UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the Quarterly period ended September 30, 2002
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the transition period ___________ to ____________
COMMISSION FILE NUMBER 0-23383
OMNI ENERGY SERVICES CORP.
(Exact name of registrant as specified in its charter)
LOUISIANA 72-1395273
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4500 N.E. EVANGELINE THRUWAY
CARENCRO, LOUISIANA 70520
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (337) 896-6664
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of November 8, 2002 there were 9,101,778 shares of the Registrant's
common stock, $0.01 par value per share, outstanding.
-1-
ITEM 1. FINANCIAL STATEMENTS
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(Thousands of dollars)
ASSETS September 30, December 31,
2002 2001
------------- ------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 316 $ 1,233
Accounts receivable, net 5,748 5,250
Parts and supplies inventory 2,817 2,723
Prepaid expenses 2,230 857
Assets held for sale 663 630
------- -------
Total current assets 11,774 10,693
------- -------
PROPERTY AND EQUIPMENT:
Land 359 359
Buildings and improvements 4,525 4,505
Drilling, field and support equipment 27,170 24,834
Aviation equipment 4,189 5,109
Shop equipment 425 392
Office equipment 1,534 1,500
Vehicles 2,655 2,526
Construction in progress 252 50
------- -------
41,109 39,275
Less: accumulated depreciation 15,761 13,707
------- -------
Total property and equipment, net 25,348 25,568
------- -------
OTHER ASSETS:
Goodwill, net 3,926 2,006
Other 528 181
------- -------
Total other assets 4,454 2,187
------- -------
Total assets $41,576 $38,448
======= =======
The accompanying notes are an integral part of these financial statements.
-2-
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(Thousands of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31,
2002 2001
------------- ------------
(unaudited)
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt $ 3,565 $ 2,750
Accounts payable 3,027 2,598
Accrued expenses 1,217 2,843
Due to affiliates 446 175
-------- --------
Total current liabilities 8,255 8,366
-------- --------
LONG-TERM LIABILITIES:
Line of credit 2,680 2,012
Other long term liabilities 878 --
Long-term debt, less current maturities 9,133 9,289
-------- --------
Total long-term liabilities 12,691 11,301
-------- --------
TOTAL LIABILITIES 20,946 19,667
-------- --------
MINORITY INTEREST 221 221
-------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, Series A, 7,500 shares issued
and outstanding; Series B, 4,600 shares
issued and outstanding 12,100 11,616
Common Stock, $.01 par value, 45,000,000
shares authorized; 9,101,778 issued and
outstanding 91 91
Treasury Stock, 361,800 shares, at cost (706) (706)
Additional paid-in capital 56,831 56,825
Accumulated deficit (47,828) (49,183)
Cumulative translation adjustment (79) (83)
-------- --------
Total equity 20,409 18,560
-------- --------
Total liabilities and stockholders' equity $ 41,576 $ 38,448
======== ========
The accompanying notes are an integral part of these financial statements.
-3-
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2002 2001 2002 2001
-------- -------- -------- --------
(Unaudited) (Unaudited)
Operating revenue $ 7,732 $ 9,180 $ 21,405 $ 19,378
Operating expenses 5,780 7,612 16,429 17,635
-------- -------- -------- --------
Gross profit 1,952 1,568 4,976 1,743
General and administrative expenses 1,004 565 2,310 1,878
Asset impairment charges -- -- -- 180
-------- -------- -------- --------
Operating income (loss) 948 1,003 2,666 (315)
Interest expense 295 169 774 1,095
Other income (expense) (23) 160 (55) 7,854
-------- -------- -------- --------
318 9 829 (6,759)
-------- -------- -------- --------
Income before taxes 630 994 1,837 6,444
Income taxes -- -- -- --
-------- -------- -------- --------
Net income 630 994 1,837 6,444
Accretion of preferred stock -- (242) (484) (484)
-------- -------- -------- --------
Net earnings applicable to common and
common equivalent shares $ 630 $ 752 $ 1,353 $ 5,960
======== ======== ======== ========
Basic net income per share: $ 0.07 $ 0.08 $ 0.15 $ 0.67
Diluted net income per share: $ 0.07 $ 0.08 $ 0.15 $ 0.61
Weighted average shares outstanding:
Basic 8,740 8,972 8,739 8,955
Diluted 8,743 9,424 8,804 9,808
The accompanying notes are an integral part of these financial statements.
