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, 2003
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the transition period from ____ 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
(Address of principal executive offices) 70520
(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
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined by Rule 12b-2 of the Exchange Act). Yes No X
--- ---
As of November 6, 2003 there were 9,106,777 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, 2003 AND DECEMBER 31, 2002
(Thousands of dollars)
ASSETS September 30, December 31,
2003 2002
------------- -------------
(unaudited) (Note 1)
CURRENT ASSETS:
Cash and cash equivalents $ 3,714 $ 704
Trade receivable, net 4,249 4,485
Other receivables 2,338 1,440
Parts and supplies inventory 2,946 2,711
Prepaid expenses 2,065 2,228
Deferred tax asset 1,025 400
Assets held for sale 127 413
------------- -------------
Total current assets 16,464 12,381
------------- -------------
PROPERTY AND EQUIPMENT:
Land 359 359
Buildings and improvements 4,571 4,530
Drilling, field and support equipment 26,871 27,354
Aviation equipment 3,779 4,189
Shop equipment 425 425
Office equipment 1,556 1,535
Vehicles 2,541 2,590
------------- -------------
40,102 40,982
Less: accumulated depreciation 18,612 16,559
------------- -------------
Total property and equipment, net 21,490 24,423
------------- -------------
OTHER ASSETS:
Goodwill 2,109 2,051
Intangible asset, net 1,745 1,820
Other 1,064 650
------------- -------------
Total other assets 4,918 4,521
------------- -------------
Total assets $ 42,872 $ 41,325
============= =============
The accompanying notes are an integral part of these financial statements.
-2-
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
(Thousands of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31,
2003 2002
------------- -------------
(unaudited) (Note 1)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,476 $ 2,235
Notes payable, insurance 1,237 1,581
Accounts payable 4,085 4,216
Accrued expenses 1,620 1,335
------------- -------------
Total current liabilities 8,418 9,367
------------- -------------
LONG-TERM LIABILITIES:
Line of credit 4,184 2,978
Other long term liabilities 375 638
Long-term debt, less current maturities 7,018 8,340
------------- -------------
Total long-term liabilities 11,577 11,956
------------- -------------
TOTAL LIABILITIES 19,995 21,323
------------- -------------
MINORITY INTEREST 221 221
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred Stock, Series A, 15,000 shares authorized, 7,500 shares issued
and outstanding; Series B, 10,000 shares authorized, 4,600 shares
issued and outstanding 12,100 12,100
Common Stock, $.01 par value, 45,000,000
shares authorized; 9,106,777 issued and outstanding 91 91
Treasury Stock, 361,800 shares, at cost (706) (706)
Additional paid-in capital 56,840 56,831
Accumulated deficit (45,833) (48,457)
Preferred stock dividends declared 242 --
Cumulative translation adjustment (78) (78)
------------- -------------
Total equity 22,656 19,781
------------- -------------
Total liabilities and stockholders' equity $ 42,872 $ 41,325
============= =============
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, 2003 AND 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- -----------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
Operating revenue $ 10,218 $ 7,732 $ 26,834 $ 21,405
Operating expenses 7,617 5,780 20,312 16,429
------------ ------------ ------------ ------------
Gross profit 2,601 1,952 6,522 4,976
General and administrative expenses 1,090 1,004 3,381 2,310
------------ ------------ ------------ ------------
Operating income 1,511 948 3,141 2,666
Other income (expense):
Interest (202) (295) (650) (774)
Other (170) (23) (250) (55)
------------ ------------ ------------ ------------
(372) (318) (900) (829)
------------ ------------ ------------ ------------
Income before taxes 1,139 630 2,241 1,837
Income taxes (benefit) (300) -- (625) --
------------ ------------ ------------ ------------
Net income 1,439 630 2,866 1,837
Preferred stock dividends (242) -- (242) (484)
------------ ------------ ------------ ------------
Net earnings applicable to common and
common equivalent shares $ 1,197 $ 630 $ 2,624 $ 1,353
============ ============ ============ ============
Basic net income per share: $ 0.14 $ 0.07 $ 0.30 $ 0.15
Diluted net income per share: $ 0.14 $ 0.07 $ 0.30 $ 0.15
Weighted average shares outstanding:
Basic 8,742 8,740 8,741 8,739
Diluted 8,782 8,743 8,743 8,804
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, 2003 AND 2002
(THOUSANDS OF DOLLARS)
Nine months ended September 30,
-----------------------------------
2003 2002
------------ ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,866 $ 1,837
