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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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 77056
Houston, Texas (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (713) 623-0060
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Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on Which registered
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Common Stock, $0.01 par value........................... New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None.
On March 9, 2000, there were outstanding 24,302,126 shares of the Company's
Common Stock, $0.01 par value. As of such date, the aggregate market value of
the Company's common stock held by nonaffiliates of the Company is $77,298,469
based on the closing price of the Common Stock in consolidated trading. This
figure does not include the value of Common Stock held by Directors and
Executive Officers of the Registrant and members of the immediate families,
some of whom may constitute "affiliates" for purpose of the Securities
Exchange Act of 1934.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Documents incorporated by reference: Portions of the registrant's definitive
proxy statement for its combined 2000 annual meeting of stockholders, which
will be filed with the Securities and Exchange Commission within 120 days
after December 31, 1999, are incorporated by reference to the extent set forth
in Part III.
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TABLE OF CONTENTS
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PART I
Items 1. and 2. Business and Properties............................... 1
General............................................... 1
Financial Information about Industry Segments......... 2
Company Overview...................................... 2
Employees............................................. 5
Geographical Information.............................. 5
Executive Officers of the Registrant.................. 5
Properties............................................ 6
Item 3. Legal Proceedings..................................... 6
Item 4. Submission of Matters to a Vote of Security Holders... 6
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................. 7
Item 6. Selected Financial Data............................... 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 8
Item 7A. Quantitative and Qualitative Disclosure About Market
Risk................................................. 17
Item 8. Financial Statements and Supplementary Data........... 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 38
PART III
Item 10. Directors and Executive Officers of the Registrant.... 39
Item 11. Executive Compensation................................ 39
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................... 39
Item 13. Certain Relationships and Related Transactions........ 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................. 40
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Forward-looking statements in this Annual Report on Form 10K, 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 7 "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 upgrade forward-looking statements.
PART I
Items 1 and 2. Business and Properties
General
Omega Protein Corporation is a Nevada corporation organized in 1998. As used
herein, the term "Omega" or the "Company" refers to Omega Protein Corporation
or to Omega Protein Corporation and its consolidated subsidiaries, as
applicable. Because the Company changed its Fiscal year end from September 30
to December 31, a three-month transition period from October 1, 1998 through
December 31, 1998 (the "Transition Period") precedes the start of the Fiscal
1999 year. "Fiscal 1998" and "Fiscal 1997" refer to the respective years ended
September 30. The Transition Period refers to the three months ended December
31, 1998, and "Fiscal 1999" refers to the twelve months ended December 31,
1999. The Company's principal executive offices are at 1717 St. James Place,
Suite 550, Houston, Texas 77056 (Telephone: (713) 623-0060).
The Company is the successor by merger to Marine Genetics Corporation
(formerly known as Zapata Protein, Inc.), a Delaware corporation, which was
formed in March 1994 to act as the holding company for Omega Protein, Inc.
(formerly known as Zapata Protein (USA), Inc.). Omega Protein, Inc., which is
the operating entity for the Company's current business, was formed in
Virginia in October 1986, and is the successor to business, conducted since
1913. The Company has a number of direct and indirect subsidiaries.
Until April 1998, the Company, including its predecessors, was a wholly-
owned subsidiary of Zapata Corporation ("Zapata"), a publicly traded company
which has shares listed on the New York Stock Exchange, Inc. ("NYSE"), since
1973 when Zapata acquired the Company's operations. In April 1998, the Company
completed an initial public offering (the "Offering") of 8,500,000 shares of
its Common Stock at a price to the public of $16.00 per share. In May 1998,
the Underwriters exercised their option to acquire 1,275,000 additional shares
at the same price. Of the 9,775,000 total shares sold in the Offering, the
Company issued and sold 4,600,000 shares, and Zapata sold 5,175,000 shares to
the public. Immediately following the Offering, Zapata owned approximately
59.7% of the Company's outstanding Common Stock. The Company used a portion of
the net proceeds of the Offering to repay amounts due Zapata and a certain
bank; the balance of the proceeds were invested in certificates of deposits
and A2P2 rated or better commercial paper. See Note 1 (Concentrations of
Credit Risk) to the Company's Consolidated Financial Statements in Item 8 of
this Report.
To concentrate on and enhance its core business, the Company sold a
marginally profitable business in late Fiscal 1997 and acquired certain assets
in early Fiscal 1998 to increase the Company's harvesting and production
capabilities.
On September 16, 1997, the Company's wholly owned subsidiary, Venture
Milling Company, a Delaware corporation ("Venture Milling"), sold
substantially all of its assets to an unrelated third party (the "Venture
Milling Disposition"). Venture Milling was primarily in the business of
blending different animal protein
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products (i.e. fish meal, blood meal and feather meal) for sale to producers
of feed for broilers and other animals with low nutritional requirements.
Venture Milling had annual revenues and operating income of $32.0 million and
$174,000, respectively, in Fiscal 1997. The Venture Milling Disposition
resulted in a $531,000 pre-tax loss to the Company in Fiscal 1997 and did not
have a material impact on the Company's balance sheet because Venture Milling
leased most of the assets employed in its operations.
On November 3, 1997, the Company acquired for $14.5 million in cash, 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 (the "American Protein Acquisition"). American Protein's
facilities were located in close proximity to the Company's Reedville,
Virginia facility. Shortly after closing this acquisition, the Company closed
the American Protein plant and began integrating its assets into the Company's
existing operations.
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 at the Gulf Protein
plant located near Morgan City, Louisiana, for $13.6 million in cash and the
assumption of $883,000 in long-term liabilities (the "Gulf Protein
Acquisition" and, together with the American Protein Acquisition, the
"Acquisitions"). In connection with the Gulf Protein Acquisition, the Company
also entered into a five-year lease for the Gulf Protein plant at a $220,000
annual rental rate. The Company began operations at the Morgan City, Louisiana
plant at the start of the 1998 fishing season, which began in April, 1998. Due
to the decline in the average per-ton prices for the Company's products which
occurred in Fiscal 1999 (see Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Fiscal
1999-1998), the Company has elected to discontinue in-line processing
operations at its Morgan City plant for the 2000 fishing season which starts
in April 2000. The Company will reevaluate this plant on an annual basis
thereafter.
Financial Information About Industry Segments
The Company operates within one industry segment, menhaden fishing.
Information concerning export sales and geographical distribution of revenues
based on location of customers is incorporated by reference from Note 15 of
Notes to the Company's Consolidated Financial Statements in Item 8 of this
Report.
Company Overview
The Company's marine protein operations involve the production and sale of a
variety of protein products derived from menhaden, a species of fish found
along the Gulf of Mexico and Atlantic coasts. Omega is the largest processor,
marketer and distributor of marine products (fish meal) and fats (fish oil) in
the United States. The Company processes several grades of fish meal (regular
or "FAQ" meal and specialty meals), as well as fish oil and fish solubles. The
Company's fish meal products are primarily used as a protein ingredient in
animal feed for poultry, swine, cattle, aquaculture and household pets. The
Company's fish oil is primarily used as an ingredient in margarine and
shortening. The Company's fish solubles are sold primarily to livestock feed
manufacturers and for use as an organic fertilizer.
Fishing. During Fiscal 1999, the Company owned a fleet of 66 fishing vessels
and 33 spotter aircraft for use in its fishing operations and also leased
additional aircraft where necessary to facilitate operations. During the 1999
fishing season in the Gulf of Mexico, where the fishing season runs from mid-
April through October, the Company operated 40 fishing vessels and 32 spotter
aircraft. The fishing area in the Gulf is generally located along the entire
Gulf Coast, with a concentration off the Louisiana and Mississippi coasts. The
fishing season along the Atlantic coast begins in early May and usually
extends into December. The Company operated 13 fishing vessels and 9 spotter
aircraft along the Mid-Atlantic coast, concentrated primarily in and around
the Chesapeake Bay. For Fiscal 2000, the Company has converted four of its
former fishing vessels to "carry vessels" which will not engage in active
fishing but will instead carry fish catch from the Company's offshore fishing
vessels to its plants. The Company believes that this utilization will
increase the amount of time that the
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bulk of its vessels remain offshore in productive areas and therefore increase
the Company's fish catch per vessel employed.
Menhaden usually school in large, tight clusters and are commonly found in
warm, shallow waters. Spotter aircraft locate the schools and direct the
fishing vessels to them. The principal fishing vessels transport two 40-foot
purse boats, each carrying several fishermen and one end of a 1,500-foot net.
The purse boats encircle the school and capture the fish in the net. The fish
are then pumped from the net into refrigerated holds of the fishing vessel,
and then are unloaded at the Company's processing plants.
Processing. During Fiscal 1999, the Company operated five processing plants,
three in Louisiana, one in Mississippi and one in Virginia, where the menhaden
are processed into fish meal, fish oil and fish solubles. The fish are
unloaded from the fishing vessels into storage boxes and then conveyed into
steam cookers. The fish are then passed through presses to remove most of the
oil and water. The solid portions of the fish are dried and then ground into
fish meal. The liquid that is produced in the cooking and pressing operations
contains oil, water, dissolved protein and some fish solids. This liquid is
decanted to remove the solids and is then put through a centrifugal oil/water
separation process. The separated fish oil is a finished product. The
separated water and protein mixture is further processed through evaporators
to remove the soluble protein, which can be sold as a finished product or
added to the solid portions of the fish for processing into fish meal.
Fish meal, the principal product made from menhaden, is sold primarily as a
high-protein feed ingredient. It is used as a protein supplement in feed
formulated for pigs and other livestock. Each use requires certain standards
to be met regarding quality and protein content, which are determined by the
freshness of the fish and by processing conditions such as speed and
temperatures. Fish solubles are a liquid protein product used as an additive
in fish meal and also marketed as an independent product to animal feed
formulators and the fertilizer industry.
Fish oil from menhaden is widely used for human consumption as an edible fat
in Europe. Refined and hydrogenated menhaden oils have a wide variety of
applications as ingredients of margarine, cooking oil and solid cooking fats
used in baked goods. In June 1997, the U.S. Food and Drug Administration
approved the use of refined non-hydrogenated menhaden oil, a natural source of
Omega-3 fatty acids, for human consumption in the United States. Ongoing
scientific studies continue to link consumption of Omega-3-rich fish oil to a
number of nutritional and health benefits.
Customers and Marketing. Most of the Company's marine protein products are
sold directly to about 300 customers by the Company's marketing department,
while a smaller amount is sold through independent sales agents. Product
inventory was $41.5 million as of December 31, 1999 versus $38.6 million on
December 31, 1998.
The Company's fish meal is sold primarily to domestic feed producers for
utilization as a high-protein ingredient for the poultry, swine, aquaculture
and pet food industries. Fish oil sales primarily involve export markets where
the fish oil is refined for use as an edible oil. One Danish based customer
for fish oil, Denofa A/S, accounted for approximately 9.0% of the Company's
consolidated revenues (approximately $8.7 million) in Fiscal 1999.
The Company's products are sold both in the U.S. and internationally.
International sales consist mainly of fish oil sales to Canada, Japan, Mexico
and The Netherlands. The Company's sales in these foreign markets are
denominated in U.S. dollars and not directly affected by currency
fluctuations. Such sales could be adversely affected by changes in demand
resulting from fluctuations in currency exchange rates.
A number of countries in which the Company currently sells products impose
various tariffs and duties, none of which have a significant impact on the
Company's foreign sales. Certain of these duties are being reduced annually
under the North American Free Trade Agreement in the case of Mexico and Canada
and under the Uruguay Round Agreement of the General Agreement on the Trade
and Tariffs in the case of Japan. In all
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cases, the Company's products are shipped to its customers F.O.B. shipping
point and therefore the customer is responsible for any tariffs, duties or
other levies imposed on the Company's products sold into these markets.
Insurance. The Company maintains insurance against physical loss and damage
to its assets, coverage against liabilities to third parties it may incur in
the course of its operations, as well as workers' compensation, United States
Longshoremen and Harbor Workers' Act and Jones Act coverage. Assets are
insured at replacement cost, market value or assessed earning power. The
Company's limits for liability coverage are statutory or $50.0 million. The
$50.0 million limit is comprised of several excess liability policies, which
are subject to deductibles, underlying limits and exclusions. The Company
believes its insurance coverage to be in such form, against such risks, for
such amounts and subject to such deductible as are prudent and normal for its
operations.
Competition. Omega competes on price, quality and performance
characteristics of its products, such as protein level and amino acid profile
in the case of fish meal. The principal competition for the Company's fish
meal and fish solubles is from other protein sources such as soybean meal and
other vegetable or animal protein products. The Company believes, however,
that these other sources are not complete substitutes because fish meal offers
nutritional values not contained in such sources. Vegetable fats and oils,
such as soybean and palm oils, provide the primary market competition for fish
oil. In addition, the Company competes against domestic, privately owned
menhaden fishing companies as well as domestic and international producers of
fish meal and fish oil derived from species such as anchovy and horse
mackerel.
Fish meal prices have historically borne a relationship to prevailing
soybean meal prices, while prices for fish oil are generally influenced by
prices for vegetable fats and oils, such as soybean and palm oils. Thus, the
prices for the Company's products are established by worldwide supply and
demand relationships over which the Company has no control and tend to
fluctuate to a significant extent over the course of a year and from year to
year.
Regulation. The Company's operations are subject to federal, state and local
laws and regulations relating to the location and periods in which fishing may
be conducted as well as environmental and safety matters. At the state and
local level, certain state and local government agencies have either enacted
legislation and regulations or have the authority to enact with legislation
and regulation to prohibit, restrict or regulate menhaden fishing within their
jurisdictional waters. The Company, through its operation of fishing vessels,
is subject to the jurisdiction of the U.S. Coast Guard, the National
Transportation Safety Board and the U.S. Customs Service. The U.S. Coast Guard
and the National Transportation Safety Board set safety standards and are
authorized to investigate vessel accidents and recommend improved safety
standards. The U.S. Customs Service is authorized to inspect vessels at will.