-4-
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(THOUSANDS OF DOLLARS)
Nine months ended
September 30,
----------------------
2002 2001
------- -------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,837 $ 6,444
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 2,674 2,396
Amortization 60 125
(Gain) loss on fixed asset disposition (1) (53)
Asset impairment and other charges -- 180
Provision for bad debts -- 59
Changes in operating assets and liabilities-
Decrease (increase) in assets-
Receivables-
Trade (90) (3,264)
Other (400) (9)
Inventory 61 508
Prepaid expenses 1,528 152
Assets held for sale (34) 580
Other (2,327) (677)
Increase (decrease) in liabilities-
Accounts payable 1,054 610
Accrued expenses (2,251) (1,123)
Other long-term liabilities 878 --
------- -------
Net cash provided by operating activities 2,988 5,929
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition paid with cash (2,076) --
Proceeds from disposal of fixed assets 1,035 147
Assets acquired from lease buyout (1,000) --
Purchase of fixed assets, net (76) (408)
------- -------
Net cash used in investing activities (2,117) (261)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subordinated debt -- (3,209)
Repayment of subordinated debt -- 1,500
Proceeds from issuance of long-term debt 3,500 1,339
Principal payments on long-term debt (6,233) (4,048)
Proceeds from issuance of common stock 6 80
Due to affiliates 271 --
Purchase of treasury stock -- (83)
Net borrowings (payments) on line of credit 668 (1,404)
------- -------
Net cash used in financing activities (1,788) (5,825)
------- -------
NET DECREASE IN CASH (917) (157)
CASH, at beginning of period 1,233 317
------- -------
CASH, at end of period $ 315 $ 160
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $ 774 $ 795
======= =======
Equipment acquired under capital lease $ 492 $ --
======= =======
Premiums financed with insurance carrier $ 2,854 $ --
======= =======
The accompanying notes are an integral part of these financial statements.
-5-
OMNI ENERGY SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements have been prepared without audit as permitted by the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to such rules and
regulations. However, the management of OMNI Energy Services Corp. believes that
this information is fairly presented. These unaudited condensed consolidated
financial statements and notes thereto should be read in conjunction with the
financial statements contained in our Annual Report on Form 10-K for the year
ended December 31, 2001 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of only normal,
recurring adjustments, necessary to fairly present the financial results for the
interim periods presented.
NOTE 2. EARNINGS PER SHARE
Basic Earnings Per Share (EPS) excludes dilution and is determined by dividing
income available to common stockholders by the weighted average number of shares
of common stock outstanding, net of shares held in treasury during the periods
presented. Diluted EPS reflects the potential dilution that could occur if
options and other contracts to issue shares of common stock were exercised or
converted into common stock.
The consolidated financial statements and related notes thereto include the
retroactive effect of a one for three reverse stock split effective July 3,
2002. For the three and nine months ended September 30, 2002, we had 1,004,460
and 448,410 options outstanding, respectively, and warrants to purchase
2,121,662 shares of common stock as of September 30, 2002 that were excluded
from the calculation of diluted EPS because they were antidilutive. Likewise, we
had 424,787 and 114,027 options outstanding, respectively, for the three and
nine months ended September 30, 2001 and warrants to purchase 184,722 shares of
common stock as of September 30, 2001 that were excluded from the calculation of
diluted EPS because they were antidilutive.
NOTE 3. LONG-TERM DEBT
Our primary credit facility is with PNC Bank (the "PNC Facility"). The PNC
Facility currently provides us with a $3.5 million equipment loan and a $7.0
million revolving line of credit to finance working capital requirements. The
loans bear interest at prime plus 1.5% for the revolving line of credit and
prime plus 1.75% on the equipment loan, and have a final maturity of August 23,
2005. As of September 30, 2002, we had approximately $6.1 million outstanding
under the PNC Facility.
Our primary credit facility was previously with Hibernia National Bank (the
"Hibernia Facility"). The Hibernia Facility provided us with a $2.0 million
equipment loan, a $2.0 million real estate loan and a $5.0 million revolving
line of credit to finance working capital requirements. The loans bore interest
at prime plus 1.5% and had a final maturity of August 31, 2004. The equipment
loan and the revolving line of credit were paid off in September 2002 with the
proceeds from the PNC Facility. The remaining Hibernia Facility currently
provides us with a $2.0 million real estate loan. The loan bears interest at
prime plus 1.5% and has a final maturity of August 31, 2004. As of September 30,
2002, we had approximately $1.8 million outstanding under the Hibernia Facility.
