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 March 31, 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
4500 N.E. EVANGELINE THRUWAY
CARENCRO, LOUISIANA 70520
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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 May 13, 1999 there were 15,958,627 shares of the Registrant's common
stock, $0.01 par value per share, outstanding.
<PAGE>
ITEM 1.
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(Thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 2,788 $ 3,333
Accounts receivable, net 8,678 9,691
Parts and supplies inventory 6,059 6,113
Deferred tax asset 851 851
Prepaid expenses and other 2,630 3,216
---------- ----------
Total current assets 21,006 23,204
---------- ----------
PROPERTY AND EQUIPMENT:
Land 1,209 1,209
Buildings and improvements 5,547 5,542
Drilling, field and support equipment 28,643 28,383
Shop equipment 1,176 1,140
Office equipment 1,435 1,443
Aircraft 10,560 10,592
Vehicles 3,169 3,956
Construction in progress 914 572
---------- ----------
52,653 52,837
Less: accumulated depreciation 7,357 6,596
---------- ----------
Total property and equipment 45,296 46,241
---------- ----------
OTHER ASSETS:
Goodwill, net 15,232 15,406
Other 501 495
---------- ----------
Total other assets 15,733 15,901
---------- ----------
Total assets $ 82,035 $ 85,346
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(Thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND EQUITY
- ----------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 15,730 $ 9,917
Accounts payable 3,980 6,276
Accrued expense 718 1,204
----------- -----------
Total current liabilities 20,428 17,397
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 6,981 14,371
Line of credit 4,083 4,315
Subordinated debt 2,312 ---
Due to affiliates and shareholders 1,000 1,000
Deferred taxes 2,092 2,092
----------- -----------
Total long-term liabilities 16,468 21,778
----------- -----------
TOTAL LIABILITIES 36,896 39,175
----------- -----------
MINORITY INTEREST 565 600
----------- -----------
EQUITY:
Common Stock, $.01 par value, 45,000,000
sharess authorized; 15,958,627
issued and outstanding 160 160
Additional paid-in capital 47,097 46,885
Retained deficit (2,639) (1,414)
Cumulative translation adjustment (44) (60)
----------- -----------
Total equity 44,574 45,571
----------- -----------
Total liabilities and equity $ 82,035 $ 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 MONTHS ENDED MARCH 31, 1999 AND 1998
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
1999 1998
----------- ----------
(Unaudited)
<S> <C> <C>
Operating revenue $ 9,601 $ 18,329
Operating expenses 8,443 12,728
----------- ----------
Gross profit 1,158 5,601
General and administrative expenses 2,624 2,272
----------- ----------
Operating income (loss) (1,466) 3,329
Interest expense 490 307
Other income 29 53
----------- ----------
461 254
----------- ----------
Income (loss) before taxes (1,927) 3,075
Income tax expense (benefit) (667) 1,230
----------- ----------
Net income (loss), including
minority interest (1,260) 1,845
Loss of minority interest (35) ---
----------- ----------
Net income (loss) $ (1,225) $ 1,845
Net income (loss) per share:
Basic $ (0.08) $ 0.12
Diluted $ (0.08) $ 0.12
Weighted average shares outstanding:
Basic 15,959 15,726
Diluted 15,959 15,789
</TABLE>
The accompanying notes are an integral part of these ondensed
consolidated financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,225) $ 1,845
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation 1,217 933
Amortization 224 141
Loss on fixed asset disposition --- 21
Deferred compensation 24 36
Provision for bad debts (75) 150
Minority interest (35) ---
Changes in operating assets and liabilities-
Decrease (increase) in assets-
Receivables-
Trade (615) (3,242)
Other 1,707 648
Inventory 55 (1,664)
Prepaid expenses 586 29
Data held for sale --- (1,320)
Other (53) (436)
Increase (decrease) in liabilities-
Accounts payable and accrued expenses (2,332) (82)
Unearned revenue
--- (586)
----------- ----------
Net cash used in operating activities (522) (3,527)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of fixed assets 253 354
Purchase of fixed assets (969) (4,709)
----------- ----------
Net cash used in investing activities (716) (4,355)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt --- 223
Subordinated debt 2,500 ---
Principal payments on long-term debt (1,577) (2,657)
Net borrowings (payments) on line of credit
(232) 3,876
----------- ----------
Net cash provided by financing activities 691 1,442
----------- ----------
Effect of exchange rate changes in cash 2 ---
NET DECREASE IN CASH (545) (6,440)
CASH, at beginning of period 3,333 8,723
----------- ----------
CASH, at end of period $ 2,788 $ 2,283
=========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
CASH PAID FOR INTEREST $ 467 $ 233
=========== ==========
CASH PAID FOR TAXES $ --- $ ---
=========== ==========
</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."
