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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, 2004.
[ ] 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 our charter)
LOUISIANA 72-1395273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4500 NE EVANGELINE THWY
CARENCRO, LOUISIANA 70520
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(337) 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at June 30, 2004 was $55,690,597.
The number of shares of the Registrant's common stock, $0.01 par value per
share, outstanding at March 28, 2005 was 11,679,565.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for our 2005 annual meeting of
stockholders 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 YEAR ENDED DECEMBER 31, 2004
TABLE OF CONTENTS
PAGE
----
PART I
Items 1 and 2. Business and Properties............................................................................ 3
Item 3. Legal Proceedings.................................................................................. 18
Item 4. Submission of Matters To a Vote of Security Holders................................................ 19
PART II
Item 5. Market for Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity
Securities......................................................................................... 20
Item 6. Selected Financial Data............................................................................ 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................................... 32
Item 8. Financial Statements and Supplementary Data........................................................ 33
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure............... 66
Item 9A. Controls and Procedures............................................................................ 67
Item 9B. Other.............................................................................................. 67
PART III
Item 10. Directors and Executive Officers of the Registrant................................................. 67
Item 11. Executive Compensation............................................................................. 67
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 67
Item 13. Certain Relationships and Related Transactions..................................................... 67
Item 14. Principal Accountant Fees and Services............................................................. 68
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 68
SIGNATURES........................................................................................................ 69
EXHIBIT INDEX..................................................................................................... 70
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OMNI ENERGY SERVICES CORP.
Unless otherwise indicated by the context, references herein to the
"Company", "Omni", "we", "our" or "us" mean Omni Energy Services Corp., a
Louisiana corporation, and its subsidiaries. Certain terms used herein relating
to our operations and the oil and natural gas services industry are defined in
ITEMS 1 AND 2. "BUSINESS AND PROPERTIES."
FORWARD LOOKING INFORMATION
Certain of the statements contained in all parts of this document
(including the portion, if any, to which this Form 10-K is attached), including,
but not limited to, those relating to our acquisition plans, the effect of
changes in strategy and business discipline, future tax matters, future general
and administrative expenses, future growth and expansion, expansion of our
operations, review of acquisitions, expansion and improvement of our
capabilities, integration of new technology into operations, credit facilities,
redetermination of our borrowing base, attraction of new members to the
management team, future compensation programs, new alliances, future capital
expenditures (or funding thereof) and working capital, sufficiency of future
working capital, borrowings and capital resources and liquidity, projected rates
of return, retained earnings and dividend policies, projected cash flows from
operations, future, outcome, effects or timing of any legal proceedings or
contingencies, the impact of any change in accounting policies on our financial
statements, realization of post-closing price adjustments with respect to the
Trussco acquisition, management's assessment of internal control over financial
reporting, the identification of material weaknesses in internal control over
financial reporting and any other statements regarding future operations,
financial results, opportunities, growth, business plans and strategy and other
statements that are not historical facts are forward looking statements. These
forward-looking statements reflect our current view of future events and
financial performance. When used in this document, the words "budgeted,"
"anticipate," "estimate," "expect," "may," "project," "believe," "intend,"
"plan," "potential," "forecast," "might," "predict," "should" and similar
expressions are intended to be among the statements that identify
forward-looking statements. These forward-looking statements speak only as of
their dates and should not be unduly relied upon. We undertake no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events, or otherwise. Such statements involve risks and
uncertainties, including, but not limited to, those set forth under ITEMS 1 AND
2. "BUSINESS AND PROPERTIES - RISK FACTORS" and other factors detailed in this
document and our other filings with the Securities and Exchange Commission.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially from
those indicated. All subsequent written and oral forward-looking statements
attributable to the Company or to persons acting on its behalf are expressly
qualified in their entirety by reference to these risks and uncertainties.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
OMNI Energy Services Corp. is an integrated oilfield service company
specializing in providing a range of (i) onshore seismic drilling, operational
support, permitting, survey and helicopter support services to geophysical
companies operating in logistically difficult and environmentally sensitive
terrain; (ii) helicopter transportation services to oil and gas companies
operating primarily in the shallow waters of the Gulf of Mexico; and (iii)
dock-side and offshore non-hazardous, hazardous oilfield waste management and
environmental cleaning services, including tank and vessel cleaning and safe
vessel entry, for oil and gas companies operating in the Gulf of Mexico. We
operate in three business divisions - Seismic Drilling, Aviation Transportation
Services and Environmental Services.
SEISMIC DRILLING. The principal market of our Seismic Drilling division is
the marsh, swamp, shallow water and contiguous dry land areas along the Gulf
Coast (the "Transition Zone"), primarily in Louisiana and Texas, where we are a
leading provider of seismic drilling support services. In 1997, we commenced
operations in the mountainous regions of the western United States, and in 2003
we initiated seismic drilling activities in various Transition Zone regions of
Mexico.
We own and operate a fleet of specialized seismic drilling and transportation
equipment for use in the Transition Zone. We believe we are the only company
that currently can both provide an integrated range of seismic drilling,
permitting, survey and helicopter support services in all of the varied terrain
of the Transition Zone and simultaneously support operations for multiple,
large-scale seismic projects. In 2002, we acquired all of the assets of AirJac
Drilling, a division of Veritas Land DGC. With this acquisition, we became the
largest domestic provider of seismic drilling support services to geophysical
companies.
AVIATION TRANSPORTATION. We operate a fleet of 20 company-owned and leased
helicopters, and one fixed-wing aircraft, from bases or heliports located in the
Gulf Coast regions of Louisiana. Our land-based aviation customers are primarily
geophysical companies operating in various regions of the United States. Our
offshore aviation customers include oil and gas companies operating primarily in
the shallow waters of the Gulf of Mexico. We also maintain an inventory of
aviation maintenance parts, turbine engines and other miscellaneous flight
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equipment used in connection with providing aviation services to our customers.
In 2003, we acquired American Helicopters, Inc. ("AHI") establishing us as a
provider of key helicopter transportation services in the Gulf of Mexico.
ENVIRONMENTAL SERVICES. We provide dock-side and offshore non-hazardous
oilfield waste management and environmental cleaning services, including
drilling rig, tank and vessel cleaning, safe vessel entry, naturally occurring
radioactive material ("NORM") decontamination, platform abandonment services,
pipeline flushing, gas dehydration, and hydro blasting. Demand for our dock-side
vessel and tank cleaning and non-hazardous waste treatment businesses are
primarily driven by drilling and well-site abandonment activity in the shallow
waters of the Gulf of Mexico, as reflected by the drilling rig count. Much of
the cleaning and waste treatment is from residual waste created in the drilling
process.
We were founded in 1987, as OMNI Drilling Corporation, to provide drilling
services to the geophysical industry. In July 1996, OMNI Geophysical, L.L.C.
acquired substantially all of the assets of OMNI Geophysical Corporation, the
successor to the business of OMNI Drilling Corporation. OMNI Energy Services
Corp. ("OMNI") was formed as a Louisiana corporation on September 11, 1997 to
acquire all of the outstanding common units of OMNI Geophysical, L.L.C.
INDUSTRY OVERVIEW
SEISMIC DRILLING. 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 of 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 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 us, by the geophysical
company or by special permitting agents. The geophysical company then 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. A survey team then marks the source points and geophone
locations, 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.
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
workstations 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 and
survey services are typically contracted to companies, such as OMNI, 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.
AVIATION TRANSPORTATION. We provide equipment and personnel transportation
services to (i) geophysical companies working in various regions of the United
States and (ii) oil and gas companies operating principally in the shallow
waters of the Gulf of Mexico. Our aviation revenues are dependent upon the
demand for our services, which is impacted by the pricing and terms of our
contracts. Demand for helicopter services is measured in flight hours flown. The
level of demand for helicopter services is also dependent upon domestic
geophysical activity, oil and gas exploration and development and production
activities. Customer budgets for these activities are influenced by actual and
anticipated commodity prices for oil and gas.
-4-
Helicopter contracts are for varying periods (generally one year) and permit
the customer to cancel the charter before the end of the contract term for a
variety of reasons, including safety violations and non-performance. At the
expiration of the contract, customers typically negotiate renewal terms for the
next contract period. Sometimes customers solicit new bids at the expiration of
a contract. Contracts are generally awarded based on a number of factors,
including price, quality of service, equipment availability and record of
safety. An incumbent operator has a competitive advantage in the bidding process
based on its relationship with the customer, its knowledge of the site
characteristics and its understanding of the cost structure for the operations.
ENVIRONMENTAL SERVICES. We provide specialized environmental cleaning and
maintenance equipment and trained personnel to oil and gas companies operating
in the Gulf Coast region of the United States. We also assist production
operators in the maintenance and replacement of anodes, mist extractors, valves,
glycol systems, chemical electric units and fire tubes. Our customer list
includes more than 225 major and independent oil and gas companies operating in
the Gulf of Mexico, but no single customer accounts for more than 10% of this
business unit's revenues. The demand for our environmental services is directly
impacted by offshore drilling and production activity in the Gulf of Mexico. Our
dock side services are dependent upon the movement of vessels from offshore
production platforms or drilling rigs which operate twenty-four hours a day,
seven days a week, 365 days a year.
We charge for our environmental services on a time and materials basis. Our
ability to successfully secure and maintain future environmental services for
our customers is dependent upon our ability to provide quick, safe and efficient
maintenance and cleaning services at a competitive price. Project backlogs are
maintained for NORM decontamination, abandonment and decommissioning and
scheduled offshore maintenance.
