<PAGE> 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 June 30, 1996
---------------------------
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 June 30, 1996 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
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
- --------------------------------------------------------------------------------
(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 June 30, 1996
-------------------------------- ------------------------------------
Common Stock, $.33 1/3 par value 4,161,550 shares
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DAWSON GEOPHYSICAL COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information:
Statements of Operations --
Three Months and Nine Months
ended June 30, 1996 and 1995 3
Balance Sheets --
June 30, 1996 and September 30,
1995 4
Statements of Cash Flows --
Nine Months Ended June 30, 1996
and 1995 5
Notes to Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II. Other Information
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------------- -------------------------
1996 1995 1996 1995
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues $8,555,000 $7,461,000 $24,485,000 $21,944,000
Operating costs:
Operating expenses 6,059,000 5,311,000 17,613,000 15,495,000
General and administrative 293,000 204,000 1,031,000 782,000
Depreciation 1,453,000 1,073,000 4,104,000 3,016,000
---------- ---------- ----------- -----------
7,805,000 6,588,000 22,748,000 19,293,000
---------- ---------- ----------- -----------
Income from operations 750,000 873,000 1,737,000 2,651,000
Other income (expense):
Interest income 75,000 89,000 187,000 322,000
Interest expense (26,000) (5,000) (26,000) (170,000)
Gain on disposal of assets - 55,000 9,000 77,000
Other income 1,000 136,000 1,000 155,000
---------- --------- ----------- -----------
Income before income tax 800,000 1,148,000 1,908,000 3,035,000
Income tax expense:
Current (76,000) (238,000) (373,000) (931,000)
---------- --------- ----------- -----------
Deferred (210,000) (197,000) (314,000) (197,000)
---------- --------- ----------- -----------
(286,000) (435,000) (687,000) (1,128,000)
Net income $ 514,000 $ 713,000 $ 1,221,000 $ 1,907,000
========== ========== ============ ===========
Net income per common share $.12 $.17 $.29 $.49
========== ========== ============ ===========
Weighted average equivalent shares
outstanding 4,204,912 4,200,465 4,197,520 3,923,636
========== ========== ============ ===========
</TABLE>
See accompanying notes to the financial statements.
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<PAGE> 4
DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 September 30, 1995
------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,644,000 $ 1,671,000
Marketable securities 3,105,000 3,767,000
Accounts receivable 5,621,000 5,008,000
Income taxes receivable 411,000 126,000
Prepaid expenses 207,000 220,000
----------- -----------
Total current assets 11,988,000 10,792,000
----------- -----------
Property, plant and equipment 49,651,000 39,248,000
Less accumulated depreciation (21,737,000) (17,698,000)
----------- -----------
Net property, plant and equipment 27,914,000 21,550,000
----------- -----------
$39,902,000 $32,342,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 857,000 $ -
Accounts payable 2,845,000 682,000
Accrued liabilities:
Payroll and other taxes 359,000 291,000
Other 132,000 178,000
----------- -----------
Total current liabilities 4,193,000 1,151,000
----------- -----------
Long-term debt, less current maturities 2,926,000 -
----------- -----------
Deferred income taxes 649,000 335,000
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, 4,161,550
and 4,149,050 shares issued and
outstanding 1,387,000 1,383,000
Additional paid-in capital 17,021,000 16,973,000
Net unrealized loss on marketable
securities (8,000) (13,000)
Retained earnings 13,734,000 12,513,000
----------- -----------
Total stockholders' equity 32,134,000 30,856,000
----------- -----------
$39,902,000 $32,342,000
=========== ===========
</TABLE>
Contingencies (See Note 3)
See accompanying notes to the financial statements.
