<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-14003
OMEGA PROTEIN CORPORATION
(Exact name of Registrant as specified in its charter)
STATE OF NEVADA 76-0562134
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1717 ST. JAMES PLACE, SUITE 550
HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 623-0060
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ].
Number of shares outstanding of the Registrant's Common Stock, par value
$0.01 per share, on November 1, 2000: 23,907,789.
<PAGE>
OMEGA PROTEIN CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
<S> <C> <C>
Unaudited Condensed Consolidated Balance Sheet as of September 30, 2000
and December 31, 1999........................................................ 3
Unaudited Condensed Consolidated Statement of Operations for the three months
ended and nine months ended September 30, 2000 and 1999...................... 4
Unaudited Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 2000 and 1999................................. 5
Notes to Unaudited Condensed Consolidated Financial Statements.................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION............................................................ 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................... 22
ITEM 2. CHANGES IN SECURITIES........................................................... 22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................... 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................. 22
ITEM 5. OTHER INFORMATION............................................................... 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................ 22
SIGNATURES............................................................................... 23
EXHIBIT INDEX............................................................................ 24
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents........................................... $ 7,126 $ 15,673
Receivables, net.................................................... 8,566 15,991
Inventories......................................................... 49,492 46,112
Prepaid expenses and other current assets........................... 1,186 897
-------------- ---------------
Total current assets......................................... 66,370 78,673
Other assets............................................................ 7,853 7,107
Deferred tax asset, net................................................. 5,195 -
Property and equipment, net............................................. 91,001 90,368
-------------- ---------------
Total assets............................................ $ 170,419 $ 176,148
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt................................ $ 1,206 $ 1,146
Accounts payable.................................................... 3,243 2,200
Accrued liabilities................................................. 18,514 11,603
-------------- ---------------
Total current liabilities...................................... 22,963 14,949
Long-term debt.......................................................... 15,142 16,069
Deferred income taxes................................................... - 583
Other liabilities....................................................... 375 375
-------------- ---------------
Total liabilities.............................................. 38,480 31,976
-------------- ---------------
Minority interest....................................................... 104 -
-------------- ---------------
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;
24,320,889 shares and 24,302,126 shares issued and outstanding,
respectively..................................................... 243 243
Capital in excess of par value...................................... 111,867 111,835
Reinvested earnings, from October 1, 1990........................... 21,760 34,129
Common stock in treasury, at cost - 413,100 shares.................. (2,035) (2,035)
-------------- ---------------
Total stockholders' equity....................................... 131,835 144,172
-------------- ---------------
Total liabilities and stockholders' equity................. $ 170,419 $ 176,148
============== ===============
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
</TABLE>
3
<PAGE>
OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -------------------------------
2000 1999 2000 1999
--------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues........................................ $ 17,864 $ 23,677 $ 58,124 $ 64,054
Cost of sales................................... 18,295 24,237 57,321 56,606
Inventory write-down............................ 13,742 14,500 13,742 14,500
--------- ----------- ----------- -----------
Gross profit (loss)............................. (14,173) (15,060) (12,939) (7,052)
Selling, general, and administrative............ 1,610 1,978 5,987 6,466
--------- ----------- ----------- -----------
Operating income (loss)......................... (15,783) (17,038) (18,926) (13,518)
Interest income (expense), net.................. (101) 47 (115) 706
Other income (expense), net..................... (30) (13) (280) (221)
--------- ----------- ----------- -----------
Income (loss) before income taxes............... (15,914) (17,004) (19,321) (13,033)
Provision (benefit) for income taxes............ (5,725) (6,118) (6,952) (4,689)
--------- ----------- ----------- -----------
Net income (loss)............................... $ (10,189) $ (10,886) $ (12,369) $ (8,344)
========= =========== =========== ===========
Earnings (loss) per share (basic and diluted)... $ (0.43) $ (0.46) $ (0.52) $ (0.35)
========= =========== =========== ===========
Average common shares outstanding............... 23,908 23,872 23,899 23,992
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
4
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OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------------
2000 1999
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows used in operating activities:
Net income (loss)................................................... $ (12,369) $ (8,344)
--------------- ---------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss (gain) on disposal of assets, net.......................... 84 (33)
Depreciation and amortization................................... 7,358 6,684
Deferred income taxes........................................... (5,778) 1,240
Changes in assets and liabilities:
Receivables................................................. 7,425 (8,523)
Inventories, net of write-down.............................. (3,380) (20,247)
Accounts payable and accrued liabilities.................... 7,954 11,958
Amounts due to parent....................................... - (36)
Other, net.................................................. (1,812) (120)
--------------- ---------------
Total adjustments...................................... 11,851 (9,077)
--------------- ---------------
Net cash used in operating activities.................. (518) (17,421)
--------------- ---------------
Cash flows used in investing activities:
Proceeds from sale of assets, net.................................. 55 35
Capital expenditures............................................... (7,217) (12,111)
--------------- ---------------
Net cash used in investing activities.................. (7,162) (12,076)
--------------- ---------------
Cash flows used in financing activities:
Principal payments of short and long-term debt obligations.......... (867) (794)
Purchase of treasury stock.......................................... - (2,035)
--------------- ---------------
Net cash used in financing activities................... (867) (2,829)
--------------- ---------------
Net decrease in cash and cash equivalents................................ (8,547) (32,326)
Cash and cash equivalents at beginning of year........................... 15,673 44,828
--------------- ---------------
Cash and cash equivalents at end of period............................... $ 7,126 $ 12,502
=============== ===============
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
5
<PAGE>
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF OPERATIONS AND BASIS OF PRESENTATION
Business Description
Omega Protein Corporation ("Omega" or the "Company") produces and markets a
variety of products produced from menhaden (a fish found in commercial
quantities), including regular grade and value added specialty fish meals,
crude and refined fish oils and fish solubles. The Company's fish meal
products are used as nutritional feed additives by animal feed manufacturers
and by commercial livestock producers. The Company's crude fish oil is sold
primarily to food producers in Europe, and its refined fish oil products are
used in health foods, aquaculture feeds and certain industrial applications in
the United States and elsewhere. Fish solubles are sold as protein additives
for animal feed and as organic fertilizers.