DESCRIPTION OF OPERATIONS
We provide an integrated range of services including (i) onshore seismic
drilling, operational support, permitting, surveying and helicopter support to
geophysical companies operating in logistically difficult and environmentally
sensitive terrain in the United States, (ii) helicopter transportation services
to oil and gas companies operating primarily in the shallow waters of the Gulf
of Mexico and (iii) dock-side and offshore non-hazardous oilfield waste
management and environmental cleaning services, including tank and vessel
cleaning and safe vessel entry for oil and gas companies operating in the Gulf
of Mexico.
SEISMIC DRILLING. Our primary activity is the drilling and loading of source
points for seismic analysis. Once the geophysical company has plotted the
various source points and a survey crew has marked their locations, our drill
crews are deployed to drill and load the source points.
In the Transition Zone, we use water pressure rotary drills mounted on
various types of vehicles to drill the source holes. The nature, accessibility
and environmental sensitivity of the terrain surrounding the source point
determine the type of vehicle used. Transition Zone source holes are generally
drilled to depths of 40 to 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. Our 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 our 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 the geophysical company can identify it for
detonation 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, we use compressed air rotary/hammer drills to drill
holes that are typically shallower than Transition Zone holes. Rock drills are
manned by a two-man or three-man crew and are transported to and from locations
by hand, surface vehicle or helicopter. Once the hole has been drilled to the
desired depth, it is loaded with explosives, which are delivered to the job site
in an explosive magazine carried by hand, vehicle or helicopter.
OPERATIONAL SUPPORT. We are able to coordinate a variety of related services
to customers performing 3-D seismic data acquisition projects that produce
significant economies of scale and value. Our substantial base of experience
gained from years of work supporting 3-D seismic projects enables us to provide
significant pre-job planning information to the customer during job design
analysis. Typical 3-D seismic data acquisition projects in the field involve
large amounts of equipment, personnel and logistics coordination. Coordination
of movements between permitting, drilling, survey and recording crews is of
critical importance to timely, safe and cost effective execution of the job. We
have a pool of senior field supervisors, who have broad seismic industry
experience and are able to coordinate the activities of drill crews, permit
agents and survey teams with the recording crews to achieve improved results.
These personnel also have the ability to recommend changes to the customer field
representatives in the manner of executing the job in the field to improve
performance and reduce costs. By having the ability to perform significant field
coordination, we are able to streamline field decision making and information
flow and reduce customer overhead costs that otherwise would be required to
perform these supervisory tasks. We also have one of the industry's leading
Health, Safety and Environmental ("HSE") programs. The involvement of our
experienced personnel monitoring HSE field practices greatly reduces customer
involvement in this area. By offering the only integrated combination of seismic
drilling, permit acquisition, seismic survey and operational support, in
addition to
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an equipment fleet that is one of the largest in terms of number of units and
most diverse in the industry, we provide significant operational advantages to
the customer.
PERMITTING. We maintain a "Geophysical Permit Acquisition Division." Our
staff of contract permit agents first conducts research in public land title
records to determine ownership of the lands located in the seismic projects. The
permit agents then contact, negotiate and acquire permits and landowner consents
for the survey, drilling and recording crews to conduct their operations.
Throughout the seismic data acquisition process, the permit agents assist the
crews in the field with landowner relations and permit restrictions in order to
reduce field-crew downtime for noncompliance with landowner requests. Our permit
services are enhanced with the assistance of a proprietary database software
program specifically designed for efficient management of seismic projects.
SURVEY. 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, contract survey crews are sent into the field to plot each
source and receiving point prior to drilling. We employ 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. We have successfully integrated both types of equipment in order
to complete projects throughout the varied terrain of the Transition Zone and
elsewhere. In addition, the contract survey crews have access to our extensive
fleet of specialized transportation equipment, as opposed to most other survey
companies, which must rent this equipment.
HELICOPTER SUPPORT. Working in concert with our Aviation Services division,
we provide helicopter support throughout the continental United States to
geophysical companies and certain federal and state governmental agencies when
needed. We use 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, we are 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. Our helicopters are also used to transport heli-portable drilling units
and their crews into remote, or otherwise inaccessible terrain, in an efficient
and environmentally sensitive manner.
FABRICATION AND MAINTENANCE. At our Carencro facilities, we perform all
routine repairs and maintenance for our Transition Zone and highland drilling
equipment. We design and fabricate aluminum marsh all terrain vehicles (ATV's),
a number of our support boats and pontoon boats, and the drilling units we use
on all of our Transition Zone equipment. We purchase airboats directly from the
manufacturer and then modify the airboats to install the drilling equipment. We
have also designed and built a limited number of highland drilling units by
installing our drilling equipment on tractors bought directly from the
manufacturer. We also fabricate rock-drilling equipment and have the capability
of fabricating other key equipment, such as swamp ATV's. Because of our ability
to fabricate and maintain much of our equipment, we do not believe that we are
dependent on any one supplier for our drilling equipment or parts.
AVIATION TRANSPORTATION. Currently, we operate 20 helicopters and one
fixed-wing aircraft. Our offshore helicopters derive revenue from the transport
of our customers' workers and equipment to platforms, drilling rigs and other
offshore structures. Oil and gas exploration and production companies and other
offshore service companies use our aviation services primarily for routine
offshore transportation, to transport personnel during medical and safety
emergencies, and to evacuate personnel during the threat of hurricanes and other
adverse weather conditions. Most of our customers have entered into contracts
for transportation services for a term of one year or longer, although some do
hire us on an "ad hoc" or "spot" basis.
Many of our aircraft are available for hire by any customer, but nine are
currently dedicated to specific customers. We operate helicopters that have
flying ranges up to 150 miles from shore, but we maintain various offshore
re-fueling locations to increase the helicopters' range and the amount of time a
helicopter can operate offshore. Our pilots, several of whom are Airline
Transport Pilots, Certified Flight Instructors, Certified Flight & Instrument
Instructors and are all commercially licensed, have an average of approximately
11,000 flight hours. We perform all routine maintenance on our aircraft at each
of our land bases and at our primary repair and hangar facilities in Carencro,
Louisiana.
ENVIRONMENTAL SERVICES. We are an environmental and maintenance service
contractor working primarily for onshore and offshore oil and gas companies. Our
environmental services unit (Trussco, Inc.) provides equipment and personnel to
perform environmental cleaning services including drilling rig, tank and vessel
cleaning, NORM decontamination, platform abandonment services, pipeline
flushing, hydro blasting and gas dehydration services. We operate in the
onshore, dockside and offshore regions of the Gulf of Mexico where we are
considered to be the leading provider of such environmental services. Our
cleaning operations are performed at six locations along the Louisiana Gulf
Coast.
FACILITIES AND EQUIPMENT
FACILITIES. Our corporate headquarters is located on 34 acres of land
situated in Carencro, Louisiana. The building was constructed in 1998 and
provides approximately 20,000 square feet of office space. It is located
adjacent to our primary repair and
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maintenance facilities. Our aviation and environmental units operate from land
and dock-side bases located along the Louisiana Gulf Coast.
SEISMIC DRILLING FACILITIES. Our primary fabrication and maintenance
facilities are situated in two buildings located adjacent to our corporate
headquarters. The buildings, also constructed in 1998, provide approximately
32,000 square feet of covered maintenance and fabrication space.
We leased an operations base in Loveland, Colorado to support our
rock-drilling operations until the lease expired in 2002, at which point we
decided to consolidate our equipment into our primary maintenance facility in
Carencro, Louisiana. We owned an office and warehouse facility in Santa Cruz,
Bolivia, but it was sold in 2003 in connection with the decision to discontinue
our operations in South America until market conditions for seismic drilling
improve in South America.
AVIATION TRANSPORTATION FACILITIES. Our regional hangar and repair facility
is located within our maintenance facility in Carencro, Louisiana. This facility
houses our aviation operational, executive and administrative offices and the
primary repair and maintenance facility.
In March 2004, we acquired approximately 13 acres of land and improvements
located in Intracoastal City, Louisiana. We plan to consolidate into
Intracoastal City, Louisiana, all of our primary aviation repair, maintenance,
administration and hangar facilities from their current location in Carencro,
Louisiana.
We also lease property for two additional bases to service the oil and gas
industry offshore of Louisiana and Texas. These bases, in which we have made
significant investments in leasehold improvements include: Grand Chenier and
Fourchon, Louisiana.
At the customer's request, we also operate from offshore platforms that are
provided, without charge, by the owners of the platforms. In certain instances,
we are required to indemnify the owners of these platforms against loss in
connection with our use thereof.
ENVIRONMENTAL SERVICES FACILITIES. The primary executive offices for our
Environmental Services Unit are located in the Carencro, Louisiana facility. Our
primary operations and offshore cleaning support facility is located in
Abbeville, Louisiana. We maintain six leased facilities along the Louisiana Gulf
Coast to support our cleaning and maintenance operations. These locations
include Cameron, Intracoastal City, Morgan City, Fourchon and Venice, Louisiana.
Fourchon is Louisiana's largest and busiest deep water port. Our NORM
decontamination site is located in a separate facility also in Intracoastal
City, Louisiana.
