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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 0-23383
OMNI ENERGY SERVICES CORP.
(Exact name of registrant as specified in its charter)
LOUISIANA 72-1395273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4500 N.E. EVANGELINE THRUWAY 70520
CARENCRO, LOUISIANA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (318) 896-6664
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 20, 1998 was approximately $41,718,000.
The number of shares of the Registrant's common stock, $0.01 par value
per share, outstanding at March 20, 1998 was 15,726,282.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 1998 annual meeting
of shareholders have been incorporated by reference into Part III of this Form
10-K.
OMNI ENERGY SERVICES CORP.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PAGE
PART I......................................................................1
Items 1 and 2. Business and Properties................................ 1
Item 3. Legal Proceedings......................................10
Item 4. Submission of Matters To a Vote Of Security Holders....10
Item 4A. Executive Officers of The Registrant...................11
PART II.....................................................................12
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters....................................12
Item 6. Selected Financial Data................................15
Item 7. Management's Discussion and Analysis of Financial
Conditionand Results of Operations.....................17
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................22
Item 8. Financial Statements and Supplementary Data............23
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.................40
Part III....................................................................40
Item 10. Directors and Executive Officers of the Registrant.....40
Item 11. Executive Compensation.................................40
Item 12. Security Ownership of Certain Beneficial Owners and
Management.............................................40
Item 13. Certain Relationships and Related Transactions.........40
Item. 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K...............................................40
SIGNATURES.................................................................S-1
EXHIBIT INDEX..............................................................E-1
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
OMNI Energy Services Corp. (the "Company") is an oilfield service company
specializing in providing an integrated range of onshore seismic drilling,
helicopter support and survey services to geophysical companies operating in
logistically difficult and environmentally sensitive terrain in the United
States. The Company's primary market is the marsh, swamp, shallow water and
contiguous dry land areas along the U.S. Gulf Coast (the "Transition Zone"),
primarily in Louisiana and Texas, where it is the leading provider of seismic
drilling services.
The Company owns and operates an extensive fleet of specialized seismic
drilling and transportation equipment for use in the Transition Zone, much of
which is fabricated by the Company. The Company believes that it is the only
company that currently can both provide an integrated range of seismic
drilling, helicopter support and survey services in all of the varied terrains
of the Transition Zone and simultaneously support operations for multiple,
large-scale seismic projects. In 1997 the Company expanded its seismic
drilling operations into the Rocky Mountain region, where it engages in seismic
rock drilling in hard rock terrain.
The Company. The Company was originally founded in 1987 by the Company's
Chairman and Chief Executive Officer, David A. Jeansonne, as OMNI Drilling
Corporation, to provide drilling services to the geophysical industry. In July
1996, OMNI Geophysical, L.L.C. ("OMNI Geophysical") acquired substantially all
of the assets (the "OGC Acquisition") of OMNI Geophysical Corporation ("OGC"),
the successor to the business of OMNI Drilling Corporation. OMNI Energy
Services Corp. was formed as a Louisiana corporation on September 11, 1997. On
December 10, 1997, the Company completed a share exchange (the "Share
Exchange"), pursuant to which the holders of common units in OMNI Geophysical
exchanged all of the outstanding common units of OMNI Geophysical for
12,000,000 shares of the Company's common stock, $0.01 par value per share (the
"Common Stock"). Subsequently, the Company completed an initial public
offering of 3,450,000 shares of Common Stock.
Recent Acquisitions. Since the beginning of 1997, the Company has
completed several acquisitions designed to expand the scope and size of its
operations. These acquisitions substantially increased the Company's survey
operations and marked its entry into the helicopter seismic support and seismic
rock drilling markets. The following table sets forth information with respect
to these acquisitions:
Effective Date Seismic Support
Name of Acquired Company of Acquisiton Services
- ------------------------- ---------------- -------------------
Delta Surveys, Inc. March 21, 1997 Survey
American Aviation Incorporated July 1, 1997 Helicopter Support
Leonard J. Chauvin, Jr., Inc. July 1, 1997 Survey
O.T.H. Exploration Services, Inc. September 1, 1997 Seismic Rock Drilling
American Helicopter Drilling, Inc. October 1, 1997 Seismic Rock Drilling
Fournier & Associates, Inc. October 1, 1997 Survey
Pending Acquisitions. In March 1998, the Company entered into non-
binding letters of intent to acquire three support companies: (i) Hamilton
Drill Tech, Inc., a Canadian-based seismic drilling company ("Hamilton Drill");
(ii) Coastal Airboats, Inc., a Louisiana-based airboat operator and (iii)
Coastal Turbine, Inc., a Louisiana-based, turbine engine repair company. These
acquisitions, which are subject to definitive agreements with the respective
sellers, are expected to close during the second quarter of 1998 at an
approximate aggregate cost of $3.2 million in cash and stock.
INDUSTRY OVERVIEW
Seismic data generally consists of computer-generated three-dimensional
("3-D") images or two dimensional ("2-D") cross sections of subsurface geologic
formations and is used in the exploration for new hydrocarbon reserves and as a
tool for enhancing production from existing reservoirs. Onshore seismic data
is acquired by recording subsurface seismic waves produced by an energy source,
usually dynamite, at various points ("source points") at a project site.
Historically, 2-D surveys were the primary technique used to acquire seismic
data. However, advances in computer technology in the last five to ten years
have made 3-D seismic data, which provides a more comprehensive geophysical
image, a practical and capable oil and gas exploration and development tool.
3-D seismic data has proven to be more accurate and effective than 2-D data at
identifying potential hydrocarbon-bearing geological formations. The use of 3-
D seismic data to identify locations to drill both exploration and development
wells has improved the economics of finding and producing oil and gas reserves,
which in turn has created increased demand for 3-D seismic surveys and seismic
support services.
Oil and gas companies generally contract with independent geophysical
companies to acquire seismic data. Once an area is chosen for seismic
analysis, permits and landowner consents are obtained, either by the
geophysical company or special permitting agents, and the geophysical company
determines the layout of the source and receiving points. For 2-D data, the
typical configuration of source and receiving points is a straight line with a
source point and small groups of specialized sensors ("geophones") or geophone
stations, placed evenly every few hundred feet along the line. For 3-D data,
the configuration is generally a grid of perpendicular lines spaced a few
hundred to a few thousand feet apart, with geophone stations spaced evenly
every few hundred feet along one set of parallel lines, and source points
spaced evenly every few hundred feet along the perpendicular lines. This
configuration is designed by the geophysical company to provide the best
imaging of the targeted geological structures while taking into account surface
obstructions such as water wells, oil and gas wells, pipelines and areas where
landowner consents cannot be obtained. The source points and geophone
locations are then marked by a survey team, and the source points are drilled
and loaded with dynamite.
After the source points have been drilled and loaded and the network of
geophones and field recording boxes deployed over a portion of the project
area, the dynamite is detonated at a source point. Seismic waves generated by
the blast move through the geological formations under the project area and are
reflected by various subsurface strata back to the surface where they are
detected by geophones. The signals from the geophones are collected and
digitized by recording boxes and transmitted to a central recording system.
In the case of 2-D data, the geophones and recording devices from one end of
the line are then shuttled, or "rolled forward," to the other end of the line
and the process is repeated. In the case of 3-D data, numerous source points,
typically located between the first two lines of a set of three or four
parallel lines of geophone stations are activated in sequence. The geophone
stations and recording boxes from the first of those lines are then rolled
forward to form the next line of geophone stations. The process is repeated,
moving a few hundred feet at a time, until the entire area to be analyzed has
been covered. Helicopters are frequently used to shuttle geophones and
recording devices between receiving points ("long-line helicopter support") in
an efficient manner with minimal environmental impact.
After the raw seismic data has been acquired, it is sent to a data
processing facility. The processed data can then be manipulated and viewed on
computer work stations by geoscientists to map the subsurface structures to
identify formations where hydrocarbons are likely to have accumulated and to
monitor the movement of hydrocarbons in known reservoirs. Domestically,
seismic drilling, helicopter support and survey services are typically
contracted to companies such as the Company, as geophysical companies have
found it more economical to outsource these services and focus their efforts
and capital on the acquisition and interpretation of seismic data.
DESCRIPTION OF OPERATIONS
The Company provides an integrated range of onshore seismic drilling,
helicopter support and survey services to geophysical companies operating in
logistically difficult and environmentally sensitive terrain in the United
States.
Seismic Drilling Services. The Company's primary activity is the
drilling and loading of source points for seismic analysis. Once the various
source points have been plotted by the geophysical company and a survey crew
has marked their locations, drill crews are deployed to drill and load the
source points.
In the Transition Zone, the Company uses water pressure rotary drills
mounted on various types of vehicles to drill the source holes. The type of
vehicle used is determined by the nature, accessibility and environmental
sensitivity of the terrain surrounding the source point. Transition Zone
source holes are generally drilled to depths of 40-180 feet depending on the
nature of the terrain and the needs of the geophysical company, using ten-foot
sections of drill pipe which are carried with the drilling unit. The Company's
Transition Zone vehicles are typically manned with a driver and one or two
helpers. The driver is responsible for maneuvering the vehicle into position
and operating the drilling unit, while the helper sets and guides the drill
into position, attaches the drilling unit's water source, if drilling in dry
areas, and loads the drill pipe sections used in the drilling process. Once
the hole has been drilled to the desired depth, it is loaded with dynamite,
which is carried onboard the Company's vehicles in special containers. The
explosive charge is set at the bottom of the drill hole and then tested to
ensure that the connection has remained intact. Once the charge has been
tested, the hole is plugged in accordance with local, state and federal
regulations and marked so that it can be identified for detonation by the
geophysical company at a later date. This process is repeated throughout the
survey area until all source points have been drilled and loaded.
In seismic rock drilling, the Company uses compressed air rotary/hammer
drills to drill holes that are typically shallower than Transition Zone holes.
Rock drills are manned by a two- or three-man crew and are transported to and
from locations by hand, surface vehicle or helicopter. Once the hole has been
drilled to the desired depth, it is loaded with explosives which are delivered
to the jobsite in an explosive magazine carried by hand, vehicle or helicopter.
Helicopter Support Services. Through its aviation division, created upon
the acquisition of substantially all of the assets of American Aviation
Incorporated ("American Aviation"), the Company provides helicopter support
services to geophysical companies in the Transition Zone and elsewhere.
The Company uses long-line helicopters to shuttle geophones and recorders used
to collect seismic data between receiving points. Once seismic data has been
acquired from a portion of the project site, the geophones and recorders must be
moved into position to collect data from the next area to be analyzed. By using
helicopters, the Company is able to reduce delays in completing stages of a
seismic project by transporting the geophones and recording boxes to the next
receiving points in the survey area in an efficient manner and with minimal
environmental impact. Helicopters are also used to transport heli-portable
drilling units into remote or otherwise inaccessible terrain in an efficient
and environmentally sensitive manner.
The Company operates 14 helicopters, 13 of which are owned and one of
which is leased by the Company. The Company's pilots have an average of over
10,000 flight hours each. The Company performs all routine maintenance and
repairs on its Transition Zone-based aircraft at its facilities at the
Lafayette, Louisiana Airport.
The Company also owns four airplanes (including one float-plane) which
currently are used to support its operations and to provide limited charter
services. The Company has announced its intention to sell its airplanes and
related assets in an effort to focus on its helicopter seismic support
operations. The sale of these assets is expected to occur in March or April of
1998.
Survey Services. Once all permits and landowner consents for a seismic
project have been obtained and the geophysical company has determined the
placement of source and receiving points, survey crews are sent into the field
to plot each source and receiving point prior to drilling. The Company employs
both GPS (global positioning satellite) equipment, which is more efficient for
surveying in open areas, and conventional survey equipment, which is generally
used to survey wooded areas. The Company has successfully integrated both
types of equipment in order to complete projects throughout the varied terrain
of the Transition Zone and elsewhere. In addition, the Company's survey crews
have access to the Company's extensive fleet of specialized transportation
equipment, as opposed to most other survey companies which must rent this
equipment.
The Company currently has 25 survey crews devoted primarily to the
seismic survey market in the Transition Zone. Most of the Company's survey
personnel have significant experience in land surveying, with a large
percentage of those years having been spent in Transition Zone surveying. The
Company also provides, on a limited basis, non-seismic, civil survey services
in south Louisiana to the oil and gas industry and other industries.
Fabrication and Maintenance. At its Carencro facilities, the Company
performs all routine repairs and maintenance for its Transition Zone equipment.
The Company designs and fabricates aluminum marsh ATVs, a number of its support
boats and pontoon boats, and the drilling units it uses on all its Transition
Zone equipment. The Company purchases airboats directly from the manufacturer
and then modifies the airboats to install the drilling equipment. The Company
has also designed and built a limited number of highland drilling units by
installing its drilling equipment on tractors bought directly from the
manufacturer. The Company also fabricates rock drilling equipment and has the
capability to fabricate other key equipment, such as swamp ATVs. Because of
its ability to fabricate and maintain much of its equipment, the Company does
not believe that it is dependent on any one supplier for its drilling equipment
or parts.
FACILITIES AND EQUIPMENT
Facilities. The Company recently completed the construction of two new
buildings which now house its corporate headquarters, fabrication facility and
primary maintenance facility. The buildings are located on approximately 34
acres of land owned by the Company in Carencro, Louisiana. The new buildings
provide approximately 20,000 square feet of office space and 32,000 square feet
of covered maintenance and fabrication space. The Company also leases two
additional buildings adjacent to its main headquarters that provide
approximately 2,500 square feet of office space and 19,000 square feet of
covered maintenance, fabrication and warehouse space. The Company has an
option to purchase these buildings for $500,000 which expires in 2001. The
Company plans to use these adjacent buildings for the storage and maintenance
of its helicopter assets, which are currently stored and maintained at leased
facilities at the Lafayette, Louisiana Airport.
The Company leases an operations base in Victoria, Texas which is
used to store parts and equipment for use in Texas and bases in Big Piney,
Wyoming, and Loveland, Colorado to support its rock drilling operations. The
Company also leases an office for its survey operations in Thibodaux,
Louisiana.