At September 30, 2002, we had approximately $1.8 million in outstanding debt
pursuant to agreements with The CIT Group (CIT), consisting of an asset-based
financing loan (the "CIT Loan"). The principal outstanding under the CIT
-6-
Loan bears interest at LIBOR plus 5.0%. The maturity date of the note has been
extended to August 2004. This loan is collateralized by various seismic drilling
units and support equipment.
At September 30, 2002, we had a note payable to a finance company with interest
at 8%, to finance our aviation fleet. The loan amortizes over ten years,
maturing January 1, 2007 and is secured by our aviation fleet. The outstanding
balance at September 30, 2002 is approximately $3.6 million.
During the years ended December 31, 1999, 2000 and 2001, we privately placed
with an affiliate subordinated debentures totaling $7.5 million, $3.4 million
and $1.5 million, respectively. The debentures matured five years from their
date of issue and accrued interest at various rates ranging from a fixed rate of
12% per annum to a variable rate of interest starting at 12% per annum and
escalating to 20% per annum. In October 2000, we agreed to convert $4.6 million
of the subordinated debentures into our Series A Preferred Stock. In May 2001,
we agreed to pay the affiliate $3.0 million cash plus issue to the affiliate
$4.6 million of our Series B Preferred Stock in full satisfaction of all of the
remaining outstanding subordinated debentures including accrued interest of $1.8
million. This transaction resulted in the affiliate agreeing to forgive $1.0
million of indebtedness which has been reflected as a capital contribution from
the affiliate rather than as income in the accompanying financial statements.
(See Note 4).
In connection with the original issuance of the subordinated debentures, we
issued to the affiliate detachable warrants to purchase 1,912,833 shares of our
common stock, of which 967,000 have been cancelled as of September 30, 2002. The
remaining 945,833 warrants outstanding are all exercisable with exercise prices
ranging from $2.250 to $6.00 per share.
The following table summarizes the exercise prices of warrants to the affiliate
as of September 30, 2002:
Exercise Price Warrants
-------------- --------
$6.00 12,500
$4.50 172,222
$2.25 761,110
-------
945,832
=======
NOTE 4. PREFERRED STOCK
At September 30, 2002 we had a total of 7,500 shares of Series A Preferred
Stock, and 4,600 shares of Series B Preferred Stock issued and outstanding, at a
total liquidation value of $12.1 million.
The Series A Preferred Stock has an 8% cumulative dividend rate, is convertible
into our common stock with a conversion rate of $2.25, is redeemable at our
option at $1,000 per share plus accrued dividends, contains a liquidation
preference of $1,000 per share plus accrued dividends, has voting rights on all
matters submitted to a vote of our shareholders, has separate voting rights with
respect to matters that would affect the rights of the holders of the Preferred
Stock, and has aggregate voting rights of the affiliate limited to 49% of our
total outstanding common and preferred shares with voting rights. In respect to
the Series A Preferred Stock, the affiliate has agreed to waive its conversion
rights until our EBITDA (as defined) reaches a mutually agreed upon level. The
preferred shareholders have also agreed that dividends would not accrue on the
outstanding stock from April 2001 through June 2002. Dividends were accreted at
8% during the free dividend period. As of April 2001 there were approximately
$0.3 million of dividends in arrears relating to these outstanding shares of
Series A Preferred Stock.
In May 2001, we issued 4,600 shares of Series B Preferred Stock to an affiliate
of ours in satisfaction of all outstanding principal and interest owed under the
subordinated debt agreements (See Note 3). These shares were issued in March
2002. The Series B Preferred Stock has an 8% cumulative dividend rate, is
convertible into our common stock with an initial conversion rate of $3.75, is
redeemable at our option at $1,000 per share plus accrued dividends, contains a
liquidation preference of $1,000 per share plus accrued dividends and has no
voting rights until such time as it becomes convertible. The Series B Preferred
Stock does not have conversion rights until our EBITDA (as defined) reaches a
mutually agreed upon level, and until all shares of Series A Preferred Stock
become convertible. We have also agreed that dividends would not accrue on the
outstanding stock from May 2001 through June 2002. Dividends were accreted at 8%
during the free dividend period. As of May 2001 there were no dividends in
arrears relating to the outstanding shares of Series B Preferred Stock.