The Company's operations are also subject to federal, state and local laws
and regulations relating to the protection of the environment, including the
federal Water Pollution Control Act of 1972, which was significantly modified
in 1977 to deal with toxic water pollutants and re-named as the Clean Water
Act, and which imposes strict controls against the discharge of pollutants in
reportable quantities, and along with the Oil Pollution Act of 1990, imposes
substantial liability for the costs of oil removal, remediation and damages.
The Company's marine protein operations also are subject to the federal Clean
Air Act, as amended; the federal Resource Comprehensive Environmental
Response, Compensation, and Liability Act, which imposes liability, without
regard to fault, on certain classes of persons that contributed to the release
of any "hazardous substances" into the environment; and the federal
Occupational Safety and Health Act ("OSHA"). The OSHA hazard communications
standard, the Environmental Protection Agency community right-to-know
regulations under Title III of the federal Superfund Amendment and
Reauthorization Act and similar state statutes require the Company to organize
information about hazardous materials used of produced in its operations.
Certain of this information must be provided to employees, state and local
governmental authorities and local citizens. Numerous other environmental laws
and regulations, along with similar state laws, also apply to the operations
of the Company, and all such laws and regulations are subject to change.
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The Company has made, and anticipates that it will make in the future,
expenditures in the ordinary course of its business in connection with
environmental matters. Such expenditures have not been material in the past
and are not expected to be material in the future. However, there is no
assurance that environmental laws and regulations enacted in the future will
not adversely affect the Company's operations.
The Company's harvesting operations are subject to certain federal maritime
laws and regulations which require, among other things, that the Company be
incorporated under the laws of the U.S. or a state, the Company's chief
executive officer be a U.S. citizen, no more of the Company's directors be
non-citizens than a minority of the number necessary to constitute a quorum
and at least 75% of the Company's outstanding capital stock (including a
majority of the Company's voting capital stock) be owned by U.S. citizens. If
the Company fails to observe any of these requirements, it will not be
eligible to conduct its harvesting activities in U.S. jurisdictional waters.
Such a loss of eligibility would have a material adverse affect on the Company
business, results of operations and financial conditions.
The Company believes that during the past five years it has substantially
complied with all material statutes and regulations applicable to its
operations, the failure to comply with which would have had a material adverse
impact on its operations.
Employees
At December 31, 1999, during the Company's off season, the Company employed
approximately 572 persons. In August 31, 1999, during the peak of the
Company's 1999 fishing season, the Company employed approximately 1,348
persons. Approximately 175 employees of the Company are represented by an
affiliate of the United Food and Commercial Workers Union. During the past
five years Omega has not experienced any strike or work stoppage which has had
a material impact on its operations. The Company considers its employee
relations to be generally satisfactory.
Geographical Information
Certain geographical information with respect to the Company's business is
set forth in Note 15 of the Company's Consolidated Financial Statements
included in Item 8 of this report.
Executive Officers of the Registrant
The names, ages and current offices of the executive officers of the
Company, who are to serve until their successors are elected and qualified,
are set forth below. Also indicated is the date when each such person
commenced serving as an executive officer of the Company.
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Date
Became
Executive
Name and Age Office Officer
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Joseph L. von Rosenberg Chief Executive Officer, President and July 1997
III (41)............... Director
Robert W. Stockton Executive Vice President, Chief Financial July 1997
(48)................... Officer and Secretary
Bernard H. White (52)... Corporate Vice President March 1998
Jonathan Specht (42).... Vice President--Operations June 1999
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A description of the business experience during the past five years for each
of the executive officers of Omega is set forth below.
Joseph L. von Rosenberg III is President and Chief Executive Officer of the
Company. He has served in these positions since July 1997. Prior to serving in
these positions Mr. von Rosenberg served as Executive Vice President of Zapata
from November 1995 until April 1998. Prior to becoming Executive Vice
President of Zapata, Mr. von Rosenberg served as General Counsel of Zapata
from August 1994 to July 1997 and Corporate
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Secretary of Zapata from June 1993 to July 1997. From August 1994 through
November 1995, Mr. von Rosenberg also held the position of Vice President of
Zapata. Prior to joining Zapata in June 1993, he served as General Counsel and
Corporate Secretary of The Simmons Company.
Robert W. Stockton is Executive Vice President, Chief Financial Officer and
Secretary of the Company. He has served as Executive Vice President, Chief
Financial Officer since July 1997 and as Secretary since December 1999. For
the five years prior to joining the Company in July 1997, Mr. Stockton was
Vice President and Chief Financial Officer of The Simmons Group and also
served as Corporate Controller of Proler International Corp.
Bernard H. White was named Corporate Vice President in March 1998. From 1994
to 1998, Mr. White worked as a Public Affairs and Investor Relations
Consultant. Prior to that Mr. White served as Vice President--Corporate
Affairs of Zapata Corporation.
Jonathan Specht was named Vice President--Operations in June 1999. From June
1997 through June 1999, Mr. Specht was the General Manager of the Company's
Cameron, Louisiana facility. Prior thereto, he was General Manager of a
facility operated by Golden Valley Meat.
Properties
The Company owns the Reedville, Virginia, Moss Point, Mississippi and
Abbeville, Louisiana plants and the real estate on which they are located
(except for a small leased parcel comprising a portion of the Abbeville
facility). The Company leases from unaffiliated third parties the real estate
on which the Cameron, Louisiana and Morgan City, Louisiana plants are located.
The Cameron plant lease provides for a 10 year term ending on June 30, 2002
(with two successive 10 year options) and annual rent of $56,000. The Morgan
City plant lease provides for a 5 year term beginning on November 25, 1997 at
an annual rent of $220,000. The Company has an option under the Morgan City
lease to purchase the plant for $656,000 during the last month of the lease or
earlier if all rent through the end of the term is paid.
As of December 31, 1999, the Company's five processing plants had an
aggregate capacity to process approximately 950,000 tons of fish annually. The
Company's processing plants are located in coastal areas near the Company's
fishing fleet. Annual volume processed varies depending upon menhaden catch
and demand. Each plant maintains a dedicated dock to unload fish, fish
processing equipment and storage capacity. The Reedville, Virginia facility
contains an oil refining plant and net making facility. The Company
periodically reviews possible application of new processing technologies in
order to enhance productivity and reduce costs.
In July 1997, the Company commenced construction of a dry dock facility in
Moss Point, Mississippi to address the shortage of shoreside maintenance in
the U.S. Gulf coast and the increasing costs of these services. The facility
was completed in March 1998. The Company is using this facility and other
outside facilities to perform routine maintenance to its fishing fleet. The
Company also provides shoreside maintenance services to third party vessels if
excess capacity exists.
The Company also leases office space in Houston, Texas for its executive
offices pursuant to a sublease with Zapata. The Company believes its
facilities are adequate and suitable for its current level of operations. The
Company maintains customary workers' compensation insurance, as well as
liability, property and marine insurance for all of its operations.
Item 3. Legal Proceedings
The Company is defending various claims and litigation arising from
operations which arise in the ordinary cause of the Company's business. In the
opinion of management, any losses resulting from these matters will not have a
material adverse affect on the Company's results of operations, cash flows or
financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of Omega's stockholders during the fourth
quarter of Fiscal 1999.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Omega's Common Stock is listed on the New York Stock Exchange. The high and
low sales prices for the Common Stock, as reported in the consolidated
transactions reporting system, as well as the amounts per share of dividends
declared during such periods, for each quarterly period since the Company's
initial public offering in April 1998, are shown in the following table. Prior
to the Company's initial public offering in April 1998, there was no public
market for Omega's Common Stock.
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December 31, September 30, June 30, March 31, December 31, September 30, June 30,
1999 1999 1999 1999 1998 1998 1998
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High sales price........ $3.44 $5.94 $6.17 $11.50 $10.13 $17.00 $18.50
Low sales price......... 2.31 3.06 4.75 4.25 4.50 5.56 14.25
Dividends declared...... -- -- -- -- -- -- --
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On March 9, 2000, the closing price of the common stock, as reported by the
NYSE, was $3.19 per share. As of March 9, 2000, there were approximately 55
holders of record of Common Stock. This number does not include any beneficial
owners for whom shares maybe held in a "nominee" or "street" name.
The Company intends to retain earnings, if any, to support its growth
strategy and does not anticipate declaring or paying dividends on its Common
Stock in the foreseeable future. Any future determination as to payment of
dividends will be made at the discretion of the Board of Directors of the
Company and will depend upon the Company's operating results, financial
condition, capital requirements, general business conditions and such other
factors that the Board of Directors deems relevant. In addition, the payment
of cash dividends is limited by the terms of the Company's revolving credit
agreement with SunTrust Bank, South Florida, N.A., (the "Credit Facility")
which states that in any fiscal year of the credit facility, the Company shall
not pay or declare dividends in excess of fifty percent (50%) of its
consolidated net income. At December 31, 1999, the Company could not have
declared and paid dividends within the limitations of the Credit Facility.
In September 1998, the Company's Board of Directors authorized a program to
repurchase up to 4,000,000 shares of its issued and outstanding common stock.
Omega had repurchased an aggregate of 413,100 shares under this program.
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Item 6. Selected Financial Data
The following table sets forth certain selected historical consolidated
financial information for the periods presented and should be read in
conjunction with the Consolidated Financial Statements of the Company included
in Item 8 of this Report and the related notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in Item 7 of the Report.
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Year Three Months
Ended Ended
December 31, Years Ended September 30,
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1999 1998 1998 1997 1996
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(in thousands, except per share amounts)
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INCOME STATEMENT DATA:
Revenues.............. $ 93,636 $ 25,759 $133,555 $117,564(1) $93,609
Operating income
(loss)............... (23,273)(5)(6) 6,272 38,118 18,205 10,504
Net income (loss)..... (14,756) 4,252 24,207 10,425 5,928
Per share income
(loss) basic......... (0.62) 0.18 1.11 0.53 0.30
Per share income
(loss) diluted....... (0.62) 0.18 1.10 0.53 0.30
Cash dividends paid .. -- -- -- -- --
CASH FLOW DATA:
Capital expenditures.. 15,145 3,030 21,540 9,825 4,673
Acquisitions of
property and
equipment............ -- -- 28,116 -- --
BALANCE SHEET DATA:
Working capital....... $ 63,724 $ 83,557 $ 80,498 $ 31,396 $20,719
Property and
equipment, net....... 90,368 86,068 84,798(2) 40,889 36,511
Total assets.......... 176,148 189,853 193,421 100,440 86,969
Current maturities of
long-term debt....... 1,146 997 1,114 1,034 487
Long-term debt........ 16,069 11,205 11,408 11,294 50,187
Stockholders' equity.. $144,172 $160,850 $156,598(3) $ 64,354(4) $12,029
</TABLE>
- --------
(1) In September 1997, the Company closed the Venture Milling Disposition. See
Note 2 to Company's Consolidated Financial Statements.
(2) In November 1997, the Company closed both the American Protein Acquisition
and the Gulf Protein Acquisition. See Note 2 to Company's Consolidated
Financial Statements.
(3) The Company's initial public offering closed in April 1998 which resulted
in net proceeds to the Company of $68.0 million, of which $33.3 million
was used to repay indebtedness. See Note 1 to Company's Consolidated
Financial Statements.
(4) In Fiscal 1997, Zapata contributed to the Company $41.9 million existing
intercompany debt owed to Zapata by the Company.
(5) During the quarters ended September 30, 1999 and December 31, 1999, the
Company recorded inventory write-downs of $14.5 million and $3.7 million,
respectively, for market declines on the inventory values of the Company's
fish meal and fish oil.
(6) Includes a pre-tax charge of $2.3 million during the quarter ended
December 31, 1999, for the write-down of certain impaired Morgan City
plant in-line processing assets.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is a discussion of the Company's financial condition and
results of operations. This discussion should be read in conjunction with the
Consolidated Financial Statements of the Company appearing under Item 8
herein.
Certain amounts applicable to the prior periods have been reclassified to
conform to the classifications currently followed. Such reclassifications do
not affect earnings or stockholders' equity.
8
<PAGE>
General
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 fish
found in commercial quantities), and including regular grade and value added
specialty fish meals, crude and refined fish oils and fish solubles. The
Company's fish meal products are used as nutritional feed additives by animal
feed manufacturers and by commercial livestock and poultry farmers. The
Company's crude fish oil is sold to food producers in Europe and its refined
fish oil products are used in aquaculture feeds and certain industrial
applications. Fish solubles are sold as protein additives for animal feed and
as organic fertilizers.
The fish catch is processed into regular grade fish meal, specialty fish
meals, fish oils and fish solubles at the Company's five operating plants
located in Virginia, Mississippi and Louisiana. The Company owns 66 fishing
vessels (53 of which were directly involved in the harvesting operations
during Fiscal 1999) and owns 33 and leases 11 aircraft (of which 41 were
directly involved in the harvesting operations) that are used to harvest
menhaden in coastal waters along the U.S. mid-Atlantic and Gulf of Mexico
coasts. In 2000, the Company has converted four of its fishing vessels to
"carry vessels" which will not engage in active fishing but will instead carry
fish catch from the Company's offshore fishing vessels to its plants. The
Company believes that this utilization will increase the amount of time that
the bulk of its vessels remain offshore in production areas and therefore
increase the Company's fish catch per vessel employed. Accordingly, the
Company plans to reduce the total number of vessels directly involved in the
fishing effort during fiscal 2000 to 40 vessels. Additionally, the Company has
elected to temporarily cease its in-line processing operations at its Morgan
City plant location during Fiscal 2000 in reaction to the continuing depressed
prices received for the Company's products. Certain damaged processing
equipment at this facility will be removed and scrapped.
The Company closed the Venture Milling Disposition on September 16, 1997.
The Company also closed the American Protein Acquisition on November 3, 1997
and the Gulf Protein Acquisition on November 25, 1997. 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.
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. A three-month transition period from October 1,
1998 through December 31, 1998 (the "Transition Period") precedes the start of
the 1999 Fiscal year. "Fiscal 1998" and "Fiscal 1997" refer to respective
Fiscal years ended September 30. The Transition Period refers to the three-
months ended December 31, 1998 and " Fiscal 1999" refers to the fiscal twelve
months ended December 31, 1999.
