<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 [X] No [_].
Number of shares outstanding of the Registrant's Common Stock, par value
$0.01 per share, on November 12, 1999: 23,874,786
<PAGE>
OMEGA PROTEIN CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Condensed Consolidated Balance Sheet as of September 30, 1999
and December 31, 1998.................................................. 3
Unaudited Condensed Consolidated Statement of Operations for the
three months and nine months ended September 30, 1999 and 1998......... 4
Unaudited Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 1999 and 1998........................... 5
Notes to Unaudited Condensed Consolidated Financial Statements............ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.................................................... 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................... 26
ITEM 2. CHANGES IN SECURITIES...................................................... 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................... 27
SIGNATURES......................................................................... 28
EXHIBIT INDEX...................................................................... 29
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(in thousands)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents......................................... $ 12,502 $ 44,828
Receivables, net.................................................. 17,425 8,902
Inventories....................................................... 63,598 43,351
Prepaid expenses and other current assets......................... 668 1,039
---------- ----------
Total current assets........................................... 94,193 98,120
---------- ----------
Other assets........................................................ 5,439 5,665
---------- ----------
Property and equipment, net......................................... 92,282 86,068
---------- ----------
Total assets................................................... $ 191,914 $ 189,853
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt.............................. $ 746 $ 997
Accounts payable.................................................. 4,245 1,672
Accrued liabilities............................................... 21,243 11,858
Amounts due to parent............................................. - 36
---------- ----------
Total current liabilities...................................... 26,234 14,563
---------- ----------
Long-term debt...................................................... 10,662 11,205
---------- ----------
Deferred income taxes............................................... 4,100 2,860
---------- ----------
Other liabilities................................................... 375 375
---------- ----------
Commitments and contingencies (Note 11)
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:
24,287,886 shares and 24,276,812 shares issued and outstanding,
respectively.................................................... 243 243
Capital in excess of par value.................................... 111,794 111,722
Reinvested earnings, from October 1, 1990......................... 40,541 48,885
Common stock in treasury, at cost - 413,100 shares................ (2,035) -
---------- ----------
Total stockholders' equity..................................... 150,543 160,850
---------- ----------
Total liabilities and stockholders' equity................... $ 191,914 $ 189,853
========== ==========
</TABLE>
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
3
<PAGE>
OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------------------- ---------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues...................................... $ 23,677 $ 42,523 $ 64,054 $104,052
Cost of sales................................. 24,237 32,919 56,606 69,596
Inventory writedown........................... 14,500 - 14,500 -
-------- -------- -------- --------
Gross profit (loss)........................... (15,060) 9,604 (7,052) 34,456
Selling, general, and administrative expense.. 1,978 2,057 6,466 5,413
-------- -------- -------- --------
Operating income (loss)....................... (17,038) 7,547 (13,518) 29,043
Interest income, net.......................... 47 385 706 211
Other income (expense), net................... (13) (161) (221) (278)
-------- -------- -------- --------
Income (loss) before income taxes............. (17,004) 7,771 (13,033) 28,976
Provision (benefit) for income taxes.......... (6,118) 2,119 (4,689) 10,081
-------- -------- -------- --------
Net income (loss)............................. $(10,886) $ 5,652 $ (8,344) $ 18,895
======== ======== ======== ========
Earnings (loss) per share (basic)............. $ (.46) $ .23 $ (.35) $ .83
======== ======== ======== ========
Average common shares outstanding............. 23,872 24,276 23,992 22,651
======== ======== ======== ========
Earnings (loss) per share (diluted)........... $ (.46) $ .23 $ (.35) $ .83
======== ======== ======== ========
Average common shares and common share
equivalents outstanding....................... 23,872 24,276 23,992 22,811
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
4
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OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------------
1999 1998
---------------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows provided by operating activities:
Net income (loss)..................................................... $ (8,344) $ 18,895
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Gain on disposal of assets, net..................................... (33) (71)
Depreciation and amortization....................................... 6,684 4,679
Deferred income taxes............................................... 1,240 1,452
Inventory writedown................................................. 14,500 -
