SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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 70520
CARENCRO, LOUISIANA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (318) 896-6664
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 19, 1999 was approximately $17,373,000.
The number of shares of the Registrant's common stock, $0.01 par value
per share, outstanding at March 19, 1999 was 15,958,627.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 1999 annual meeting
of shareholders have been incorporated by reference into Part III of this Form
10-K.
<PAGE>
OMNI ENERGY SERVICES CORP.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
PAGE
----
PART I......................................................................1
Items 1 and 2. Business and Properties...................................1
Item 3. Legal Proceedings.........................................9
Item 4. Submission of Matters To a Vote Of Security Holders.......9
Item 4A. Executive Officers of The Registrant.....................10
PART II....................................................................11
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters...................................11
Item 6. Selected Financial Data..................................12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................13
Item 7A. Quantitative and Qualitative Disclosures of Market Risk..20
Item 8. Financial Statements and Supplementary Data..............21
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure...................40
PART III...................................................................40
Item 10. Directors and Executive Officers of the Registrant.......40
Item 11. Executive Compensation...................................40
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................40
Item 13. Certain Relationships and Related Transactions...........40
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K...........................................40
SIGNATURES................................................................S-1
EXHIBIT INDEX.............................................................E-1
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
OMNI Energy Services Corp. (the "Company") is an oilfield service company
specializing in providing an integrated range of onshore seismic drilling,
helicopter support and survey services to geophysical companies operating in
logistically difficult and environmentally sensitive terrain in the United
States. The Company's primary market is the marsh, swamp, shallow water and
contiguous dry land areas along the U.S. Gulf Coast (the "Transition Zone"),
primarily in Louisiana and Texas, where it is the leading provider of seismic
drilling services. During the latter part of 1997, the Company commenced
operations in the mountainous regions of the Western United States. In 1998,
the Company's operations were extended to Canada and Bolivia.
The Company owns and operates an extensive fleet of specialized seismic
drilling and transportation equipment for use in the Transition Zone, much of
which is fabricated by the Company. The Company believes that it is the only
company that currently can both provide an integrated range of seismic
drilling, helicopter support and survey services in all of the varied terrains
of the Transition Zone and simultaneously support operations for multiple,
large-scale seismic projects.
The Company was founded in 1987 by the Company's Chairman of the Board,
David A. Jeansonne, as OMNI Drilling Corporation, to provide drilling services
to the geophysical industry. In July 1996, OMNI Geophysical, L.L.C. ("OMNI
Geophysical") acquired substantially all of the assets (the "OGC Acquisition")
of OMNI Geophysical Corporation ("OGC"), the successor to the business of OMNI
Drilling Corporation. OMNI Energy Services Corp. was formed as a Louisiana
corporation on September 11, 1997. On December 4, 1997, the Company completed
a share exchange (the "Share Exchange"), pursuant to which the holders of
common units in OMNI Geophysical exchanged all of the outstanding common units
of OMNI Geophysical for 12,000,000 shares of the Company's common stock, $0.01
par value per share (the "Common Stock"), and completed an initial public
offering of 3,450,000 shares of Common Stock.
INDUSTRY OVERVIEW
Seismic data generally consists of computer-generated three-dimensional
("3-D") images or two dimensional ("2-D") cross sections of subsurface geologic
formations and is used in the exploration for new hydrocarbon reserves and as a
tool for enhancing production from existing reservoirs. Onshore seismic data
is acquired by recording subsurface seismic waves produced by an energy source,
usually dynamite, at various points ("source points") at a project site.
Historically, 2-D surveys were the primary technique used to acquire seismic
data. However, advances in computer technology in the last five to ten years
have made 3-D seismic data, which provides a more comprehensive geophysical
image, a practical and capable oil and gas exploration and development tool.
3-D seismic data has proven to be more accurate and effective than 2-D data at
identifying potential hydrocarbon-bearing geological formations. The use of 3-
D seismic data to identify locations to drill both exploration and development
wells has improved the economics of finding and producing oil and gas reserves,
which in turn has created increased demand for 3-D seismic surveys and seismic
support services.
Oil and gas companies generally contract with independent geophysical
companies to acquire seismic data. Once an area is chosen for seismic
analysis, permits and landowner consents are obtained, either by the
geophysical company or special permitting agents, and the geophysical company
determines the layout of the source and receiving points. For 2-D data, the
typical configuration of source and receiving points is a straight line with a
source point and small groups of specialized sensors ("geophones") or geophone
stations, placed evenly every few hundred feet along the line. For 3-D data,
the configuration is generally a grid of perpendicular lines spaced a few
hundred to a few thousand feet apart, with geophone stations spaced evenly
every few hundred feet along one set of parallel lines, and source points
spaced evenly every few hundred feet along the perpendicular lines. This
configuration is designed by the geophysical company to provide the best
imaging of the targeted geological structures while taking into account surface
obstructions such as water wells, oil and gas wells, pipelines and areas where
landowner consents cannot be obtained. The source points and geophone
locations are then marked by a survey team, and the source points are drilled
and loaded with dynamite.
After the source points have been drilled and loaded and the network of
geophones and field recording boxes deployed over a portion of the project
area, the dynamite is detonated at a source point. Seismic waves generated by
the blast move through the geological formations under the project area and are
reflected by various subsurface strata back to the surface where they are
detected by geophones. The signals from the geophones are collected and
digitized by recording boxes and transmitted to a central recording system.
In the case of 2-D data, the geophones and recording devices from one end of
the line are then shuttled, or "rolled forward," to the other end of the line
and the process is repeated. In the case of 3-D data, numerous source points,
typically located between the first two lines of a set of three or four
parallel lines of geophone stations are activated in sequence. The geophone
stations and recording boxes from the first of those lines are then rolled
forward to form the next line of geophone stations. The process is repeated,
moving a few hundred feet at a time, until the entire area to be analyzed has
been covered. Helicopters are frequently used to shuttle geophones and
recording devices between receiving points ("long-line helicopter support") in
an efficient manner with minimal environmental impact.
After the raw seismic data has been acquired, it is sent to a data
processing facility. The processed data can then be manipulated and viewed on
computer work stations by geoscientists to map the subsurface structures to
identify formations where hydrocarbons are likely to have accumulated and to
monitor the movement of hydrocarbons in known reservoirs. Domestically,
seismic drilling, helicopter support and survey services are typically
contracted to companies such as the Company, as geophysical companies have
found it more economical to outsource these services and focus their efforts
and capital on the acquisition and interpretation of seismic data.
DESCRIPTION OF OPERATIONS
The Company provides an integrated range of onshore seismic drilling,
helicopter support and survey services to geophysical companies operating in
logistically difficult and environmentally sensitive terrain in the United
States.
SEISMIC DRILLING SERVICES. The Company's primary activity is the
drilling and loading of source points for seismic analysis. Once the various
source points have been plotted by the geophysical company and a survey crew
has marked their locations, drill crews are deployed to drill and load the
source points.
In the Transition Zone, the Company uses water pressure rotary drills
mounted on various types of vehicles to drill the source holes. The type of
vehicle used is determined by the nature, accessibility and environmental
sensitivity of the terrain surrounding the source point. Transition Zone
source holes are generally drilled to depths of 40-180 feet depending on the
nature of the terrain and the needs of the geophysical company, using ten-foot
sections of drill pipe which are carried with the drilling unit. The Company's
Transition Zone vehicles are typically manned with a driver and one or two
helpers. The driver is responsible for maneuvering the vehicle into position
and operating the drilling unit, while the helper sets and guides the drill
into position, attaches the drilling unit's water source, if drilling in dry
areas, and loads the drill pipe sections used in the drilling process. Once
the hole has been drilled to the desired depth, it is loaded with dynamite,
which is carried onboard the Company's vehicles in special containers. The
explosive charge is set at the bottom of the drill hole and then tested to
ensure that the connection has remained intact. Once the charge has been
tested, the hole is plugged in accordance with local, state and federal
regulations and marked so that it can be identified for detonation by the
geophysical company at a later date. This process is repeated throughout the
survey area until all source points have been drilled and loaded.
In seismic rock drilling, the Company uses compressed air rotary/hammer
drills to drill holes that are typically shallower than Transition Zone holes.
Rock drills are manned by a two- or three-man crew and are transported to and
from locations by hand, surface vehicle or helicopter. Once the hole has been
drilled to the desired depth, it is loaded with explosives which are delivered
to the job site in an explosive magazine carried by hand, vehicle or
helicopter.
HELICOPTER SUPPORT SERVICES. Through its Aviation division, created upon
the acquisition of substantially all of the assets of American Aviation
Incorporated ("American Aviation") in July 1997, the Company provides
helicopter support services to geophysical companies in the Transition Zone and
elsewhere. The Company uses long-line helicopters to shuttle geophones and
recorders used to collect seismic data between receiving points. Once seismic
data has been acquired from a portion of the project site, the geophones and
recorders must be moved into position to collect data from the next area to be
analyzed. By using helicopters, the Company is able to reduce delays in
completing stages of a seismic project by transporting the geophones and
recording boxes to the next receiving points in the survey area in an efficient
manner and with minimal environmental impact. Helicopters are also used to
transport heli-portable drilling units into remote or otherwise inaccessible
terrain in an efficient and environmentally sensitive manner.
The Company operates 24 helicopters, 20 of which are owned and four of
which are leased by the Company. The Company's pilots have an average of over
10,000 flight hours each. The Company performs all routine maintenance and
repairs on its Transition Zone-based aircraft at its facilities in Carencro,
Louisiana.
SURVEY SERVICES. Once all permits and landowner consents for a seismic
project have been obtained and the geophysical company has determined the
placement of source and receiving points, survey crews are sent into the field
to plot each source and receiving point prior to drilling. The Company employs
both GPS (global positioning satellite) equipment, which is more efficient for
surveying in open areas, and conventional survey equipment, which is generally
used to survey wooded areas. The Company has successfully integrated both
types of equipment in order to complete projects throughout the varied terrain
of the Transition Zone and elsewhere. In addition, the Company's survey crews
have access to the Company's extensive fleet of specialized transportation
equipment, as opposed to most other survey companies which must rent this
equipment.
The Company currently has 15 survey crews devoted primarily to the
seismic survey market in the Transition Zone. Most of the Company's survey
personnel have significant experience in land surveying, with a large
percentage of those years having been spent in Transition Zone surveying.
INTERNATIONAL OPERATIONS. The Company commenced line cutting and survey
services in South America in July 1998, in conjunction with the formation of
its joint venture, OMNI International Energy Services - South America, Ltd.
The Company expects to market other of its services in selected South American
countries in the future.
FABRICATION AND MAINTENANCE. At its Carencro facilities, the Company
performs all routine repairs and maintenance for its Transition Zone equipment.
The Company designs and fabricates aluminum marsh ATVs, a number of its support
boats and pontoon boats, and the drilling units it uses on all its Transition
Zone equipment. The Company purchases airboats directly from the manufacturer
and then modifies the airboats to install the drilling equipment. The Company
has also designed and built a limited number of highland drilling units by
installing its drilling equipment on tractors bought directly from the
manufacturer. The Company also fabricates rock drilling equipment and has the
capability to fabricate other key equipment, such as swamp ATVs. Because of
its ability to fabricate and maintain much of its equipment, the Company does
not believe that it is dependent on any one supplier for its drilling equipment
or parts.
FACILITIES AND EQUIPMENT
FACILITIES. In early 1998, the Company completed the construction of two
new buildings which now house its corporate headquarters, fabrication facility
and primary maintenance facility. The buildings are located on approximately
34 acres of land owned by the Company in Carencro, Louisiana. The new
buildings provide approximately 20,000 square feet of office space and 32,000
square feet of covered maintenance and fabrication space. During 1998, the
Company purchased two additional buildings adjacent to its main headquarters
from an affiliate for $500,000. The buildings provide approximately 2,500
square feet of office space and 19,000 square feet of covered maintenance,
fabrication and warehouse space. The Company uses these adjacent buildings for
the storage and maintenance of a portion of its helicopter and survey assets.
The Company leases an operations base in Loveland, Colorado to support
its rock drilling operations and owns an office and warehouse facility in Santa
Cruz, Bolivia.
TRANSITION ZONE TRANSPORTATION AND DRILLING EQUIPMENT. Because of the
varied terrain throughout the Transition Zone and the prevalence of
environmentally sensitive areas, the Company employs a wide variety of drilling
vehicles. Management believes that it is the only company currently operating
in the Transition Zone that owns and operates all of the following types of
equipment:
<TABLE>
<CAPTION>
Number of
units as of
TYPES OF EQUIPMENT DECEMBER 31,1998
------------------ ----------------
<S> <C>
Highland Drilling Units 70(1)
Water Buggies 28
Aluminum Marsh ATVs 12
Steel Marsh ATVs 11(2)
Airboat Drilling Units 30
Swamp ATVs 25
Pullboats 22
Pontoon Boats 12
Skid-Mounted Drilling Units 36
</TABLE>
(1) Thirty-five of these drilling units are currently dedicated to seismic
rock drilling operations outside of the Transition Zone.
(2) Eight of these drilling units are currently being held for sale by the
Company.
<PAGE>
Because of its extensive fleet of Transition Zone transportation and
seismic drilling equipment, much of which is fabricated by the Company, the
Company believes that it is the only company that currently can both provide an
integrated range of seismic drilling, helicopter support and survey services in
all of the varied terrains of the Transition Zone and simultaneously support
operations for multiple, large-scale seismic projects.
HIGHLAND DRILLING UNITS AND WATER BUGGIES. The Company owns and operates
70 highland drilling units for seismic drilling in dry land areas, 35 of which
are currently dedicated to the Company's seismic rock drilling operations
outside of the Transition Zone. These units generally consist of a tractor-
like vehicle with a drilling unit mounted on the rear of the vehicle. A
highland drilling unit can be driven over land from point to point and is
accompanied by a unit referred to as a "water buggy" that carries water
required for water pressure rotary drills. This type of vehicle is used around
the world for this type of terrain.
MARSH ATVS. The environmentally sensitive wetlands along the U.S. Gulf
Coast containing water grasses on dry land and in shallow water and areas mixed
with open water are referred to as marsh areas. When there is a minimum amount
of water in these areas, marsh ATVs, which are amphibious vehicles supported by
pontoons that are surrounded by tracks, are used to provide seismic drilling
services. The pontoons enable the marsh ATV to float while the tracks propel
the vehicle through the water and over dry marsh areas. Each marsh ATV is
equipped with a drilling unit and a small backhoe for digging a small hole to
collect water necessary for drilling.
Some marsh areas have sufficient surrounding water to support drilling
without an external water source, but often water must be pumped into the area
from a remote water source or a portable supply must be carried by the marsh
ATV.