The following table summarizes the Company's harvesting and production for
the indicated periods:
<TABLE>
<CAPTION>
Three Months Years Ended September
Year Ended Ended 30,
December 31, December 31, -----------------------
1999 1998 1998 1997 1996
------------ ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Fish catch (tons)(1)...... 724,974 123,079 602,096 507,358 458,917
Production (tons):
Fish meal
Regular grade........... 93,388 9,492 73,536 63,835 56,569
Special Select.......... 68,996 12,631 63,163 46,409 46,325
Sea-Lac................. 16,577 7,068 11,917 14,741 10,631
Silver Herring.......... 1,218 353 -- -- --
Oil
Crude................... 95,175 15,789 68,245 61,905 60,257
Refined................. 5,638 1,238 7,230 9,657 8,834
Solubles................. 13,781 1,067 14,995 16,531 17,139
------- ------- ------- ------- -------
Total Production...... 294,773 47,638 239,086 213,078 199,755
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Fish catch has been converted to tons using the National Marine Fisheries
Service ("NMFS") fish catch conversion ratio of 670 pounds per 1,000 fish.
9
<PAGE>
The Company's harvesting season generally extends from May through December
on the mid-Atlantic coast and from April through October on the Gulf coast.
During the off season, the Company fills purchase orders from the inventory it
has accumulated during the fishing season. Prices for the Company's products
tend to be lower during the fishing season when product is more abundant than
in the off season. Throughout the entire year, prices are significantly
influenced by supply and demand in world markets for competing products,
particularly soybean meal for its fish meal products and vegetable oils and
fats for its fish oil products when used as an alternative to vegetable oils
and fats. During Fiscal 1999, world grain and oilseed markets were burdened by
excess supplies relative to demand which, in turn, resulted in prices for most
major commodities being sharply lower than in previous years. Correspondingly,
the Company's product prices have been adversely impacted during this period,
resulting in decreased gross margins. At September 30, 1999, and again at
December 31, 1999 the Company determined that the costs of its fish meal and
fish oil product inventories were in excess of those products' realization
value by approximately $14.5 million and $3.7 million, respectively. 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 61% lower, respectively, during the three-month period
ending September 30, 1999, as compared to the three months ending September
30, 1998. Price decreases for the quarters ended December 31, 1999 compared to
December 31, 1998 were approximately 38.1% for fish meal and 57.9% for fish
oil. Although management believes the net realizable value of inventory held
as of December 31, 1999, after giving effect to the write-downs, approximates
its costs, it is possible that in the event prices do not stabilize during the
first quarter of Fiscal 2000, a further downward valuation of its existing
inventories held at March 31, 2000 could be required. Accordingly, it is
possible that gross profit margins may continue to decline in prospective
quarters.
In an effort to reduce price volatility and to generate higher, more
consistent profit margins, the Company is continuing its efforts towards the
production and marketing of specialty meal products, which generally have
higher margins than the Company's regular grade meal product. Additionally,
the Company is attempting to introduce its refined fish oil into the U.S. food
market where initial marketing efforts have indicated significantly increased
margin opportunities and more stable demand requirements over the Company's
traditional crude fish oil markets.
The Company is also implementing several cost-cutting measures during Fiscal
year 2000 which include, among other items, a reduction in its fishing fleet
and spotter planes, temporary closure of in-line processing facilities at its
highest cost plant, implementation of a carry-vessel concept and utilization
of satellite mapping technology, all of which will reduce its cost of
production to a level whereby positive gross margins will be attainable,
assuming no significant change in product market prices and harvesting
assumptions.
During Fiscal years 1999, 1998 and 1997, approximately 35% to 40% of Omega's
regular grade fish meal was sold on a two to six month forward contract basis.
The balance of regular grade and other products was substantially sold on a
spot basis through purchase orders. The Company's annual revenues are highly
dependent on both annual fish catch and inventories and, in addition,
inventory is generally carried over from one Fiscal year to another Fiscal
year. The Company determines the level of inventory to be carried over based
on prevailing market prices of the products and anticipated customer usage and
demand during the off season. Thus, production volume does not necessarily
correlate with sales volume in the same Fiscal year.
10
<PAGE>
The following table sets forth the Company's revenues by product and the
approximate percentage of total revenues represented thereby, for the
indicated periods:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, December 31, Year Ended September 30,
---------------- ---------------- ---------------------------------
1999 1998 1998 1997(1)
---------------- ---------------- ---------------- ----------------
Revenues Percent Revenues Percent Revenues Percent Revenues Percent
-------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Regular Grade........... $31.3 33.4% $ 6.7 26.0% $ 35.3 26.4% $ 23.7 20.2%
Special Select.......... 23.5 25.1 7.7 29.8 33.9 25.4 25.8 21.9
Sea-Lac................. 6.8 7.2 1.6 6.2 7.8 5.8 7.1 6.0
Crude Oil............... 25.9 27.7 8.0 31.0 46.7 35.0 18.6 15.8
Refined Oil............. 3.1 3.3 1.1 4.3 5.0 3.7 5.2 4.4
Fish Solubles........... 2.2 2.4 0.5 1.9 3.2 2.4 3.6 3.1
Venture Milling......... -- -- -- -- -- -- 32.0 27.2
Nets and Other.......... 0.8 0.9 0.2 0.8 1.6 1.3 1.6 1.4
----- ----- ----- ----- ------ ----- ------ -----
Total................... $93.6 100.0% $25.8 100.0% $133.5 100.0% $117.6 100.0%
===== ===== ===== ===== ====== ===== ====== =====
</TABLE>
- --------
(1) The Company closed the Venture Milling Disposition on September 16, 1997.
Liquidity and Capital Resources
Prior to the Omega April 1998 initial public offering, Zapata, as the sole
stockholder of Omega, caused cash to be moved between the Company and Zapata
as each company had cash needs. During Fiscal 1997, Zapata contributed to the
Company as equity $41.9 million of intercompany debt owed to Zapata. As a
result of the Offering, Zapata and Omega 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 resources of liquidity and capital resources have been
cash flows from operations, 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 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 NMFS pursuant to Title XI of the Marine Act
of 1936 ("Title XI"), the Company has secured loans through lenders with terms
generally ranging between 12 and 20 years at interest rates between 6% and 8%
per annum which are enhanced with a government guaranty to the lender for up
to 80% of the financing. The Company's current Title XI borrowings are secured
by liens on 17 fishing vessels and mortgages on the Company's Reedville,
Virginia and Abbeville, Louisiana plants. 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 authorized under the program.
Omega had an unrestricted cash balance of $15.7 million at December 31,
1999, down $29.1 million from December 31, 1998. This decrease was due
primarily to operating losses as a result of reduced selling prices for the
Company's products.
Investing activities used $15.1 million in Fiscal 1999 while using $3.0
million, $48.7 million and $10.9 million during the Transition Period, Fiscal
1998 and Fiscal 1997, respectively. The higher Fiscal 1998 investing
activities reflect the Acquisitions. Other than the Acquisitions, the
Company's investing activities consisted mainly of capital expenditure for
equipment purchases and replacements in Fiscal 1999, the Transition Period,
Fiscal 1998, and Fiscal 1997. The Company anticipates making approximately
$8.0 million of capital
11
<PAGE>
expenditures in Fiscal 2000, a significant portion which will be used to
refurbish vessels, plant assets, and to repair certain equipment.
Net financing activities provided $3.0 million during Fiscal 1999 compared
with $320,000 used in the Transition Period, $67.4 million provided in Fiscal
1998 and $3.5 million provided in Fiscal 1997. The Fiscal 1999 increase is due
primarily to the Company's Title XI financing program which provided $6.1
million in cash, reduced by $1.1 million in debt repayments and $2.0 million
used to repurchase stock under the Company's repurchase program.
The Company completed its initial public offering on April 8, 1998.
Subsequent to the Offering, the underwriters elected to exercise their over-
allotment option. 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 invested the remaining net proceeds in
short-term government securities and interest bearing cash equivalents pending
their use.
On August 11, 1998 the Company entered into a $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 Credit
Facility is collaterialized 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 work, debt to tangible net worth ratio, funded debt
to cash flow ratio and fixed charges ratio, and certain other covenants. As of
December 31, 1999, the Company had no borrowings outstanding under the Credit
Facility.
On September 17, 1998, the Company's Board of Directors approved a stock
repurchase program allowing the Company to repurchase up to 4,000,000 shares
of its common stock. See "Item 5 Market For Registrant's Common Equity and
Related Stockholder Matters." The Company has repurchased 413,100 shares
pursuant to such authorization.
The Company is continually considering potential transactions including, but
not limited to, enhancement of physical facilities to improve production
capabilities and the acquisition of other business. Certain of the potential
transactions reviewed by the Company would, if completed, result in its
entering new lines of business, although, in general, these opportunities have
been related in some manner to the Company's existing operations. Although the
Company does not, as of the date hereof, have any commitment with respect to a
material acquisition, it could enter into such agreement in the future.
The Company believes that the 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.
12
<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>
Thre Months Year Ended
Year Ended Ended September 30,
December 31, December 31, ---------------
1999 1998(1) 1998(2) 1997(3)
------------ ------------ ------- -------
<S> <C> <C> <C> <C>
Revenues......................... 100.0% 100.0% 100.0% 100.0%
Cost of sales.................... 93.3 68.2 66.6 79.7
Inventory write-down............. 19.4 0.0 0.0 0.0
----- ----- ----- -----
Gross profit (loss).............. (12.7) 31.8 33.4 20.3
Selling, general and
administrative.................. 9.7 7.5 4.9 4.8
Impairment of long-lived assets.. 2.4 0.0 0.0 0.0
----- ----- ----- -----
Operating income (loss).......... (24.8) 24.3 28.5 15.5
Interest (expense) income, net... 0.6 1.7 (0.1) (0.5)
Other (expense) income, net...... (0.4) (0.2) (0.2) (1.1)
----- ----- ----- -----
Income before income taxes....... (24.6) 25.8 28.2 13.9
Benefit (provision) for income
taxes........................... 8.9 (9.3) (10.1) (5.0)
----- ----- ----- -----
Net income (loss)................ (15.7) 16.5 18.1 8.9
===== ===== ===== =====
</TABLE>
- --------
(1) Results are for the three month transition period ended December 31, 1998.
(2) The Acquisitions closed on November 3, 1997 and November 25, 1997,
respectively.
(3) The Venture Milling Disposition closed on September 16, 1997.
Fiscal 1999-1998
Revenues. Fiscal 1999 revenues decreased $39.9 million, or 29.9% from $133.5
million in Fiscal 1998 to $93.6 million in Fiscal 1999. The decrease in
revenues from Fiscal 1998 to Fiscal 1999 was attributable to lower selling
prices of the Company's fish meal and fish oil. Fish meal sales prices and
fish oil prices declined 28.1% and 48.2% respectively as compared to the
Fiscal 1998. Sales volumes for the Company's fish meal and fish oil increased
10.6% and 9.7% respectively during Fiscal 1999 as compared to Fiscal 1998. 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, amortization and
inventory write-down for Fiscal 1999 totaled $105.6 million, a $16.7 million
increase from $88.9 million in Fiscal 1998. The cost of sales increase was
primarily due to the cyclical market declines on the inventory values of the
Company's fish meal and fish oil resulting in a recorded inventory write-down
of $18.2 million. 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
28.1% and 48.2% respectively, during the twelve-month period ending Fiscal
1999 as compared to the previous twelve-month period ending Fiscal 1998. Per
ton cost of sales were 10.6% lower in Fiscal 1999 as compared to Fiscal 1998,
due mainly to lower inventoriable costs associated with the Fiscal 1999
fishing season. During Fiscal 1998, in August and September of 1998, fishing
operations were hampered by a series of hurricane and tropical storms that
disrupted fishing operations, resulting in higher cost inventory.
Gross profit. Gross profit decreased $56.6 million or 126.6% from $44.7
million in Fiscal 1998 to a gross loss of $(11.9) million in Fiscal 1999. As a
percentage of revenues, the Company's gross profit margin decreased 46.1% in
Fiscal 1999 as compared to Fiscal 1998. The decline in gross profit was the
result of a 28.1% and 48.2% decline in selling prices for the Company's fish
meal and fish oil and a $18.2 million inventory write-down charged against
operations pertaining to downward cyclical pricing pressures on the Company's
fishing product inventories in Fiscal 1999, resulting in a negative gross
profit margin in Fiscal 1999 compared to Fiscal 1998.
13
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.5 million, or 38.3% from $6.6 million in
Fiscal 1998 to $9.1 million in Fiscal 1999. As a percentage of revenues,
selling, general and administrative expenses were approximately 4.9% in Fiscal
1998 and 9.7% in Fiscal 1999. The dollar increase was due primarily to
increased personnel and marketing costs associated with the Company's expanded
emphasis on specialty meals and oils combined with severance payments
associated with reductions in management and administrative personnel made
during the quarter ended December 31, 1999.
Asset write-down. An asset write-down of $2.3 million, which was 2.4% of
revenues, was recorded in Fiscal 1999 resulting from the discontinued
utilization of certain in-line processing facilities at the Morgan City plant.
Operating income. As a result of the factors discussed above, the Company's
operating income decreased to a loss of ($23.3) million for Fiscal 1999, from
$38.1 million in Fiscal 1998. As a percentage of revenues, operating income
decreased from 28.5% in Fiscal 1998 to (24.8%) in Fiscal 1999.
Interest income, net. Interest income, net increased $782,000 or 465.5% from
a net interest expense of ($168,000) in Fiscal 1998 to net interest income of
$614,000 in Fiscal 1999. This increase resulted from the Company's reduction
in its average outstanding borrowings during Fiscal 1999 compared to Fiscal
1998.
Other expense, net. Other expense, net increased to ($398,000) in Fiscal
1999 from ($291,000) in Fiscal 1998. This increase was the result of a gain in
Fiscal 1998 on the sale of non-producing assets which was netted against other
expenses.
Income taxes. The Company had the same 36% tax rate for both Fiscal 1999 and
Fiscal 1998. The effective tax rates approximate the applicable combined state
and federal statutory tax rates for the respective periods.