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation 2,820 2,674
Amortization 346 60
(Gain) loss on fixed asset disposition (43) (1)
Changes in operating assets and liabilities-
Decrease (increase) in assets-
Receivables-
Trade 236 (90)
Other (898) (400)
Inventory (234) 61
Prepaid expenses 163 1,528
Assets held for sale 285 (34)
Other (742) (2,327)
Increase (decrease) in liabilities-
Accounts payable 276 1,054
Accrued expenses 20 (2,251)
Other long-term liabilities (888) 876
------------ ------------
Net cash provided by operating activities 4,207 2,987
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition paid with cash -- (2,076)
Proceeds from disposal of fixed assets 2,263 1,035
Assets acquired from lease buyout -- (1,000)
Purchase of fixed assets, net (1,887) (76)
------------ ------------
Net cash provided by (used in) investing activities 376 (2,117)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,352 3,500
Principal payments on long-term debt (3,997) (6,233)
Proceeds from issuance of common stock 9 6
Due to affiliates (143) 271
Net borrowings (payments) on line of credit 1,206 668
------------ ------------
Net cash (used in) financing activities (1,573) (1,788)
------------ ------------
NET INCREASE (DECREASE) IN CASH 3,010 (918)
CASH, at beginning of period 704 1,233
------------ ------------
CASH, at end of period $ 3,714 $ 315
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $ 650 $ 774
============ ============
Equipment acquired under capital lease $ 220 $ 492
============ ============
Premiums financed with insurance carrier $ 1,351 $ 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, 2002 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles. Certain prior
period amounts have been reclassified to be consistent with current year
financial statement presentation.
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.
For the three and nine months ended September 30, 2003, we had 471,501 and
972,787 options outstanding, respectively, and warrants to purchase 2,121,662
shares of common stock as of September 30, 2003 that were excluded from the
calculation of diluted EPS because they were antidilutive. Likewise, we had
1,004,460 and 448,410 options outstanding, respectively, for the three and nine
months ended September 30, 2002 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.
NOTE 3. LONG-TERM DEBT
In September 2002, we entered into a $10.5 million senior credit facility
including a $7.0 million working capital revolving line of credit (the "Line")
and a $3.5 million term loan. The proceeds were used to repay term debt,
refinance our revolving line of credit and provide working capital.
Availability under the Line is the lower of: $7.0 million or the sum of 85% of
eligible accounts receivable, plus the lesser of: 50% of the cost of eligible
inventory or 80% of the appraised orderly liquidation value of eligible
inventory of parts and supplies. The Line accrues interest at the prime interest
rate plus 1.5% (5.5% at September 30, 2003) and matures on August 31, 2004. The
Line is collateralized by accounts receivable and inventory and is subject to
certain customer concentration limitations. As of September 30, 2003 we had $4.2
million outstanding under the Line.
We have received a commitment from a bank (the "Commitment") to refinance our
existing revolving line of credit and term loan. We expect to have this new
facility completed during November 2003. The Commitment includes an $8.0 million
working capital revolving credit facility and a $3.0 million senior term
facility. The new facility will be collateralized by accounts receivable and
inventory and will be subject to certain customer concentration limitations.
Availability under this new line of credit will be the lower of: $8.0 million or
the sum of 85% of eligible accounts receivable, plus the lesser of: $2.0 million
or 80% of the appraised orderly liquidation value of eligible inventory of parts
and supplies. This line will accrue interest at the prime interest rate plus
1.5% and will mature in November 2006. The term loan will be collateralized by
certain equipment. It will accrue interest at the prime interest rate plus
1.75%, will have a five year amortization of principal and interest and will
mature November 2006.
-6-
We do not anticipate any significant differences between the Commitment and the
final terms of the new facility; however, there can be no assurances given that
the terms will be the same.
At September 30, 2003, we also had outstanding approximately $8.5 million in
other senior secured debt including approximately $1.2 million with an equipment
finance company. This loan amortizes over seven years, bears interest at LIBOR
plus 5.0%, is secured by seismic drilling equipment and matures in July 2006.
