, 1996, the Company has a loan agreement with a bank. The loan
agreement consists of (1) a revolving line of credit of $5,000,000 which
matured April 15, 1997 and (2) a term note of $6,000,000 to mature March 15,
2003. Both notes are secured by eligible accounts receivable and equipment
purchased from loan proceeds. The term note was fully advanced during fiscal
1996 and no advances were made on the line of credit that matured April 15,
1997.
The Company is finalizing negotiations with a bank to amend the loan agreement
of April 1, 1996. The amendment to the loan agreement is expected to include a
renewal and increase of the principal amount of the revolving line of credit to
$6,000,000 with a maturity date of April 15, 1999, and an additional six year
term facility for the purchase of capital equipment of $5,000,000.
Capital Resources
The Company believes that its capital resources, including the availability of
bank borrowings, and cash flow from operations are adequate to meet its current
operational needs and finance future capital needs as determined by market
demand and technological developments.
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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
(REGISTRANT)
By: /s/ L. Decker Dawson
----------------------------------
L. Decker Dawson
President
/s/ Christina W. Hagan
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Christina W. Hagan
Treasurer, Chief Financial Officer
DATE: May 9, 1997
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
5
6-MOS
SEP-30-1997
MAR-31-1997
1,249,000
3,632,000
7,240,000
0
0
12,398,000
54,396,000
(23,697,000)
43,097,000
3,001,000
0
0
0
1,400,000
0
34,719,000
21,784,000
21,784,000
19,150,000
19,150,000
0
0
(230,000)
2,687,000
(940,000)
1,747,000
0
0
0
1,747,000
.42
0