Transition Period 1998
Revenues--For the Transition Period ending December 31, 1998, revenues were
$25.8 million.
Cost of sales--Cost of sales, including depreciation and amortization, for
the Transition Period ended December 31, 1998 were $17.6 million or 68.2% of
sales.
Gross profit--For the Transition Period ending December 31, 1998 gross
profit was $8.2 million or 31.8% of sales.
Selling, general and administrative expenses--For the Transition Period
ending December 31, 1998, selling, general and administrative expenses were
$1.9 million or 7.5% of sales.
Operating income--For the Transition Period ending December 31, 1998,
operating income was $6.3 million or 24.3% of sales.
Interest income, net--For the Transition Period ending December 31, 1998,
interest income, net was $429,000 or 1.7% of sales.
Other expense, net--For the Transition Period ending December 31, 1998,
other expense, net was $58,000 or .2% of sales.
Income taxes--For the Transition Period ending December 31, 1998, the
Company recorded a tax provision of $2.4 million representing an effective tax
rate of 36%.
Fiscal 1998-1997
Revenues. Fiscal 1998 revenues increased $16.0 million, or 13.6% from $117.6
million in Fiscal 1997 to $133.6 million in Fiscal 1998. The increase was
attributable to increased sales volume of the Company's specialty meals and
oil, and an overall increase in the average selling price of all regular meal
products. Increased
14
<PAGE>
sales volumes were due to the Acquisitions and additional new sales which were
partially offset by the lost Venture Milling revenues (which totaled
approximately $32.0 million in Fiscal 1997). Average selling prices for the
Company's marine protein products continued a trend of increasing in Fiscal
1998, reflecting the Company's continuing emphasis on producing value-added
products. Prices for the Company's fish meal and fish oil products improved by
4% and 39% respectively in Fiscal 1998 as compared to Fiscal 1997. Sales
volumes of fish meal increased approximately 31% in Fiscal 1998 as compared to
Fiscal 1997 sales. Sales volume of fish oil increased approximately 36% in
Fiscal 1998 as compared to Fiscal 1997 sales. The volume increases are
primarily due to increased inventory levels carried forward from Fiscal 1997
and increased production due to the Acquisitions.
Cost of sales. Cost of sales, including depreciation and amortization, for
Fiscal 1998 was $88.9 million or 66.6% of revenues. This was a decrease of
$4.8 million from Fiscal 1997 which was $93.7 million or 79.7% of revenues.
The decrease in Fiscal 1998 cost of sales was due to the Fiscal 1997 Venture
Milling Disposition cost of sales, which totaled approximately $33.8 million,
offset in Fiscal 1998 by $24.2 million in additional cost of sales due to
increased sales volumes of 31% and 36% for the Company's fish meal and fish
oil respectively.
Gross profit. Gross profit increased $20.9 million, or 87.6%, from $23.8
million in Fiscal 1997 to $44.7 million in Fiscal 1998, resulting from a 13.6%
increase in revenues and an increase in gross profit margin from 20.3% to
33.4% in Fiscal 1998. Revenues increased due to the factors indicated above.
Gross profit margins increased primarily due to an increase in fish catch of
18.7% from the previous Fiscal year, combined with the divestiture of the high
cost Venture Milling operations during late Fiscal 1997.
Selling, general and administrative expense. Selling, general and
administrative expenses increased $954,000, or 17.0% from $5.6 million in
Fiscal 1997 to $6.6 million in Fiscal 1998. As a percentage of revenues,
selling, general and administrative expenses were approximately 5.0% in each
of Fiscal 1997 and Fiscal 1998. The dollar increase was due primarily to
additional staffing necessary for the Company's expanded emphasis on specialty
meals and oils.
Operating income. As a result of the factors discussed above, the Company's
operating income increased to $38.1 million in Fiscal 1998 from $18.2 million
in Fiscal 1997. As a percentage of revenues, operating income increased from
15.5% in Fiscal 1997 to 28.5% in Fiscal 1998.
Interest expense, net. Interest expense, net declined $424,000 or 71.6% from
$592,000, in Fiscal 1997 to $168,000 in Fiscal 1998. This decline resulted
from the Company's reduction in its average outstanding borrowings during
Fiscal 1998 compared to the 1997 Fiscal year.
Other expense, net. Other expense, net decreased to ($291,000) in Fiscal
1998 from ($1.3 million) in Fiscal 1997. Other expense decreased primarily due
to prior year losses in joint ventures, the sale of Venture Milling's assets
and the settlement of a lawsuit.
Income taxes. The Company had the same 36% tax rate for both Fiscal 1998 and
Fiscal 1997. The effective tax rates approximates applicable combined state
and federal statutory tax rates for the respective periods.
Recently Issued Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133), which, as amended, is effective for fiscal years beginning after June
15, 2000. SFAS 133 establishes standards requiring all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. The Company will adopt the provisions
of the statement in Fiscal 2001. The Company anticipates that implementing the
provisions of SFAS 133 will not have a significant impact on the Company's
existing operations.
Year 2000 System Issues
The Year 2000 ("Y2K") issue is the result of computer programs using a two-
digit format, as opposed to four digits, to indicate the year. The Company
experienced no "Y2K" problems and does not expect any future problems in the
year 2000.
15
<PAGE>
Seasonality 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 second and third quarter of each Fiscal year) 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. Certain quarterly
financial data contained in Note 16 to the Company's Consolidated Financial
Statements included in Item 8 of this Report is incorporated herein by
reference.
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
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 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 operations and international trade,
including changes in the law and policies that govern 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, on 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 operation and financial
condition could be adversely effected.
16
<PAGE>
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.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors,
Omega Protein Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and stockholders' equity
present fairly, in all material respects, the financial position of Omega
Protein Corporation and its subsidiaries (the "Company") at December 31, 1999
and 1998, and the results of its operations and cash flows for the year ended
December 31, 1999, the three month period ended December 31, 1998, and the two
years ended September 30, 1998, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
March 3, 2000
18
<PAGE>
OMEGA PROTEIN CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1999 1998
------ ------------ ------------
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 15,673 $ 44,828
Receivables, net................................... 15,991 8,902
Inventories........................................ 46,112 43,351
Prepaid expenses and other current assets.......... 897 1,039
-------- --------
Total current assets............................. 78,673 98,120
-------- --------
Other assets......................................... 7,107 5,665
-------- --------
Property and equipment, net.......................... 90,368 86,068
-------- --------
Total assets................................... $176,148 $189,853
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt............... $ 1,146 $ 997
Accounts payable................................... 2,200 1,672
Accrued liabilities................................ 11,603 11,858
Amounts due to parent.............................. -- 36
-------- --------
Total current liabilities...................... 14,949 14,563
-------- --------
Long-term debt....................................... 16,069 11,205
-------- --------
Deferred income taxes................................ 583 2,860
-------- --------
Other liabilities.................................... 375 375
-------- --------
Total liabilities.............................. 31,976 29,003
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.01 par value; authorized
10,000,000 shares; none issued.................... -- --
Common Stock, $0.01 par value; authorized
80,000,000 shares; 24,302,126 and 24,276,812
shares issued and outstanding, respectively....... 243 243
Capital in excess of par value..................... 111,835 111,722
Reinvested earnings from October 1, 1990........... 34,129 48,885
Common Stock in treasury, at cost--413,100 shares.. (2,035) --
-------- --------
Total stockholders' equity....................... 144,172 160,850
-------- --------
Total liabilities and stockholders' equity..... $176,148 $189,853
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
OMEGA PROTEIN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Year Ended
Year Ended Ended September 30,
December 31, December 31, ------------------
1999 1998 1998 1997
------------ ------------ -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues........................ $ 93,636 $25,759 $133,555 $117,564
Cost of sales................... 87,369 17,553 88,870 93,746
Inventory write-down............ 18,188 -0- -0- -0-
-------- ------- -------- --------
Gross profit (loss)............. (11,921) 8,206 44,685 23,818
Selling, general, and
administrative................. 9,085 1,934 6,567 5,613
Impairment of long-lived
assets......................... 2,267 -0- -0- -0-
-------- ------- -------- --------
Operating income (loss)......... (23,273) 6,272 38,118 18,205
Interest income (expense), net.. 614 429 (168) (592)
Other income (expense), net..... (398) (58) (291) (1,328)
-------- ------- -------- --------
Income (loss) before income
taxes.......................... (23,057) 6,643 37,659 16,285
Provision (benefit) for income
taxes.......................... (8,301) 2,391 13,452 5,860
-------- ------- -------- --------
Net income (loss)............... $(14,756) $ 4,252 $ 24,207 $ 10,425
======== ======= ======== ========
Earnings (loss) per share
(basic)........................ $ (0.62) $ 0.18 $ 1.11 $ 0.53
======== ======= ======== ========
Average common shares
outstanding.................... 23,963 24,277 21,901 19,676
======== ======= ======== ========
Earnings (loss) per share
(diluted)...................... $ (0.62) $ 0.18 $ 1.10 $ 0.53
======== ======= ======== ========
Average common shares and common
share equivalents outstanding.. 23,963 24,277 22,021 19,676
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
OMEGA PROTEIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Years Ended
December 31, December 31, September 30,
------------ ------------ ----------------
1999 1998 1998 1997
------------ ------------ ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Cash flow provided by (used in)
operating activities:
Net income (loss)................ $(14,756) $ 4,252 $24,207 $10,425
Adjustments to reconcile net
income to net cash
Provided by operating
activities:
(Gain) loss on disposal of
assets, net..................... (6) -- (101) 483
Depreciation and amortization.... 8,995 1,955 6,351 4,868
Impairment of long-lived assets.. 2,267 -- -- --
Deferred income taxes............ (2,277) 128 1,552 743
Changes in assets and
liabilities:
Receivables.................... (7,089) 3,001 (1,967) (836)
Inventories, net of write-
downs......................... (2,761) (2,567) (2,336) (9,291)
Accounts payable and accrued
liabilities................... 273 (7,365) 3,850 604
Amounts due to parent.......... (36) (263) (4,860) 2,433
Other, net..................... (1,604) (731) (1,180) 624
-------- ------- ------- -------
Total adjustments............ (2,238) (5,842) 1,309 (372)
-------- ------- ------- -------
Net cash provided by (used
in)
operating activities........ (16,994) (1,590) 25,516 10,053
-------- ------- ------- -------
Cash flow provided by (used in)
investing activities:
Proceeds from sale of assets,
net............................. 6 -- 1,006 (771)
Increase in notes receivable..... -- -- -- (334)
Capital expenditures............. (15,145) (3,030) (21,540) (9,825)
Acquisitions of property and
equipment....................... -- -- (28,116) --
-------- ------- ------- -------
Net cash (used in) investing
activities.................. (15,139) (3,030) (48,650) (10,930)
-------- ------- ------- -------
Cash flow provided by (used in)
financing activities:
Proceeds from issuance of common
stock........................... -- -- 68,037 --
Purchase of treasury stock....... (2,035) -- -- --
Proceeds from borrowings--Bank
debt............................ 6,070 -- 2,644 4,061
Proceeds from borrowing--Parent.. -- -- 28,116 --
Repayments on borrowings--
Parent.......................... -- -- (28,116) --
Principal payments of short and
long-term debt obligations...... (1,057) (320) (3,283) (579)
-------- ------- ------- -------
Net cash provided by (used
in)
financing activities........ 2,978 (320) 67,398 3,482
-------- ------- ------- -------
Net increase (decrease) in cash and
cash equivalents.................. (29,155) (4,940) 44,264 2,605
Cash and cash equivalents at
beginning of...................... 44,828 49,768 5,504 2,899
-------- ------- ------- -------
Cash and cash equivalents at end
of................................ $ 15,673 $44,828 $49,768 $ 5,504
======== ======= ======= =======
</TABLE>
The accompanying notes are an internal part of the consolidated financial
statements.
21
<PAGE>
OMEGA PROTEIN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital
Common Stock Treasury Stock in
------------- -------------- Excess of Reinvested
Shares Amount Shares Amount Par Value Earnings
------ ------ ------ ------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1996....................... 19,676 $197 -- $ -- $ 1,831 $ 10,001
Net income................ -- -- -- -- -- 10,425
Capital contribution from
parent................... -- -- -- -- 41,900 --
------ ---- --- ------- -------- --------
Balance at September 30,
1997....................... 19,676 197 -- -- 43,731 20,426
Initial public offering of
common stock............. 4,600 46 -- -- 67,991 --
Net income................ -- -- -- -- -- 24,207
------ ---- --- ------- -------- --------
Balance at September 30,
1998....................... 24,276 243 -- -- 111,722 44,633
Net income................ -- -- -- -- -- 4,252
------ ---- --- ------- -------- --------
Balance at December 31,
1998....................... 24,276 243 -- -- 111,722 48,885
Issuance of common stock.. 26 -- -- -- 113 --
Purchase of treasury
stock.................... -- -- 413 (2,035) -- --
Net loss.................. -- -- -- -- -- (14,756)
------ ---- --- ------- -------- --------
Balance at December 31,
1999....................... 24,302 $243 413 $(2,035) $111,835 $ 34,129
====== ==== === ======= ======== ========
</TABLE>
The accompanying notes are in integral part of the consolidated financial
statements.
22
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO 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 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 in nutritional feed additives by animal feed
manufacturers and by commercial livestock producers. The Company's crude fish
oil is sold primarily to food producers in Europe, and its refined fish oil
products are used in aquaculture feeds and certain industrial applications.
Fish solubles are sold as protein additives for animal feed and as organic
fertilizers.
On January 26, 1998, Marine Genetics Corporation ("Marine Genetics") merged
into Omega, a Nevada corporation wholly-owned by Zapata Corporation
("Zapata"), with Omega being the surviving entity. The common control merger
was accounted for at historical cost in a manner similar to that of a pooling
of interest 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 cancelled and treated as treasury stock.
On April 8, 1998, the Company completed an initial public offering of
8,500,000 of its common stock at a 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. A three month transition period from October 1,
1998 through December 31, 1998 (the "Transition Period") precedes the start of
the Fiscal 1999 year. "Fiscal 1998" and "Fiscal 1997" refer to the respective
years ended September 30. The Transition Period refers to the three months
ended December 31, 1998 and "Fiscal 1999" refers to the twelve months ended
December 31, 1999.
Consolidation
The consolidated financial statements include the accounts of Omega and its
wholly and majority owned subsidiaries. Investments in affiliated companies
and joint ventures representing a 20% to 50% voting interest are accounted for
using the equity method. All significant intercompany accounts and
transactions have been eliminated in consolidation.
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
23
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
from fishing during the off-seasons. During the off-seasons, the Company
incurs costs (i.e. plant and vessel related labor, utilities, rent and
depreciation) that are directly related to the Company's infrastructure that
will be used in the upcoming fishing season. Costs that are incurred
subsequent to a fish catch are deferred until the next season and are included
with inventory. Fishing product inventories and materials, parts and supplies
are stated at the lower of cost (average cost) or market.
The Company's inventory cost system considers all costs, both variable and
fixed, associated with an annual fish catch and its processing. The Company's
costing system allocates cost to inventory quantities on a per unit basis as
calculated by a formula that considers total estimated inventoriable costs for
a fishing season (including off-season costs) to total estimated fish catch
and the relative fair market value of the individual products produced. The
Company adjusts the cost of sales, off-season costs and inventory balances at
the end of each quarter based on revised estimates of total inventoriable
costs and fish catch.
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" which was issued in March 1995. SFAS No. 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the book value of the asset may not be recoverable. The Company
evaluates at each balance sheet date whether events and circumstances have
occurred that indicate possible operational impairment. In accordance with
SFAS No. 121, the Company uses an estimate of the future undiscounted net cash
flows of the related asset or asset grouping over the remaining life in
measuring whether its operating assets are recoverable. During the Fiscal year
1999, the Company wrote down approximately $2.3 million of impaired long-lived
assets. The $2.3 million impairment of certain of the Company's Morgan City
in-line processing equipment was recorded to reduce the value of the assets to
their estimated salvage value. The Company has temporarily closed the in-line
processing facilities at the plant and management has concluded that the
affected damaged equipment will not be repaired but instead will be
permanently removed from service.
Income Taxes
The Company utilizes the liability method to account for income taxes. This
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of existing temporary differences between the
financial reporting and tax reporting basis of assets and liabilities, and
operating loss and tax credits 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 return basis for financial
reporting purposes.
Property, Equipment and Depreciation
Property and equipment are initially recorded at cost except as adjusted by
a quasi-reorganization as of October 1, 1990. Because of the quasi-
reorganization, the carrying value of the assets was reduced to estimated fair
value. See "Quasi-Reorganization" of the Company's parent stockholder Zapata.
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:
<TABLE>
<CAPTION>
Useful Lives
(years)
------------
<S> <C>
Fishing vessels and fish processing plants................... 15-20
Furniture and fixtures and other............................. 3-10
</TABLE>
24
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Pension Plans
Annual costs of pension plans are determined actuarially based on SFAS No.
87, "Employers' Accounting for Pensions" ("SFAS No. 87"). 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 and
generally for obligations under its foreign plans to deposit funds with
trustees and or under insurance policies. Fiscal 1999, the Company adopted
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS No. 132"). SFAS No. 132 revised and standardized the
disclosure requirements for pensions and other postretirement 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 concentrations
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 December 31, 1999 and 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.
Earnings per Share
Basic earnings per share was computed by dividing net income by the weighted
average number of common share outstanding during the period. Diluted earnings
per share was computed by dividing net income by sum of the weighted average
number of common shares outstanding and the effect of any dilutive stock
options.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which, as amended, is
effective for fiscal years beginning after June 15, 2000. SFAS 133 establishes
standards requiring all derivatives to be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
The Company will adopt the provisions of the statement in Fiscal 2001. The
Company anticipates that implementing the provisions of SFAS 133 will not have
a significant impact on the Company's existing operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
25
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Quasi-Reorganization
In connection with the comprehensive restructuring accomplished in 1991, the
Company, in conjunction with Zapata, implemented, for accounting purposes, a
"quasi-reorganization," and 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 affected the accounting
quasi-reorganization as of October 1, 1990.
Reclassification
During 1999, certain reclassifications of prior year information have been
made to conform with the current year presentation. These reclassifications
had no effect on net income or stockholders' equity reported for prior
periods.
NOTE 2. ASSET ACQUISITIONS AND DIVESTITURES
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"). American Protein's
facilities were located in close proximity to the Company's Reedville,
Virginia facility. Shortly after completing this transaction, the Company
closed the American Protein processing plant and began integrating its assets
into the Company's existing operations.
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"). The
Company accounted for this acquisition as a purchase; thus, the results of
operations began being included in the Company's Statement of Operations
beginning November 25, 1997. In connection with the Gulf Protein Acquisition,
the Company also entered in a five-year lease for the Gulf Protein plant at a
$220,000 annual rental rate. Due to the decline in the average per-ton prices
for the Company's products which occurred in Fiscal 1999, the Company has
elected to discontinue processing operations at its Morgan City plant for the
2000 fishing season, which starts in April 2000. Certain impaired in-line
processing equipment requiring significant repairs will be removed from the
Morgan City plant during Fiscal 2000 and salvaged. An impairment of long-lived
assets in the amount of $2.3 million has been recorded to reduce the cost of
this impairment in-line equipment to its current salvage value. The Company
will reevaluate its remaining operations at this location on an annual basis
thereafter.
These acquisitions were financed by a $28.1 million intercompany loan from
Zapata. The interest rate on this loan was 8.5% 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.
On September 16, 1997, the Company's wholly-owned subsidiary, Venture
Milling Company, a Delaware corporation ("Venture Milling"), sold
substantially all of its assets to an unrelated third party (the "Venture
Milling Disposition"). Venture Milling was primarily in the business of
blending different animal protein products (i.e. fish meal, blood meal, and
feather meal for sale to producers of feed for broilers and other animals with
low nutritional requirements). The Company's net income for the 1997 fiscal
year was not materially impacted by activity related to Venture Milling. The
Venture Milling Disposition resulted in a $531,000 pre-tax loss to the Company
in Fiscal 1997 and did not have a material impact on the Company's balance
sheet because Venture Milling leased most of the assets employed in its
operations.
26
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable as of December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
------- ------
(in thousands)
<S> <C> <C>
Trade.................................................... $ 8,717 $8,230
Insurance................................................ 1,354 304
Employee................................................. 60 102
Income tax............................................... 5,300 --
Other.................................................... 748 458
------- ------
16,179 9,094
Less allowance for doubtful accounts..................... (188) (192)
------- ------
$15,991 $8,902
======= ======
</TABLE>
NOTE 4. INVENTORY
Inventory as of December 31, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Fish meal............................................... $24,195 $19,025
Fish oil................................................ 8,445 12,456
Fish solubles........................................... 1,538 906
Off-season cost......................................... 7,282 6,211
Materials & supplies.................................... 4,633 4,781
Other................................................... 121 74
Less oil inventory reserve.............................. (102) (102)
------- -------
Total inventory......................................... $46,112 $43,351
======= =======
</TABLE>
During Fiscal 1999, the Company provided $18.2 million in write-downs of the
value of its fish meal and fish oil product inventories. The inventory write-
downs were made necessary due to 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 $34.1
million for the fish meal, oil and soluble products approximates current
market value, less estimated selling costs, at December 31, 1999.
NOTE 5. OTHER ASSETS:
Other assets as of December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in
thousands)
<S> <C> <C>
Fish nets.................................................. $1,258 $1,263
Prepaid pension cost....................................... 3,190 2,890
Insurance receivable....................................... 1,830 --
Title XI loan origination fee.............................. 339 399
Note receivable............................................ 35 384
Deposits................................................... 116 116
Investments in unconsolidated affiliates................... 58 78
Miscellaneous.............................................. 281 535
------ ------
$7,107 $5,665
====== ======
</TABLE>
27
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Amortization expense for fishing nets amounted to $874,000 for the year
ended December 31, 1999, $195,000 for the three months ended December 31,
1998, $879,000 for the year ended September 30, 1998 and $965,000 for the year
ended September 30, 1997.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
(in thousands)
<S> <C> <C>
Land................................................. $ 5,390 $ 5,390
Plant assets......................................... 64,498 53,696
Fishing vessels...................................... 66,859 60,879
Furniture and fixtures............................... 1,730 1,552
Other................................................ 4,572 7,240
-------- ---------
143,049 128,757
Less accumulated depreciation and impairment......... (52,681) (42,689)
-------- ---------
$ 90,368 $ 86,068
======== =========
</TABLE>
Depreciation expense for the year ended December 31, 1999 was $7.9 million,
$1.8 million for the three months ended December 31, 1998, $5.5 million for
the year ended September 30, 1998 and $3.6 million for the year ended
September 30, 1997. During Fiscal 1999 the Company wrote down approximately
$2.3 million of impaired in-line processing assets in accordance with SFAS No.
121.
NOTE 7. NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1999 and 1998, the Company's long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
U.S. government guaranteed obligations (Title IX loan)
collateralized by a first lien on
certain vessels and certain plant assets:
Amounts due in installments through 2014, interest from 6.63%
to 8.25%.................................................... $15,564 $10,872
Amounts due in installments through 2014, interest at
Eurodollar rates plus 4.5%; 5.96% and 5.77% at December 31,
1999 and 1998, respectively................................. 1,171 1,250
Other debt at 8.0% and 4.0% at December 31, 1999 and 1998,
respectively.................................................. 480 80
------- -------
Total debt..................................................... 17,215 12,202
Less current maturities.................................... 1,146 997
------- -------
Long-term debt................................................. $16,069 $11,205
======= =======
</TABLE>
At December 31, 1999 and 1998, 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. At December 31, 1999, the Company was in
compliance with all restrictive covenants contained in the Title XI borrowing
agreements. In addition, the payment of cash dividends is limited by the terms
of the Credit Facility which states that in any fiscal year of the Credit
Facility, the Company shall not pay or declare dividends in excess of fifty
percent (50%) of its consolidated net income. At December 31, 1999, the
Company could not
28
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
have declared and paid dividends within the limitations of the Credit
Facility. Under the most restrictive of these covenants, the Company was
required to maintain a current ratio of at least 1.25:1 and maintain a debt to
equity ratio of not more than 2:1. Covenants also limit capital expenditures
and investments.
On August 11, 1998 the Company entered into a two year $20.0 million
revolving credit agreement with SunTrust Bank, South Florida, N.A. (the
"Credit Facility"). Borrowings under this facility may be used for working
capital and capital expenditures. Interest accrues on borrowings that will be
outstanding under the Credit Facility at the Company's election, either (i)
the bank's prime rate less 75 basis points, or (ii) LIBOR plus a margin based
on the Company's 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 December 31, 1999, the Company had
no borrowings outstanding under the Credit Facility. The Credit Facility
expires on July 2, 2000.
Annual Maturities
The annual maturities of long-term debt for the five years ending September
30, 2004 are as follows (in thousands):
<TABLE>
<CAPTION>
2000 2001 2003 2003 2004 Thereafter
---- ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
$1,146 $1,225 $1,203 $1,172 $1,251 $11,218
</TABLE>
NOTE 8. CASH FLOW AND EARNINGS PER SHARE INFORMATION
For purposes of the statement of cash flows, all highly liquid investments
with an original maturity of three months or less are considered to be cash
equivalents.
Net cash provided by operating activities reflects cash payments of interest
and income taxes.
<TABLE>
<CAPTION>
Years Ended
Three Months September
Year Ended Ended 30,
December 31, December 31, ------------
1999 1998 1998 1997
------------ ------------ ------ -----
(in thousands)
<S> <C> <C> <C> <C>
Cash paid during the fiscal year
for:
Interest......................... $614 $436 $ 883 $ 560
Income Tax....................... 705 -- 17,803 2,851
</TABLE>
During Fiscal 1997, the Company completed the Venture Milling Disposition
for cash proceeds of $180,000. Cash of $1,128,000 was included in the net
assets acquired by the third party purchaser. Additionally during Fiscal 1997,
the Company sold various other assets for cash proceeds of $177,000. The
following summarizes these transactions.
<TABLE>
<S> <C>
Cash received by the Company for sale of assets................ $ 177,000
Cash received by the Company for the sale of various assets of
Venture....................................................... 180,000
Cash included with Venture's net assets sold................... (1,128,000)
----------
Proceeds from the sale of assets, net.......................... $ (771,000)
==========
</TABLE>
29
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the fiscal year ended December 31, 1999, the three months ended December
1998 and the fiscal year ended September 30, 1997, there were no effects of
dilutive stock options. The following is a reconciliation of the numerators
and denominators of the basic and diluted earnings per share computations (in
thousands except share and per share data) for the year ended September 30,
1998.
<TABLE>
<CAPTION>
For the Year Ended September
30, 1998
--------------------------------
Income Shares
(Numerator) (Denominator) Amount
----------- ------------ ------
<S> <C> <C> <C>
Net Income................................ $24,207 --
------- ------
Basic EPS
Income available to common
stockholders........................... 24,207 21,901 $1.11
-----
Effect of Dilutive Stock option grants.... -- 120
------- ------
Diluted EPS
Income available to common stockholders
plus assumed conversions............... $24,207 22,021 $1.10
======= ====== =====
</TABLE>
NOTE 9. INCOME TAXES
The Company's provisions for income tax expense (benefit) consisted of the
following:
<TABLE>
<CAPTION>
For the Year
For the Year Three Months Ended
Ended Ended September 30,
December 31, December 31, --------------
1999 1998 1998 1997
------------ ------------ ------- ------
(in thousands)
<S> <C> <C> <C> <C>
Current:
State........................... $ (724) $ 199 $ 1,080 $ 489
U.S............................. (5,300) 2,064 10,820 4,628
Deferred:
State........................... 100 -- 50 --
U.S............................. (2,377) 128 1,502 743
------- ------ ------- ------
Provision (benefit) for income
taxes............................ $(8,301) $2,391 $13,452 $5,860
======= ====== ======= ======
</TABLE>
As of December 31, 1999 for federal income tax purposes, the Company has
$1,033,000 in net operating losses expiring in 2006-2012, and approximately
$2,436,000 in alternative minimum tax credit carryforward.
The following table reconciles the income tax provisions computed using the
U.S. statutory rate of 35% to the provisions reflected in the financial
statements.
<TABLE>
<CAPTION>
For the Year
For the Year Three Months Ended
Ended Ended September 30,
December 31, December 31, ---------------
1999 1998 1998 1998
------------ ------------ ------- ------
(in thousands)
<S> <C> <C> <C> <C>
Taxes at statutory rate......... $(7,891) $2,259 $13,181 $5,700
Foreign sales corporation exempt
income......................... -- (91) (906) (252)
State taxes, net of federal
benefit........................ (406) 129 735 318
Other........................... (4) 94 442 94
------- ------ ------- ------
Provision (benefit) for income
tax............................. $(8,301) $2,391 $13,452 $5,860
======= ====== ======= ======
</TABLE>
30
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Temporary differences and tax credit carryforwards that gave rise to
significant portions of deferred tax assets and liabilities as of December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Assets and accruals not yet deductible................... $3,750 $ 1,384
Investment tax credit carryforwards...................... -- 566
Alternative minimum tax credit carryforwards............. 2,436 194
Equity in loss of unconsolidated affiliates.............. 306 306
Net operating loss carryforward.......................... 362 362
Other.................................................... 70 145
------ -------
Total deferred tax assets.............................. 6,924 2,957
------ -------
Deferred tax liabilities:
Property and equipment................................... (6,232) (4,085)
Pension and other retirement benefits.................... (1,116) (1,012)
State income tax......................................... (250) (150)
Other.................................................... 91 (570)
------ -------
Total deferred tax liabilities......................... (7,507) (5,817)
------ -------
Net deferred tax liability............................. $ (583) $(2,860)
====== =======
</TABLE>
NOTE 10. ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Salaries and benefits....................................... $ 3,625 $ 2,826
Insurance................................................... 5,101 3,598
Taxes, other than income tax................................ 8 868
Federal and State income taxes.............................. 271 1,674
Trade creditors............................................. 2,518 2,865
Other....................................................... 80 27
------- -------
Total accrued liabilities................................. $11,603 $11,858
======= =======
</TABLE>
NOTE 11. EMPLOYEE 401(k) PLAN
All qualified employees of the Company are covered under the Omega Profit
401(k) Savings and Retirement Plan. The Company contributes matching
contributions to the plan based on employee contributions and compensation.
Contributions to the plan totaled approximately $1,004,000 in Fiscal 1999,
$298,000 in the Transition Period, $502,000 in Fiscal 1998, and $488,000 in
Fiscal 1997.
NOTE 12. PENSION AND STOCK OPTION PLANS
Pension Plan
The Company has a pension plan covering substantially all employees. Plan
benefits are generally based on employee's years of service and compensation
level. The plan has adopted an excess benefit formula integrated with covered
compensation. Participants are 100% vested in the accrued benefit after five
years of service.
31
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Components of net periodic benefit cost:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended
December 31, December 31, September 30,
1999 1998 1998
------------ ------------ -------------
(in thousands)
<S> <C> <C> <C>
Service cost....................... $ 664 $ 155 $ 540
Interest cost...................... 1,396 344 1,338
Expected return on plan assets..... (2,036) (446) (1,897)
Amortization of transition asset
and other deferrals............... (324) (16) (320)
------- ----- -------
Net pension cost (credit)........ $ (300) $ 37 $ (339)
======= ===== =======
</TABLE>
The Company's funding policy is to make contributions as required by
applicable regulations. No contributions to the plan have been required since
1984. The plan's funded status and amounts recognized in the Company's balance
sheet at December 31, 1999 and 1998 and at September 30, 1998, are presented
below:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
------------ ------------ -------------
(in thousands)
<S> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation at beginning of
year.............................. $21,230 $20,997 $18,472
Service Cost....................... 664 155 540
Interest Cost...................... 1,396 344 1,338
Plan Amendments.................... -- -- --
Actuarial (Gain)/Loss.............. (629) 8 1,890
Benefits Paid...................... (283) (274) (1,243)
------- ------- -------
Benefit Obligation at end of year.. $22,378 $21,230 $20,997
Change in Plan Assets
Plan Assets at Fair Value at
beginning of year................. $23,172 $20,435 $21,707
Actual Return on Plan Assets....... 1,762 3,011 (29)
Contributions Benefits Paid........ (283) (274) (1,243)
------- ------- -------
Plan Assets at Fair Value at end of
year.............................. $24,651 $23,172 $20,435
Reconciliation of Prepaid (Accrued)
and Total Amount Recognized
Funded Status of Plan.............. $ 2,273 $ 1,942 $ (562)
Unrecognized Prior Service Cost.... 5 27 34
Unrecognized Net Transition
(Asset)........................... (953) (1,299) (1,386)
Unrecognized Net (Gain)/Loss....... 1,865 2,220 4,841
------- ------- -------
Prepaid/(Accrued) Pension Cost..... $ 3,190 $ 2,890 $ 2,927
Prepaid Benefit Cost............... $ 3,190 $ 2,890 $ 2,927
------- ------- -------
Net Amount Recognized.............. $ 3,190 $ 2,890 $ 2,927
Weighted Average Assumptions at end
of year
Discount Rate...................... 7.50% 6.75% 6.75%
Long-Term Rate of Return........... 9.00% 9.00% 9.00%
Salary Scale up to age 50.......... 5.00% 5.00% 5.00%
Salary Scale over age 50........... 4.50% 4.50% 4.50%
</TABLE>
The unrecognized transition asset at October 1, 1987, was $5.2 million,
which is being amortized over 15 years. For Fiscal 1999, the Transition
Period, and Fiscal 1998, the actuarial present value of the projected benefit
32
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
obligation was based on a 4.75% weighted-average annual increase in salary
levels and a 7.50%, 6.75%, and 6.75% discount rate, respectively. Pension plan
assets are invested in cash, common and preferred stocks, short-term
investments and insurance contracts. The projected long-term rate of return on
plan assets was 9.0% in Fiscal 1999, the Transition Period December 31, 1998
and Fiscal 1998, respectively. The unrecognized net loss of $1.9 million at
December 31, 1999 is expected to be reduced by future returns on plan assets
and through decreases in future net pension credits.
Stock Option Plans
On January 26, 1998, the 1998 Long-Term Incentive Plan of the Company (the
"1998 Incentive Plan") was approved by the Company's Board. The 1998 Incentive
Plan provides for the grant of any or all of the following types of awards:
stock options, stock appreciation rights, stock awards and cash awards. These
options generally vest ratably over three years from the date of grant and
expire ten years from the date of grant.
On January 26, 1998, the Non-Management Director Stock Option Plan (the
"Director Plan") was approved by the Board. The Directors Plan provides that
the initial Chairman of the Board be granted options to purchase 568,200
shares of the Common Stock and each other initial non-employee director of the
Company will be granted options to purchase 14,200 shares of Common Stock at a
price determined by the Board. The Board granted 582,400 stock options under
the Directors Plan at $12.75 per share on January 26, 1998, of which 568,200
were granted to the Chairman of the Board and 14,200 were granted to another
Board member.
On May 15, 1998, two new non-employee Directors were appointed to the Board
and each were granted 14,200 options at an exercise price of $16.06. These
options generally vest ratably over the three years from the date of grant and
expire ten years from the date of grant.
The Company applies APB Opinion 25 and related interpretations in accounting
for the Plan. In 1995, the FASB issued FASB Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") which, if fully adopted by the Company,
would change the methods the Company applies in recognizing the cost of the
Plans. Adoption of the cost recognition provisions of SFAS 123 is optional and
the Company has decided not to elect these provisions of SFAS 123. However,
pro forma disclosures as if the Company adopted the cost recognition
provisions of SFAS 123 in 1995 are required by SFAS 123 and are presented
below.
Under the Plans, the Company is authorized to issue shares of Common Stock
pursuant to "Awards" granted in various forms, including incentive stock
options (intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended), non-qualified stock options, and other similar stock-based
Awards. The Company granted stock options in 1998 and 1999, under the Plans in
the form of non-qualified stock options.
In accordance with APB 25, the Company has not recognized any compensation
cost for these stock options granted in Fiscal 1999 or in Fiscal 1998.
33
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Company's stock options granted to employees
and directors as of December 31, 1999, and 1998, and September 30, 1998 the
changes during the years is presented below. Prior to January 1998, there was
no Company stock option plan for the Company's employees or directors.
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise
(in thousands) Price
-------------- --------
<S> <C> <C>
Outstanding at September 30, 1997.................... -- $ --
Granted.............................................. 2,446 12.90
Exercised............................................ --
Forfeited............................................ --
Expired.............................................. --
-----
Outstanding at September 30, 1998.................... 2,246 12.90
Granted.............................................. --
Exercised............................................ --
Forfeited............................................ --
Expired.............................................. --
-----
Outstanding at December 31, 1998..................... 2,246 12.90
Granted.............................................. 942 6.67
Exercised............................................ --
Forfeited............................................ (219) 12.72
Expired.............................................. --
-----
Outstanding at December 31, 1999..................... 3,169 11.06
=====
</TABLE>
312,750 options granted on 10/28/99 had a weighted average exercise price of
$3.50 whereas the closing market rate was $2.875. All other options granted
equaled the daily closing market price on the date of grant.
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Fiscal Transition Fiscal
Assumptions 1999 Period 1998
----------- ------ ---------- ------
<S> <C> <C> <C>
Expected Term..................................... 5.00 5.00 5.00
Expected Volatility............................... 34.320% 32.623% 32.623%
Expected Dividend Yield........................... 0.00% 0.00% 0.00%
Risk-Free Interest Rate........................... 5.24% 5.52% 5.52%
</TABLE>
Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS 123, the Company's net income and net
income per common share for the periods presented would approximate the pro
forma amounts below:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended September 30,
December 31, 1999 December 31, 1998
------------------ --------------- ----------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- -------- -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
SFAS 123 charge......... $ -- $ 5,951 $ -- $1,538 $ -- $ 3,958
Net income (loss)....... $(14,756) $(20,707) $4,252 $2,714 $24,207 $20,249
Net income (loss) per
common share (basic)... $ (0.62) $ (0.86) $ 0.18 $ 0.11 $ 1.11 $ 0.92
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock-based
compensation plans.
34
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about employee and director stock
options outstanding at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------ --------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Number Exercise Contr. Number Exercise
Exercise Prices Outstanding Price Life Exercisable Price
--------------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.50 to $17.25 3,169,410 $11.06 $8.47 742,149 $12.92
</TABLE>
NOTE 13. CERTAIN TRANSACTIONS AND ARRANGEMENTS BETWEEN THE COMPANY AND ZAPATA
In Fiscal 1997, certain administrative services, including treasury and
taxation services, were provided to the Company by Zapata and billed at their
approximate cost for these services totaling $30,000. The Company provided to
Zapata payroll and certain administrative services billed at their approximate
cost. During Fiscal 1999, Transition Period, Fiscal 1998 and Fiscal 1997, fees
for these services totaled $97,000, $68,000, $156,000, and $30,000,
respectively. The cost of such services were based on the estimated percentage
of time that employees spend 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, the Company and
Zapata entered into certain agreements that included the Separation, Sublease,
Registration Rights, Tax Indemnity and Administrative Services Agreements. The
Separation Agreement required the Company to repay $33.3 million of
indebtedness and current payables owed by the company to Zapata
contemporaneously with the consummation of the Company's initial public
offering and 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 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.
During 1997, Zapata forgave $41.9 million of intercompany debt and the
Company recorded the amount as contributed capital.
The following represents intercompany activity for the periods presented:
<TABLE>
<CAPTION>
For Year Three Months For Year Ended
Ended Ended September 30,
December 31, December 31, ------------------
1999 1998 1998 1997
------------ ------------ -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Beginning balance due Zapata.... $ 36 $ 299 $ 5,159 $ 44,626
Income taxes payable to Zapata.. 100 -- 7,261 5,860
Administrative services provided
by Zapata to the Company....... -- -- -- 30
Administrative services provided
by the Company to Zapata....... (97) (68) (156) (30)
Loans with Zapata to the
Company........................ -- -- 28,116 --
Payments to Zapata by the
Company........................ (39) (195) (40,081) (3,427)
Capital contribution by Zapata
to the Company................. -- -- -- (41,900)
---- ----- -------- --------
Ending balance due Zapata....... $ -- $ 36 $ 299 $ 5,159
==== ===== ======== ========
</TABLE>
35
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 14. COMMITMENTS AND CONTINGENCIES
Operating Lease Payable
Future minimum payments under non-cancelable operating lease obligations
aggregate $2,043,000, and for the five years ending December 31, 2004 are (in
thousands):
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$656 $494 $470 $213 $210
</TABLE>
Rental expense for operating leases was $714,000, $170,000, $606,000 and
$754,000 in Fiscal 1999, the Transition Period, Fiscal 1998 and Fiscal 1997,
respectively.
Litigation
The Company is defending various claims and litigation arising from its
operations which arise in the ordinary course of the Company's business. In
the opinion of management, any losses 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.
NOTE 15. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates within one industry segment, menhaden fishing, for the
production and sale of fish meal, fish solubles and fish oil. Export sales of
fish oil and fish meal were approximately $38.6 million, $7.9 million, $55.4
million and $21.5 million in Fiscal 1999, the Transition Period, Fiscal 1998
and Fiscal 1997, respectively. Such sales were made primarily to European
markets. In Fiscal 1997, no sales to any one customer exceeded 10% of
consolidated sales. In Fiscal 1999, the Transition Period, and Fiscal 1998,
sales to one customer were approximately $8.7 million, $3.2 million and $17.0
million respectively.
The following table shows the geographical distribution of revenues based on
location of customers:
<TABLE>
<CAPTION>
Three Months
For Year Ended Ended
December 31, December 31,
1999 1998
---------------- ----------------
Revenues Percent Revenues Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
U.S........................................ $55,039 58.8% $17,835 69.2%
Europe..................................... 19,215 20.5% 3,259 12.7%
Asia....................................... 7,942 8.5% 2,462 9.6%
Mexico..................................... 4,756 5.1% 137 .5%
Canada..................................... 3,443 3.7% 1,201 4.7%
Other...................................... 3,241 3.4% 865 3.3%
------- ----- ------- -----
Total...................................... $93,636 100.0% $25,759 100.0%
======= ===== ======= =====
</TABLE>
36
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
For Years Ended September 30,
---------------------------------
1998 1997
---------------- ----------------
Revenues Percent Revenues Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
U.S........................................ $ 78,106 58.5% $ 96,071 81.7%
Europe..................................... 29,101 21.8% 7,274 6.2%
Canada..................................... 8,729 6.5% 6,381 5.4%
Mexico..................................... 4,214 3.2% 3,223 2.7%
Other...................................... 13,405 10.0% 4,615 4.0%
-------- ----- -------- -----
Total...................................... $133,555 100.0% $117,564 100.0%
======== ===== ======== =====
</TABLE>
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
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 second and third quarter of each Fiscal year) 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.
The following table presents certain unaudited operating results for each of
the Company's preceding eight quarters. The Company believes that the
following information includes all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation, in accordance with generally accepted accounting principles. The
operating results for any interim period are not necessarily indicative of
results for any other period.
<TABLE>
<CAPTION>
Quarter Ended 1999
----------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues..................... $22,155 $18,222 $23,677 $29,582
Gross profit (loss).......... 6,669 1,339 (15,060) (4,869)
Operating income (loss)...... 4,481 (961) (17,038) (9,755)
Net income (loss)............ 3,060 (518) (10,886) (6,412)
Earnings (loss)per share:
Basic........................ 0.13 (0.02) (0.46) (0.27)
Diluted...................... 0.13 (0.02) (0.46) (0.27)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended 1998
---------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues....................... $30,041 $31,488 $42,523 $25,759
Gross profit................... 12,581 12,271 9,604 8,206
Operating income............... 11,134 10,362 7,547 6,272
Net income..................... 6,574 6,669 5,652 4,252
Earnings per share:
Basic.......................... 0.33 0.28 0.23 0.18
Diluted........................ 0.33 0.27 0.23 0.18
</TABLE>
37
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables sets forth certain unaudited operations data as a
percentage of revenues for each of the Company's preceding eight quarters:
<TABLE>
<CAPTION>
Quarter Ended 1999
----------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues..................... 100.0% 100.0% 100.0% 100.0%
Gross profit (loss).......... 30.1% 7.3% (21.4)% (16.5)%
Operating income (loss)...... 19.9% (5.3)% (71.9)% (33.0)%
Net income (loss)............ 13.8% (2.8)% (46.0)% (21.7)%
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended 1998
---------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues....................... 100.0% 100.0% 100.0% 100.0%
Gross profit................... 41.9% 39.0% 22.6% 31.9%
Operating income............... 37.1% 32.9% 17.7% 24.3%
Net income..................... 21.9% 21.2% 13.3% 16.5%
</TABLE>
Item 9. Changes in and Disagreements with Accountants and Financial Disclosure.
Not applicable.
38
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to General Instruction G on Form 10-K, the information called for
by Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in the Company' definitive proxy statement relating to
its 2000 Annual Meeting of Stockholders the "2000 Proxy Statement") to be
filed pursuant to Regulation 14-A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), in response to Items 401 and 405 of
Regulation S-K under the Securities Act of 1933, as amended, and the Exchange
Act ("Regulation S-K"), Reference is also made to the information appearing in
Item 1 of Part I of this Annual Report on Form 10-K under the caption
"Business and Properties--Executive Officer of the Registrant."
Item 11. Executive Compensation
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 2000 Proxy Statement in response to Item 402 of
Regulation S-K, excluding the material concerning the report on executive
compensation and the performance graph specified by paragraphs (k) and (l) of
such Item.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 12 Part III of Form 10-K is incorporated by reference to the
information set forth in the 2000 Proxy Statement in response to Item 403 of
Regulation S-K.
Item 13. Certain Relationships and Related Transaction
Pursuant to General Instruction G of Form 10-K, the information called for
by Item 13 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 2000 Proxy Statement in response to Item 404 of
Regulation S-K.
39
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of Documents Filed.
<TABLE>
<CAPTION>
Page
----
<S> <C>
(1) Consolidated financial statements, Omega Protein Corporation and
subsidiary companies
Report of Pricewaterhouse Coopers LLP, Independent Accountants.... 14
Consolidated balance sheets as of December 31, 1999 and 1998...... 15
Consolidated statements of operations for the year ended December
31, 1999, the three month period ended December 31, 1998 and the
two years ended September 30, 1998............................... 16
Consolidated statements of cash flows for the year ended December
31, 1999, the three month period ended December 31, 1998 and the
two years ended September 30, 1998............................... 17
Consolidated statements of stockholders' equity for the year ended
December 31, 1999, the three month period ended December 31, 1998
and the two years ended September 30, 1998....................... 18
Notes to consolidated financial statements........................ 19
</TABLE>
<TABLE>
<C> <S>
2.1* --Agreement and Plan of Merger between Marine Genetics, Inc., a
Delaware corporation and Omega Protein corporation, a Nevada
corporation (Exhibit 2.1 to Omega Registration Statement on Form S-1
[Registration No. 333-44967])
3.1* --Articles of Incorporation (Exhibit 3.1 to Omega Registration
Statement on Form S-1 [Registration No. 333-44967])
3.2* --By-Laws (Exhibit 3.2 to Omega Registration Statement on Form S-1
[Registration No. 333-44967])
10.1*+ --Employment Agreement of Joseph L. von Rosenberg dated April 12,
1998+ (Exhibit 10.2 to Omega Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998)
10.2*+ --Employment Agreement Robert W. Stockton dated April 12, 1998+
(Exhibit 10.2 to Omega Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998)
10.6* --Separation Agreement with Zapata Corporation dated April 12, 1998
(Exhibit 10.7 to Omega Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998)+
10.7* --Tax Indemnity Agreement with Zapata Corporation dated April 12, 1998
(Exhibit 10.7 to Omega Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998)+
10.8* --Registration Rights Agreement with Zapata Corporation dated April
12, 1998 (Exhibit 10.8 to Omega Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998)+
10.9* --Sublease Agreement with Zapata Corporation dated April 12, 1998
(Exhibit 10.9 to Omega Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998
10.10* --Administrative Services Agreement with Zapata Corporation dated
April 12, 1998 (Exhibit 10.10 to Omega Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998)+
10.11*+ --1998 Long-Term Incentive Plan (Exhibit 10.42 to Omega Registration
Statement on Form
S-1[Registration No. 333-44967])
10.12*+ --Non-Management Director Stock Option Plan (Exhibit 10.43 to Omega
Registration Statement on Form S-1 [Registration No. 333-44967])
10.13* --Revolving Credit Agreement dated August 11, 1998 with SunTrust Bank,
South Florida, National Association, Lender and Omega Protein
Corporation and Omega Protein, Inc., Borrowers (Exhibit 10.9 to Omega
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
[File No. 001-14003])
</TABLE>
40
<PAGE>
<TABLE>
<C> <S>
10.14* --Security Agreement dated August 11, 1998 in favor of SunTrust Bank,
South Florida, National Association (Exhibit to Omega Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998 [File No. 001-14003])
10.15* --Revolving Credit Note dated August 11, 1998 in favor of SunTrust
Bank, South Florida, National Association (Exhibit 10.11 to Omega
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
[File No. 001-14003])
10.16+ --Change of Control Agreement dated February 1, 2000 between the
Company and Bernard White.
10.17+ --Change of Control Agreement dated February 1, 2000 between the
Company and Jonathan Specht.
21 --Schedule of Subsidiaries
27 --Financial Data Schedule
</TABLE>
- --------
--Report of Independent Accountants on Financial Statement Schedule
--Financial Statement Schedule of valuation and qualifying accounts
* Incorporated by reference
+ Management Contract or Compensatory Plan or arrangement required to be
filed as an exhibit pursuant to the requirements of Item 14 (a) of Form 10-
K and Item 601 of Regulation S-K.
(b) Reports on Form 8-K.
None.
(c) Financial Statement Schedule.
Filed herewith as a financial statement schedule is the schedule supporting
Omega's consolidated financial statements listed under paragraph (a) of this
Item, and the Report of Independent Accountants' with respect thereto.
(2) Exhibits
41
<PAGE>
OMEGA PROTEIN CORPORATION
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
Beginning Costs to Other at End
Description of Period and Expenses Accounts Deductions(A) of Period
----------- ---------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
September 30, 1997:
Allowance for doubtful
accounts............. $160,881 $50,000 $-- $(35,164) $175,717
Inventory reserve..... 102,000 -- -- -- 102,000
September 30, 1998:
Allowance for doubtful
accounts............. $175,717 $27,500 $-- $(11,167) $192,050
Inventory reserve..... 102,000 -- -- -- 102,000
December 31, 1998:
Allowance for doubtful
accounts............. $192,050 $ -- $-- $ -- $192,050
Inventory reserve..... 102,000 24 -- -- 102,024
December 31, 1999:
Allowance for doubtful
accounts............. $192,050 $30,000 $-- $(33,557) $188,493
Inventory reserve..... 102,024 -- -- -- 102,024
</TABLE>
- --------
(A) Allowance for Doubtful Accounts--uncollectible accounts written off.
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
Omega Protein Corporation:
Our audits of the consolidated financial statements of Omega Protein
Corporation referred to in our report dated March 3, 2000, are included in
Item 8 of this Form 10-K also included an audit of the financial statement
schedule listed in Item 14(a), (c)(2) of this Form 10-K. In our opinion, this
financial statement schedule, presents fairly, in all material respects, the
information required to be included therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
March 3, 2000
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 10, 2000.
Omega Protein Corporation
(Registrant)
/s/ Robert W. Stockton
By:__________________________________
Robert W. Stockton
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph L. von Rosenberg III or Robert W.
Stockton, or either of them, his true and lawful attorney's-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign to the Company's
Form 10-K for the year ended December 31, 1999 and any or all statements, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
March 10, 2000
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joseph L. von Rosenberg President and Chief March 10, 2000
______________________________________ Executive Officer and
Joseph L. von Rosenberg Director
/s/ Robert W. Stockton Executive Vice President, March 10, 2000
______________________________________ Chief Financial Officer
Robert W. Stockton and Corporate Secretary
(Principal Financial and
Accounting Officer)
/s/ Avram A. Glazer Chairman March 10, 2000
______________________________________
Avram A. Glazer
Director
______________________________________
Malcolm I. Glazer
/s/ Gary L. Allee Director March 10, 2000
______________________________________
Gary L. Allee
/s/ William Lands Director March 10, 2000
______________________________________
William Lands
</TABLE>
44
<PAGE>
OMEGA PROTEIN CORPORATION
- --------------------------------------------------------------------------------
DIRECTORS
- --------------------------------------------------------------------------------
Avram A. Glazer
Chairman of the Board
Omega Protein Corporation
Joseph L. von Rosenberg III
President and Chief Executive Officer
Omega Protein Corporation
Dr. Gary L. Allee /1/ /2/
University of Missouri
Columbia, Missouri
Malcolm I. Glazer
Private Investor
Palm Beach, Florida
*Dr. William E. M. Lands /1/ /2/
Retired Professor
College Park, Maryland
1 Audit Committee Member
2 Compensation Committee Member
OFFICERS
- --------------------------------------------------------------------------------
Joseph L. von Rosenberg III
President and Chief Executive Officer
Robert W. Stockton
Executive Vice President, Chief Financial Officer and Secretary
Bernard H. White
Corporate Vice President
Jonathan Specht
Vice President, Operations
CORPORATION INFORMATION
- --------------------------------------------------------------------------------
Stock Exchange Listing
Common Stock
New York Stock Exchange
Ticker Symbol: OME
Transfer Agent & Registrar
Common Stock
American Stock Transfer & Trust Co.
New York, New York
Independent Accountants
PricewaterhouseCoopers LLP
New Orleans, Louisiana
45
<PAGE>
EXHIBIT 10.16
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement dated and effective as of February 1,
2000 (this "Agreement") is entered into by and between Omega Protein
Corporation, a Nevada corporation with headquarters in Houston, Texas (the
"Company" or "Omega"), and Bernard H. White, an individual residing in Harris
County, Texas (the "Employee").
WHEREAS, the Employee is a key employee of the Company whose services are
important to the Company's ongoing operations; and
WHEREAS, the Company desires to provide the Employee with certain assurances
regarding his employment in the event of a Change of Control of the Company;
THEREFORE, in consideration of the premises and the mutual agreements and
covenants set forth herein, the parties hereby agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the following
definitions:
"Change of Control" means (1) that point in time in which Joseph L. von
Rosenberg III no longer serves for any reason as the President and Chief
Executive Officer of the Company, or (2) that point in time in which a person,
entity or group (as such terms are defined in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) other than (a) the Company or its subsidiaries,
or (b) Zapata Corporation (which as of the date of this Agreement currently owns
approximately 61% of the Company's outstanding common stock), directly or
indirectly acquires beneficial ownership (as defined in Section 13(d) of the
Securities Exchange Act) of thirty percent (30%) or more of the then outstanding
shares of common stock of the Company as a result of such acquisition (provided,
however, that such Change of Control does not occur solely as a result of a
reduction in the number of shares of Company common stock outstanding due to a
repurchase of Company common stock by the Company or its subsidiaries). For
purposes of this Agreement, the Change of Control will be deemed to occur on the
effective date on which such person or entity acquires beneficial ownership of
at least one share greater than thirty percent (30%) of the then outstanding.
Zapata Corporation is not an intended third party beneficiary of this Agreement
so that if, for example, Zapata Corporation were to sell all of its shares of
Omega common stock to a third party which, as a result of that transaction, then
owned greater than 30% of the Company's then outstanding common stock, a Change
of Control would have occurred.