Further, at September 30, 2003 we had approximately $2.2 million outstanding to
an aviation equipment finance company. This loan is secured by the aviation
fleet, amortizes over ten years, accrues interest at 8% per annum and matures in
January 2007.
In August 2003, we completed a new $1.65 million real estate loan with a bank.
The proceeds were used to repay the existing real estate loan, the principal
balance of which totalled $1.7 million. The gain on the early extinguishment of
the then existing real estate debt was recognized as income in the second
quarter of 2003. The new real estate loan is payable in 240 equal monthly
installments plus interest accruing at the prime interest rate plus 1.5% and is
secured by our corporate office, real estate and fabrication and maintenance
facilities. Further, under the terms of the new real estate credit agreement, a
principal payment of $0.2 million is due in July 2008.
Our senior secured credit agreements and our real estate loan contain customary
financial covenants requiring, among other things, minimum levels of tangible
net worth, debt to EBITDA ratios, and limitations on annual capital
expenditures. As of September 30, 2003 we were in compliance with these
covenants and we expect to maintain compliance throughout 2003.
In connection with the original issuance of certain subordinated debentures, we
issued to an affiliate detachable warrants to purchase 1,912,833 shares of our
common stock, of which 967,000 have been cancelled as of September 30, 2003. The
remaining 945,833 warrants outstanding are all exercisable with exercise prices
ranging from $2.25 to $6.00 per share, as set forth below:
Exercise Price Warrants
-------------- ----------
$6.00 12,500
$4.50 172,222
$2.25 761,111
----------
945,833
==========
NOTE 4. COMMITMENTS AND CONTINGENCIES
During September 2003 we entered into a sale leaseback transaction for two of
our aircraft. We received $1.9 million upon the sale of the aircraft and entered
into an operating lease for a period of 60 months. Monthly rental payments under
the lease are approximately $30,000. We have the option to buy back the aircraft
at the end of the lease period for 30% of the original sale price. The proceeds
were used to retire debt.
NOTE 5. PREFERRED STOCK
At September 30, 2003 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.
Pursuant to an agreement with the preferred shareholders, dividends did not
accrue on the outstanding stock from April 2001 through June 2002. Dividends
were accreted at 8% during the free dividend period. As of September 2003 there
were approximately $0.4 million dividends in arrears relating to these
outstanding shares of Series A Preferred Stock. The affiliate previously agreed
that dividends would not accrue after June 30, 2003 until our EBITDA reached a
mutually agreed upon level. During the third quarter of 2003 we agreed with the
holders of the preferred stock that our EBITDA had reached an acceptable level
for the resumption of conversion rights and the accrual of
-7-
dividends. Pursuant to our senior secured credit agreements, the dividends will
be paid "in kind" (in shares of like preferred stock) rather than in cash.
In May 2001, we committed to issue 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. Pursuant to an agreement with the preferred
shareholders, dividends did not accrue on the outstanding stock from April 2001
through June 2002. Dividends were accreted at 8% during the free dividend
period. As of September 2003 there were approximately $0.1 million dividends in
arrears relating to these outstanding shares of Series B Preferred Stock. The
affiliate previously agreed that dividends would not accrue after June 30, 2003
until our EBITDA reached a mutually agreed upon level. During the third quarter
of 2003 we agreed with the holders of the preferred stock that our EBITDA had
reached an acceptable level for the resumption of conversion rights and the
accrual of dividends. Pursuant to our senior secured credit agreements, the
dividends will be paid "in kind" (in shares of like preferred stock) rather than
in cash.
NOTE 6. 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, 2003 and 2002:
Three months ended September 30, Nine months ended September 30,
-------------------------------- --------------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Operating revenues:
Drilling $ 8,399 $ 7,045 $ 22,568 $ 18,807
Aviation 1,254 637 3,032 2,345
Survey -- -- -- --
Permitting 565 50 1,234 253
---------- ---------- ---------- ----------
Total $ 10,218 $ 7,732 $ 26,834 $ 21,405
========== ========== ========== ==========
Three months ended September 30, Nine months ended September 30,
--------------------------------- ---------------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Gross profit:
Drilling $ 2,249 $ 1,936 $ 5,984 $ 4,410
Aviation 350 163 768 1,044
Survey (13) (21) (50) (91)
Permitting 116 8 257 30
Other (Corporate) (101) (134) (437) (417)
---------- ---------- ---------- ----------
Total $ 2,601 $ 1,952 $ 6,522 $ 4,976
General and administrative expenses 1,090 1,004 3,381 2,310
Other expense (income), net 372 318 900 829
---------- ---------- ---------- ----------
Income before taxes $ 1,139 $ 630 $ 2,241 $ 1,837
========== ========== ========== ==========
Capital Expenditures (1):
Drilling $ 283 $ 96 $ 317 $ 374
Aviation 174 20 1,724 20
Survey -- -- -- --
Permitting -- -- -- --
Other 52 4 66 34
---------- ---------- ---------- ----------
Total $ 509 $ 120 $ 2,107 $ 428
========== ========== ========== ==========
(1) Net of assets acquired from AirJac (See Note 10) totaling $2.1 million and
assets previously leased from Bank One totaling $1.0 million.