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.
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.
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. Furthermore, demand for seismic data acquisition
activity by oil and gas companies in the first quarter is generally lower than
at other times of the year. As a result, the Company=s revenue and gross
profit during the first quarter of each year are typically low as compared to
the other quarters.
NOTE 2. EARNINGS PER SHARE
------------------
The Company follows Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," which simplifies the standards required under
existing accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully diluted earnings per share
with basic earnings per share ("basic EPS") and diluted earnings per share
("diluted EPS"), respectively. Basic 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 period. 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 19,098 options outstanding in the first quarter of 1999 that
were excluded from the calculation of diluted EPS as antidilutive considering
the first quarter loss. Dilutive common equivalent shares for the three month
period ended March 31, 1998 were 15,789,364, 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, which was amended in March 1999,
currently provides the Company with a $6.1 million term loan, a $7.0 million
revolving line of credit to finance working capital requirements and a $7.9
million line of credit to finance capital expenditures and acquisitions. The
loans bear interest at prime plus 1%. This facility, as amended, also provides
for a $2.9 million bridge loan, bearing interest at prime plus 2%. The loans
under the Hibernia Facility have a final maturity of January 20, 2000. As of
March 31, 1999, the Company had approximately $20.7 million outstanding under
the Hibernia Facility. At March 31, 1999, the Company has committed to
refinance $8.1 million of its short-term debt with a long-term facility;
accordingly, this debt has been reclassified as long-term. However, the
Company intends on extending the maturities of all of this indebtedness,
partially through planned refinancing with other lenders. If the Company is
unable to extend its maturities and/or refinance the Hibernia Facility, it may
be necessary for the Company to seek additional capital and/or sell operating
assets or divisions to raise funds to satisfy its debt obligations. Management
believes that the Company will be able to obtain appropriate financing for its
operations.
In February 1999, the Company privately placed $2.5 million in subordinated
debentures with an affiliate of the Company. The proceeds were used for cash
reserves and general corporate purposes. The notes bear interest at 12% per
annum, and mature on March 1, 2004. In connection with these debentures, the
Company issued warrants to purchase up to 800,000 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 fair value of the warrants issued was approximately $188,000, which
is included as paid-in capital. The effective interest rate over the term of
the debt is approximately 14%.
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 March 31,
1999 1998
---------- ----------
<S> <C> <C>
Net Income (Loss) $ (1,225) $ 1,845
Other Comprehensive Income:
Foreign currency translation sdjustments 16 ---
---------- ----------
Comprehensive Income (Loss) $ (1,209) $ 1,845
========== ==========
</TABLE>
NOTE 5. ACQUISITIONS
------------
Subsequent to March 31, 1998, the Company completed acquisitions of Eagle
Surveys International, Inc., Coastal Turbines, Inc., and Hamiltion Drill Tech,
Inc., and entered into a joint venture with Edwin Waldman Attie of Bolivia.
The operating results of each of the acquired companies have been included in
the consolidated statements of income from the date of acquisition. The pro
forma effect of the acquisitions as though they occurred as of the beginning of
each period presented is not material.
NOTE 6. ASSET IMPAIRMENT AND OTHER NON-RECURRING CHARGES
------------------------------------------------
In the third quarter of 1998, the Company evaluated certain of its 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, the Company's
senior management and its Board of Directors approved a plan to reduce future
operating costs and improve operating efficiencies. The plan involves several
factors including the restructuring 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 March 31, 1999, the Company had paid $0.2 million in severance costs. In
addition, the Company revised its remaining lease exit and severance cost
estimate to $44,000, which is accrued at March 31, 1999 and will be paid during
the year.
Currently, the Company has sold all of the trucks which were considered to be
impaired, and plans to sell the nine drilling units within the year. The
Company has restructured its senior management compensation plans and sold its
office located in Thibodeaux, Louisiana.
NOTE 7. SEGMENT INFORMATION
-------------------
The following shows industry segment information for its three operating
segments, Drilling, Survey and Aviation, for the three month periods ended
March 31, 1999 and March 31, 1998 (All amounts are unaudited):
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
<S> <C> <C>
Operating revenues: (1)(2)
Drilling $ 6,153 $ 13,993
Survey 1,296 2,194
Aviation 2,152 2,142
----------- -----------
Total $ 9,601 $ 18,329
=========== ===========
</TABLE>
(1) Net of inter-segment revenues of $0.2 million and $0.5 million for the
three months ended March 31, 1999 and 1998, respectively.
(2) Includes $0.6 million of integrated services in South America.