On January 26, 1998, Marine Genetics Corporation ("Marine Genetics") merged
into Omega, a Nevada corporation, wholly owned by Zapata Corporation ("Zapata"),
with Omega being the surviving entity. Because Omega and Marine Genetics were
both wholly owned by Zapata, the merger was a common control merger accounted
for at historical cost in a manner similar to that in a pooling of interests
accounting. In connection with the merger, all of Marine Genetics outstanding
common stock was converted into Omega Common Stock at the rate of one share for
19,676 shares of newly issued Omega Common Stock and Omega's pre-merger
outstanding common stock was canceled and treated as treasury stock.
On April 8, 1998, the Company completed an initial public offering of
8,500,000 of its common stock at a price to the public of $16.00 per share. On
May 7, 1998, the Underwriters exercised their option to acquire 1,275,000
additional shares at the same price. Of the 9,775,000 total shares sold in the
offering, the Company issued and sold 4,600,000 shares, and Zapata sold
5,175,000 shares. Immediately following the offering, Zapata owned approximately
59.7% of the shares of the Company's outstanding common stock.
Change in Fiscal Year
On December 1, 1998, the Company's Board of Directors approved a change in
the Company's fiscal year end from September 30 to December 31, effective
beginning January 1, 1999.
Consolidation
The consolidated financial statements include the accounts of Omega and its
wholly and majority owned subsidiaries. Investments in affiliated companies
and joint ventures representing a 20% to 50% voting interest are accounted for
using the equity method. All significant intercompany accounts and
transactions have been eliminated in consolidation.
On April 5, 2000, the Company acquired for a nominal amount an additional
1% equity interest in a partially owned subsidiary previously accounted for
under the equity method. As a result of the transaction, the Company now owns
51% of the investment and consolidates its operations.
6
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The unaudited condensed consolidated financial statements included herein
have been prepared by Omega, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
statements reflect all adjustments that are, in the opinion of management,
necessary to fairly present such information. All such adjustments are of a
normal recurring nature. Although Omega believes that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. These unaudited condensed
consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in Omega's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, filed with the
Securities and Exchange Commission on March 9, 2000. The results of operations
for the fiscal quarter ended September 30, 2000 and the nine months ended
September 30, 2000 are not necessarily indicative of the results to be
expected for any subsequent quarter or the twelve months ending December 31,
2000.
Revenue Recognition
The Company recognizes revenue for the sale of its products when title to its
products is transferred to the customer.
Inventories
The Company's fishing season runs from mid-April to the end of October in the
Gulf of Mexico and from the beginning of May to the end of December in the
Atlantic. Government regulations generally preclude the Company from fishing
during the off seasons. During the off seasons, the Company incurs costs (i.e.,
plant and vessel-related labor, utilities, rent and depreciation) that are
directly related to the Company's infrastructure that will be used in the
upcoming fishing season. Costs that are incurred subsequent to a fish catch are
deferred until the next season and are included with inventory. Fishing product
inventories and materials, parts and supplies are stated at the lower of cost
(average cost) or market.
The Company's inventory cost system considers all costs, both variable and
fixed, associated with an annual fish catch and its processing. The Company's
costing system allocates cost to inventory quantities on a per unit basis as
calculated by a formula that considers total estimated inventoriable costs for a
fishing season (including off season costs) to total estimated fish catch and
the relative fair market value of the individual products produced. The Company
adjusts the cost of sales, off season costs and inventory balances at the end of
each quarter based on revised estimates of total inventoriable costs and fish
catch.
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", which was issued in March 1995. SFAS No. 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the book value of the asset may not be recoverable. The Company
evaluates at each balance sheet date whether events and 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
7
<PAGE>
over the remaining life in measuring whether its operating assets are
recoverable. During the fourth quarter of Fiscal 1999, the Company wrote down
approximately $2.3 million of impaired long-lived assets. The $2.3 million
impairment of certain of the Company's Morgan City in-line processing
equipment was recorded to reduce the value of the assets to their estimated
salvage value. The Company has temporarily closed the in-line processing
facilities at the plant and management has concluded that the affected damaged
equipment will not be repaired but instead will be permanently removed from
service.