Transition Zone Transportation and Drilling Equipment. Because of the
varied terrain throughout the Transition Zone and the prevalence of
environmentally sensitive areas, the Company employs a wide variety of drilling
vehicles. Management believes that it is the only company currently operating
in the Transition Zone that owns and operates all of the following types of
equipment:
Number of
units as of
Types of Equipment December 31, 1997
-------------------------- -----------------
Highland Drilling Units 38(1)
Water Buggies 17
Aluminum Marsh ATVs 12
Steel Marsh ATVs 8
Airboat Drilling Units 28
Swamp ATVs 25
Pullboats 20
Pontoon Boats 12
Skid-Mounted Drilling Units 35
- ------------------------
(1) Fourteen of these drilling units are currently dedicated to seismic rock
drilling operations outside of the Transition Zone.
Because of its extensive fleet of Transition Zone transportation and
seismic drilling equipment, much of which is fabricated by the Company, the
Company believes that it is the only company that currently can both provide an
integrated range of seismic drilling, helicopter support and survey services in
all of the varied terrains of the Transition Zone and simultaneously support
operations for multiple, large-scale seismic projects.
Highland Drilling Units and Water Buggies. The Company owns and operates
38 highland drilling units for seismic drilling in dry land areas, fourteen of
which are currently dedicated to the Company's seismic rock drilling operations
outside of the Transition Zone. These units generally consist of a tractor-
like vehicle with a drilling unit mounted on the rear of the vehicle. A
highland drilling unit can be driven over land from point to point and is
accompanied by a unit referred to as a "water buggy" that carries water
required for seismic drilling. This type of vehicle is used around the world
for this type of terrain.
The Company intends to increase the number of highland drilling units
that it operates by 50 in 1998. Twelve of these drills will be obtained
through the acquisition of Hamilton Drill, if completed. The remaining drills
will be either purchased or manufactured. The Company anticipates that the new
drilling units will be subject to long-term, minimum guarantee contracts with
the Company's major clients. Most of the new drills are expected to be placed
into service during the second and third quarters of 1998. The acquisition of
Hamilton Drill, if completed, will also provide the Company with an entrance
into the seismic drilling market in Canada.
Marsh ATVs. The environmentally sensitive wetlands along the U.S. Gulf
Coast containing water grasses on dry land and in shallow water and areas mixed
with open water are referred to as marsh areas. When there is a minimum amount
of water in these areas, marsh ATVs, which are amphibious vehicles supported by
pontoons that are surrounded by tracks, are used to provide seismic drilling
services. The pontoons enable the marsh ATV to float while the tracks propel
the vehicle through the water and over dry marsh areas. Each marsh ATV is
equipped with a drilling unit and a small backhoe for digging a small hole to
collect water necessary for drilling.
Some marsh areas have sufficient surrounding water to support drilling
without an external water source, but often water must be pumped into the area
from a remote water source or a portable supply must be carried by the marsh
ATV. Recently the Company has experimented with several innovative methods of
obtaining a water supply in marsh areas. On some occasions the Company deploys
a vehicle to the source point a few days prior to drilling to dig holes near
the drill sites, which may collect water naturally, either through seepage or
rainfall.
The Company owns and operates 20 marsh ATVs, of which eight are made of
stainless steel and 12 are made of aluminum. The aluminum ATVs are lighter
than steel vehicles and are specifically designed for the environmentally
sensitive areas typically found in marsh terrain. Often landowner consents
will require the use of aluminum ATVs in an effort to reduce the environmental
impact of seismic drilling. The aluminum marsh ATV is the most widely accepted
marsh vehicle for drilling operations in all Louisiana state and federal
refuges. The Company fabricates its own aluminum marsh ATVs at its facilities
in Carencro, Louisiana.
Airboat Drilling Units. The Company owns and operates 28 airboat
drilling units. An airboat drilling unit consists of a drilling unit
fabricated and installed by the Company on a large, three-engine airboat.
Because of their better mobility, airboat drilling units are used in shallow
waters and all marsh areas where sufficient water is present.
Swamp ATVs and Pullboats. Wooded lowland areas typically covered with
water are referred to as the "swamp areas" of the Transition Zone. The
Company's swamp ATVs are used to provide drilling services in these areas.
Swamp ATVs are smaller, narrower versions of the marsh ATVs. The smaller unit
is needed in swamp areas due to the dense vegetation typical in the terrain.
Because of its smaller size, the swamp ATV uses a skid-mounted drilling unit
installed in a pullboat, a non-motorized craft towed behind the swamp ATV. The
Company owns and operates 25 swamp ATVs and 20 pullboats. Swamp ATVs are also
used in connection with survey operations in swamp areas.
Pontoon Boats. The Company owns and operates 12 pontoon boats that are
used in shallow or protected inland bays and lakes and shallow coastal waters.
Each pontoon boat uses a skid-mounted drilling unit installed on board.
Jack-Up Rigs. When a seismic survey requires source points to be drilled
in deeper inland bays or lakes or in deeper coastal waters, the Company
utilizes jack-up rigs equipped with one of the Company's skid-mounted drilling
units. Seismic activity in water deeper than approximately 20 feet is
generally conducted by using offshore seismic techniques that do not include
the drilling and loading of source points.
Skid-Mounted Drilling Units. A skid-mounted drilling unit is a drilling
unit mounted on I-beam supports, which allows the drilling unit to be moved
easily between pull boats, pontoon boats, jack-up rigs and other Company-
operated equipment based on customer needs. The Company manufactures its skid-
mounted drilling units at its facilities in Carencro, Louisiana and owns 35 of
these units.
Miscellaneous. The Company owns and operates 83 single engine airboats
and 25 outboard powered boats, which it uses to ferry personnel and supplies to
locations throughout the Transition Zone. The Company also maintains a fleet
of six tractor-trailer trucks and numerous other trucks, trailers and vehicles
to move its equipment and personnel to projects throughout the Transition Zone.
The Company has signed a letter of intent to acquire Coastal Airboats, Inc.,
which provides airboat and general transportation water craft to geophysical
companies and currently operates 17 boats. This acquisition is expected to
close during the second quarter of 1998.
Heli-portable and Seismic Rock Drilling Equipment. The Company has 50
heli-portable and man-portable drilling units and 14 highland drilling units
dedicated to seismic rock drilling. The Company also has the ability to
manufacture its own heli-portable and man-portable seismic rock drilling units,
and often exports and provides servicing of heli-portable and man-portable
drilling units. Approximately 20 of the 50 highland drilling units that the
Company expects to add during 1998 will be dedicated to drilling operations in
the northwest United States and Canada.
Aviation Equipment. The following table sets forth the type and number
of helicopters that are operated by the Company's aviation division:
Number of Aircraft
Helicopters as of December 31, 1997
---------------------------- -----------------------
Bell Jet Ranger 206 B-III(1) 7
Hughes MD-500 4
Bell 407(2) 1
Bell B-47 G3 1
Hughes MD-530 1
- ---------------------
(1) One of the Bell Jet Ranger 206 B-IIIs is leased by the Company.
(2) The Bell 407 is currently configured for heli-portable operations.
The Company's aviation division also operates four fixed-wing planes,
including a float plane. The Company has recently announced its intention to
sell its airplanes and related assets in an effort to focus on its helicopter
seismic support operations. The sale of these assets is expected to occur in
March or April of 1998.
The Company has signed a letter of intent to purchase Coastal Turbine,
Inc. ("Turbine"), a Louisiana-based turbine engine repair company. Turbine has
been approved as a Part 145 repair station by the Federal Aviation
Administration ("FAA"). The Company expects to close this acquisition during
the second quarter of 1998.
MATERIALS AND EQUIPMENT
The principal materials and equipment used by the Company in its
operations, which include drills, heli-portable and man-portable drills, drill
casings, drill bits, engines, gasoline and diesel fuel, dynamite, aluminum and
steel plate, welding gasses, aviation fuel, trucks and other vehicles, are
currently in adequate supply from many sources. The Company does not depend
upon any single supplier or source for such materials.
SAFETY AND QUALITY ASSURANCE
The Company maintains a stringent safety assurance program to reduce the
possibility of costly accidents. The Company's health, safety and
environmental "HSE" department establishes guidelines to ensure compliance with
all applicable state and federal safety regulations and provides training and
safety education through orientations for new employees, which include first
aid and CPR training. The Company's Vice President of Health, Safety,
Environment & Training reports directly to the Company's Chairman and
supervises 18 HSE field advisors and four instructors who provide OSHA-
mandated training. The Company believes that its safety program and commitment
to quality are vital to attracting and retaining customers and employees.
Each drilling crew is supervised at the project site by a field
supervisor and, depending on the project's requirements, an assistant
supervisor and powderman who is in charge of all explosives. For large
projects or when required by a customer, a separate advisor from the Company's
HSE department is also located at the project site. Management is provided
with daily updates for each project and believes that its daily review of field
performance together with the on-site presence of supervisory personnel helps
ensure high quality performance for all of its projects.
All Company pilots are trained to FAA FAR 135 (non-scheduled commercial
passenger) or 133 (external load) standards and must satisfy annual FAA
check-rides. Certified maintenance personnel are deployed to each
project site at which aircraft are used.
CUSTOMERS; MARKETING; CONTRACTING
Customers. The Company's customers are primarily geophysical companies,
although in many cases the oil and gas company participates in determining
which drilling, survey or aviation company will be used on its seismic
projects. A large portion of the Company's revenue has historically been
generated by a few customers. For example, the Company's largest customers
(those which individually accounted for more than 10% of revenue in a given
year, listed alphabetically) collectively accounted for 88% (Digicon/GFS, Eagle
Geophysical, Grant Geophysical and Western Geophysical), 70% (Eagle
Geophysical, Grant Geophysical, Universal Seismic and Western Geophysical), and
40% (Eagle Geophysical and Western Geophysical) of revenue for fiscal 1995, 1996
and 1997, respectively. In addition, as of December 31, 1997, 69% of the
Company's backlog was attributable to four customers (Western Geophysical, Eagle
Geophysical, Grant Geophysical and Fairfield Industries).
Marketing. The Company's services traditionally have been marketed by
the Company's principal executive officers, in particular, Messrs. Jeansonne,
Thomas, Woodard and Morris. The Company believes that this marketing approach
helps the Company preserve long-term relationships established by the Company's
executive officers. As the Company's geographical and service capabilities
expand, the Company intends to continue implementing its marketing efforts in
the Transition Zone from its principal offices in Carencro, Louisiana and in the
Rocky Mountain region from Loveland, Colorado.
Contracting - Seismic Drilling. The Company generally contracts for
seismic drilling services with its customers on a fixed-price basis, either on
a per hole or per foot basis. These contracts are often awarded on a
competitive bid basis. The Company prices its contracts based on detailed
project specifications provided by the customer, including the number, location
and depth of source holes and the project's completion schedule. As a result,
the Company is generally able to make a relatively accurate determination prior
to pricing a contract of the type and amount of equipment required to complete
the contract on schedule.
Because of fixed-priced contracting, the Company generally bears the risk
of delays that are beyond its control, such as those caused by adverse weather.
The Company often bills the customer standby charges if the Company's
operations are delayed due to delays in permitting or surveying or for other
reasons within the geophysical company's control.
Contracting - Helicopter Support Services. The Company's aircraft are
chartered on an hourly rate basis, with a guaranteed minimum number of hours
per day. The Company primarily provides aviation services in connection with
projects for which the Company also provides seismic drilling services, and
also charters its aircraft to customers for use with other seismic projects.
Contracting - Survey Services. The Company contracts for seismic survey
services with its customers on a day rate or per mile basis. Under the per
mile basis, revenue is recognized when the source or receiving point is marked
by one of the Company's survey crews. Contracts are often awarded to the
Company only after competitive bidding. In each case, the price is determined
by the Company after it has taken into account such factors as the number of
surveyors and other employees, the type of terrain and transportation
equipment, and the precision required for the project based on detailed project
specifications provided by the customer.
COMPETITION
Seismic Drilling Services. The principal competitive factors for seismic
drilling services are price and the ability to meet customer schedules,
although other factors including safety, capability, reputation and
environmental sensitivity are also considered by customers. The Company has
numerous competitors in the Transition Zone and in particular in the highland
areas in which its operates. Management believes that no other company
operating in the Transition Zone owns a fleet of Transition Zone seismic
drilling equipment as varied or as large as that operated by the Company. The
Company's extensive and diverse equipment base allows it to provide drilling
services to its customers throughout the Transition Zone with the most
efficient and environmentally appropriate equipment. The Company believes
there are numerous competitors offering rock and heli-portable drilling in the
Rocky Mountain region and internationally.
Helicopter Support Services. The Company has numerous competitors that
provide helicopter support services to geophysical companies operating in the
Transition Zone; however, none of these competitors currently provides long-
line helicopter services with a comparable number of aircraft. In addition,
the Company believes that it is the only company offering both seismic drilling
and long-line support services in the Transition Zone. The Company believes
that there are numerous companies offering helicopter services in rock drilling
and other mountain areas, as well as internationally. All of these companies
have greater experience in these areas and several operate more aircraft than
the Company in these areas.
Survey Services. The Company's competitors include a number of
established companies with a comparable number of crews to the Company and
numerous smaller companies.
SEASONALITY AND WEATHER RISKS
The Company's operations are subject to seasonal variations in weather
conditions and daylight hours. Since the Company's activities take place
outdoors, the average number of hours worked per day, and therefore the number
of holes drilled or surveyed per day, generally is less in winter months than
in summer months, due to an increase in rainy, foggy and cold conditions and a
decrease in daylight hours. Furthermore, demand for seismic data acquisition
activity by oil and gas companies in the first quarter is generally lower than
at other times of the year. As a result, the Company's revenue and gross
profit during the first quarter of each year are typically low as compared to
the other quarters. Operations may also be affected by the rainy weather,
lightning, hurricanes and other storms prevalent along the Gulf Coast
throughout the year and by seasonal climatic conditions in the Rocky Mountain
area. In addition, prolonged periods of dry weather result in slower drill
rates in marsh and swamp areas as water in the quantities needed to drill is
more difficult to obtain and equipment movement is impeded. Adverse weather
conditions and dry weather can also increase maintenance costs for the
Company's equipment and decrease the number of vehicles available for
operations.