Changes in assets and liabilities:
Receivables..................................................... (8,523) (2,516)
Inventories..................................................... (34,747) (4,997)
Accounts payable and accrued liabilities........................ 11,958 11,331
Amounts due to parent........................................... (36) (8,499)
Other, net...................................................... (120) (1,206)
-------- --------
Total adjustments......................................... (9,077) 173
-------- --------
Net cash (used in) provided by operating activities...... (17,421) 19,068
--------- --------
Cash flows (used in) provided by investing activities:
Proceeds from sale of assets, net................................... 35 503
Capital expenditures................................................ (12,111) (19,682)
Aquisitions of property and equipment............................... - (28,116)
-------- --------
Net cash (used in) investing activities................... (12,076) (47,295)
-------- --------
Cash flows (used in) provided by financing activities:
Principal payments of short and long-term debt obligations........... (794) (2,887)
Purchase of treasury stock........................................... (2,035) -
Proceeds from borrowings - Bank Debt................................. - 2,587
Proceeds from borrowings - Parent.................................... - 28,116
Repayments on borrowings - Parent.................................... - (28,116)
Proceeds from issuance of common stock............................... - 68,037
-------- --------
Net cash (used in) provided by financing activities....... (2,829) 67,737
-------- --------
Net (decrease) increase in cash and cash equivalents.................... (32,326) 39,510
Cash and cash equivalents at beginning of year.......................... 44,828 10,258
-------- --------
Cash and cash equivalents at end of period.............................. $ 12,502 $ 49,768
======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
5
<PAGE>
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 herring-like species of fish
found in commercial quantities in U.S. coastal waters of the mid-Atlantic and
Gulf of Mexico), and include 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 as a high
Omega-3 ingredient in foods for human consumption, in aquaculture feeds and in
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. The common control merger
was accounted for at historical cost in a manner similar to that in a pooling
of interests accounting. In connection with the merger, Marine Genetics
outstanding Common Stock was converted into Omega Common Stock at the rate of
one share for 19,676 shares of 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 shares of its common stock at a gross price of $16.00 per share. On
May 7, 1998, the Underwriters exercised their option to acquire 1,275,000
additional shares at the same gross 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
6
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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.
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 September 30, 1998, filed with the
Securities and Exchange Commission on December 14, 1998. The results of
operations for the quarter and the nine months ended September 30, 1999 are
not necessarily indicative of the results to be expected for any subsequent
quarter or the twelve months ending December 31, 1999.
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 (e.g., 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 fishing season are
deferred until the next season and are included with inventory. Inventory,
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.
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
7
<PAGE>
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. Prior to the completion of the
Company's public offering in April 1998, the Company was included in Zapata's
consolidated U.S. federal income tax return and its income tax effects
reflected on a separate basis for financial reporting 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 maintains reserves for
potential credit losses and such losses have historically been within
management's expectations.
At September 30, 1999 and December 31, 1998, 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.
8
<PAGE>
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 weighted average number of common shares
outstanding adjusted for the effect of any dilutive stock options.
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 the year
ended September 30, 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.
NOTE 2. ASSET ACQUISITIONS
On November 3, 1997, the Company acquired the fishing and processing assets
of American Protein, Inc. ("American Protein"), which operated ten fishing
vessels and a menhaden processing plant in the Chesapeake Bay area, for $14.5
million in cash (the "American Protein Acquisition").
Additionally, on November 25, 1997, the Company purchased the fishing and
processing assets of Gulf Protein, Inc. ("Gulf Protein"), which included six
fishing vessels, five spotter planes and the processing equipment located at
the Gulf Protein plant near Morgan City, Louisiana for $13.6 million in cash
and the assumption of $883,000 in liabilities (the "Gulf Protein Acquisition"
together with the "American Protein Acquisition" the "Acquisitions" and each
individually an "Acquisition").
These acquisitions were financed by a $28.1 million intercompany loan from
Zapata. Interest on this loan was accrued at the rate of 8.5% per annum and
was repayable in quarterly installments beginning May 1, 1998. The loan, which
was to mature on August 1, 2002, was prepaid in May 1998 with a portion of the
proceeds from the Company's initial public offering described in Note 1.
