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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, 2001
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:
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
Securities registered pursuant to Section 12(g) of the Act:
None.
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. [_]
As of March 19, 2002, the aggregate market value of the Company's common
stock held by voting and non-voting common equity of the Company is
$85,032,628 based on the closing price of the Common Stock in consolidated
trading on The New York Stock Exchange. 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. On March 19, 2002, there
were outstanding 23,952,853 shares of the Company's Common Stock, $0.01 par
value.
Documents incorporated by reference: Portions of the registrant's
definitive proxy statement for its combined 2002 annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 2001, are incorporated by reference to the
extent set forth in Part III.
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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," "could," "would," "may" and
similar expressions.
PART I
Item 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 1999" "Fiscal 2000" and "Fiscal 2001" refer to the
twelve months ended December 31, 1999, December 31, 2000, and December 31,
2001, respectively. 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.). The Company has three material
subsidiaries: Omega Protein, Inc., Omega Shipyard, Inc. and Protein Operating
Company.
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 a business conducted since 1913. Omega Shipyard, Inc. owns a drydock
facility in Moss Point, Mississippi, which is used to provide shoreside
maintenance for the Company's fishing fleet and, subject to outside demand and
excess capacity, third-party vessels. Revenues from shipyard work for third-
party vessels in Fiscal 2001 were not material. Protein Operating Company
holds title to the Company's 60,000 square foot meal storage warehouse in St.
Louis, Missouri. The Company also has a number of other direct and indirect
subsidiaries, none of which are material to the Company's operations.
Until April 1998, the Company, including its predecessors, was a wholly-
owned subsidiary of Zapata Corporation ("Zapata"), a New York Stock Exchange,
Inc. ("NYSE") company, 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.
To concentrate on and enhance its core business, the Company sold a
marginally profitable business, Venture Milling Company ("Venture Milling"),
in late Fiscal 1997 and acquired the fishing assets of two businesses,
American Protein, Inc. ("American Protein") and Gulf Protein, Inc. ("Gulf
Protein") in early Fiscal 1998 to increase the Company's harvesting and
production capabilities. These transactions are described below:
1
On September 16, 1997, the Company's wholly-owned subsidiary, 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 (fish meal, blood meal and
feather meal) for sale to producers of feed for broilers and other animals
with low nutritional requirements.
On November 3, 1997, the Company acquired for $14.5 million in cash, the
fishing and processing assets of 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
integrated its assets into the Company's existing operations.
On November 25, 1997, the Company purchased the fishing and processing
assets of 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 and
continued throughout Fiscal 2000 (see Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--Fiscal 2001--2000 and Fiscal 2000--1999), the Company elected to
discontinue in-line processing operations at its Morgan City plant for the
2000 and 2001 fishing season. An impairment of $2.3 million was recorded in
Fiscal 1999 to reduce the cost of the in-line processing equipment to its
salvage value. The closure of this plant did not impact the Company's ability
to process its products since the Company had excess production capacity at
its other three Gulf Coast plants. Warehousing operations are being conducted
at the facility until market conditions improve or other opportunities develop
for the property.
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 $35.7 million, $21.7 million, and
$38.6 million in Fiscal 2001, Fiscal 2000 and Fiscal 1999 respectively. Such
sales were made primarily to European markets. In Fiscal 2001, Fiscal 2000 and
Fiscal 1999, sales to one customer were approximately $7.9 million, $6.3
million, and $8.7 million, respectively.
The following table shows the geographical distribution of revenues (in
thousands) based on location of customers:
For Year Ended For Year Ended For Year Ended
December 31, December 31, December 31,
2001 2000 1999
---------------- ---------------- ----------------
Revenues Percent Revenues Percent Revenues Percent
-------- ------- -------- ------- -------- -------
U.S.......................... $63,063 63.9% $63,713 75.8% $55,039 58.8%
Europe....................... 15,438 15.6% 5,661 6.7% 19,215 20.5%
Asia......................... 8,651 8.8% 2,441 2.9% 7,942 8.5%
Mexico....................... 1,924 1.9% 6,557 7.8% 4,756 5.1%
Canada....................... 4,741 4.8% 3,385 4.0% 3,443 3.7%
Other........................ 4,935 5.0% 2,285 2.8% 3,241 3.4%
------- ------ ------- ------ ------- ------
Total........................ $98,752 100.0% $84,042 100.0% $93,636 100.0%
======= ====== ======= ====== ======= ======
2
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, aquaculture feed manufacturers and for use as an organic
fertilizer.