The Company owns and operates 23 marsh ATVs, of which 11 are made of
stainless steel and 12 are made of aluminum. Eight of the stainless steel
marsh ATV's are being held for sale. The aluminum ATVs are lighter than steel
vehicles and are specifically designed for the environmentally sensitive areas
typically found in marsh terrain. Often landowner consents will require the
use of aluminum ATVs in an effort to reduce the environmental impact of seismic
drilling. The aluminum marsh ATV is the most widely accepted marsh vehicle for
drilling operations in all Louisiana state and federal refuges. The Company
fabricates its own aluminum marsh ATVs at its facilities in Carencro,
Louisiana.
AIRBOAT DRILLING UNITS. The Company owns and operates 30 airboat
drilling units. An airboat drilling unit consists of a drilling unit
fabricated and installed by the Company on a large, three-engine airboat.
Because of their better mobility, airboat drilling units are used in shallow
waters and all marsh areas where sufficient water is present.
SWAMP ATVS AND PULLBOATS. Wooded lowland areas typically covered with
water are referred to as the "swamp areas" of the Transition Zone. The
Company's swamp ATVs are used to provide drilling services in these areas.
Swamp ATVs are smaller, narrower versions of the marsh ATVs. The smaller unit
is needed in swamp areas due to the dense vegetation typical in the terrain.
Because of its smaller size, the swamp ATV uses a skid-mounted drilling unit
installed in a pullboat, a non-motorized craft towed behind the swamp ATV. The
Company owns and operates 25 swamp ATVs and 22 pullboats. Swamp ATVs are also
used in connection with survey operations in swamp areas.
PONTOON BOATS. The Company owns and operates 12 pontoon boats that are
used in shallow or protected inland bays and lakes and shallow coastal waters.
Each pontoon boat uses a skid-mounted drilling unit installed on board.
JACK-UP RIGS. When a seismic survey requires source points to be drilled
in deeper inland bays or lakes or in deeper coastal waters, the Company
utilizes jack-up rigs equipped with one of the Company's skid-mounted drilling
units. Seismic activity in water deeper than approximately 20 feet is
generally conducted by using offshore seismic techniques that do not include
the drilling and loading of source points.
SKID-MOUNTED DRILLING UNITS. A skid-mounted drilling unit is a drilling
unit mounted on I-beam supports, which allows the drilling unit to be moved
easily between pullboats, pontoon boats, jack-up rigs and other Company-
operated equipment based on customer needs. The Company manufactures its skid-
mounted drilling units at its facilities in Carencro, Louisiana and owns 37 of
these units, one of which is located outside of the Transition Zone.
MISCELLANEOUS. The Company owns and operates 104 single engine airboats
and 24 outboard powered boats, which it uses to ferry personnel and supplies to
locations throughout the Transition Zone. The Company also maintains a fleet
of nine tractor-trailer trucks and numerous other trucks, trailers and vehicles
to move its equipment and personnel to projects throughout the Transition Zone.
<PAGE>
HELI-PORTABLE AND SEISMIC ROCK DRILLING EQUIPMENT. The Company has 50
heli-portable and man-portable drilling units and 35 highland drilling units
dedicated to seismic rock drilling. The Company also has the ability to
manufacture its own heli-portable and man-portable seismic rock drilling units,
and often exports and provides servicing of heli-portable and man-portable
drilling units.
AVIATION EQUIPMENT. The following table sets forth the type and number
of helicopters that are operated by the Company's Aviation division:
<TABLE>
<CAPTION>
Number of Aircraft
HELICOPTERS AS OF DECEMBER 31, 1998
----------- -----------------------
<S> <C>
Bell Long Ranger 206-L-3 2
Bell Jet Ranger 206 B-III(1) 9
Hughes MD-500(1) 9
Bell 407(2) 1
Bell B-47 G3 1
Hughes MD-530 2
</TABLE>
(1) Three of the Bell Jet Ranger 206 B-IIIs and one Hughes MD-500 are leased
by the Company.
(2) The Bell 407 is currently configured for heli-portable operations.
MATERIALS AND EQUIPMENT
The principal materials and equipment used by the Company in its
operations, which include drills, heli-portable and man-portable drills, drill
casings, drill bits, engines, gasoline and diesel fuel, dynamite, aluminum and
steel plate, welding gasses, aviation fuel, trucks and other vehicles, are
currently in adequate supply from many sources. The Company does not depend
upon any single supplier or source for such materials.
SAFETY AND QUALITY ASSURANCE
The Company maintains a stringent safety assurance program to reduce the
possibility of costly accidents. The Company's health, safety and
environmental "HSE" department establishes guidelines to ensure compliance with
all applicable state and federal safety regulations and provides training and
safety education through orientations for new employees, which include first
aid and CPR training. The Company's Vice President of Health, Safety,
Environment & Training reports directly to the Company's Chairman and
supervises six HSE field advisors and two instructors who provide OSHA-mandated
training. The Company believes that its safety program and commitment to
quality are vital to attracting and retaining customers and employees.
Each drilling crew is supervised at the project site by a field
supervisor and, depending on the project's requirements, an assistant
supervisor and powderman who is in charge of all explosives. For large
projects or when required by a customer, a separate advisor from the Company's
HSE department is also located at the project site. Management is provided
with daily updates for each project and believes that its daily review of field
performance together with the on-site presence of supervisory personnel helps
ensure high quality performance for all of its projects.
All Company pilots are trained to FAA FAR 135 (non-scheduled commercial
passenger) or 133 (external load) standards and must satisfy annual FAA check-
rides. Licensed maintenance personnel are deployed to each project site at
which aircraft are used.
CUSTOMERS; MARKETING; CONTRACTING
CUSTOMERS. The Company's customers are primarily geophysical companies,
although in many cases the oil and gas company participates in determining
which drilling, survey or aviation company will be used on its seismic
projects. A large portion of the Company's revenue has historically been
generated by a few customers. For example, the Company's largest customers
(those which individually accounted for more than 10% of revenue in a given
year, listed alphabetically) collectively accounted for 70% (Eagle Geophysical,
Grant Geophysical, Universal Seismic and Western Geophysical), 40% (Eagle
Geophysical and Western Geophysical), and 63% (Eagle Geophysical, Grant
Geophysical and Western Geophysical) of revenue for fiscal 1996, 1997 and 1998,
respectively.
<PAGE>
MARKETING. The Company's services traditionally have been marketed by the
Company's principal executive officers, in particular, Messrs. Jeansonne,
Woodard and Nash. The Company believes that this marketing approach helps the
Company preserve long-term relationships established by the Company's executive
officers. As the Company's geographical and service capabilities expand, the
Company intends to continue implementing its marketing efforts in the
Transition Zone from its principal offices in Carencro, Louisiana and in the
Rocky Mountain region from Loveland, Colorado.
CONTRACTING - SEISMIC DRILLING. The Company generally contracts for
seismic drilling services with its customers on a unit-price basis, either on a
per hole or per foot basis. These contracts are often awarded after a
competitive bidding process. The Company prices its contracts based on
detailed project specifications provided by the customer, including the number,
location and depth of source holes and the project's completion schedule. As a
result, the Company is generally able to make a relatively accurate
determination prior to pricing a contract of the type and amount of equipment
required to complete the contract on schedule.
Because of unit-price contracting, the Company frequently bears the risk
of production delays that are beyond its control, such as those caused by
adverse weather. The Company often bills the customer standby charges if the
Company's operations are delayed due to delays in permitting or surveying or
for other reasons within the geophysical company's control.
CONTRACTING - HELICOPTER SUPPORT SERVICES. The Company's aircraft are
chartered on an hourly rate basis, with a guaranteed minimum number of hours
per day. The Company primarily provides aviation services in connection with
projects for which the Company also provides seismic drilling services, and
also charters its aircraft to customers for use with other seismic projects.
CONTRACTING - SURVEY SERVICES. The Company contracts for seismic survey
services with its customers on a day rate or per mile basis. Under the per
mile basis, revenue is recognized when the source or receiving point is marked
by one of the Company's survey crews. Contracts are often awarded to the
Company only after competitive bidding. In each case, the price is determined
by the Company after it has taken into account such factors as the number of
surveyors and other employees, the type of terrain and transportation
equipment, and the precision required for the project based on detailed project
specifications provided by the customer.
COMPETITION
SEISMIC DRILLING SERVICES. The principal competitive factors for seismic
drilling services are price and the ability to meet customer schedules,
although other factors including safety, capability, reputation and
environmental sensitivity are also considered by customers. The Company has
numerous competitors in the Transition Zone and in particular in the highland
areas in which it operates. Management believes that no other company
operating in the Transition Zone owns a fleet of Transition Zone seismic
drilling equipment as varied or as large as that operated by the Company. The
Company's extensive and diverse equipment base allows it to provide drilling
services to its customers throughout the Transition Zone with the most
efficient and environmentally appropriate equipment. The Company believes
there are numerous competitors offering rock and heli-portable drilling in the
Rocky Mountain region and internationally.
HELICOPTER SUPPORT SERVICES. The Company has numerous competitors that
provide helicopter support services to geophysical companies operating in the
Transition Zone; however, none of these competitors currently provides long-
line helicopter services with a comparable number of aircraft. In addition,
the Company believes that it is the only company offering both seismic drilling
and long-line support services in the Transition Zone. The Company believes
that there are numerous companies offering helicopter services in rock drilling
and other mountain areas, as well as internationally. All of these companies
have greater experience in these areas and several operate more aircraft than
the Company in these areas.
SURVEY SERVICES. The Company's competitors include a number of
established companies with a comparable number of crews to the Company and
numerous smaller companies.
SEASONALITY AND WEATHER RISKS
The Company's operations are subject to seasonal variations in weather
conditions and daylight hours. Since the Company's activities take place
outdoors, the average number of hours worked per day, and therefore the
number of holes drilled or surveyed per day, generally is less 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. Operations may also be affected by
the rainy weather, lightning, hurricanes and other storms prevalent along the
Gulf Coast throughout the year and by seasonal climatic conditions in the
Rocky Mountain area. In addition, prolonged periods of dry weather result in
slower drill rates in marsh and swamp areas as water in the quantities needed
to drill is more difficult to obtain and equipment movement is impeded.
Adverse weather conditions and dry weather can also increase maintenance
costs for the Company's equipment and decrease the number of vehicles
available for operations.
BACKLOG
The Company's backlog represents those seismic drilling and survey
projects for which a customer has hired the Company and has scheduled a start
date for the project. Projects currently included in the Company's backlog are
subject to termination or delay without penalty at the option of the customer,
which could substantially reduce the amount of backlog currently reported.
As of December 31, 1998, the Company's backlog was approximately $34.0
million compared to $70.0 million at December 31, 1997. Backlog at December
31, 1998 includes seismic drilling projects in the Transition Zone in addition
to survey projects and seismic rock drilling projects. The Company's aviation
division historically has not measured backlog due to the nature of its
business.
GOVERNMENTAL REGULATION
The Company's operations and properties are subject to and affected by
various types of governmental regulation, including laws and regulations
governing the entry into and restoration of wetlands, the handling of
explosives, the operation of commercial aircraft and numerous other federal,
state and local laws and regulations. To date the Company's cost of complying
with such laws and regulations has not been material, but because such laws and
regulations are changed frequently, it is not possible for the Company to
accurately predict the cost or impact of such laws and regulations on its
future operations.
Furthermore, the Company depends on the demand for its services by the
oil and gas industry and is affected by tax legislation, price controls and
other laws and regulations relating to the oil and gas industry generally. The
adoption of laws and regulations curtailing exploration and development
drilling for oil and gas in the Company's areas of operations for economic,
environmental or other policy reasons would adversely affect the Company's
operations by limiting demand for its services. The Company cannot determine
to what extent its future operations and earnings may be affected by new
legislation, new regulations or changes in existing regulations.
AVIATION. As a commercial operator of small aircraft, the Company is
subject to regulations pursuant to the Federal Aviation Administration
Authorization Act of 1994, as amended (the "Federal Aviation Act"), and other
statutes. The FAA regulates the flight operations of the Company, and in this
respect, exercises jurisdiction over personnel, aircraft, ground facilities and
other aspects of the Company's operations.
The Company carries persons and property in its aircraft pursuant to
authority granted by the FAA. Under the Federal Aviation Act it is unlawful to
operate certain aircraft for hire within the United States unless such aircraft
are registered with the FAA and the operator of such aircraft has been issued
an operating certificate by the FAA. The Company has all FAA certificates
required to conduct its helicopter and aviation operations, and all of its
aircraft are registered with the FAA.
As a general rule, aircraft may be registered under the Federal Aviation
Act only if the aircraft is owned or controlled by one or more citizens of the
United States and operated pursuant to an operating certificate, which may be
granted only to a citizen of the United States. For purposes of these
requirements, a corporation is deemed to be a citizen of the United States only
if, among other things, at least 75% of the voting interest therein is owned or
controlled by United States citizens. In the event that persons other than
United States citizens should come to own or control more than 25% of the
voting interest in the Company, the Company has been advised that its aircraft
may be subject to deregistration under the Federal Aviation Act and loss of the
privilege of operating within the United States. The Company's Articles of
Incorporation and bylaws include provisions that are designed to ensure
compliance with this requirement.
EXPLOSIVES. Because the Company loads the holes that it drills with
dynamite, the Company is subject to various local, state and federal laws and
regulations concerning the handling and storage of explosives and is
specifically regulated by the Bureau of Alcohol, Tobacco and Firearms of the
U.S. Department of Justice. The Company must take daily inventories of the
dynamite and blasting caps that it keeps for its seismic drilling and is
subject to random checks by state and federal officials. The Company is
licensed by the Louisiana State Police as an explosives handler. Any loss or
suspension of these licenses would result in a material adverse effect on the
Company's results of operations and financial condition. The Company believes
that it is in compliance with all material laws and regulations with respect to
its handling and storage of explosives.
ENVIRONMENTAL. The Company's operations and properties are subject to a
wide variety of increasingly complex and stringent federal, state and local
environmental laws and regulations, including those governing discharges into
the air and water, the handling and disposal of solid and hazardous wastes, the
remediation of soil and groundwater contaminated by hazardous substances and
the health and safety of employees. In addition, certain areas where the
Company operates are federally-protected or state-protected wetlands or refuges
where environmental regulation is particularly strict. These laws may provide
for "strict liability" for damages to natural resources and threats to public
health and safety, rendering a party liable for environmental damage without
regard to negligence or fault on the part of such party. Sanctions for
noncompliance may include revocation of permits, corrective action orders,
administrative or civil penalties and criminal prosecution. Certain
environmental laws provide for strict, joint and several liability for
remediation of spills and other releases of hazardous substances, as well as
damage to natural resources. In addition, the Company may be subject to claims
alleging personal injury or property damage as a result of alleged exposure to
hazardous substances. Such laws and regulations may also expose the Company to
liability for the conduct of, or conditions caused by, others, or for acts of
the Company that were in compliance with all applicable laws at the time such
acts were performed.