9
<PAGE>
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable as of September 30, 1999 and December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
1999 1998
---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Trade.......................................................... $ 10,075 $ 8,230
Tax receivable................................................. 5,536 -
Insurance...................................................... 1,151 304
Employee....................................................... 129 102
Current note receivable........................................ 429 -
Other.......................................................... 278 458
-------- --------
Total accounts receivable ..................................... 17,598 9,094
Less allowance for doubtful accounts........................... (173) (192)
-------- --------
Receivables, net............................................... $ 17,425 $ 8,902
======== ========
</TABLE>
NOTE 4. INVENTORY
Inventory as of September 30, 1999 and December 31, 1998 is summarized as
follows:
<TABLE>
<CAPTION>
SEPTEMBER December
1999 1998
---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Fish meal...................................................... $ 35,803 $ 19,025
Fish oil....................................................... 16,826 12,456
Fish solubles.................................................. 2,088 906
Off-season cost................................................ 3,286 5,973
Materials & supplies........................................... 5,535 5,019
Other.......................................................... 162 74
Less oil inventory reserve..................................... (102) (102)
-------- --------
Total inventory................................................ $ 63,598 $ 43,351
======== ========
</TABLE>
At September 30, 1999, the Company provided a $14.5 million writedown of
the value of its product inventories. This inventory writedown was made
necessary because the market prices the Company either has received or expects
to receive for its products had declined to a level below the Company's cost
basis in those products. The resultant net basis of $54,615 for the fish meal,
oil and soluble products approximates current market value at September 30,
1999.
NOTE 5. OTHER ASSETS
Other assets as of September 30, 1999 and December 31, 1998 are summarized
as follows:
10
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<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
1999 1998
---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Fishing nets................................................... $ 1,389 $ 1,263
Prepaid pension cost........................................... 3,115 2,890
Title XI loan origination fee.................................. 328 399
Note receivable................................................ 41 384
Deposits....................................................... 117 116
Investments in unconsolidated affiliates....................... 93 78
Miscellaneous................................................. 356 535
-------- --------
Total other assets............................................ $ 5,439 $ 5,665
======== ========
</TABLE>
Amortization expense for fishing nets amounted to $641,000 and $651,500
for the nine months ended September 30, 1999 and 1998, respectively.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 1999 and December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
1999 1998
---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................... $ 5,390 $ 5,390
Plant assets.................................................. 58,565 53,696
Fishing vessels................................................ 63,208 60,879
Furniture and fixtures........................................ 1,595 1,552
Other......................................................... 12,107 7,240
-------- --------
Total property and equipment................................... 140,865 128,757
Less accumulated depreciation and impairment................... (48,583) (42,689)
-------- --------
Property and equipment, net................................... $ 92,282 $ 86,068
======== ========
</TABLE>
Depreciation expense for the nine months ended September 30, 1999 and 1998
was $5.9 million and $4.0 million, respectively.
NOTE 7. NOTES PAYABLE AND LONG-TERM DEBT
At September 30, 1999 and December 31, 1998, the Company's long-term debt
consisted of the following:
11
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
1999 1998
---------------------- ----------------------
<S> <C> <C>
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 2013, interest from 6.63% to 8.25%.... $ 10,137 $ 10,872
Amounts due in installments through 2014, interest at Eurodollar rates
plus .45%; 5.45% and 5.77% at September 30, 1999 and December 31, 1998,
respectively............................................................ 1,191 1,250
Other debt at 4% at September 30, 1999 and December 31, 1998................... 80 80
-------- -------
Total debt..................................................................... 11,408 12,202
Less current maturities............................................. (746) (997)
-------- --------
Long-term debt................................................................. $ 10,662 $ 11,205
======== ========
</TABLE>
At September 30, 1999 and December 31, 1998, the estimated fair value of
debt obligations approximated book value.
The Company is currently authorized to receive up to $20.6 million in loans
under the Title XI program. To date the Company has used $15.0 million of the
authorized Title XI funds. The Title XI facility requires the Company 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. At September 30, 1999 and December 31, 1998, the Company was in
compliance with all restrictive covenants.
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"). Under the Credit Facility the Company may make borrowings
in a principal amount not to exceed $20.0 million at any time. 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 revolving credit agreement 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. 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. As of September 30, 1999 and December 31,
1998, the Company had no borrowings outstanding under the Credit Facility.