TRANSITION ZONE TRANSPORTATION AND DRILLING EQUIPMENT. Because of the varied
terrain throughout the Transition Zone and the prevalence of environmentally
sensitive areas, we employ a wide variety of drilling vehicles. We believe that
we are the only company currently operating in the Transition Zone that owns and
operates all of the following types of equipment:
NUMBER OF UNITS AS
TYPES OF EQUIPMENT OF DECEMBER 31, 2004
- ---------------------------------- --------------------
Highland Drilling Units (1)....... 75
Water Buggies..................... 60
Aluminum Marsh ATV's.............. 23
Stainless Steel Marsh ATV's (2)... 8
Airboat-Drilling Units............ 40
Swamp ATV's....................... 30
Pullboats......................... 21
Pontoon Boats..................... 15
Jack-Up Rigs...................... 1
Skid-Mounted Drilling Units(3).... 20
Heli-portable and Seismic
Rock Drilling Equipment......... 20
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(1) Sixteen of these drilling units are currently dedicated to seismic rock
drilling operations outside of the Transition Zone.
(2) This equipment is currently held for sale (see Note 1 "Property, Plant and
Equipment" to the Consolidated Financial Statements).
(3) One of these drilling units is currently located outside of the Transition
Zone.
Because of our extensive fleet of Transition Zone transportation and seismic
drilling equipment, much of which we fabricated, we believe that we are the only
company that currently can provide an integrated range of seismic drilling and
survey services in all of the varied terrain of the Transition Zone and
simultaneously support operations for multiple, large-scale seismic projects.
-7-
HIGHLAND DRILLING UNITS AND WATER BUGGIES. We currently own and operate 75
highland drilling units for seismic drilling in dry land areas, 16 of which are
currently dedicated to our 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. This highland drilling unit
can be driven over land from point to point and is accompanied by a unit
referred to as a "water buggy" (of which we own 60) that carries water required
for water pressure rotary drills. This type of vehicle is used around the world
for this type of terrain.
MARSH ATV'S. The environmentally sensitive wetlands along the U.S. Gulf Coast
contain 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 ATV's, 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 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.
We own and operate 31 marsh ATV's, of which eight are made of stainless steel
and 23 are made of aluminum. All of the stainless steel marsh ATV's are
currently held for sale. The aluminum ATV's are lighter than steel vehicles and
are specifically designed for the environmentally sensitive areas typically
found in marsh terrain. Landowner consents will often require the use of
aluminum ATV's 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's state and federal refuges. We fabricated
our own aluminum marsh ATV's at our facilities in Carencro, Louisiana.
AIRBOAT DRILLING UNITS. We own and operate 40 airboat-drilling units. An
airboat-drilling unit consists of a drilling unit fabricated and installed 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 ATV'S AND PULLBOATS. Wooded lowlands typically covered with water are
referred to as the "swamp areas" of the Transition Zone. Our swamp ATV's are
used to provide drilling services in these areas. Swamp ATV's are smaller,
narrower versions of the marsh ATV's. The smaller unit is needed in swamp areas
due to the dense vegetation typical in this 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. We own and operate 30 swamp
ATV's and 21 pullboats. Swamp ATV's are also used in connection with survey
operations in swamp areas.
PONTOON BOATS. We own and operate 15 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, we use jack-up rigs
equipped with one of our 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. We currently have one jack-up rig.
SKID-MOUNTED DRILLING UNITS. A skid-mounted drilling unit is a drilling unit
mounted on I-beam supports, which allows the drilling unit to be moved easily
between pullboats, pontoon boats, jack-up rigs and other equipment we operate
based on customer needs. We manufacture our skid-mounted drilling units at our
facilities in Carencro, Louisiana and we own 20 of these units, one of which is
located outside of the Transition Zone.
HELI-PORTABLE AND SEISMIC ROCK DRILLING EQUIPMENT. We have 20 heli-portable
and man-portable drilling units dedicated to seismic rock drilling. We also have
the ability to manufacture our own heli-portable and man-portable seismic
rock-drilling units, and often export and provide servicing of heli-portable and
man-portable drilling units.
MISCELLANEOUS. We own and operate 88 single engine airboats and 21 outboard
powered boats, which we use to ferry personnel and supplies to locations
throughout the Transition Zone. We also maintain a fleet of five tractor-trailer
trucks and numerous other trucks, trailers and vehicles to move our equipment
and personnel to projects throughout the Transition Zone.
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AVIATION EQUIPMENT. The following table sets forth the type and number of
aircraft that are operated by our Aviation division at December 31, 2004:
NUMBER OF
HELICOPTERS AIRCRAFT
---------
Sikorsky 76-A............... 2(1)
Bell 407.................... 4
Bell Long Ranger 206L-III... 10
Bell Jet Ranger 206B-III.... 6
Bell UH-1H.................. 1(1)
FIXED WING AIRCRAFT
King Air 90................. 1(2)
- ----------------------
(1) Sold subsequent to December 31, 2004.
(2) This aircraft is currently held for sale (See Note 1 to the Consolidated
Financial Statements).
ENVIRONMENTAL EQUIPMENT. The following table sets forth the type and quantity
of our key equipment operated by our Environmental division.
NUMBER OF UNITS AS
TYPES OF EQUIPMENT OF DECEMBER 31, 2004
- -------------------------------------- --------------------
Offshore Tool House Cleaning Packages... 10
Offshore Skid Cleaning Packages......... 9
Dockside & Land Tank Cleaning Packages.. 11
Air Compressors......................... 38
Steam / Degas Generators................ 4
Liquid Vacuum Truck (60BBL)............. 2
Wet / Dry Vacuum Truck (80BBL).......... 4
Trailer Mounted Vacuum Units............ 2
Water Blasters (10K - 40K).............. 4
15 BBL Cutting Boxes (Disposal)......... 20
NORM Pipe Decontamination System........ 1
MATERIALS AND EQUIPMENT
The principal materials and equipment used in our seismic drilling
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, trucks and other vehicles, are currently in
adequate supply from many sources. We do not depend upon any single supplier or
source for such materials.
For aircraft maintenance and repairs, we carry an inventory of aircraft
parts. Many of these inventory items are parts that have been removed from
aircraft, refurbished according to manufacturers' and Federal Aviation
Administration ("FAA") specifications, and returned to inventory. There are
currently adequate supplies of replacement parts from many sources, including
the original equipment manufacturer; however, we sometimes experience extended
lead times for deliveries. We use systematic procedures to estimate valuation of
these used parts, which includes consideration of their condition and continuing
utility. These valuation estimates sometimes impact the carrying values of
inventory reported in our financial statements.
Environmental cleaning equipment and materials such as compressors, pressure
washers, diaphragm pumps, electric generators, water blasters, vacuum trucks,
hoses, personnel protection equipment, and cleaning agents are readily available
from many sources throughout the Gulf of Mexico Region. We do not depend upon
any single supplier or source for such materials.
SAFETY AND QUALITY ASSURANCE
We maintain a stringent safety assurance program to reduce the possibility of
accidents. Our 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. Our HSE manager reports directly to our Chief Executive
Officer and supervises five HSE field advisors and one instructor who provides
Occupational Safety and Health Act ("OSHA") mandated training. We believe that
our safety program and commitment to quality are vital to attracting and
retaining customers and employees.
-9-
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 our HSE department is also
located at the project site. Management is provided with daily updates for each
project and believes that our daily review of field performance together with
the on-site presence of supervisory personnel helps ensure high quality
performance for all of our projects.
Our pilots are trained to the Federal Aviation Administration, ("FAA")
Federal Aviation Regulation ("FAR") 135 (non-scheduled commercial passenger) or
FAR 133 (external load) standards and must satisfy annual FAA check-rides.
Licensed maintenance personnel are deployed to each project site at which
aircraft are used. The operation of helicopters inherently involves risk.
Hazards such as aircraft accidents, collisions, fire and adverse weather are
hazards, which must be managed and may result in loss of life, serious injury to
employees or third parties and loss of equipment and revenues.
While we have recently experienced several aviation incidents, our historical
aviation safety record is favorable in comparison to the record of United States
operators. A favorable safety record is one of the primary factors a customer
reviews in selecting an aviation provider. We place significant emphasis on
safety and it is an important factor affecting daily operations.
Environmental employees work in many facilities, most which have site
specific requirements. Our crews attend pre-job meetings to formulate job
specific work plans. These plans are monitored & audited by our supervisors and
in-house QHSE Advisors.
We have implemented an extensive training program that provides for these
adverse conditions. Our employee training is conducted in accordance with
federal, state, customer, and company requirements.
CUSTOMERS, MARKETING AND CONTRACTING
CUSTOMERS. Historically, our customers have primarily been geophysical
companies, although in many cases the oil and gas company participates in
determining which drilling, permitting, survey or aviation company will be used
on our seismic projects. A few customers have historically generated a large
portion of our seismic drilling revenue. For example, our largest customers
(those which individually accounted for more than 10% of revenue in a given
year, listed alphabetically) collectively accounted for 84% (Veritas DGC and
Western Geophysical), 71% (Quantum Geophysical, Seismic Exchange and Veritas
DGC), and 50% (PGS, Quantum Geophysical, Seismic Exchange and Veritas DGC) of
revenue for fiscal 2002, 2003 and 2004, respectively, all of which relate to the
drilling division. While we expect oil and gas companies utilizing our aviation
and environmental services will eventually comprise a greater share of our
revenue base, we currently derive a significant amount of our revenue from a
small number of large geophysical companies and independent oil and gas
operators. Our loss of one of these significant customers, if not offset by
sales to new or other existing customers, could have a material adverse effect
on our business and operations.
The majority of our customers are engaged in the oil and gas industry. This
concentration of customers may impact our overall exposure to credit risk,
either positively or negatively, in that customers may be similarly affected by
changes in economics and industry conditions. We do not generally require
collateral in support of trade receivables, but we do maintain reserves for
credit losses. Actual losses have historically been within expectations.