-7-
NOTE 5. SEGMENT INFORMATION
The following shows industry segment information for our four operating
segments - Drilling, Aviation, Survey, and Permitting for the three and nine
month periods ended September 30, 2002 and 2001:
-8-
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
2002 2001 2002 2001
------- ------- ------- -------
Operating revenues:(1)
Drilling $ 7,045 $ 7,093 $18,807 $15,029
Aviation 637 1,362 2,345 2,711
Survey -- 129 -- 611
Permitting 50 596 253 1,027
------- ------- ------- -------
Total $ 7,732 $ 9,180 $21,405 $19,378
======= ======= ======= =======
(1) Net of inter-segment revenues of $0.1 million for the three and nine month
periods ended September 30, 2001.
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2002 2001 2002 2001
------- ------- ------- -------
Gross profit:
Drilling $ 1,936 $ 1,622 $ 4,410 $ 2,415
Aviation 163 16 1,044 (357)
Survey (21) (3) (91) (136)
Permitting 8 84 30 143
Other (Corporate) (134) (151) (417) (322)
------- ------- ------- -------
Total $ 1,952 $ 1,568 $ 4,976 $ 1,743
General and administrative expenses 1,004 565 2,310 1,878
Asset impairment -- -- -- 180
Other expense (income), net 318 9 829 (6,759)
------- ------- ------- -------
Income before taxes $ 630 $ 994 $ 1,837 $ 6,444
======= ======= ======= =======
Capital Expenditures(2):
Drilling $ 96 $ 263 $ 374 $ 477
Aviation 20 -- 20 --
Survey -- -- -- --
Permitting -- -- -- --
Other 4 8 34 11
------- ------- ------- -------
Total $ 120 $ 271 $ 428 $ 488
======= ======= ======= =======
(2) Net of assets acquired from AirJac (See Note 9) totaling $2.1 million and
assets previously leased from Bank One totaling $1.0 million.
Identifiable Assets: As of September 30,
---------------------
2002 2001
------- -------
Drilling $25,573 $23,890
Aviation 5,827 1,748
Survey 1,073 1,640
Permitting 40 --
Other 9,063 7,425
------- -------
Total $41,576 $34,703
======= =======
-9-
NOTE 6. RECENT PRONOUNCEMENTS
In July 2001, Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets"
were issued. SFAS No. 141 requires all business combinations initiated after
September 30, 2001 to be accounted for using the purchase method. Under SFAS No.
142, goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed annually (or more frequently if impairment indicators
arise) for impairment. Separable intangible assets that are not deemed to have
indefinite lives will continue to be amortized over their useful lives (but with
no maximum life). The amortization provisions of SFAS No. 142 apply to goodwill
and intangible assets acquired after September 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, we adopted SFAS
No. 142 effective January 1, 2002 and accordingly, no amortization of goodwill
was recorded in the quarter or nine months ended September 30,2002. Goodwill
amortization expense for the quarter and nine months ended September 30, 2001
were approximately $26,000 and $48,000. The adoption of SFAS No. 142 did not
have a significant effect on our results of operations and financial condition.
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" was issued. These new rules on asset impairment supersede
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and was effective for our fiscal year
beginning January 1, 2002. Under SFAS No. 144 an impairment loss shall be
recognized if an evaluation of the carrying amount of an asset against the
undiscounted future cash flows associated with it is not sufficient to cover the
carrying value of such assets. An impairment loss shall also be recognized on
assets held for sale if the carrying amount of a long-lived asset or asset group
is not recognizable and exceeds the fair value. The adoption of SFAS No. 144 did
not have any impact on our financial statements.
In April 2002, Statement of Financial Accounting Standards (SFAS) No. 145,
"Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement
No. 13, and Technical Corrections" was issued SFAS No. 145 eliminates the
requirement under FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt" (Statement 4) to report gains and losses from
extinguishments of debt as extraordinary items in the income statement.
