UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly period ended September 30, 1999
or
___ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period _______ to _______
COMMISSION FILE NUMBER 0-23383
OMNI ENERGY SERVICES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 72-1395273
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4500 N.E. EVANGELINE THRUWAY
CARENCRO, LOUISIANA 70520
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
<PAGE>
Registrant's telephone number, including area code: (318) 896-6664
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 __
As of November 12, 1999 there were 15,979,505 shares of the
Registrant's common stock, $0.01 par value per share, outstanding.
<PAGE>
ITEM 1.
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Thousands of dollars)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 442 $ 3,333
Accounts receivable, net 9,618 9,691
Parts and supplies inventory 5,821 6,113
Deferred tax asset 851 851
Prepaid expenses and other 2,368 3,216
--------- ---------
Total current assets 19,100 23,204
--------- ---------
PROPERTY AND EQUIPMENT:
Land 1,208 1,209
Buildings and improvements 5,049 5,542
Drilling, field and support
equipment 28,186 28,383
Shop equipment 757 1,140
Office equipment 1,777 1,443
Aircraft 338 10,592
Vehicles 2,790 3,956
Construction in progress 218 572
--------- ---------
40,323 52,837
Less: accumulated depreciation 7,760 6,596
--------- ---------
Total property and equipment 32,563 46,241
--------- ---------
OTHER ASSETS:
Goodwill, net 14,884 15,406
Deferred tax asset 679 ---
Other 1,125 495
--------- ---------
Total other assets 16,688 15,901
--------- ---------
Total assets $ 68,351 $ 85,346
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Thousands of dollars)
<TABLE>
<CAPTION>
LIABILITIES AND EQUITY September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 13,102 $ 9,917
Line of credit 5,520 ---
Accounts payable 4,122 6,276
Accrued expenses 2,285 1,204
--------- ---------
Total current liabilities 25,029 17,397
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 111 14,371
Line of credit --- 4,315
Subordinated debt 4,798 ---
Due to affiliates and shareholders --- 1,000
Deferred taxes --- 2,092
--------- ---------
Total long-term liabilities 4,909 21,778
--------- ---------
TOTAL LIABILITIES 29,938 39,175
--------- ---------
MINORITY INTEREST 244 600
--------- ---------
EQUITY:
Common Stock, $.01 par value, 45,000,000
shares authorized; 15,979,505 issued and
outstanding 160 160
Additional paid-in capital 47,378 46,885
Accumulated deficit (9,349) (1,414)
Cumulative translation adjustment (20) (60)
--------- ---------
Total equity 38,169 45,571
--------- ---------
Total liabilities and equity $ 68,351 $ 85,346
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------------
1999 1998 1999 1998
---------- --------- ---------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating revenue $ 8,756 $ 19,905 $ 26,876 $ 62,483
Operating expenses 9,051 17,016 27,850 45,374
--------- --------- --------- ---------
Gross profit (loss) (295) 2,889 (974) 17,109
General and administrative expenses 2,266 4,378 7,912 9,214
Asset impairment and other charges --- 3,379 --- 3,379
--------- --------- --------- ---------
Operating income (loss) (2,561) (4,868) (8,886) 4,516
Interest expense 687 474 1,967 1,211
Other income (expense) (201) (81) (114) 200
--------- --------- --------- ---------
888 555 2,081 1,011
--------- --------- --------- ---------
Income (loss) before taxes (3,449) (5,423) (10,967) 3,505
Income tax expense (benefit) (1,047) (2,180) (2,673) 1,391
--------- --------- --------- ---------
Net income (loss), including
minority interest (2,402) (3,243) (8,294) 2,114
Gain (loss) of minority interest (13) 17 (357) 17
--------- --------- --------- ---------
Net income (loss) $ (2,389) $ (3,260) $ (7,937) $ 2,097
========= ========= ========= =========
Net income (loss) per share:
Basic $ (0.15) $ (0.20) $ (0.50) $ 0.13
Diluted $ (0.15) $ (0.20) $ (0.50) $ 0.13
Weighted average shares outstanding:
Basic 15,979 15,946 15,967 15,815
Diluted 15,979 15,946 15,967 16,019
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
30,
-------------------
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,937) $ 2,097
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation 3,245 3,274
Amortization 676 498
Loss on fixed asset disposition 238 103
Deferred compensation 73 108
Provision (benefit) for deferred income taxes (2,771) ---
Provision for bad debts 165 1,061
Asset impairment and other charges --- 3,379
Interest expense on detachable warrants 171 ---
Minority interest (357) ---
Changes in operating assets and liabilities-
Decrease (increase) in assets-
Receivables-
Trade (1,296) (4,421)
Other 1,264 622
Inventory 296 (3,329)
Prepaid expenses 1,518 523
Other (779) (2,949)
Increase (decrease) in liabilities-
Accounts payable and accrued expenses (1,038) (1,665)
Due to affiliates (100) ---
Unearned revenue --- (638)
-------- -------
Net cash used in operating activities (6,632) (1,337)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of fixed assets 9,316 2,984
Purchase of fixed assets (686) (16,482)
Acquisitions, net of cash received --- (2,856)
-------- -------
Net cash provided by (used in) investing
activities 8,630 (16,354)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 607 7,883
Capital contributions --- 1,650
Subordinated debt 5,000 ---
Principal payments on long-term debt (11,708) (8,236)
Net borrowings (payments) on line of credit 1,206 10,000
-------- -------
Net cash provided by (used in) financing activities (4,895) 11,297
-------- -------
Effect of exchange rate changes in cash 6 (5)
NET DECREASE IN CASH (2,891) (6,399)
CASH, at beginning of period 3,333 8,723
-------- -------
CASH, at end of period $ 442 $ 2,324
======== =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
CASH PAID FOR INTEREST $ 1,816 $ 1,258
======== =======
CASH PAID FOR TAXES $ --- $ 2,270
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements have been prepared without audit as permitted by
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the
financial statements have been condensed or omitted pursuant to such rules
and regulations. However, the management of OMNI Energy Services Corp.