MARKETING. Our Seismic Drilling services have traditionally been marketed by
our principal executive officers. We believe that this marketing approach helps
us preserve long-term relationships established by our executive officers. Even
as our geographical and service capabilities expand, we intend to continue
implementing these marketing efforts in both the Transition Zone and in the
Rocky Mountain region from our principal offices in Carencro, Louisiana.
Our Aviation Services and Environmental Services are marketed from offices in
Louisiana and Texas. Our aviation marketing representative has more than thirty
years of experience in providing helicopter transportation services. We market
our Environmental Services in Louisiana and Texas using eight sales
representatives - five dockside and three corporate.
CONTRACTING -- SEISMIC DRILLING. We generally contract with our customers for
seismic drilling services on a unit-price basis, either on a "per hole" or "per
foot" basis. These contracts are often awarded after a competitive bidding
process. We price our 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, we are generally able
to make a relatively accurate determination prior to pricing a contract of the
type and amount of equipment required to complete the contract on schedule.
Because of unit-price contracting, we sometimes bear a portion of the risk of
production delays that are beyond our control, such as those caused by adverse
weather. We often bill the customer standby charges if our operations are
delayed due to delays in permitting or surveying or for other reasons within the
geophysical company's control.
CONTRACTING - PERMITTING SERVICES. We contract with our customers for
permitting services on a day rate or per project basis. Under the per project
basis, revenue is recognized when certain percentages of the permitting process
are completed. Contracts are often awarded to us only after competitive bidding.
In the case of the per project basis, we determine the price after we have taken
into account such factors as the number of permit agents, the number of permits
and the detailed project specification provided by the customer.
CONTRACTING - SURVEY SERVICES. We contract with our customers for seismic
survey services 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 our
survey crews. Contracts are often awarded to us only after competitive bidding.
In each case, the price is determined after we have taken into
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account such factors as the number of surveyors and other personnel, the type of
terrain and transportation equipment, and the precision required for the project
based on detailed project specifications provided by the customer.
CONTRACTING - AVIATION TRANSPORTATION. Exploration and development activities
generally use medium size and larger aircraft on which we generally earn higher
margins. Production related activities are generally less sensitive to variances
in commodity prices and accordingly, provide a more stable activity base for our
flight operations. A majority of our operating revenue is related to production
activities of the oil and gas companies.
Helicopter contracts are generally based on a two-tier rate structure
consisting of a daily or monthly fixed fee, plus additional fees for each hour
flown. We also provide services to customers on an "ad hoc" basis, which
generally entails a shorter notice period or shorter duration. Our charges for
"ad hoc" services are generally based on an hourly rate or a daily or monthly
fixed fee, plus additional fees for each hour flown. Generally, "ad hoc"
services have a higher margin than other helicopter contracts due to supply and
demand dynamics.
CONTRACTING - ENVIRONMENTAL SERVICES. We generally bill for our environmental
cleaning and maintenance services on a time and materials basis. Our customer
list includes more than 225 major and independent oil and gas companies
operating in the Gulf of Mexico. Our success in securing projects is often
dependent on our ability to immediately provide personnel that operate in a
quick, safe and efficient manner at a competitive price.
COMPETITION
SEISMIC DRILLING. 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 when deciding upon a provider of seismic
drilling services. We have a limited number of competitors in the Transition
Zone and numerous competitors in the highland areas in which we operate. We
believe that no other company operating in the Transition Zone owns a fleet of
Transition Zone seismic drilling equipment as varied or as large as ours. Our
extensive and diverse equipment base allows us to provide drilling services to
our customers throughout the Transition Zone with the most efficient and
environmentally appropriate equipment. We believe there are numerous competitors
offering rock and heli-portable drilling in the Rocky Mountain region and
internationally.
PERMITTING SERVICES. Our competitors include a number of larger,
well-established companies with a number of permit agents comparable to us.
SURVEY SERVICES. Our competitors include a number of larger, well-established
companies with a number of crews comparable to us.
HELICOPTER TRANSPORTATION. We have numerous competitors that provide
helicopter support services to geophysical companies operating in the Transition
Zone. We believe, however, that we are the only company offering both seismic
drilling and long-line support services in the Transition Zone. We believe that
there are numerous companies offering helicopter services in rock drilling and
other mountain areas, as well as internationally. Some of these companies have
greater experience in these areas and several operate more aircraft than we do
in these areas.
The market to provide offshore transportation services in the Gulf of Mexico
is extremely competitive. Many of our contracts are awarded only after
competitive bidding. The principal aspects of competition are safety, price,
reliability, availability and service. There are two major and several smaller
and like-size competitors operating in the Gulf of Mexico. Some of these
competitors are much larger, have more aircraft and have greater experience than
we do in this area.
ENVIRONMENTAL SERVICES. We have several competitors offering identical
environmental services to those offered by Trussco, Inc. Some of these
competitors are larger and have more financial resources than we have available.
Our ability to compete effectively is dependent upon our ability to have
personnel available when needed at competitive prices.
SEASONALITY AND WEATHER RISKS
SEISMIC DRILLING. Our Seismic Drilling operations are subject to seasonal
variations in weather conditions and daylight hours. Since our 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
-11-
and a decrease in daylight hours. Furthermore, demand for seismic data
acquisition activity by oil and gas companies at the end of the fourth quarter
and in the first quarter is generally lower than at other times of the year. As
a result, our revenue and gross profit during the fourth quarter and the first
quarter of each year are typically lower than the second and third quarters for
this business unit. 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 our equipment and decrease the
number of vehicles available for operations.
AVIATION. Three types of weather-related or seasonal occurrences impact our
aviation business: poor weather conditions, tropical storm season in the Gulf of
Mexico, and the number of hours of daylight.
In the Gulf of Mexico, the months of December through February have more days
of adverse weather conditions than the other months of the year. Also in the
Gulf of Mexico, June through November is tropical storm season. When a tropical
storm is about to enter or begins developing in the Gulf of Mexico, flight
activity may increase because of evacuations of offshore workers. However,
during tropical storms, we are unable to operate in the area of the storm. In
addition, since most of our bases are located along the Gulf of Mexico, tropical
storms may cause substantial damage to our property, including helicopters.
Additionally, we incur costs in evacuating our aircraft and bases during
tropical storms.
Since fall and winter months have fewer hours of daylight, flight hours are
generally lower at these times, which typically results in a reduction in
operating revenues during these months. We currently operate 20 helicopters in
our oil and gas operations, three of which are grounded. Our customers use our
aviation services primarily for routine offshore transportation, to transport
personnel during medical and safety emergencies, and to evacuate personnel
during the threat of hurricanes and other adverse weather conditions.
Our operating results may, and usually do, vary from quarter to quarter,
depending on factors outside of our control. As a result, full year results are
not likely to be a direct multiple of any particular quarter or combination of
quarters.
BACKLOG
Our backlog represents those seismic drilling and survey projects for which a
customer has hired us and has scheduled a start date for the project. Projects
currently included in our backlog are subject to termination or delay without
penalty at the option of the customer, which could substantially reduce the
amount of backlog currently reported.
As of December 31, 2004, our backlog was approximately $33.0 million compared
to $36.3 million at December 31, 2003. Backlog at December 31, 2004 includes
seismic drilling and survey projects in the Transition Zone in addition to
seismic rock drilling projects. Our aviation, permitting and environmental
divisions, historically, have not measured backlog due to the nature of our
business and our contracts, which are generally cancelable by either party with
thirty days written notice.
GOVERNMENTAL REGULATION
SEISMIC DRILLING. Our operations and properties are subject to and affected
by various types of governmental regulations, including laws and regulations
governing the entry into and restoration of wetlands, the handling of explosives
and numerous other federal, state and local laws and regulations. To date, our
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
us to accurately predict the cost or impact of such laws and regulations on our
future operations.
Furthermore, we depend on the demand for our services by the oil and gas
industry and are affected by tax legislation, price controls and other laws and
regulations relating to the oil and gas industry in general. The adoption of
laws and regulations curtailing exploration and development drilling for oil and
gas in our areas of operations for economic, environmental or other policy
reasons would adversely affect our operations by limiting the demand for our
services. We cannot determine to what extent our future operations and earnings
may be affected by new legislation, new regulations or changes in existing
regulations.
AVIATION TRANSPORTATION. As a commercial operator of small aircraft, we are
subject to regulations pursuant to the FAA Authorization Act of 1994, as amended
(the "Federal Aviation Act"), and other statutes. The FAA regulates our flight
operations, and in this respect exercises jurisdiction over personnel, aircraft,
ground facilities and other aspects of our operations. We require an Air Taxi
Certificate, granted by the FAA, to transport personnel and property in our
helicopters. This certificate contains operating specifications that allow us to
conduct our present operations, but this certificate is potentially subject to
amendment, suspension and revocation in accordance with procedures set forth in
the Federal Aviation Act. We are not required to file tariffs showing rates,
fares and other charges with the FAA. The FAA is responsible for ensuring that
we comply with all FAA regulations relating to the operation of our aviation
business. The FAA conducts regular inspections regarding safety, training and
general regulatory compliance of our domestic aviation operations. Additionally,
we are required to file with the FAA reports confirming our continued
compliance.
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We carry persons and property in our 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 FAA has issued the operator of such aircraft an operating
certificate. We have all FAA certificates required to conduct our helicopter and
aviation operations, and all of our aircraft are registered with the FAA.
Generally, 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
us, we have been advised that our aircraft may be subject to deregistration
under the Federal Aviation Act and loss of the privilege of operating within the
United States. None of our aircraft are currently owned, in whole or in part, by
a foreign entity. Our Articles of Incorporation and bylaws include provisions
that are designed to ensure compliance with this requirement.