Fishing. During Fiscal 2001, the Company owned a fleet of 65 fishing
vessels and 32 spotter aircraft for use in its fishing operations and also
leased additional aircraft where necessary to facilitate operations. During
the 2001 fishing season in the Gulf of Mexico, where the fishing season runs
from mid-April through October, the Company operated 32 fishing vessels and 27
spotter aircraft. The fishing area in the Gulf is generally located along the
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 10 fishing vessels and 7 spotter
aircraft along the Mid-Atlantic coast, concentrated primarily in and around
the Chesapeake Bay. The remaining fleet of fishing vessels and spotter
aircraft are not routinely operated during the fishing season and are back-up
to the active fleet. Subsequent to the Fiscal 1999 fishing season, the Company
embarked on a program of cost-cutting measures which included, among other
items, a reduction in the number of fishing vessels and spotter planes
deployed. Since Fiscal 1999, the deployment of fishing vessels and spotter
planes has been reduced by 11 vessels and 7 planes.
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 or
onto a carry vessel, and then are unloaded at the Company's processing plants.
Processing. During Fiscal 2001, the Company operated four processing
plants, two 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 and water separation process. The separated fish oil is a finished
product. The separated water and protein mixture is further processed through
evaporators to recover 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 are 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.
3
Customers and Marketing. Most of the Company's marine protein products are
sold directly to about 400 customers by the Company's marketing department,
while a smaller amount is sold through independent sales agents. Product
inventory was $29.1 million as of December 31, 2001 versus $28.0 million on
December 31, 2000.
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.
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 Tariffs and
Trade in the case of Japan. In all cases, the Company's products are shipped
to its customers either by F.O.B. shipping point or CIF terms, 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's and Harbor Workers' Compensation 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 deductibles and self-retentions as
are prudent and normal for its operations. The impact of the September 11,
2001 terrorist attacks, as well as a general hardening of the world insurance
markets, is likely to make the Company's insurance more costly as various
lines of insurance come up for renewal in 2002. Depending on the magnitude of
the increase in insurance premiums, the Company may elect to increase its
deductibles and self-retentions in order to achieve lower insurance premium
costs. These higher deductibles and self-retentions will expose the Company to
greater risk of loss if claims occur.
Competition. The marine protein and oil business is subject to significant
competition from producers of vegetable and other animal protein products and
oil products such as Archer-Daniels Midland, Inc. and Cargill, Inc. In
addition, but to a lesser extent, the Company competes with smaller domestic
privately-owned menhaden fishing companies and international marine protein
and oil producers, including Scandinavian herring processors and South
American anchovy and sardine processors. Many of these competitors have
greater financial resources and more extensive operations than the Company.
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.
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.
4
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. In January 2002, the State of New Jersey
enacted legislation which extended an existing 1.2 mile no-fishing zone for
menhaden an additional 1.8 miles offshore. Omega historically has caught an
immaterial amount of its fish catch in the newly closed area and believes that
this restriction will have no material effect on the Company's operations or
financial results. Omega remains able to conduct its fishing operations off
New Jersey outside this new three-mile limit.
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 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 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; U.S. Coast Guard regulations and
the federal Occupational Safety and Health Act ("OSHA"). In January 2002, the
United States Supreme Court ruled that, in addition of the United States Coast
Guard, the Occupational Safety and Health Administration has the authority to
regulate working conditions aboard certain types of vessels which include the
Company's fishing vessels. The eventual implementation of this ruling (which
is expected to occur over a period of years) is expected to result in
additional safety requirements and procedures for the Company's vessels. It is
possible that the costs of these requirements and procedures could be
material.
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 or 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.
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 the Shipping Act of 1916
and the regulations promulgated thereunder by the Department of
Transportation, Maritime Administration 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's business, results of operations and financial
condition.