12
<PAGE>
NOTE 8. ACCRUED LIABILITIES
Accrued liabilities as of September 30, 1999 and December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
1999 1998
---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Salary and benefits............................................ $ 11,966 $ 2,826
Insurance...................................................... 4,441 3,598
Taxes, other than income tax................................... 1,288 868
Federal and state income taxes................................. 596 1,674
Trade creditors................................................ 2,897 2,865
Other.......................................................... 55 27
-------- --------
Total accrued liabilities...................................... $ 21,243 $ 11,858
======== ========
</TABLE>
NOTE 9. CERTAIN TRANSACTIONS AND ARRANGEMENTS BETWEEN THE COMPANY AND ZAPATA
Until June 1999 the Company provided to Zapata payroll and certain
administrative services billed at their approximate cost. During the nine-month
periods ended September 30, 1999 and September 30, 1998 fees for these services
totaled approximately $97,000 and $144,000 respectively. 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 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 10. STOCKHOLDERS' EQUITY
Treasury Stock
During the nine months ended September 30, 1999, the Company acquired
413,100 shares of its Common Stock in connection with its stock repurchase
program.
13
<PAGE>
That program authorizes the Company to purchase up to 4.0 million common
shares from time to time on the open market at price levels the Company deems
attractive.
NOTE 11. 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.
14
<PAGE>
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," and "believe" and similar expressions as well as the
Company's statements concerning the state of the Company's Year 2000
readiness. 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 U.S. producer of protein-rich meal and oil derived from
marine sources. The Company's products are produced from menhaden (a herring-
like species of fish found in commercial quantities in U.S. coastal waters of
the mid-Atlantic and Gulf of Mexico), and include 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 as a high Omega-3 ingredient in foods for human consumption, in
aquaculture feeds and in certain industrial applications. Fish solubles are
sold as protein additives for animal feed and as organic fertilizers.
The Company owns 66 fishing vessels (53 of which are directly involved in
the harvesting operations during fiscal 1999) and owns 33 and leases 11
aircraft (of which 41 are 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. The fish catch is processed at the Company's five
plants located in Virginia, Mississippi and Louisiana.
The Company closed the American Protein Acquisition on November 3, 1997 and
the Gulf Protein Acquisition on November 25, 1997. See Part I - Financial
Information - Note 2 to Financial Statements.
15
<PAGE>
Both Acquisitions were accounted for as purchases and, therefore, their
results of operations were included in the Company's Statement of Operations
as of the closing dates for each Acquisition.
The Company completed its initial public offering on April 8, 1998.
Subsequent to the offering, the Underwriters elected to purchase over-
allotment options. These issuances generated net proceeds of approximately
$68.0 million (after deducting underwriting discounts and commissions and
offering expenses). Of these proceeds, the Company used approximately $33.3
million to repay indebtedness to Zapata and $2.1 million to repay bank
indebtedness. Of the $33.3 million indebtedness owed to Zapata, $28.1 million
was incurred to fund the cash portion of the purchase price for the
Acquisitions and the balance was primarily incurred to pay the Company's
federal income taxes. The Company has invested the remaining net proceeds in
short-term government securities and interest bearing cash equivalents pending
their use. The Company intends to use these proceeds to fund possible
acquisitions and other capital expenditures as well as for general corporate
purposes.
The Company's harvesting season generally extends from May through December
in the mid-Atlantic Coast and from April through October in 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
historically have been lower during the fishing season when product is more
abundant than in the off-season. Throughout the entire year, and from year to
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. World grain and oilseed markets during
the first nine months of 1999 have been burdened by excess supplies relative
to demand which, in turn, has 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 this period, resulting in
decreased gross profit margins. The Company withheld certain of its products
from the world markets (mainly crude fish oil) during this timeframe in
anticipation of a more favorable pricing atmosphere; however, stabilized
markets did not appear and the Company began an orderly disposition of its
excess supplies of inventory during the third quarter of 1999.
At September 30, 1999, the Company determined that the costs of its fish
product inventories were in excess of those products' realization value by
approximately $14.5 million. Such realization impact was due mainly to the
continuing depressed market values of world protein markets and particularly,
animal and oilseed oil markets. The average prices received for the Company's
fish meal and fish oil products were approximately 32% and 65% lower,
respectively, during the three-month period ending September 30, 1999, as
compared to the three months ending September 30, 1998. Although management
believes the net realizable value of inventory held as of September 30, 1999,
after giving effect to the writedown, approximates its costs, it is possible
that in the event prices do not increase during the remaining portion of the
year or the Company's cost of production for products produced during the
fourth quarter of Fiscal 1999 is greater than market value, then the Company
will be required to record an inventory valuation reserve for products to be
produced during the fourth quarter and possibly a further downward valuation
16
<PAGE>
of its existing inventories held at September 30, 1999. 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 margin, 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.
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
are 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 its 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 and/or Title XI facilities
described below.
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 14 fishing vessels and mortgages on the Company's
Reedville, Virginia and Abbeville, Louisiana plants. The Company is currently
authorized to receive up to $20.6 million in loans under this program. To
date, the Company has used $15.0 million of these funds and is currently
negotiating to utilize the remaining $5.6 million available from this program.
On September 17, 1998 the Company's Board of Directors authorized the
repurchase of up to 4.0 million shares of the Company's common stock from time
to time, depending on market conditions. No time limit has been placed on the
duration of the program and no minimum number or value of shares to be
repurchased has been fixed. Subject to applicable securities laws, shares may
be repurchased from time to time in the open market or private transactions.
Purchases are subject to availability of shares at prices deemed appropriate
17
<PAGE>
by the Company's management and other corporate considerations. Repurchased
shares will be held as treasury shares available for general corporate
purposes. During the nine months ended September 30, 1999, the Company
repurchased 413,100 shares for a total cost of $2.0 million or an average cost
of $4.84 per share. To the extent that additional shares are repurchased under
the program the Company's liquidity and working capital will be
correspondingly reduced.
Omega had an unrestricted cash balance of $12.5 million at September 30,
1999, down $32.3 million from December 31, 1998. This decrease was due to
$14.9 million increase in cash used in investing and financing activities, and
by $17.4 million in cash used in operations.
Investing activities used $12.1 million in the nine months ended September
30, 1999 and $47.3 million during the nine months ended September 30, 1998.
The Company's investing activities consisted mainly of capital expenditures
for equipment purchases and equipment replacements in the nine-month periods
ended September 30, 1999 and 1998.
Net financing activities used $794,000 to repay debt obligations and $2.0
million to repurchase stock during the nine-month period ended September 30,
1999 compared with $67.7 million cash provided by net financing activities
during the nine-month period ended September 30, 1998 due primarily to the
Company's completed public offering on April 8, 1998.
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.
18
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -----------------------
1999 1998 1999 1998
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 102.4 77.4 88.4 66.9
Inventory writedown....................... 61.2 0.0 22.6 0.0
------ ------ ------ ------
Gross profit (loss)....................... (63.6) 22.6 (11.0) 33.1
Selling, general and administrative....... 8.4 4.8 10.1 5.2
------ ------ ------ ------
Operating income (loss)................... (72.0) 17.8 (21.1) 27.9
Interest income (expense), net............ 0.2 0.9 1.1 0.2
Other (expense) income, net............... (0.0) (0.4) (0.3) (0.3)
------ ------ ------ ------
Income (loss) before income taxes......... (71.8) 18.3 (20.3) 27.8
Provision (benefit) for income taxes...... (25.8) 5.0 (7.3) 9.7
------ ------ ------ ------
Net income (loss)........................ (46.0) 13.3 (13.0) 18.1
======= ======= ====== ======
</TABLE>
INTERIM RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. Revenues for the quarter ended September 30, 1999 decreased $18.8
million, or 44.2% from $42.5 million in the quarter ended September 30, 1998.
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
essentially the same in the current quarter as compared to the quarter ended
September 30, 1998. Fish meal sales volumes for the current quarter decreased
2.7% and fish oil sales volumes for the current quarter increased 6.0% from
the comparable prior year quarter ended September 30, 1998. Sales prices for
the Company's fish meal and fish oil declined 32.0% and 65.5% respectively as
compared to the prior year quarter ended September 30, 1998. The Company
attributes the decrease in selling prices to low cyclical feed costs affecting
the protein industry.
COST OF SALES. Cost of sales, including depreciation and amortization for
the quarter ended September 30, 1999 was $24.2 million, a $8.7 million
decrease from $32.9 million in the quarter ended September 30, 1998. The
decrease in cost of sales was primarily due to an 25.0% decline in
inventoriable costs associated with the Company's fish meal and fish oil in
the current quarter as compared to the quarter ended September 30, 1998. Cost
of sales as a percent of revenues was 102.4% in the quarter ended September
30, 1999 as compared to 77.4% in the quarter ended September 30, 1998. 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 32.0%
and 65.5% respectfully during the current quarter ending September 30, 1999.
Per ton cost of sales were 25.0% lower in the quarter ended September 30, 1999
as compared to the quarter ended September 30, 1998, due mainly to lower
inventoriable costs associated with the fiscal 1999 fishing season to date.
During August and September of 1998, fishing operations were hampered by a
series of hurricanes and tropical storms that disrupted fishing operations,
resulting in higher cost inventories.
19
<PAGE>
GROSS PROFIT. Gross Profit decreased $24.7 million or 256.2% from $9.6
million in the quarter ended September 30, 1998 to a loss of $15.1 million in
the quarter ended September 30, 1999. As a percentage of revenues, the
Company's gross profit margin decreased 86.2% in the quarter ended September
30, 1999 compared to the same period in the prior fiscal year. The decline in
gross profit was the result of both a decrease in revenues and a $14.5 million
inventory writedown charged against operations pertaining to downward pricing
pressures on the Company's fishing product inventories at September 30, 1999,
resulting in a lower gross profit margin during the quarter ended September
30, 1999 as compared to the quarter ended September 30, 1998.
OPERATING INCOME. As a result of the factors discussed above, the Company's
operating income decreased $24.5 million from $7.5 million in the quarter
ended September 30, 1998 to a loss of $17.0 million for the quarter ended
September 30, 1999. As a percentage of revenue, operating income decreased
from 17.8 % in the quarter ended September 30, 1998 to negative 72.0% in the
period ended September 30, 1999.
INTEREST INCOME (EXPENSE), NET. Interest income, net decreased by $338,000
in the quarter ended September 30, 1999 as compared to the previous quartered
ended September 30, 1998. The decrease in net interest income was due to the
reduction of cash and cash equivalents available for investment purposes
during the quarter ended September 30, 1999 as compared to the previous
quarter ended September 30, 1998.
OTHER INCOME (EXPENSE), NET. Other expense, net decreased $148,000 in the
quarter ended September 30, 1999 over the prior quarter ended September 30,
1998. The decrease in other expense, net was due to an increase in other
income of $106,000 due to net gains on the sale of non-producing assets and a
decrease in miscellaneous other expense of $42,000 for the quarter ended
September 30, 1999 as compared to the quarter ended September 30, 1998.
PROVISION FOR INCOME TAXES. The Company recorded a $6.1 million provision
for an income tax benefit for the quarter ended September 30, 1999. This
represents an effective tax rate benefit of 36.0% on a $17.0 million loss in
comparison to a $2.1 million tax provision for income tax expense in the
quarter ended September 30, 1998, representing an effective tax rate of 27.3%.
The effective tax rate approximates the applicable combined state and federal
statutory tax rates for the fiscal year.
INTERIM RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. For the nine months ended September 30, 1999 revenues decreased
$40.0 million, or 38.4% from $104.1 million for the nine months ended
September 30, 1998. The decrease was attributable to lower sales volumes of
the Company's fish meal and fish oil and lower prices for the Company's fish
meal and fish oil. Sales volumes for the company's fish meal and fish oil
declined 8.8% and 11.9% respectively during the current nine-month period
ended September 30, 1999 as compared to the prior year nine-month period ended
September 30, 1998. Fish meal sales prices and fish oil prices declined 23.1%
and 49.7% respectively as compared to the prior year nine-month period ended
September 30, 1998. The lower sales
20
<PAGE>
volumes for the Company's fish meal and fish oil is due to management's
decision to defer sales during the nine-month period ending September
30, 1999 as a result of lower prices. The Company attributes the decrease in
selling prices to low cyclical feed cost affecting the protein industry.
COST OF SALES. Cost of sales, including depreciation and amortization, for
the nine months ended September 30, 1999 was $56.6 million, a $13.0 million
decrease from $69.6 million from the comparable nine-month period ended
September 30, 1998 due to a 9.8% decline in sales volumes for the Company's
fish meal and fish oil. As a percent of revenues, cost of sales was 88.4% in
the nine-month period ended September 30, 1999 as compared to 66.9% in the
comparable nine-month period ended September 30, 1998. The increase in cost of
sales as a percent of revenues was due to decreases in the Company's selling
prices for fish meal and fish oil of 23.1% and 49.7% respectively during the
nine-month period ended September 30, 1999. Per ton cost of sales were 10.0%
lower in the nine-month period ended September 30, 1999 as compared to the
previous nine-month period ended September 30, 1998, due mainly to lower
inventoriable costs associated with the Fiscal 1999 fishing season to date.
During August and September of 1998, fishing operations were hampered by a
series of hurricanes and tropical storms that disrupted fishing operations,
resulting in higher cost inventory.
GROSS PROFIT. Gross Profit decreased $41.5 million or 120.4% from $34.5
million in the nine-month period ended September 30, 1998 to a loss of $7.1
million in the nine months ended September 30, 1999. As a percentage of
revenues, the Company's gross profit margin decreased 44.1% in the nine-month
period ended September 30, 1999 compared to the same nine-month period in the
prior fiscal year. The decline in gross profit was the result of a 23.1% and
49.7% decline in selling prices for the Company's fish meal and fish oil and a
$14.5 million inventory writedown charged against operations pertaining to
downward pricing pressures on the Company's fishing product inventories at
September 30, 1999, resulting in a lower gross profit margin during the first
nine-month period of Fiscal 1999 compared to the nine months ended September
30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.1 million or 19.4% from $5.4 million in
the nine-month period ended September 30, 1998 compared to $6.5 million in the
period ended September 30, 1999. The increase in expense was due primarily to
increased personnel and marketing costs associated with the Company's efforts
to enter the U.S. food market with its refined menhaden oil, along with
increased costs associated with being a public company.
OPERATING INCOME. As a result of the factors discussed above, the Company's
operating income decreased from $29.0 million in the nine months ended
September 30, 1998 to a loss of $13.5 million for the period ended September
30, 1999. As a percentage of revenue, operating income decreased from 27.9% in
the quarter ended September 30, 1998 to a negative 21.1% in the period ended
September 30, 1999.
INTEREST INCOME (EXPENSE), NET. Interest income, net increased by $495,000
from $211,000 in the nine-month period ended September 30, 1998 to $706,000
during the current
21
<PAGE>
nine-month period ended September 30, 1999. This increase was due to a
decrease in interest expense as a result of the May 1998 prepayment of a $28.1
million intercompany loan from Zapata, for the nine months ended September 30,
1999 as compared to the nine months ended September 30, 1998..
OTHER INCOME (EXPENSE), NET. Other expense, net decreased $57,000 from
$278,000 in the nine-month period ended September 30, 1998 to $221,000 in the
nine-month period ended September 30, 1999. During the previous nine months
ended September 30, 1998, the Company experienced a gain on the sale of non-
productive assets.
PROVISION FOR INCOME TAXES. The Company recorded a $4.7 million benefit for
income tax for the nine-month period ended September 30, 1999. This
represents an effective tax rate of 36.0% in comparison to a $10.1 million tax
provision for the nine-month period ended September 30, 1998, representing an
effective tax rate of 34.8%. The effective tax rate approximates the
applicable combined state and federal statutory tax rates for the fiscal year.
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.
YEAR 2000
The Year 2000 ("Y2K") issue arises because of computer programs using a two-
digit format, as opposed to four digits, to indicate the year. Some computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in
operations.
The Company is aware of the issues surrounding the Y2K and the problems that
may occur. In 1997 the Company developed a program for Y2K compliance. Since
1997 the Company has converted all of its computer information systems to
enable proper processing of critical management information systems ("MIS")
related to the Y2K issue and beyond. Critical MIS systems consist of software
programs such as the operating system, spreadsheets, accounting and financial
programs. Testing methodology involved changing the date on the system being
tested to be in the year 2000 and then exercising all relevant applications to
verify Y2K compliance. The Company's current estimates indicate that the costs
of addressing potential problems are not expected to have a material impact
upon the Company's financial position, result of operations or cash flows in
future periods. To date, the cost of the Company's Y2K Compliance program
(including software conversion) has been immaterial.
22
<PAGE>
The Company continues to evaluate its non-critical MIS systems and expects
that they will be compliant prior to the year 2000. Non-critical MIS systems
refer to embedded technology such as micro controllers found in computers and
other hardware systems that the Company has identified as non-critical MIS
systems. Non-critical MIS systems are those that would not cause a disruption
in any harvesting or manufacturing application involved in producing product.