Accordingly, gains or losses from extinguishments of debt for fiscal years
beginning after May 15, 2002 shall not be reported as extraordinary items unless
the extinguishment qualifies as an extraordinary item under the provisions of
APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" (Opinion 30). The adoption of
SFAS 145 is not expected to have any impact on our financial statements upon
adoption.
NOTE 7. CONCENTRATION OF CREDIT RISK
We extend credit to customers and other parties in the normal course of
business. We regularly review outstanding receivables, and provide for estimated
losses through an allowance for doubtful accounts. In evaluating the level of
established reserves, we make judgments regarding the parties' ability to make
required payments, economic events and other factors. As the financial condition
of these parties change, circumstances develop or additional information becomes
available, adjustments to the allowance for doubtful account may be required.
Due to the nature of our industry, we have a concentration of credit risk. As a
result, adjustments to the allowance for doubtful accounts may be significant.
NOTE 8. ASSETS HELD FOR SALE
At September 30, 2002, we had $0.7 million in assets held for sale which
includes 8 steel marsh buggies as well as the remaining assets of our South
American operation. We expect to dispose of the remaining assets held for sale
during 2002. The carrying values, which we believe approximate fair market value
of our assets held for sale at September 30, 2002, is as follows (in thousands):
Asset Type September 30, 2002
---------- ------------------
Steel marsh buggies $108
South American facility and other 555
----
Total assets held for sale $663
====
-10-
NOTE 9. ACQUISITION
On January 18, 2002 we acquired the assets of AirJac Drilling (AirJac), a
division of Veritas DGC Land, Inc., a seismic drilling support company
headquartered in New Iberia, Louisiana. The aggregate acquisition cost was $4.2
million, including $2.0 million cash, acquisition costs, assumption of a capital
lease and certain future consideration. In this acquisition we acquired
inventory, vehicles, shop equipment and drilling, field and support equipment.
The acquisition also resulted in the recognition of $1.9 million of goodwill
principally from discounts granted to Veritas in connection with minimum future
work. We are still in the process of valuing the assets and liabilities
acquired, including customer relationship intangible assets. We expect to have
this completed prior to December 31, 2002. Offsetting liabilities have been
recorded for these future minimum discounts. The results of AirJac's operations
have been included in our consolidated financial statements since the
acquisition date. The following summarized unaudited data reflects our
consolidated pro forma results of operations as if the AirJac transaction had
taken place on January 1, 2001 (in thousands):
Unaudited Pro forma Results
Three months ended Nine months ended
September 30, 2001 September 30, 2001
------------------ ------------------
Revenue 12,925 29,227
Gross Profit 1,888 2,524
Net income 1,120 6,563
Basic earnings per share $ 0.12 $ 0.73
Diluted earnings per share $ 0.12 $ 0.67
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition. The allocation of the
purchase price is subject to refinement as acquired asset and liability values
are being finalized and is expected to be completed by December 31, 2002
(amounts in thousands):
Current assets $ 154
Property, plant, and equipment 2,101
Goodwill 1,920
Capital lease obligation assumed (179)
Obligation for future discounts (1,920)
-------
Net assets acquired $ 2,076
=======
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934 (the "Exchange Act"), which reflect
management's best judgment based on factors currently known. Actual results
could differ materially from those anticipated in these "forward looking
statements" as a result of a number of factors, including but not limited to
those discussed under the heading "Forward-Looking Statements." "Forward looking
statements" provided by us pursuant to the safe harbor established by the
federal securities laws should be evaluated in the context of these factors.
This discussion should be read in conjunction with the financial
statements and the accompanying notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in our Annual Report
on Form 10-K for the year ended December 31, 2001.
GENERAL
Demand. We receive our revenues from customers in the energy industry.
Demand for our 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.
During 1999, with the reduction in the price of oil and gas, we began
to experience a decrease in demand for our services. In 2001, the market
experienced a rebound. Based upon bid activity and existing backlog, we expect
revenues to continue to improve in 2002.
Seasonality and Weather Risks. Our operations are subject to seasonal
variations in weather conditions and available daylight hours. Since our
activities take place outdoors, on average, fewer hours are worked per day and
fewer holes are generally drilled or surveyed per day in winter months than in
summer months, due to an increase in rain, fog, and cold conditions and a
decrease in daylight hours.