-8-
Identifiable Assets: As of September 30,
--------------------------------
2003 2002
---------- ----------
Drilling $ 20,593 $ 25,573
Aviation 7,356 5,827
Survey 1,000 1,073
Permitting 90 40
Other 13,833 9,063
---------- ----------
Total $ 42,872 $ 41,576
========== ==========
NOTE 7. RECENT PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets." Under SFAS 142,
goodwill and indefinite-lived intangible assets are no longer amortized but are
reviewed for impairment annually, or more frequently if circumstances indicate
potential impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. No
impairment of goodwill has occurred.
In April 2002, the FASB issued SFAS No. 145, "Rescission of Financial Accounting
Standards Board (FASB) Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections." SFAS No. 145 requires that gains and losses
recorded from the extinguishment of debt that do not meet the criteria of
Accounting Principles Board (APB) Opinion No. 30 should not be presented as
extraordinary items. This statement is effective for fiscal years beginning
after May 15, 2002 as it relates to the reissued FASB Statement No. 4, with
earlier application permitted. Any gain or loss on extinguishment of debt that
was classified as an extraordinary item in prior periods presented that does not
meet the criteria in APB 30 for classification as an extraordinary item will be
reclassified.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity," under which a
liability for an exit cost was recognized at the date of an entity's commitment
to an exit plan. SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized at fair value when the liability
is incurred. The provisions of this statement are effective for exit or disposal
activities that are initiated after December 31, 2002. SFAS 146 has no impact on
the Company's financial statements.
In November 2002, the FASB issued FASB Interpretation (FIN) 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," which elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of the guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of this
Interpretation are applied prospectively to guarantees issued or modified after
December 31, 2002. The adoption of these recognition provisions will result in
recording liabilities associated with certain guarantees provided by the
Company. The disclosure requirements of this Interpretation are effective for
financial statements of interim or annual periods ending after December 15,
2002. Management does not expect this Interpretation to have a material impact
on the Company's financial statements.
In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure -- An Amendment of FASB Statement No. 123," was issued
by the FASB and amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation." This Statement provides alternative methods of transition for an
entity that voluntarily changes to the fair value based method of accounting for
stock-based employee compensation and amends the disclosure provisions of SFAS
123 to require prominent disclosure about the effects on reported net income of
an entity's accounting policy decisions with respect to stock-based employee
compensation. Additionally, this Statement amends APB Opinion No. 28, "Interim
Financial Reporting," to require disclosure about those effects in interim
financial information. The transition method provisions of this Statement are
effective for fiscal years ending after December 15, 2002. The interim financial
reporting requirements of this Statement are effective for financial reports
containing condensed financial statements for interim periods beginning after
December 15, 2002.
-9-
In May 2003, SFAS No. 150 "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity," was issued to establish new
standards for how an entity classifies and measures certain financial
"instruments with characteristics of both liabilities and equity. It requires
that an entity classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of these instruments were
previously classified as equity. This statement was effective when issued for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective for calendar year public companies for the third quarter of 2003.
Management does not expect this statement to have a material impact on the
Company's financial statements.