Numerous other federal statutes and rules regulate our offshore operations
and the operations of our customers, pursuant to which the government has the
ability to suspend, curtail, or modify certain or all offshore operations. A
suspension or substantial curtailment of offshore oil and gas operations for any
prolonged period of time would have an immediate and materially adverse impact
on us. A substantial modification of current offshore operations could adversely
affect the economics of such operations and result in reduced demand for our
helicopter services.
EXPLOSIVES. Because we load with dynamite the holes that are drilled, we are
subject to various local, state and federal laws and regulations concerning the
handling and storage of explosives and are specifically regulated by the Bureau
of Alcohol, Tobacco and Firearms of the U.S. Department of Justice and the
Department of Homeland Security. We must take daily inventories of the dynamite
and blasting caps that we keep for our seismic drilling and are subject to
random checks by state and federal officials. We are 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 our results of operations and
financial condition. We believe that we are in compliance with all material laws
and regulations with respect to our handling and storage of explosives.
ENVIRONMENTAL. Our 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 we operate 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, we 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 us to liability for the conduct of, or conditions caused by, others, or
for our acts 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. We believe that
our facilities are in substantial compliance with current regulatory standards.
WORKER SAFETY. Laws and regulations relating to workplace safety and worker
health, primarily Occupational Safety and Health Administration ("OSHA") and
regulations promulgated thereunder, govern our operations. In addition, various
other governmental and quasi-governmental agencies require us to obtain certain
permits, licenses and certificates with respect to our operations. The kind of
permits, licenses and certificates required in our operations depend upon a
number of factors. We believe that we have all permits, licenses and
certificates necessary to the conduct of our existing business.
INSURANCE
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SEISMIC DRILLING. Our operations are subject to the inherent risks of inland
marine activity, 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. We
maintain insurance coverage against certain of these risks, which we believe are
reasonable and customary in the industry. We also maintain insurance coverage
against property damage caused by fire, flood, explosion and similar
catastrophic events that may result in physical damage or destruction to our
equipment or facilities. All policies are subject to deductibles and other
coverage limitations. We believe our insurance coverage is adequate.
Historically, we have not experienced an insured loss in excess of our policy
limits; however, there can be no assurance that we will be able to maintain
adequate insurance at rates which we consider commercially reasonable, nor can
there be any assurance such coverage will be adequate to cover all claims that
may arise.
AVIATION SERVICES. We maintain hull and liability insurance on our aircraft,
which insures us against physical loss of, or damage to, our aircraft and
against certain legal liabilities to others. In some instances, we are covered
by indemnity agreements with certain customers in lieu of, or in addition to our
insurance. Our aircraft are not insured for loss of use. While we believe we are
adequately covered by insurance and indemnification agreements, the loss of, or
severe damage to, a significant number of our aircraft could adversely affect
revenues and profits.
ENVIRONMENTAL SERVICES. Our operations involve a high degree of operational
risk, particularly of personal injury and damage or loss of equipment. Failure
or loss of our equipment could result in property damages, personal injury,
environmental pollution and other damage for which we could be liable. We
maintain insurance against risk that we believe is consistent with industry
standards and required by our customers. Although we believe that our insurance
protection is adequate and we have not experienced a loss in excess of our
policy limits, we may not be able to maintain adequate insurance rates that we
consider commercially reasonable, or ensure that our coverage will be adequate
to cover all claims that may arise.
CAUTIONARY STATEMENTS
Certain statements included in this Annual Report and in the documents that
we have incorporated by reference are not historical facts and are intended to
be "forward-looking statements." Forward-looking statements in this Annual
Report are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements may include
statements that relate to:
- our business plans or strategies, and projected or anticipated benefits or
other consequences of such plans or strategies;
- our objectives;
- projected and anticipated benefits from future or past acquisitions; and
- projections involving anticipated capital expenditures or revenues,
earnings or other aspects of capital projects or operating results.
Forward-looking statements generally can be identified by the use of words
such as "may," "will," "expect," "intend," "estimate," "anticipate" or "believe"
or similar language.
Forward-looking statements are not guarantees of future performance and all
phases of our operations are subject to a number of uncertainties, risks and
other influences, many of which are beyond our control. Any one of such
influences, or a combination, could materially affect the results of our
operations and the accuracy of the forward-looking statements that we make.
You are cautioned that all forward-looking statements involve risks
associated with our dependence on activity in the oil and gas industry, labor
shortages, international expansion, dependence on significant customers,
seasonality and weather risks, competition, technological evolution and other
risks detailed in our filings with the Securities and Exchange Commission.
Additional important factors that could cause actual results to differ
materially from the anticipated results or other expectations expressed in our
forward-looking statements are discussed under the caption "Risk Factors" below.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date that they are made. We undertake no
obligation to publicly update our forward-looking statements.
RISK FACTORS
You should carefully consider the following risk factors, in addition to the
other information set forth or incorporated by reference herein. Each of these
risk factors could adversely affect our business, operating results and
financial condition, and also adversely affect the value of an investment in our
common stock.
INDUSTRY VOLATILITY MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
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The demand for our services depends on the level of capital expenditures by
oil and gas companies for developmental construction and these expenditures are
critical to our operations. The levels of such capital expenditures are
influenced by:
- oil and gas prices and industry perceptions of future price levels;
- the cost of exploring for, producing and delivering oil and gas;
- the ability of oil and gas companies to generate capital;
- the sale and expiration dates of leases in the United States;
- the availability of current geophysical data;
- the discovery rate of new oil and gas reserves; and
- local and international political and economic conditions.
The cyclical nature of the oil and gas industry has a significant effect on
our revenues and profitability. Historically, prices of oil and gas, as well as
the level of exploration and developmental activity, have fluctuated
substantially. This has, in the past, and may, in the future, adversely affect
our business. We are unable to predict future oil and gas prices or the level of
oil and gas industry activity. A prolonged low level of activity in the oil and
gas industry will likely depress development activity, adversely affecting the
demand for our products and services and our financial condition and results of
operations.
OUR GROWTH AND GROWTH STRATEGY INVOLVES RISKS.
We have grown over the last several years through internal growth and
acquisitions of other companies. It will be important for our future success to
manage our rapid growth and this will demand increased responsibility for
management personnel. The following factors could present difficulties to us:
- the lack of sufficient executive-level personnel;
- the successful integration of the operations of American
Helicopters, Inc. and Trussco, Inc. including the integration of a
management team with no history of working together;
- increased levels of debt and administrative burdens; and
- increased logistical problems of large, expansive operations.
If we do not manage these potential difficulties successfully, they could
have a material adverse effect on our financial condition and results of
operations.
WE HAVE INCURRED NET LOSSES IN PREVIOUS YEARS.
While some of our recent history reflects annual net income, our past
financial history, including the year ended December 31, 2004, reflects annual
net losses. While we hope to generate increased revenues and return to
profitability, any such increase may not be sustainable or indicative of future
results of operations. We do intend to continue investing in internal expansion,
infrastructure, integration of acquired companies and into our operations and
our marketing and sales efforts.
OUR ABILITY TO CONTINUE AS A GOING CONCERN MAYBE CONTINGENT UPON OUR ABILITY TO
SECURE CAPITAL FROM PROSPECTIVE INSTITUTIONAL LENDERS.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has suffered a significant loss from operations
during the current year, has a working capital deficit, is currently in default
on certain of its debt instruments, and will require capital funding from
sources other than operations to meet its current debt obligations. In the past
two years, the Company has been required to raise additional capital by the
issuance of both equity and debt instruments. There are no commitments from
funding sources, debt or equity, in the event that cash flows are not sufficient
to fund ongoing operations or other cash commitments as they come due. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management will be required to raise additional capital in the
near term through offerings of equity or debt securities to fund the Company's
debt service obligations and its operations. No assurance can be given that such
financing will be available or, if available, that it will be on commercially
favorable terms. Moreover, available financing may be dilutive to current
investors.
The Company is in the process of securing capital from prospective investors
(See Note 15 to the Consolidated Financial Statements), that if successful, in
conjunction with cash flows from operations and sales of certain non-core
assets, will be used to fund its current debt service obligations and serve to
mitigate the factors that have raised doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets or liabilities that might be necessary should the Company be
unable to continue as a going concern.
THE DANGERS INHERENT IN OUR OPERATIONS AND THE POTENTIAL LIMITS ON INSURANCE
COVERAGE FOR CERTAIN RISKS COULD EXPOSE US TO POTENTIALLY SIGNIFICANT LIABILITY
COSTS.
Our seismic operations are subject to risks or injury to personnel and loss
of equipment. Our crews often conduct operations in extreme weather, in
difficult terrain that is not easily accessible, and under other hazardous
conditions. In addition, our aviation operations are subject to numerous hazards
inherent in the operation of helicopters and airplanes. These hazards include
adverse weather conditions, crashes, explosions, collisions and fires, all of
which may result in injury to personnel or loss of equipment. We maintain what
we believe is prudent insurance protection. However, we cannot assure that our
insurance will be sufficient or effective under all circumstances. A successful
claim for which we are not fully insured may have a material adverse effect on
our revenues and profitability. We do not carry business interruption insurance
with respect to our operations.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY.
We compete with several other providers of seismic drilling, helicopter
support, permitting, survey and environmental services. Competition among
seismic contractors historically has been, and will continue to be, intense.
Competitive factors have in recent years included price, crew experience,
equipment availability, technological expertise and reputation for quality and
dependability. Our revenues and earnings may be affected by the following
factors:
- changes in competitive prices;
- fluctuations in the level of activity and major markets;
- general economic conditions; and
- Governmental regulation.