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, and similar laws provide for responses to and liability
for releases of hazardous substances into the environment. Additionally, the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
the Safe Drinking Water Act, the Emergency Planning and Community Right to Know
Act, each as amended, and similar state or local counterparts to these federal
laws, regulate air emissions, water discharges, hazardous substances and
wastes, and require public disclosure related to the use of various hazardous
substances. Compliance with such environmental laws and regulations may
require the acquisition of permits or other authorizations for certain
activities and compliance with various standards or procedural requirements.
The Company believes that its facilities are in substantial compliance with
current regulatory standards.
WORKER SAFETY. The Company's operations are governed by laws and
regulations relating to workplace safety and worker health, primarily the
Occupational Safety and Health Act and regulations promulgated thereunder. In
addition, various other governmental and quasi-governmental agencies require
the Company to obtain certain permits, licenses and certificates with respect
to its operations. The kind of permits, licenses and certificates required in
the Company's operations depend upon a number of factors. The Company believes
that it has all permits, licenses and certificates necessary to the conduct of
its existing business.
INSURANCE
The Company's operations are subject to the inherent risks of inland
marine activity, aviation services, heavy equipment operations and the
transporting and handling of explosives, including accidents resulting in
personal injury, the loss of life or property, environmental mishaps,
mechanical failures and collisions. The Company maintains insurance coverage
against certain of these risks, which management believes are reasonable and
customary in the industry. The Company also maintains insurance coverage
against property damage caused by fire, flood, explosion and similar
catastrophic events that may result in physical damage or destruction to the
Company's equipment or facilities. All policies are subject to deductibles and
other coverage limitations. The Company believes its insurance coverage is
adequate. Historically, the Company has not experienced an insured loss in
excess of its policy limits; however, there can be no assurance that the
Company will be able to maintain adequate insurance at rates which management
considers commercially reasonable, nor can there be any assurance such coverage
will be adequate to cover all claims that may arise.
EMPLOYEES
As of December 31, 1998, the Company had approximately 495 employees,
including approximately 388 operating personnel and 107 corporate,
administrative and management personnel. These employees are not unionized or
employed pursuant to any collective bargaining agreement or any similar
agreement. The Company believes its relations with its employees are generally
good.
<PAGE>
ACQUISITIONS
Since the beginning of 1997, the Company has completed several
acquisitions designed to expand the scope and size of its operations. These
acquisitions substantially increased the Company's survey operations and marked
its entry into the helicopter seismic support and seismic rock drilling
markets. The following table sets forth certain information with respect to
these acquisitions:
<TABLE>
<CAPTION>
Effective Date Seismic Support
Name of Acquired Company of Acquisition Services
- ------------------------ -------------- ---------------
<S> <C> <C>
Delta Surveys, Inc. March 21, 1997 Survey
American Aviation Incorporated July 1, 1997 Helicopter Support
Leonard J. Chauvin, Jr., Inc. July 1, 1997 Survey
O.T.H. Exploration Services, Inc. September 1, 1997 Seismic Rock Drilling
American Helicopter Drilling, Inc. October 1, 1997 Seismic Rock Drilling
Fournier & Associates, Inc. October 1, 1997 Survey
Eagle Survey International, Inc. April 1, 1998 Survey
Coastal Turbines, Inc. April 20, 1998 Helicopter Support
Hamilton Drill Tech, Inc. May 1, 1998 Seismic Rock Drilling
</TABLE>
In addition to these acquisitions, effective July 1, 1998, the Company
entered into a joint venture with Edwin Waldman Attie of Bolivia. The newly
formed joint venture company, OMNI International Energy Services - South
America, Ltd. will provide integrated seismic drilling, survey, aviation and
line-cutting services in selected South American markets.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal and other proceedings which are
incidental to the conduct of its business. The Company believes that none of
these proceedings, if adversely determined, would have a material effect on its
financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and offices held by each of the executive officers of the
Company as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David A. Jeansonne.......38..........Chairman of the Board
Robert F. Nash...........55..........President and Chief Executive Officer
Allen R. Woodard.........37..........Vice President-Marketing and Business
Development and Secretary
John H. Untereker........49..........Executive Vice President, Chief
Financial Officer and Treasurer
</TABLE>
DAVID A. JEANSONNE founded the Company in 1987 and has been Chairman of
the Board and Chief Executive Officer of the Company since its inception.
Effective March 1, 1999, Mr. Jeansonne resigned as Chief Executive Officer and
is currently operating as the Chairman of the Board. Mr. Jeansonne has also
been Chairman of the Board, President and Chief Executive Officer of American
Aviation, which he co-founded, since its inception in 1995. Mr. Jeansonne and
the Company have entered into an employment agreement, the term of which
expires in June 2003.
ROBERT F. NASH joined the Company in September 1998 as Executive Vice
President and Chief Operating Officer. Prior to joining the company, Mr. Nash
served in senior executive positions with Halliburton, during a 26 year tenure,
including senior vice president of global operations. He was appointed
President and Chief Executive Officer on March 1, 1999. Mr. Nash entered into
an employment agreement with the Company, the term of which expires March 2002.
He holds a B.S. degree in electrical engineering and is a member of PESA, SPE
and IADC.
ALLEN R. WOODARD has served as Vice President-Marketing & Business
Development and as a director of the Company and has held these positions from
July 1996 until his resignation effective April 1, 1999. He was an exploration
field inspector with The Louisiana Land & Exploration Company, a natural
resources company, from 1988 to 1996. Mr. Woodard is a professional land
surveyor and graduated from Nicholls State University in 1987 with a degree in
engineering technology. Mr. Woodard and the Company have entered into an
employment agreement, the term of which expires in July 1999.
JOHN H. UNTEREKER is Executive Vice President and Chief Financial Officer
and joined the Company in August 1998. Prior to that time, Mr. Untereker was
the senior financial officer at Petroleum Helicopters, Inc. He has held senior
management positions at Lend Lease Trucks, Inc. and NL Industries, Inc. Mr.
Untereker is a graduate of Williams College (B.A.), Iona College (MBA) and is a
CPA. He has entered into an employment agreement with the Company, the term of
which expires in August 2001.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The Company's Common Stock is listed for quotation on the Nasdaq
National Market under the symbol "OMNI". At March 19, 1999, the Company had 53
shareholders of record of Common Stock. The following table sets forth the
range of high and low bid prices of the Company's Common Stock as reported by
the Nasdaq National Market for the periods indicated since trading in the
Common Stock began on December 5, 1997.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
Fourth quarter (commencing December 5, 1997) $ 12 1/4 $ 9 1/8
1998
First quarter $ 12 7/8 $ 8 7/8
Second quarter $ 20 3/4 $ 11 1/2
Third quarter $ 15 1/2 $ 6 3/8
Fourth quarter $ 10 3/8 $ 3 5/8
1999
First quarter (through March 19, 1999) $ 5 15/16 $ 3 7/16
</TABLE>
The Company has never paid cash dividends on its Common Stock. The
Company intends to retain future earnings, if any, to meet its working capital
requirements and to finance the future operations of its business. Therefore,
the Company does not plan to declare or pay cash dividends to holders of its
Common Stock in the foreseeable future. In addition, certain of the Company's
credit arrangements contain provisions that limit the Company's ability to pay
cash dividends on its Common Stock.
SALES OF UNREGISTERED SECURITIES. In connection with the formation of
a joint venture with Edwin Waldman Attie to perform seismic support service in
South America effective July 1, 1998, the Company issued 155,947 shares of its
Common Stock to Mr. Attie in partial consideration for Mr. Waldman's
contribution of certain assets to the joint venture. These securities were
offered and sold without registration under the Securities Act of 1933, as
amended (the "Securities Act"), inasmuch as they were deemed not subject to
registration pursuant to the exception provided in Section 4(2) of the
Securities Act as securities sold in transactions not involving any public
offering.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data as of and for the years ended December 31,
1994 and 1995 and as of and for the 201-day period ended July 19, 1996 are
derived from the audited financial statements of OGC. The selected financial
data as of December 31, 1996, 1997 and 1998, and for the 165-day period ended
December 31, 1996 and the years ended December 31, 1997 and 1998 are derived
from the audited financial statements of the Company. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
and notes thereto included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------- -------------------------------------
201-day
period 165-day
ended period ended Year ended Year ended
July 19, December 31, December 31, December 31,
1994 1995 1996 1996 1997 1998
--------- --------- --------- --------- --------- ---------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenue........................ $ 7,268 $ 12,690 $ 10,017 $ 10,942 $ 49,591 $ 73,207
Operating expense(1)..................... 5,025 8,704 6,814 8,114 36,302 57,724
--------- --------- --------- --------- --------- ---------
Gross profit............................. 2,243 3,986 3,203 2,828 13,289 15,483
General and administrative expenses...... 1,079 1,791 789 1,050 5,122 13,226
Asset impairment and other charges....... --- --- --- --- --- 3,379
--------- --------- --------- --------- --------- ---------
Operating income (loss).................. 1,164 2,195 2,414 1,778 8,167 (1,122)
Interest expense(1)...................... 97 148 151 437 1,866 1,683
Other expense (income), net.............. (8) 7 6 (20) (37) (281)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item.................... 1,075 2,040 2,269 1,361 6,338 (2,524)
Income tax expense (benefit)............. --- --- --- --- 403 (706)
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item.. 1,075 2,040 2,269 1,361 5,935 (1,818)
Extraordinary expense from early
extinguishment of debt, net of tax.... --- --- --- --- 84 ---
--------- --------- --------- --------- --------- ---------
Income (loss) before minority interest... 1,075 2,040 2,269 1,361 5,851 (1,818)
Loss of minority interest................ --- --- --- --- --- (18)
--------- --------- --------- --------- --------- ---------
Net income (loss)........................ $ 1,075 $ 2,040 $ 2,269 $ 1,361 $ 5,851 $ (1,800)
========= ========= ========= ========= ========= =========
Earnings per share(5):
Basic $ 537.50 $ 1,020 $1,134.50 $ 0.13 $ 0.50 $ (0.11)
Diluted $ 537.50 $ 1,020 $1,134.50 $ 0.13 $ 0.50 $ (0.11)
Unaudited Pro Forma Data:
Income before income taxes and
extraordinary item, reported above....... $ 1,075 $ 2,040 $ 2,269 $ 1,361 $ 6,338
Pro forma interest expense (2)........... --- --- --- --- 345
Pro forma provision for income taxes(3).. 430 816 908 475 2,400
--------- --------- --------- --------- ---------
Pro forma net income..................... $ 645 $ 1,224 $ 1,361 $ 886 $ 3,593
========= ========= ========= ========= =========
Pro forma net income per common share.... $ 0.30
Number of shares used in per share =========
calculation:
Basic 2 2 2 10,708 11,733 15,850
Diluted 2 2 2 10,708 11,810 15,850
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1994 1995 1996(4) 1997 1998
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............................. $ 4,044 $ 5,429 $ 20,386 $ 74,913 $ 85,346
Long-term debt, less current maturities.. 434 341 10,574 14,558 14,371
</TABLE>
<PAGE>
- ----------------------------------
(1) The step-up to fair value of the assets acquired in the OGC Acquisition
resulted in increased depreciation reported by the Company, which is
included in operating expenses. In order to finance the OGC Acquisition,
the Company incurred additional indebtedness, which resulted in additional
interest expense.
(2) Reflects an increase in interest expense as a result of the incurrence of
indebtedness to finance the repurchase of outstanding preferred units of
OMNI Geophysical and the distribution to the members of OMNI Geophysical,
as if such event had occurred on January 1, 1997.
(3) Each of OGC, OMNI Geophysical and American Aviation was an S corporation
or a limited liability company exempt from income tax at the entity level,
and thus the historical financial statements prior to December 4, 1997
show no provision for income taxes. Effective December 4, 1997, the
Company became subject to income taxes at the corporate level. This pro
forma adjustment reflects a provision for income taxes on the Company's
net income at a combined federal and state tax rate of 40%.
(4) Includes the stepped-up fair value of the assets and liabilities purchased
in the OGC Acquisition.
(5) The weighted average number of shares of common stock for the Successor
periods in the table above, excluding the year ended December 31, 1998,
give effect to the Share Exchange discussed in Item 1.
-----------------------------------------------------
ITEM 7. 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 and analysis should be read in conjunction with the
Company's condensed consolidated financial statements and notes thereto.
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. During the last nine months, management has taken a number of
steps to reduce its capacity and related operating levels in response to the
recent sales levels.
RESULTS OF OPERATIONS
The following discussion provides information related to the results of
operations of the Company and OMNI Geophysical.
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Operating revenue............................ $ 49,591 $ 73,207
Operating expense............................ 36,302 57,724
--------- ---------
Gross profit................................. 13,289 15,483
General and administrative expenses.......... 5,122 13,226
Asset impairment and other charges........... --- 3,379
--------- ---------
Operating income (loss)...................... 8,167 (1,122)
Interest expense............................. 1,866 1,683
Other income................................. 37 281
--------- ---------
Income (loss) before income taxes and
extraordinary item........................ 6,338 (2,524)
Income tax expense (benefit)................. 403 (706)
--------- ---------
Income (loss) before extraordinary item...... 5,935 (1,818)
Extraordinary expense from early
extinguishment of debt, net of tax........ 84 ---
--------- ---------
Net income (loss), including minority interest 5,851 (1,818)
Loss of minority interest.................... --- (18)
--------- ---------
Net income (loss)............................ $ 5,851 $ (1,800)
========= =========
</TABLE>
Operating revenues increased 48%, or $23.6 million, from $49.6 million to
$73.2 million for the years ended December 31, 1997 and 1998, respectively.
This increase was due primarily to increased activity during the first six
months of the year. Operating revenues from the Company's drilling, aviation
and survey divisions increased by $7.7 million, $6.7 million and $8.0 million,
respectively, as compared to the year ended December 31, 1997. Total revenues
for the year ended 1998 were $48.8 million, $11.1 million and $12.1 million for
the drilling, aviation and survey divisions, respectively. The Company's South
American joint venture, completed effective July 1, 1998, produced revenues of
$1.2 million.