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<PAGE> 5
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30
-------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,221,000 $1,907,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,104,000 3,016,000
Gain on disposal of assets (9,000) (77,000)
Non-cash interest income (82,000) (189,000)
Deferred income taxes 314,000 197,000
Change in current assets and liabilities:
Increase in accounts receivable (613,000) (1,324,000)
Decrease (increase) in prepaid expenses 13,000 (24,000)
Increase in income taxes receivable (285,000) -
Increase in accounts payable 2,163,000 500,000
Increase (decrease) in accrued liabilities 22,000 (205,000)
Decrease in federal and state income
taxes payable - (121,000)
---------- ----------
Net cash provided by operating activities 6,848,000 3,680,000
---------- ----------
Cash flows from investing activities:
Proceeds from disposal of assets 31,000 290,000
Capital expenditures (10,490,000) (8,470,000)
Proceeds from sale and maturity of
marketable securities 2,845,000 7,037,000
Investment in marketable securities (2,096,000) (5,935,000)
---------- ----------
Net cash used in investing activities (9,710,000) (7,078,000)
---------- ----------
Cash flows from financing activities:
Principal payments on debt (71,000) (7,875,000)
Proceeds from debt 3,854,000 1,500,000
Proceeds from public offering - 10,785,000
Proceeds from exercise of stock options 52,000 117,000
---------- ----------
Net cash provided by financing activities 3,835,000 4,527,000
---------- ----------
Net increase in cash and cash equivalents 973,000 1,129,000
Cash and cash equivalents at beginning of period 1,671,000 151,000
---------- ----------
Cash and cash equivalents at end of period $2,644,000 $1,280,000
========== ==========
</TABLE>
See accompanying notes to the financial statements.
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<PAGE> 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
period presented. The results of operations for the three months and the nine
months ended June 30, 1996, are not necessarily indicative of the results to be
expected for the fiscal year.
2. NOTES PAYABLE
As of April 1, 1996, the Company has two notes payable that exist under a loan
agreement with a bank. The loan agreement consists of (1) a revolving line of
credit of $5,000,000 to mature 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 (8.25% at June 30, 1996). The term note requires monthly principal
and interest payments.
On May 31, 1996, the Company borrowed $3,854,000 on the term note and on July
10, 1996 an additional $2,045,000 was advanced on the term note for the
purchase of capital equipment. For fiscal year 1996, the current maturity of
the long-term debt is $286,000. For the fiscal years 1997 through 2002, the
annual maturity is $857,000, and for fiscal 2003, the annual maturity will be
the balance. As of July 19, 1996, the Company has not utilized the revolving
line of credit.
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
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<PAGE> 7
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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<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company has expanded significantly over the last few years with state of
the art equipment and experienced personnel in response to demand for 3-D
seismic technology. As this technology is increasingly successful in the
search for oil and gas, the surveys have become larger in size and more complex
in design. Although the Company strives to utilize all of its resources to
meet demand, uncontrollable factors of weather and problems in obtaining
permits from land and mineral owners and lessees delay production, from time to
time negatively impacting revenues.
In late June of 1996, the Company placed a field acquisition crew into service
to bring the number of crews back to five. In February 1995, the Company
placed a crew into service that represented the fifth crew until August 1995
when two crews were combined to one 2,000-channel crew in response to demand
for more recording channels. While continually utilizing all resources within
the Company, increased revenues were generated with more channels per each of
four crews in the quarter ended June 30, 1996 than with five crews in the
comparable quarter of the prior year. Currently all five crews have
2,000-channels each. To contribute to the financing of capital expenditures,
the Company has negotiated a loan agreement with a bank. Please refer to the
discussions in "Capital Expenditures" and "Credit Agreement" below.
In reviewing the Company's financial statements, it should be noted that
fluctuations in the Company's results of operations can occur due to weather
and other factors.
RESULTS OF OPERATIONS
The Company's operating revenues for the nine months ended June 30, 1996
totaled $24,485,000, an increase of 11.6% from $21,944,000 for the same period
of fiscal 1995. For the three months ended June 30, 1996, operating revenues
increased $1,094,000 or 14.7%. These increases are attributable primarily to
continued industry demand for 3-D data acquisition services, and capacity from
the additions of new equipment and technological upgrades to existing
equipment. The Company believes that weather and other factors had a negative
impact on revenues during the first quarter of 1996 such that fiscal revenues
as of June 30, are not representative of the Company's capacity. Minimal
revenues were generated through the acquisition and processing of 2-D seismic
data.
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<PAGE> 9
Operating expenses for the nine months ended June 30, 1996 totaled
$17,613,000, an increase of $2,118,000, or 13.7%, over the same period of
fiscal 1995. For the quarter ended June 30, 1996, operating expenses increased
$748,000, or 14.1%. Operating expenses increased primarily as a result of
increased personnel and other expenses associated with the equipment
acquisitions and technological upgrades made during the second quarter of
fiscal 1995 that have been maintained to utilize resource capacity and the new
crew fielded in the third quarter of fiscal 1996.