Three months ended Nine months ended
Results of Operations September 30, September 30,
------------------------ ------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Operating revenue $ 7,732 $ 9,180 $ 21,405 $ 19,378
Operating expense 5,780 7,612 16,429 17,635
-------- -------- -------- --------
Gross profit 1,952 1,568 4,976 1,743
General and administrative expenses 1,004 565 2,310 1,878
Asset impairment charges -- -- -- 180
-------- -------- -------- --------
Operating income (loss) 948 1,003 2,666 (315)
Interest expense 295 169 774 1,095
Other income (expense) (23) 160 (55) 7,854
-------- -------- -------- --------
Income before income taxes 630 994 1,837 6,444
Income taxes -- -- -- --
-------- -------- -------- --------
Net income 630 994 1,837 6,444
Accretion of preferred stock -- (242) (484) (484)
-------- -------- -------- --------
Net income (loss) applicable to common and
common equivalent shares $ 630 $ 752 $ 1,353 $ 5,960
======== ======== ======== ========
-12-
Three Months Ended September 30, 2002 Compared to Three Months Ended
September 30, 2001
Operating revenues decreased 16%, or $1.5 million, from $9.2 million
for the three months ended September 30, 2001 to $7.7 million for the three
months ended September 30, 2002. Drilling revenues remained constant at $7.0
million for the three month periods ended September 30, 2002 and 2001. Aviation
revenues decreased $0.7 million from the three month period ended September 30,
2001 to the same three month period of 2002 as a result of fewer aircraft and
fewer hours flown. Permitting revenues decreased $0.5 million from the third
quarter of 2001 to the third quarter of 2002; likewise, survey revenues
decreased $0.1 million. This decrease was primarily attributable to our decision
to concentrate personnel, equipment and available working capital into more
profitable segments of the seismic industry.
Operating expenses decreased 24%, or $1.8 million, from $7.6 million
for the three months ended September 30, 2001 to $5.8 million for the three
months ended September 30, 2002. This decrease is partially attributable to
lower operating payroll and payroll related costs, which decreased $0.2 million
from $2.8 million to $2.6 million for the three month periods ended September
30, 2001 and 2002, respectively. Our average number of field personnel increased
by 37 from 182 employees during the third quarter of 2001 to 219 employees
during the third quarter of 2002. We currently utilize third party contractors
to perform all survey and permitting services as well as some drilling services.
Third party contract services decreased $0.5 million during the three months
ended September 30, 2002 as compared to September 30, 2001 principally as a
result of the decrease in permitting and survey revenues. Rentals and leases
expenses decreased $0.5 million primarily as a result of the capitalization of
the aircraft previously leased by the aviation division. Explosives and down
hole expenses decreased $0.3 million, and repairs and maintenance expenses and
fuel and oil expenses decreased $0.1 million each from the three months ended
September 30, 2001 to the same period of 2002 as management continues its
efforts to control its costs.
Gross profit margins were 25% for the three months ended September 30,
2002 as compared to 17% for the three months ended September 30, 2001. The
increase in profit margins in 2002 as compared to 2001 was attributable to a
combination of improved margins obtained for services rendered and
implementation of stringent controls over, and a restructuring of, our field
operating expenses.
General and administrative expenses increased $0.4 million from $0.6
million for the three months ended September 30, 2001 to $1.0 million for the
three months ended September 30, 2002. Payroll and payroll related costs
accounted for $0.1 million of this increase. The average number of
administrative employees decreased from 31 during the third quarter of 2001 to
29 for the third quarter of 2002. During the three month period ended September
30, 2001, we also renegotiated certain vendor and lease agreements at terms more
favorable than those agreements previously in existence, resulting in a savings
of approximately $0.3 million with no comparable adjustments in the three month
period ended September 30, 2002.
Interest expense increased $0.1 million from the three months ending
September 30, 2001 to the three months ended September 30, 2002. This is a
result of higher levels of debt between the two periods, primarily the
capitalization of the aviation fleet which was previously leased.
No income tax expense was recognized on our income during the third
quarters of 2001 or 2002 as we expect to utilize our net operating loss
carryforwards, which have been reserved in prior periods, to offset our taxable
income during the periods.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
Operating revenues increased 10%, or $2.0 million, from $19.4 million
for the nine months ended September 30, 2001 to $21.4 million for the nine
months ended September 30, 2002. Revenues from our drilling operations increased
$3.8 million principally as a result of an increase in seismic activity. The
aviation, permitting and survey divisions, however, experienced an aggregate
$1.8 million decrease in revenues over this same period, attributable to our
decision to concentrate personnel, equipment and available working capital into
more profitable segments of the seismic industry.