Operating expenses increased 59% to $57.7 million in 1998 from $36.3
million in 1997. Operating payroll increased 62%, or $9.6 million, to $25.1
million for the year ended December 31, 1998, due to a 43% increase in the
average number of employees, from 464 in the year ended December 31, 1997 to
665 in the year ended December 31, 1998. Contract services increased $2.9
million, from $1.4 million to $4.3 million for the years ended December 31,
1997 and 1998, respectively, primarily due to increased demand for surveyors
beyond the survey division's staff capabilities. Explosives expense increased
$0.6 million to $4.3 million for the year ended December 31, 1998 due to the
increase in drilling jobs during the year. Insurance expense was $1.9 million
for the year ended December 31, 1998, a 58% increase over December 31, 1997
expense of $1.2 million due to fleet additions in the aviation division and
increases in the number of personnel and vehicles. Repairs and maintenance
expense increased 98% to $9.1 million for the year ended December 31, 1998,
and, depreciation expense increased 96% to $4.5 million for the year ended
December 31, 1998. These increases of $4.5 million and $2.2 million for
repairs and maintenance and depreciation, respectively, are a result of
increases in the number and utilization of drilling, aviation and support
equipment. Rentals and lease expense increased $0.8 million to $2.4 million
for the year ended December 31, 1998 from $1.6 million for the year ended
December 31, 1997 primarily due to increases in vehicle leases resulting from
increased activity.
Gross profit increased $2.2 million, or 17%, from $13.3 million to $15.5
million for the years ended December 31, 1997 and 1998, respectively. Gross
margins fell from 27% in 1997 to 21% in 1998, as a result of the rapid growth
during the year related to increases in personnel and equipment and the
completion of nine acquisitions and a joint venture, beginning in 1997.
<PAGE>
General and administrative expenses increased $8.1 million from $5.1
million in the December 31, 1997 year to $13.2 million for the year ended
December 31, 1998. Increases in payroll, payroll taxes and insurance expenses
accounted for 44% of this growth as they increased to $6.3 million for the year
ended December 31, 1998 from $2.7 million for the year ended December 31, 1997.
This increase is primarily due to increases in executive management and other
personnel to meet the demands imposed by the rapid growth of the Company in
recent periods, many of which had been deferred as a private company. However,
due to the recent decline in the market environment, the Company has realized
a significant reduction in the workforce and has implemented a 45% decrease in
management payroll costs. These changes should result in an estimated $1.0
million in annual savings for 1999. Also, as a result of heightened activity
levels and of being a new public company, the Company recognized an increase of
$1.5 million in advertising, promotions, professional services and travel and
entertainment expenses from $0.7 million in December 31, 1997 to $2.2 million
in December 31, 1998. Supplies, utilities and communications expense increased
$0.7 million from $0.6 million to $1.3 million for the years ended December 31,
1997 and 1998, respectively, for the same reasons. Bad debt expense increased
$1.0 million to $1.2 million in December 31, 1998. Of this increase, $0.6
million is related to the evaluation of certain accounts receivable in the
third quarter of 1998. As a result of the acquisitions completed during 1997
and 1998, amortization expense increased $0.5 million, from $0.2 million to
$0.7 million, for the years ended December 31, 1997 and 1998, respectively.
Taxes and licenses expense was $0.2 million in 1998, due to franchise taxes.
Because of the status of OMNI Geophysical as an L.L.C., there was no related
expense for 1997.
In response to recent market conditions and the resultant decline in
certain asset utilization of the Company's equipment, the Company evaluated
certain of its assets for realizability. The related asset impairment charges
relate to a $1.8 million provision for fixed assets, primarily nine drilling
units which became impaired due primarily to reduced demand and environmental
impact factors which have restricted their future use; a $1.3 million write-off
of seismic data held for sale which became impaired due to recent price
declines; and a $0.6 million additional provision for uncollectible accounts
receivable.
In addition, in response to anticipated future market conditions, the
Company's senior management and 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
closing and relocation of certain of its operational facilities. Accordingly,
the Company has recorded an accrual of severance and lease exit costs of $0.3
million, and future related severance costs will be charged against this
reserve as they are incurred.
The $0.6 million provision for uncollectible accounts receivable is
reported in general and administrative expenses and the remaining charges are
reported as asset impairment and other charges in the accompanying Consolidated
Statements of Income.
Interest expense decreased 11%, or $0.2 million from $1.9 million for the
year ended December 31, 1997 to $1.7 million for the year ended December 31,
1998. This decrease was due to lower average interest rates on similar
weighted average debt outstanding.
Income tax expense was $0.4 million in 1997, compared to an income tax
benefit of $0.7 million in 1998.
THE COMBINED YEAR ENDED DECEMBER 31, 1996 (OGC 201-DAY PERIOD ENDED JULY
19, 1996 AND OMNI GEOPHYSICAL 165-DAY PERIOD ENDED DECEMBER 31, 1996) COMPARED
TO THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS OF DOLLARS)
OMNI Geophysical acquired substantially all of the assets and liabilities
of OGC in the OGC Acquisition on July 19, 1996. In order to provide
comparable historical periods for 1996, management has combined the results of
operations of OGC for the 201-day period ended July 19, 1996 with the
results of operations of OMNI Geophysical for the 165-day period ended
December 31, 1996.
<TABLE>
<CAPTION>
COMBINED
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
(unaudited)
<S> <C> <C>
Operating revenue....................... $ 20,959 $ 49,591
Operating expense....................... 14,928 36,302
--------- ---------
Gross profit............................ 6,031 13,289
General and administrative expenses..... 1,839 5,122
--------- ---------
Operating income........................ 4,192 8,167
Interest expense........................ 588 1,866
Other income............................ 26 37
--------- ---------
Income before income taxes and
extraordinary item................... 3,630 6,338
Income tax expense...................... - 403
--------- ---------
Income before extraordinary item........ 3,630 5,935
Extraordinary expense from early
extinguishment of debt, net of tax... - 84
--------- ---------
Net income.............................. $ 3,630 $ 5,851
========= =========
</TABLE>
<PAGE>
Operating revenues increased 136%, from $21.0 million for the year ended
December 31, 1996 to $49.6 million for the year ended December 31, 1997.
Internal growth resulting from the increase in industry demand for 3-D seismic
data in the Transition Zone accounted for approximately $17.0 million, or 59%,
of this increase. In order to meet this demand, the Company added 49 seismic
drilling units for use in the Transition Zone during 1997, a 79% increase from
the number of such units owned by the Company at the end of 1996. The
remaining increase was due to the increase in the Company's operations
resulting from the six acquisitions completed during 1997. These six
acquisitions broadened the Company's operations to include helicopter support
operations and survey services. In addition, the Company added the Rocky
Mountain region as a primary service area. The Company's aviation division
contributed approximately $4.4 million in revenues, while the Company's survey
and Rocky Mountain seismic drilling divisions generated revenues of $4.1
million and $3.1 million, respectively in 1997. The Company employed 308
employees for both field and administrative operations at December 31, 1996
compared to 602 at December 31, 1997, a 95% increase.
Operating expenses increased 144%, from $14.9 million in 1996 to $36.3
million in 1997, due to both internal growth of the Company's operations from
1996 to 1997 and the expanded scope of the Company's operations that resulted
from the acquisitions described above. Total payroll expense increased 135% in
1997, to $15.5 million from $6.6 million in 1996, due to the significant
increase in the size of the Company's workforce. Repairs and maintenance costs
were $4.6 million in 1997, a 130% increase over 1996 repairs and maintenance
costs of $2.0 million, primarily due to the increase in the number and
utilization of the Company's seismic drilling and transportation equipment.
Explosives costs increased 185% in 1997, to $3.7 million from $1.3 million in
1996, due to an increase in the number of projects for which the Company
provided explosives. Depreciation expense increased $1.3 million, or 130%,
from $1.0 million in 1996 to $2.3 million in 1997 due to the increased number
of seismic drilling and support equipment units owned by the Company, the
stepped-up basis in such units that resulted from the OGC Acquisition and the
addition of the aircraft acquired from American Aviation. Contract services
increased 180%, or $0.9 million, from $0.5 million in 1996 to $1.4 million in
1997, primarily due to the survey division's need for additional surveyors.
Increased operations resulting from increased demand for the Company's services
and the acquisitions led to an increase of $0.5 million, or 50%, in supplies
expense from $1.0 million in 1996 to $1.5 million in 1997. Rental and lease
expense also increased in 1997 to $1.6 million from $0.6 million in 1996. The
remaining increase in operating expenses was primarily related to the increase
in the size and scope of the Company's operations, including a $0.7 million, or
140%, increase in insurance expense and a $0.8 million, or 100%, increase in
fuel expense.
Gross profit increased $7.3 million, or 122%, from $6.0 million in 1996
to $13.3 million in 1997. Gross margins fell from 29% in 1996 to 27% in 1997.
This decline in the Company's margin was primarily due to the rapid expansion
of the Company's operations and the addition of new field crews.
General and administrative expenses increased 183%, or $3.3 million, from
$1.8 million in 1996 to $5.1 million in 1997, primarily due to increases in
office personnel to support the Company's expanded operations, payroll taxes
and insurance expense. These three items increased 145%, from $1.1 million in
1996 to $2.7 million in 1997. Additionally, other components of general and
administrative expenses, such as utilities, advertising, office, travel and
entertainment, rent and permits, increased 260%, from $0.5 million in 1996 to
$1.8 million in 1997. This increase was primarily due to the expansion of the
Company's facilities and operations. Professional services and bad debt
expense increased 100% from $0.2 million in 1996 to $0.4 million in 1997 due to
the increase in the Company's operations. Amortization of loan costs and
goodwill expense increased to $0.3 million in 1997 as a result of the
acquisitions completed in 1997. General and administrative expenses as a
percentage of revenue were 10% and 9% in 1997 and 1996, respectively.
Interest expense increased $1.3 million, or 217%, from $0.6 million in
1996 to $1.9 million in 1997, due to increased borrowings used to fund the six
acquisitions completed during 1997 and the acquisition of additional drilling
units, support equipment and helicopters.
Income tax expense was $0.4 million in 1997. On December 4, 1997, the
Company converted from a non-taxable entity to a taxable entity and thus became
subject to federal and state income taxation. Prior to this conversion, the
Company had been treated as a partnership for income tax purposes and,
accordingly, no provision for income taxes had been made. Income tax expense
for 1997 is not indicative of future income tax expense as the Company was
subject to income taxation for less than one month.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had approximately $3.3 million in cash
compared to approximately $8.7 million at December 31, 1997. The Company had
working capital of approximately $5.7 million at December 31, 1998 compared to
approximately $11.5 million at December 31, 1997. The decrease in working
capital was due primarily to higher than normal levels of cash at December 31,
1997 as a result of the completion of its initial public offering of common
stock in December 1997. Cash generated from operations was $6.1 million for
the year ended December 31, 1998 compared to $4.9 million for the year ended
December 31, 1997.
The Company's primary credit facility is with Hibernia National Bank (the
"Hibernia Facility"). The Hibernia Facility provided the Company with an
$11.0 million term loan, a $10.0 million revolving line of credit to finance
working capital requirements and a $9.0 million line of credit to finance
capital expenditures and acquisitions. The loans under the Hibernia Facility
bear interest at LIBOR plus an applicable margin (currently 2.0%) which is
calculated quarterly and is based on the Company's ratio of average funded debt
to earnings before interest, taxes and depreciation and amortization. The
applicable margin can range from 1.25% to 2.25%. The Hibernia Facility has a
final maturity of January 20, 2000, is required to be guaranteed by all
of the Company's subsidiaries, requires the Company to maintain certain
financial ratios, imposes certain limitations on the Company's ability to pay
cash dividends and is collateralized by a mortgage on the Company's land and
buildings and by substantially all of the Company's assets not used as
collateral for the CIT Loans, as defined below. As of February 28, 1999,
the Company had approximately $18.1 million outstanding under the Hibernia
Facility.
On October 30, 1998, the Hibernia Facility was amended to provide the
Company with a $6.6 million bridge loan. This loan bears interest at LIBOR
plus an applicable margin, ranging from 1.25% to 2.25% (currently 2.0%) and
has a maturity date of April 28, 1999. As of February 28, 1999, the Company
had approximately $2.6 million outstanding under this loan.
As of February 28, 1999, the Company also had approximately $8.9 million
in other loans outstanding, the majority of which (approximately $4.6 million)
are 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 $3.3 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 were
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 February 28, 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.
As of December 31, 1998, the Company was in violation of certain of its
covenants under these agreements. During March 1999, these violations were
waived by Hibernia and CIT and certain terms of the loan agreements with
Hibernia were restructured. The most significant of these terms involved the
requirement to repay $10.0 million on or before July 15, 1999 and the revision
of certain of the financial covenants. The Company intends on extending the
maturities of all of its indebtedness under the Hibernia Facility, 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, although there can be no assurance.
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.
As of February 28, 1999, remaining indebtedness includes: (i) $80,000
owed to Delta Surveys, Inc. (8.5% interest rate; March 31, 2000 maturity date),
(ii) $75,000 incurred in connection with the formation of OMNI Geophysical
(March 1, 2001 maturity date), and (iii) approximately $1,600,000 owed to
finance and insurance companies incurred to finance certain of the Company's
insurance premiums.
Historically, the Company's capital requirements have primarily related
to the purchase or fabrication of new seismic drilling equipment and related
support equipment, the purchase of helicopters and business acquisitions. The
Company made capital expenditures of approximately $24.2 million to purchase or
construct new assets during the year ended December 31, 1998, including $2.2
million in cash and stock for the acquisition of Eagle Surveys International,
Inc., $1.2 million in cash and stock for the acquisition of Coastal Turbines,
Inc., $0.9 million in cash for the acquisition of Hamilton Drill Tech, Inc. and
$4.3 million in cash, stock and equipment for the Bolivian joint venture, $9.1
million for drilling and support equipment, $0.9 million for survey and support
equipment, $4.6 million for helicopters and aviation support equipment, and
$1.0 million for the expansion of corporate headquarters.
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 second 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15, 1999. Management believes the implementation of this
statement will not have a material effect on its results of operations or
financial statement disclosures.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company is exposed to interest rate risk due to changes in interest
rates, primarily in the United States. The Company's policy is to manage
interest rates through the use of a combination of fixed and floating rate
debt. The Company currently does not use any derivative financial instruments
to manage its exposure to interest rate risk. The table below provides
information about the Company's future maturities of principal for outstanding
debt instruments and fair value at December 31, 1998. All instruments
described are non-trading instruments.