BACKLOG
The Company's backlog represents those projects for which a customer has
hired the Company and has scheduled a start date for the project. Projects
currently included in the Company's backlog are subject to termination or delay
without penalty at the option of the customer, which could substantially reduce
the amount of backlog currently reported. Historically, the Company has not
experienced a large volume of project terminations or delays, and terminations
and delays from its backlog have typically been replaced by unscheduled
projects.
As of December 31, 1997, the Company's backlog was approximately $70.0
million compared to $40.8 million at December 31, 1996. The Company expects
all of its backlog at December 31, 1997 will be completed during 1998. The
backlog at December 31, 1996 included seismic drilling projects in the
Transition Zone only. Backlog at December 31, 1997 includes seismic drilling
projects in the Transition Zone in addition to survey projects and seismic rock
drilling projects. The Company's aviation division historically has not
measured backlog due to the nature of its business.
GOVERNMENTAL REGULATION
The Company's operations and properties are subject to and affected by
various types of governmental regulation, including laws and regulations
governing the entry into and restoration of wetlands, the handling of
explosives, the operation of commercial aircraft and numerous other federal,
state and local laws and regulations. To date the Company's cost of complying
with such laws and regulations has not been material, but because such laws and
regulations are changed frequently, it is not possible for the Company to
accurately predict the cost or impact of such laws and regulations on its
future operations.
Furthermore, the Company depends on the demand for its services by the
oil and gas industry and is affected by changing taxes, price controls and
other laws and regulations relating to the oil and gas industry generally. The
adoption of laws and regulations curtailing exploration and development
drilling for oil and gas in the Company's areas of operations for economic,
environmental or other policy reasons would adversely affect the Company's
operations by limiting demand for its services. The Company cannot determine
to what extent its future operations and earnings may be affected by new
legislation, new regulations or changes in existing regulations.
Aviation. As a commercial operator of small aircraft, the Company is
subject to regulations pursuant to the Federal Aviation Administration
Authorization Act of 1994, as amended (the "Federal Aviation Act"), and other
statutes. The FAA regulates the flight operations of the Company, and in this
respect, exercises jurisdiction over personnel, aircraft, ground facilities and
other aspects of the Company's operations.
The Company carries persons and property in its aircraft pursuant to
authority granted by the FAA. Under the Federal Aviation Act it is unlawful to
operate certain aircraft for hire within the United States unless such aircraft
are registered with the FAA and the operator of such aircraft has been issued
an operating certificate by the FAA. The Company has all FAA certificates
required to conduct its helicopter and aviation operations, and all of its
aircraft are registered with the FAA.
As a general rule, aircraft may be registered under the Federal Aviation
Act only if the aircraft is owned or controlled by one or more citizens of the
United States and operated pursuant to an operating certificate, which may be
granted only to a citizen of the United States. For purposes of these
requirements, a corporation is deemed to be a citizen of the United States only
if, among other things, at least 75% of the voting interest therein is owned or
controlled by United States citizens. In the event that persons other than
United States citizens should come to own or control more than 25% of the
voting interest in the Company, the Company has been advised that its aircraft
may be subject to deregistration under the Federal Aviation Act and loss of the
privilege of operating within the United States. The Company's Articles of
Incorporation and bylaws include provisions that are designed to ensure
compliance with this requirement.
Explosives. Because the Company loads the holes that it drills with
dynamite, the Company is subject to various local, state and federal laws and
regulations concerning the handling and storage of explosives and is
specifically regulated by the Bureau of Alcohol, Tobacco and Firearms of the
U.S. Department of Justice. The Company must take daily inventories of
the dynamite and blasting caps that it keeps for its seismic drilling and is
subject to random checks by state and federal officials. The Company is
licensed by the Louisiana State Police as an explosives handler. Any loss or
suspension of these licenses would result in a material adverse effect on the
Company's results of operations and financial condition. The Company believes
that it is in compliance with all material laws and regulations with respect to
its handling and storage of explosives.
Environmental. The Company's operations and properties are subject to a
wide variety of increasingly complex and stringent federal, state and local
environmental laws and regulations, including those governing discharges into
the air and water, the handling and disposal of solid and hazardous wastes, the
remediation of soil and groundwater contaminated by hazardous substances and
the health and safety of employees. In addition, certain areas where the
Company operates are federally-protected or state-protected wetlands or refuges
where environmental regulation is particularly strict. These laws may provide
for "strict liability" for damages to natural resources and threats to public
health and safety, rendering a party liable for environmental damage without
regard to negligence or fault on the part of such party. Sanctions for
noncompliance may include revocation of permits, corrective action orders,
administrative or civil penalties and criminal prosecution. Certain
environmental laws provide for strict, joint and several liability for
remediation of spills and other releases of hazardous substances, as well as
damage to natural resources. In addition, the Company may be subject to claims
alleging personal injury or property damage as a result of alleged exposure to
hazardous substances. Such laws and regulations may also expose the Company to
liability for the conduct of, or conditions caused by, others, or for acts of
the Company that were in compliance with all applicable laws at the time such
acts were performed.
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, and similar laws provide for responses to and liability
for releases of hazardous substances into the environment. Additionally, the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
the Safe Drinking Water Act, the Emergency Planning and Community Right to Know
Act, each as amended, and similar state or local counterparts to these federal
laws, regulate air emissions, water discharges, hazardous substances and
wastes, and require public disclosure related to the use of various hazardous
substances. Compliance with such environmental laws and regulations may
require the acquisition of permits or other authorizations for certain
activities and compliance with various standards or procedural requirements.
The Company believes that its facilities are in substantial compliance with
current regulatory standards.
Worker Safety. The Company's operations are governed by laws and
regulations relating to workplace safety and worker health, primarily the
Occupational Safety and Health Act and regulations promulgated thereunder. In
addition, various other governmental and quasi-governmental agencies require
the Company to obtain certain permits, licenses and certificates with respect
to its operations. The kind of permits, licenses and certificates required in
the Company's operations depend upon a number of factors. The Company believes
that it has all material permits, licenses and certificates necessary to the
conduct of its existing business.
INSURANCE
The Company's operations are subject to the inherent risks of inland
marine activity, aviation services, heavy equipment operations and the
transporting and handling of explosives, including accidents resulting in
personal injury, the loss of life or property, environmental mishaps,
mechanical failures and collisions. The Company maintains insurance coverage
against certain of these risks, which management considers to be customary in
the industry. The Company also maintains insurance coverage against property
damage caused by fire, flood, explosion and similar catastrophic events that
may result in physical damage or destruction to the Company's equipment or
facilities. All policies are subject to deductibles and other coverage
limitations. The Company believes its insurance coverage is adequate. The
Company has not experienced a loss in excess of its policy limits; however,
there can be no assurance that the Company will be able to maintain adequate
insurance at rates which management considers commercially reasonable, nor can
there be any assurance such coverage will be adequate to cover all claims that
may arise.
EMPLOYEES
As of December 31, 1997, the Company had approximately 602 employees,
including approximately 536 operating personnel and approximately 66 corporate,
administrative and management personnel. These employees are not unionized or
employed pursuant to any collective bargaining agreement or any similar
agreement. The Company believes its relationship with its employees is strong.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal and other proceedings which are
incidental to the conduct of its business. The Company believes that none of
these proceedings, if adversely determined, would have a material adverse
effect on its financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Prior to completion of the Company's initial public offering of Common
Stock, the Company's sole stockholder executed two written consents in
accordance with Section 76 of the Louisiana Business Corporation Law. The
first consent, dated September 25, 1997, approved an amendment and restatement
of the Company's Articles of Incorporation and the adoption of the Company's
stock incentive plan, a copy of which has been incorporated by reference as an
exhibit to this report. The second consent, dated November 4, 1997, approved a
further amendment and restatement of the Company's Articles of Incorporation, a
copy of which has been incorporated by reference as an exhibit to this report.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and offices held by each of the executive officers of the
Company as of March 1, 1998 are as follows:
NAME AGE POSITION
---- --- --------
David A. Jeansonne............ 37 Chairman of the Board and Chief Executive Officer
Roger E. Thomas............... 55 President
Allen R. Woodward............. 36 Vice President-Marketing & Business Development and
Secretary
David E. Crays................ 37 Vice President-Finance, Chief Financial Officer and
Treasurer
R. Patrick Morris............. 31 Vice President and General Manager of the Aviation
Division
David A. Jeansonne founded the Company in 1987 and has been Chairman of
the Board and Chief Executive Officer of the Company since its inception. Mr.
Jeansonne has also been Chairman of the Board, President and Chief Executive
Officer of American Aviation, which he co-founded, since its inception in 1995.
Mr. Jeansonne and the Company have entered into an employment agreement, the
term of which expires in June 2003.
Roger E. Thomas is President and a director of the Company and has held
those positions since July 1996. Mr. Thomas was Chief Financial Officer of
Gulf Coast Marine Divers, Inc., a provider of offshore diving services, from
1995 to 1996. He was President of Toth Aluminum Corp., an aluminum processor,
from 1994 to 1995. Mr. Thomas was President of Melamine Technologies, Inc., a
marketer and developer of technology, from 1992 to 1994. He was President of
Melamine Chemicals, Inc., a publicly-traded producer and seller of melamine
crystal, from 1987 to 1992. Mr. Thomas graduated from the University of
Florida in 1965 with a B.S. degree in chemical engineering. Mr. Thomas and the
Company have entered into an employment agreement, the term of which expires in
July 1999.
Allen R. Woodard is Vice President-Marketing & Business Development and a
director of the Company and has held these positions since July 1996. He was
an exploration field inspector with The Louisiana Land & Exploration Company, a
natural resources company, from 1988 to 1996. Mr. Woodard is a professional
land surveyor and graduated from Nicholls State University in 1987 with a
degree in engineering technology. Mr. Woodard and the Company have entered
into an employment agreement, the term of which expires in July 1999.
David E. Crays is Vice President-Finance and Chief Financial Officer and
a director of the Company and has held these positions since April 1997. He
was Controller of Iteq, Inc., a publicly-traded equipment manufacturer, from
1996 to 1997, and manager of financial accounting and external reporting at
Petroleum Helicopters, Inc., a provider of aviation transportation services,
from 1993 to 1996. He was Assistant Treasurer of XCL, Ltd., an independent oil
and gas exploration company, from 1990 to 1993. Mr. Crays is a certified
public accountant and graduated from the University of Texas in 1983 with a
B.B.A. degree in honors business. Mr. Crays and the Company have entered into
an employment agreement, the term of which expires in April 1999.
R. Patrick Morris is Vice President and General Manager of the Aviation
Division of the Company and has held that position since the acquisition of
substantially all of the assets of American Aviation by the Company in July
1997. He has been Vice President and General Manager of American Aviation,
which he co-founded with Mr. Jeansonne, since its inception in 1995. Mr.
Morris has been a licensed pilot since 1987 and was in the United States Army
from 1984 to 1992. Mr. Morris and the Company have entered into an employment
agreement, the term of which expires in June 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The Company's Common Stock is listed for quotation on the Nasdaq
National Market under the symbol "OMNI". At March 20, 1998, the Company had 36
shareholders of record of Common Stock. The following table sets forth the
range of high and low bid prices of the Company's Common Stock as reported by
the Nasdaq National Market for the periods indicated since trading in the
Common Stock began on December 5, 1997.
HIGH LOW
1997 ----- ---
Fourth quarter (commencing December 5, 1997) $ 12 1/4 $ 9 1/8
1998
First quarter (through March 27, 1998) $ 12 5/8 $ 8 7/8
The Company has never paid cash dividends on its Common Stock. The
Company intends to retain future earnings, if any, to meet its working capital
requirements and to finance the future operations and growth of its business.
Therefore, the Company does not plan to declare or pay cash dividends to
holders of its Common Stock in the foreseeable future. In addition, certain of
the Company's credit arrangements contain provisions that limit the Company's
ability to pay cash dividends on its Common Stock.
Sales of Unregistered Securities. In connection with its formation and
initial capitalization on September 11, 1997, the Company issued 1,000 shares
of Common Stock to Advantage Capital Management Corporation for $1,000 in cash.
These shares were cancelled in connection with the Share Exchange. Pursuant to
the Share Exchange, the Company issued the following number of shares to the
holders of common units OMNI Geophysical in exchange for their 113,476 common
units in OMNI Geophysical (number of common units exchanged in parentheses):
Shares of
Common
Name of Holder Stock
- -------------- ----------
American Aviation (10,213) 1,080,017
Roger E. Thomas (10,664) 1,127,708
Allen R. Woodard (13,164) 1,392,083
Shannon H. Daigle (1,461) 154,500
David A. Jeansonne (2,836) 299,905
Alan J. Thomas (500) 52,875
Ben E. Thomas (500) 52,875
Christina M. Thomas (500) 52,875
Advantage Capital Partners Limited Partnership (2,780) 293,983
Advantage Capital Partners II Limited Partnership (9,398) 993,831
Advantage Capital Partners III Limited Partnership (15,282) 1,616,060
Advantage Capital Partners IV Limited Partnership (28,612) 3,025,697
Advantage Capital Partners V Limited Partnership (17,566) 1,857,591
Also in connection with the Share Exchange, the Company issued options to
purchase its Common Stock to persons holding options to acquire common units of
OMNI Geophysical, which were cancelled upon completion of the Share Exchange.
David E. Crays received options to acquire 54,567 shares of Common Stock at
$2.28 per share in exchange for options to purchase 516 common units of OMNI
Geophysical at $242.25 per unit that were issued to Mr. Crays in April 1997
upon his hiring by OMNI Geophysical, L.L.C. In June 1997, the Company also
granted the following options to purchase the following number of common units
of OMNI Geophysical, William E. Fincher, 250; J. David Booth, 250; and Rita
Darbonne, 100. These options also had exercise prices of $242.25 per common
unit and, pursuant to the Share Exchange, were converted into options to
purchase, 26,438, 26,438 and 10,575 shares of Common Stock, respectively,
having an exercise price of $2.28 per share.