Operating expenses decreased 7%, or $1.2 million, from $17.6 million
for the nine months ended September 30, 2001 to $16.4 million for the nine
months ended September 30, 2002. Rentals and leases expenses and repairs and
maintenance expenses on previously leased aviation equipment decreased $0.7
million each during the first three quarters of 2002 as compared to the first
three quarters of 2001. However, as a result of increased drilling activity for
the seismic
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industry, explosive supplies used in the drilling operations increased $0.4
million for the nine months ended September 30, 2002 as compared to the same
nine month period ended 2001.
Gross profit margins were 23% and 9% for the nine months ended
September 30, 2002 and 2001, respectively. The improvement in the profit margins
is a direct result of increased business activity in our more profitable
business segments, improved margins received for the services provided and more
stringent controls on operating expenses.
General and administrative expenses increased $0.4 million from the
nine months ended September 30, 2001 to the nine months ended September 30,
2002. We realized approximately $0.4 million in savings during the nine month
period ended September 30, 2001 from renegotiating certain lease and vendor
agreements with terms more favorable to us than those agreements for prior
periods with no corresponding savings for the nine month period ended September
30, 2002. These increases were partially offset by a $0.1 million decrease in
bad debt expense due to the recovery of amounts previously expensed.
Restructuring and asset impairment charges decreased $0.2 million due
to revaluation of certain drilling equipment in 2001 with no corresponding
charges for the same period in 2002.
Interest expense decreased $0.3 million from $1.1 million for the nine
month period ended September 30, 2001 to $0.8 million for the nine month period
ended September 30, 2002. The reduction was a result of lower average debt
outstanding coupled with lower average interest rates during the periods.
No income tax expense was recognized on income during the first nine
months of 2001 or 2002 as we expect to utilize our net operating loss
carryforwards, which have been reserved in prior periods, to offset our taxable
income during those periods.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, we had approximately $0.3 million in cash
compared to approximately $1.2 million at December 31, 2001. We had working
capital of approximately $3.5 million at September 30, 2002, compared to
approximately $2.3 million at December 31, 2001. The increase in working capital
from December 31, 2001 to September 30, 2002 is due primarily to the increase in
prepaid insurance resulting from policy renewals in September 2002.
Cash provided by operating activities was $3.0 million for the period
ended September 30, 2002. This compares to cash provided by operating activities
totalling $5.9 million for the period ended September 30, 2001 which included
$7.5 million from the receipt of key-man life insurance proceeds used
principally to retire long term and subordinated debt.
Our primary credit facility is with PNC Bank (the "PNC Facility"). The
PNC Facility, which partially replaced the Hibernia Facility in September 2002,
currently provides us with a $3.5 million equipment loan and a $7.0 million
revolving line of credit to finance working capital requirements. The revolving
line of credit bears interest at prime plus 1.5% and the equipment loan bears
interest at prime plus 1.75% and both have a final maturity of August 23, 2005.
The proceeds from the facility were used to repay debt. As of September 30,
2002, we had approximately $6.1 million outstanding under the PNC Facility, of
which $2.7 million was outstanding under the revolving line of credit and $3.4
million was outstanding under the equipment term note. Availability under the
revolving line of credit is the lower of: (i) $7.0 million or (ii) the sum of
85% of eligible accounts receivable, plus 50% of eligible aviation inventory of
parts and supplies. The revolving line of credit is collateralized by our
accounts receivable and inventory. At September 30, 2002 additional borrowing
capacity under the revolving line of credit was $0.9 million. We expect the cash
flow provided by our operating activities will be adequate to finance our
working capital needs for the remainder of 2002.
At September 30, 2002, we also had approximately $9.3 million in other
loans outstanding, including approximately $1.8 million in outstanding debt
pursuant to agreements with a financing company. This loan is an asset-based
financing instrument bearing interest at LIBOR plus 5.0% and maturing in August
2004. We also had $3.6 million in outstanding debt to a financing company
pursuant to the acquisition of our aviation fleet previously financed through an
operating lease. This loan is secured by the aviation fleet, amortizes over ten
years, accrues interest at 8% per annum and matures January 1, 2007.
