<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 December 31, 1997
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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
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For Quarter Ended December 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 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
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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 December 31, 1997
-------------------------------- --------------------------------
Common Stock, $.33 1/3 par value 5,351,000 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 ended December 31,
1997 and 1996 3
Balance Sheets --
December 31, 1997 and September 30,
1996 4
Statements of Cash Flows --
Three Months Ended December 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
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
DAWSON GEOPHYSICAL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Operating revenues $ 13,787,000 $ 10,063,000
Operating costs:
Operating expenses 9,093,000 6,800,000
General and administrative 482,000 320,000
Depreciation 2,111,000 1,865,000
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11,686,000 8,985,000
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Income from operations 2,101,000 1,078,000
Other income (expense):
Interest income 147,000 25,000
Other 15,000 8,000
Interest expense (125,000) (118,000)
Gain on disposal of assets 145,000 18,000
------------ ------------
Income before income tax 2,283,000 1,011,000
Income tax expense:
Current (666,000) (187,000)
Deferred (134,000) (167,000)
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(800,000) (354,000)
Net income $ 1,483,000 $ 657,000
============ ============
Net income per common share $ .31 $ .16
============ ============
Weighted average equivalent shares
outstanding 4,745,268 4,185,201
============ ============
</TABLE>
See accompanying notes to the financial statements.
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DAWSON GEOPHYSICAL COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997 September 30,1997
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,151,000 $ 4,774,000
Marketable securities 12,982,000 3,968,000
Accounts receivable 12,610,000 8,724,000
Prepaid expenses 286,000 288,000
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Total current assets 29,029,000 17,754,000
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Property, plant and equipment 67,254,000 63,267,000
Less accumulated depreciation (29,404,000) (27,460,000)
------------ ------------
Net property, plant and equipment 37,850,000 35,807,000
$ 66,879,000 $ 53,561,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ - $ 1,690,000
Accounts payable 3,820,000 3,956,000
Accrued liabilities:
Payroll costs and other taxes 274,000 566,000
Other 837,000 494,000
------------ ------------
Total current liabilities 4,931,000 6,706,000
------------ ------------
Long-term debt, less current maturities - 7,893,000
Deferred income taxes 1,551,000 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 38,180,000 17,174,000
Retained earnings 20,433,000 18,971,000
------------ ------------
Total stockholders' equity 60,397,000 37,545,000
$ 66,879,000 $ 53,561,000
============ ============
</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>
Three Months Ended
December 31
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,483,000 $ 657,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 2,111,000 1,865,000
Gain on disposal of assets (145,000) (18,000)
Non-cash interest income (22,000) -
Deferred income taxes 134,000 167,000
Other 49,000 8,000
Change in current assets and liabilities:
Increase in accounts receivable (3,886,000) (2,563,000)
Decrease in income taxes receivable - 187,000
Decrease in prepaid expenses 2,000 10,000
Increase (decrease) in accounts payable (136,000) 728,000
Decrease in accrued liabilities (629,000) (382,000)
Increase in federal and state income taxes
payable 680,000 -
------------ ------------
Net cash provided by (used in) operating activities (359,000) 659,000
------------ ------------
Cash flows from investing activities:
Proceeds from disposal of assets 209,000 34,000
Capital expenditures (4,276,000) (868,000)
Proceeds from maturity of marketable securities 1,000,000 -
Investment in marketable securities (9,992,000) -
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Net cash used in investing activities (13,059,000) (834,000)
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Cash flows from financing activities:
Issuance of common stock 21,371,000 -
Principal payments on debt (9,583,000) (214,000)
Proceeds from exercise of stock options 7,000 23,000
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Net cash provided by (used in) financing activities 11,795,000 (191,000)
------------ ------------
Net decrease in cash and cash equivalents (1,623,000) (366,000)
Cash and cash equivalents at beginning
of period 4,774,000 1,493,000
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Cash and cash equivalents at end of period $ 3,151,000 $ 1,127,000
============ ============
</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
periods presented. The results of operations for the three months ended
December 31, 1997, 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
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<PAGE> 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.
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<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The results of operations for the quarter ended December 31, 1997 compare
favorably to the same quarter of the prior year and are consistent with the
quarter ended September 30, 1997. 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 quarter of 1998 totaled
$13,787,000 versus $10,063,000 for the same period of fiscal 1997, an increase
of 37.0%. This increase 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.
Operating expenses for the quarter ended December 31, 1997 totaled $9,093,000,
an increase of $2,293,000, or 33.7%, over the same period of fiscal 1997.
Operating expenses increased primarily as a result of the increased personnel
required to field the Company's added capacity. 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 quarter ended December 31, 1997
totaled $482,000, an increase of 50.6% over the same period 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 quarter ended December 31, 1997 versus 3.2% of operating
revenues for the same period of the prior year.
Depreciation for the quarter ended December 31, 1997 totaled $2,111,000, an
increase of $246,000 from the same quarter of fiscal 1997. Depreciation
increased as a result of the capital expansion discussed below in "Liquidity
and Capital Resources."
Total operating costs for the first quarter of fiscal 1998 totaled $11,686,000,
an increase of 30%, over the first quarter of fiscal 1997 due to the factors
described
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<PAGE> 9
above. Income from operations increased to $2,101,000, 15.2% of revenues, from
$1,078,000, 10.7% of revenues, in the comparable period of the prior year. This
increase illustrates the result of the Company's operating expenses being
relatively fixed as compared to revenue trends.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash flows from operating activities resulted in a net use of $359,000 for the
three months ended December 31, 1997 as compared to net cash provided of
$659,000 for the same period of fiscal 1997. The increase in net income to
$1,483,000 from $657,000 resulted in a net use of cash from operating activity
due primarily to the increase in accounts receivable generated by increased
revenues.
Net cash used in investing activities increased to $13,059,000 from $834,000
resulting from investment of offering proceeds and increased capital
expenditures in the first quarter of fiscal 1998 as compared to the first
quarter 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 August of 1997 the Company placed a sixth crew into
service. The cost of the new crew equipped with a 2,000 channel I/O System Two
RSR was approximately $6,000,000. Depreciation has increased as a new crew has
been placed into service each year for the past several years. Expenditures
made during the first quarter of fiscal 1998 consist of additions and
replacements of cables and geophones and the continuous effort to sustain a
safe fleet of vehicles.
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.
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<PAGE> 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: February 9, 1998
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<PAGE> 11
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 3,151,000
<SECURITIES> 12,982,000
<RECEIVABLES> 12,610,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,029,000
<PP&E> 67,254,000
<DEPRECIATION> (29,404,000)
<TOTAL-ASSETS> 66,879,000
<CURRENT-LIABILITIES> 4,931,000
<BONDS> 0
0
0
<COMMON> 1,784,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 66,879,000
<SALES> 13,787,000
<TOTAL-REVENUES> 13,787,000
<CGS> 11,686,000
<TOTAL-COSTS> 11,686,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (125,000)
<INCOME-PRETAX> 2,283,000
<INCOME-TAX> (800,000)
<INCOME-CONTINUING> 1,483,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,483,000
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0
</TABLE>