NOTE 8. 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 accounts 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 9. ASSETS HELD FOR SALE
At September 30, 2003, we had $0.2 million in assets held for sale of which $0.1
million is included in "Other Assets" and $0.1 million is included in "Assets
Held for Sale" in the accompanying balance sheets. As of September 30, 2003
assets held for sale included 8 steel marsh buggies as well as the remaining
assets of our South American operation, for which we have specific agreements to
sell. We expect to dispose of the remaining assets held for sale by the end of
2003. The carrying values, which we believe approximate fair market value of our
assets held for sale at September 30, 2003, are as follows (in thousands):
Asset Type September 30, 2003
------------------------------- ------------------
Steel marsh buggies $ 108
South American facility
and other 128
----------
Total assets held for sale $ 236
==========
NOTE 10. ACQUISITION
Effective January 18, 2002 we acquired the assets of AirJac Drilling (AirJac), a
division of Veritas DGC Land, Inc. (Veritas), 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 a commitment valued at $1.9 million to discount future work to be
performed for Veritas over a four year period. In this acquisition we acquired
inventory, vehicles, shop equipment and drilling, field and support equipment.
The acquisition resulted in the recognition of a $1.9 million customer
relationship intangible asset. We established a liability for these future
minimum discounts which will be recognized as work is performed. The results of
AirJac's operations have been included in our consolidated financial statements
since the acquisition date. The results of operations between January 1, 2002
and the acquisition date, January 18, 2002 were not considered material.
-10-
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 (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. STOCK BASED COMPENSATION
We account 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 our reported
results of operations. Pro forma disclosures as if we 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, our net income and earnings per
common share would have approximated the pro forma amounts below:
FOR THE THREE MONTHS ENDED
----------------------------------------------------------------------------------------
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------------------------------ ------------------------------------------
AS COMPEN- PRO AS COMPEN- PRO
REPORTED SATION(1) FORMA REPORTED SATION(1) FORMA
----------- ----------- ----------- ----------- ------------ -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net income (loss) available to
common and common equivalent
shares .......................... $ 1,197 (17) $ 1,180 $ 630 (17) $ 613
Basic income (loss) per share ..... $ 0.14 $ (0.01) $ 0.13 $ 0.07 -- $ 0.07
Diluted income (loss) per
share ........................... $ 0.14 $ (0.01) $ 0.13 $ 0.07 -- $ 0.07
FOR THE NINE MONTHS ENDED
----------------------------------------------------------------------------------------
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------------------------------ ------------------------------------------
AS COMPEN- PRO AS COMPEN- PRO
REPORTED SATION(1) FORMA REPORTED SATION(1) FORMA
----------- ----------- ----------- ----------- ------------ -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net income (loss) available to
common and common equivalent
shares .......................... $ 2,624 (34) $ 2,590 $ 1,353 (34) $ 1,319
Basic income (loss) per share ..... $ 0.30 -- $ 0.30 $ 0.15 -- $ 0.15
Diluted income (loss) per
share ........................... $ 0.30 -- $ 0.30 $ 0.15 -- $ 0.15
(1) Represents stock based employee compensation expense determined under fair
value based method for all awards, net of tax.
12. INCOME TAXES
Due to our recent history of operating losses, we recorded a valuation allowance
during the periods against our net operating loss carry-forwards, which resulted
in our not reporting any income tax expense or benefit during the nine month
period ended September 30, 2002. For the year ended December 31, 2002 the
Company reversed $0.4 million of this related reserve due to the Company's
expectation of generating income in fiscal 2003. For the three and nine month
periods ended September 30, 2003 the Company reversed an additional $0.3 million
and $0.6 million, respectively.
-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, 2002.
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 and 2002, the
market experienced a rebound. Based on bid activity and existing backlog, we
expect revenues to continue to improve throughout the remainder of 2003 and
remain strong in 2004
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.
Results of Operations Three months ended September 30, Nine months ended September 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Operating revenue .............................. $ 10,218 $ 7,732 $ 26,834 $ 21,405
Operating expense .............................. 7,617 5,780 20,312 16,429
------------ ------------ ------------ ------------
Gross profit ................................... 2,601 1,952 6,522 4,976
General and administrative expenses ............ 1,090 1,004 3,381 2,310
------------ ------------ ------------ ------------
Operating income (loss) ........................ 1,511 948 3,141 2,666
Interest expense ............................... 202 295 650 774
Other income (expense) ......................... (170) (23) (250) (55)
------------ ------------ ------------ ------------
Income before income taxes ..................... 1,139 630 2,241 1,837
Income taxes ................................... (300) -- (625) --
------------ ------------ ------------ ------------
Net income ..................................... 1,439 630 2,866 1,837
Preferred stock dividends ...................... (242) -- (242) (484)
------------ ------------ ------------ ------------
Net income (loss) applicable to common and
common equivalent shares ....................... $ 1,197 $ 630 $ 2,624 $ 1,353
============ ============ ============ ============
-12-
Three Months Ended September 30, 2003 Compared to Three Months Ended September
30, 2002
Operating revenues increased 32%, or $2.5 million, from $7.7 million
for the three months ended September 30, 2002 to $10.2 million for the three
months ended September 30, 2003. Drilling revenues increased $1.4 million from
$7.0 million for the three month period ended September 30, 2002 to $8.4 million
for the three months ended September 30, 2003 as a result of increased seismic
activity. Aviation revenues doubled from $0.6 million for the three month period
ended September 30, 2002 to $1.2 million for the same three month period of 2003
as a result of more aircraft and greater hours flown. Permitting revenues
increased $0.5 million from the third quarter of 2002 to the third quarter of
2003.