General and administrative expenses for the nine months ended June 30,
1996 totaled $1,031,000, an increase of $249,000 over the same period of fiscal
1995. For the three months ended June 30, 1996, general and administrative
expenses totaled $293,000 versus $204,000 for the same period of the prior
year. General and administrative expenses totaled 4.2% of operating revenue
for the nine months ended June 30, 1996 versus 3.6% of operating revenues for
the same period of the prior year. General and administrative costs have
increased as additional support services have been incurred in response to the
growth of the Company during the last few years.
Depreciation for the nine months ended June 30, 1996 totaled $4,104,000,
an increase of $1,088,000 from the same period of fiscal 1995. For the quarter
ended June 30, 1996, depreciation increased $380,000 to $1,453,000.
Depreciation increased as a result of the capital expansion discussed below in
"Liquidity and Capital Resources."
While the ratio of operating expenses to operating revenues is relatively
unchanged for all periods reported, total operating costs for the first nine
months of fiscal 1996 totaled $22,748,000, an increase of 17.9%, over the first
nine months of fiscal 1995 due to the factors described above. The fiscal year
decrease in income from operations of 34.5% as compared to decrease in the
quarter of 14.1% 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 and
depreciation costs), year to date income from operations reflects the
significant negative effects on revenues of the largely uncontrollable factors
of weather and permit problems experienced during the first quarter of fiscal
1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by operating activities for the nine months ended June
30, 1996 reflects an increase as compared to the same period of the prior year.
This was primarily due to the combined results of decreased income from
operations, an increase in depreciation, and increases and decreases relating
to working capital items resulting from the increased benefits provided by 3-D
technology. The increase in accounts payable reflects energy source units paid
for in July 1996.
Net cash used in investing activities increased to $9,710,000 for the
first nine months of fiscal 1996 from $7,078,000 in the same period of fiscal
1995 primarily due to increased capital expenditures in fiscal 1996.
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<PAGE> 10
Net cash provided by financing activities decreased from the prior year
when proceeds of the public offering were used in the pay down of long-term
debt. In 1996, the Company negotiated a loan agreement with a bank to finance
future capital needs. Please refer to "Credit Agreement" below.
Capital Expenditures
In addition to fielding a 2,000-channel Input/Output System II-equipped
acquisition crew, total capital expenditures of $10,490,000 for the nine months
ended June 30, 1996 represent additional channel capacity of the existing crews
and additional energy source units. For the remainder of fiscal 1996, the
Company intends to continue to expand and update the fleet of energy source
units and equipment peripheral to the acquisition of seismic data. The Company
intends to finance these expenditures with operating cash flow and the notes
payable described below.
Credit Agreement
As of April 1, 1996, the Company has two notes payable that exist under a
loan agreement with a bank. The loan agreement consists of (1)a revolving line
of credit of $5,000,000 to mature 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. As of June 30,
1996, $3,854,000 had been advanced on the term note and on July 10, an
additional $2,045,000 was advanced on the term noted for payment of energy
source units reflected in accounts payable at June 30, 1996. As of August 1996
no advances have been made on the revolving line of credit.
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 will allow the Company to continue its
practice of acquiring new technologically advanced equipment.
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<PAGE> 11
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
Treasurer, Controller
DATE: July 19, 1996
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<PAGE> 12
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,644,000
<SECURITIES> 3,105,000
<RECEIVABLES> 5,621,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,988,000
<PP&E> 49,651,000
<DEPRECIATION> (21,737,000)
<TOTAL-ASSETS> 39,902,000
<CURRENT-LIABILITIES> 4,193,000
<BONDS> 0
<COMMON> 1,387,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,902,000
<SALES> 24,485,000
<TOTAL-REVENUES> 24,485,000
<CGS> 22,748,000
<TOTAL-COSTS> 22,748,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,000
<INCOME-PRETAX> 1,908,000
<INCOME-TAX> (687,000)
<INCOME-CONTINUING> 1,221,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,221,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