-15-
Additionally, in certain geographical areas, some of our competitors operate
more crews than we do and have substantially greater financial and other
resources. These operators could enjoy an advantage over us if the competitive
environment for contract awards shifts to one characterized principally by
intense price competition.
SEASONALITY AND ADVERSE WEATHER CONDITIONS IN THE REGIONS IN WHICH WE OPERATE
MAY ADVERSELY AFFECT OUR OPERATIONS.
Our operations are directly affected by the weather conditions in the Gulf of
Mexico. Due to seasonal differences in weather patterns, we may operate more
days in the spring, summer and fall periods and less in the winter months. The
seasonality of oil and gas industry activity in the Gulf Coast region also
affects our operations. Due to exposure to weather, we generally experience
higher drilling activity in the spring, summer and fall months with the lowest
activity in winter months, especially with respect to our operations in the
mountainous regions of the western United States. The rainy weather, hurricanes
and other storms prevalent in the Gulf of Mexico and along the Gulf Coast
throughout the year may also affect our operations. As a result, full-year
results are not likely to be a direct multiple of any particular quarter or
combination of quarters.
WE ARE DEPENDENT ON KEY PERSONNEL.
Our success depends on, among other things, the continued active
participation of our executive officers and certain of our other key operating
personnel. Our officers and personnel have extensive experience in the domestic
and international oilfield services industry. The loss of the services of any
one of these persons could impact adversely our ability to implement our
expansion strategy.
WE MAY INCUR ADDITIONAL EXPENDITURES TO COMPLY WITH GOVERNMENTAL REGULATIONS.
Our seismic and aviation operations are subject to extensive governmental
regulation, violations of which may result in civil and criminal penalties,
injunctions and cease and desist orders. These laws and regulations govern,
among other things, operations in wetlands, the handling of explosives and the
operation of commercial aircraft. Although our cost of compliance with such laws
has to date been immaterial, such laws are changed frequently. Accordingly, it
is impossible to predict the cost or impact of such laws on our future
operations. We are also required by various governmental agencies to obtain
certain permits, licenses and certificates. To date, we believe that we possess
all permits, licenses and certificates material to the operation of our
business. The loss by us of any of the licenses required for our operation could
have a material adverse effect on our operations.
We depend on demand for our services from the oil and gas industry, and this
demand may be affected by changing tax laws and oil and gas regulations. As a
result, the adoption of laws that curtail oil and gas production in our areas of
operation may adversely affect us. We cannot determine to what extent our
operations may be affected by any new regulations or changes in existing
regulations.
FUTURE TECHNOLOGICAL ADVANCES COULD IMPAIR OPERATING ASSETS OR REQUIRE
SUBSTANTIAL UNBUDGETED CAPITAL EXPENDITURES.
We compete in providing services in a capital intensive business. The
development of seismic data acquisition and processing equipment has been
characterized by rapid technological advancements in recent years, and this
trend may continue. Manufacturers of seismic equipment may develop new systems
that have competitive advantages over systems now in use that could render our
current equipment obsolete or require us to make significant unplanned capital
expenditures to maintain our competitive position. Under such circumstances,
there can be no assurance that we would be able to obtain necessary financing on
favorable terms.
OUR SEISMIC DRILLING AND AVIATION OPERATIONS DEPEND ON A
FEW SIGNIFICANT CUSTOMERS.
We derive a significant amount of our revenue from a small number of
geophysical companies. Our inability to continue to perform services for a
number of our large existing customers, if not offset by sales to new or other
existing customers could have a material adverse effect on our business and
operations. For example, our largest customers (those which individually
accounted for more than of revenue in a given year, listed alphabetically)
collectively accounted for (Veritas DGC and Western Geophysical), 71% (Quantum
Geophysical, Seismic Exchange, and Veritas DGC) and 50% (PGS, Quantum
Geophysical, Seismic Exchange, and Veritas DGC) of revenue for fiscal 2002,
2003, and 2004, respectively. Additionally, our Aviation division relies on a
contract with one customer who accounted for 32% of this divisions 2004
revenues.
UNFAVORABLE RESULTS OF LITIGATION COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR
FINANCIAL STATEMENTS.
As discussed in Note 8 to the Consolidated Financial Statements, we are
subject to a variety of claims and lawsuits. Adverse outcomes in some or all of
the pending cases may result in significant monetary damages or injunctive
relief against us. We are also subject to a variety of other claims and suits
that arise from time to time in the ordinary course of our business. While
management currently believes that resolving all of these matters, individually
or in the aggregate, will not have a material adverse impact on our financial
position or results of operations, the litigation and other claims noted above
are subject to inherent uncertainties and management's view of these matters may
change in the future. There exists the possibility of a material adverse impact
on our financial position and the results of operations for the period in which
the effect of an unfavorable final outcome becomes probable and reasonably
estimable.
-16-
IF WE BREACH ANY OF THE MATERIAL FINANCIAL COVENANTS UNDER OUR VARIOUS
INDEBTEDNESS, OR IF AN EVENT OF DEFAULT IS DECLARED WITH RESPECT TO ANY SUCH
INDEBTEDNESS, OUR DEBT SERVICE OBLIGATIONS COULD BE ACCELERATED.
If we breach any of the material financial covenants under our various
indebtedness, such as the Convertible Debentures, or if an event of default is
declared with respect to any such indebtedness, our substantial debt service
obligations could be accelerated. In the event of any such simultaneous
acceleration, we would not be able to repay all of the indebtedness.
EMPLOYEES
As of December 31, 2004, we had 362 employees, including 308 operating
personnel and 54 corporate, administrative and management personnel. These
employees are not unionized or employed pursuant to any collective bargaining
agreement or any similar agreement. We believe our relations with our employees
are generally good.
EXECUTIVE OFFICERS AND KEY MANAGERS OF THE REGISTRANT
The name, age and offices held by each of the executive officers and key
managers as of March 28, 2005 are as follows:
NAME AGE POSITION
- ---------------- --- --------------------------------------------------------
James C. Eckert 55 President and Chief Executive Officer
G. Darcy Klug 53 Executive Vice President
Rene VandenBrand 47 Vice President - Aviation Services
Shawn Rice 43 Vice President - Quality Health Safety and Environmental
JAMES C. ECKERT was appointed our President and Chief Executive Officer in
March 2001. He served as Vice-President for Business Development of Veritas DGC
Land Inc. from 1998 to 2000. Prior to 1998, Mr. Eckert supervised the highland
and transition seismic acquisitions of Veritas DGC Land Inc. Prior to 1992, he
served as President of GFS Company, a company that he co-founded in 1985, until
its acquisition in 1992 by Digicon, Inc., a predecessor by merger to Veritas,
Inc. Mr. Eckert graduated from University of Southern Mississippi in 1971.
G. DARCY KLUG was promoted to the position of Executive Vice President in
March 2004. He joined us as our Chief Financial Officer in May 2001, after being
involved in private investments since 1987. Between 1983 and 1987, Mr. Klug held
various positions with a private oil and gas fabrication company, including the
position of Chief Operating Officer and Chief Financial Officer. Prior to 1983,
he held various financial positions with Galveston-Houston Company, a
manufacturer of oil and gas equipment listed for trading on the New York Stock
Exchange. Between 1973 and 1979, he was a member of the audit staff of Coopers &
Lybrand (now PricewaterhouseCoopers).
RENE VANDENBRAND joined the Company as its Vice President - Aviation Services
in August 2004. In this capacity, Mr. VandenBrand is responsible for the overall
business and administrative functions of the Company's aviation operations.
Since 1995, Mr. VandenBrand held various management positions with Veritas DGC
Inc., including Vice President of Business Development and Senior Vice President
Finance & Business Development of Land Acquisitions. Prior to joining Veritas,
Mr. VandenBrand was a partner with Coopers & Lybrand (now
PricewaterhouseCoopers) in Calgary, Alberta. He holds an undergraduate degree in
Business
-17-
Administration from Wilfrid Laurier University and a Master of Business
Administration from the University of Calgary. He holds certifications as a
Chartered Accountant, a Chartered Financial Analyst and a Chartered Business
Valuator.
SHAWN RICE joined OMNI as its Vice President - QHSE (Quality, Health, Safety
and Environment) in 2004, after more than twenty years of international and
domestic management experience with WesternGeco, a joint venture of Schlumberger
and Baker Hughes. Since December 2000, Mr. Rice held the position of Vice
President, QHSE for WesternGeco's worldwide operations. In this capacity he
developed and managed all aspects of WesternGeco's QHSE structure, systems and
programs for more than 16,000 employees. Prior to December 2000, Mr. Rice held
various management positions with Western Geophysical, including Business
Services Manager responsible for Human Resources, QHSE and training for more
than 8,000 employees. He holds an engineering degree from Colorado School of
Mines.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal and other proceedings that are incidental to
the conduct of our business. We believe that none of these proceedings, if
adversely determined, would have a material effect on our financial condition,
results of operations or cash flows. In addition, we are subject to the
proceedings discussed below.
On February 13, 2004, we commenced litigation against Steven Stull, a former
director, Advantage Capital Partners ("ACP") and their respective insurers in
the Civil District Court for the Parish of Orleans in the State of Louisiana.