In connection with the acquisition of O.T.H. Exploration Services, Inc.,
completed on September 1, 1997, the Company granted options to purchase 55,000
shares of Common Stock to one of the sellers. These options were issued under
the Company's stock incentive plan and have an exercise price of $11.00 per
share. In addition, on September 30, 1997, the Company issued options to
Hibernia National Bank ("Hibernia") to purchase 4,545 shares of Common Stock at
an exercise price of $11.00 per share. These options expire in December 1999
and have an exercise price of $11.00 per share.
As part of the consideration paid in connection with the Company's
mergers with American Helicopter Drilling, Inc. ("American Helicopter") and
Fournier & Associates, Inc. ("Fournier"), both of which were completed on
December 17, 1997 (with effective dates of October 1, 1997), the Company issued
the following number of shares of Common Stock to the individuals listed below:
NAME NUMBER OF SHARES
- ----- ----------------
David Ward 102,273
Linda Ward 102,272
Keith J. Fournier 33,923
David and Linda Ward (Joint Ownership) 22,727
Sandra B. Miller 6,816
Roger D. Hebert 6,362
Don C. Ross 1,909
All of these securities were offered and sold without registration under
the Securities Act of 1933, as amended (the "Securities Act"), inasmuch as they
were deemed not subject to registration pursuant to the exception provided in
Section 4(2) of the Securities Act as securities sold in transactions not
involving any public offering.
(b) On December 10, 1997, the Company completed the initial public
offering of its Common Stock (the "Initial Public Offering"). The Initial
Public Offering was conducted pursuant to a Registration Statement on Form S-1
(Registration Statement No. 333-36561, the "Registration Statement") filed
pursuant to the Securities Act and declared effective on December 4, 1997.
The Registration Statement covered shares of Common Stock with a maximum
aggregate offering price of $68,425,000. The Company issued and sold 3,450,000
shares of Common Stock pursuant to the Registration Statement at an initial
price to public of $11.00 per share. The aggregate offering price of the
Common Stock offered by the Company was $37,950,000. Managing underwriters for
the Initial Public Offering were Lehman Brothers Inc., Prudential Securities
Incorporated and Raymond James & Associates, Inc. There will be no further
sales pursuant to this Registration Statement.
Set forth below are the expenses incurred by the Company prior to
December 31, 1997 with respect to the Initial Public Offering, including
underwriting discounts and commissions:
Underwriting Discounts and Commissions $ 2,656,500
Filing/listing fees 78,078
Printing Expenses 147,154
Legal and Accounting fees 482,008
Expenses of Roadshow 193,442
Miscellaneous expenses 117,395
-----------
Total $ 3,674,577
===========
None of the expenses were paid directly or indirectly to directors or
officers of the Company or their associates, to persons owning 10% or more of
the outstanding equity securities of the Company or to any other affiliates of
the Company.
Use of Proceeds. Net proceeds of the Initial Public Offering, after
deducting the foregoing, were $34,275,423. On December 17, 1997, the Company
completed its acquisition of American Helicopter and Fournier, using $1,261,000
of the net proceeds from the Initial Public Offering. Both of these
acquisitions had an effective date of October 1, 1997. The Company also used
approximately $23.8 million of the net proceeds of the Initial Public Offering
to repay outstanding indebtedness. The Company repaid all of the following
credit facilities:
NAME OF LENDER AMOUNT REPAID
- -------------- --------------
U.S. Bancorp Leasing and Financial(1) $ 4,736,995
First National Bank of Lafayette(2) 508,051
Transamerica Insurance Finance Corporation(3) 684,749
Hibernia National Bank(4) 14,992,146
OGC(5) 1,833,355
American Aviation(6) 1,000,000
------------
$ 23,755,296
============
- -------------------------
(1) Borrowings under this facility were used to finance various seismic
drilling and support equipment.
(2) Borrowings under this loan were used to consolidate debt incurred for the
purchase of 43 trucks.
(3) Borrowings used to fund Company insurance policies.
(4) Consists of repayments under several facilities. The Company repaid
approximately $6.4 million of indebtedness incurred to fund the
acquisition of American Aviation, approximately $700,000 in vehicle loans,
approximately $5.8 million to repay outstanding amounts under its
revolving credit facility, approximately $2.0 million borrowed to fund the
construction of the Company's new headquarters and approximately $45,000
of indebtedness of Leonard J. Chauvin, Jr., Inc. that existed at the time
of its acquisition by the Company. The proceeds of the loan from Hibernia
used to fund the acquisition of American Aviation were paid to American
Aviation, a company owned by David A. Jeansonne and Richard Patrick
Morris, two of the Company's executive officers.
(5) Note payable to OGC issued as part of the consideration for the OGC
Acquisition. OGC is controlled by Mr. Jeansonne.
(6) Note payable to American Aviation issued as part of the consideration for
the acquisition of American Aviation. American Aviation is owned by
Messrs. Jeansonne and Morris.
The Company used approximately $5.7 million of the remaining net proceeds
to fund capital expenditures made during December 1997 and January 1998.
Items acquired by the Company included various seismic drilling units and
support vehicles and five helicopters. The remainder of the net proceeds of
the Initial Public Offering (approximately $3.6) million were used for working
capital and general corporate purposes.
In the prospectus that formed a part of the Registration Statement the
Company disclosed its intention to use the net proceeds of the Initial Public
Offering to fund the cash portion of the American Helicopter and Fournier
acquisitions, to repay the indebtedness listed above and to repay a portion of
the amounts outstanding under its asset-based financing arrangements with CIT
Group/Equipment Financing, Inc. (the "CIT Loan"). The net proceeds of the
Initial Public Offering were used to fund the acquisitions of American
Helicopter and Fournier and the repayment of the indebtedness listed above but
were not applied to the CIT Loan. Because of capital expenditures resulting
from business opportunities arising after the completion of the Initial Public
Offering, the Company's management did not believe it was prudent to incur the
prepayment penalties associated with repayment of the CIT Loan in light of the
Company's continued need for cash to fund these capital expenditures and
related working capital needs. Thus, the remaining portion of the net proceeds
was used as set forth above.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data as of December 31, 1993 and for the year
ended December 31, 1993 is derived from the unaudited financial statements of
OGC, substantially all of the assets of which were acquired by OMNI Geophysical
on July 19, 1996. The selected financial data as of and for the years ended
December 31, 1994 and 1995 and as of and for the 201-day period ended July 19,
1996 are derived from the audited financial statements of OGC. The selected
financial data as of December 31, 1996 and 1997, and for the 165-day period
ended December 31, 1996 and the year ended December 31, 1997 are derived from
the audited financial statements of the Company. In the opinion of management,
the unaudited financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary for the fair presentation of the
financial condition and results of operations for that period. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Annual Report.
PREDECESSOR SUCCESSOR
-------------------------------------------------------- --------------------------------
201-day
period 165-day
ended period ended Year ended
July 19, December 31, December 31,
1993 1994 1995 1996 1996 1997
------------ ----------- ----------- ------------- ---------------- --------------
(In thousands, except share and per share data)
(Unaudited)
Income Statement Data:
Operating revenue............. $ 3,972 $ 7,268 $ 12,690 $ 10,017 $ 10,942 $ 49,591
Operating expense(1).......... 2,544 5,025 8,704 6,814 8,114 36,302
------------ ----------- ----------- ------------- ---------------- --------------
Gross profit.................. 1,428 2,243 3,986 3,203 2,828 13,289
General and
administrative
expenses..................... 756 1,079 1,791 789 1,050 5,122
------------ ----------- ----------- ------------- ---------------- --------------
Operating income.............. 672 1,164 2,195 2,414 1,778 8,167
Interest expense(1)........... 56 97 148 151 437 1,866
Other expense
(income), net................ --- (8) 7 6 (20) (37)
------------ ----------- ----------- ------------- ---------------- --------------
Income before income taxes
and extraordinary
item......................... 616 1,075 2,040 2,269 1,361 6,338
Income tax expense............ --- --- --- --- --- 403
------------ ----------- ----------- ------------- ---------------- --------------
Income before
extraordinary item........... 616 1,075 2,040 2,269 1,361 5,935
Extraordinary expense
from early
extinguishment of
debt net of tax............ --- --- --- --- --- 84
------------ ----------- ----------- ------------- ---------------- --------------
Net income.................... $ 616 $ 1,075 $ 2,040 $ 2,269 $ 1,361 $ 5,851
============ =========== =========== ============= ================ ==============
Unaudited Pro Forma Data:
Income before income taxes
and extraordinary
item, reported
above........................ $ 616 $ 1,075 $ 2,040 $ 2,269 $ 1,361 $ 6,338
Pro forma interest
expense(2) 345
Pro forma provision
for income
taxes(3)..................... 246 430 816 908 475 2,400
------------ ----------- ----------- ------------- ---------------- --------------
Pro forma net income.......... $ 370 $ 645 $ 1,224 $ 1,361 $ 886 $ 3,593
============ =========== =========== ============= ================ ==============
Pro forma net income
per common share............. $ 0.30
==============
Pro forma weighted
average common
shares...................... 11,810,016
AS OF DECEMBER 31,
-------------------------------------------------------------------------------------
1993 1994 1995 1996(4) 1997
--------------- -------------- ------------- ------------- -------------
(In thousands)
(Unaudited)
Balance Sheet Data:
Total assets.............. $ 2,134 $ 4,044 $ 5,429 $ 20,386 $ 74,913
Long-term debt, less current
maturities................ 510 434 341 10,574 14,558
(1) The step-up to fair value of the assets acquired in the OGC Acquisition
resulted in increased depreciation reported by the Company, which is
included in operating expenses. In order to finance the OGC Acquisition,
the Company incurred additional indebtedness, which resulted in additional
interest expenses being reported.
(2) Reflects an increase in interest expense as a result of the incurrence of
indebtedness to finance the LLC Distribution (as defined herein) as if
such event had occurred on January 1, 1997.
(3) Each of OGC, OMNI Geophysical and American Aviation was an S corporation
or a limited liability company exempt from income tax at the entity level,
and thus the historical financial statements prior to December 4, 1997
show no provision for income taxes. Effective December 4, 1997, the
Company became subject to income taxes at the corporate level. This pro
forma adjustment reflects a provision for income taxes on the Company's
net income at a combined federal and state tax rate of 40%.
(4) Includes the stepped-up fair value of the assets and liabilities purchased
in the OGC Acquisition.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Demand. Demand for the Company's services is principally affected by
conditions affecting geophysical companies engaged in the acquisition of 3-D
seismic data. The level of activity among geophysical companies is primarily
affected by the level of capital expenditures by oil and gas companies for
seismic data acquisition activities. A number of factors influence 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. Onshore 3-D seismic data
acquisition activity has substantially increased over the past few years;
however, any significant reduction in seismic exploration activity in the areas
where the Company operates would result in a reduction in the demand for the
Company's services and could have a material adverse effect on the Company's
financial condition and results of operations.
Within the last decade, improvements in drilling and production
techniques and the acceptance of 3-D imaging as an exploration tool have
resulted in significantly increased seismic activity throughout the Transition
Zone. Due to this increased demand, the Company has significantly increased
its capacity as measured by drilling units, support equipment and employees.
The additional capacity and related increase in work force have led to
significant increases in the Company's revenue and generally commensurate
increases in operating expenses and selling, general and administrative
expenses. If anticipated increases in seismic activity are realized,
management would also expect these expenses to continue to increase as a direct
correlation.
Backlog. Most of the Company's seismic drilling projects are awarded
pursuant to a competitive bidding process. Once the Company's bid on a
particular project has been accepted and a start date for the project has been
scheduled, the Company will include the project in its backlog. As of December
31, 1997, the Company's backlog was $70.0 million, compared to $40.8 million at
December 31, 1996. Projects currently included in the Company's backlog are
subject to rescheduling or termination without penalty at the option of the
customer, which could substantially reduce the amount of backlog currently
reported and the revenue generated from the backlog. Historically, the Company
has not experienced a large volume of project delays or terminations, and those
projects that have been delayed or terminated have typically been replaced by
unscheduled projects. Nevertheless, delay or termination of a number of large
projects in the Company's existing backlog could have a material adverse effect
on the Company's revenue, net income and cash flow.
Seasonality and Weather. The Company's operations are subject to
seasonal variations in weather conditions and daylight hours. Since the
Company's activities take place outdoors, the average number of hours worked
per day, and therefore the number of holes drilled or surveyed per day, is
generally less in the winter months than in summer months. Furthermore, demand
for seismic data acquisition activity by oil and gas companies in the first
quarter is generally lower than at other times of the year. In addition, the
Company's operations in the Rocky Mountain area are subject to the seasonal
climatic conditions of that area. As a result, the Company's revenue and gross
profit during the first quarter of each year are typically less as compared to
the other quarters.
RESULTS OF OPERATIONS
The following discussion provides information related to the results of
operations of the Company and OMNI Geophysical. OMNI Geophysical acquired
substantially all of the assets and liabilities of OGC in the OGC Acquisition
on July 19, 1996. In order to provide comparable historical periods for 1996,
management has combined the results of operations of OGC for the 201-day period
ended July 19, 1996 with the results of operations of OMNI Geophysical for the
165-day period ended December 31, 1996 (see tables in the following section).
The OGC Acquisition was accounted for as a purchase with the assets acquired
and liabilities assumed recorded at their estimated fair value. As a result of
borrowings incurred to finance the OGC Acquisition and the write up of the
fixed assets purchased from OGC to their fair value at the time of the OGC
Acquisition, the Company has experienced higher interest, depreciation and
amortization expense since July 19, 1996.
Year Ended December 31, 1997 Compared to the Combined Year Ended December
31, 1996 (OGC 201-day Period Ended July 19, 1996 and OMNI Geophysical 165-day
Period Ended December 31, 1996) (In Thousands of Dollars):
Combined
Year Ended Year Ended
December 31, 1996 December 31, 1997
----------------- -----------------
(unaudited)
Operating revenue ................................. $20,959 $49,591
Operating expense ................................. 14,928 36,302
----------------- -----------------
Gross profit....................................... 6,031 13,289
General and administrative expenses................ 1,839 5,122
----------------- -----------------
Operating income................................... 4,192 8,167
Interest expense................................... 588 1,866
Other income....................................... 26 37
----------------- -----------------
Income before income taxes and
extraordinary item.............................. 3,630 6,338
Income tax expense................................. - 403
----------------- -----------------
Income before extraordinary item................... 3,630 5,935
Extraordinary expense from early
extinguishment of debt, net of tax.............. - 84
----------------- -----------------
Net income......................................... $ 3,630 $ 5,851
================= =================
Operating revenues increased 136%, from $21.0 million for the year ended
December 31, 1996 to $49.6 million for the year ended December 31, 1997.