"Qualifying Termination" means (i) the termination of the Employee's employment
for any reason other than death, Due Cause or Disability, (ii) a demotion of the
Employee to a lesser position than the position held by the Employee immediately
prior to the Change of Control or a material change in the Employee's
responsibilities that are substantially similar to such a demotion; (iii) any
decrease in the Employee's base
1
<PAGE>
salary or removal of his right to participate in bonus and incentive programs
for similarly situated executives; or (iv) any requirement that the Employee
move his permanent resident outside the Houston, Texas and surrounding suburbs
area.
"Disability" means the inability or incapacity (by reason of a medically
determinable physical or mental impairment) of the Employee to perform the
essential functions of the job then assigned to him hereunder for a period that
can be reasonably expected to last more than 120 days.
"Due Cause" means: (i) the Employee has committed a willful serious act, such as
fraud, embezzlement or theft, against the Company or any of its subsidiaries,
intending to materially enrich himself at the expense of the Company or that
subsidiary; (ii) the Employee has been convicted of or pled guilty or nolo
contendre to a felony; or (iii) the Employee has refused to carry out his duties
in gross dereliction of those duties and, after receiving written notice to such
effect from the Company, has failed to cure the existing problem within five
days.
2. TERM. The term of this Agreement shall commence on the date of this
Agreement and shall continue in effect until terminated by mutual written
consent of the Company and the Employee.
3. CHANGE OF CONTROL. If, at any time within seven hundred and thirty (730)
days after a Change in Control occurs, and the Company terminates the Employee's
employment by a Qualifying Termination, then the Employee may, at his option and
in his sole discretion, tender to the Company a signed and dated Change of
Control Termination Notice specifying the factual basis of the Change of Control
and the basis for Employee's termination. If the Company does not dispute in
writing the factual basis of such Change of Control Termination Notice within
ten (10) days of Company's receipt thereof, then: (i) the Employee's Employment
shall terminate effective as of the fifteenth (15th) day after the date of the
Change of Control Termination Notice; and (ii) for a one-year period thereafter,
the Company shall continue to pay the Employee his base salary in accordance
with the standard payroll policies of the Company and; (iii) all the rights and
benefits the Employee may have under the employee benefit, bonus and/or stock
option plans and programs of the Company, if any, will be determined in
accordance with the terms and conditions of those plans and programs.
4. NOTICES. All notices, requests, demands and other communications
given under or by reason of this Agreement must be in writing and will be deemed
given when delivered in person or when mailed, by certified mail (return receipt
requested), postage prepaid, addressed as follows (or to such other address as a
party may specify by notice pursuant to this provision):
(a) If to the Company:
2
<PAGE>
Omega Protein Corporation
1717 St. James Place, Suite 550
Houston, Texas 77056
Attn: Chief Executive Officer
(b) If to the Employee:
Bernard H. White
10614 North Evers Park
Houston, Texas 77024
4. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the substantive laws (other than the rules governing conflicts
of laws) of the State of Texas.
5. ADDITIONAL INSTRUMENTS. The Employee and the Company will execute
and deliver any and all additional instruments and agreements that may be
necessary or proper to carry out the purposes of this Agreement.
6. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire
agreement of the Employee and the Company relating to the matters contained
herein and supersedes all prior agreements and understandings, oral or written,
between the Employee and the Company with respect to the subject matter hereof.
This Agreement may not be amended or modified except by an agreement in writing
signed by both parties.
7. HEADINGS. The headings of Sections and subsections hereof are
included solely for convenience of reference and will not control the meaning or
interpretation of any of the provisions hereof.
8. TAX WITHHOLDING. Notwithstanding any other provision hereof, the
Company may withhold from amounts payable hereunder all federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
9. SEPARABILITY. If any provision of this Agreement is rendered or
declared illegal, invalid or unenforceable by reason of any existing or
subsequently enacted legislation or by the final judgment of any court of
competent jurisdiction, the Employee and the Company will promptly meet and
negotiate substitute provisions for those rendered or declared illegal or
unenforceable to preserve the original intent of this Agreement to the extent
legally possible, but all other provisions of this Agreement shall remain in
full force and effect.
3
<PAGE>
10. ASSIGNMENTS. The Company may assign this Agreement to any person or
entity succeeding to all or substantially all the business interests of the
Company by merger or otherwise with the written consent of the Employee. The
rights and obligations of the Employee under this Agreement are personal to him,
and none of those rights, benefits or obligations will be subject to voluntary
or involuntary alienation, assignment or transfer.
11. EFFECT OF AGREEMENT. Subject to the provisions of Section 10 with
respect to assignments, this Agreement will be binding on the Employee and his
heirs, executors, administrators, legal representatives and assigns and on the
Company and its successors and assigns, except as otherwise contemplated hereby.
12. EXECUTION. This Agreement may be executed in multiple counterparts,
each of which will be deemed an original and all of which will constitute one
and the same agreement.
13. WAIVER OF BREACH. The waiver by either party to this Agreement of a
breach of any provision of the Agreement by the other party will not operate or
be construed as a waiver by the waiving party of any subsequent breach by the
other party.
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement effective as of the date first above written.
OMEGA PROTEIN, INC EMPLOYEE
By: _______________________ ____________________
Joseph L. von Rosenberg III Bernard H. White
President and Chief Executive Officer
4
<PAGE>
EXHIBIT 10.17
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement dated and effective as of February 1,
2000 (this "Agreement") is entered into by and between Omega Protein
Corporation, a Nevada corporation with headquarters in Houston, Texas (the
"Company" or "Omega"), and Jonathan Specht, an individual residing in Harris
County, Texas (the "Employee").
WHEREAS, the Employee is a key employee of the Company whose services are
important to the Company's ongoing operations; and
WHEREAS, the Company desires to provide the Employee with certain assurances
regarding his employment in the event of a Change of Control of the Company;
THEREFORE, in consideration of the premises and the mutual agreements and
covenants set forth herein, the parties hereby agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the following
definitions:
"Change of Control" means (1) that point in time in which Joseph L. von
Rosenberg III no longer serves for any reason as the President and Chief
Executive Officer of the Company, or (2) that point in time in which a person,
entity or group (as such terms are defined in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) other than (a) the Company or its subsidiaries,
or (b) Zapata Corporation (which as of the date of this Agreement currently owns
approximately 61% of the Company's outstanding common stock), directly or
indirectly acquires beneficial ownership (as defined in Section 13(d) of the
Securities Exchange Act) of thirty percent (30%) or more of the then outstanding
shares of common stock of the Company as a result of such acquisition (provided,
however, that such Change of Control does not occur solely as a result of a
reduction in the number of shares of Company common stock outstanding due to a
repurchase of Company common stock by the Company or its subsidiaries). For
purposes of this Agreement, the Change of Control will be deemed to occur on the
effective date on which such person or entity acquires beneficial ownership of
at least one share greater than thirty percent (30%) of the then outstanding.
Zapata Corporation is not an intended third party beneficiary of this Agreement
so that if, for example, Zapata Corporation were to sell all of its shares of
Omega common stock to a third party which, as a result of that transaction, then
owned greater than 30% of the Company's then outstanding common stock, a Change
of Control would have occurred.
"Qualifying Termination" means (i) the termination of the Employee's employment
for any reason other than death, Due Cause or Disability, (ii) a demotion of the
Employee to a lesser position than the position held by the Employee immediately
prior to the Change of Control or a material change in the Employee's
responsibilities that are substantially similar to such a demotion; (iii) any
decrease in the Employee's base
1
<PAGE>
salary or removal of his right to participate in bonus and incentive programs
for similarly situated executives; or (iv) any requirement that the Employee
move his permanent resident outside the Houston, Texas and surrounding suburbs
area.
"Disability" means the inability or incapacity (by reason of a medically
determinable physical or mental impairment) of the Employee to perform the
essential functions of the job then assigned to him hereunder for a period that
can be reasonably expected to last more than 120 days.
"Due Cause" means: (i) the Employee has committed a willful serious act, such as
fraud, embezzlement or theft, against the Company or any of its subsidiaries,
intending to materially enrich himself at the expense of the Company or that
subsidiary; (ii) the Employee has been convicted of or pled guilty or nolo
contendre to a felony; or (iii) the Employee has refused to carry out his duties
in gross dereliction of those duties and, after receiving written notice to such
effect from the Company, has failed to cure the existing problem within five
days.
2. TERM. The term of this Agreement shall commence on the date of this
Agreement and shall continue in effect until terminated by mutual written
consent of the Company and the Employee.
3. CHANGE OF CONTROL. If, at any time within seven hundred and thirty (730)
days after a Change in Control occurs, and the Company terminates the Employee's
employment by a Qualifying Termination, then the Employee may, at his option and
in his sole discretion, tender to the Company a signed and dated Change of
Control Termination Notice specifying the factual basis of the Change of Control
and the basis for Employee's termination. If the Company does not dispute in
writing the factual basis of such Change of Control Termination Notice within
ten (10) days of Company's receipt thereof, then: (i) the Employee's Employment
shall terminate effective as of the fifteenth (15th) day after the date of the
Change of Control Termination Notice; and (ii) for a one-year period thereafter,
the Company shall continue to pay the Employee his base salary in accordance
with the standard payroll policies of the Company and; (iii) all the rights and
benefits the Employee may have under the employee benefit, bonus and/or stock
option plans and programs of the Company, if any, will be determined in
accordance with the terms and conditions of those plans and programs.
4. NOTICES. All notices, requests, demands and other communications
given under or by reason of this Agreement must be in writing and will be deemed
given when delivered in person or when mailed, by certified mail (return receipt
requested), postage prepaid, addressed as follows (or to such other address as a
party may specify by notice pursuant to this provision):
(a) If to the Company:
2
<PAGE>
Omega Protein Corporation
1717 St. James Place, Suite 550
Houston, Texas 77056
Attn: Chief Executive Officer
(b) If to the Employee:
Jonathan Specht
23110 Lodgepoint Dr.
Katy, Texas 77494-2153
4. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the substantive laws (other than the rules governing conflicts
of laws) of the State of Texas.
5. ADDITIONAL INSTRUMENTS. The Employee and the Company will execute
and deliver any and all additional instruments and agreements that may be
necessary or proper to carry out the purposes of this Agreement.
6. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire
agreement of the Employee and the Company relating to the matters contained
herein and supersedes all prior agreements and understandings, oral or written,
between the Employee and the Company with respect to the subject matter hereof.
This Agreement may not be amended or modified except by an agreement in writing
signed by both parties.
7. HEADINGS. The headings of Sections and subsections hereof are
included solely for convenience of reference and will not control the meaning or
interpretation of any of the provisions hereof.
8. TAX WITHHOLDING. Notwithstanding any other provision hereof, the
Company may withhold from amounts payable hereunder all federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
9. SEPARABILITY. If any provision of this Agreement is rendered or
declared illegal, invalid or unenforceable by reason of any existing or
subsequently enacted legislation or by the final judgment of any court of
competent jurisdiction, the Employee and the Company will promptly meet and
negotiate substitute provisions for those rendered or declared illegal or
unenforceable to preserve the original intent of this Agreement to the extent
legally possible, but all other provisions of this Agreement shall remain in
full force and effect.
3
<PAGE>
10. ASSIGNMENTS. The Company may assign this Agreement to any person or
entity succeeding to all or substantially all the business interests of the
Company by merger or otherwise with the written consent of the Employee. The
rights and obligations of the Employee under this Agreement are personal to him,
and none of those rights, benefits or obligations will be subject to voluntary
or involuntary alienation, assignment or transfer.
11. EFFECT OF AGREEMENT. Subject to the provisions of Section 10 with
respect to assignments, this Agreement will be binding on the Employee and his
heirs, executors, administrators, legal representatives and assigns and on the
Company and its successors and assigns, except as otherwise contemplated hereby.
12. EXECUTION. This Agreement may be executed in multiple counterparts,
each of which will be deemed an original and all of which will constitute one
and the same agreement.
13. WAIVER OF BREACH. The waiver by either party to this Agreement of a
breach of any provision of the Agreement by the other party will not operate or
be construed as a waiver by the waiving party of any subsequent breach by the
other party.
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement effective as of the date first above written.
OMEGA PROTEIN, INC EMPLOYEE
By: _______________________ ____________________
Joseph L. von Rosenberg III Jonathan Specht
President and Chief Executive Officer
4
<PAGE>
EXHIBIT 21
Set forth below is a list of the Registrant's subsidiaries and their
respective states of incorporation. Pursuant to item 601(b)(2)(ii) of Regulation
S-K, subsidiaries which do not individually or in the aggregate with other
subsidiaries carrying on the same line of business constitute a significant
subsidiary as of the end of the current fiscal year have been omitted.
<TABLE>
<CAPTION>
Percent Owned
Name State of by OMEGA
of Corporation Incorporation Protein Corporation
- ------------------------- ------------- -------------------
<S> <C> <C>
Omega Net, Inc. (FKA Venture
Milling Company) Delaware 100%
Omega Protein, Inc. Virginia 100%
Protein Securities Company Delaware 100%
Protein (USA) Company Delaware 100%
Omega Shipyard, Inc. (FKA Moss Point
Dry Dock and Fabrication, Inc.) Delaware 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,673
<SECURITIES> 0
<RECEIVABLES> 16,179
<ALLOWANCES> 188
<INVENTORY> 46,112
<CURRENT-ASSETS> 78,673
<PP&E> 90,368
<DEPRECIATION> 7,929
<TOTAL-ASSETS> 176,148
<CURRENT-LIABILITIES> 14,949
<BONDS> 16,069
0
0
<COMMON> 243
<OTHER-SE> 143,929
<TOTAL-LIABILITY-AND-EQUITY> 176,148
<SALES> 93,636
<TOTAL-REVENUES> 93,636
<CGS> 87,369
<TOTAL-COSTS> 116,909
<OTHER-EXPENSES> 398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 893
<INCOME-PRETAX> (23,057)
<INCOME-TAX> (8,301)
<INCOME-CONTINUING> (14,756)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,756)
<EPS-BASIC> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