Income Taxes
The Company utilizes the liability method to account for income taxes. This
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of existing temporary differences between the
financial reporting and tax reporting basis of assets and liabilities, and
operating loss and tax credit carryforwards for tax purposes. A valuation
allowance is provided for deferred tax assets if it is more likely than not
these items will either expire before the Company is able to realize the
benefit, or that future deductability is uncertain.
Property, Equipment and Depreciation
Property and equipment are initially recorded at cost except as adjusted by
the quasi-reorganization as of October 1, 1990. Because of the quasi-
reorganization, the carrying value of the assets was reduced to estimated fair
value.
Depreciation of property and equipment is computed by the straight-line
method at rates expected to amortize the cost of property and equipment, net of
salvage value, over their estimated useful lives. Estimated useful lives of
assets acquired new, determined as of the date of acquisition are as follows:
<TABLE>
<CAPTION>
USEFUL LIVES
(YEARS)
-------------
<S> <C>
Fishing vessels and fish processing plants................ 15-20
Furniture and fixtures.................................... 3-10
</TABLE>
Replacements and major improvements are capitalized; maintenance and repairs
are charged to expense as incurred. Upon sale or retirement, the costs and
related accumulated depreciation are eliminated from the accounts. Any resulting
gains or losses are included in the statement of operations. The Company
periodically evaluates its long-lived assets for impairment if events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and trade accounts receivable. The
Company's customer base generally remains consistent from year to year. The
Company performs ongoing credit evaluations of its customers and generally does
not require material collateral. The Company maintains reserves for potential
credit losses and such losses have historically been within management's
expectations.
At September 30, 2000 and December 31, 1999, the Company had cash deposits
concentrated primarily in two major banks. In addition, the Company had
Certificates of Deposit and commercial quality grade A2P2 rated or better
securities paper with companies and
8
<PAGE>
financial institutions. As a result of the foregoing, the Company believes
that credit risk in such investments is minimal.
Earnings Per Share
Basic earnings per share were computed by dividing income by the weighted
average number of common shares outstanding. Diluted earnings per share were
computed by dividing income by the sum of the weighted average number of common
shares outstanding and the effect of any dilutive stock options.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which, as amended, is effective for fiscal
years beginning after June 15, 2000. SFAS 133 establishes standards requiring
all derivatives to be recognized in the statement of financial position as
either assets or liabilities and measured at fair value. The Company will adopt
the provisions of the statement in Fiscal 2001. The Company anticipates that
implementing the provisions of SFAS 133 will not have a significant impact on
the Company's existing operations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Quasi-Reorganization
In connection with the comprehensive restructuring accomplished in 1991, the
Company, in conjunction with Zapata, implemented, for accounting purposes, a
"quasi-reorganization," an elective accounting procedure that permits a company
that has emerged from previous financial difficulty to restate its accounts and
establish a fresh start in an accounting sense. After implementation of the
accounting quasi-reorganization, the Company's assets and liabilities were
revalued and its deficit in reinvested earnings was charged to capital in excess
of par value. The Company effected the accounting quasi-reorganization as of
October 1, 1990.
9
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NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable as of September 30, 2000 and December 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
2000 1999
------------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Trade................................................................. $ 6,304 $ 8,717
Insurance............................................................. 920 1,354
Employee.............................................................. 112 60
Income tax............................................................ 1,200 5,300
Other................................................................. 240 748
------------------- -------------------
Total accounts receivable............................................. 8,776 16,179
Less: allowance for doubtful accounts................................. (210) (188)
------------------- -------------------
Receivables, net...................................................... $ 8,566 $ 15,991
=================== ===================
</TABLE>
NOTE 3. INVENTORY
Inventory as of September 30, 2000 and December 31, 1999 is summarized as
follows:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
2000 1999
--------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Fish meal............................................................. $ 28,042 $ 24,195
Fish oil.............................................................. 11,320 8,445
Fish solubles......................................................... 1,032 1,538
Off season cost....................................................... 4,681 7,282
Materials & supplies.................................................. 4,337 4,633
Other................................................................. 182 121
Less: oil inventory reserve........................................... (102) (102)
--------------- --------------
Total inventory....................................................... $ 49,492 $ 46,112
=============== ==============
</TABLE>
At September 30, 2000, the Company provided $13.7 million in write-downs of
the value of its fish meal and fish oil. 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 $40.3
million for the fish meal, oil and soluble products approximates current
market value, less estimated selling cost, at September 30, 2000. During
Fiscal 1999, the Company provided $18.2 million in write-downs of the value
of its fish meal and fish oil product inventories, due to market prices
falling 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.