<TABLE>
<CAPTION>
Dollars in thousands 1999 2000 2001 2002 2003
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Long-term debt
Fixed Rate 263 276 44 --- ---
Average interest rate 6.8% 6.8% 6.0%
Variable Rate 5,543 12,608 1,148 295 ---
Average interest rate 7.9% 7.6% 8.7% 8.2%
Short-term debt
Fixed Rate 1,472 --- --- --- ---
Average interest rate 2.9% --- --- --- ---
Variable Rate 2,639 --- --- --- ---
Average interest rate 7.3% --- --- --- ---
</TABLE>
FOREIGN CURRENCY RISKS
Although the majority of the Company's transactions are in U.S. dollars,
the Company does have one subsidiary which conducts its operations in Canadian
dollars. Currently, the South American joint venture transacts all of its
activity in U.S. dollars. The Company currently does not use any off-balance
sheet hedging instruments to manage its risks associated with its operating
activities conducted in Canada. Currently, the Company's operations in Canada
are not significant to the consolidated operations of the Company, and the
Canadian dollar is not considered to be highly inflationary.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements PAGE
----
Report of Independent Public Accountants................................... 22
Consolidated Balance Sheets as of December 31, 1997 and 1998............... 23
Consolidated Statements of Income for the 201-day Period Ended
July 19, 1996, the 165-day Period Ended December 31, 1996,
and for the Years Ended December 31, 1997 and 1998................... 25
Consolidated Statements of Changes in Equity for the 201-day Period
Ended July 19, 1996, the 165-day Period Ended December 31, 1996,
and for the Years Ended December 31, 1997 and 1998................... 26
Consolidated Statements of Cash Flows for the 201-day Period Ended
July 19, 1996, the 165-day Period Ended December 31, 1996,
and for the Years Ended December 31, 1997 and 1998................... 27
Notes to Financial Statements.............................................. 28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of OMNI Energy Services Corp.:
We have audited the accompanying consolidated balance sheets of OMNI Energy
Services Corp. and subsidiaries (a Louisiana corporation, the "Company"),
formerly OMNI Geophysical, L.L.C. and successor to OMNI Geophysical Corporation
("Predecessor") as of December 31, 1998 and 1997, and the related consolidated
statements of income, cash flows and changes in equity for the years ended
December 31, 1998 and 1997 and the 165-day period ended December 31, 1996. In
addition, we have audited the consolidated statements of income, cash flows and
changes in equity for the 201-day period ended July 19, 1996 of Predecessor.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, (a) the financial position of OMNI Energy Services Corp.
and subsidiaries as of December 31, 1998 and 1997 and the results of its
operations and cash flows for the years ended December 31, 1998 and 1997 and
the 165-day period ended December 31, 1996 and (b) the results of operations
and cash flows for OMNI Geophysical Corporation for the 201-day period ended
July 19, 1996, all in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana,
February 11, 1999
<PAGE>
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1997 1998
- ------ ----------- -----------
(Thousands of Dollars)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,723 $ 3,333
Accounts receivable, net 11,958 9,691
Deferred tax asset 212 851
Parts and supplies inventory 2,988 6,113
Prepaid expenses and other 1,753 3,216
-------- --------
Total current assets 25,634 23,204
-------- --------
PROPERTY AND EQUIPMENT:
Land 359 1,209
Building and improvements 3,949 5,542
Drilling, field and support equipment 21,940 28,383
Shop equipment 408 1,140
Office equipment 582 1,443
Aircraft 9,266 10,592
Vehicles 3,448 3,956
Construction in progress 800 572
-------- --------
40,752 52,837
Less: accumulated depreciation 2,909 6,596
-------- --------
Total property and equipment, net 37,843 46,241
-------- --------
OTHER ASSETS:
Goodwill, net 10,680 15,406
Other 756 495
-------- --------
Total other assets 11,436 15,901
-------- --------
Total assets $ 74,913 $ 85,346
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
December 31, December 31,
LIABILITIES AND EQUITY 1997 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,713 $ 9,917
Accounts payable 5,998 6,276
Accrued expenses 2,409 1,204
Due to affiliates and shareholders --- 100
--------- ---------
Total current liabilities 14,120 17,497
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 14,558 14,371
Line of credit --- 4,315
Due to affiliate and shareholders --- 900
Deferred taxes 1,650 2,092
--------- ---------
Total long-term liabilities 16,208 21,678
--------- ---------
TOTAL LIABILITIES 30,328 39,175
--------- ---------
MINORITY INTEREST --- 600
--------- ---------
COMMITMENTS AND CONTINGENCIES
EQUITY:
Common Stock, $.01 par value, 45,000,000
shares authorized; 15,726,282 and
15,958,627 issued and outstanding at
December 31, 1997 and 1998, respectively 157 160
Preferred Stock, $.01 par value,
5,000,000 shares authorized; none
issued and outstanding --- ---
Additional paid-in capital 44,038 46,885
Accumulated other comprehensive income --- (64)
Retained earnings 390 (1,410)
--------- ---------
Total equity 44,585 45,571
--------- ---------
Total liabilities and equity $ 74,913 $ 85,346
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF INCOME FOR THE 201-DAY PERIOD ENDED
JULY 19, 1996, THE 165-DAY PERIOD ENDED DECEMBER 31, 1996,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company. Such accounting generally results in
increased depreciation and amortization expense reported in future periods.
Accordingly, the accompanying financial statements of Predecessor and Successor
presented below are not comparable in all material respects since those
financial statements report the financial position, results of operations and
cash flows of these two separate entities.
<TABLE>
<CAPTION>
Predecessor Successor
----------- ------------------------------------------
201-Day 165-Day
Period Ended Period Ended Year Ended Year Ended
July 19, December 31, December 31, December 31,
1996 1996 1997 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(Thousands of Dollars)
Operating revenue $ 10,017 $ 10,942 $ 49,591 $ 73,207
Operating expense 6,814 8,114 36,302 57,724
---------- ---------- ---------- ----------
Gross profit 3,203 2,828 13,289 15,483
General and administrative expense 789 1,050 5,122 13,226
Asset impairment and other charges --- --- --- 3,379
---------- ---------- ---------- ----------
Operating income (loss) 2,414 1,778 8,167 (1,122)
Interest expense 151 437 1,866 1,683
Other income 6 20 37 281
---------- ---------- ---------- ----------
(145) (417) (1,829) (1,402)
Income (loss) before taxes and ---------- ---------- ---------- ----------
extraordinary item 2,269 1,361 6,338 (2,524)
Income tax expense (benefit) --- --- 403 (706)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item 2,269 1,361 5,935 (1,818)
Extraordinary expense from early
extinguishment of debt, net of tax --- --- 84 ---
---------- ---------- ---------- ----------
Income (loss) before minority interest 2,269 1,361 5,851 (1,818)
Loss of minority interest --- --- --- (18)
---------- ---------- ---------- ----------
Net income (loss) $ 2,269 $ 1,361 $ 5,851 $ (1,800)
---------- ---------- ---------- ----------
Preferred dividend requirements $ --- $ (180) $ (391) $ ---
---------- ---------- ---------- ----------
Income (loss) applicable to common shares $ 2,269 $ 1,181 $ 5,460 $ (1,800)
========== ========== ========== ==========
Basic earnings (loss) per common share:
Before extraordinary item $ 1,135 $ 0.11 $ 0.47 $ (0.11)
Extraordinary item, net of tax --- --- (0.01) ---
---------- ---------- ---------- ----------
Net income (loss) per common share: $ 1,135 $ 0.11 $ 0.46 $ (0.11)
========== ========== ========== ==========
UNAUDITED PRO FORMA DATA:
Income before taxes and extraordinary
item, reported above $ 2,269 $ 1,361 $ 6,338
Pro forma interest expense --- --- (345)
Pro forma provision for income taxes
related to operations as a
non-taxable corporate entity (908) (544) (2,400)
---------- ---------- ----------
Pro forma net income $ 1,361 $ 817 $ 3,593
========== ========== ==========
Pro forma net income per common share $ .30
==========
Pro forma weighted average common shares 11,810,016
==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE 201-DAYPERIOD ENDED
JULY 19, 1996, THE 165-DAY PERIOD ENDED DECEMBER 31, 1996,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company. Such accounting generally results in
increased depreciation and amortization expense reported in future periods.
Accordingly, the accompanying financial statements of Predecessor and Successor
presented below are not comparable in all material respects since those
financial statements report the financial position, results of operations and
cash flows of these two separate entities.
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK PREFERRED UNITS COMMON UNITS ADDITIONAL OTHER
--------------- --------------- -------------- PAID-IN COMPREHENSIVE RETAINED
SHARES AMOUNT UNITS AMOUNT UNITS AMOUNT CAPITAL INCOME EARNINGS TOTAL
------ ------ ----- ------ ----- ------ ------- ------------- -------- -----
PREDECESSOR: (Thousands of Dollars)
- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 2,000 $ 6 --- $ --- --- $ --- $ --- $ --- $ 2,857 $ 2,863
Add - net income --- --- --- --- --- --- --- --- 2,269 2,269
Deduct- distributions to
shareholders --- --- --- --- --- --- --- --- (881) (881)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
BALANCE, July 19, 1996 2,000 6 --- --- --- --- --- --- 4,245 4,251
SUCCESSOR:
- ----------
BALANCE, July 19, 1996 2,000 6 --- --- --- --- --- --- 4,245 4,251
Deduct - adjustments to
reflect purchase of
predecessor (2,000) (6) --- --- --- --- --- --- (4,245) (4,251)
Add - initial capital
contribution --- --- 4,000 4,000 101,263 1 --- --- --- 4,001
- net income --- --- --- --- --- --- --- --- 1,360 1,360
Deduct - distribution to
members --- --- --- --- --- --- --- --- (18) (18)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
BALANCE, December 31, 1996 --- --- 4,000 4,000 101,263 1 --- --- 1,342 5,343
Add - sale of common units --- --- --- --- 2,000 --- 78 --- --- 78
- sale of preferred units --- --- 1,000 1,000 --- --- --- --- --- 1,000
- issuance of common units --- --- --- --- 10,213 --- 6,415 --- --- 6,415
Deduct - contribution of
undistributed
retained earnings from
OMNI due to change
in tax status --- --- --- --- --- --- 302 --- (302) ---
- distributions to
common unitholders --- --- --- --- --- --- --- --- (5,930) (5,930)
- payment of preferred
dividends --- --- --- --- --- --- --- --- (571) (571)
- retirement of
preferred units --- --- (5,000) (5,000) --- --- --- --- --- (5,000)
Share exchange 12,000,000 120 --- --- (113,476) (1) (119) --- --- ---
Add - public offering
of shares 3,450,000 34 --- --- --- --- 34,241 --- --- 34,275
- issuance of common
shares for
acquisitions 276,282 3 --- --- --- --- 3,037 --- --- 3,040
- deferred compensation
expense --- --- --- --- --- --- 84 --- --- 84
- net income --- --- --- --- --- --- --- --- 5,851 5,851
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
BALANCE, December 31,1997 15,726,282 157 --- --- --- --- 44,038 --- 390 44,585
Add - issuance of common
shares for acquisistions
and joint venture 213,532 3 --- --- --- --- 2,672 --- --- 2,675
- deferred compensation
expense --- --- --- --- --- --- 144 --- --- 144
- stock options
exercised 18,813 --- --- --- --- --- 42 --- --- 42
Deduct - initial public
offering costs --- --- --- --- --- --- (11) --- --- (11)
Comprehensive income:
- net loss --- --- --- --- --- --- --- --- (1,800) (1,800)
- foreign currency
translation adjustments --- --- --- --- --- --- --- (64) --- (64)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total comprehensive income --- --- --- --- --- --- --- --- --- (1,864)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
BALANCE, December 31,1998 $15,958,627 $ 160 --- $ --- --- $ --- $ 46,885 $ (64) $ (1,410) $ 45,571
=========== ======= ======= ======= ======= ======= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE 201-DAY PERIOD ENDED
JULY 19, 1996, THE 165-DAY PERIOD ENDED DECEMBER 31, 1996,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company. Such accounting generally results in
increased depreciation and amortization expense reported in future periods.
Accordingly, the accompanying financial statements of Predecessor and
Successor presented below are not comparable in all material respects since
those financial statements report the financial position, results of
operations and cash flows of these two separate entities.
<TABLE>
<CAPTION>
Predecessor Successor
------------ ----------------------------------------
201-Day 165-Day
Period Ended Period Ended Year Ended Year Ended
July 19, December 31, December 31, December 31,
1996 1996 1997 1998
------------ ------------ ------------ ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,269 $ 1,361 $ 5,851 $ (1,800)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation 275 674 2,259 4,472
Amortization --- 23 252 739
Loss on fixed asset dispositions 1 17 39 105
Deferred compensation --- --- 84 144
Provision for bad debts --- 110 151 995
Minority interest --- --- --- (18)
Property, plant and equipment impairment charges --- --- --- 1,473
Deferred taxes --- --- 179 (833)
Changes in operating assets and liabilities-
Decrease (increase) in assets-
Receivables - Trade (1,896) (341) (4,340) 4,475
Receivables - Other 22 --- (622) 734
Inventory (157) (302) (1,710) (2,060)
Prepaid expenses 93 (639) (849) 1,195
Other 19 (492) (661) (532)
Increase (decrease) in liabilities-
Accounts payable and accrued expenses 874 195 4,341 (2,471)
Unearned revenue --- --- --- (638)
Due to affiliates and stockholders/members (44) --- (29) 100
--------- --------- --------- ---------
Net cash provided by operating activities 1,456 606 4,945 6,080
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash received --- (10,948) (3,193) (4,996)
Proceeds from disposal of fixed assets 4 25 579 3,933
Purchase of fixed assets (1,438) (2,539) (16,398) (15,644)
--------- --------- --------- ---------
Net cash used in investing activities (1,434) (13,462) (19,012) (16,707)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 2,771 9,540 27,283 10,577
Principal payments on long-term debt (1,135) (987) (26,268) (9,643)
Net borrowings/(payments) on line of credit (1,003) 360 (2,116) 4,314
Capital contributions --- 4,001 1,078 ---
Distributions to stockholders/members (881) (19) (6,501) ---
Retirement of preferred units --- --- (5,000) ---
Net proceeds from public offering --- --- 34,275 ---
--------- --------- --------- ---------
Net cash provided by (used in)financing
activities (248) 12,895 22,751 5,248
--------- --------- --------- ---------
Effect of exchange rate changes in cash --- --- --- (11)
NET INCREASE (DECREASE) IN CASH (226) 39 8,684 (5,390)
CASH, at beginning of period 300 --- 39 8,723
--------- --------- --------- ---------
CASH, at end of period $ 74 $ 39 $ 8,723 $ 3,333
========= ========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
CASH PAID FOR INTEREST $ 133 $ 443 $ 1,771 $ 1,681
========= ========= ========= =========
CASH PAID FOR TAXES $ --- $ --- $ --- $ 2,395
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
OMNI ENERGY SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
- --------------------------------------------
OMNI Energy Services Corp., a Louisiana corporation, (the "Company") was formed
on September 11, 1997. On December 4, 1997 the Company issued 12,000,000
shares of its common stock in exchange for all of the outstanding common units
of OMNI Geophysical, L.L.C. ("OMNI"), and options to purchase 118,018 shares
of the Company's common stock were issued in exchange for options to acquire
common units of OMNI (the "Share Exchange"). In December 1997, after completion
of the Share Exchange, the Company publicly offered for sale 3,450,000
shares of common stock.