Operating expenses increased 32%, or $1.8 million, from $5.8 million
for the three months ended September 30, 2002 to $7.6 million for the three
months ended September 30, 2003. This increase is partially attributable to
higher operating payroll and payroll related costs, which increased $0.3 million
from $2.6 million to $2.9 million for the three month periods ended September
30, 2002 and 2003, respectively. We currently utilize third party contractors to
perform all permitting services as well as some drilling services. Third party
contract services increased $0.2 million during the three months ended September
30, 2003 as compared to September 30, 2002 principally as a result of the
increase in permitting revenues. Explosives and down hole expenses increased
$0.6 million and repairs and maintenance expenses and fuel and oil expenses
increased $0.3 million and $0.2 million, respectively, from the three months
ended September 30, 2002 to the same period of 2003 as a result of increased
seismic activity.
Gross profit margins remained constant at 25% each for the three months
ended September 30, 2003 and 2002 as management continues to maintain stringent
control over our field operating expenses.
General and administrative expenses increased only slightly from $1.0
million for the three months ended September 30, 2002 to $1.1 million for the
three months ended September 30, 2003.
Interest expense decreased $0.1 million from the three months ended
September 30, 2002 to the three months ended September 30, 2003. This is a
result of lower levels of debt as well as reduced interest rates between the two
periods.
During the third quarter of 2003 we agreed with the holders of the
preferred stock that our EBITDA had reached an acceptable level for the
resumption of conversion rights and the accrual of dividends. Accordingly, we
accrued dividends of $0.2 million for the three months ended September 30, 2003.
Pursuant to our senior secured credit agreements, the dividends will be paid "in
kind" (in shares of like preferred stock) rather than in cash.
Due to our recent history of operating losses, we recorded a valuation
allowance during the periods against our net operating loss carry-forwards,
which resulted in our not reporting any income tax expense or benefit during the
three month period ended September 30, 2002. For the year ended December 31,
2002 we reversed $0.4 million of this related reserve due to our expectation of
generating income in fiscal 2003. For the period ended September 30, 2003 we
reversed an additional $0.3 million.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
Operating revenues increased 25%, or $5.4 million, from $21.4 million
for the nine months ended September 30, 2002 to $26.8 million for the nine
months ended September 30, 2003. Revenues from our drilling and permitting
operations increased $3.7 million and $1.0 million, respectively, principally as
a result of an increase in seismic activity. The aviation division likewise
experienced an increase in revenues of $0.7 million between the third quarters
of 2002 and 2003 as a result of greater hours flown.
Operating expenses increased 24%, or $3.9 million, from $16.4 million
for the nine months ended September 30, 2002 to $20.3 million for the nine
months ended September 30, 2003. This increase is partially attributable to
higher operating payroll and payroll related costs, which increased $1.3 million
from $7.1 million to $8.4 million for the nine month periods ended September 30,
2002 and 2003, respectively. Repairs and maintenance expenses also increased
$1.3 million between the two periods. As a result of increased drilling activity
for the seismic industry, explosive supplies and fuels and oils expenses
increased $0.9 million and $0.4 million, respectively, for the nine months ended
September 30, 2003 as compared to the same nine month period ended 2002.
-13-
Gross profit margins were 24% and 23% for the nine months ended
September 30, 2003 and 2002, respectively. This continued stability in profit
margins is a direct result of increased business activity in our more profitable
business segments and continued controls on operating expenses.