Internal growth resulting from the increase in industry demand for 3-D seismic
data in the Transition Zone accounted for approximately $17.0 million, or 59%,
of this increase. In order to meet this demand, the Company added 49 seismic
drilling units for use in the Transition Zone during 1997, a 79% increase from
the number of such units owned by the Company at the end of 1996. The
remaining increase was due to the increase in the Company's operations that
resulted from the six acquisitions completed during 1997. These six
acquisitions broadened the Company's operations to include helicopter support
operations and survey services. In addition, the Company added the Rocky
Mountain region as a primary service area. The Company's aviation division
contributed approximately $4.4 million in revenues, while the Company's survey
and Rocky Mountain seismic drilling divisions generated revenues of $4.0
million and $3.1 million, respectively in 1997. The Company employed 308
employees for both field and administrative operations at December 31, 1996
compared to 602 at December 31, 1997, a 95% increase.
Operating expenses increased 144%, from $14.9 million in 1996 to $36.3
million in 1997, due to both internal growth of the Company's operations from
1996 to 1997 and the expanded scope of the Company's operations that resulted
from the acquisitions described above. Total payroll expense increased 135% in
1997, to $15.5 million from $6.6 million in 1996, due to the significant
increase in the size of the Company's workforce. Repairs and maintenance costs
were $4.7 million in 1997, a 135% increase over 1996 repairs and maintenance
costs of $2.0 million, primarily due to the increase in the number and
utilization of the Company's seismic drilling and transportation equipment.
Explosives costs increased 185% in 1997, to $3.7 million from $1.3 million in
1996, due to an increase in the number of projects for which the Company
provided explosives. Depreciation expense increased $1.3 million, or 130%,
from $1.0 million in 1996 to $2.3 million in 1997 due to the increased number
of seismic drilling and support equipment units owned by the Company, the
stepped-up basis in such units that resulted from the OGC Acquisition and the
addition of the aircraft acquired from American Aviation. Contract services
increased 180%, or $0.9 million, from $0.5 million in 1996 to $1.4 million in
1997, primarily due to the survey division's need for additional surveyors.
Increased operations resulting from increased demand for the Company's services
and the acquisitions led to an increase of $0.5 million, or 50%, in supplies
expense from $1.0 million in 1996 to $1.5 million in 1997. Rental and lease
expense also increased in 1997 to $1.6 million from $0.6 million in 1996. The
remaining increase in operating expenses was primarily related to the increase
in the size and scope of the Company's operations, including a $0.7 million, or
140%, increase in insurance expense and a $0.8 million, or 100%, increase in
fuel expense.
Gross profit increased $7.3 million, or 122%, from $6.0 million in 1996
to $13.3 million in 1997. Gross margins fell from 29% in 1996 to 27% in 1997.
This decline in the Company's margin was primarily due to the rapid expansion
of the Company's operations and the addition of new field crews.
General and administrative expenses increased 183%, or $3.3 million, from
$1.8 million in 1996 to $5.1 million in 1997, primarily due to increases in
office personnel to support the Company's expanded operations, payroll taxes
and insurance expense. These three items increased 145%, from $1.1 million in
1996 to $2.7 million in 1997. Additionally, other components of general and
administrative expenses, such as utilities, advertising, office, travel and
entertainment, rent and permits, increased 260%, from $0.5 million in 1996 to
$1.8 million in 1997. This increase was primarily due to the expansion of the
Company's facilities and operations. Professional services and bad debt
expense increased 100% from $0.2 million in 1996 to $0.4 million in 1997 due to
the increase in the Company's operations. Amortization of loan costs and
goodwill expense increased to $0.3 million in 1997 as a result of the
acquisitions completed in 1997. General and administrative expenses as a
percentage of revenue were 10% and 9% in 1997 and 1996, respectively.
Interest expense increased $1.3 million, or 217%, from $0.6 million in
1996 to $1.9 million in 1997, due to increased borrowings used to fund the six
acquisitions completed during 1997 and the acquisition of additional drilling
units, support equipment and helicopters.
Income tax expense was $0.4 million in 1997. On December 4, 1997, the
Company converted from a non-taxable entity to a taxable entity and thus became
subject to federal and state income taxation. Prior to this conversion, the
Company had been treated as a partnership for income tax purposes and,
accordingly, no provision for income taxes had been made. Income tax expense
for 1997 is not indicative of future income tax expense as the Company was
subject to income taxation for less than one month.
Combined Year Ended December 31, 1996 (OGC 201-day Period Ended July 19,
1996 and OMNI Geophysical 165-day Period Ended December 31, 1996) Compared to
Year Ended December 31, 1995 (In Thousands of Dollars):
Combined
Year Ended Year Ended
December 31, 1995 December 31, 1996
----------------- -----------------
(unaudited)
Operating revenue ..................................... $12,690 $20,959
Operating expense ..................................... 8,704 14,928
----------------- -----------------
Gross profit........................................... 3,986 6,031
General and administrative expenses.................... 1,791 1,839
----------------- -----------------
Operating income....................................... 2,195 4,192
Interest expense....................................... 148 588
Other income (expense)................................. (7) 26
----------------- -----------------
Net income............................................. $ 2,040 $ 3,630
================= =================
Operating revenues increased 65%, from $12.7 million in 1995 to $21.0
million in 1996, primarily due to an increase in industry demand for 3-D
seismic data in the Transition Zone and to the Company's increased capacity as
measured by drilling units, support equipment and employees. The Company had
approximately 40 drilling units and 32 support equipment units at December 31,
1995, compared to 57 drilling units and 72 support equipment units at December
31, 1996. The Company employed 172 employees for both field and administrative
operations at December 31, 1995, compared to 308 at December 31, 1996, a 79%
increase.
Operating expenses increased 71%, from $8.7 million in 1995 to $14.9
million in 1996, due to the increase in the volume of the Company's operations
from 1995 to 1996. Repair and maintenance costs increased 25%, from $1.6
million in 1995 to $2.0 million in 1996, primarily due to the increase in the
utilization and number of the Company's seismic drilling and transportation
equipment. Total operating labor costs increased 57%, from $4.2 million in
1995 to $6.6 million in 1996, due to the large increase in the number of
employees required to meet the increased demand for the Company's services.
Explosives costs increased 550%, from $0.2 million in 1995 to $1.3 million in
1996, primarily due to an increase in the number of projects for which the
Company provided explosives and a 6% increase in the price of explosives. Fuel
costs increased 60%, from $0.5 million in 1995 to $0.8 million in 1996, due to
the increased number and usage of the company's drilling and support units.
Contract drilling services costs increased 67%, from $0.3 million in 1995 to
$0.5 million in 1996, as the Company occasionally had to subcontract for
equipment and services, including drilling units and personnel, to meet the
increased demand. Equipment rentals increased 200%, from $0.2 million in 1995
to $0.6 million in 1996.
Gross profit increased 50%, from $4.0 million in 1995 to $6.0 million in
1996; however, gross profit margins fell from 31% in 1995 to 29% in 1996,
primarily due to the increase in the number of projects for which the Company
provided explosives, as the Company receives lower margins on explosives than
it does from its other operations.
General and administrative expenses remained constant at $1.8 million in
both 1995 and 1996. Included in general and administrative expenses for 1995
are $1.2 million of executive bonuses. The Company paid no corresponding
bonuses in 1996. Excluding executive bonuses, general and administrative
expenses as a percentage of operating revenues were 5% and 9% in 1995 and 1996,
respectively. The increase in general and administrative expenses as a
percentage of revenue was primarily due to an increase in office personnel,
insurance costs and bad debt expense. Insurance costs increased 100%, from
$0.2 million in 1995 to $0.4 million in 1996, due to expanded coverage and
increased limits of liability on existing policies. Office personnel costs
increased 300%, from $0.2 million in 1995 to $0.8 million in 1996, due to the
additional personnel needed to manage the increase in the Company's operations.
There was $0.1 million of bad debt expense in 1996 and none in 1995.
Interest expense increased 500%, from $0.1 million in 1995 to $0.6
million in 1996 due to the additional financing costs associated with the OGC
Acquisition and the increase in borrowings used to fund purchases and
construction of new drilling units and support equipment. The increased
interest expense in 1996 was partially offset by a decrease in the interest
rates charged on current and long-term debt. At December 31, 1995, the
interest rates on debt ranged from 8.25% to 11%. At December 31, 1996,
interest rates on the Company's revolving line of credit, the debt used for the
OGC Acquisition and the subordinated debt issued in connection with OGC
Acquisition were 9.25%, 9.37% and 8.5%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had approximately $8.7 million in cash
compared to approximately $39,000 at December 31, 1996. The Company had
working capital of approximately $11.5 million at December 31, 1997 compared to
approximately $1.6 million at December 31, 1996. The increase in working
capital was primarily due to increased cash and accounts receivable generated
from operations and the cash received from the Initial Public Offering. Cash
generated from operations was $4.9 million for the year ended December 31, 1997
compared to $0.6 million for the 165-day period ended December 31, 1996 and
$1.5 million for the 201-day period ended July 19, 1996.
On December 10, 1997, the Company completed the Initial Public Offering,
pursuant to which it issued 3,450,000 shares of Common Stock. The Company
received net proceeds, after deducting expenses of the Initial Public Offering,
including underwriting discounts and commissions, of approximately $34.3
million. The Company used approximately $1.3 million of the net proceeds to
fund the cash portions of the respective purchase prices for its acquisitions
of American Helicopter and Fournier, both of which were completed in December
1997. The Company used approximately $23.8 million of the remaining net
proceeds to repay outstanding indebtedness and approximately $5.7 million to
fund capital expenditures during December 1997 and January 1998. The remaining
net proceeds, approximately $3.6 million, were used for working capital and
general corporate purposes.
On September 30, 1997, the Company entered into a $10.0 million term loan
(the "Distribution Loan") with Hibernia to fund the repurchase of outstanding
preferred units of OMNI Geophysical and the initial portion of a distribution
to the members of OMNI Geophysical. Prior to December 31, 1997, the Company
borrowed an additional $1.0 million under the Distribution Loan to fund the
remaining portion of the distribution. This distribution (the "LLC
Distribution") represented all of the undistributed earnings of OMNI
Geophysical, on which the members had previously incurred income tax liability.
On January 20, 1998, the Company restructured its credit arrangements with
Hibernia. Under the restructured facility (the "New Facility"), the Company
refinanced the $11.0 million Distribution Loan, obtained a $10.0 million
revolving line of credit to finance working capital requirements, and obtained
a $9.0 million line of credit to finance capital expenditures and acquisitions.
The loans under the New Facility bear interest at LIBOR plus an applicable
margin (currently 1.5%) which is calculated quarterly and is based on the
Company's ratio of average funded debt to earnings before interest, taxes and
depreciation and amortization. The applicable margin can range from
1.25% to 2.25%. The New Facility has a final maturity of January 20, 2000, is
required to be guaranteed by all of the Company's subsidiaries, requires the
Company to maintain certain financial ratios, imposes certain limitations in
the Company's ability to pay cash dividends and is collateralized by a mortgage
on the Company's land and buildings and by substantially all of the Company's
assets not used as collateral for the CIT Loan. As of February 28, 1998, the
Company had approximately $10.9 million outstanding under the New Facility.
In addition to outstanding indebtedness under the New Facility, as of
February 28, 1998, the Company also had approximately $7.6 million in
outstanding indebtedness. The majority of this debt (approximately $6.5
million) is owed pursuant to the CIT Loan, which consists of several asset-
based financing loans. Of the principal outstanding under the CIT Loan,
approximately $4.9 million bears interest at LIBOR plus 3.75% (the "Variable
Rate") and matures on July 19, 2001. Prior to August 19, 1998, the Company may
elect to pay interest on this portion of the loan at a fixed rate equal to the
interest rate on U.S. Treasury securities of a comparable maturity to the loan
at the time of election plus 4.25% (the "Fixed Rate"). The proceeds of this
portion of the loan were used to finance a portion of the OGC Acquisition, and
the assets acquired serve as collateral for the loan. The remaining portion of
this loan was borrowed pursuant to an additional commitment from the lender of
up to $4,000,000 or 90% of the cost of the collateral securing amounts advanced
under this commitment. As of February 28, 1998, $1.8 million of this
commitment had been advanced. Amounts advanced under this commitment bear
interest at LIBOR plus 3.0% and are collateralized by various seismic drilling,
support equipment and aircraft.
Remaining indebtedness includes, as of February 28, 1998, (i) $120,000
owed to Delta Surveys, Inc. (8.5% interest rate; March 31, 2000 maturity date),
(ii) $111,000 incurred in connection with the formation of OMNI Geophysical
(March 1, 2001 maturity date), (iii) approximately $875,000 owed to finance
companies incurred to finance certain of the Company's insurance premiums and
(iv) approximately $12,000 in other miscellaneous indebtedness.
The Company's capital requirements are primarily for the purchase or
fabrication of new seismic drilling equipment and related support equipment,
the purchase of helicopters and acquisitions. The Company made capital
expenditures of approximately $14.5 million to purchase or construct new assets
between July 19, 1996 and December 31, 1996, and made approximately $36.0
million of capital expenditures during the year ended December 31, 1997,
including $14.6 million in cash and stock for the acquisition of substantially
all of the assets of American Aviation, $0.9 million in cash for the
acquisition of Leonard J. Chauvin, Jr., Inc., $0.6 million in cash for the
acquisition of substantially all of the assets of OTH, $0.3 million in cash and
notes for the acquisition of Delta Surveys, Inc., $0.8 million in cash and
stock for the acquisition of Fournier, $3.5 million in cash and stock for the
acquisition of American Helicopter, $11.6 million for new equipment and support
vehicles and $3.7 for the expansion of its headquarters.