OMNI was formed in 1996 as a Louisiana limited liability company. OMNI
acquired substantially all of the assets and liabilities of OMNI Geophysical
Corporation ("Predecessor") on July 19, 1996. The acquisition was accounted
for as a purchase with the assets acquired and liabilities assumed recorded at
their estimated fair values. The purchase price of approximately $13,300,000
was financed through the sale of preferred units for $4,000,000, the proceeds
from a $7,000,000 asset-based loan and a $2,300,000 subordinated note issued to
Predecessor. The allocation of the purchase price to the estimated fair values
of assets acquired and liabilities assumed resulted in goodwill of
approximately $219,000 which is being amortized over a 25-year period on a
straight-line basis. The accompanying financial statements include
Predecessor's results of operations for the 201-day period ended July 19, 1996.
All material intercompany accounts and transactions have been eliminated in
these financial statements. Certain prior year amounts have been reclassified
to conform with current year financial statement presentation.
NATURE OF BUSINESS
- ------------------
The Company is an oilfield service company specializing in providing an
integrated range of onshore seismic drilling, helicopter support and survey
services to geophysical companies operating in logistically difficult and
environmentally sensitive terrain in the continental United States. The
Company's primary market is the marsh, swamp, shallow water and contiguous dry
land areas along the U.S. Gulf Coast, where the Company is the leading provider
of seismic drilling services.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosures
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period.
The more significant estimates include asset impairment reserves, useful lives
for depreciation and amortization, receivables reserve requirements and the
realizability of deferred tax assets. Actual results could differ from those
estimates.
RECENT PRONOUNCEMENTS
- ---------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes 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.
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS
- -------------------------------
The Company evaluates its long-lived assets for financial impairment when
events or changes in circumstances indicate that the carrying amount of such
assets may not be fully recoverable. The Company evaluates the recoverability
of long-lived assets not held for sale by measuring the carrying amount of the
assets against the estimated undiscounted future cash flows associated with
them. At the time such evaluations indicate that the future undiscounted cash
flows of certain long-lived assets are not sufficient to cover the carrying
value of such assets, the assets are adjusted to their estimated fair values.
REVENUE RECOGNITION
- -------------------
The Company recognizes revenues as services are rendered. Revenue from the
Company's drilling operations is recognized on a per hole basis. Once the
Company has drilled and loaded a source point, revenue from the drilling of
such source point is recognized. Similarly, revenue is recognized from the
Company's seismic survey operations either on a day rate or per mile basis.
Under the per mile basis, revenue is recognized when the source or receiving
point is marked by one of the Company's survey crews. The Company's aircraft,
which are usually chartered for a guaranteed minimum number of hours per day,
generate revenue pursuant to a fixed hourly rate. Generally, the Company
invoices its customers twice a month.
CASH AND CASH EQUIVALENTS
- -------------------------
The Company considers investments with an original maturity of 90 days or less
to be cash equivalents. Due to its short-term nature the fair value of cash
and cash equivalents approximates its book value.
ACCOUNTS RECEIVABLE
- -------------------
Trade and other receivables are stated at net realizable value. The Company
grants short-term credit to its customers, primarily geophysical companies.
INVENTORIES
- -----------
Inventories consist of parts and supplies used for drilling and aviation
equipment and services. All inventories are valued at lower of cost or market.
PROPERTY AND EQUIPMENT
- ----------------------
Property and equipment are stated at cost less accumulated depreciation. The
Company provides for depreciation by charges to operations in amounts estimated
to allocate the cost of the assets over their estimated useful lives and
salvage values as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION USEFUL LIFE SALVAGE VALUE
-------------------- ----------- -------------
<S> <C> <C>
Buildings and improvements 25 years ---
Drilling, field and support equipment 5-10 years 10%
Shop equipment 10 years ---
Office equipment 5 years ---
Aircraft 10-15 years 25%
Vehicles 4-5 years ---
</TABLE>
Additions to property and equipment and major replacements are capitalized.
Gains and losses on dispositions, maintenance, repairs and minor replacements
are reflected in current operations. Drilling equipment which is fabricated is
comprised of direct and indirect costs incurred during fabrication. Costs
include materials and labor consumed during fabrication. Interest is also
capitalized during the fabrication period.
At December 31, 1998, the Company had $274,500 in assets held for sale,
primarily steel marsh buggies that were revalued in connection with the asset
impairment charge recorded in the third quarter of 1998 (See Note 6). The
Company expects to dispose of the remaining assets held for sale during 1999.
<PAGE>
On March 31, 1998, the Company sold the assets of its fixed wing division for
approximately $2.9 million. This transaction had no significant impact on the
Company's operating results.
GOODWILL
- --------
Goodwill represents the excess of the purchase price of acquisitions over the
fair value of the net assets acquired. Such excess costs are being amortized
on a straight-line basis over a twenty-five year period. As of December 31,
1997 and 1998, accumulated goodwill amortization totaled approximately $183,000
and $735,000, respectively. The Company periodically assesses the
recoverability of the unamortized balance based on expected future
profitability and undiscounted future cash flows of the acquisitions and their
contribution to the overall operation of the Company.
INCOME TAXES
- ------------
Prior to December 4, 1997, OMNI was treated as a partnership for income tax
purposes and income taxes were the responsibility of the individual members.
Accordingly, no provision for income taxes had been made in the accompanying
financial statements.
As previously discussed, on December 4, 1997 the members of OMNI exchanged all
of their common units in OMNI for 12,000,000 shares of common stock of the
Company. The Share Exchange was accounted for as a reorganization whereby the
assets and liabilities transferred were accounted for at their historical cost
in a manner similar to that in a pooling-of-interest. As a result, the Company
provided for income taxes in the fourth quarter of 1997 and in the year ended
December 31, 1998.
FOREIGN CURRENCY TRANSLATION
- ----------------------------
The Company's Canadian subsidiary maintains its accounting records in its local
currency (Canadian Dollar). The currency is converted to United States Dollars
with the effect of the foreign currency translation reflected as a component of
shareholders' equity in accordance with SFAS No. 52, "Foreign Currency
Translation." Currently, all other international activity is transacted in
United States Dollars. Foreign currency transaction gains or losses are
credited or charged to income, and such amounts are insignificant for the
periods presented.
UNAUDITED PRO FORMA DATA
- ------------------------
Additional interest expense is recorded as a pro forma adjustment to reflect
the incurrence of indebtedness to finance the repurchase of outstanding
preferred units and the distribution of undistributed earnings of OMNI as if
such events had occurred on January 1, 1997.
The pro forma provision for income taxes for OMNI and Predecessor is the result
of the application of a combined federal and state income tax rate (40%) to
income before income taxes and extraordinary item.
2. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
------------------------------------
The allowance for uncollectible accounts consists of the following:
<TABLE>
<CAPTION>
Balance at Additions Write-off of
Beginning Charged to Uncollectible Balance at End
Description of Period Expense Amounts of Period
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1998
Allowance for uncollectible accounts $ 390,210 $ 995,362 $ (310,827) $ 1,074,745
=========== =========== =========== ===========
December 31, 1997
Allowance for uncollectible accounts $ 125,000 $ 265,210 $ --- $ 390,210
=========== =========== =========== ===========
December 31, 1996
Allowance for uncollectible accounts $ --- $ 125,000 $ --- $ 125,000
=========== =========== =========== ===========
</TABLE>
3. EARNINGS PER SHARE
------------------
Pro forma basic earnings per common share was computed by dividing net income
by the weighted average number of shares of common stock outstanding during the
year. All income per share amounts for all periods have been presented, and
where necessary, restated to conform to the requirements of SFAS No. 128. The
following table sets forth the computation of basic and diluted income from
continuing operations per share (dollars and shares in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- -------------------------------------------
201-day 165-day
Period Period Ended Year Ended Year Ended
Ended July 19, December 31, December 31, December 31,
1996 1996 1997 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary
item, after minority interest $ 2,269 $ 1,361 $ 5,935 $ (1,800)
Less: Preferred dividend requirements -- (180) (391) --
---------- ---------- ---------- ----------
Income (loss) available to common
stockholders $ 2,269 $ 1,181 $ 5,544 $ (1,800)
========== ========== ========== ==========
Shares:
Weighted average number of common
shares outstanding 2 10,708 11,733 15,850
Options -- -- 77 --
---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding, plus
assumed conversion 2 10,708 11,810 15,850
========== ========== ========== ==========
Basic earnings (loss) per share $ 1,135 $ 0.11 $ 0.47 $ (0.11)
========== ========== ========== ==========
Diluted earnings per share $ 1,135 $ 0.11 $ 0.47 $ (0.11)
========== ========== ========== ==========
</TABLE>
The weighted average number of shares of common stock for the Successor periods
in the table above, excluding the year ended December 31, 1998, give effect to
the Share Exchange discussed in Note 1.
4. LONG-TERM DEBT
--------------
<TABLE>
<CAPTION>
Long-term debt consists of the following (dollars in thousands): December 31,
1997 1998
--------- ---------
<S> <C> <C>
Notes payable to a finance company, variable interest rate with
$3,583 at LIBOR plus 3.75%. Remaining portion at LIBOR plus 3.0%;
interest rates ranging from 8.2% to 9.0% at December 31, 1998 with
maturity dates ranging from July 2001 to November 2002, secured
by various property and equipment $ 6,659 $ 4,974
Note payable to a bank with interest payable at LIBOR plus 2.0%
(7.38% at December 31, 1998) maturing January 2000 10,902 6,682
Construction loan to a bank with interest payable at the lesser of
Citibank prime plus 0.75% or LIBOR plus 3.75% (8.5% at
December 31, 1997) collateralized by buildings. Loan was repaid
in January, 1998 1,937 ---
Acquisition loan to a bank with interest payable at LIBOR plus 2.0%
(7.38% at December 31, 1998) maturing January 2000 --- 7,938
Note payable to a bank with interest payable quarterly at LIBOR
plus 2.0% (7.38% at December 31, 1998) with maturity at
April 28, 1999 --- 2,639
Note payable to an insurance company; monthly payments of $79
through November 1999 --- 867
Notes payable, interest rates ranging from 6.7% to 7.5%, with
maturity dates ranging from August 1999 to March 2001 --- 828
Various notes payable 773 360
--------- ---------
Total 20,271 24,288
Less: Current maturities 5,713 9,917
--------- ---------
Long-term debt less current maturities $ 14,558 $ 14,371
========= =========
</TABLE>
<PAGE>
Annual maturities of long-term debt during each of the following years ended
December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 9,917
2000 12,884
2001 1,192
2002 295
2003 ---
---------
$ 24,288
=========
</TABLE>
The estimated fair value of long-term debt, based on borrowing rates currently
available to the Company for notes with similar terms and average maturities,
approximated the carrying value as of December 31, 1997 and 1998.
No interest was capitalized for the 201-day period ended July 19, 1996. During
the 165-day period ended December 31, 1996 and the years ended December 31,
1997 and 1998, interest in the amount of approximately $44,000, $173,000 and
$120,000, respectively, was capitalized to property, plant and equipment.
In connection with the Company's initial public offering, during 1997
approximately $23.8 million in debt was retired, resulting in an extraordinary
loss of $84,000, net of tax effects of approximately $42,000.
In January 1998, the Company restructured its credit arrangements with its
primary bank lender. Under the restructured facility (the "Credit Facility"),
the Company refinanced an $11.0 million loan, obtained a $10.0 million
revolving line of credit to finance working capital requirements (discussed in
Note 5 below), and obtained a $9.0 million line of credit to finance capital
expenditures and acquisitions.
In October, 1998, the Company amended the Credit Facility to provide it with a
$6.6 million bridge loan. The new loan bears interest at LIBOR plus an
applicable margin, ranging from 1.25% to 2.25% (currently 2.0%) and has a
maturity date of April 28, 1999. As of December 31, 1998, the Company had
approximately $2.6 million outstanding under the new loan.
The terms of the bank and finance company agreements contain, among other
provisions, requirements for maintaining defined levels of working capital,
tangible net worth, debt service coverage and funded debt to EBITDA. As of
December 31, 1998, the Company was in violation of certain of its covenants
under these agreements. These violations were waived by the bank. The Company
intends on extending the maturities of all of its indebtedness under the
Hibernia Facility, 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, although there can be no
assurance.
5. LINE OF CREDIT
--------------
The Company has outstanding a revolving line of credit agreement with a bank.
Availability under the agreement is the lower of: (i) $10.0 million or, (ii)
the sum of 80% of eligible accounts receivable and advances to finance the
purchase of certain parts and supplies. The line bears interest at LIBOR plus
an applicable margin, ranging from 1.25% to 2.25% (7.38% at December 31, 1998),
and matures on January 20, 2000. The weighted-average interest rate on the
line was 9.2% and 7.1% for the years ended December 31, 1997 and 1998,
respectively. The line was collateralized by accounts receivable and certain
equipment of the Company.
6. ASSET IMPAIRMENT AND OTHER NON-RECURRING CHARGES
------------------------------------------------
In response to recent market conditions and the resultant decline in certain
asset utilization of the Company's equipment, the Company evaluated certain of
its assets for realizability. The related asset impairment charges relate to a
$1.8 million provision for fixed assets, primarily nine drilling units which
became impaired due primarily to reduced demand and environmental impact
factors which have restricted their future use; a $1.3 million write-off of
seismic data held for sale which became impaired due to recent price declines;
and a $0.6 million additional provision for uncollectible accounts receivable.
<PAGE>
In addition, in response to anticipated future market conditions, the Company's
senior management and 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 closing and
relocation of certain of its operational facilities. Accordingly, the Company
has recorded an accrual of severance and lease exit costs of $0.3 million, and
future related severance costs will be charged against this reserve as they are
incurred.
The $0.6 million provision for uncollectible accounts receivable is reported in
general and administrative expenses and the remaining charges are reported as
asset impairment and other charges in the accompanying Consolidated Statements
of Income.
7. RELATED PARTY TRANSACTIONS
--------------------------
During the year ended December 31, 1998, the Company purchased two operating
facilities from a major shareholder for $0.9 million. The debt is non-interest
bearing and will be repaid when the Company completes its planned refinancing
of its long-term debt.
8. CUSTOMER CONCENTRATION
----------------------
Substantially all of the Company's revenues are derived from companies in the
geophysical industry. During the 165-day period ended December 31, 1996, four
customers accounted for approximately 67% (24%, 21%, 11% and 11%, respectively)
of the Company's total revenues. Included in accounts receivable as of
December 31, 1996, are amounts owed from one of these customers totaling
approximately $1.1 million, which was approximately 23% of total accounts
receivable.