The suit requests the court to determine our right under the Company's Articles
of Incorporation, as amended, to redeem the Series A Convertible 8% Preferred
Stock ("Series A Preferred") rather than to convert the shares into common
stock. Furthermore, to the extent the court determines we did not have a right
to redeem, rather than convert, the Series A Preferred, the suit requests the
court to determine that the Unanimous Consent of the Board of Directors entered
into on November 7, 2000 which, among other things, reduced the conversion price
of the Series A Preferred from $2.50 to $0.75 (pre-split) per share, is null and
void and without effect because it was accomplished by the defendants in
violation of fiduciary duties and/or public policy and Louisiana law. We are
seeking a declaration that we have the right to redeem, rather than convert the
Series A Preferred. Alternatively, we seek (a) a declaration that the Unanimous
Consent entered into on November 7, 2000 is null and void and without effect; or
(b) damages back against Mr. Stull and the Advantage Capital Partners as a
complete set-off to any additional dollars owed by us to ACP as a result of the
November 7, 2000 actions.
On March 26, 2004, ACP and its affiliates filed a lawsuit in the United
States District Court, Eastern District of Louisiana against us and certain of
our executive officers. ACP and its affiliates are alleging that (i) we and the
executive officers misrepresented material facts and failed to disclose material
facts related to the intention to redeem the Series A Preferred and our Series B
Convertible 8% Preferred Stock (the "Series B Preferred"), and (ii) the officers
of the Company breached their fiduciary duties. They are claiming damages of
approximately $30 million. We have agreed to indemnify our executive officers in
this matter. Our costs and legal expenses related to this lawsuit are not
currently determinable. This lawsuit presents risks inherent in litigation
including continuing expenses, risks of loss, additional claims, and attorney
fee liability. We believe that the claims or litigation arising therefore will
have no material impact on us or our business and all disputes surrounding
securities matters will likely be covered by our insurance. However, if this
lawsuit is decided against us, and if it exceeds our insurance coverage, it
could aversely affect our financial condition, results of operations and cash
flows.
On January 25, 2005, we filed suit in United States District Court, Western
District of Louisiana (the "16(b) litigation") against the holders of our 6.5%
Subordinated Convertible Debentures and other third parties (collectively, the
"Debenture Holders"). The suit alleges violations by the Debenture Holders
pursuant to Section 16(b) of the Securities Exchange Act of 1934. We believe the
Debenture Holders acted together for the purpose of illegally acquiring,
holding, voting or disposing our equity securities during relevant time periods
and have exerted an adverse group influence on OMNI and our equity securities.
The suit seeks the disgorgement of profits realized by the Debenture Holders
from their purchases and sales of our common stock.
On February 25, 2005, one of the Debenture Holders, Portside Growth and
Opportunity Fund ("Portside"), notified us of certain alleged events of default
under the 6.5% Subordinated Convertible Debentures issued to Portside (the
"Portside Debentures"). As a result of these alleged events of default, Portside
demanded that we redeem all of the Portside Debentures held by it, in the
aggregate principal amount of $2,765,625, on March 2, 2005. As of April 15,
2005, we have not redeemed any of the Portside Debentures. Portside also
notified us of its intention to commence a civil action against us to obtain a
judgment with respect to all amounts owed to it under the Portside Debentures.
Portside's acceleration of the maturity of the Debentures and its potential
commencement and prosecution of a civil action against us to obtain a judgment
with respect to all amounts owed to it under the Debentures are subject to the
terms of certain Subordination and Intercreditor Agreements (the "Subordination
Agreements") between the Debenture Holders and Webster Business Credit
Corporation (the "Agent"). Pursuant to the Subordination Agreements, Portside is
not authorized to receive payments in respect to the Debentures as a result of
the acceleration of the maturity of the debentures or enforce any such judgment
without the prior written consent of Agent, except upon the earliest to occur
of, among other things, (i) acceleration of the senior debt, (ii) commencement
of enforcement of any rights and remedies under the senior debt documents or
applicable law with respect to the senior debt or the senior debt documents,
(iii) the institution of any Proceeding (as defined in the Subordination
Agreements), or (iv) the passage of 180 days from the date on which Agent
received written notice of the default from Portside.
-18-
To our knowledge, the threatened civil action has not commenced. Should
Portside, in fact, commence the threatened civil action, we intend to vigorously
defend the litigation and pursue all available remedies including those
available pursuant to the aforementioned 16(b) litigation filed against the
Debenture Holders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our special meeting of stockholders was held at our principal executive
offices at 4500 NE Evangeline Thruway, Carencro, Louisiana on Tuesday, November
30, 2004. As disclosed in our proxy statement filed with the Securities and
Exchange Commission ("SEC"), the following was the item submitted for
consideration and the corresponding outcome of the stockholder vote:
The increase in the number of shares issuable under the Amended and
Restated OMNI Energy Services Corp. Stock Incentive Plan was approved by a
total of 3,105,356 (50.6%) of the total votes cast of 5,945,370, including
135,235 abstentions. There were 5,814,653 broker non-votes.
No other business was submitted before the meeting.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock is listed for quotation on the Nasdaq National Market under
the symbol "OMNI." At March 28, 2005, we had approximately 5,500 stockholders of
record of Common Stock. The following table sets forth the range of high and low
sales prices of our Common Stock as reported by the Nasdaq National Market for
the periods indicated.
HIGH LOW
------- -------
2004
First quarter.... $ 9.00 $ 4.76
Second quarter... $ 7.80 $ 4.22
Third quarter.... $ 5.35 $ 2.95
Fourth quarter... $ 4.94 $ 1.65
2003
First quarter.... $ 1.14 $ 0.75
Second quarter... $ 1.98 $ 0.81
Third quarter.... $ 2.80 $ 1.49
Fourth quarter... $ 7.48 $ 2.19
We have never paid cash dividends on our Common Stock. We intend to retain
future earnings, if any, to meet our working capital requirements and to finance
the future operations of our business. Therefore, we do not plan to declare or
pay cash dividends to holders of our Common Stock in the foreseeable future. In
addition, certain of our credit arrangements contain provisions that limit our
ability to pay cash dividends on our Common Stock.
-19-
ISSUER PURCHASES OF EQUITY SECURITIES
TOTAL NUMBER OF MAXIMUM NUMBER OF
SHARES PURCHASED SHARES THAT MAY
TOTAL NUMBER OF AS PART OF PUBLICLY YET BE PURCHASED
SHARES PRICE PAID ANNOUNCED PLANS UNDER THE PLANS OR
PERIOD PURCHASED PER SHARE OR PROGRAMS (1) PROGRAMS
- ------------------------------ --------------- ---------- ------------------- ------------------
10/01/04 - 10/31/04
Series A Preferred......... -- -- -- --
Series B Preferred......... -- -- -- 29
11/01/04 - 11/30/04
Series A Preferred......... -- -- -- --
Series B Preferred......... -- -- -- --
12/01/04 - 12/31/04
Series A Preferred......... -- -- -- --
Series B Preferred......... -- -- -- --
TOTAL
Series A Preferred......... -- -- -- --
Series B Preferred......... -- -- -- 29
(1) Our Board of Directors approved the repurchase of up to 7,500 shares of
Series A Preferred and up to 4,600 shares of Series B Preferred having a
value of up to $12.1 million, plus accrued dividends in the aggregate,
pursuant to the terms and conditions of the preferred stock (see Note 9).
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about our Common Stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2004:
(C)
NUMBER OF
SECURITIES
(A) REMAINING
NUMBER OF AVAILABLE FOR
SECURITIES TO BE FUTURE ISSUANCE
ISSUED UPON THE (B) UNDER EQUITY
EXERCISE OF WEIGHTED AVERAGE COMPENSATION
OUTSTANDING EXERCISE PRICE OF PLANS (EXCLUDING (D)
OPTIONS, OUTSTANDING SECURITIES TOTAL OF SECURITIES
WARRANTS AND OPTIONS, WARRANTS REFLECTED IN REFLECTED IN
PLAN CATEGORY RIGHTS AND RIGHTS COLUMNS (A) & (B) COLUMNS (A) & (C)
- ---------------------------------------- ---------------- ----------------- ----------------- -------------------
Equity Compensation Plans Approved by
Stockholders.......................... 1,415,181 $ 2.65 1,084,819 2,500,000
Equity Compensation Plans Not Approved
by Stockholders....................... 69,578 $ 2.33 30,422 100,000
--------- --------- ---------
Total................................ 1,484,759 $ 2.63 1,115,241 2,600,000
========= ========= =========
PLAN NOT APPROVED BY STOCKHOLDERS
In January 1999, we approved the Amended OMNI Energy Services Corp. 1999
Stock Option Plan (the "Option Plan") to provide for the grant of options to
purchase shares of our Common Stock to non-officer employees of our company and
our subsidiaries in lieu of year-end cash bonuses. The Option Plan is intended
to increase stockholder value and advance our interests by providing an
incentive to employees and by increasing employee awareness of us in the
marketplace. Under the Option Plan, we may grant options to any of our employees
with the exception of our officers. The options become exercisable immediately
with respect to one-half of the shares, and the remaining one-half shall be
exercisable one year following the date of the grant. The exercise price of any
stock option granted may not be less than the fair market value of the Common
Stock on the effective date of the grant. A total of 100,000 shares of Common
Stock are authorized, of which 30,422 remain available for issuance at December
31, 2004.
-20-
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data as of and for the five years ended December 31,
2004 are derived from our audited consolidated financial statements. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere in
this Annual Report. The per share data gives retroactive effect to the one for
three reverse stock split effective July 3, 2002.