(the "Company") believes that this information is fairly presented. These
unaudited condensed consolidated financial statements and notes thereto
should be read in conjunction with the financial statements contained in
the Company's Annual Report on Form 10-K for the year ended December 31,
1998 and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of
only normal, recurring adjustments, necessary to fairly present the
financial results for the interim periods presented.
Certain reclassifications have been made to the prior year's financial
statements in order to conform with the classifications adopted for
reporting in fiscal 1999.
NOTE 2. EARNINGS PER SHARE
Basic Earnings Per Share (EPS) excludes dilution and is determined by
dividing income available to common stockholders by the weighted average
number of shares of common stock outstanding during the periods presented.
Diluted EPS reflects the potential dilution that could occur if options and
other contracts to issue shares of common stock were exercised or converted
into common stock. The Company had 1,404,602 and 1,349,964 options, and
1,291,478 and 820,865 warrants outstanding in the three and nine month
periods ended September 30, 1999, respectively that were excluded from the
calculation of diluted EPS as they were antidilutive due to the losses for
those periods.
The Company had 1,307,384 options for the three months ended September 30,
1998 that were excluded from the calculation of diluted EPS as they were
antidilutive due to the loss for that period. The Company had 30,875
options outstanding in the nine month period ended September 30, 1998 that
were excluded from the calculation of diluted EPS because the option's
exercise price was greater than the average market price of the common
shares. Dilutive common equivalent shares for the nine month period ended
September 30, 1998 were 203,164, all attributable to stock options.
NOTE 3. LONG-TERM DEBT
The Company's primary credit facility is with Hibernia National Bank (the
"Hibernia Facility"). The Hibernia Facility currently provides the Company
with a $6.1 million term loan, a $6.0 million revolving line of credit to
finance working capital requirements and a $2.9 million note used to
finance capital expenditures and acquisitions. The loans bear interest at
prime plus 3% and have a final maturity of January 20, 2000. As of
September 30, 1999, the Company had approximately $14.5 million outstanding
under the Hibernia Facility. In accordance with the fifth amendment signed
with the bank in September 1999, a principal payment of $1.7 million was
due on October 31, 1999. The Company is currently in negotiations to
extend this payment date.
At September 30, 1999, the Company also has approximately $3.1 million is
outstanding debt pursuant to agreements with The CIT Group (CIT),
consisting of two asset-based financing loans (the "CIT Loans"). Of the
principal outstanding under the CIT Loans, approximately $2.5 million bears
interest at LIBOR plus 3.75% and matures on July 19, 2001. In accordance
with the third amendment to this agreement signed in September 1999, the
principal payments due in September and October 1999 were postponed until
the November 1999 due date and will bear interest at prime plus 3%. The
remaining portion of the CIT Loans bear interest at LIBOR plus 3.0%. These
loans are collateralized by various seismic drilling units, support
equipment and aircraft.
The terms of the Hibernia and CIT agreements contain, among other
provisions, requirements for maintaining defined levels of EBITDA, working
capital, tangible net worth and cash flow coverage. Each agreement also
includes cross-default provisions for these covenants. At September 30,
1999, the Company was in violation of its covenants under these
agreements, excluding tangible net worth, and accordingly amounts
outstanding under the Hibernia and CIT agreements are classified as current
liabilities. The Company is currently negotiating with Hibernia and CIT to
have these covenant violations waived. The Company is attempting to
refinance its current Hibernia agreements through a combination of new
agreements with Hibernia or other parties which appropriately matches
principal amortization with the cashflow capabilities of the assets pledged
against the outstanding obligations. In addition to attempting to
refinance the outstanding amounts due to Hibernia, the Company is
evaluating other capital raising alternatives, including additional debt,
the sale of operating assets or divisions, and other alternatives.
Management believes that the Company will be able to obtain appropriate
financing for its operations.
In July and September 1999, the Company privately placed a total of $2.0
million in subordinated debentures with an affiliate of the Company. The
notes bear interest at 12% per annum, with $1.0 million maturing on March
1, 2004 and $1.0 million maturing on March 1, 2005. In connection with
these debentures, the Company issued warrants to purchase up to 640,000
shares of the Company's common stock at an exercise price of $5.00 per
share. The warrants vest equally over the next four years until 2002,
unless the debentures are paid in full, in which case, those warrants that
have not become exercisable will become void. All warrants that become
exercisable will expire on March 1, 2004. The Company has previously
placed an additional $3.0 million in subordinated debentures with the same
affiliate and issued 960,000 warrants, bearing the same terms. The
proceeds of all of these notes were used for current working capital
purposes. The fair value of all warrants issued as of September 30, 1999
total approximately $0.2 million and is included as paid-in capital. The
effective interest rate over the term of the debt is approximately 19.5%.
In October 1999, the Company privately placed an additional $2.5 million in
subordinated debentures with the same affiliate of the Company. The notes
bear interest at 12.5% per annum until December 31, 1999, at which time the
rate will increase by 0.5% per month not to exceed 20% per annum. The
notes mature on March 1, 2005, with interest payable March 1 of each year.
In connection with these debentures, the Company issued warrants to
purchase up to 300,000 and 37,500 shares of the Company's common stock at
an exercise price of $3.00 and $2.00, respectively. The warrants vest
immediately and expire on March 1, 2005.
NOTE 4. COMPREHENSIVE INCOME
In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income", which requires an entity to report
and display comprehensive income and its components. Comprehensive income
is as follows (thousands of dollars):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net Income (Loss) $ (2,389) $ (3,260) $ (7,937) $ 2,097
Other Comprehensive Income:
Foreign currency translation adjustments 1 (34) 40 (54)
-------- -------- -------- --------
Comprehensive Income (Loss) $ (2,388) $ 3,294 $ (7,897) $ 2,043
======== ======== ======== ========
</TABLE>
NOTE 5. ACQUISITIONS
Effective July 1998, the Company entered into a joint venture with Edwin
Waldman Attie of Bolivia. The operating results of the joint venture
company have been included in the consolidated statements of income from
the date of acquisition. The pro forma effect of the joint venture as
though it occurred as of January 1, 1998 is not material.
NOTE 6. ASSET IMPAIRMENT AND OTHER NON-RECURRING CHARGES
In the third quarter of 1998, the Company evaluated certain assets for
realizability due to the reduced market activity and the related decline in
asset utilization of certain categories of the Company's equipment. The
Company recorded an asset impairment charge of $1.8 million, primarily
related to nine drilling units and 15 trucks which had become impaired due
to reduced demand and environmental impact factors which have restricted
their future use. The Company wrote-off $1.3 million for seismic data held
for sale which was impaired due to recent price declines. The Company also
recorded an additional $0.6 million in provision for uncollectible accounts
receivable.
In addition, in response to anticipated future market conditions, in the
third quarter of 1998 the Company's senior management and its Board of
Directors approved a plan to reduce future operating costs and improve
operating efficiencies. The plan involved several factors including the
reorganization of senior management and the relocation of certain of its
operational facilities. Accordingly, the Company recorded an accrual for
severance and lease exit costs of $0.3 million in September 1998. As of
September 30, 1999, the Company has paid all of these costs. Currently, the
Company has sold all of the trucks and one of the drilling units which were
considered to be impaired. The estimated fair value of the remaining eight
drilling units is approximately $0.6 million and is included in other
current assets.
NOTE 7. SEGMENT INFORMATION
The following shows industry segment information for its three operating
segments, Drilling, Survey and Aviation, for the three and nine month
periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues: (1)(2)
Drilling $ 4,125 $ 11,934 $ 15,360 $ 42,183
Survey 1,540 4,527 4,815 11,863
Aviation 3,091 3,444 6,701 8,437
-------- -------- -------- --------
Total $ 8,756 $ 19,905 $ 26,876 $ 62,483
======== ======== ======== ========
</TABLE>
(1) Net of inter-segment revenues of $0.1 and $1.2 million for the nine
month periods ended September 30, 1999 and 1998, respectively.
(2) Includes $1.2 million, $2.5 million and $1.2 million of integrated
services in South America for the three month period ended September
30,1998 and the nine month periods ended September 30, 1999 and 1998,
respectively.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross profit (loss):
Drilling $ (308) $ 752 $ 290 $ 10,580
Survey (177) 811 (1,180) 3,159
Aviation 299 1,326 305 3,370
Other (109) --- (389) ---
-------- -------- -------- --------
Total $ (295) $ 2,889 $ (974) $ 17,109
General and administrative expenses 2,266 4,378 7,912 9,214
Asset impairment & other charges --- 3,379 --- 3,379
Other expense, net 888 555 2,081 1,011
-------- -------- -------- --------
Income (loss) before taxes $ (3,449) $ (5,423) $(10,967) $ 3,505
======== ======== ======== ========
Identifiable Assets:
Drilling $ 29,516 $ 35,071
Survey 4,712 4,905
Aviation 10,258 20,769
Other 23,865 31,381
-------- --------
Total $ 68,351 $ 92,126
======== ========
Capital Expenditures:
Drilling $ 6 $ 3,969 $ 196 $ 9,477
Survey 15 236 38 868
Aviation 55 957 104 4,636
Other 33 514 348 1,501
-------- -------- -------- --------
Total $ 109 $ 5,676 $ 686 $ 16,482
======== ======== ======== ========
</TABLE>
NOTE 8. RECENT PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and
reporting standards that every derivative instrument be recorded in the
balance sheet as either an asset or a liability measured at its fair value.
In June 1999, the FASB delayed SFAS No. 133's effective date by one year to
fiscal years beginning after June 15, 2000, with earlier application
permitted. Management believes the implementation of SFAS No. 133 will not
have a material effect on its results of operations or financial statement
disclosures as the Company historically has not used these instruments.
NOTE 9. CONCENTRATION OF CREDIT RISK
The Company's accounts receivable includes unsecured amounts of approximately
$3.0 million from two customers who have recently filed for Chapter 11
bankruptcy. The Company currently has specific reserves totaling
approximately $0.9 million related to those receivables, however future
additional reserves may be required when additional information becomes
available from the unsecured credit committee. The Company also has
receivables totaling approximately $2.0 million from two additional customers
for which there are no foreseen collection issues.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933 (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"),
which reflect management's best judgment based on factors currently known.
Actual results could differ materially from those anticipated in these
"forward looking statements" as a result of a number of factors, including
but not limited to those discussed under the heading "Cautionary Statements."
"Forward looking statements" provided by the Company pursuant to the safe
harbor established by the federal securities laws should be evaluated in the
context of these factors.
This discussion should be read in conjunction with the financial
statements and the accompanying notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
GENERAL
DEMAND. Demand for the Company's services is principally impacted by
conditions affecting geophysical companies engaged in the acquisition of 3-D
seismic data. The level of activity among geophysical companies is primarily
influenced by the level of capital expenditures by oil and gas companies for
seismic data acquisition activities. A number of factors affect the decision
of oil and gas companies to pursue the acquisition of seismic data, including
(i) prevailing and expected oil and gas demand and prices; (ii) the cost of
exploring for, producing and developing oil and gas reserves; (iii) the
discovery rate of new oil and gas reserves; (iv) the availability and cost of
permits and consents from landowners to conduct seismic activity; (v) local
and international political and economic conditions; (vi) governmental
regulations; and (vii) the availability and cost of capital. The ability to
finance the acquisition of seismic data in the absence of oil and gas
companies' interest in obtaining the information is also a factor as some
geophysical companies will acquire seismic data on a speculative basis.
Within the last decade, improvements in drilling and production
techniques and the acceptance of 3-D imaging as an exploration tool resulted
in significantly increased seismic activity throughout the Transition Zone.
Due to this increased demand, the Company significantly increased its
capacity as measured by drilling units, support equipment and employees. The
additional capacity and related increase in work force led to significant
increases in the Company's revenue and generally commensurate increases in
operating expenses and selling, general and administrative expenses through
the second quarter of 1998. Beginning in mid-1998, seismic activity in the
areas in which the Company operates decreased substantially, resulting in
corresponding reductions in demand for the Company's services and adversely
affected results of operations. As described in Note 6 to the financial
statements, management has taken a number of steps to reduce its excess
capacity and related operating expenses in response to the recent sales
levels.
SEASONALITY AND WEATHER RISKS. Results of operations for interim periods
are not necessarily indicative of the operating results that may be expected
for the full fiscal year. The Company's operations are subject to seasonal
variations in weather conditions and daylight hours. Since the Company's
activities take place outdoors, on average, fewer hours are worked per day,
aviation flight hours decline and fewer holes are generally drilled or
surveyed per day in winter months than in summer months, due to an increase
in rainy, foggy, and cold conditions and a decrease in daylight hours.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenue $ 8,756 $ 19,905 $ 26,876 $ 62,483
Operating expense 9,051 17,016 27,850 45,374
-------- -------- -------- --------
Gross profit (295) 2,889 (974) 17,109
General and administrative expenses 2,266 4,378 7,912 9,214
Asset impairment and other charges --- 3,379 --- 3,379
-------- -------- -------- --------
Operating income (loss) (2,561) (4,868) (8,886) 4,516
Interest expense 687 474 1,967 1,211
Other income (expense) (201) (81) (114) 200
-------- -------- -------- --------
Income (loss) before income taxes (3,449) (5,423) (10,967) 3,505
Income tax expense (benefit) (1,047) (2,180) (2,673) 1,391
-------- -------- -------- --------
Net income (loss), including minority
interest (2,402) (3,243) (8,294) 2,114
Minority interest (13) 17 (357) 17
-------- -------- -------- --------
Net income (loss) $ (2,389) $ (3,260) $ (7,937) $ 2,097
-------- -------- -------- --------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Operating revenues decreased 56%, or $11.1 million, from $19.9 million
for the three months ended September 30, 1998 to $8.8 million for the three
months ended September 30, 1999. As a result of the decline in seismic
activity during the last year, drilling and survey revenues decreased $7.8
million and $1.7 million, respectively, to $4.1 million and $1.6 million,
respectively, for the three months ended September 30, 1999. Aviation
revenues decreased $0.4 million from $3.5 million for the three months
ended September 30, 1998 to $3.1 million for the three months ended
September 30, 1999. The Company's South American joint venture had
revenues of $1.2 million for the three months ended September 30, 1998.
There were no similar revenues for the three months ended September 30,
1999.
Operating expenses decreased 46%, or $7.9 million, from $17.0 million
for the three months ended September 30, 1998 to $9.1 million for the three
months ended September 30, 1999. Declines in payroll costs and contract
services accounted for 57% of this decrease as operating payroll expense
decreased from $7.8 million to $3.9 million and contract services decreased
from $0.9 million to $0.3 million for the quarters ended September 30, 1998
and 1999, respectively. The significant decrease in seismic activity has
resulted in a corresponding decrease in the amount of personnel employed by
the Company, as the average number of field employees has declined to 324
for the three months ended September 30, 1999 compared to 694 for the three
months ended September 30, 1998. Also as a result of the lower activity
levels in the third quarter of 1999 as compared to the third quarter of
1998, explosives and fuel costs, repairs and maintenance expenses and field
supply costs decreased $3.1 million from $5.4 million to $2.3 million for
the three months ended September 30, 1998 and 1999, respectively.
Depreciation expense decreased 25%, or $0.3 million, to $0.9 million for
the three months ended September 30, 1999. This decrease is due primarily
to the sale leaseback transaction involving 19 of the Company's helicopters
in May 1999.
Gross profit margins were 15% and (3)% for the three months ended
September 30, 1998 and 1999, respectively. The variance is attributable to
substantially lower domestic revenues from the Company's Drilling, Survey
and Aviation segments, as well as decreased activity from the Company's
South American operations.
General and administrative expenses were $4.4 million for the three
months ended September 30, 1998 compared to $2.3 million for the three
months ended September 30, 1999, a 48% decrease. Payroll costs decreased
$0.6 million from $1.8 million for the third quarter of 1998 to $1.2
million for the third quarter of 1999. These decreases are due primarily
to lower personnel levels as the average number of administrative employees
declined to 76 for the three months ended September 30, 1999, from 105 for
the three months ended September 30, 1998. Advertising, travel and
entertainment, professional services expense and other decreased $0.7
million, from $1.3 million for the three months ended September 30, 1998 to
$0.6 million for the three months ended September 30, 1999, due to the
decreased activity levels.
Interest expense increased $0.2 million from $0.5 million for the
three month period ended September 30, 1998 to $0.7 million for the three
month period ended September 30, 1999, due primarily to higher average
levels of debt outstanding during the periods.
Due to the losses for the periods ended September 30, 1998 and 1999,
the Company recorded an income tax benefit of $2.2 million and $1.0 million
for those periods, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Operating revenues decreased $35.6 million, or 57%, from $62.5 million
to $26.9 million for the nine month periods ended September 30, 1998 and
1999, respectively. Drilling revenues decreased $27.8 million to $14.4
million for the nine months ended September 30, 1999. Survey revenues
decreased $7.4 million, from $10.7 million for the nine months ended
September 30, 1998 to $3.3 million for the nine months ended September 30,
1999. Aviation revenues decreased $1.7 million to $6.7 million for the
nine months ended September 30, 1999 from $8.4 million for the nine months
ended September 30, 1998. These decreases were related to declines in
market activity and were partially offset by an increase in international
revenues of $1.3 million, from $1.2 million for the nine months ended
September 30, 1998 to $2.5 million for the nine months ended September 30,
1999.
Operating expenses decreased $17.5 million, or 39%, from $45.4 million
for the nine months ended September 30, 1998 to $27.9 million for the nine
months ended September 30, 1999. Decreases in operating payroll and
contract services costs accounted for 61% of this decrease as operating
payroll decreased $6.9 million to $13.7 million for the nine months ended
September 30, 1999, and contract services decreased $3.7 million to $0.4
million for the nine months ended September 30, 1999. The decreases in
seismic activity have resulted in less contract services required by the
Company, as well as fewer personnel as the number of field employees fell
from 639 at September 30, 1998 to 317 at September 30, 1999. As a result
of the declines in the utilization of the Company's equipment, repairs and
maintenance expense decreased 46% from $6.7 million for the nine months
ended September 30, 1998 to $3.6 million for the nine months ended
September 30, 1999. Explosives costs decreased $2.6 million from $3.7
million for the nine months ended September 30, 1998 to $1.1 million for
the nine months ended September 30, 1999 due to less jobs requiring
explosives. Insurance and supplies expense decreased $1.6 million to $1.4
million for the nine months ended September 30, 1999. These decreases were
partially offset by a $0.6 million increase in rent and lease expense from
$1.6 to $2.2 million for the nine months ended September 30, 1998 and 1999,
respectively. This increase is due primarily to the sale and leaseback of
19 of the Company's helicopters in May 1999. Depreciation remained
relatively constant at $3.3 million for the each of the nine month periods
ended September 30, 1998 and 1999.
Gross profit margins were 27% and (4)% for the nine months ended
September 30, 1998 and 1999, respectively. The variance is attributable to
substantially lower domestic revenues from the Company's Drilling, Survey
and Aviation segments, as well as losses incurred from South American
operations. The Company has reduced South American operating levels to a
minimum pending future projects and expects no future operating losses.
Domestic operations resulted in a 2% gross margin for the nine months ended
September 30, 1999.
General and administrative expenses decreased $1.3 million, or 14%,
from $9.2 million to $7.9 million for the nine months ended September 30,
1998 and 1999, respectively. Payroll and insurance costs increased $0.3
million from $4.2 million to $4.5 million for the nine months ended
September 30, 1998 and 1999, respectively. This increase was due to an
increased level of administrative employees as the average number of
personnel increased from 86 to 99 for the nine month periods ended
September 30, 1998 and 1999, respectively. The increase in administrative
personnel was due primarily to the South American joint venture that took
place in July 1998. Amortization expense increased $0.2 million to $0.7
million for the nine months ended September 30, 1999. These increases were
offset by decreases in advertising, travel and entertainment, professional
services and other as these expenses decreased $0.9 million from $2.5
million to $1.6 million for the nine months ended September 30, 1998 and
1999, respectively. Bad debt expense decreased $0.9 million to $0.2
million for the nine months ended September 30, 1999. This decrease was
due primarily to a $0.6 million additional reserve for bad debts recorded
in September 1998.
Interest expense increased $0.8 million, or 67%, from $1.2 million for
the nine months ended September 30, 1998 to $2.0 million for the nine
months ended September 30, 1999, due primarily to higher levels of debt
outstanding for the period ended September 30, 1999.
Income tax expense was $2.1 million for the nine months ended
September 30, 1998. Due to the loss for the nine months ended September
30, 1999, there was an income tax benefit of $2.7 million. The actual rate
is less than the effective tax rate due primarily to non-deductible
goodwill and to approximately $0.5 million in a valuation allowance for
foreign tax assets that was recorded in the second quarter of 1999 whose
realizability is no longer deemed more probable than not.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had approximately $0.4 million in
cash compared to approximately $3.3 million at December 31, 1998. The
Company had a $(5.9) million working capital deficit at September 30, 1999,
compared to a $5.8 million working capital position at December 31, 1998.
The decrease in working capital is due to lower cash levels and the
reclassification of a significant portion of the Company's long-term debt
to current debt due to maturity dates and defaults of certain instruments,
partially offset by decreases in accounts payable.
Cash used in operating activities was $6.6 million and $1.3 million
for the nine months ended September 30, 1999 and 1998, respectively. The
Company's net loss was the single largest contributing factor in 1999.
During 1999, the Company has restructured its senior management
compensation plans, reduced its workforce and sold its office located in
Thibodaux, Louisiana. The Company has also moved the equipment from its
Canadian and South American operations and has reduced operating levels to
a minimum pending future projects.
The Company's primary credit facility is with Hibernia National Bank
(the "Hibernia Facility"). The Hibernia Facility currently provides the
Company with a $6.1 million term loan, a $6.0 million revolving line of
credit to finance working capital requirements and a $2.9 million note used
to finance capital expenditures and acquisitions. The loans bear interest
at prime plus 3% and have a final maturity of January 20, 2000. As of
September 30, 1999, the Company had approximately $14.5 million outstanding
under the Hibernia Facility. In accordance with the fifth amendment signed
with the bank in September 1999, the Company owed $1.7 million in principal
on these notes, payable October 31, 1999. The Company is currently in
negotiations to extend this payment date.
At September 30, 1999, the Company also has approximately $9.2 million
in other loans outstanding, including approximately $3.1 million in
outstanding debt pursuant to agreements with The CIT Group (CIT),
consisting of two asset-based financing loans (the "CIT Loans"). Of the
principal outstanding under the CIT Loans, approximately $2.5 million bears
interest at LIBOR plus 3.75% and matures on July 19, 2001. In accordance
with the third amendment to this agreement signed in September 1999, the
principal payments due in September and October 1999 were postponed until
the November 1999 due date and will bear interest at prime plus 3%. The
remaining portion of the CIT Loans bear interest at LIBOR plus 3.0%. These
loans are collateralized by various seismic drilling units, support
equipment and aircraft.
The terms of the Hibernia and CIT agreements contain, among other
provisions, requirements for maintaining defined levels of EBITDA, working
capital, tangible net worth and cash flow coverage. Each agreement also
includes cross-default provisions for these covenants. At September 30,
1999, the Company was in violation of each of its covenants under these
agreements, excluding tangible net worth, and accordingly amounts
outstanding under the Hibernia and CIT agreements are classified as current
liabilities. The Company is currently negotiating with Hibernia and CIT to
have these covenant violations waived. The Company is attempting to
refinance its current Hibernia agreements through a combination of new
agreements with Hibernia or other parties which appropriately matches
principal amortization with the cashflow capabilities of the assets pledged
against the outstanding obligations. In addition to attempting to
refinance the outstanding amounts due to Hibernia, the Company is
evaluating other capital raising alternatives, including additional debt,
the sale of operating assets or divisions, and other alternatives.
Management believes that the Company will be able to obtain appropriate
financing for its operations.
In July and September 1999, the Company privately placed a total of
$2.0 million in subordinated debentures with an affiliate of the Company.
The notes bear interest at 12% per annum, with $1.0 million maturing on
March 1, 2004 and $1.0 million maturing on March 1, 2005. In connection
with these debentures, the Company issued warrants to purchase up to
640,000 shares of the Company's common stock at an exercise price of $5.00
per share. The warrants vest equally over the next four years until 2002,
unless the debentures are paid in full, in which case, those warrants that
have not become exercisable will become void. All warrants that become
exercisable will expire on March 1, 2004. Prior to this quarter, the
Company privately placed an additional $3.0 million in subordinated
debentures with the same affiliate and issued 960,000 warrants, bearing the
same terms. The proceeds of all of these notes were used for current
working capital purposes. The fair value of all warrants issued is
included as paid-in capital and the effective interest rate over the term
of the debt is 19.5%. The total due to this affiliate at September 30,
1999 was $5.0 million.
In October 1999, the Company privately placed an additional $2.5
million in subordinated debentures with the same affiliate of the Company.
The notes bear interest at 12.5% per annum until December 31, 1999, at
which time the rate will increase by 0.5% per month not to exceed 20% per
annum. The notes mature on March 1, 2005, with interest payable March 1 of
each year. In connection with these debentures, the Company issued
warrants to purchase up to 300,000 and 37,500 shares of the Company's
common stock at an exercise price of $3.00 and $2.00, respectively. The
warrants vest immediately and expire on March 1, 2005.
At September 30, 1999, other remaining indebtedness includes: (i)
$40,000 owed to Delta Surveys, Inc. (8.5% interest rate; March 31, 2000
maturity date), (ii) $54,000 incurred in connection with the formation of
OMNI Geophysical (March 1, 2001 maturity date) and (iii) approximately
$1,000,000 owed to finance and insurance companies incurred to finance
certain of the Company's insurance premiums.
The Company currently expects minimal capital expenditures for the
remainder of 1999.
IMPACT OF YEAR 2000 COMPLIANCE
The Year 2000 (Y2K) issue is the result of computerized systems being
written to store and process the year portion of dates using two digits
rather than four. Date-aware systems (i.e., any system or component that
performs calculations, comparisons, sequencing, or other operations
involving dates) may fail or produce erroneous results on or before January
1, 2000 because the year 2000 will be interpreted as the year 1900.