The Company currently expects to make capital expenditures of
approximately $15.1 million in 1998, including $6.0 million for additional
helicopters, $6.9 for additional seismic drilling equipment, $1.2 million for
support vehicles, $0.3 million for survey equipment and $0.7 million for
additional computers and leasehold improvements. As of February 28, 1998, the
Company is committed to $8.7 million of the estimated capital expenditures for
1998. The Company has also entered into non-binding letters of intent to
acquire three support companies. These acquisitions, which are subject to
definitive agreements with the respective sellers, are expected to close during
the second quarter of 1998 at an approximate aggregate cost of $3.2 million in
cash and stock.
Management believes that cash generated by operations and the Company's
New Facility will be sufficient to meet the company's anticipated capital
expenditures for 1998. However, part of the Company's strategy is to acquire
companies with operations related or complementary to the Company's current
operations. Depending on the size of such future acquisitions, the Company may
require additional debt financing, possibly in excess of the limits of the New
Facility, or equity financing.
The Company has evaluated its computer systems for year 2000 compliance
and believes its current plans for system upgrades are adequate to address year
2000 issues internally at no significant cost.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," which simplifies the standards required under current accounting
rules for computing earnings per share and replaces the presentation of primary
earnings per share and fully diluted earnings per share with a presentation of
basic earnings per share ("basic EPS") and diluted earnings per share ("diluted
EPS"). Basic EPS excludes dilution and is determined by dividing income
available to common stockholders by the weighted average number of shares of
common stock outstanding during the period. Diluted EPS reflects the potential
dilution that could occur if securities and other contracts to issue shares of
common stock were exercised or converted into common stock. Diluted EPS is
computed similarly to fully diluted earnings per share under current accounting
rules. The adoption of SFAS 128 in the fourth quarter of 1997 did not have a
material effect on the Company's earnings per share as determined under prior
accounting rules.
In June 1997 the FASB issued SFAS No. 131 "Disclosures About Segments of
an Enterprise and Related Information," which requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. SFAS 131 is effective for any fiscal year beginning after
December 15, 1997. The Company will adopt the new standard in 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements PAGE
Report of Independent Public Accountants................................... 24
Consolidated Balance Sheets as of December 31, 1996 and 1997............... 25
Consolidated Statements of Income for the Year Ended December 31, 1995,
the 201-day Period Ended July 19, 1996, the 165-day Period Ended
December 31, 1996, and the Year Ended December 31, 1997.............. 27
Consolidated Statements of Changes in Equity for the Year Ended
December 31, 1995, the 201-day Period Ended July 19, 1996, the
165-day Period Ended December 31, 1996, and for the Year Ended
December 31, 1997.................................................... 28
Consolidated Statements of Cash Flows for the Year Ended December 31,
1995, the 201-day Period Ended July 19, 1996, the 165-day Period
Ended December 31, 1996, and for the Year Ended December 31, 1997.... 29
Notes to Financial Statements.............................................. 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of OMNI Energy Services Corp.:
We have audited the accompanying consolidated balance sheets of OMNI Energy
Services Corp. and subsidiaries (a Louisiana corporation, the "Company"),
formerly OMNI Geophysical, L.L.C. and successor to OMNI Geophysical Corporation
("Predecessor") as of December 31, 1997 and 1996, and the related statements of
income, cash flows and changes in equity for the year ended December 31, 1997
and the 165-day period ended December 31, 1996. In addition, we have audited
the consolidated statements of income, cash flows and changes in equity for the
201-day period ended July 19, 1996 and the year ended December 31, 1995 of
Predecessor. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, (a) the financial position of OMNI Energy Services Corp.
and subsidiaries as of December 31, 1997 and 1996 and the results of its
operations and cash flows for the year ended December 31, 1997 and the 165-day
period ended December 31, 1996 and (b) the financial position of OMNI
Geophysical Corporation and the results of its operations and cash flows for
the 201-day period ended July 19, 1996 and for the year ended December 31,
1995, all in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana,
February 11, 1998
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
December 31, December 31,
ASSETS 1996 1997
------ ------------- -------------
(Thousands of Dollars)
CURRENT ASSETS:
Cash and cash equivalents $ 39 $ 8,723
Accounts receivable, net 4,565 11,958
Parts and supplies inventory 706 2,988
Prepaid expenses and other 759 1,965
------------- -------------
Total current assets 6,069 25,634
------------- -------------
PROPERTY AND EQUIPMENT:
Land - 359
Building and improvements 32 3,949
Drilling, field and support equipment 11,930 22,703
Shop equipment 121 227
Aircraft 526 9,266
Vehicles 1,385 3,448
Construction in progress 461 800
------------- -------------
14,455 40,752
Less: accumulated depreciation 675 2,909
------------- -------------
Total property and equipment, net 13,780 37,843
------------- -------------
OTHER ASSETS:
Goodwill, net 218 10,680
Other 319 756
------------- -------------
Total other assets 537 11,436
------------- -------------
Total assets $ 20,386 $ 74,913
============= =============
The accompanying notes are an integral part of these financial statements.
OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
December 31, December 31,
LIABILITIES AND EQUITY 1996 1997
- ---------------------- -------------- -------------
(Thousands of Dollars)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,500 $ 5,713
Accounts payable 1,379 5,998
Accrued expenses 561 2,409
Due to affiliates and shareholders 29 ---
-------------- -------------
Total current liabilities 4,469 14,120
-------------- -------------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 8,458 14,558
Line of credit 2,116 ---
Deferred taxes --- 1,650
-------------- -------------
Total long-term liabilities 10,574 16,208
-------------- -------------
EQUITY:
Preferred units; $1,000 par value; 4,000 units,
10% participating, issued and outstanding at
December 31, 1996 (liquidation preference of
$4.2 million at December 31, 1996) 4,000 ---
Common units, $.01 par value; 101,263 units
issued and outstanding at December 31, 1996 1 ---
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding --- ---
Common Stock, $.01 par value, 45,000,000
shares authorized; 15,726,282 issued and
outstanding --- 157
Additional paid-in capital --- 44,038
Retained earnings 1,342 390
-------------- -------------
Total equity 5,343 44,585
-------------- -------------
Total liabilities and equity $ 20,386 $ 74,913
============== =============
The accompanying notes are an integral part of these financial
statements.
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995,
THE 201-DAY PERIOD ENDED JULY 19, 1996, THE 165-DAY PERIOD ENDED DECEMBER 31,
1996, AND THE YEAR ENDED DECEMBER 31, 1997
The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company. Such accounting generally results in
increased depreciation and amortization expense reported in future periods.
Accordingly, the accompanying financial statements of Predecessor and Successor
presented below are not comparable in all material respects since those
financial statements report the financial position, results of operations and
cash flows of these two separate entities.
PREDECESSOR SUCCESSOR
------------------------------------- ---------------------------------
201-Day 165-Day
Year Ended Period Ended Period Ended Year Ended
December 31, July 19, December 31, December 31,
1995 1996 1996 1997
--------------- ---------------- ---------------- -------------
(Thousands of Dollars)
Operating revenue $ 12,690 $ 10,017 $ 10,942 $ 49,591
Operating expense 8,704 6,814 8,114 36,302
--------------- ---------------- ---------------- -------------
Gross profit 3,986 3,203 2,828 13,289
General and administrative expense 1,791 789 1,050 5,122
--------------- ---------------- ---------------- -------------
Operating income 2,195 2,414 1,778 8,167
Interest expense 148 151 437 1,866
Other income (expense) (7) 6 20 37
--------------- ---------------- ---------------- -------------
(155) (145) (417) (1,829)
--------------- ---------------- ---------------- -------------
Income before taxes and extraordinary item 2,040 2,269 1,361 6,338
Income tax expense --- --- --- 403
--------------- ---------------- ---------------- -------------
Income before extraordinary item 2,040 2,269 1,361 5,935
Extraordinary expense from early
extinguishment of debt net of tax --- --- --- 84
--------------- ---------------- ---------------- -------------
Net income $ 2,040 $ 2,269 1,361 5,851
--------------- ---------------- ---------------- -------------
Preferred dividend requirements $ --- $ --- (180) (391)
--------------- ---------------- ---------------- -------------
Income applicable to common shares $ 2,040 $ 2,269 $ 1,181 $ 5,460
Basic earnings per common share: --------------- ---------------- ---------------- -------------
Before extraordinary item $ 1,020 $ 1,135 $ 0.11 $ 0.47
Extraordinary item net of tax --- --- --- (0.01)
--------------- ---------------- ---------------- -------------
Net income $ 1,020 $ 1,135 $ 0.11 $ 0.46
=============== ================ ================ =============
UNAUDITED PRO FORMA DATA
Income before taxes and extraordinary item, $ 2,040 $ 2,269 $ 1,361 6,338
reported above
Pro forma interest expense --- --- --- (345)
Pro forma provision for income taxes related to
operations
as a non-taxable corporate entity (816) (908) (544) (2,400)
--------------- ---------------- ---------------- -------------
Pro forma net income $ 1,224 $ 1,361 $ 817 $ 3,593
=============== ================ ================ =============
Pro forma net income per common share $ .30
=============
Pro forma weighted average common shares 11,810,016
=============
The accompanying notes are an integral part of these financial statements.
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31,
1995, THE 201-DAY PERIOD ENDED JULY 19, 1996, THE 165-DAY PERIOD ENDED
DECEMBER 31, 1996, AND FOR THE YEAR ENDED DECEMBER 31, 1997
The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company. Such accounting generally results in
increased depreciation and amortization expense reported in future periods.
Accordingly, the accompanying financial statements of Predecessor and Successor
presented below are not comparable in all material respects since those
financial statements report the financial position, results of operations
and cash flows of these two separate entities.
Additional
Common Stock Preferred Units Common Units Paid-In Retained
Shares Amount Units Amount Units Amount Capital Earnings Total
(Thousands of Dollars)
PREDECESSOR:
BALANCE December 31, 1995 2,000 $ 6 --- $ --- --- $ --- $ --- $ 2,857 $ 2,863
Add - net income for the
period ended July 19, 1996 --- --- --- --- --- --- --- $ 2,269 $ 2,269
Deduct- distributions to
shareholders --- --- --- --- --- --- --- (881) (881)
------- ------- ------ -------- ------ -------- ---------- ------- -------
BALANCE, July 19, 1996 2,000 6 --- --- --- --- --- 4,245 4,251
SUCCESSOR:
BALANCE, July 19, 1996 2,000 6 --- --- --- --- --- 4,245 4,251
Deduct adjustments to
reflect purchase of
predecessor (2,000) (6) --- --- --- --- --- (4,245) (4,251)
Add - initial capital --- --- 4,000 4,000 101,263 1 --- --- 4,001
contribution
- net income --- --- --- --- --- --- --- 1,360 1,360
Deduct - distribution to
members --- --- --- --- --- --- --- (18) (18)
------- -------- ------ -------- -------- -------- ---------- ------- -------
BALANCE, December 31, 1996 --- --- 4,000 4,000 101,263 1 --- 1,342 5,343
Add - sale of common --- --- --- --- 2,000 --- 78 --- 78
units
- sale of preferred --- --- 1,000 1,000 --- --- --- --- 1,000
units
- issuance of common --- --- --- --- 10,213 --- 6,415 --- 6,415
units
Deduct - contribution of
undistributed
retained earnings
from OMNI due to
change in tax status --- --- --- --- --- --- 302 (302) ---
- distributions to
common unitholders --- --- --- --- --- --- --- (5,930) (5,930)
- payment of preferred
dividends --- --- --- --- --- --- --- (571) (571)
- retirement of --- --- (5,000) (5,000) --- --- --- --- (5,000)
preferred units
Share exchange 12,000,000 120 --- --- (113,476) (1) (119) --- ---
Add - public offering of 3,450,000 34 --- --- --- --- 34,241 --- 34,275
shares
- issuance of common
shares for
acquisitions 276,282 3 --- --- --- --- 3,037 --- 3,040
- deferred
compensation --- --- --- --- --- --- 84 --- 84
expense
- net income for the --- --- --- --- --- --- --- 5,851 5,851
year ended
December 31, 1997
---------- --------- ------ -------- -------- -------- ---------- ------- -------
BALANCE, December 31, 1997 15,726,282 $ 157 --- $ --- --- $ --- $ 44,038 $ 390 $44,585
========== ========= ====== ======== ======== ======== ========== ======= =======
The accompanying notes are an integral part of these financial statements.
OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995,
THE 201-DAY PERIOD ENDED JULY 19, 1996, THE 165-DAY PERIOD ENDED
DECEMBER 31, 1996, AND FOR THE YEAR ENDED DECEMBER 31, 1997
The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company. Such accounting generally results in
increased depreciation and amortization expense reported in future periods.
Accordingly, the accompanying financial statements of Predecessor and
Successor presented below are not comparable in all material respects since
those financial statements report the financial position, results of
operations and cash flows of these two separate entities.