Internal systems are not the only ones that may have a material effect on
the Company. External relationships to the Company, such as vendors and
customers may also impact the Company by their inability to deliver goods and
services required by the Company to operate. Customers could adversely impact
the Company by their inability to operate, reducing the sale of product, or
their inability to pay the Company for products purchased. The Company has
addressed this issue in Fiscal 1999 by identifying major vendors and customers
and sending surveys to discover their level of Y2K compliance. Major vendors
are defined as those that provide critical goods or services to the Company or
those that provide critical components to the Company (such as fuel suppliers
and financial institutions). Major customers are identified as those customers
that are at the greatest risk of being impacted by the Y2K problem (mainly
large domestic and foreign industrial and commercial customers). The
completion date of system surveys of external parties was September 30, 1999.
All of the Company's major vendors and customers were able to respond
favorably to the Y2K compliance surveys. There can be no guarantee that the
systems of other companies on which Omega's systems rely will be timely
converted or that a failure to convert by another company or that a conversion
that is incompatible with the Company's systems, would not have a material
adverse effect on the Company.
At this point in time, management has not engaged any firm, nor does it
plan to engage any firm, to perform an independent verification and validation
of the Company's Y2K compliance.
At present, the Company does not have a contingency plan in place to
specifically cover the Y2K issues. However, the Company's management continues
to evaluate its systems and those of its vendors and customers and expects
that all of its systems will be compliant prior to the year 2000.
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, other filings
by the Company with the SEC from time to time and press releases issued by the
Company could affect the Company's actual results 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
23
<PAGE>
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.
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. The unanticipated impact of Y2K issues, including the Company's ability
to address Y2K compliance and to develop information technology and
management information systems to support strategic goals while
continuing to control costs and expenses and counter-party issues.
10. 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
24
<PAGE>
or otherwise provided for or insured against, its business, results of
operation and financial condition could be adversely effected.
11. 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.
25
<PAGE>
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
(a) None.
(b) In April and May 1998, the Company sold 4,600,000 shares of its common
stock for an aggregate offering price of $73.6 million. Also pursuant
to the Registration Statement, Zapata, as a selling stockholder, sold
5,175,000 shares of common stock of the Company for an aggregate
offering price of $82.8 million. The net offering proceeds to the
Company and Zapata, as selling stockholder, after underwriting
discounts and commissions expenses was $68.0 million and $77.2
million, respectively. All disbursements from the aggregate proceeds
of the offering (including expenses) were direct or indirect payments
to non-related parties. On April 8, 1998, the Company used
approximately $33.3 million of its net proceeds from the offering to
repay an acquisition loan and certain other indebtedness owed Zapata
and approximately $2.1 million to repay a bank loan. The Company
anticipates using the balance of the net proceeds for capital
expenditures (including possible acquisitions), working capital and
general corporate purposes. All unused net proceeds have been invested
in cash, cash equivalents and short-term investments. The use of the
proceeds from the offering to date does not represent a material
change in the use of the proceeds described in the prospectus included
in the Registration Statement.
26
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 - Financial Data Schedule
(b) Reports on Form 8-K:
Omega filed the following Current Report on Form 8-K with the
Securities and Exchange Commission:
(1) Date of Earliest Event Reported: December 15, 1998
Item Reported: Change in Fiscal Year
27
<PAGE>
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)
November 12, 1999 By: /s/ ERIC T. FUREY
--------------------------
(Vice President, General Counsel
and Corporate Secretary)
November 12, 1999 By: /s/ ROBERT W. STOCKTON
---------------------------
(Executive Vice President and Chief
Financial Officer)
28
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
27.1 - Financial Data Schedule
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 12,502
<SECURITIES> 0
<RECEIVABLES> 17,425
<ALLOWANCES> 0
<INVENTORY> 63,598
<CURRENT-ASSETS> 94,193
<PP&E> 140,865
<DEPRECIATION> 48,583
<TOTAL-ASSETS> 191,914
<CURRENT-LIABILITIES> 26,234
<BONDS> 10,662
0
0
<COMMON> 243
<OTHER-SE> 111,794
<TOTAL-LIABILITY-AND-EQUITY> 191,914
<SALES> 64,054
<TOTAL-REVENUES> 64,054
<CGS> 56,606
<TOTAL-COSTS> 77,572
<OTHER-EXPENSES> (221)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 706
<INCOME-PRETAX> (13,033)
<INCOME-TAX> (4,689)
<INCOME-CONTINUING> (8,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,344)
<EPS-BASIC> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