10
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NOTE 4. OTHER ASSETS
Other assets as of September 30, 2000 and December 31, 1999 are summarized
as follows:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
2000 1999
---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Fishing nets.......................................................... $ 1,306 $ 1,258
Prepaid pension cost.................................................. 3,366 3,190
Insurance receivable.................................................. 2,144 1,830
Title XI loan origination fee......................................... 292 339
Note receivable....................................................... 371 35
Deposits.............................................................. 141 116
Investments in unconsolidated affiliates.............................. - 58
Miscellaneous......................................................... 233 281
------------------- -------------------
Total other assets.................................................... $ 7,853 $ 7,107
=================== ===================
</TABLE>
Amortization expense for fishing nets amounted to approximately $720,000
and $641,000 for the nine months ended September 30, 2000 and 1999,
respectively.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2000 and December 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
2000 1999
---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................................. $ 5,390 $ 5,390
Plant assets.......................................................... 64,534 64,498
Fishing vessels....................................................... 66,765 66,859
Furniture and fixtures................................................ 1,730 1,730
Work in process....................................................... 11,789 4,572
------------------- -------------------
Total property and equipment.......................................... 150,208 143,049
Less: accumulated depreciation and impairment......................... (59,207) (52,681)
------------------- -------------------
Property and equipment, net........................................... $ 91,001 $ 90,368
=================== ===================
</TABLE>
Depreciation expense for the nine months ended September 30, 2000 and 1999
was approximately $6.6 million and $5.9 million, respectively.
NOTE 6. NOTES PAYABLE AND LONG-TERM DEBT
At September 30, 2000 and December 31, 1999, the Company's long-term debt
consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
2000 1999
------------------ ------------------
<S> <C> <C>
U.S. government guaranteed obligations (Title XI loan) collateralized by
a first lien on certain vessels and certain plant assets:
Amounts due in installments through 2014, interest from 6.63% to 8.25%....... $ 14,906 $ 15,564
Amounts due in installments through 2014, interest at Eurodollar rates
Plus 0.45%; 7.95% and 5.96% at September 30, 2000 and December 31,
1999, respectively........................................................... 1,112 1,171
Other debt at 8% at September 30, 2000 and December 31, 1999 respectively.......... 330 480
------------------ ------------------
Total debt......................................................................... 16,348 17,215
Less: current maturities........................................... (1,206) (1,146)
------------------ ------------------
Long-term debt..................................................................... $ 15,142 $ 16,069
================== ==================
</TABLE>
11
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At September 30, 2000 and December 31, 1999, the estimated fair value of
debt obligations approximated the book value of the underlying collateral.
On December 22, 1999, the Company closed on its Fiscal 1999 Title XI
application and received $5.6 million of Title XI borrowings for qualified
Title XI projects. Originally, the Company was authorized to receive up to
$20.6 million in loans under the Title XI program, and has used the entire
amount authorized under such program. The Company's current Title XI
borrowings are secured by liens on 17 fishing vessels and mortgages on the
Company's Reedville, Virginia and Abbeville, Louisiana plants. At September
30, 2000 and December 31, 1999, the Company was in compliance with all
restrictive covenants contained in the Title XI borrowing agreements. To date
the Company has used $20.6 million of the authorized Title XI funds.
The Company's $20.0 million revolving credit facility with SunTrust Bank,
South Florida, N.A. expired on July 2, 2000. The Company is currently
negotiating a new $20.0 million facility with a different bank, although no
assurances can be given that a new credit facility will be finalized.
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities as of September 30, 2000 and December 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
2000 1999
---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Salary and benefits................................................... $ 10,323 $ 3,625
Insurance............................................................. 5,756 5,101
Taxes, other than income tax.......................................... 815 8
Federal and state income taxes........................................ - 271
Trade creditors....................................................... 1,482 2,518
Other................................................................. 138 80
------------------- -------------------
Total accrued liabilities............................................. $ 18,514 $ 11,603
=================== ===================
</TABLE>
NOTE 8. CERTAIN TRANSACTIONS AND ARRANGEMENTS BETWEEN THE COMPANY AND ZAPATA
The Company provided to Zapata payroll and certain administrative services
billed at their approximate cost. During the nine month period ended
September 30, 2000 fees billed for these services totaled $7,250. During the
nine month period ended September 30, 1999, fees billed for these services
totaled $97,000. The cost of such services were based on the estimated
percentage of time that employees spent working on the other party's matters
as a percent of total time worked. The Company's management deemed this
allocation method to be reasonable.
Upon completion of the Company's initial public offering in April 1998, the
Company and Zapata entered into certain agreements that include the
Separation, Sublease, Registration Rights, Tax Indemnity and Administrative
Services Agreements. The Separation Agreement required the Company to repay
$33.3 million of indebtedness owed by the Company to Zapata contemporaneously
with the consummation of the Company's initial public offering and also
prohibits Zapata from competing with the Company for a period of five years.
The Sublease
12
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Agreement provides for the Company to lease its principal corporate offices
in Houston, Texas from Zapata and provides for the Company to utilize certain
shared office equipment for no additional charge. The Registration Rights
Agreement sets forth the rights and responsibilities of each party concerning
certain registration filings and provides for the sharing of fees and
expenses related to such filings. The Tax Indemnity Agreement requires the
Company to be responsible for federal, state and local income taxes from its
operations and the Administrative Services Agreement allows the Company to
provide certain administrative services to Zapata at the Company's estimated
cost.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is defending various claims and litigation arising from its
operations. In the opinion of management, uninsured losses, if any, resulting
from these matters will not have a material adverse effect on the Company's
results of operations, cash flows or financial position.