During the year ended December 31, 1997, two customers accounted for
approximately 40% (25% and 15%, respectively) of the Company's total revenues.
Included in accounts receivable as of December 31, 1997, are amounts owed from
these customers totaling approximately 28% (16% and 12%, respectively) of total
accounts receivable.
During the year ended December 31, 1998, three customers accounted for 63%
(31%, 17% and 15%, respectively) of the Company's total revenues. Included in
accounts receivable as of December 31, 1998, are amounts owed from these
customers totaling approximately 44% (22%, 14% and 8%, respectively) of total
accounts receivable.
9. COMMITMENTS AND CONTINGENCIES
-----------------------------
In connection with the acquisition of the assets of Predecessor discussed in
Note 1, the Company also entered into a five-year lease agreement with
Predecessor to lease Predecessor's main office facility. The monthly lease
payment under the agreement was $5,000 through July 2001. During 1998, the
Company acquired this facility in connection with the purchase discussed in
Note 7.
Total rental expense was $248,000, $425,000, $1,921,000 and $2,869,000 for the
201-day period ended July 19, 1996, the 165-day period ended December 31, 1996
and the years ended December 31, 1997 and 1998, respectively. The following
table sets forth the Company's minimum lease payments for the next five years:
<TABLE>
<CAPTION>
For the Year Ended December 31:
<S> <C>
1999 $ 1,418,690
2000 1,329,725
2001 805,315
2002 523,248
2003 508,848
--------------
Total minimum lease payments $ 4,585,826
==============
</TABLE>
The Company carries workers compensation insurance coverage with a deductible
amount of $200,000 per incident for claims incurred in 1996. This deductible
was raised to $250,000 in 1997. In 1998, the Company changed insurance
carriers and had no deductible. Management of the Company is not aware of any
significant workers compensation claims or any significant claims incurred but
not reported as of December 31, 1998.
The Company has entered into employment agreements with its key executive
officers which include base salaries and terms of employment.
<PAGE>
10. PREFERRED UNITS
---------------
In connection with OMNI's acquisition of Predecessor on July 19, 1996 (Note 1),
OMNI issued 4,000 10%, cumulative participating preferred units in the 165-day
period ended December 31, 1996 and on February 19, 1997, 1,000 15%, cumulative
participating preferred units. OMNI paid dividends of approximately $180,000
on its 10% cumulative participating preferred units in early 1997. On
September 30, 1997, OMNI redeemed the outstanding preferred units at a
redemption price of $1,000 per unit and paid the holders of the preferred units
cumulative unpaid dividends totaling approximately $391,000.
11. STOCK OPTIONS
-------------
In April and June 1997, OMNI issued options to purchase 516 and 600 common
units, respectively, equivalent to 54,567 and 63,451 shares, respectively of
Common Stock calculated on the pro forma share basis described in Note 1. The
exercise price for these options is $2.28 per share (on the pro forma share
basis described in Note 1) and expire if unexercised after ten years. In the
year ended December 31, 1998, 18,189 of these options were cancelled. Total
compensation expense relating to these options is approximately $365,000, which
is being recognized pro rata over the three-year vesting period of the options.
The deferred compensation to be recognized by the Company is based on the
estimated fair value of the Company's common units on the date of the issuance.
Compensation expense related to the options totaled $84,000 and $144,000 for
the years ended December 31, 1997 and 1998, respectively.
In September 1997, the Company adopted and its sole shareholder approved the
Stock Incentive Plan (the "Incentive Plan") to provide long-term incentives to
its key employees, officers, directors who are employees of the Company, and
consultants and advisors to the Company and non-employee directors ("Eligible
Persons"). Under the incentive plan, the Company may grant incentive stock
options, non-qualified stock options, restricted stock, other stock-based
awards, or any combination thereof to Eligible Persons. Options generally vest
over a four-year period and expire if unused after ten years. The exercise
price of any stock option granted may not be less than the fair market value of
the Common Stock on the date of grant. A total of 1,500,000 shares of common
stock were authorized under the Incentive Plan in 1997. Of the 1,500,000
authorized, 170,500 remain available for issuance under the plan at December
31, 1998.
The Company accounts for employee stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees". Accordingly, the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation," do not affect the
Company's reported results of operations. Pro forma disclosures as if the
Company had adopted the provisions of SFAS No. 123 are presented below.
Had compensation cost been determined based on the fair value at the grant date
consistent with the provisions of SFAS No. 123, the Company's net income and
earnings per common share would have approximated the pro forma amounts below:
<TABLE>
<CAPTION>
For the years ended
----------------------------------------------------
December 31, 1998 December 31, 1997
----------------------- -----------------------
As As
Reported Pro Forma Reported Pro Forma
-------- --------- -------- ---------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C>
Net Income (loss) $ (1,800) $ (2,096) $ 5,851 $ 5,510
Basic earnings (loss) per share $ (0.11) $ (0.13) $ 0.47 $ 0.44
Diluted earnings (loss) per share $ (0.11) $ (0.13) $ 0.47 $ 0.43
</TABLE>
<PAGE>
A summary of the Company's stock options as of December 31, 1997 and 1998 and
changes during the years then ended are presented below:
<TABLE>
<CAPTION>
Weighted
Average Incentive
Exercise Plan Other
Price Options Options
-------- --------- -------
<S> <C> <C> <C>
Balance at January 1, 1997 $ --- --- ---
Granted 10.10 1,056,000 122,563
-------- ---------- --------
Balance at December 31, 1997 10.10 1,056,000 122,563
Granted 10.89 310,500 ---
Exercised 2.28 --- 18,813
Forfeited 8.13 37,000 18,189
-------- ---------- --------
Balance at December 31, 1998 $ 10.48 1,329,500 85,561
======== ========== ========
</TABLE>
As of December 31, 1998, there were 486,761 options exercisable with a weighted
average exercise price of $10.50.
The weighted average fair value at date of grant for options granted during
1997 was $4.26 per option. The fair value of options granted is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: (a) dividend yield of 0.00%; (b) expected volatility of
40%; (c) risk-free interest rate of 6.07%; and (d) expected life from 3 to 6.5
years.
The weighted average fair value at date of grant for options granted during
1998 was $8.58 per option. The fair value of options granted is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: (a) dividend yield of 0.00%; (b) expected volatility of
89%; (c) risk-free interest rate of 5.44%; and (d) expected life of 6.5 years.
The following table summarizes information about stock options outstanding as
of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ----------------------
Wgtd. Avg. Wgtd. Avg. Wgtd. Avg.
Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contr. Life Price Exercisable Price
----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 2.28 81,016 6.8 $ 2.28 38,716 $ 2.28
$ 9.75 - $ 10.375 225,000 9.6 $ 9.92 -- --
$ 10.50 - $ 11.81 1,066,045 6.8 $ 11.01 433,045 $ 11.00
$ 14.38 27,000 9.3 $ 14.38 -- --
$ 17.25 - $ 17.38 16,000 9.4 $ 17.37 15,000 $ 17.38
--------- ----------- ---------- ----------- ---------
1,415,061 7.3 $ 10.48 486,761 $ 10.50
--------- ----------- ---------- ----------- ---------
</TABLE>
In early 1999, the Company adopted the 1999 Stock Option Plan to provide
options to non-officer employees of the Company and it subsidiaries in lieu of
year-end cash bonuses. The options become exercisable immediately with respect
to one-half of the shares, and one year following the date of grant for the
remaining one-half of the shares. The exercise price of any stock option
granted may not be less than the fair market value of the Common Stock on the
date of grant. A total of 150,000 shares of common stock were authorized under
the 1999 Stock Option Plan. Of the 150,000 shares authorized 28,460 remain
available for issuance under the plan at February 11, 1999.
<PAGE>
12. INCOME TAXES
------------
The components of deferred tax assets and liabilities as of December 31, 1997
and 1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
Deferred Tax Assets:
<S> <C> <C>
Allowance for doubtful accounts $ 137 $ 398
Foreign taxes --- 57
Goodwill --- 1,477
Net operating loss carryforward (expires 2019) --- 1,319
Non-deductible expenses 75 396
-------- --------
Total deferred tax assets 212 3,647
Deferred Tax Liabilities:
Property and equipment 1,634 4,888
Other 16 ---
-------- --------
Total deferred tax liabilities 1,650 4,888
-------- --------
Net Deferred Tax Liability $ 1,438 $ 1,241
======== ========
</TABLE>
The income tax expense (benefit) for the year ended December 31, 1997 and 1998
consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Current expense (benefit) $ 338 $ (934)
Deferred expense (benefit) (8) 229
Adjustment to deferred taxes
due to change in tax status 73 --
------ ------
Tax expense (benefit) before
extaordinary item 403 (705)
Allocated to extraordinary item (42) --
Other -- (1)
------ ------
Total $ 361 $ (706)
====== ======
</TABLE>
The reconciliation of Federal statutory and effective income tax rates for the
years ended December 31, 1997 and 1998 is shown below:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Statutory federal rate 34% (34%)
Income not subject to corporate tax (27%) ---
State taxes --- (3%)
Goodwill --- 6%
Other permanent differences --- 2%
Other (1%) 1%
------ ------
Total 6% (28%)
====== ======
</TABLE>
13. SEGMENT INFORMATION
-------------------
The Company has adopted SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information," which requires that companies disclose segment data
based on how management makes decisions about allocating resources to segments
and measuring their performance. The Company had only one segment until 1997
(See Note 14). Currently, the Company operates principally in three segments:
Drilling, Survey and Aviation.
Survey revenue is recorded after the customer has determined the placement of
source and receiving points, and after survey crews are sent into the field to
plot each source and receiving point prior to drilling. Drilling revenue is
derived primarily from drilling and loading of the source points for seismic
analysis. Aviation revenue is derived primarily through the transport of
geophones and
<PAGE>
recorders used to collect the seismic data between receiving points.
Helicopters are also used to transport heli-portable drilling units into remote
or otherwise inaccessible terrain. In 1998, the Company expanded
internationally into South America where it currently provides drilling,
aviation and survey services as well as line-cutting services.
The following shows industry segment information for the 201-day period ended
July 19, 1996, the 165-day period ended December 31, 1996, and the years ended
December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Predecessor Successor
----------- -------------------------------------------
201-Day 165-Day
Period Ended Period Ended Year Ended Year Ended
July 19, December 31, December 31, December 31,
1996 1996 1997 1998
----------- ------------ ------------ ------------
(Thousands of Dollars)
OPERATING REVENUES: (1)
<S> <C> <C> <C> <C>
Drilling $ 10,017 $ 10,492 $ 41,132 $ 48,815
Aviation --- --- 4,402 11,123
Survey --- --- 4,057 12,076
Other (2) --- --- --- 1,193
-------- -------- -------- --------
Total $ 10,017 $ 10,942 $ 49,591 $ 73,207
======== ======== ======== ========
</TABLE>
(1) Net of inter-segment revenues of $0.2 million and $1.8 million for the
years ended December 31, 1997 and 1998, respectively.
(2) Consists of line-cutting services in South America.
<TABLE>
<CAPTION>
GROSS PROFIT:
<S> <C> <C> <C> <C>
Drilling $ 3,203 $ 2,828 $ 10,495 $ 10,363
Aviation --- --- 1,788 2,431
Survey --- --- 1,006 2,629
Other
--- --- --- 60
-------- -------- -------- --------
Total 3,203 2,828 13,289 15,483
General and administrative
expenses 789 1,050 5,122 13,226
Asset impairment and other
charges --- --- --- 3,379
Other expense, net 145 417 1,829 1,402
-------- -------- -------- --------
Income (loss) before taxes
and extraordinary item $ 2,269 $ 1,361 $ 6,338 $ (2,524)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS: 1996 1997 1998
--------- -------- --------
<S> <C> <C> <C>
Drilling $ 18,925 $ 35,000 $ 34,704
Survey --- 3,849 6,459
Aviation --- 19,424 22,594
Other 1,461 16,640 21,589
--------- -------- --------
Total $ 20,386 $ 74,913 $ 85,346
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES: 1996 1997 1998
--------- -------- --------
<S> <C> <C> <C>
Drilling $ 2,440 $ 8,105 $ 9,138
Survey --- 729 881
Aviation --- 2,945 4,644
Other 99 4,619 981
--------- -------- --------
Total $ 2,539 $ 16,398 $ 15,644
========= ======== ========
</TABLE>
<PAGE>
14. ACQUISITIONS
------------
On March 25, 1997, OMNI acquired the assets and assumed certain liabilities of
Delta Surveys, Inc., a surveying business, for $180,000 in cash and a $120,000,
8.5%, three year promissory note. This acquisition was accounted for using the
purchase method of accounting. The excess of cost over the estimated fair
value of the net assets resulted in goodwill of approximately $172,000.
Effective July 1, 1997, OMNI acquired substantially all of the assets and
liabilities of American Aviation Incorporated ("American Aviation"), a company
that operated aircraft for various seismic drilling support services. In
consideration for the acquisition of substantially all the assets of American
Aviation, OMNI issued to American Aviation 10,213 common units of OMNI
(equivalent to 1,080,017 shares of Common Stock), valued at approximately $6.4
million and a $1.0 million promissory note bearing interest at 8.5%, paid
$500,000 cash and assumed approximately $6.7 million in debt. The excess cost
over the estimated fair value of the net assets resulted in goodwill of
approximately $7.6 million.
Effective July 1, 1997, OMNI acquired Leonard J. Chauvin, Jr., Inc.
("Chauvin"), a surveying company, for $788,000 cash and up to an additional
$100,000 based on the future earnings of Chauvin through August 31, 1999. The
excess cost over the estimated fair value of the net assets acquired resulted
in goodwill of approximately $701,000. In December 1998, the assets were sold
for $60,000 in cash and a $90,000 note receivable.
Effective September 1, 1997, OMNI acquired substantially all the assets O.T.H.
Exploration Services, Inc., a seismic rock drilling company, headquartered in
the Rocky Mountain region. The aggregate purchase price was $600,000 cash,
which approximated the fair value of the net assets acquired.
Effective October 1, 1997, the Company acquired American Helicopter Drilling
Inc. ("American Helicopter") for $1,050,000 in cash and 227,272 shares of
common stock valued at approximately $2,500,000 at the initial offering price.
The excess cost over the estimated fair value of the net assets acquired
resulted in goodwill of approximately $1,963,000. American Helicopter was
engaged in seismic drilling services in the Rocky Mountain area and in the
fabrication, export and servicing of heli-portable and other seismic drilling
units.
