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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-14003
OMEGA PROTEIN CORPORATION
(Exact name of Registrant as specified in its charter)
STATE OF NEVADA 76-0562134
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 623-0060
_________________
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 Y N .
--- ___
Number of shares outstanding of the Registrant's Common Stock, par value
$0.01 per share, on May 10, 1999: 23,898,699
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OMEGA PROTEIN CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet as of March 31, 2000
and December 31, 1999.............................................. 3
Unaudited Condensed Consolidated Statement of Operations for the
three months ended March 31, 2000 and 1999......................... 4
Unaudited Condensed Consolidated Statement of Cash Flows for the
three months ended March 31, 2000 and 1999.......................... 5
Notes to Unaudited Condensed Consolidated Financial Statements........ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION................................................ 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................... 20
ITEM 2. CHANGES IN SECURITIES................................................. 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............ 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 20
ITEM 5. OTHER INFORMATION..................................................... 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................... 20
SIGNATURES..................................................................... 21
EXHIBIT INDEX.................................................................. 22
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
March 31, December 31,
2000 1999
--------- ------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 18,987 $ 15,673
Receivables, net 13,586 15,991
Inventories 40,081 46,112
Prepaid expenses and other current assets 584 897
-------- --------
Total current assets 73,238 78,673
-------- --------
Other assets 7,239 7,107
-------- --------
Property and equipment, net 92,227 90,368
-------- --------
Total assets $172,704 $176,148
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,168 $ 1,146
Accounts payable 1,945 2,200
Accrued liabilities 10,072 11,603
-------- --------
Total current liabilities 13,185 14,949
-------- --------
Long-term debt 15,753 16,069
-------- --------
Deferred income taxes 120 583
-------- --------
Other liabilities 375 375
-------- --------
Total liabilities 29,433 31,976
-------- --------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $0.01 par value: authorized
10,000,000 shares: none issued - -
Common stock, $0.01 par value; authorized
80,000,000 shares:
24,302,126 shares and 24,302,126 shares issued
and outstanding, respectively 243 243
Capital in excess of par value 111,835 111,835
Reinvested earnings, from October 1, 1990 33,228 34,129
Common stock in treasury, at cost - 413,100 shares (2,035) (2,035)
-------- --------
Total stockholders' equity 143,271 144,172
-------- --------
Total liabilities and stockholders'
equity $172,704 $176,148
======== ========
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
3
OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
March 31,
---------------------
2000 1999
-------- -------
(in thousands, except
per share amounts)
Revenues $19,387 $22,155
Cost of sales 18,297 15,486
------- -------
Gross profit 1,090 6,669
Selling, general, and administrative expense 2,372 2,188
------- -------
Operating income (loss) (1,282) 4,481
Interest income (expense), net (33) 385
Other income (expense), net (92) (88)
------- -------
Income (loss) before income taxes (1,407) 4,778
Provision (benefit) for income taxes (506) 1,718
------- -------
Net income (loss) $ (901) $ 3,060
======= =======
Earnings (loss) per share (basic) and (diluted) $ (0.04) $ 0.13
======= =======
Average common shares outstanding 23,889 24,211
======= =======
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
4
OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31,
------------------------------------------
2000 1999
--------------- -----------
(in thousands)
Cash flows provided by operating activities:
Net income(loss) $ (901) $ 3,060
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Loss on disposal of assets, net 94 -
Depreciation and amortization 2,454 2,219
Deferred income taxes (463)
Changes in assets and liabilities:
Receivables 2,405 1,365
Inventories 6,031 1,217
Accounts payable and accrued liabilities (1,786) (403)
Amounts due to parent - (55)
Other, net (98) 485
------- -------
Total adjustments 8,637 4,828
------- -------
Net cash provided by operating activities 7,736 7,888
------- -------
Cash flows (used in) investing activities:
Capital expenditures (4,128) (5,519)
------- -------
Net cash (used in) investing activities (4,128) (5,519)
------- -------
Cash flows (used in) financing activities:
Principal payments of short and long-term debt obligations (294) (305)
Purchase of Treasury Stock - (1,492)
------- -------
Net cash (used in) financing activities (294) (1,797)
------- -------
Net increase in cash and cash equivalents 3,314 572
Cash and cash equivalents at beginning of year 15,673 44,828
------- -------
Cash and cash equivalents at end of period $18,987 $45,400
======= =======
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
5
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF OPERATIONS AND BASIS OF PRESENTATION
Business Description
Omega Protein Corporation ("Omega" or the "Company"), produces and markets
a variety of products produced from menhaden (a fish found in commercial
quantities), including regular grade and value added specialty fish meals, crude
and refined fish oils and fish solubles. The Company's fish meal products are
used as nutritional feed additives by animal feed manufacturers and by
commercial livestock producers. The Company's crude fish oil is sold to food
producers in Europe, and its refined fish oil products are used in aquaculture
feeds and certain industrial applications. Fish solubles are sold as protein
additives for animal feed and as organic fertilizers.
On January 26, 1998, Marine Genetics Corporation ("Marine Genetics")
merged into Omega, a Nevada corporation, wholly-owned by Zapata Corporation
("Zapata"), with Omega being the surviving entity. Because Omega and Marine
Genetics were both wholly-owned by Zapata Corporation(6 "Zapata"), the merger
was a common control merger accounted for at historical cost in a manner similar
to that in a pooling of interests accounting. In connection with the merger, all
of Marine Genetics outstanding common stock was converted into Omega Common
Stock at the rate of one share for 19,676 shares of newly issued Omega Common
Stock and Omega's pre-merger outstanding common stock was canceled and treated
as treasury stock.
On April 8, 1998, the Company completed an initial public offering
of 8,500,000 of its common stock at a price to the public of $16.00 per share.
On May 7, 1998, the Underwriters exercised their option to acquire 1,275,000
additional shares at the same price. Of the 9,775,000 total shares sold in the
offering, the Company issued and sold 4,600,000 shares, and Zapata sold
5,175,000 shares. Immediately following the offering Zapata owned approximately
59.7% of the shares of the Company's outstanding common stock.
Change in Fiscal Year
On December 1, 1998 the Company's Board of Directors approved a change in
the Company's fiscal year end from September 30 to December 31, effective
beginning January 1, 1999.
Consolidation
The consolidated financial statements include the accounts of Omega and its
wholly and majority owned subsidiaries. Investments in affiliated companies and
joint ventures representing a 20% to 50% voting interest are accounted for using
the equity method. All significant intercompany accounts and transactions have
been eliminated in consolidation.
6
The unaudited condensed consolidated financial statements included
herein have been prepared by Omega, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial statements
reflect all adjustments that are, in the opinion of management, necessary to
fairly present such information. All such adjustments are of a normal recurring
nature. Although Omega believes that the disclosures are adequate to make the
information presented not misleading, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These unaudited condensed consolidated
financial statements should be read in conjunction with the financial statements
and the notes thereto included in Omega's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, filed with the Securities and Exchange
Commission on March 9, 2000. The results of operations for the fiscal quarter
ended March 31, 2000 are not necessarily indicative of the results to be
expected for any subsequent quarter or the twelve months ending December 31,
2000.
Revenue Recognition
The Company recognizes revenue for the sale of its products when title to
its products is transferred to the customer.
Inventories
The Company's fishing season runs from mid-April to the end of
October in the Gulf of Mexico and from the beginning of May to the end of
December in the Atlantic. Government regulations preclude the Company from
fishing during the off-seasons. During the off-seasons, the Company incurs costs
(i.e., plant and vessel-related labor, utilities, rent and depreciation) that
are directly related to the Company's infrastructure that will be used in the
upcoming fishing season. Costs that are incurred subsequent to a fish catch are
deferred until the next season and are included with inventory. Fishing product
inventories and materials, parts and supplies are stated at the lower of cost
(average cost) or market.
The Company's inventory cost system considers all costs, both variable and
fixed, associated with an annual fish catch and its processing. The Company's
costing system allocates cost to inventory quantities on a per unit basis as
calculated by a formula that considers total estimated inventoriable costs for a
fishing season (including off-season costs) to total estimated fish catch and
the relative fair market value of the individual products produced. The Company
adjusts the cost of sales, off-season costs and inventory balances at the end of
each quarter based on revised estimates of total inventoriable costs and fish
catch.
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which was issued in March 1995. SFAS No. 121 requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the book value of the asset may not be recoverable. The Company evaluates
at each balance sheet date whether events and
7
circumstances have occurred that indicate possible operational impairment. In
accordance with SFAS No. 121, the Company uses an estimate of the future
undiscounted net cash flows of the related asset or asset grouping over the
remaining life in measuring whether its operating assets are recoverable. During
Fiscal 1999, the Company wrote down approximately $2.3 million of impaired long-
lived assets. The $2.3 million impairment of certain of the Company's Morgan
City in-line processing equipment was recorded to reduce the value of the assets
to their estimated salvage value. The Company has temporarily closed the in-line
processing facilities at the plant and management has concluded that the
affected damaged equipment will not be repaired but instead will be permanently
removed from service.
Income Taxes
The Company utilizes the liability method to account for income taxes. This
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of existing temporary differences between the
financial reporting and tax reporting basis of assets and liabilities, and
operating loss and tax credit carryforwards for tax purposes.
Property, Equipment and Depreciation
Property and equipment are initially recorded at cost except as adjusted by
the quasi-reorganization as of October 1, 1990. Because of the quasi-
reorganization, the carrying value of the assets was reduced to estimated fair
value.
Depreciation of property and equipment is computed by the straight-line
method at rates expected to amortize the cost of property and equipment, net of
salvage value, over their estimated useful lives. Estimated useful lives of
assets acquired new, determined as of the date of acquisition are as follows:
Useful Lives
(years)
-------------
Fishing vessels and fish processing plants 15-20
Furniture and fixtures 3-10
Replacements and major improvements are capitalized; maintenance and
repairs are charged to expense as incurred. Upon sale or retirement, the costs
and related accumulated depreciation are eliminated from the accounts. Any
resulting gains or losses are included in the statement of operations. The
Company periodically evaluates its long-lived assets for impairment if events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and trade accounts receivable. The
Company's customer base generally remains consistent from year to year. The
Company performs ongoing credit evaluations of its customers and generally does
not require material collateral. The Company
8
maintains reserves for potential credit losses and such losses have historically
been within management's expectations.
At March 31, 2000 and December 31, 1999, the Company had cash deposits
concentrated primarily in two major banks. In addition, the Company had
Certificates of Deposit and commercial quality grade A2P2 rated or better
securities paper with companies and financial institutions. As a result of the
foregoing, the Company believes that credit risk in such investments is minimal.
Earnings Per Share
Basic earnings per share were computed by dividing income by the weighted
average number of common shares outstanding. Diluted earnings per share were
computed by dividing income by the sum of the weighted average number of common
shares outstanding and the effect of any dilutive stock options.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which, as amended, is effective
for fiscal years beginning after June 15, 2000. SFAS 133 establishes standards
requiring all derivatives to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. The Company
will adopt the provisions of the statement in Fiscal 2001. The Company
anticipates that implementing the provisions of SFAS 133 will not have a
significant impact on the Company's existing operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Quasi-Reorganization
In connection with the comprehensive restructuring accomplished in 1991,
the Company, in conjunction with Zapata, implemented, for accounting purposes, a
"quasi-reorganization," an elective accounting procedure that permits a company
that has emerged from previous financial difficulty to restate its accounts and
establish a fresh start in an accounting sense. After implementation of the
accounting quasi-reorganization, the Company's assets and liabilities were
revalued and its deficit in reinvested earnings was charged to capital in excess
of par value. The Company effected the accounting quasi-reorganization as of
October 1, 1990.
9
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable as of March 31, 2000 and December 31, 1999 are
summarized as follows:
March December
2000 1999
------- --------
(in thousands)
Trade $ 7,130 $ 8,717
Insurance 1,703 1,354
Employee 133 60
Income tax 4,176 5,300
Other 639 748
------- -------
Total accounts receivable 13,781 16,179
Less allowance for doubtful accounts (195) (188)
------- -------
Receivables, net $13,586 $15,991
======= =======
NOTE 3. INVENTORY
Inventory as of March 31, 2000 and December 31, 1999 is summarized as
follows:
March December
2000 1999
------- --------
(in thousands)
Fish meal $11,963 $24,195
Fish oil 3,678 8,445
Fish solubles 917 1,538
Off-season cost 18,685 7,282
Materials & supplies 4,857 4,633
Other 83 121
Less oil inventory reserve (102) (102)
------- -------
Total inventory $40,081 $46,112
======= =======
Note 4. Other Assets
Other assets as of March 31, 2000 and December 31, 1999 are summarized as
follows:
March December
2000 19997
------- --------
(in thousands)
Fishing nets $ 1,411 $ 1,258
Prepaid pension cost 3,249 3,190
Insurance receivable 1,797 1,830
Title XI loan origination fee 312 339
Note receivable - 35
Deposits 131 116
Investments in unconsolidated affiliates 58 58
Miscellaneous 281 281
------- -------
Total other assets $ 7,239 $ 7,107
======= =======
Amortization expense for fishing nets amounted to $241,000 and $200,000 for
the quarters ended March 31, 2000 and 1999, respectively.
10
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2000 and December 31, 1999 are
summarized as follows:
March December
2000 1999
------- --------
(in thousands)
Land $ 5,390 $ 5,390
Plant assets 67,433 64,498
Fishing vessels 68,402 66,859
Furniture and fixtures 1,730 1,730
Other 4,128 4,572
-------- --------
Total property and equipment 147,083 143,049
Less accumulated depreciation and impairment (54,856) (52,681)
-------- --------
Property and equipment, net $ 92,227 $ 90,368
======== ========
Depreciation expense for the quarters ended March 31, 2000 and 1999 was
$2.2 million and $2.0 million, respectively.
NOTE 6. NOTES PAYABLE AND LONG-TERM DEBT
At March 31, 2000 and December 31, 1999, the Company's long-term debt
consisted of the following:
March December
2000 1999
--------- --------
U.S. government guaranteed obligations (Title XI
loan) collateralized by a first lien on certain
vessels and certain plant assets:
Amounts due in installments through 2014,
interest from 6.63% to 8.25% $15,349 $15,564
Amounts due in installments through 2014,
interest at Eurodollar rates plus .45%;
6.64% and 5.96% at March 31, 2000 and
December 31, 1999, respectively 1,151 1,171
Other debt at 4% at March 31, 2000 and
December 31, 1999 421 480
------- -------
Total debt 16,921 17,215
Less current maturities (1,168) (1,146)
------- -------
Long-term debt $15,753 $16,069
======= =======
At March 31, 2000 and December 31, 1999, the estimated fair value of debt
obligations approximated book value.
On December 22, 1999 the Company closed on its Fiscal 1999 Title XI
application and received $5.6 million of Title XI borrowings for qualified Title
XI projects. Originally, the Company was authorized to receive up to $20.6
million in loans under the Title XI program, and has used the entire amount
authorized under such program. The Company's current Title XI borrowings are
secured by liens on 17 fishing vessels and mortgages on the Company's Reedville,
Virginia and Abbeville, Louisiana plants. At March 31, 2000 and December 31,
1999, the Company was in compliance with all restrictive covenants contained in
the Title XI borrowing agreements. To date the Company has used $20.6 million of
the authorized Title XI funds.
11
On August 11, 1998 the Company entered into a two year $20.0 million
revolving credit agreement with SunTrust Bank, South Florida, N.A. (the "Credit
Facility"). Borrowings under this facility may be used for working capital and
capital expenditures. Interest accrues on borrowings that will be outstanding
under the Credit Facility at the Company's election, either (i) the bank's prime
rate less 75 basis points, or (ii) LIBOR plus a margin based on the Company's
financial performance. The Credit Facility requires a per annum commitment fee
of one-eighth of a percent (0.125%) on the average daily unused portion of the
commitment of the lender. In addition, the payment of cash dividends is limited
by the terms of the Credit Facility which states that in any fiscal year of the
Credit Facility, the Company shall not pay or declare dividends in excess of
fifty percent (50%) of its consolidated net income. At March 31, 2000 and
December 31, 1999, the Company could not have declared and paid dividends within
the limitations of the Credit Facility. Under the most restrictive of these
covenants, the Company is required to maintain a current ratio of at least
1.25:1 and maintain a debt to equity ratio of not more than 2:1. Covenants also
limit capital expenditures and investments. The Credit Facility is
collateralized by all of the Company's trade receivables, inventory and specific
computer equipment. The Company and its subsidiaries are required to comply with
certain financial covenants, including maintenance of a minimum tangible net
worth, debt to tangible net worth ratio, funded debt to cash flow ratio and
fixed charges ratio, and certain other covenants. At March 31, 2000 and December
31, 1999, the Company was in compliance with all restrictive covenants. As of
March 31, 2000 and December 31, 1999, the Company had no borrowings outstanding
under the Credit Facility. The Credit Facility expires on July 2, 2000. The
Company is currently exploring renewing or replacing the Credit Facility upon
its expiration.
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities as of March 31, 2000 and December 31, 1999 are
summarized as follows:
March December
2000 1999
------- --------
(in thousands)
Salary and benefits $ 3,140 $ 3,625
Insurance 4,705 5,101
Taxes, other than income tax 298 8
Federal and state income taxes 249 271
Trade creditors 1,595 2,518
Other 85 80
------- -------
Total accrued liabilities $10,072 $11,603
======= =======
NOTE 8. CERTAIN TRANSACTIONS AND ARRANGEMENTS BETWEEN THE COMPANY AND ZAPATA
The Company provided to Zapata payroll and certain administrative services
billed at their approximate cost. During the three-month period ended March 31,
2000 there were no administrative services billed. During the three-month period
ended March 31, 1999 fees billed for these services totaled $58,666. The cost of
such services were based on the estimated percentage of time that employees
spent working on the other party's matters as a
12
percent of total time worked. The Company's management deemed this allocation
method to be reasonable.
Upon completion of the Company's initial public offering in April 1998, the
Company and Zapata entered into certain agreements that include the Separation,
Sublease, Registration Rights, Tax Indemnity and Administrative Services
Agreements. The Separation Agreement required the Company to repay $33.3 million
of indebtedness owed by the Company to Zapata contemporaneously with the
consummation of the Company's initial public offering and also prohibits Zapata
from competing with the Company for a period of five years. The Sublease
Agreement provides for the Company to lease its principal corporate offices in
Houston, Texas from Zapata and provides for the Company to utilize certain
shared office equipment for no additional charge. The Registration Rights
Agreement sets forth the rights and responsibilities of each party concerning
certain registration filings and provides for the sharing of fees and expenses
related to such filings. The Tax Indemnity Agreement requires the Company to be
responsible for federal, state and local income taxes from its operations and
the Administrative Services Agreement allows the Company to provide certain
administrative services to Zapata at the Company's estimated cost.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is defending various claims and litigation arising from its
operations. In the opinion of management, uninsured losses, if any, resulting
from these matters will not have a material adverse effect on the Company's
results of operations, cash flows or financial position.
Environmental Matters
The Company is subject to various possible claims and lawsuits
regarding environmental matters. Management believes that costs, if any, related
to these matters will not have a material adverse effect on the results of
operations, cash flows or financial position of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements in this Form 10-Q, future filings by the Company
with the Securities and Exchange Commission (the "Commission"), the Company's
press releases and oral statements by authorized officers of the Company are
intended to be subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation, the
risks set forth under the caption "Significant Factors that May Affect Forward
Looking Statements" appearing in Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Company believes that
forward-looking statements made by it are based on reasonable expectations.
However, no assurances can be given that actual results will not differ
materially from those contained in such forward-
13
looking statements. Forward-looking statements involve statements that are
predictive in nature, which depend upon or refer to future events or conditions,
which include the words "estimate," "project," "anticipate," "expect,"
"predict," and "believe" and similar expressions. The Company assumes no
obligation to update forward-looking statements.
General
As used herein, the term "Omega" or the "Company" refers to Omega Protein
Corporation and its consolidated subsidiaries, as applicable. All references
herein to a "fiscal" year mean the 12-month period ended December 31 of such
year. The Company's principal executive offices are located at 1717 St. James
Place, Suite 550, Houston, Texas 77056 (Telephone: (713) 623-0060).
Omega is the largest producer of protein-rich meal and oil derived from
marine sources. The Company's products are produced from menhaden (a fish found
in commercial quantities), including regular grade and value added specialty
fish meals, crude and refined fish oils and fish solubles. The Company's fish
meal products are used as nutritional feed additives by animal feed
manufacturers and by commercial livestock and poultry farmers. The Company's
crude fish oil is sold to food producers in Europe and its refined fish oil
products are used in aquaculture feeds and certain industrial applications. Fish
solubles are sold as protein additives for animal feed and as organic
fertilizers.
The fish catch is processed into regular grade fish meal, specialty fish
meals, fish oils and fish solubles at the Company's four processing plants
located in Virginia, Mississippi and Louisiana. The Company owns 66 fishing
vessels (53 of which were directly involved in the harvesting operations during
Fiscal 1999) and owns 33 and leases 11 aircraft (of which 41 were directly
involved in the harvesting operations) that are used to harvest menhaden in
coastal waters along the U.S. mid-Atlantic and Gulf of Mexico coasts. In 2000,
the Company has converted four of its fishing vessels to "carry vessels" which
will not engage in active fishing but will instead carry fish catch from the
Company's offshore fishing vessels to its plants. The Company believes that this
utilization will increase the amount of time that the bulk of its vessels remain
offshore in production areas and therefore increase the Company's fish catch per
vessel employed. Accordingly, the Company has reduced the total number of
vessels directly involved in the fishing effort during Fiscal 2000 to 40
vessels. Additionally, the Company has elected to temporarily cease its in-line
processing operations at its Morgan City plant location during Fiscal 2000 in
reaction to the continuing depressed prices received for the Company's products.
Certain damaged processing equipment at this facility will be removed and
scrapped.
The Company's harvesting season generally extends from May through December
on the mid-Atlantic coast and from April through October on the Gulf coast.
During the off season, the Company fills purchase orders from the inventory it
has accumulated during the fishing season. Prices for the Company's products
tend to be lower during the fishing season when product is more abundant than in
the off season. Throughout the entire year, prices are significantly influenced
by supply and demand in world markets for competing products, particularly
soybean meal for its fish meal products and vegetable oils and fats for its fish
oil products when used as an alternative to vegetable oils and fats. During
Fiscal 1999 and the
14
first quarter ending March 31, 2000, world grain and oilseed markets were
burdened by excess supplies relative to demand which, in turn, resulted in
prices for most major commodities being sharply lower than in previous years.
Correspondingly, the Company's product prices have been adversely impacted
during these periods, resulting in decreased gross margins, and the recording of
$18.2 million in inventory write-downs during Fiscal 1999. Although management
believes the net realizable value of inventory held as of March 31, 2000,
further approximates its costs, it is possible that in the event prices
decreased during the second quarter Fiscal 2000, a downward valuation of its
existing inventories held at June 30, 2000 may be required. Accordingly, it is
possible that gross profit margins may continue to decline in prospective
quarters.
In an effort to reduce price volatility and to generate higher, more
consistent profit margins, the Company is continuing its efforts towards the
production and marketing of specialty meal products, which generally have higher
margins than the Company's regular grade meal product. Additionally, the Company
is attempting to introduce its refined fish oil into the U.S. food market where
initial marketing efforts have indicated significantly increased margin
opportunities and more stable demand requirements over the Company's traditional
crude fish oil markets.
The Company is also implementing several cost-cutting measures during
Fiscal 2000. These include, among other items, a reduction in fishing vessels,
spotter planes, temporary closure of in-line processing facilities at its
highest cost plant, implementation of a carry-vessel concept and utilization of
satellite mapping technology. Assuming no significant change in product market
prices and harvesting assumptions management expects that all of these cost-
cutting measures will reduce the Company's cost of production to a level whereby
positive gross margins should be attainable.
LIQUIDITY AND CAPITAL RESOURCES
Prior to Omega's initial public offering in April 1998, Zapata, as the sole
stockholder of Omega, caused cash to be moved between Omega and Zapata as each
company had cash needs. As a result of the offering, Omega and Zapata are now
separate public companies and each entity's capital resources and liquidity is
legally independent of the other and dedicated to its own operations. As a
result, the historical liquidity and capital resources of the Company may not be
indicative of the Company's future liquidity and capital resources.
The Company's primary sources of liquidity and capital resources have been
cash flows from operations, proceeds from initial public offering, pre-initial
public offering borrowings from Zapata, bank credit facilities and term loans
from various lenders provided pursuant to the Title XI of the Marine Act of 1936
("Title XI"). These sources of cash flows have been used for capital
expenditures (including acquisitions) and payment of long-term debt. The Company
expects to finance future expenditures through existing cash balances,
internally generated cash flows and, if necessary, through funds available from
its $20.0 million Credit Facility. The Company is in the process of renewing or
replacing current Credit Facility, which expires on July 2, 2000.
15
Under the Title XI program offered through National Marine Fisheries
Service, the Company has the ability to secure loans for fishing vessels and
shoreside capital expenditures and maintenance through lenders with terms
generally ranging between 12 and 20 years at an interest rate between 6% and 8%
per annum which are enhanced with a government guaranty to the lender for up to
80% of the financing. The Company's current Title XI borrowings are secured by
liens on 17 fishing vessels and mortgages on the Company's Reedville, Virginia
and Abbeville, Louisiana plants. To date, the Company has used the entire $20.6
million amount authorized under the program.
Omega had an unrestricted cash balance of $19.0 million at March 31, 2000,
up $3.3 million from December 31, 1999. This increase was due to a $7.7 million
increase in cash provided by operating activities.
Investing activities used $4.1 million in the three months ended March 31,
2000 and $5.5 million during the three months ended March 31, 1999. The
Company's investing activities consisted mainly of capital expenditures for
equipment purchases and equipment replacements in the three-month periods ended
March 31, 2000 and 1999.
Net financing activities used $294,000 to repay debt obligations during the
three month period ended March 31, 2000 compared with $305,000 cash used by net
financing activities during the three month period ended March 31, 1999. During
the quarter ended March 31, 2000, no treasury stock was repurchased compared
with $1.5 million repurchased during the quarter ended March 31, 1999.
The Company believes that its existing cash, cash equivalents, short-term
investments and funds available through its credit facility will be sufficient
to meet its working capital and capital expenditure requirements through at
least the end of 2000.
RESULTS OF OPERATIONS
The following table sets forth as a percentage of revenues certain items of
the Company's operations for each of the indicated periods:
Three Months Ended
March 31,
-------------------
2000 1999
------ ------
Revenues 100.0% 100.0%
Cost of sales 94.4 69.9
----- -----
Gross profit 5.6 30.1
Selling, general and administrative (12.2) 9.8
----- -----
Operating income (loss) (6.6) 20.3
Interest income (expense), net (0.2) 1.7
Other (expense) income, net (0.5) (0.4)
----- -----
Income (loss) before income taxes (7.3) 21.6
Provision (benefit) for income taxes (2.6) (7.8)
----- -----
Net income (loss) (4.7) 13.8
===== =====
16
INTERIM RESULTS FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
REVENUES. For the quarter ended March 31, 2000 revenue decreased $2.8
million, or 12.5% from $22.2 million in the quarter ended March 31, 1999. The
decrease was attributable to lower sales prices for the Company's fish meal and
fish oil. Sales volumes for the Company's fish meal and fish oil were higher in
the current quarter as compared to the quarter ended March 31, 1999. For fish
meal sales volumes for the quarter ended March 31, 2000 increased 36.1%, and
fish oil sales, volumes increased 49.3% for the current quarter from the
comparable prior year quarter ended March 31, 1999. Fish meal sales prices and
fish oil sales prices declined 29.3% and 50.8% respectively. The Company
attributes the decrease in selling prices to low cyclical feed costs affecting
the protein industry generally.
COST OF SALES. Cost of sales, including depreciation and amortization, for
the quarter ended March 31, 2000 was $18.3 million, a $2.8 million increase from
$15.5 million in the quarter ended March 31, 1999. Cost of sales as a percent of
revenues was 94.4% in the quarter ended March 31, 2000 as compared to 69.9% in
the quarter ended March 31, 1999. The increase in cost of sales as a percent of
revenues was due primarily to the decrease in the Company's selling prices for
fish meal and fish oil of 29.3% and 50.8% respectively during the quarter ending
March 31, 2000. Per ton cost of sales were 14.4% lower in the quarter ended
March 31, 2000 as compared to the quarter ended March 31, 1999, due mainly to
lower inventoriable costs to date carried forward from Fiscal 1999. The lower
inventory cost carried forward from Fiscal 1999 resulted from the Company's
inventory write-down during the third and fourth quarters of Fiscal 1999 of
$14.5 million and $3.7 respectively. The Fiscal 1999 inventory write-downs
resulted from cyclical market declines on the inventory values of the Company's
fish meal and fish oil.
GROSS PROFIT. Gross profit decreased $5.6 million or 83.7% from $6.7
million in the quarter ended March 31, 1999 to $1.1 million in the quarter ended
March 31, 2000. As a percentage of revenues, the Company's gross profit margin
decreased 24.5% in the quarter ended March 31, 2000 compared to the same period
in the prior fiscal year. The decline in gross profit was the result of a 29.3%
and a 50.8% decline in selling prices for the Company's fish meal and fish oil
for the quarters ended March 31, 2000 and 1999 respectively. This decline in
selling prices resulted from downward cyclical pricing pressures on the
Company's fishing product inventories resulting in lower gross margins in the
first quarter ended March 31, 2000 as compared to the first quarter ended
March 31, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million or 8.4% from $2.2 million in the
three-month period ended March 31, 1999 compared to $2.4 million in the three-
month period ended March 31, 2000. The increase in expense was due primarily to
research and development costs associated with the Company's efforts to expand
the special quality fish meal and refined oil markets.
OPERATING INCOME (LOSS). As a result of the factors discussed above, the
Company's operating income decreased $5.8 million from $4.5 million in the
quarter ended March 31, 1999 to a loss of $1.3 million for the quarter ended
March 31, 2000. As a percentage of
17
revenue, operating income decreased from 20.3% in the quarter ended March 31,
1999 to a negative 6.6% in the period ended March 31, 2000.
INTEREST INCOME (EXPENSE), NET. Interest income, net decreased by $418,000
in the quarter ended March 31, 2000 as compared to the previous quarter ended
March 31, 1999. The decrease in net interest income was due to the reduction of
cash and cash equivalents available for investment purposes during the quarter
ended March 31, 2000 as compared to the previous quarter ended March 31, 1999.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company recorded a $506,000
benefit for income tax for the quarter ended March 31, 2000. This represents an
effective tax rate of 36.0% on a $1.4 million loss in comparison to a $1.7
million tax provision for income tax expense in the quarter ended March 31,
1999, representing an effective tax rate of 36.0%. The effective tax rate
approximates the applicable combined state and federal statutory tax rates for
the respective periods.
SEASONAL AND QUARTERLY RESULTS
The Company's menhaden harvesting and processing business is seasonal in
nature. The Company generally has higher sales during the menhaden harvesting
season (which includes the three-month periods ending June 30 and September 30)
due to increased product availability, but prices during the fishing season tend
to be lower than during the off season. As a result, the Company's quarterly
operating results have fluctuated in the past and may fluctuate in the future.
In addition, from time to time the Company defers sales of inventory based on
worldwide prices for competing products that affect prices for the Company's
products which may affect comparable period comparisons.
SIGNIFICANT FACTORS THAT MAY AFFECT FORWARD-LOOKING STATEMENTS
The Company wishes to caution investors that the following significant
factors, and those factors described elsewhere in this Report, in other filings
by the Company with the SEC from time to time and in press releases issued by
the Company, could affect the Company's actual results of operations causing
such results to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company:
1. The Company's ability to meet its raw material requirements through its
annual menhaden harvest, which is subject to fluctuation due to natural
conditions over which the Company has no control, such as varying fish
population, adverse weather conditions and disease.
2. The impact on the prices for the Company's products of worldwide supply
and demand relationships over which the Company has no control and which
tend to fluctuate to a significant extent over the course of a year and
from year to year.
18
3. The impact of a violation by the Company of federal, state and local
laws and regulations relating to menhaden fishing and the protection of
the environment and the health and safety of its employees or of the
adoption of new laws and regulations, or stricter interpretations of
existing laws or regulations that materially adversely affect the
Company's business.
4. The impact if the Company cannot harvest menhaden in U.S. jurisdictional
waters if the Company fails to comply with the U.S. citizenship
ownership requirements.
5. Risks inherent with the Company's venture into the sale of refined, non-
hydrogenated menhaden oil for consumption in the U.S., including the
unproven market for this product.
6. Fluctuations in the Company's quarterly operating results due to the
seasonality of the Company's business and the Company's deferral of
sales of inventory based on worldwide prices for competing products.
7. The ability of the Company to retain and recruit key officers and
qualified personnel, vessel captains and crew members.
8. Risks associated with the strength of local currencies of the countries
in which its products are sold, changes in social, political and
economic conditions inherent in foreign investment and international
trade in such countries, changes in U.S. laws and regulations relating
to foreign investment and trade, changes of tax or other laws, partial
or total expatriation, currency exchange rate fluctuations and
restrictions on currency repatriation, the disruption of labor,
political disturbances, insurrection or war and the effect of
requirements of partial local ownership of operations in certain
countries.
9. Risks related to unanticipated material adverse outcomes in any pending
litigation or any other unfavorable outcomes or settlements. There can
be no assurance that the Company will prevail in any pending litigation
and to the extent that the Company sustains losses growing out of any
pending litigation which are not presently reserved or otherwise
provided for or insured against, its business, results of operations and
financial condition could be adversely affected.
10. In the future the Company may undertake acquisitions, although there is
no assurance this will occur. Further, there can be no assurance that
the Company will be able to profitably manage future businesses it may
acquire or successfully integrate future businesses it may acquire into
the Company without substantial costs, delays or other problems which
could have a material adverse effect on the Company's business, results
of operations and financial condition.
19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims and disputes arising in the
normal course of business, including claims made by employees under the Jones
Act which generally are covered by the Company's insurance. The Company believes
that it has adequate insurance coverage for all existing matters and that the
outcome of all pending proceedings, individually and in the aggregate, will not
have a material adverse effect upon the Company's business, results of
operations, cash flows or financial position.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The date of the Company's Annual Meeting of Stockholders for 2000 will be
June 27, 2000. Further details regarding the meeting are contained in the
Company's proxy statement relating to the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 - Financial Data Schedule
(b) Reports on Form 8-K:
None
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OMEGA PROTEIN CORPORATION
(Registrant)
May 10, 2000 By: /s/ ROBERT W. STOCKTON
---------------------------------------------
(Executive Vice President, Chief Financial
Officer and Corporate Secretary)
21
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
27.1 - Financial Data Schedule
22