Predecessor Successor
--------------------------- -----------------------------
201-Day 165-Day
Year Ended Period Ended Period Ended Year Ended
December 31, July 19, December 31, December 31,
1995 1996 1996 1997
-------------- ------------ ------------- ------------
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,040 $ 2,269 $ 1,361 $ 5,851
Adjustments to reconcile net income to
net cash provided by operating
activities-
Depreciation 372 275 674 2,259
Amortization --- --- 23 252
Loss on fixed asset disposition 53 1 17 39
Deferred compensation --- --- --- 84
Provision for bad debts --- --- 110 151
Deferred taxes --- --- --- 179
Other (24) --- --- ---
Changes in operating assets and liabilities
Decrease (increase) in assets-
Receivables-
Trade (471) (1,896) (341) (4,340)
Other (7) 22 --- (622)
Due from affiliates 22 --- --- ---
Inventory (76) (157) (302) (1,710)
Prepaid expenses (53) 93 (639) (849)
Other --- 19 (492) (661)
Increase (decrease) in liabilities-
Accounts payable (250) 808 77 3,569
Accrued expenses 168 66 118 772
Due to affiliates and
stockholders/members 7 (44) --- (29)
----------- ----------- ----------- -----------
Net cash provided by operating
activities 1,781 1,456 606 4,945
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets from Delta Surveys,
Inc., American Aviation, Inc., and
O.T.H. Exploration Services, Inc.,
net of cash received --- --- --- (1,280)
Purchase of assets from OMNI
Geophysical Corporation, --- --- (10,948) ---
net of cash received
Purchase of Leonard J. Chauvin, Jr.,
Inc., American Helicopter Drilling,
Inc. and Fournier & Associates, Inc.,
net of cash received --- --- --- (1,913)
Proceeds from disposal of fixed assets 58 4 25 579
Purchase of fixed assets (1,164) (1,438) (2,539) (16,398)
----------- ----------- ----------- -----------
Net cash used in investing
activities (1,164) (1,434) (13,462) (19,012)
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
Predecessor Successor
201-Day 165-Day
Year Ended Period Ended Period Ended Year Ended
December 31, July 19, December 31, December 31,
1995 1996 1996 1997
(Thousands of Dollars)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 515 2,771 9,540 27,283
Principal payments on long-term debt (366) (1,135) (987) (26,268)
Net borrowings/(payments) on line of
credit 60 (1,003) 360 (2,116)
Capital contributions --- --- 4,001 1,078
Distributions to stockholders/members (765) (881) (19) (6,501)
Retirement of preferred units --- --- --- (5,000)
Net proceeds from public offering --- --- --- 34,275
-------- -------- -------- ----------
Net cash provided by (used in)
financing activities (556) (248) 12,895 22,751
-------- -------- -------- ----------
NET INCREASE (DECREASE) IN CASH 119 (226) 39 8,684
CASH, at beginning of period 181 300 --- 39
-------- -------- -------- ----------
CASH, at end of period $ 300 $ 74 $ 39 $ 8,723
======== ======== ======== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
CASH PAID FOR INTEREST $ 163 $ 133 $ 443 $ 1,771
======== ======== ======== ==========
CASH PAID FOR TAXES $ --- $ --- $ --- $ ---
======== ======== ======== ==========
The accompanying notes are an integral part of these financial statements.
OMNI ENERGY SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Principles of Consolidation
OMNI Energy Services Corp. (a Louisiana corporation, the "Company") was formed
on September 11, 1997 and on December 10, 1997 issued 12,000,000 shares of its
common stock in exchange for all of the outstanding common units of OMNI
Geophysical, L.L.C. ("OMNI") (the "Share Exchange"). Options to purchase
118,018 shares of the Company's common stock were issued in exchange for
options to acquire common units of OMNI. In December, 1997, after completion
of the Share Exchange, the Company publicly offered for sale 3,450,000 shares
of common stock.
OMNI was formed in 1996 as a Louisiana limited liability company. OMNI
acquired substantially all of the assets and liabilities of OMNI Geophysical
Corporation ("Predecessor") on July 19, 1996. The acquisition was accounted
for as a purchase with the assets acquired and liabilities assumed recorded at
their estimated fair values. The purchase price of approximately $13,300,000
was financed through the sale of preferred units for $4,000,000, the proceeds
from a $7,000,000 asset-based loan and a $2,300,000 subordinated note issued
to Predecessor. The allocation of the purchase price to the estimated fair
values of assets acquired and liabilities assumed resulted in goodwill of
approximately $219,000 which is being amortized over a 25-year period on a
straight-line basis. The accompanying financial statements include
Predecessor's results of operations for the year ended December 31, 1995 and
the 201-day period ended July 19, 1996.
All material intercompany accounts and transactions have been eliminated in
these financial statements. Certain prior year amounts have been reclassified
to conform with current year financial statement presentation.
Nature of Business
The Company is an oilfield service company specializing in providing an
integrated range of onshore seismic drilling, helicopter support and survey
services to geophysical companies operating in logistically difficult and
environmentally sensitive terrain in the continental United States. The
Company's primary market is the marsh, swamp, shallow water and contiguous dry
land areas along the U.S. Gulf Coast, where the Company is the leading
provider of seismic drilling services.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosures
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
simplifies the standards required under existing accounting rules for
computing earnings per share and replaces the presentation of primary earnings
per share and fully diluted earnings per share with basic earnings per share
("basic EPS") and diluted earnings per share ("diluted EPS"), respectively.
Basic EPS excludes dilution and is determined by dividing income available to
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS reflects the potential dilution
that could occur if securities and other contracts to issue shares of common
stock were exercised or converted into common stock. The implementation of
SFAS No. 128 did not have a material effect on the Company's earnings per
share as determined under prior accounting rules.
In June 1997 the FASB issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information," which requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. SFAS 131 is effective for fiscal year beginning after
December 15, 1997. The Company will adopt the new standard in 1998.
Revenue Recognition
The Company recognizes revenues as services are rendered. Revenue from the
Company's drilling operations is recognized on a per hole basis. Once the
Company has drilled and loaded a source point, revenue from the drilling of
such source point is recognized. Similarly, revenue is recognized from the
Company's seismic survey operations either on a day rate or per mile basis.
Under the per mile basis, revenue is recognized when the source or receiving
point is marked by one of the Company's survey crews. The Company's aircraft,
which are usually chartered for a guaranteed minimum number of hours per day,
generate revenue pursuant to a fixed hourly rate. Generally, the Company
invoices its customers twice a month.
Cash and Cash Equivalents
The Company considers investments with a maturity of 90 days or less to be
cash equivalents. Due to its short-term nature the fair value of cash and
cash equivalents approximates its book value.
Accounts Receivable
Trade and other receivables are stated at net realizable value. The allowance
for uncollectible accounts was approximately $125,000 and $390,000 as of
December 31, 1996 and 1997, respectively. The Company grants short-term
credit to its customers, primarily geophysical companies.
Inventories
Inventories consist of parts and supplies used for drilling equipment and
services. All inventories are valued at lower of cost or market.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. The
Company provides for depreciation by charges to operations in amounts
estimated to allocate the cost of the assets over their estimated useful lives
and salvage values as follows:
Asset Classification Useful Life Salvage Value
Buildings and Improvements 25 years ---
Drilling, field and support equipment 10 years 10%
Shop equipment 10 years ---
Aircraft 10-15 years 25%
Vehicles 4-10 years ---
Additions to property and equipment and major replacements are capitalized.
Gains and losses on dispositions, maintenance, repairs and minor replacements
are reflected in current operations. Drilling equipment which is fabricated
is comprised of direct and indirect costs incurred during fabrication. Costs
include materials and labor consumed during fabrication. Interest is also
capitalized during the fabrication period.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This statement requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be realizable. The Company adopted SFAS
No. 121 effective January 1, 1996. The adoption of this statement did not
have an effect on the Company's consolidated financial statements.
Subsequent to December 31, 1997, the Company decided to sell its fixed wing
aircraft which had a net carrying value at December 31, 1997 of approximately
$2.4 million. The anticipated gain or loss from the sale of these assets is
not expected to be material.
Goodwill
Goodwill represents the excess of the purchase price of acquisitions over the
fair value of the net assets acquired. Such excess costs are being amortized
on a straight-line basis over a twenty-five year period. As of December 31,
1996 and 1997, accumulated goodwill amortization totaled approximately $4,000
and $183,000, respectively. The Company periodically assesses the
recoverability of the unamortized balance based on expected future
profitability and undiscounted future cash flows of the acquisitions and their
contribution to the overall operation of the Company.
Income Taxes
Prior to December 4, 1997, OMNI was treated as a partnership for income tax
purposes and income taxes were the responsibility of the individual members.
Accordingly, no provision for income taxes had been made in the accompanying
financial statements.
As discussed in Note 1, on December 4, 1997 the members of OMNI exchanged all
of their common units in OMNI for 12,000,000 shares of common stock of the
Company. The Share Exchange was accounted for as a reorganization whereby the
assets and liabilities transferred were accounted for at their historical cost
in a manner similar to that in a pooling-of-interest. As a result, the
Company has provided for income taxes in the fourth quarter of 1997.
Unaudited Pro Forma Data
Additional interest expense is recorded as a pro forma adjustment to reflect
the incurrence of indebtedness to finance the LLC Distribution as if such
event had occurred on January 1, 1997.
The pro forma provision for income taxes is the result of the application of a
combined federal and state income tax rate (40%) to income before income taxes
and extraordinary item.
2. EARNINGS PER SHARE
Pro forma basic earnings per common share was computed by dividing net income
by the weighted average number of shares of common stock outstanding during
the year. All income per share amounts for all periods have been presented,
and where necessary, restated to conform to the requirements of SFAS No. 128.
The following table sets forth the computation of basic and diluted income
from continuing operations per share (dollars and shares in thousands):
Predecessor Successor
----------------------------- ------------------------------
201-day 165-day
Year Ended Period Ended Period Ended Year Ended
December 31, July 19, December 31, December 31,
1995 1996 1996 1997
------------ ------------ ------------- -----------
Income before extraordinary item $ 2,040 $ 2,269 $ 1,361 $ 5,935
Less: Preferred dividend
requirements -- -- (180) (391)
---------- ---------- ----------- ----------
Income available to common
stockholders $ 2,040 $ 2,269 $ 1,181 $ 5,544
========== ========== =========== ==========
Shares:
Weighted average number of common
shares outstanding 2 2 10,708 11,732
Options -- -- -- 77
---------- ---------- ----------- ----------
Weighted average number of common
shares outstanding, plus assumed
conversion 2 2 10,708 11,810
========== ========== =========== ==========
Basic earnings per share $ 1,020 $ 1,135 $ 0.11 $ 0.47
========== ========== =========== ==========
Diluted earnings per share $ 1,020 $ 1,135 $ 0.11 $ 0.47
========== ========== =========== ==========
The weighted average number of shares of common stock for the Successor period
in the table above give effect to the Share Exchange discussed in Note 1.
3. LONG-TERM DEBT:
Long-term debt consists of the following (dollars in thousands):
December 31,
--------------------
1996 1997
----------- ----------
Notes payable to a finance company, variable interest rate $ 1,341 $ ---
with monthly principal and interest payments of $83;
maturing December 2001 to May 2002; secured by various
property and equipment
Notes payable to a finance company, variable interest rate 6,417 6,659
with $4,895 at LIBOR plus 3.75%. Remaining portion at
LIBOR plus 3.0% interest rates ranging from 8.6% to 9.4%
at December 31, 1997 with maturity dates ranging from
July 2001 to November 2002, secured by various property
and equipment
Notes payable to finance companies, interest payable at 544 516
7.91% with varying maturities to December 1999, to
finance insurance premiums
Note payable to an individual, monthly payments of $3 150 117
through April 1, 2001
Subordinated promissory note payable to shareholder, 2,057 ---
quarterly principal payments beginning in March 1997 of
$75; unsecured; due June 2001
Notes payable to various banks, interest rates at 9%, due on 449 ---
demand and, if no demand is made, maturing from September
1997 to June 2001, collateralized by vehicles and
equipment
Note payable to a company; annual payments of $40 through --- 120
March 2000
Note payable to a bank with interest payable at LIBOR plus --- 10,902
1.00% (6.77% at December 31, 1997) maturing January 2000
Construction loan to a bank with interest payable at the --- 1,937
lesser of Citibank prime plus 0.75% or LIBOR plus 3.75%
(8.5% at December 31, 1997) collateralized by buildings.
Loan was repaid in January, 1998.
Various notes payable --- 20
----------- ----------
Total 10,958 20,271
Less: Current maturities 2,500 5,713
----------- ----------
Long-term debt less current maturities $ 8,458 $ 14,558
=========== ==========
Annual maturities of long-term debt during each of the following years ended
December 31, are as follows (in thousands):
1998 $ 5,713
1999 4,240
2000 8,910
2001 1,070
2002 338
--------
$20,271
========
The estimated fair value of long-term debt, based on borrowing rates currently
available to the Company for notes with similar terms and average maturities,
approximated the carrying value as of December 31, 1997 and 1996.
There was no interest capitalized for the year ended December 31, 1995, or in
the 201-day period ended July 19, 1996. During the 165-day period ended
December 31, 1996 and the year ended December 31, 1997, interest in the amount
of approximately $44,000 and $217,000, respectively, was capitalized to
property, plant and equipment.
In connection with the Company's initial public offering, during 1997
approximately $23.8 million in debt was retired, resulting in an extraordinary
loss of $84,000, net of tax effects of approximately $42,000.
The Company restructured its credit facility with a bank in January, 1998.
Under the new facility the Company refinanced approximately $11.0 million of
its note payable, obtained a $9.0 million line of credit for acquisitions and
increased its revolving loan for working capital requirements from $8.0
million (discussed in note 4 below) to $10.0 million.
4. LINE OF CREDIT:
The Company had outstanding a revolving line of credit agreement with a bank.
Availability under the agreement is the lower of $8.0 million or 80% of
eligible accounts receivable. The line bore interest at prime plus 0.5%
(9.0% at December 31, 1997) and matured on November 1, 1998. The weighted-
average interest rate on the line was 9.3% and 9.2% for the 165-day period
ended December 31, 1996 and 1997, respectively. The line was collateralized by
accounts receivable and certain equipment of the Company. OMNI had $2.1
million outstanding on its line at December 31, 1996. There was no balance
outstanding at December 31, 1997.
5. RELATED PARTY TRANSACTIONS:
During the 165-day period ended December 31, 1996, OMNI purchased a Bell 206B-
III helicopter from American Aviation Incorporated, an entity affiliated
through common ownership, for $526,000.
6. CUSTOMER CONCENTRATION:
Substantially all of the Company's revenues are derived from companies in the
geophysical industry. During the 165-day period ended December 31, 1996, four
customers accounted for approximately 67% (24%, 21%, 11% and 11%,
respectively) of the Company's total revenues. Included in accounts
receivable as of December 31, 1996, are amounts owed from one of these
customers totaling approximately $1.1 million, which was approximately 23% of
total accounts receivable.
During the year ended December 31, 1997, two customers accounted for
approximately 40% (25% and 15%, respectively) of the Company's total revenues.
Included in accounts receivable as of December 31, 1997, are amounts owed from
these customers totaling approximately 28% (16% and 12%, respectively) of
total accounts receivable.