Effective October 1, 1997, the Company acquired Fournier & Associates
("Fournier") for $211,000 in cash and 49,010 shares of common stock valued at
approximately $539,000 at the initial offering price. The excess cost over the
estimated fair value of the net assets acquired resulted in goodwill of
approximately $622,000. Fournier was a seismic survey company operating four
crews in the Transition Zone and adjacent areas.
Effective April 1, 1998, the Company acquired Eagle Surveys International,
Inc., a seismic survey support company, headquartered in Houston, Texas. The
aggregate purchase price was $1.8 million consisting of $1.1 million in cash
and 53,039 shares of common stock. The excess cost over the estimated fair
value of the net assets resulted in goodwill of approximately $1.5 million.
Effective April 20, 1998, the Company acquired the assets of Coastal Turbines,
Inc., a helicopter support company, based in Lafayette, Louisiana. The
aggregate purchase price was approximately $1.2 million consisting of $1.1
million in cash and 4,546 shares of common stock.
Effective May 1, 1998, the Company acquired Hamilton Drill Tech, Inc., a
specialty seismic drilling support company, headquartered in Canada. The
purchase price was approximately $0.9 million in cash. The excess cost over the
estimated fair value of the net assets resulted in goodwill of approximately
$95,000.
Effective July 1, 1998, OMNI International Energy Services, Ltd. (a wholly-
owned subsidiary) entered into a joint venture with Edwin Waldman Attie of
Bolivia. The newly formed joint venture company, OMNI International Energy
Services - South America, Ltd. provides integrated services in selected South
American countries. The aggregate investment was approximately $6.5 million,
consisting of approximately $2.6 million in cash, $2.0 million in equipment and
155,947 shares of common stock. The excess cost over the estimated fair value
of the net assets resulted in goodwill of approximately $2.9 million. In
consolidation, the Company owns an 85% interest in the joint venture.
<PAGE>
The operating results of each of the acquired companies have been included in
consolidated statements of income from the effective dates of acquisition.
The following summarized unaudited income statement data reflects the Company's
results of operations as if the American Aviation and American Helicopter
transactions had taken place on July 20, 1996:
<TABLE>
<CAPTION>
UNAUDITED PRO-FORMA RESULTS
---------------------------
(Dollars in Thousands)
165-day Period
Ended Year Ended
December 31, December 31,
1996 1997
------------- -------------
<S> <C> <C>
Gross revenue $ 15,613 $ 54,747
============= =============
Income before extraordinary item $ 1,055 $ 5,005
============= =============
Net income $ 1,055 $ 4,921
============= =============
Basic earnings per share $ 0.08 $ 0.39
============= =============
</TABLE>
The pro forma effect of the acquisitions other than of American Aviation and
American Helicopter were not material.
15. SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-----------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------
1998 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---- --------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Operating revenues $ 18,329 $ 24,250 $ 19,905 $ 10,723
Gross profit (loss) 5,601 8,618 2,889 (1,625)
Net income (loss) 1,845 3,511 (3,260) (3,896)
Basic earnings per common share 0.12 0.22 (0.20) (0.24)
Diluted earnings per common share 0.12 0.22 (0.20) (0.24)
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors and officers called for by
this item will be included in the Company's definitive Proxy Statement prepared
in connection with the 1999 Annual Meeting of shareholders and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning the compensation of the Company's executives
called for by this item will be included in the Company's definitive Proxy
Statement prepared in connection with the 1999 Annual Meeting of shareholders
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management called for by this item will be included in the Company's
definitive Proxy Statement prepared in connection with the 1999 Annual Meeting
of shareholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
called for by this item will be included in the Company's definitive Proxy
Statement prepared in connection with the 1999 Annual Meeting of shareholders
and is incorporated herein by reference.
ITEM. 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements, schedules and exhibits are filed as
part of this Report:
(1) Financial Statements. Reference is made to Item 8 hereof.
(2) Financial Statement Schedules: None.
(3) Exhibits. See Index to Exhibits on page E-1. The Company will
furnish to any eligible shareholder, upon written request of such shareholder,
a copy of any exhibit listed upon the payment of a reasonable fee equal to the
Company's expenses in furnishing such exhibit.
(b) Reports on form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By: /S/ ROBERT F. NASH
-------------------
Robert F. Nash
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ DAVID A. JEANSONNE Chairman of the Board March 25, 1999
- ------------------------
David A. Jeansonne
/S/ ROBERT F. NASH President, Chief Executive Officer March 25, 1999
- ------------------------ and Director
Robert F. Nash
/S/ JOHN H. UNTEREKER Executive Vice President, Chief March 25, 1999
- ------------------------ Financial Officer and Director
John H. Untereker (Principal Financial and Accounting
Officer)
/S/ ALLEN R. WOODARD Vice President-Marketing: Business March 25, 1999
- ------------------------ Development and Director
Allen R. Woodard
/S/ CRICHTON W. BROWN Director March 25, 1999
- ------------------------
Crichton W. Brown
/S/ WILLIAM W. RUCKS, IV Director March 25, 1999
- ------------------------
William W. Rucks, IV
/S/ STEVEN T. STULL Director March 25, 1999
- ------------------------
Steven T. Stull
/S/ ROGER E. THOMAS Director March 25, 1999
- ------------------------
Roger E. Thomas
S-1
<PAGE>
OMNI ENERGY SERVICES CORP.
EXHIBIT INDEX
EXHIBIT
NUMBER
------
2.1 Exchange Agreement between the members of OMNI Geophysical,
L.L.C. and OMNI Energy Services Corp. (the "Company")(1)
2.2 Exchange Agreement by and among American Aviation
Incorporated, American Aviation L.L.C. and OMNI Geophysical,
L.L.C., dated as of July 1, 1997.(2)
3.1 Amended and Restated Articles of Incorporation of the
Company(2)
3.2 Bylaws of the Company, as amended.(1)
4.1 See Exhibits 3.1 and 3.2 for provisions of the Company's
Articles of Incorporation and By-laws defining the rights of
holders of Common Stock.
4.2 Specimen Common Stock Certificate.(2)
10.1 Form of Indemnity Agreement by and between the Company and
each of its directors and executive officers.(2)
10.2 The Company's Stock Incentive Plan.(2)
10.3 Form of Stock Option Agreements under the Company's Stock
Incentive Plan.(2)
10.4 Amended and Restated Employment and Non-Competition
Agreement between OMNI Geophysical, L.L.C. and David
Jeansonne.(2)
10.5 Amended and Restated Employment and Non-Competition
Agreement between OMNI Geophysical, L.L.C. and Allen R.
Woodard.(2)
10.6 Employment and Non-Competition Agreement between Robert
F. Nash and the Company effective July 1, 1998.(3)
10.7 Employment and Non-Competition Agreement between John
H. Untereker and the Company effective July 21, 1998.(4)
10.8 Confidentiality and Non-Competition Agreement between
OMNI Geophysical, L.L.C. and American Aviation, L.L.C. and
American Aviation Incorporated, David Jeansonne, and Richard
Patrick Morris. (2)
10.9 Option Agreement between the company and Roger E.
Thomas dated as of September 25, 1997. (2)
10.10 Option Agreement between the company and Allen R.
Woodard dated as of September 25, 1997. (2)
E-1
<PAGE>
10.11 Intangible Asset Purchase Agreement by and among American
Aviation Incorporated, American Aviation L.L.C. and OMNI
Geophysical, L.L.C., dated as of July 1, 1997. (2)
10.12 Joint Venture Agreement among the Company, OMNI
International Energy Services, Ltd. and Edwin Waldman Attie
effective July 1, 1998. (3)
10.13 Amended and Restated Loan Agreement, dated as of
January 20, 1998, by and among the company, American
Aviation L.L.C., OMNI Marine & Supply, Inc. and Hibernia
National Bank. (1)
10.14 First Amendment to Amended and Restated Loan Agreement, by
and among the Company, certain of its subsidiaries and
Hibernia National Bank.
10.15 Second Amendment to Amended and Restated Loan
Agreement, by and among the Company, certain of its
subsidiaries and Hibernia National Bank. (4)
10.16 Third Amendment to Amended and Restated Loan
Agreement, by and among the Company, certain of its
subsidiaries and Hibernia National Bank. (3)
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration Statement No. 333-36561).
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1998.
(4) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998.
E-2
EXHIBIT 10.14
FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT is dated
and effective as of March 31, 1998 (the "First Amendment"), between OMNI
ENERGY SERVICES CORP., a Louisiana corporation ("Omni"), AMERICAN AVIATION
L.L.C., a Missouri limited liability company ("Aviation"), OMNI MARINE &
SUPPLY, INC., a Louisiana corporation ("Marine"), and HIBERNIA NATIONAL
BANK, a national banking association ("Bank").
W I T N E S S E T H:
WHEREAS, Omni, Aviation, Marine, and Bank have heretofore entered into
an Amended and Restated Loan Agreement dated as of January 20, 1998, (the
"Loan Agreement"), pursuant to which Bank established in favor of Omni
certain credit facilities consisting of Acquisition Loans, Revolving Loans,
and a Term Loan.
WHEREAS, the Loans by Bank to Omni are guaranteed, IN SOLIDO, by
Aviation and Marine, as the Guarantors; and
WHEREAS, the parties desire to amend and supplement the Loan Agreement
to revise the definition of the term "EBITDA".
NOW, THEREFORE, THE PARTIES HERETO, IN CONSIDERATION OF THE MUTUAL
COVENANTS HEREINAFTER SET FORTH AND INTENDING TO BE LEGALLY BOUND HEREBY,
AGREE AS FOLLOWS:
1. DEFINED TERMS. Capitalized terms used herein which are defined
in the Loan Agreement are used herein with such defined meanings.
2. DEFINED TERMS REVISION. The definition of the term "EBITDA"
appearing in Section 1.1 on page 4 of the Loan Agreement is hereby deleted
and restated as follows:
"EBITDA" shall mean earnings before interest,
taxes, depreciation, and amortization, less
dividends or distributions. To calculate EBITDA
for calendar quarters ending prior to December 31,
1998, net income for the four (4) calendar
quarters shall be annualized.
3. REPRESENTATION: NO DEFAULT. On and as of the effective date
hereof, and after giving effect to this First Amendment, Omni and the
Guarantors confirm, reaffirm and restate the representations and warranties
set forth in the Loan Agreement and the Collateral Documents; provided,
that each reference to the Loan Agreement herein shall be deemed to include
the Loan Agreement as amended by this First Amendment. Omni and the
Guarantors also represent and warrant that no Default or Event of Default
has occurred and is continuing under the Loan Agreement.
4. CONFIRMATION OF COLLATERAL DOCUMENTS. All of the liens,
privileges, priorities and equities existing and to exist under and in
accordance with the terms of the Collateral Documents are hereby renewed,
extended and carried forward as security for all of the Loans and all other
debts, obligations and liabilities of Omni to Bank.
5. PAYMENT OF EXPENSES. Omni agrees to pay or reimburse Bank for
all legal fees and expenses of counsel to Bank in connection with the
transactions contemplated by this First Amendment.
6. WAIVER OF DEFENSES. In consideration of the Bank's execution of
this First Amendment, Omni and the Guarantors do hereby irrevocably waive
any and all claims and/or defenses to payment on any indebtedness owed by
any of them to the Bank that may exist as of the date of execution of this
First Amendment.
7. AMENDMENTS. THE LOAN AGREEMENT AND THIS FIRST AMENDMENT ARE
CREDIT OR LOAN AGREEMENTS AS DESCRIBED IN LA. R.S. 6:<section>1121, ET SEQ.
THERE ARE NO ORAL AGREEMENTS BETWEEN THE BANK, OMNI, MARINE, AND AVIATION.
THE LOAN AGREEMENT, AS AMENDED BY THIS FIRST AMENDMENT, SETS FORTH THE
ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND SUPERSEDES ALL PRIOR WRITTEN AND ORAL UNDERSTANDINGS BETWEEN OMNI,
AVIATION, MARINE, AND THE BANK, WITH RESPECT TO THE MATTERS HEREIN SET
FORTH. THE LOAN AGREEMENT, AS AMENDED BY THIS FIRST AMENDMENT, MAY NOT BE
MODIFIED OR AMENDED EXCEPT BY A WRITING SIGNED AND DELIVERED BY OMNI,
AVIATION, MARINE AND THE BANK.
8. GOVERNING LAW: COUNTERPARTS. This First Amendment shall be
governed by and construed in accordance with the laws of the State of
Louisiana. This First Amendment may be executed in any number of
counterparts, all of which counterparts, when taken together, shall
constitute one and the same instrument.
9. CONTINUED EFFECT. Except as expressly modified herein, the Loan
Agreement shall continue in full force and effect. The Loan Agreement as
amended herein is hereby ratified and confirmed by the parties hereto.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-1-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed and delivered as of the date hereinabove provided
by the authorized officers each hereunto duly authorized.
OMNI ENERGY SERVICES CORP.
By:_____________________________________
Name: David E. Crays
Title: CFO and Vice President
AMERICAN AVIATION L.L.C.
BY: OMNI ENERGY SERVICES CORP.,
AS SOLE MEMBER
By:_____________________________________
Name: David E. Crays
Title: CFO and Vice President
OMNI MARINE & SUPPLY, INC.
By:____________________________________
Name: David E. Crays
Title: CFO and Vice President
HIBERNIA NATIONAL BANK
By:_____________________________________
Name: Tammy M. Angelety
Title: Assistant Vice President
-2-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF OMNI ENERGY SERVICES CORP.
<TABLE>
<CAPTION>
State of
Incorporation
Subsidiary or Organization
- ---------- ---------------
<S> <C>
OMNI Energy Services - Alaska, Inc. Alaska
American Aviation, L.L.C. Missouri
OMNI International Energy Services, Ltd Cayman Islands
OMNI International Energy Services-South America, Ltd Cayman Islands
OMNI Energy Services Canada Corp. Alberta
</TABLE>
E-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER31,
1998 FILED WITH THIS ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,333
<SECURITIES> 0
<RECEIVABLES> 10,766
<ALLOWANCES> (1,075)
<INVENTORY> 6,113
<CURRENT-ASSETS> 23,204
<PP&E> 52,837
<DEPRECIATION> (6,596)
<TOTAL-ASSETS> 85,346
<CURRENT-LIABILITIES> 17,497
<BONDS> 0
0
0
<COMMON> 160
<OTHER-SE> 45,411
<TOTAL-LIABILITY-AND-EQUITY> 85,346
<SALES> 73,207
<TOTAL-REVENUES> 73,207
<CGS> 57,724
<TOTAL-COSTS> 74,329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,683
<INCOME-PRETAX> (2,524)
<INCOME-TAX> (706)
<INCOME-CONTINUING> (1,818)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,800)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