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
---------- ----------
<S> <C> <C>
Gross profit (loss):
Drilling $ 1,068 $ 3,522
Survey (27) 1,017
Aviation 150 1,062
Other (33) ---
---------- ----------
Total 1,158 5,601
---------- ----------
General and administrative expenses 2,624 2,272
Other expense, net 461 254
---------- ----------
Income (loss) before taxes $ (1,927) $ 3,075
========== ==========
Identifiable Assets:
Drilling $ 35,401 $ 40,672
Survey 5,481 4,844
Aviation 21,814 19,835
Other 19,339 12,768
---------- ----------
Total $ 82,035 $ 78,119
========== ==========
Capital Expenditures:
Drilling $ 770 $ 1,464
Survey 18 417
Aviation 61 2,232
Other 120 596
---------- ----------
Total $ 969 $ 4,709
========== ==========
</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. The statement is
effective for fiscal years beginning after June 15, 1999. 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 investments.
<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.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
----------- ----------
<S> <C> <C>
Operating revenue $ 9,601 $ 18,329
Operating expense 8,443 12,728
----------- ----------
Gross profit 1,158 5,601
General and administrative expenses 2,624 2,272
----------- ----------
Operating income (loss) (1,466) 3,329
Interest expense 490 307
Other income 29 53
----------- ----------
Income (loss) before income taxes (1,927) 3,075
Income tax expense (benefit) (667) 1,230
----------- ----------
Net income (loss), including minority
interest (1,260) 1,845
Loss of minority interest (35) ---
----------- ----------
Net income (loss) $ (1,225) $ 1,845
=========== ==========
</TABLE>
<PAGE>
Operating revenues decreased 48%, or $8.7 million, from $18.3 million for
the three months ended March 31, 1998 to $9.6 million for the three months
ended March 31, 1999. As a result of the decline in seismic activity during
the last nine months, drilling and survey revenues decreased $7.8 million and
$1.5 million, respectively, to $6.2 million and $0.7 million, respectively, for
the three months ended March 31, 1999. These decreases were partially offset
by international revenues of $0.6 million, generated by the Company's recently
formed South American joint venture. Aviation revenues remained relatively
constant at $2.1 million for the three month periods ended March 31, 1998 and
1999.
Operating expenses decreased 34%, or $4.3 million, to $8.4 million for
the three months ended March 31, 1999 from $12.7 million for the three months
ended March 31, 1998. Declines in payroll costs accounted for 56% of this
decrease as operating payroll expense decreased from $6.3 million to $3.9
million for the quarters ended March 31, 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 number of
field employees has declined to 255 at March 31, 1999 compared to 609 at March
31, 1998. Also as a result of the lower activity levels in the first quarter
of 1999 as compared to the first quarter of 1998, contract services, explosives
costs, repairs and maintenance expenses and other decreased $2.2 million from
$5.5 million to $3.3 million for the three months ended March 31, 1998 and
1999, respectively. These decreases were partially offset by an increase in
depreciation expense from $0.9 million for the three months ended March 31,
1998 to $1.2 million for the three months ended March 31, 1999. This increase
was due to the growth of the Company's drilling fleet from 171 units at March
31, 1998 to 299 units at March 31, 1999.
General and administrative expenses were $2.6 million for the three
months ended March 31, 1999, compared to $2.3 million for the three months
ended March 31, 1998, a 15% increase. Payroll and insurance costs increased
$0.4 million from $1.1 million for the first quarter of 1998 to $1.5 million
for the first quarter of 1999. These increases are due primarily to additions
in executive management and other administrative personnel to meet the demands
imposed by the rapid growth in prior periods. The Company employed 93
administrative personnel at March 31, 1999, a 24% increase over the 75
administrative personnel employed at March 31, 1998. As of April 30, 1999,
administrative personnel have been reduced to 90. Advertising, travel and
entertainment and professional services expense decreased $0.1 million, from
$0.4 million for the three months ended March 31, 1998 to $0.3 million for the
three months ended March 31, 1999, due to the decreased activity levels.
Interest expense increased $0.2 million, or 67%, from $0.3 million for
the three month period ended March 31, 1998 to $0.5 million for the three month
period ended March 31, 1999, due to higher average levels of debt outstanding
during the periods.
Income tax expense for the first quarter of 1998 was $1.2 million. There
was an income tax benefit for the first quarter of 1999 of $0.7 million, due to
the loss for the quarter.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had approximately $2.8 million in cash
compared to approximately $3.3 million at December 31, 1998. The Company
had working capital of approximately $0.6 million at March 31, 1999,
compared to $5.7 million at December 31, 1998. The decrease in working
capital was primarily due to the reclassification of a significant portion
of the Company's long-term debt to current debt, which was partially offset
by decreases in accounts payable and accrued expenses.