7. COMMITMENTS AND CONTINGENCIES:
In connection with the acquisition of the assets of Predecessor discussed in
Note 1, OMNI also entered into a five-year lease agreement with Predecessor to
lease the main office facility. The monthly lease payment under the agreement
is $5,000 through July 2001. The agreement also allows the Company to renew
the lease for two additional five-year periods.
Total rental expense was $255,000, $248,000, $425,000 and $1,921,000 for the
year ended December 31, 1995, the 201-day period ended July 19, 1996, the 165-
day period ended December 31, 1996 and the year ended December 31, 1997.
The Company carries workers compensation insurance coverage with a deductible
amount of $200,000 per incident for claims incurred in 1996. This deductible
was raised to $250,000 in 1997. Management of the Company is not aware of any
significant workers compensation claim or an incurred but not reportable claim
as of December 31, 1997.
8. PREFERRED UNITS:
In connection with OMNI's acquisition of Predecessor on July 19, 1996 (Note
1), OMNI issued 4,000 10%, cumulative participating preferred units in the
165-day period ended December 31, 1996 and on February 19, 1997, 1,000 15%,
cumulative participating preferred units. OMNI paid dividends of
approximately $180,000 on its 10% cumulative participating preferred units in
early 1997. On September 30, 1997, OMNI redeemed the outstanding preferred
units at a redemption price of $1,000 per unit and paid the holders of the
preferred units cumulative unpaid dividends totaling approximately $391,000.
9. STOCK OPTIONS:
In April and June 1997, OMNI issued options to purchase 516 and 600 common
units, respectively, (equivalent to 54,567 and 63,451 shares, respectively of
Common Stock calculated on the pro forma share basis described in Note 1).
The exercise price for these options is $2.28 per share (on the pro forma
share basis described in Note 1) and expire if unexercised after ten years.
The Company will recognize pro rata over the three-year vesting period
approximately $432,000 of compensation expense related to these options. The
deferred compensation to be recognized by the Company is based on the
estimated fair value of the Company's common units on the date of the
issuance. Compensation expense related to the options totaled $84,000 for the
year ended December 31, 1997.
In September 1997, the Company adopted and its sole shareholder approved the
Stock Incentive Plan (the "Incentive Plan") to provide long-term incentives to
its key employees, officers, directors who are employees of the Company, and
consultants and advisors to the Company and non-employee directors ("Eligible
Persons"). Under the incentive plan, the Company may grant incentive stock
options, non-qualified stock options, restricted stock, other stock-based
awards, or any combination thereof to Eligible Persons. Options generally
vest over a four-year period under the Plan and generally expire if unused
after ten years. The exercise price of any stock option granted may not be
less than the fair market value of the Common Stock on the date of grant. A
total of 1,500,000 shares of common stock were authorized under the Incentive
Plan in 1997. Of the 1,500,000 authorized, 439,455 remain available for
issuance under the plan at December 31, 1997.
The Company accounts for employee stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation," do not affect the
Company's reported results of operations. Pro forma disclosures as if the
Company had adopted the provisions of SFAS No. 123 are presented below.
Had compensation cost been determined based on the fair value at the grant
date consistent with the provisions of SFAS No. 123, the Company's net income
and earnings per common share would have approximated the pro forma amounts
below:
Year ended December 31, 1997
----------------------------
As Reported Pro Forma
------------ -----------
(Dollars in thousands
except per share amounts)
Net Income $ 5,851 $ 5,510
Basic earnings per share $ 0.47 $ 0.44
Diluted earnings per share $ 0.47 $ 0.43
A summary of the Company's stock options as of December 31, 1997 and changes
during the year ended is presented below:
Weighted Incentive Other
Average Plan Options
Exercise Price Options
-------------- --------- -------
Balance at January 1, 1997 $ -- $ -- $ --
Granted 10.10 1,060,545 118,018
---------- ---------- ---------
Balance at December 31, 1997 $ 10.10 $1,060,545 $ 118,018
========== ========== =========
As of December 31, 1997, there were no options exercisable.
The weighted average fair value at date of grant for options granted during
1997 was $4.26 per option. The fair value of options granted is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: (a) dividend yield of 0.00%; (b) expected volatility
of 40%; (c) risk-free interest rate of 6.07%; and (d) expected life from 3 to
6.5 years.
The following table summarizes information about stock options outstanding as
of December 31, 1997:
Options Options
Outstanding Exercisable
----------------------------------------------- ----------------------------
Exercise Prices Number Wgtd. Avg. Wgtd. Avg. Number Wgtd. Avg.
Outstanding Remaining Exercise Exercisable Exercise
Contr. Life Price Price
----------- ----------- ---------- ----------- ----------
$ 2.28 118,018 9.42 $ 2.28 -- $ 2.28
$ 11.00 1,026,000 9.57 $ 11.00 -- $ 11.00
---------- -----------
1,144,018 --
========== ===========
The Company has entered into employment agreements with its key executive
officers which include respective base salaries and terms of employment.
The Company also issued 34,545 options to non-employees in 1997. These
options, which were issued under the Plan, have an exercise price of $11 per
share and expire from two to ten years from the date of grant.
10. INCOME TAXES:
The components of deferred tax assets and liabilities as of December 31, 1997
are as follows (dollars in thousands):
Deferred Tax Assets:
Allowance for doubtful $ 137
accounts
Insurance reserves 75
-------
Total deferred tax 212
assets
Deferred Tax Liabilities:
Property and equipment 1,634
Goodwill 16
-------
Total deferred tax 1,650
liabilities -------
Net deferred tax liabilities $ 1,438
=======
The provision for income taxes for the three years ended December 31, 1997
consisted of the following (dollars in thousands):
1997
-----
Current expense $ 338
Deferred expense (8)
Adjustment to deferred taxes
due to change in tax status 73
Tax expense before ------
extraordinary item 403
Allocated to extraordinary
item (42)
------
Total $ 361
======
The reconciliation of Federal statutory and effective income tax rates for the
year ended December 31, 1997 is shown below:
1997
------
Statutory federal rate 34%
Income not subject to (27%)
corporate tax
Other, net (1%)
------
Total 6%
======
11. ACQUISITIONS:
On March 25, 1997, OMNI acquired the assets and assumed certain liabilities of
Delta Surveys, Inc., a surveying business, for $180,000 in cash and a
$120,000, 8.5%, three year promissory note. This acquisition was accounted
for using the purchase method of accounting. The excess of cost over the
estimated fair value of the net assets resulted in goodwill of approximately
$172,000.
Effective July 1, 1997, OMNI acquired substantially all of the assets and
liabilities of American Aviation Incorporated ("American Aviation"), a company
that operated aircraft for various seismic drilling support services. In
consideration for the acquisition of substantially all the assets of American
Aviation, OMNI issued to American Aviation 10,213 common units of OMNI
(equivalent to 1,080,017 shares of Common Stock), valued at approximately $6.4
million, and a $1.0 million promissory note bearing interest at 8.5%, paid
$500,000 cash and assumed approximately $6.7 million in debt. The excess cost
over the estimated fair value of the net assets result in goodwill of
approximately $7.2 million.
Effective July 1, 1997, OMNI acquired Leonard J. Chauvin, Jr., Inc.
("Chauvin"), a surveying company, for $788,000 cash and up to an additional
$100,000 based on the future earnings of Chauvin through August 31, 1999. The
excess cost over the estimated fair value of the net assets acquired resulted
in goodwill of approximately $650,000.
Effective September 1, 1997, OMNI acquired substantially all the assets O.T.H.
Exploration Services, Inc., a seismic rock drilling company, headquartered in
the Rocky Mountain region. The aggregate purchase price was $600,000 cash,
which approximated the fair value of the net assets acquired.
Effective October 1, 1997, the Company acquired American Helicopter Drilling
Inc. ("American Helicopter") for $1,050,000 in cash and 227,272 shares of
common stock valued at approximately $2,500,000 at the initial offering price.
The excess cost over the estimated fair value of the net assets acquired
resulted in goodwill of approximately $1,971,000. American Helicopter was
engaged in seismic drilling services in the Rocky Mountain area and in the
fabrication, export and servicing of heli-portable and other seismic drilling
units.
Effective October 1, 1997, the Company acquired Fournier & Associates
("Fournier") for $211,000 in cash and 49,010 shares of common stock valued at
approximately $539,000 at the initial offering price. The excess cost over
the estimated fair value of the net assets acquired resulted in goodwill of
approximately $625,000. Fournier was a seismic survey company operating four
crews in the Transition Zone and adjacent areas.
The operating results of each of the acquired companies have been included in
consolidated statements of income from the effective dates of acquisition.
The following summarized unaudited income statement data reflects the
Company's results of operations as if the American Aviation and American
Helicopter transactions had taken place on July 20, 1996:
Unaudited Pro-forma Results
(Dollars in Thousands)
-----------------------------
165-day Period
Ended Year Ended
December 31, December 31,
1996 1997
------------- --------------
Gross revenue $ 15,613 $ 54,747
============== ===============
Income before
extraordinary item $ 1,055 $ 5,005
============== ===============
Net income $ 1,055 $ 4,921
============== ===============
Basic earnings per share $ 0.08 $ 0.39
============== ===============
The pro forma effect of the acquisitions other than of American Aviation and
American Helicopter were not material.
Item 9.Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the Company's directors and officers called for
by this item will be included in the Company's definitive Proxy Statement
prepared in connection with the 1998 Annual Meeting of shareholders and is
incorporated herein by reference.
Item 11. Executive Compensation
Information concerning the compensation of the Company's executives
called for by this item will be included in the Company's definitive Proxy
Statement prepared in connection with the 1998 Annual Meeting of shareholders
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners
and management called for by this item will be included in the Company's
definitive Proxy Statement prepared in connection with the 1998 Annual Meeting
of shareholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
called for by this item will be included in the Company's definitive Proxy
Statement prepared in connection with the 1998 Annual Meeting of shareholders
and is incorporated herein by reference.
Item. 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)The following financial statements, schedules and exhibits are filed as
part of this Report:
(1) Financial Statements. Reference is made to Item 8 hereof.
(2) Financial Statement Schedules: None.
(3) Exhibits. See Index to Exhibits on page E-1. The Company will
furnish to any eligible shareholder, upon written request of such
shareholder, a copy of any exhibit listed upon the payment of a
reasonable fee equal to the Company's expenses in furnishing such
exhibit.
(b)Reports on form 8-K: None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
OMNI ENERGY SERVICES CORP.
(Registrant)
By: /s/ David A. Jeansonne
David A. Jeansonne
Chairman of the Board and
Chief Executive Officer
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ David A. Jeansonne Chairman of the Board and Chief March 27, 1998
David A. Jeansonne Executive Officer
(Principal Executive Officer
/s/ Roger E. Thomas President and Director March 27, 1998
Roger E. Thomas
/s/ Allen R. Woodard Vice President-Marketing; Business March 27, 1998
Allen R. Woodard Development and Director
/s/ David E. Crays Vice President-Finance and Chief March 27, 1998
David E. Crays Financial Officer and Director
(Principal Financial and Accounting
Officer)
/s/ Steven T. Stull Director March 27, 1998
Steven T. Stull
/s/ Crichton W. Brown Directo March 27, 1998
Crichton W. Brown
/s/ William W. Rucks, IV Director March 27, 1998
William W. Rucks, IV
OMNI ENERGY SERVICES CORP.
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER NUMBERED PAGE
2.1 Exchange Agreement between the members of OMNI
Geophysical, L.L.C. and OMNI Energy Services Corp.
(the "Company")
2.2 Asset Purchase Agreement between OMNI Geophysical,
L.L.C. and OMNI Geophysical Corporation dated as of
July 19, 1996.*
2.3 Exchange Agreement by and among American Aviation
Incorporated, American Aviation L.L.C. and OMNI
Geophysical, L.L.C., dated as of July 1, 1997.*
3.1 Amended and Restated Articles of Incorporation of the
Company*
3.2 Bylaws of the Company, as amended*
4.1 See Exhibits 3.1 and 3.2 for provisions of the
Company's Articles of Incorporation and By-laws
defining the rights of holders of Common Stock.
4.2 Specimen Common Stock Certificate*
10.1 Form of Indemnity Agreement by and between the Company
and each of its directors and executive officers*+
10.2 The Company's Stock Incentive Plan*+
10.3 Form of Stock Option Agreements under the Company's
Stock Incentive Plan*+
10.4 Amended and Restated Employment and Non-Competition
Agreement between OMNI Geophysical, L.L.C. and David
Jeansonne*+
10.5 Amended and Restated Employment and Non-Competition
Agreement between OMNI Geophysical, L.L.C. and Roger
E. Thomas*+
10.6 Amended and Restated Employment and Non-Competition
Agreement between OMNI Geophysical, L.L.C. and Allen
R. Woodard*+
10.7 Employment and Non-Competition Agreement between OMNI
Geophysical, L.L.C. and Richard Patrick Morris*+
10.8 Amended and Restated Employment and Non-Competition
Agreement between OMNI Geophysical, L.L.C. and David
E. Crays*+
10.9 Confidentiality and Non-Competition Agreement between
OMNI Geophysical, L.L.C. and OMNI Geophysical
Corporation, David Jeansonne, Max Brian Hoyt, Ted W.
Hoyt, and Wilbur Sam Hoyt*+
10.10 Confidentiality and Non-Competition Agreement between OMNI
Geophysical, L.L.C. and American Aviation L.L.C. and
American Aviation Incorporated, David Jeansonne, and Richard
Patrick Morris*+
10.11 Option Agreement between OMNI Geophysical, L.L.C. and David
E. Crays*+
10.12 Option Agreement between the Company and Roger E. Thomas
dated as of September 25, 1997.*+
10.13 Option Agreement between the Company and Allen P. Woodard
dated as of September 25, 1997.*+
10.14 Intangible Asset Purchase Agreement by and among American
Aviation Incorporated, American Aviation L.L.C. and OMNI
Geophysical, L.L.C., dated as of July 1, 1997.*
10.15 Amended and Restated Loan Agreement, dated as of January 20,
1998, by and among the Company, American Aviation L.L.C.,
OMNI Marine & Supply, Inc. and Hibernia National Bank.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
* Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration Statement No. 333-36561).
+ Management Contract or Compensation Plan or Arrangement.