Environmental Matters
The Company is subject to various possible claims and lawsuits regarding
environmental matters. Management believes that costs, if any, related to these
matters will not have a material adverse effect on the results of operations,
cash flows or financial position of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements in this Form 10-Q, future filings by the Company
with the Securities and Exchange Commission (the "Commission"), the Company's
press releases and oral statements by authorized officers of the Company are
intended to be subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation, the
risks set forth under the caption "Significant Factors that May Affect Forward
Looking Statements" appearing in Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Company believes that
forward-looking statements made by it are based on reasonable expectations.
However, no assurances can be given that actual results will not differ
materially from those contained in such forward-looking statements. Forward-
looking statements involve statements that are predictive in nature, which
depend upon or refer to future events or conditions, which include the words
"estimate," "project," "anticipate," "expect," "predict," "believe" and similar
expressions. The Company assumes no obligation to update forward-looking
statements.
13
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General
As used herein, the term "Omega" or the "Company" refers to Omega Protein
Corporation and its consolidated subsidiaries, as applicable. All references
herein to a "fiscal" year refers to the 12-month period ended December 31 of
such year. The Company's principal executive offices are located at 1717 St.
James Place, Suite 550, Houston, Texas 77056 (Telephone: (713) 623-0060).
Omega is the largest producer of protein-rich meal and oil derived from
marine sources in the United States. The Company's products are produced from
menhaden (a fish found in commercial quantities), including regular grade and
value added specialty fish meals, crude and refined fish oils and fish solubles.
The Company's fish meal products are used as nutritional feed additives by
animal feed manufacturers and by commercial livestock and poultry farmers. The
Company's crude fish oil is sold to food producers in Europe and its refined
fish oil products are used in health foods, aquaculture feeds and certain
industrial applications. Fish solubles are sold as protein additives for animal
feed and as organic fertilizers.
The fish catch is processed into regular grade fish meal, specialty fish
meals, fish oils and fish solubles at the Company's four processing plants
located in Virginia, Mississippi and Louisiana. The Company owns 65 fishing
vessels (44 of which were directly involved in the harvesting operations during
Fiscal 2000) and owns 33 and leases 8 aircraft (of which 35 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. The
Company elected to 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. Warehousing operations are being conducted
at the facility until market conditions improve or other opportunities develop
for the property.
The Company's harvesting season generally extends from May through December
on the mid-Atlantic coast and from April through October on the Gulf coast.
During the off season, the Company fills purchase orders from the inventory it
has accumulated during the fishing season. Prices for the Company's products
tend to be lower during the fishing season when product is more abundant than in
the off season. Throughout the entire year, prices are significantly influenced
by supply and demand in world markets for competing products, particularly
soybean meal for its fish meal products and vegetable oils and fats for its fish
oil products when used as an alternative to vegetable oils and fats. During
Fiscal 1999 and the nine months ending September 30, 2000, world grain and
oilseed markets were burdened by excess supplies relative to demand which, in
turn, resulted in prices for most major commodities being sharply lower than in
previous years. Correspondingly, the Company's product prices have been
adversely impacted during these periods, resulting in decreased gross margins
and the recording of $18.2 million in inventory write-downs during Fiscal 1999.
The continuation of these adverse conditions, combined with higher harvesting
costs due mainly to increased energy prices and reduced oil processing yields
resulted in a $13.7 million inventory write-down for the quarter ended September
30, 2000. Management believes that these adverse pricing conditions will
continue throughout the remainder of Fiscal 2000 and into Fiscal 2001. A further
write-down of inventories produced in the last quarter of Fiscal 2000 is likely.
14
<PAGE>
The Company implemented several cost cutting measures during Fiscal 2000
and has plans for the introduction of additional measures during Fiscal 2001.
During Fiscal 2000, these measures included, among other items, a reduction in
fishing vessels and spotter planes, temporary closure of in-line processing
facilities at its highest cost plant and conversion of certain fishing vessels
to carry-vessels. During Fiscal 2001, the Company has planned a further
reduction in fishing vessels and spotter planes and a corresponding reduction
in off season maintenance expenses for the remainder of the fleet.
Additionally, the Company has planned a reduction in its off season personnel
associated with those maintenance programs and a suspension of the Company's
matching contribution to the Omega 401(k) Savings and Retirement Plan.
Assuming no significant change in product market prices and harvesting
assumptions, management expects that all of these cost-cutting measures will
reduce the Company's cost of production to a level whereby positive gross
margins should be attainable on an aggregate basis in fiscal 2001.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to Omega's initial public offering in April 1998, Zapata, as the sole
stockholder of Omega, caused cash to be moved between Omega and Zapata as each
company had cash needs. As a result of the offering, Omega and Zapata are now
separate public companies and each entity's capital resources and liquidity is
legally independent of the other and dedicated to its own operations. As a
result, the historical liquidity and capital resources of the Company may not be
indicative of the Company's future liquidity and capital resources.