STATE OF READINESS. The Company has been pursuing a strategy to
ensure all its significant computer systems will be able to process dates
from and after January 1, 2000, including leap years, without critical
systems failure (Y2K Compliant or Y2K Compliance). Computerized systems
are integral to the operations of the Company, particularly for accounting
and operations control. Progress of the Y2K plan is being monitored by
senior management. The Company believes all critical components of the
plan are completed.
The majority of computerized date-sensitive hardware and software
components used by the Company are covered by maintenance contracts with
the vendors who originally implemented them. All of these vendors have
been contacted regarding Y2K Compliance of their products. Where
necessary, software modifications to ensure compliance will be provided by
the appropriate vendors under their maintenance contracts.
INFORMATION TECHNOLOGY AND NON-INFORMATION TECHNOLOGY SYSTEMS. The
bulk of computerized business systems processing is provided through
commercial third party software licensed by the Company. This software has
been tested for compliance and the Company believes that it is Y2K
Compliant. Additionally, the Company has implemented a more sophisticated
software package to meet their reporting and operational needs. An
assessment of all embedded systems contained in the Company's buildings,
equipment and other infrastructure has been completed. These assessments
revealed the need to upgrade the current phone voice mail system. This
process was completed in the second quarter of 1999.
THIRD PARTY RISKS. The Company's computer systems are not widely
integrated with the systems of its suppliers or customers. The primary
potential Y2K risk attributable to third parties would be from a temporary
disruption in certain material and services provided by third parties. The
Company has contacted all significant vendors regarding the vendor's state
of readiness and contingency plans. To date, no material adverse
information has been received. Additionally, effective November 1, 1998,
Y2K Compliance requirements have been included in all purchasing contracts.
COSTS TO ADDRESS THE Y2K ISSUES. Based on current information, the
Company believes that the cost of Y2K Compliance will not be significant
and will be provided for through its normal operating and capital budgets.
These estimates are management's best estimates, which are derived using
numerous assumptions of future events including the continued availability
of certain resources, third party modifications and other factors. There
can be no assurance that the systems of other companies will be converted
on a timely basis or that failure to convert will not have a material
adverse effect on the Company.
RISKS OF THE Y2K ISSUES. Based on preliminary risk assessment work
conducted thus far, the Company believes the most likely Y2K related
failures would probably be temporary disruptions in certain materials and
services provided by third parties, which would not be expected to have a
material adverse effect on the Company's financial condition or results of
operations.
CONTINGENCY PLANS. Although the Company believes the likelihood of
any or all of the above risks occurring to be low, specific contingency
plans to address certain risk areas have been developed. The Company is in
the process of creating manual forms for distribution to all of the job
sites in the case of computer problems. Also, emergency phone lists have
been made for all supervisors. Although plans have been made, there can be
no assurance that the Company will not be materially adversely affected by
Y2K problems or related costs.
<PAGE>
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E
of the Exchange Act. All statements other than statements of historical
fact included in this report regarding the Company's financial position
and liquidity, its strategic alternatives, future capital needs, business
strategies and other plans and objectives of management of the Company
for future operations and activities, are forward-looking statements.
These statements are based on certain assumptions and analyses made by
the Company's management in light of its experience and its perception of
historical trends, current conditions, expected future developments and
other factors it believes are appropriate under the circumstances. Such
forward-looking statements are subject to uncertainties that could cause
the Company's actual results to differ materially from such statements.
Such uncertainties include but are not limited to: the volatility of the
oil and gas industry, including the level of offshore exploration,
production and development activity; changes in competitive factors
affecting the Company's operations; operating hazards, including the
significant possibility of accidents resulting in personal injury,
property damage or environmental damage; the effect on the Company's
performance of regulatory programs and environmental matters; seasonality
of the offshore industry in the Gulf of Mexico; and the Company's
dependence on certain customers. These and other uncertainties related
to the Company's business are described in detail in the Company's other
public filings. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give
no assurance that such expectations will prove to be correct. You are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company
undertakes no obligation to update any of its forward-looking statements
for any reason.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
3.1 Amended and Restated Articles of Incorporation of the
Company (1).
3.2 By-laws of the Company (1)
27.1 Financial Data Schedule
___________________
(1) Incorporated by reference to the Company's Registration Statement
on Form S-1 (Registration Statement No. 333-36561).
(b) Reports on Form 8-K:
On July 26, 1999, the Company filed a Current Report on Form 8-K
reporting, under Items 5 and 7, the resignation of Robert F. Nash
as its President and Chief Executive Officer and its financial
results for the quarter ended June 30, 1999.
<PAGE>
SIGNATURES
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.
OMNI ENERGY SERVICES CORP.
/S/ JOHN H. UNTEREKER
John H. Untereker
President and Chief Financial
Officer
Dated: November 12, 1999
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