General and administrative expenses increased $1.1 million from the
nine months ended September 30, 2002 to the nine months ended September 30,
2003. Insurance expenses and professional services increased $0.2 million each.
Amortization of loan closing costs and a customer intangible increased $0.3
million. We realized approximately $0.2 million in savings during the nine month
period ended September 30, 2002 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, 2003. We also recognized a $0.1 million increase in bad debt expense due to
the recovery of amounts previously expensed in the first nine months of 2002.
Interest expense decreased $0.1 million from $0.8 million for the nine
month period ended September 30, 2002 to $0.7 million for the nine month period
ended September 30, 2003. The reduction was a result of lower average debt
outstanding coupled with lower average interest rates during the periods.
During the third quarter of 2003 we agreed with the holders of the
preferred stock that our EBITDA had reached an acceptable level for the
resumption of conversion rights and the accrual of dividends. Accordingly, we
accrued dividends of $0.2 million for the nine months ended September 30, 2003.
Pursuant to our senior secured credit agreements, the dividends will be paid "in
kind" (in shares of like preferred stock) rather than in cash.
Due to our recent history of operating losses, we recorded a valuation
allowance during the periods against our net operating loss carry-forwards,
which resulted in our not reporting any income tax expense or benefit during the
nine month period ended September 30, 2002. For the year ended December 31, 2002
we reversed $0.4 million of this related reserve due to our expectation of
generating income in fiscal 2003. For the nine month period ended September 30,
2003 we reversed an additional $0.6 million.
LIQUIDITY AND CAPITAL RESOURCES
At September 2003, we had approximately $3.7 million in cash compared
to approximately $0.7 million at December 31, 2002. We had working capital of
approximately $8.0 million at September 30, 2003, compared to approximately $3.0
million at December 31, 2002. The improved working capital from December 31,
2002 to September 30, 2003 is due primarily to the increased business activity
while maintaining consistent profit margins and cost controls.
Cash provided by operating activities was $4.2 million for the period
ended September 30, 2003 compared to cash provided by operating activities
totalling $3.0 million for the period ended September 30, 2002. Our cash
position improved principally as a result of increased seismic drilling activity
and improved operating results.
In September 2002, we entered into a $10.5 million senior credit
facility with a bank including a $7.0 million working capital revolving line of
credit (the "Line") and a $3.5 million term loan. The proceeds were used to
repay term debt, refinance our revolving line of credit and provide working
capital.
Availability under the Line is the lower of: $7.0 million or the sum of
85% of eligible accounts receivable, plus the lesser of: 50% of the cost of
eligible inventory or 80% of the appraised orderly liquidation value of eligible
inventory of parts and supplies. The Line accrues interest at the prime interest
rate plus 1.5% (5.5% at September 30, 2003) and matures on August 31, 2004. The
Line is collateralized by accounts receivable and inventory and is subject to
certain customer concentration limitations. As of September 30, 2003 we had $4.2
million outstanding under the Line.
We have received a commitment from a bank (the "Commitment") to
refinance our existing revolving line of credit and term loan. We expect to have
this new facility completed during November 2003. The Commitment includes an
$8.0 million working capital revolving credit facility and a $3.0 million senior
term facility. The new facility will be collateralized by accounts receivable
and inventory and will be subject to certain customer concentration limitations.
Availability under this new line of credit will be the lower of: $8.0 million or
the sum of 85% of eligible accounts receivable, plus the lesser of: $2.0 million
or 80% of the appraised orderly liquidation value of eligible inventory of parts
and supplies. This line will accrue interest at the prime interest rate plus
1.5% and will mature in November 2006. The term loan will be collateralized by
certain equipment. It will accrue interest at the prime interest rate plus
1.75%, will have a five year amortization of principal and interest and will
mature November 2006. We do not anticipate any significant differences
-14-
between the Commitment and the final terms of the new facility; however, there
can be no assurances given that the terms will be the same.
At September 30, 2003, we also had outstanding approximately $8.5
million in other senior secured debt including approximately $1.2 million with
an equipment finance company. This loan amortizes over seven years, bears
interest at LIBOR plus 5.0%, is secured by seismic drilling equipment and
matures in July 2006. Further, at September 30, 2003 we had approximately $2.2
million outstanding to an aviation equipment finance company. This loan is
secured by the aviation fleet, amortizes over ten years, accrues interest at 8%
per annum and matures in January 2007.