The Company's primary credit facility is with Hibernia National Bank (the
"Hibernia Facility"). The Hibernia Facility, which was amended in March 1999,
currently provides the Company with a $6.1 million term loan, a $7.0 million
revolving line of credit to finance working capital requirements and a $7.9
million line of credit to finance capital expenditures and acquisitions. The
loans bear interest at prime plus 1%. This facility, as amended, also provides
for a $2.9 million bridge loan, bearing interest at prime plus 2%. The loans
under the Hibernia Facility have a final maturity of January 20, 2000. As of
March 31, 1999, the Company had approximately $20.7 million outstanding under
the Hibernia Facility. At March 31, 1999, the Company has committed to
refinance $8.1 million of its short-term debt with a long-term facility;
accordingly, this debt has been reclassified as long-term. However, the
Company intends on extending the maturities of all of this indebtedness,
partially through planned refinancing with other lenders. If the Company is
unable to extend its maturities and/or refinance the Hibernia Facility, it may
be necessary for the Company to seek additional capital and/or sell operating
assets or divisions to raise funds to satisfy its debt obligations. Management
believes that the Company will be able to obtain appropriate financing for its
operations.
As of March 31, 1999, the Company also had approximately $9.5 million in
other loans outstanding, the majority of which (approximately $4.5 million) is
owed pursuant to agreements with CIT, consisting of several asset-based
financing loans (the "CIT Loans"). Of the principal outstanding under the CIT
Loans, approximately $3.2 million bears interest at LIBOR plus 3.75% (the
"Variable Rate") and matures on July 19, 2001. The proceeds of this portion of
the loans were used to finance a portion of the OGC Acquisition, and the assets
acquired serve as collateral. The remaining portion of the CIT Loans was
borrowed pursuant to an additional commitment from the lender of up to
$4,000,000 or 90% of the cost of the collateral securing amounts advanced under
this commitment. As of March 31, 1999, $1.8 million of this commitment had
been advanced. Amounts advanced under this commitment bear interest at LIBOR
plus 3.0% and are collateralized by various seismic drilling, support equipment
and aircraft.
In February 1999, the Company privately placed $2.5 million in
subordinated debentures with an affiliate of the Company. The proceeds were
used for cash reserves and general corporate purposes. The notes bear interest
at 12% per annum, and mature on March 1, 2004. In connection with these
debentures, the Company issued warrants to purchase up to 800,000 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 fair value of the warrants issued was approximately $188,000, which
is included as paid-in capital. The effective interest rate over the term of
the debt is approximately 19.5%.
As of March 31, 1999, remaining indebtedness includes: (i) $40,000 owed
to Delta Surveys, Inc. (8.5% interest rate; March 31, 2000 maturity date), (ii)
$72,000 incurred in connection with the formation of OMNI Geophysical (March 1,
2001 maturity date), (iii) approximately $1,500,000 owed to finance and
insurance companies incurred to finance certain of the Company's insurance
premiums, and (iv) $900,000 owed to an affiliate incurred to purchase two
operating facilities (non-interest bearing).
The Company currently expects to make capital expenditures of
approximately $1.5 million in 1999. As of February 28, 1999, the Company is
committed to $0.2 million of the estimated capital expenditures for 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 on schedule for completion by
the end of the second quarter of 1999.
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. Almost 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 is currently in the process of investigating more
sophisticated accounting software packages to meet their reporting and
operational needs. The software conversion is scheduled for completion during
the third quarter of 1999. 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 system. This
process will be completed by 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 will be developed as needed beginning in the second
quarter of 1999. However, there can be no assurance that the Company will not
be materially adversely affected by Y2K problems or related costs.
CAUTIONARY STATEMENTS
This Annual Report contains "forward-looking statements". Such
statements include, without limitation, statements regarding the Company's
expectations regarding revenue levels, profitability and costs, the expected
results of the Company's business strategy, and other plans and objectives of
management of the Company for future operations and activities.
Important factors that could cause actual results to differ materially
from the Company's expectations include, without limitation, the Company's
dependence on activity in the oil and gas industry, risks associated with the
Company's rapid growth, the absence of a combined operating history of the
Company and the companies it has recently acquired whose operations differ in
many cases from the Company's traditional Transition Zone seismic drilling
operations, risks associated with the Company's acquisition strategy,
dependence on a relatively small number of significant customers, seasonality
and weather risks, the hazardous conditions and difficult terrain in which the
Company operates, risks associated with the Company's international expansion,
and risks arising from year 2000 information technology issues. Many of these
factors are beyond the control of the Company.
<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.
Dated: May 14, 1998 ---------------------------
John H. Untereker
Executive Vice President
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