The Company's primary sources of liquidity and capital resources have been
cash flows from operations, proceeds from initial public offering, pre-initial
public offering borrowings from Zapata, bank credit facilities and term loans
from various lenders provided pursuant to the Title XI of the Marine Act of 1936
("Title XI"). These sources of cash flows have been used for capital
expenditures (including acquisitions) and payment of long-term debt. The Company
expects to finance future expenditures through existing cash balances and
internally generated cash flows.
Under the Title XI program offered through National Marine Fisheries Service,
the Company has the ability to secure loans for fishing vessels and shoreside
capital expenditures and maintenance through lenders with terms generally
ranging between 12 and 20 years at an interest rate between 6% and 8% per annum
which are enhanced with a government guaranty to the lender for up to 80% of the
financing. The Company's current Title XI borrowings are secured by liens on 17
fishing vessels and mortgages on the Company's Reedville, Virginia and
Abbeville, Louisiana plants. To date, the Company has used the entire $20.6
million amount authorized under the program. The Company's $20.0 million
revolving credit facility with SunTrust Bank, South Florida, N.A. expired on
July 2, 2000. The Company is currently negotiating a new $20.0 million facility
with a different bank, although no assurances can be given that a new credit
facility will be finalized.
Omega had an unrestricted cash balance of $7.1 million at September 30, 2000,
down $8.6 million from December 31, 1999. This decrease in unrestricted cash was
due primarily to cash flows used for capital expenditures of $7.2 million.
Investing activities used $7.2 million in the nine months ended September
30, 2000 and $12.1 million during the nine months ended September 30, 1999.
The Company's investing activities consisted mainly of capital expenditures
for equipment purchases and equipment replacements in the nine month periods
ended September 30, 2000 and 1999.
Net financing activities used $867,000 to repay debt obligations during the
nine month period ended September 30, 2000, compared with $2.8 million cash
used by net financing activities for the nine months ended September 30, 1999.
For the nine months ended September 30, 1999, debt obligation repayments
totaled $794,000 and $2.0 million was used to repurchase treasury stock for
the nine months ended September 30, 1999.
The Company believes that its existing cash and cash equivalents, combined
cash flows from operations, along with the plans for additional cost cutting
measures being implemented during the remainder of fiscal 2000 and in fiscal
2001, will be sufficient to meet its working capital and capital expenditure
requirements through at least the end of 2001.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth as a percentage of revenues certain items of
the Company's operations for each of the indicated periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------- ---------------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................ 102.4 102.4 98.6 88.4
Inventory write-down..................... 76.9 61.2 23.6 22.6
---------------- ---------------- ---------------- ----------------
Gross profit (loss)...................... (79.3) (63.6) (22.2) (11.0)
Selling, general and administrative...... 9.0 8.4 10.3 10.1
---------------- ---------------- ---------------- ----------------
Operating income (loss)................. (88.3) (72.0) (32.5) (21.1)
Interest income (expense), net........... (0.6) 0.2 (0.2) 1.1
Other (expense) income, net.............. (0.1) (0.0) (0.5) (0.3)
---------------- ---------------- ---------------- ----------------
Income (loss) before income taxes........ (89.0) (71.8) (33.2) (20.3)
Provision (benefit) for income taxes..... (32.0) (25.8) (12.0) (7.3)
---------------- ---------------- ---------------- ----------------
Net income (loss)........................ (57.0) (46.0) (21.2) (13.0)
================ ================ ================ ================
</TABLE>
17
<PAGE>
INTERIM RESULTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES. For the quarter ended September 30, 2000, revenue decreased $5.8
million, or 24.6% from $23.7 million in the quarter ended September 30, 1999.
The decrease was attributable to reduced sales volumes for the Company's fish
meal and fish oil during the current quarter as compared to the previous quarter
ended September 30, 1999. Pricing between the quarters were relatively
unchanged.
COST OF SALES. Cost of sales, for the current quarter ended September 30,
2000 was $18.3 million, a 24.5% decrease from $24.2 million in the quarter ended
September 30, 1999. Cost of sales as a percent of revenues was 102.4% in both
the current quarter ended September 30, 2000 and in the quarter ended September
30, 1999.
INVENTORY WRITE-DOWNS. The current quarter inventory write-down of $13.7
million was attributable to reduced inventory production resulting from
untypically low oil processing yields (due to lower fat content of the fish) and
higher harvesting costs due mainly to increased energy prices, combined with
continuing depressed market conditions. The $14.5 million write-down from the
quarter ended September 30, 1999 resulted from cyclical market declines on the
inventory values of the Company's fish meal and fish oil.
GROSS PROFIT (LOSS). Gross loss decreased $0.9 million from $15.1 million
loss in the quarter ended September 30, 1999 to a $14.2 million loss in the
current quarter ended September 30, 2000. As a percentage of revenues, the
Company's gross profit margin decreased 15.7% in the current quarter ended
September 30, 2000, compared to the same period in the prior fiscal year. The
increase in gross loss was primarily due to reduced sales volumes for the
Company's fish meal and fish oil during the current quarter as compared to the
previous quarters ended September 30, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $368,000 or 18.6% from $2.0 million in the
three month period ended September 30, 1999 as compared to $1.6 million in the
quarter ended September 30, 2000. The decrease was primarily due to a reduction
in employee staff and related employee costs.