In August 2003, we completed a new $1.65 million real estate loan with
a bank. The proceeds were used to repay the existing real estate loan, the
principal balance of which totalled $1.7 million. The gain on the early
extinguishment of the then existing real estate debt was recognized as income in
the second quarter of 2003. The new real estate loan is payable in 240 equal
monthly installments plus interest accruing at the prime interest rate plus 1.5%
and is secured by our corporate office, real estate and fabrication and
maintenance facilities. Further, under the terms of the new real estate credit
agreement, a principal payment of $0.2 million is due in July 2008.
Our senior secured credit agreements and real estate loan contain
customary financial covenants requiring, among other things, minimum levels of
tangible net worth, debt to EBITDA ratios, and limitations on annual capital
expenditures. As of September 30, 2003 we were in compliance with these
covenants and we expect to maintain compliance throughout 2003.
Historically, our capital requirements have primarily related to the
purchase or fabrication of new seismic drilling equipment and related support
equipment, additions to our aviation fleet and new business acquisitions. In
2002, we acquired the assets of AirJac Drilling (See Note 10) and approximately
$0.4 million of new vehicles accounted for as a capital lease. Thus far in 2003,
we have acquired two new aircraft totalling approximately $1.6 million and
approximately $0.2 million of new vehicles under capital leases. For the
remainder of 2003 we expect to continue renewing our rolling stock of vehicles,
expanding our aviation fleet and pursuing various strategic acquisitions. We
recently announced the restructuring of our aviation fleet to expand our
offshore and heavy lifting capabilities. At this time, we have no further
material commitments outstanding for expenditures nor do we anticipate acquiring
a significant amount of capital assets in the remainder of 2003.
CRITICAL ACCOUNTING POLICIES
There have been no changes to the Company's accounting policies as
disclosed in our Form 10-K for the period ended December 31, 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 environmental damage; the successful
restructuring our aviation fleet and acceptance by our customers and potential
customers; 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, 2002. 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, 2002.
ITEM 4. CONTROLS AND PROCEDURES
As required by paragraph (b) of Rules 13a-15 and 15d-15 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), our principal executive
officer and principal financial officer have evaluated our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act as of the end of our third fiscal quarter of 2003 (the
"Evaluation Date"). Based on this evaluation, such officers have concluded that,
as of the Evaluation Date, our disclosure controls and procedures are effective
in alerting them on a timely basis to material information relating to us
(including its consolidated subsidiaries) required to be included in our
periodic filings under the Exchange Act.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on September 4, 2003, a
proposal to elect the nominees listed in the following table as directors of the
Company was submitted to a vote of the Company's shareholders. The following
table shows the results of voting as to each nominee:
NOMINEES FOR WITHHELD AUTHORITY
Crichton W. Brown 10,453,764 342,306
Michael G. DeHart 10,778,764 17,306
James C. Eckert 10,453,764 342,306
Steven T. Stull 10,453,764 342,306
Richard C. White 10,778,764 17,306
At the same meeting, the following proposals were also approved by the Company's
shareholders:
-16-
FOR AGAINST ABSTENTIONS
Increase in the number of shares issuable under the Company's
stock incentive plan.......................................... 8,416,657 401,683 5,361
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32.1 Section 906 Certification of Chief Executive Officer
32.2 Section 906 Certification of Chief Financial Officer
-17-
(b) Reports on Form 8-K
Current Report on Form 8-K on August 15, 2003 regarding change in
certifying accountant.
Current Report on Form 8-K on September 22, 2003 regarding accrual of
preferred stock dividends.
We also furnished information to the SEC on a Current Report on Form 8-K under
Item 12, Results of Operations and Financial Condition. Current Reports on Form
8-K under Item 12 are not considered to be "filed" for purposes of Section 18 of
the Exchange Act and are not subject to the liabilities of that section, but are
filed to provide full disclosure under Regulation FD.
-18-
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 10, 2003 /s/ JAMES C. ECKERT
-------------------------------------------
James C. Eckert
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 10, 2003 /s/ G. DARCY KLUG
-------------------------------------------
G. Darcy Klug
Chief Financial Officer
(Principal Financial and Accounting Officer)
-19-
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32.1 Section 906 Certification of Chief Executive Officer
32.2 Section 906 Certification of Chief Financial Officer