The financial statements for the years ended December 31, 2000 and through
2001 were audited by Arthur Andersen LLP ("Andersen"), who has ceased
operations.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2000 2001 2002 2003 2004
---------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Operating revenue....................................................... $ 16,563 $ 23,686 $ 27,685 $ 35,823 $ 51,634
Operating expenses
Direct costs......................................................... 16,586 17,696 18,558 24,352 35,870
Depreciation and amortization........................................ 4,042 3,366 3,684 3,879 5,350
General and administrative expense................................... 5,583 2,957 3,571 4,251 10,410
--------- -------- -------- -------- --------
Total operating expenses.......................................... 26,211 24,019 25,813 32,482 51,630
Asset impairment and other charges...................................... 11,284 632 -- -- 4,174
--------- -------- -------- -------- --------
Operating income (loss)................................................. (20,932) (965) 1,872 3,341 (4,170)
Interest expense........................................................ 3,012 1,300 1,179 1,397 5,177
Loss on debenture conversion inducement and debt extinguishment......... -- -- -- -- 1,008
Other expense (income), net............................................. 1,846 (7,929) (115) (114) 814
--------- -------- -------- --------- --------
Income (loss) before income taxes....................................... (25,790) 5,664 808 2,058 (11,169)
Income tax benefit...................................................... -- -- 400 1,600 --
--------- -------- -------- -------- --------
Income (loss) before minority interest.................................. (25,790) 5,664 1,208 3,658 (11,169)
Minority interest and income (loss) of Subsidiaries..................... (17) -- -- -- --
--------- -------- -------- -------- --------
Net income (loss) from continuing operations............................ (25,773) 5,664 1,208 3,658 (11,169)
Loss from discontinued operations....................................... -- -- -- (175) (3,086)
--------- -------- -------- -------- --------
Net income.............................................................. (25,773) 5,664 1,208 3,483 (14,255)
Accretion of preferred stock and preferred stock dividends.............. -- (726) (484) (484) (490)
--------- -------- -------- -------- --------
Net earnings (loss) applicable to common and common equivalent shares... $ (25,773) $ 4,938 $ 724 $ 2,999 $(14,745)
========= ======== ======== ======== ========
Basic Income (loss) per common share:
Income from continuing operations................................... $ (4.43) $ 0.55 $ 0.08 $ 0.36 $ (1.07)
Loss from discontinued operations................................... -- -- -- (0.02) (0.28)
--------- -------- -------- -------- --------
Net Income applicable to common and common equivalent shares........ $ (4.43) $ 0.55 $ 0.08 $ 0.34 $ (1.35)
========= ======== ======== ======== ========
Diluted Income (loss) per common share:
Income from continuing operations................................... $ (4.43) $ 0.50 $ 0.08 $ 0.33 $ (1.07)
Loss from discontinued operations................................... -- -- -- (0.02) (0.28)
--------- -------- -------- -------- --------
Net Income applicable to common and common equivalent shares........ $ (4.43) $ 0.50 $ 0.08 $ 0.31 $ (1.35)
========= ======== ======== ======== ========
Number of Weighted Average Shares:
Basic............................................................... 5,819 9,015 8,739 8,772 10,884
Diluted............................................................. 5,819 9,844 8,745 11,362 10,884
DECEMBER 31,
---------------------------------------------------
2000 2001 2002 2003 2004
------- ------- ------- ------- -------
BALANCE SHEET DATA:
Total assets............................ $34,624 $38,448 $41,325 $50,289 $65,913
Long-term debt, less current maturities. 8,500 9,289 8,340 9,624 12,852
Preferred Stock......................... 7,500 11,616 12,100 12,100 29
Total Equity............................ 8,018 18,560 19,781 24,386 4,864
-21-
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2000 2001 2002 2003 2004
--------- --------- --------- --------- ---------
STATEMENT OF CASH FLOW DATA:
Net cash provided by (used in) operating activities..... $ (5615) $ 6,355 $ 5,015 $ 5,664 $ 8,121
Net cash provided by (used in) investing activities..... 942 (155) (1,901) (4,158) (13,037)
Net cash provided by (used in) financing activities..... 4,890 (5,284) (3,643) (1,638) 7,568
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which reflect management's best judgment based on factors currently
known. Actual results could differ materially from those anticipated in these
"forward looking statements" as a result of a number of factors, including but
not limited to those discussed under the headings "Cautionary Statements," "Risk
Factors," and "Forward Looking Statements" provided by us pursuant to the safe
harbor established by the federal securities laws should be evaluated in the
context of these factors.
This discussion and analysis should be read in conjunction with our
consolidated financial statements and accompanying notes contained herein.
RECENT DEVELOPMENTS
On January 25, 2005, we filed suit in United States District Court, Western
District of Louisiana (the "16(b) litigation") against the holders of our 6.5%
Subordinated Convertible Debentures and other third parties (collectively, the
"Debenture Holders"). The suit alleges violations by the Debenture Holders
pursuant to Section 16(b) of the Securities Exchange Act of 1934. We believe the
Debenture Holders acted together for the purpose of illegally acquiring,
holding, voting or disposing our equity securities during relevant time periods
and have exerted an adverse group influence on OMNI and our equity securities.
The suit seeks the disgorgement of profits realized by the Debenture Holders
from their purchases and sales of our common stock.
On February 25, 2005, one of the Debenture Holders, Portside Growth and
Opportunity Fund ("Portside") notified us of certain alleged events of default
under the 6.5% Subordinated Convertible Debentures issued to Portside (the
"Portside Debentures"). As a result of these alleged events of default, Portside
demanded that we redeem all of the Portside Debentures held by it, in the
aggregate principal amount of $2,765,625, on March 2, 2005. As of April 15,
2005, we have not redeemed any of the Portside Debentures. Portside also
notified us of its intention to commence a civil action against us to obtain a
judgment with respect to all amounts owed to it under the Portside Debentures.
Portside's acceleration of the maturity of the Debentures and its potential
commencement and prosecution of a civil action against us to obtain a judgment
with respect to all amounts owed to it under the Debentures are subject to the
terms of certain Subordination and Intercreditor Agreements (the "Subordination
Agreements") between the Debenture Holders and Webster Business Credit
Corporation (the "Agent"). Pursuant to the Subordination Agreements, Portside is
not authorized to receive payments in respect to the Debentures as a result of
the acceleration of the maturity of the debentures or enforce any such judgment
without the prior written consent of Agent, except upon the earliest to occur
of, among other things, (i) acceleration of the senior debt, (ii) commencement
of enforcement of any rights and remedies under the senior debt documents or
applicable law with respect to the senior debt or the senior debt documents,
(iii) the institution of any Proceeding (as defined in the Subordination
Agreements), or (iv) the passage of 180 days from the date on which Agent
received written notice of the default from Portside.
To our knowledge, the threatened civil action has not commenced. Should
Portside, in fact, commence the threatened civil action, we intend to vigorously
defend the litigation and pursue all available remedies including those
available pursuant to the aforementioned 16(b) litigation filed against the
Debenture Holders.
RESTATEMENT OF FINANCIAL STATEMENTS
Due to the lock-box arrangement and the subjective acceleration clause of the
Line agreement, the balance sheet as of December 31, 2003 has been restated to
classify the Line of credit as required by EITF 95-22, "Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit Agreements that
include both a Subjective Acceleration Clause and a Lock-Box Arrangement."
Accordingly, the previously filed Form 10-K/A, for the year ended December 31,
2003 should not be relied upon.
Furthermore, we have restated our previously issued unaudited financial
statements for the two interim periods ended June 30, 2004 and September 30,
2004 to correct an error that arose as a result of the incorrect calculation of
the valuation of certain warrants and the beneficial conversion features
originally recorded on certain convertible debentures entered into during April
2004. This error resulted in an understatement in the amount recorded as
convertible debentures, net of discounts and an overstatement in the amount
recorded as additional paid in capital of $1.4 million. Furthermore, the amount
of these debt discounts, the beneficial conversion features and loss on
extinguishments of debt charged to expense were overstated. In addition, we have
restated our previously issued unaudited financial statements for the first two
interim periods of 2004 to correctly classify our Line of Credit as a long-term
liability.
All applicable amounts relating to these restatements have been reflected in
the consolidated financial statements and disclosed in Note 14 to the
consolidated financials statements in this Form 10-K.
Due to restatements of the consolidated financial statements previously filed
with the Forms 10-Q for the quarterly periods ended March 31, 2004, June 30,
2004, and September 30, 2004 such financial statements contained in these Form
10-Q should no longer be relied upon.
GENERAL
DEMAND FOR OUR SERVICES. We receive our revenues from customers in the energy
industry. Demand for our services is principally impacted by conditions
affecting geophysical companies engaged in the acquisition of 3-D seismic data
and oil and gas companies operating primarily in the shallow waters of the Gulf
of Mexico. The level of activity for our services is primarily influenced by the
level of capital expenditures by oil and gas companies.
A number of factors affect the decision of oil and gas companies to pursue
the acquisition of seismic data and the exploration for oil and gas, 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
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consents from landowners to conduct seismic activity; (v) local and
international political and economic conditions; (vi) governmental regulations;
and (vii) the availability and cost of capital. The ability to finance the
acquisition of seismic data in the absence of oil and gas companies' interest in
obtaining the information is also a factor, as some geophysical companies will
acquire seismic data on a speculative basis.
During 1999, with the reduction in the price of oil and gas, we began to
experience a decrease in demand for our services which continued through 2000
but, in 2001, the oil and gas industry experienced a rebound and has remained
strong since then. Increased capital expenditure budgets by oil and gas
companies generally result in increased demand for our services. For the years
ended December 31, 2002, 2003 and 2004, our operating revenues were $27.7
million, $35.8 million, and $51.6 million, respectively.