OPERATING INCOME (LOSS). As a result of the factors discussed above, the
Company's operating loss decreased $1.2 million from a $17.0 million loss in the
quarter ended September 30, 1999 to a loss of $15.8 million for the quarter
ended September 30, 2000. As a percentage of revenue, operating loss increased
16.3% from 72.0% in the quarter ended September 30, 1999 to 88.3% in the period
ended September 30, 2000.
INTEREST INCOME (EXPENSE), NET. Interest income, net decreased by $148,000 in
the quarter ended September 30, 2000 as compared to the previous quarter ended
September 30, 1999. The decrease in net interest income was due to the reduction
of cash and cash equivalents available for investment purposes during the
quarter ended September 30, 2000 as compared to the previous quarter ended
September 30, 1999.
OTHER INCOME (EXPENSE), NET. Other expense, net increased $17,000 in the
current quarter ended September 30, 2000 over the previous quarter ended
September 30, 1999. This increase was primarily due to minority interest in net
income of a consolidated subsidiary for the current
18
<PAGE>
three months ended September 30, 2000. On April 5, 2000, the Company acquired an
additional 1% interest that was previously accounted for under the equity
method. As a result of this acquisition, the Company now owns 51% of the
investment and consolidates its operations. Minority interests are not material
in relation to the consolidated results of operation.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company recorded a $5.7 million
benefit for income tax for the quarter ended September 30, 2000. This represents
an effective tax rate of 36.0% on a 15.9 million loss in comparison to a $6.1
million tax benefit for income tax expense in the quarter ended September 30,
1999, representing an effective tax rate of 36.0%. The effective tax rate
approximates the applicable combined state and federal statutory tax rates for
the respective periods.
INTERIM RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES. For the nine months ended September 30, 2000, revenues decreased
$5.9 million or 9.3% from $64.1 million for the nine months ended September
30, 1999 to $58.1 million for the nine months ended September 30, 2000. This
decrease was attributable to lower selling prices and sales volumes for the
Company's fish oil of 22.9% and 32.1%, respectively, during the current nine
months ended September 30, 2000 as compared to the nine months ended September
30, 1999. The decrease in revenues was partially offset by a 20.6% increase
in sales volumes for the Company's fish meal during the nine months ended
September 30, 2000 as compared to the nine months ended September 30, 1999.
COST OF SALES. Cost of sales, for the nine months ended September 30, 2000
was $57.3 million, a 1.2% increase from $56.6 million for the previous nine-
month period ended September 30, 1999. Cost of sales as a percentage of
revenues was 98.6% in the current nine-month period ended September 30, 2000
as compared to 88.4% in the nine-month period ended September 30, 1999. The
increase in cost of sales as a percentage of revenue is due primarily to a
20.6% increase in fish meal sales volumes along with 14.7% and 22.9% declines
in the Company's selling prices for fish meal and fish oil, respectively.
INVENTORY WRITE-DOWN. The inventory write-down of $13.7 million was
attributable to reduced inventory production resulting from untypically low
oil processing yields (due to lower fat content of the fish) and higher
harvesting costs due mainly to increased energy prices, combined with
continuing depressed market conditions. The $14.5 million write-down from the
nine months ended September 30, 1999 resulted from cyclical market declines on
the inventory values of the Company's fish meal and fish oil.
GROSS PROFIT (LOSS). Gross loss increased $5.9 million or 83.5% from a
$7.1 million gross loss in the nine-month period ended September 30, 1999 to
$12.9 million, gross loss in the current nine-month period ended September 30,
2000. As a percentage of revenues, the Company's gross loss increased 11.2%
in the current nine-month period ended September 30, 2000 as compared to the
same nine-month period in the previous fiscal year. The increase in gross
loss is primarily due to a 14.7% and 22.9% decline in the Company's fish meal
and fish oil prices, respectively. This decline in selling prices resulted
from downward cyclical pricing pressures on the Company's fishing product
inventories resulting in lower gross margins in the current nine-months ended
September 30, 2000 as compared to the nine-months ended September 30, 1999.
19
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses decreased $479,000 or 7.4% from $6.5 million for the
nine months ended September 30, 1999 to $6.0 million for the current nine
months ended September 30, 2000. The decrease was primarily due to a
reduction in staff and related employee costs.
OPERATING INCOME (LOSS). As a result of the factors discussed above the
Company's operating loss increased $5.4 million from $13.5 million for the
nine months ended September 30, 1999 to an operating loss of $18.9 million for
the current nine months ended September 30, 2000. As a percentage of
revenues, operating loss increased from 21.1% for the nine months ended
September 30, 1999 to an operating loss of 32.5% for the current nine months
ended September 30, 2000.