Additionally, we had $1.8 million in outstanding debt to a bank which is
collateralized by our primary office buildings. The loan bears interest at prime
plus 1.5% and has a final maturity of August 31, 2004. Of the remaining $2.1
million on other loans outstanding, $0.6 million is due pursuant to capital
lease obligations on our vehicle fleet and $1.5 million is due to certain
insurance finance companies.
-14-
On January 18, 2002 we acquired the assets of AirJac Drilling, a
division of Veritas DGC Land, Inc., a seismic drilling support company
headquartered in New Iberia, Louisiana. The aggregate acquisition cost was $4.2
million, including $2.0 million cash, acquisition costs, assumption of a capital
lease and certain future consideration. In this acquisition we acquired
inventory, vehicles, shop equipment and drilling, field and support equipment.
The acquisition also resulted in the recognition of $1.9 million of goodwill
resulting principally from future discounts granted to Veritas in connection
with future minimum work. Offsetting liabilities have been recorded for these
future discounts. We received advances from affiliates totaling approximately
$1.3 million in connection with the financing of this transaction. At September
30, 2002 approximately $0.4 million of these advances remain outstanding, all of
which is secured by accounts receivable from a customer. The results of AirJac's
operations have been included in our consolidated financial statements since the
acquisition date.
Historically, our capital requirements have primarily related to the
purchase or fabrication of new seismic drilling equipment and related support
equipment and business acquisitions. Other than the acquisition discussed in
Note 9, we have no material commitments outstanding for expenditures nor do we
anticipate significant capital expenditures in the remainder of 2002.
-15-
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements other than statements of historical fact included
in this report regarding our financial position and liquidity, our strategic
alternatives, future capital needs, business strategies and other plans and
objectives of our management for future operations and activities, are
forward-looking statements. These statements are based on certain assumptions
and analyses made by our management in light of our experience and our
perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate under the
circumstances. Such forward-looking statements are subject to uncertainties that
could cause our actual results to differ materially from such statements. Such
uncertainties include but are not limited to: the volatility of the oil and gas
industry, including the level of offshore exploration, production and
development activity; changes in competitive factors affecting our operations;
operating hazards, including the significant possibility of accidents resulting
in personal injury, property damage or environment damage; the effect on our
performance of regulatory programs and environmental matters; seasonality of the
offshore industry in the Gulf of Mexico; and our dependence on certain
customers. These and other uncertainties related to our business are described
in detail in our other public filings. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. You are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. We undertake no obligation to update any of our
forward-looking statements for any reason.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our market risks since the year ended
December 31, 2001. For more information, please read the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2001.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of
1934 (the "Exchange Act"). Based on that evaluation, our principal executive
officer and principal financial officer have concluded that these controls and
procedures are effective. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified under the Exchange
Act. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
us in the reports that we filed under the Exchange Act is accumulated and
communicated to our management, including our principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K
Current Report on Form 8-K filed July 3, 2002 regarding reverse stock
split.
-16-
Current Report on Form 8-K filed August 9, 2002 regarding change in
certifying accountant.
-17-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on our behalf by the
undersigned thereunto duly authorized.
OMNI ENERGY SERVICES CORP.
Dated: November 14, 2002 /s/ JAMES C. ECKERT
-------------------------------------
James C. Eckert
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 14, 2002 /s/ BURTON T. ZAUNBRECHER
-------------------------------------
Burton T. Zaunbrecher
Executive Vice President,
Chief Operating Officer and Treasurer
Dated: November 14, 2002 /s/ G. DARCY KLUG
-------------------------------------
G. Darcy Klug
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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OMNI Energy Services Corp.
a Louisiana corporation
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Section 302 Certification
I, James Eckert, certify that:
1. I have reviewed this quarterly report on Form 10-Q of OMNI Energy Services
Corp., a Louisiana corporation (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other information
included in this quarterly report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ JAMES ECKERT
---------------------------
James Eckert
Chief Executive Officer
S-1
OMNI Energy Services Corp.
a Louisiana corporation
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification
I, Darcy Klug, certify that:
1. I have reviewed this quarterly report on Form 10-Q of OMNI Energy Services
Corp., a Louisiana corporation (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ G. DARCY KLUG
--------------------------------------
G. Darcy Klug
Chief Financial Officer
S-2
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer