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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
[Y] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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 (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 No .
--- ---
Number of shares outstanding of the Registrant's Common Stock, par value
$0.01 per share, on July 30, 2001: 23,942,248
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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 June 30, 2001
and December 31, 2000............................................................................ 3
Unaudited Condensed Consolidated Statement of Operations for the
three months and six months ended June 30, 2001 and 2000......................................... 4
Unaudited Condensed Consolidated Statement of Cash Flows for the
six months ended June 30, 2001 and 2000.......................................................... 5
Notes to Unaudited Condensed Consolidated Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................................. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................. 20
Item 2. Changes in Securities and Use of Proceeds.......................................................... 20
Item 3. Defaults Upon Senior Securities.................................................................... 20
Item 4. Submission of Matters to a Vote of Security Holders................................................ 20
Item 5. Other Information.................................................................................. 21
Item 6. Exhibits and Reports on Form 8-K................................................................... 21
Signatures.................................................................................................. 22
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
June 30, December 31,
2001 2000
-------------------- --------------------
(in thousands)
ASSETS
------
Current assets:
Cash and cash equivalents........................................... $ 16,002 $ 7,403
Receivables, net.................................................... 8,107 9,570
Inventories......................................................... 36,482 37,032
Prepaid expenses and other current assets........................... 1,123 978
-------------------- --------------------
Total current assets......................................... 61,714 54,983
Other assets............................................................ 8,703 9,786
Deferred tax assets, net................................................ 7,066 6,843
Property and equipment, net............................................. 84,989 88,872
-------------------- --------------------
Total assets................................................. $ 162,472 $ 160,484
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt................................ $ 1,267 $ 1,227
Accounts payable.................................................... 2,005 2,312
Accrued liabilities................................................. 17,776 14,600
-------------------- --------------------
Total current liabilities.................................... 21,048 18,139
Long-term debt.......................................................... 14,254 14,827
-------------------- --------------------
Total liabilities............................................ 35,302 32,966
-------------------- --------------------
Minority interest in consolidated subsidiary............................ 61 41
-------------------- --------------------
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;
24,347,059 shares and 24,330,277 shares issued and outstanding,
respectively.................................................... 243 243
Capital in excess of par value...................................... 111,914 111,884
Retained earnings................................................... 16,987 17,385
Common stock in treasury, at cost - 413,100 shares.................. (2,035) (2,035)
Total stockholders' equity................................... 127,109 127,477
-------------------- --------------------
Total liabilities and stockholders' equity................... $ 162,472 $ 160,484
==================== ====================
The accompanying notes are an integral part of the unaudited condensed
consolidated statements.
3
OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- -------------------------------
2001 2000 2001 2000
--------------- --------------- ------------- -------------
(in thousands, except per share amounts)
Revenues........................................ $18,992 20,873 38,015 40,260
Cost of sales................................... 17,077 20,729 35,090 39,026
--------------- --------------- ------------- -------------
Gross profit.................................... 1,915 144 2,925 1,234
Selling, general, and administrative expense.... 1,777 2,005 3,285 4,377
--------------- --------------- ------------- -------------
Operating income (loss)......................... 138 (1,861) (360) (3,143)
Interest income (expense), net.................. (120) 19 (251) (14)
Other (expense), net............................ (50) (158) (10) (250)
--------------- --------------- ------------- -------------
Loss before income taxes........................ (32) (2,000) (621) (3,407)
Benefit for income taxes........................ (11) (721) (223) (1,227)
--------------- --------------- ------------- -------------
Net loss........................................ $ (21) $ (1,279) $ (398) $ (2,180)
=============== =============== ============= =============
Loss per share (basic and diluted).............. $ (0.00) $ (0.05) $ (0.02) $ (0.09)
=============== =============== ============= =============
Average common shares outstanding............... 23,934 23,899 23,930 23,894
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
Six Months Ended June 30,
------------------------------------------
2001 2000
-------------- --------------
(in thousands)
Cash flows provided by operating activities:
Net loss............................................................ $ (398) $ (2,180)
-------------- --------------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Loss (gain) on disposal of assets, net.......................... (132) 94
Depreciation and amortization................................... 4,926 4,908
Deferred income taxes........................................... (223) (463)
Changes in assets and liabilities:
Receivables................................................. 1,463 6,452
Inventories................................................. 550 (1,133)
Accounts payable and accrued liabilities.................... 2,869 2,872
Other, net.................................................. 247 (2,899)
-------------- --------------
Total adjustments...................................... 9,700 9,831
-------------- --------------
Net cash provided by operating activities.............. 9,302 7,651
-------------- --------------
Cash flows used in investing activities:
Proceeds from the sale of assets................................... 290 -
Capital expenditures............................................... (460) (5,805)
-------------- --------------
Net cash used in investing activities.................. (170) (5,805)
-------------- --------------
Cash flows used in financing activities:
Principal payments of short and long-term debt obligations.......... (605) (578)
Proceeds from borrowings............................................ 72 -
-------------- --------------
Net cash used in financing activities.................. (533) (578)
-------------- --------------
Net increase in cash and cash equivalents............................... 8,599 1,268
Cash and cash equivalents at beginning of year.......................... 7,403 15,673
Cash and cash equivalents at end of period.............................. $ 16,002 $ 16,941
============== ==============
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 (herring-like fish found in
commercial quantities in the U.S. coastal waters of the Atlantic Ocean and Gulf
of Mexico) 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. Omega operates its own fleet of fishing vessels
as well as four processing plants. The Company's crude fish oil is sold
primarily to food producers in Europe, and its refined fish oil products, which
are high in nutritionally desirable Omega-3 fatty acids, are used in a variety
of foods for human consumption, as well as in aquaculture feeds and certain
industrial applications. Fish solubles are sold as protein additives for animal
feed and as organic fertilizers.
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.
On April 5, 2000, the Company acquired for a nominal amount an additional
1% equity interest in a partially owned subsidiary previously accounted for
under the equity method. As a result of the transaction, the Company owned 51%
of the investment and consolidates its operations.
Revenue Recognition
The Company recognizes revenue for the sale of its products when title and
risk of loss to its products are transferred to the customer.
Cash and Cash Equivalents
The Company considers cash in banks and short-term investments with
original maturities of three months or less as cash equivalents.
Inventories
The Company's fishing season runs from mid-April to the first of November
in the Gulf of Mexico and from the beginning of May into 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 the fishing seasons
described above 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.
6
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 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.
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. A valuation
allowance is provided for deferred tax assets if it is more likely than not
these items will either expire before the Company is able to realize the
benefits, or that future deductability is uncertain
Property, Equipment and Depreciation
Property and equipment additions are recorded at cost. 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 of an asset,
the costs and related accumulated depreciation are eliminated from the accounts.
Any resulting gains or losses are included in the statement of operations.
Pension Plans
Annual costs of pension plans are determined actuarially based on SFAS No.
87, "Employers' Accounting for Pensions." The Company's policy is to fund U.S.
pension plans at amounts not less than the minimum requirements of the Employee
Retirement Income Security Act of 1974. In Fiscal 1999,
7
the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and
Other Post-Retirement Benefits." SFAS No. 132 revised and standardized the
disclosure requirements for pensions and other post-retirement benefit plans to
the extent practicable. It does not change the measurement or recognition of
these plans.
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 maintains reserves for potential
credit losses and such losses have historically been within management's
expectations.
At June 30, 2001 and December 31, 2000, 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 net income by the
weighted average number of common shares outstanding. Diluted earnings per share
were computed by dividing net income by the sum of the weighted average number
of common shares outstanding and the effect of any dilutive stock options. The
computation of diluted earnings per share for the three and six months ended
June 30, 2001 and 2000 did not include any stock options because the exercise
prices were greater than the average market price of the common shares and,
therefore, the effect would have been anti-dilutive.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which, as amended, is effective for fiscal
years beginning after June 15, 2000. SFAS No.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 adopted the
provisions of the statement on January 1, 2001. The Company's implementation of
the provisions of SFAS No. 133 did not have a significant impact on the
Company's existing operations.
The Company adopted the provisions of Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements," on January 1, 2001. The
implementation of the provisions of SAB No. 101 did not have an impact on the
Company's financial position or results of operations.
At the end of June 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations." SFAS No. 143 requires that obligations associated
with the retirement of a tangible long-lived asset to be recorded as a liability
when those obligations are incurred, with the amount of the liability initially
measured at fair value. Upon initially recognizing a liability for an asset
retirement obligation, an entity must capitalize the cost by recognizing an
increase in the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The provisions of SFAS No. 143 will be
required to be adopted by the Company in fiscal 2003. The Company has not
determined what, if any, impact this statement will have on the Company's
operations.
8
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Note 2. Accounts Receivable
Accounts receivable as of June 30, 2001 and December 31, 2000 are
summarized as follows:
June 30, 2001 December 31, 2000
------------- -----------------
(in thousands)
Trade.......................................... $ 6,864 $ 6,714
Insurance...................................... 349 740
Employee....................................... 125 43
Income tax..................................... 451 2,019
Other.......................................... 551 272
------------- ------------------
Total accounts receivable...................... 8,340 9,788
Less allowance for doubtful accounts........... (233) (218)
------------- -----------------
Receivables, net............................... $ 8,107 $ 9,570
============= ==================
Note 3. Inventory
Inventory as of June 30, 2001 and December 31, 2000 is summarized as
follows:
June 30, 2001 December 31, 2000
------------- -----------------
(in thousands)
Fish meal...................................... $ 10,644 $ 19,474
Fish oil....................................... 5,777 7,590
Fish solubles.................................. 769 938
Off-season cost................................ 14,432 3,982
Other materials & supplies..................... 4,860 5,048
------------- -----------------
Total inventory................................ $ 36,482 $ 37,032
============= ===================
During the third and fourth quarter of Fiscal 2000, the Company provided
$18.1 million in write-downs of the value of its fish meal and fish oil product
inventories. Those inventory write-downs were made necessary due to market
prices the Company either had received or expected to receive for its products
which had declined to a level below the Company's cost basis in those products.
Product inventories at June 30, 2001 were stated at the lower of cost or market
and no further write-downs were required.
9
Note 4. Other Assets
Other assets as of June 30, 2001 and December 31, 2000 are summarized as
follows:
June 30, 2001 December 31, 2000
------------- -----------------
(in thousands)
Fishing nets....................................................... $ 660 $ 1,134
Prepaid pension cost............................................... 3,274 3,425
Insurance receivable, net of allowance for doubtful accounts....... 4,209 4,196
Title XI loan origination fee...................................... 378 396
Note receivable.................................................... - 369
Deposits........................................................... 131 140
Investments in unconsolidated affiliates........................... 1 1
Miscellaneous...................................................... 50 125
------------- -----------------
Total other assets................................................. $ 8,703 $ 9,786
============= =================
Amortization expense for fishing nets amounted to $475,000 and $482,000 for
the quarters ended June 30, 2001 and June 30, 2000, respectively.
The Company carries insurance for certain losses relating to its vessels
and Jones Act liability for employees aboard its vessels (collectively, "Vessel
Claims Insurance"). The typical Vessel Claims Insurance policy contains an
annual aggregate deductible ("AAD") for which the Company remains responsible,
while the insurance carrier is responsible for all applicable amounts which
exceed the AAD. It is the Company's policy to accrue current amounts due and
record amounts paid out on each claim. Once payments exceed the AAD the Company
records an insurance receivable for a given policy year.
For the period from October 1, 1998 to March 31, 2000, the Company placed
its Vessel Claims Insurance coverage with HIH Casualty and General Insurance,
Ltd., an insurance company that is part of HIH Insurance Limited, the second
largest insurance company in Australia ("HIH"). In April 2001, HIH petitioned a
court in Australia to place it in provisional liquidation. The Company
estimates, based on previous payments made by the Company and its existing
reserves for open claims for the period covered by HIH, that HIH owes
approximately $1.6 million either to the Company or on the Company's behalf.
This amount could be adjusted upward or downward as additional claims and their
corresponding reserves become finalized.
The Company has put the trustees in the Australian liquidation proceedings
on notice of its $1.6 million claim. However, based on the early nature of the
proceedings, the Company believes that the ultimate outcome of the recovery
against HIH cannot be assured at this time and that it is probable that a
portion of these receivables will not be collectible. Accordingly, at June 30,
2001, the allowance for doubtful accounts applicable to the HIH receivable was
$856,000. As the original cost of this insurance is primarily related to vessels
and plant operations, this reserve has been charged as an inventory cost.
10
Note 5. Property and Equipment
Property and equipment at June 30, 2001 and December 31, 2000 are
summarized as follows:
June 30, 2001 December 31, 2000
------------- -----------------
(in thousands)
Land................................... $ 5,390 $ 5,390
Plant assets........................... 69,524 69,772
Fishing vessels........................ 72,925 72,933
Furniture and fixtures................. 1,811 1,837
Other.................................. 460 -
------------- -----------------
Total property and equipment........... 150,110 149,932
Less accumulated depreciation.......... (65,121) (61,060)
------------- -----------------
Property and equipment, net............ $ 84,989 $ 88,872
============= =================
Depreciation expense for the quarters ended June 30, 2001 and June 30, 2000
was $4.2 million and $4.4 million, respectively.
Note 6. Notes Payable and Long-Term Debt
At June 30, 2001 and December 31, 2000, the Company's long-term debt
consisted of the following:
June 30, 2001 December 31, 2000
------------- -----------------
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%.......... $ 14,211 $ 14,678
Amounts due in installments through 2014, interest at Eurodollar rates 1,052 1,092
plus 4.5%; 5.31% and 7.17% at June 30, 2001 and December 31, 2000,
respectively..................................................................
Other debt at 2.9% to 8.0% at June 30, 2001 and December 31, 2000................... 258 284
------------- -----------------
Total debt.......................................................................... 15,521 16,054
Less current maturities............................................. (1,267) (1,227)
------------- -----------------
Long-term debt...................................................................... $ 14,254 $ 14,827
============= =================
At June 30, 2001 and December 31, 2000, 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 Title XI loans are secured by liens on
certain of the Company's fishing vessels and mortgages on the Company's
Reedville, Virginia and Abbeville, Louisiana plants. Loans are now available
under similar terms pursuant to the Title XI program without intervening
lenders. In May 2001 the Company applied for an additional loan of $1.9 million
under this new program to be used for qualified Title XI projects, but has not
yet closed on such applications.
11
On December 20, 2000 the Company entered into a three year $20.0 million
revolving credit agreement with Bank of America N.A. (the "Credit Facility").
Borrowings under this facility may be used for working capital and capital
expenditures. Borrowings under the Credit Facility bears interest at a rate
equal to (i) LIBOR plus 250 basis points or (ii) at the Company's option, the
Bank's prime rate. The Credit Facility requires a per annum commitment fee of
one-half of a percent (0.5%) on the daily average unused portion of the
commitment of the Lender. The Credit Facility is collateralized by all of the
Company's trade receivables, inventory and equipment. The Company and its
subsidiaries are required to comply with certain financial covenants, including
maintenance of a minimum tangible net worth and minimum EBITDA. In addition, the
Credit Facility does not allow for the payment of cash dividends or stock
repurchases and also limits capital expenditures and investments. As of June 30,
2001 the Company had no borrowings outstanding under the Credit Facility. The
Credit Facility expires on December 20, 2003.
Note 7. Accrued Liabilities
Accrued liabilities as of June 30, 2001 and December 31, 2000 are
summarized as follows:
June 30, 2001 December 31, 2000
------------- ------------------
(in thousands)
Salary and benefits................................................... $ 6,473 $ 4,695
Insurance............................................................. 8,552 7,793
Taxes, other than income tax.......................................... 714 79
Trade creditors....................................................... 1,906 1,908
Other................................................................. 487 125
------------- ------------------
Total accrued liabilities............................................. $ 18,132 $ 14,600
============= ==================
Note 8. 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 (including
those losses that may become uninsured due to the insolvency of HIH as described
in Note 4) 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.
12
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-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," "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 nations largest producer of fish meal and fish oil. The
Company's products are produced from menhaden (a fish found in commercial
quantities), and includes 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 high-protein 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, which are high in
nutritionally desirable Omega-3 fatty acids, are used in a variety of foods for
human consumption, as well as 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 65 fishing
vessels (40 of which are directly involved in the harvesting operations during
Fiscal 2001) and owns 32 and leases 7 spotter aircraft (of which 38 are directly
involved in the Fiscal 2001 harvesting operations) that are used to harvest
menhaden in coastal waters along the U.S. mid-Atlantic and Gulf of Mexico
coasts. The Company also owns an additional processing plant in Louisiana
(located near Morgan City, Louisiana) in which its in-line processing operations
were halted during Fiscal 2000 due to high operating costs. The Company did not
reopen the processing operations of this plant for the Fiscal 2001 fishing
season due to continuing depressed pricing received for the Company's products.
Warehousing operations are being conducted at the facility until market
conditions improve or other opportunities develop for the property. Certain
processing equipment at this facility has been removed and scrapped and will
need to be replaced before normal processing operations are capable of being
resumed.
13
The Company's harvesting season generally extends from May through December
on the mid-Atlantic coast and from April through the first of November 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. Beginning early in Fiscal 1999 and continuing through Fiscal
2000, world grain and oilseed markets were burdened by excess supplies 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 $18.1 million in inventory write-downs during Fiscal 2000.
Product pricing for the Company's products experienced modest increases
during the first six months of Fiscal 2001, compared with the first six months
of 2000. These price increases for the Company's products resulted from
diminished global fish meal and fish oil inventories during the first six months
of Fiscal 2001 period as opposed to a stronger world demand for other competing
products. Although management believes the net realizable value of inventory
held as of June 30, 2001 exceeds its costs, it is possible that in the event
prices decrease during the third quarter of Fiscal 2001, a downward valuation of
the Company's existing inventories held at September 30, 2001 may be required.
Accordingly, it is possible that gross profit margins may 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 introducing 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 than the Company's traditional crude fish
oil markets.
After having implemented several cost-cutting measures during Fiscal 2000,
which included, among other items, a reduction in its fishing fleet and spotter
planes, temporary closure of in-line processing facilities at its highest cost
plant, and implementation of a carry-vessel concept, the decline in product
pricing outpaced the cost-cutting efforts which resulted in further inventory
write-downs towards the end of Fiscal 2000. Subsequent to the completion of the
2000 fishing season, the Company implemented additional cost reduction measures
in anticipation of the 2001 fishing season which include, among other things, a
further reduction in the number of fishing vessels and spotter planes and a
corresponding reduction in off-season maintenance expenses for the rest of the
fleet. Additionally, the Company reduced its off-season personnel associated
with those maintenance programs and has planned a suspension of the Company's
matching contribution to the Omega 401(k) Savings and Retirement Plan for Fiscal
2001. Given the Company's current projections of harvesting assumptions and no
significant change in product market prices, the Company expects that positive
gross margins should be attainable for Fiscal 2001.
14
Liquidity and Capital Resources
The Company's primary resources of liquidity and capital resources have
been cash flows from operations, bank credit facilities and term loans from
various lenders provided pursuant to Title XI of the Marine Act of 1936 ("Title
XI"). These sources of cash flows have been used for capital expenditures and
payment of long-term debt. The Company expects to finance future expenditures
through internally generated cash flows and, if necessary, through funds
available from the Credit Facility and/or Title XI facilities described below.
Under a program offered through National Marine Fisheries Services ("NMFS")
pursuant to Title XI, the Company has secured loans through lenders with terms
generally ranging between 12 and 20 years at interest rates between 6.0% and
8.0% per annum which are enhanced with a government guaranty to the lender for
up to 80.0% 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. In 1996, Title XI borrowing was
modified to permit use of proceeds from borrowings obtained through this program
for shoreside construction. To date, the Company has used the entire $20.6
million amount originally authorized under the program. Loans are now available
under similar terms pursuant to the Title XI program without intervening
lenders. The Company has made application for an additional loan of $1.9 million
under this new program but has not yet closed on such applications.
Omega had an unrestricted cash balance of $16.0 million at June 30, 2001,
an increase of $8.6 million from December 31, 2000. This increase was primarily
due to a $9.3 million increase in cash provided by operating activities during
the first six months of Fiscal 2001.
Investing activities used $170,000 during the six months ended June 30,
2001 and $5.8 million during the six months ended June 30, 2000. The Company's
investing activities consisted mainly of proceeds from the sale of assets and
capital expenditures for equipment purchases and equipment replacements in the
six month periods ended June 30, 2001 and 2000.
If the Company elects to re-establish normal production at its Morgan City
plant operations for fish meal, fish oil and fish solubles, then various
components of the in-line processing equipment will have to be upgraded or
replaced. Such equipment would include the driers, cookers and presses. It is
estimated that replacement of this equipment would cost an estimated $2.0 to
$3.0 million.
Net financing activities used $533,000 and $578,000 to repay debt
obligations during the six month periods ended June 30, 2001 and June 30, 2000,
respectively.
The Company's principal raw material is menhaden, a species of fish that
inhabits coastal and inland tidal waters in the United States. Menhaden are
undesirable for human consumption due to their small size, boniness and high oil
content. Certain state agencies impose resource depletion restrictions on
menhaden pursuant to fisheries management legislation. To date, the Company has
not experienced any material adverse impact on its fish catch or results of
operations as a result of these restrictions.
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 2001.
15
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 Six Months Ended
June 30, June 30,
------------------ ------------------
2001 2000 2001 2000
------ ------ ------ ------
Revenues................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................ 89.9 99.3 92.3 96.9
------ ------ ------ ------
Gross profit............................. 10.1 0.7 7.7 3.1
Selling, general and administrative...... 9.4 9.6 8.6 10.9
------ ------ ------ ------
Operating income (loss).................. 0.7 (8.9) (0.9) (7.8)
Interest income (expense), net........... (0.6) 0.1 (0.7) (0.1)
Other expense income, net................ (0.3) (0.8) (0.0) (0.6)
------ ------ ------ ------
Loss before income taxes................. (0.2) (9.6) (1.6) (8.5)
Benefit for income taxes................. (0.1) (3.5) (0.6) (3.1)
------ ------ ------ ------
Net loss................................. (0.1) (6.1) (1.0) (5.4)
====== ====== ====== ======
Interim Results for the Second Quarter ended June 30, 2001 and June 30, 2000
Revenues. For the current quarter ended June 30, 2001, revenues decreased
$1.9 million, or 9.1% from $20.9 million in the quarter ended June 30, 2000 to
$19.0 million in the quarter ended June 30, 2001. The decrease in revenues was
attributable to a 30.2% decrease in sale volumes of fish meal, partially offset
by a 78% increase in sales volumes of fish oil, during the current quarter as
compared to the second quarter ended June 30, 2000. Fish meal prices and fish
oil prices increased 18.1% and 7.2% respectively during the current quarter
ended June 30, 2001 as compared to the quarter ended June 30, 2000.
Cost of Sales. Cost of sales, including depreciation and amortization, for
the current quarter ended June 30, 2001 was $17.1 million, a $3.6 million
decrease, or 17.6% from $20.7 million in the quarter ended June 30, 2000. Cost
of sales as a percent of revenues was 89.9% in the current quarter ended June
30, 2001 as compared to 99.3% in the quarter ended June 30, 2000. The 9.4%
decrease in cost of sales during the current quarter ended June 30, 2001 is due
primarily to a 30.2% decrease in sales volumes for the Company's fish meal,
along with an 18.1% and 7.2% increase in the Company's selling prices for fish
meal and fish oil, respectively.
Gross Profit. Gross profit increased $1.8 million from $144,000 in the
quarter ended June 30, 2000 to $1.9 million in the quarter ended June 30, 2001.
As a percentage of revenues, the Company's gross profit margin increased 9.4% in
the current quarter ended June 30, 2001, compared to the same period in the
prior fiscal year. The increase in gross profit was primarily due to a 18.1% and
a 7.2% increase in selling prices for the Company's fish meal and fish oil,
respectively, during the current quarter ended June 30, 2001. The Company
attributes higher fish meal and fish oil sales prices in the second quarter
ending June 30, 2001 to diminished global fish meal and fish oil inventories
during the first six months of Fiscal 2001 as opposed to a general strengthening
in world markets for other competing products.
16
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $228,000 or 11.4% from $2.0 million in the
three month period ended June 30, 2000 to $1.8 million in the current quarter
ended June 30, 2001. The decrease in expense was due primarily to a reduction in
employee staff and related employee costs.
Operating income (loss). As a result of the factors discussed above, the
Company's operating loss decreased $2.0 million from a $1.9 million loss in the
quarter ended June 30, 2000 to an operating income of $138,000 for the quarter
ended June 30, 2001. As a percentage of revenue, operating loss decreased from
8.9% in the quarter ended June 30, 2000 to operating income of 0.7% in the
current quarter ended June 30, 2001.
Interest income (expense), net. Interest expense, net increased by
$139,000 in the quarter ended June 30, 2001 as compared to the quarter ended
June 30, 2000. The increase in interest expense, net is the result of a
reduction in interest income due to a reduction in cash and cash equivalents
available for investment purposes during the quarter ended June 30, 2001 as
compared to the quarter ended June 30, 2000.
Other expense, net. Other expense, net decreased $108,000 in the current
quarter ended June 30, 2001. This decrease in other expense, net was the result
of a gain on the sale of non-producing assets during the second quarter of 2001,
which was netted against other expenses.
Benefit for income taxes. The Company recorded an $11,000 benefit for
income taxes for the quarter ended June 30, 2001. This represents an effective
tax rate of 36.0% on a $32,000 loss before income taxes for the quarter ended
June 30, 2001 compared to a $721,000 benefit for income tax in the quarter ended
June 30, 2000, representing an effective tax rate of 36.0% on a $2.0 million net
loss before income taxes. The effective tax rate approximates the applicable
combined state and federal statutory tax rates for the respective periods.
Interim Results for the Six Months ended June 30, 2001 and June 30, 2000
Revenues. For the six months ended June 30, 2001, revenues decreased $2.3
million, or 5.5% from $40.3 million for the six months ended June 30, 2000 to
$38.0 million for the six months ended June 30, 2001. This decrease was
attributable to a 22.0% lower sales volume for the Company's fish meal during
the current six months ended June 30, 2001 as compared to the six months ended
June 30, 2000. The decrease in revenues due to lower fish meal sale volumes was
partially offset by a 15.2% and a 1.2% increase in fish meal and fish oil prices
during the six months ended June 30, 2001, respectively.
Cost of Sales. Cost of sales, including depreciation and amortization, for
the six months ended June 30, 2001 was $35.1 million, a $3.9 million, or 10.0%
decrease from $39.0 million for the comparable six month period ended June 30,
2000. Cost of sales as a percentage of revenues was 92.3% in the current six
month period ended June 30, 2001 as compared to 96.9% in the comparable six
month period ended June 30, 2000. The decrease in cost of sales, as a percentage
of revenue is due primarily to a 15.2% and a 1.2% increase in fish meal and fish
oil prices, respectively. Per ton cost of sales was 2.6% higher for the current
six month period ended June 30, 2001 as compared to the six month period ended
June 30, 2000, due primarily to higher cost inventories carried forward from
Fiscal 2000.
17
Gross Profit. Gross profit increased $1.7 million or 141.7% from $1.2
million in the six month period ended June 30, 2000 to $2.9 million in the
current six month period ended June 30, 2001. As a percentage of revenues, the
Company's gross profit increased 4.6% in the current six month period ended June
30, 2001 as compared to the same six month period in the previous fiscal year.
The increase in gross profit is primarily due to a 15.2% and a 1.2% increase in
the Company's fish meal and fish oil prices during the six months ended June 30,
2001, respectively. These price increases for the Company's products resulted
from diminished global fish meal and fish oil inventories during the first six
months of Fiscal 2001 as opposed to a stronger world demand for other competing
products.
Selling, general, and administrative expenses. Selling, general, and
administrative expenses decreased $1.1 million or 24.9% from $4.4 million for
the six months ended June 30, 2000 to $3.3 million for the current six months
ended June 30, 2001. The decrease was primarily due to a reduction in staff and
related employee costs.
Operating income (loss). As a result of the factors discussed above the
Company's operating loss decreased $2.8 million from a $3.1 million loss for the
six months ended June 30, 2000 to an operating loss of $360,000 for the current
six months ended June 30, 2001. As a percentage of revenues, operating loss
decreased from 7.8% for the six months ended June 30, 2000 to an operating loss
of 0.9% for the current six months ended June 30, 2001.
Interest income (expense), net. Interest income, net decreased by $237,000
from net interest expense of $14,000 in the six month period ended June 30, 2000
to net interest expense of 251,000 in the current six month period ended June
30, 2001. The decrease in net interest income was due to the reduction of cash
and cash equivalents available for investment purposes during the six months
ended June 30, 2001 as compared to the six months ended June 30, 2000.
Other (expense), net. Other expense, net decreased $240,000 in the current
six month period ended June 30, 2001 as compared to the six month period ended
June 30, 2000. This decrease was the result of a gain during the first six
months of Fiscal 2001 on the sale of non-producing assets, which was netted
against other expenses.
Benefit for income taxes. The Company recorded a $223,000 benefit for
income taxes for the current six months ended June 30, 2001. This amount
represents an effective tax rate of 36.0% in comparison to a provision for
income tax benefit of $1.2 million for the six months ended June 30, 2000 which
represents an effective tax rate of 36.0%.
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.
18
Significant Factors That May Affect Forward-Looking Statements
The Company cautions 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 and thereby
cause 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 caused by 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.
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 on the Company if it 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 the Company's 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 in 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
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
In the normal course of business, the financial condition of the Company is
exposed to minimal market risk associated with interest rate movements on the
Company's borrowings. A one percent increase or decrease in the levels of
interest rates on variable rate debt would not result in a material change to
the Company's results of operations.
Although the Company sells products in foreign countries, all of the
Company's revenues are billed and paid for in US dollars. As a result,
management does not believe that the Company is exposed to any significant
foreign country currency exchange risk, and the Company does not utilize market
risk sensitive instruments to manage its exposure to this risk.
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. See also Note 5 to Consolidated
Financial Statements in Part I - Item 1.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On May 15, 2001, the Company held its 2001 Annual Meeting of Stockholders. The
matters voted on at the meeting and the results of the meeting were as follows:
A. Election of Class III Director.
Stockholders elected Joseph L. von Rosenberg III as a Class III Director
with 21,438,872 shares voted for and 2,276,013 shares that withheld
authority. There were no broker non-votes. The Class III Director term
expires at the 2004 Annual Meeting of Stockholders.
The Class I Directors, whose terms expire at the 2002 Annual Meeting of
Stockholders, are Gary L. Allee and William Lands. The Class II Directors,
whose terms expire at the 2003 Annual Meeting of Stockholders, are Avram A.
Glazer and Malcolm I. Glazer.
20
B. Ratification of Appointment of Independent Public Accountants.
Stockholders ratified the appointment of PricewaterhouseCoopers, LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 2001, with 23,695,297 shares voted for, and 13,478 shares
voted against. There were no broker non-votes.
Item 5. Other Information
On June 6, 2001, the Board of Directors elected Paul Kearns as a Class III
Director of the Company and as a member of the Audit Committee and Compensation
Committee of the Board.
Mr. Kearns, age 37, is a director of Prentis, Donegan & Partners, Ltd., a
London-based insurance brokerage firm which he co-founded in 1993. Mr. Kearns
has over 18 years of experience in the global risk management and insurance
industries.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
21
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)
August 8, 2001 By: /s/ ROBERT W. STOCKTON
-------------------------------------
(Executive Vice President, Chief Financial
Officer and Corporate Secretary)
22