INTEREST INCOME (EXPENSE), NET. Interest income, net decreased by $821,000
from $706,000 net interest income in the nine-month period ended September 30,
1999 to $115,000 net interest expense in the current nine-month period ended
September 30, 2000. The decrease in net interest income was due to the
reduction of cash and cash equivalents available for investment purposes
during the nine months ended September 30, 2000 as compared to the nine months
ended September 30, 1999.
OTHER INCOME (EXPENSE), NET. Other expense, net increased $59,000 in the
current nine-month period ended September 30, 2000 as compared to the nine
month period ended September 30, 1999. This increase was primarily due to
minority interest in net income of a consolidated subsidiary for the current
nine months ended September 30, 2000. On April 5, 2000, the Company acquired
for a nominal amount an additional 1% equity interest in a partially owned
subsidiary that was previously accounted for under the equity method. As a
result of this acquisition, the Company now owns 51.0% of the investment and
consolidates its operations. Minority interests are not material in relation
to the consolidated results of operation.
PROVISION FOR INCOME TAXES. The Company recorded a $7.0 million benefit
for income taxes for the current nine months ended September 30, 2000. This
represents an effective tax rate of 36.0% in comparison to a benefit for
income tax expense of $4.7 million for the nine months ended September 30,
1999, which represents an effective tax rate of 36.0%.
SEASONAL AND QUARTERLY RESULTS
The Company's menhaden harvesting and processing business is seasonal in
nature. The Company generally has higher sales during the menhaden harvesting
season (which includes the three-month periods ending June 30 and September 30)
due to increased product availability, but prices during the fishing season tend
to be lower than during the off season. As a result, the Company's quarterly
operating results have fluctuated in the past and may fluctuate in the future.
In addition, from time to time the Company defers sales of inventory based on
worldwide prices for competing products that affect prices for the Company's
products which may affect comparable period comparisons.
20
<PAGE>
SIGNIFICANT FACTORS THAT MAY AFFECT FORWARD-LOOKING STATEMENTS
The Company wishes to caution investors that the following significant
factors, and those factors described elsewhere in this Report, in other filings
by the Company with the Commission from time to time and in press releases
issued by the Company, could affect the Company's actual results of operations
causing such results to differ materially from those expressed in any forward-
looking statements made by or on behalf of the Company:
1. The Company's ability to meet its raw material requirements through its
annual menhaden harvest, which is subject to fluctuation due to natural
conditions over which the Company has no control, such as varying fish
population, adverse weather conditions and disease.
2. The impact on the prices for the Company's products of worldwide supply and
demand relationships over which the Company has no control and which tend
to fluctuate to a significant extent over the course of a year and from
year to year.
3. The impact of a violation by the Company of federal, state and local laws
and regulations relating to menhaden fishing and the protection of the
environment and the health and safety of its employees or of the adoption
of new laws and regulations, or stricter interpretations of existing laws
or regulations that materially adversely affect the Company's business.
4. The impact if the Company cannot harvest menhaden in U.S. jurisdictional
waters if the Company fails to comply with the U.S. citizenship ownership
requirements.
5. Risks inherent with the Company's venture into the sale of refined, non-
hydrogenated menhaden oil for consumption in the U.S., including the
unproven market for this product.
6. Fluctuations in the Company's quarterly operating results due to the
seasonality of the Company's business and the Company's deferral of sales
of inventory based on worldwide prices for competing products.
7. The ability of the Company to retain and recruit key officers and qualified
personnel, vessel captains and crew members.
8. Risks associated with the strength of local currencies of the countries in
which its products are sold, changes in social, political and economic
conditions inherent in foreign investment and international trade in such
countries, changes in U.S. laws and regulations relating to foreign
investment and trade, changes of tax or other laws, partial or total
expatriation, currency exchange rate fluctuations and restrictions on
currency repatriation, the disruption of labor, political disturbances,
insurrection or war and the effect of requirements of partial local
ownership of operations in certain countries.
9. Risks related to unanticipated material adverse outcomes in any pending
litigation or any other unfavorable outcomes or settlements. There can be
no assurance that the Company will prevail in any pending litigation and to
the extent that the Company sustains losses growing out of any pending
litigation which are not presently reserved or otherwise provided for or
insured against, its business, results of operations and financial
condition could be adversely affected.
10. In the future, the Company may undertake acquisitions, although there is
no assurance this will occur. Further, there can be no assurance that the
Company will be able to profitably manage future businesses it may acquire
or successfully integrate future businesses it may acquire into the Company
without substantial costs, delays or other problems which could have a
material adverse effect on the Company's business, results of operations
and financial condition.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims and disputes arising in the
normal course of business, including claims made by employees under the Jones
Act which generally are covered by the Company's insurance. The Company
believes that it has adequate insurance coverage for all existing matters and
that the outcome of all pending proceedings, individually and in the
aggregate, will not have a material adverse effect upon the Company's
business, results of operations, cash flows or financial position.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 - Financial Data Schedule
(b) Reports on Form 8-K:
None
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OMEGA PROTEIN CORPORATION
(Registrant)
November 10, 2000 By: /s/ ROBERT W. STOCKTON
------------------------------------------
(Executive Vice President, Chief Financial
Officer and Corporate Secretary)
23
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27.1 - Financial Data Schedule
24