5
To protect against such loss of eligibility, the Company's Articles of
Incorporation (i) contain provisions limiting the aggregate percentage
ownership by non-citizens of each class of the Company's capital stock to no
more than 25% of the outstanding shares of each such class (the "Permitted
Percentage") so that any purported transfer to non-citizens of shares in
excess of the Permitted Percentage will be ineffective as against the Company
for all purposes (including for purposes of voting, dividends and any other
distribution, upon liquidation or otherwise), (ii) provide for a dual stock
certificate system to determine such ownership pursuant to which certificates
representing shares of Company Common Stock bear legends that designate such
certificates as either "citizen" or "non-citizen" depending on the citizenship
of the owner, and (iii) permit the Company's Board of Directors to make such
determinations as may reasonably be necessary to ascertain such ownership and
implement restrictive limitations on those shares that exceed the Permitted
Percentage (the "Excess Shares"). For example, the Company's Board is
authorized, among other things, to redeem for cash (upon written notice) any
Excess Shares in order to reduce the aggregate ownership by non-citizens to
the Permitted Percentage.
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, 2001, during the Company's off-season, the Company employed
approximately 432 persons. At August 31, 2001, during the peak of the
Company's 2001 fishing season, the Company employed approximately 982 persons.
Approximately 131 employees at the Company's Virginia facility 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.
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.
Date Became
Name and Age Office Executive Officer
------------ ------ -----------------
Joseph L. von Rosenberg Chief Executive Officer, President and Director July 1997
III (43)...............
Robert W. Stockton Executive Vice President, Chief Financial July 1997
(51)................... Officer and Secretary
John D. Held (39)....... General Counsel January 2002
Bernard H. White (54)... Corporate Vice President March 1998
Michael E. Wilson (51).. Vice President--Marine Operations and President July 1998
of Omega Shipyard, Inc.
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, Chief Executive Officer and
Director of the Company. He has served in these positions since July 1997.
Prior to serving in these positions Mr. von Rosenberg served from November
1995 until April 1998 as Executive Vice President of Zapata which, at that
time, was a holding company with interests in marine protein operations,
natural gas transmission, and oil and gas. 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 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.
6
Robert W. Stockton is Executive Vice President, Chief Financial Officer and
Secretary of the Company. He has served as Executive Vice President and 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
Corporate Controller of Proler International Corp., which was engaged in the
business of buying, processing for recycling, and selling ferrous and non-
ferrous metals both domestically and internationally.
John D. Held has served as the Company's General Counsel since March 2000
and became an executive officer in January 2002. Mr. Held served as a
consultant to the Company from December 1999 to February 2000. From March 1996
until October 1999, Mr. Held was Senior Vice President, General Counsel and
Secretary of American Residential Services, Inc., a then publicly-traded
residential and commercial heating, air conditioning, plumbing and electrical
services company. Prior thereto, Mr. Held practiced law with a large law firm
in Houston, Texas.
Bernard H. White was named CorporateVice President in March 1998. From 1994
to March 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.
Michael E. Wilson is President of the Company's wholly-owned subsidiary,
Omega Shipyard, Inc., a position he has held since June 1997. Since July 1998,
he has also served as the Company's Vice President--Marine Operations and
prior thereto, served as the Company's Coordinator of Marine Engineering &
Maintenance. Mr. Wilson joined the Company in 1985 and served in various
operating capacities until 1996.
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
(November 2002) or earlier if all rent through the end of the term is paid.
The Company's current intention is to elect to exercise this purchase option
in November 2002.
As of December 31, 2001, the Company's four active 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. The Company periodically reviews possible
application of new processing technologies in order to enhance productivity
and reduce costs.
The Company also leases from unaffiliated third parties warehouses and tank
space for storage of its products, generally at terminals located along the
Mississippi River and Tennessee River. The Company's material storage
facilities are located at:
Location Approximate Square Footage
-------- --------------------------
Guntersville,
Alabama.......... 70,000
St. Louis,
Missouri......... 60,000
East Dubuque,
Illinois......... 65,000
In February 2002, the Company purchased the above 60,000 square foot
material storage facility located in St. Louis, Missouri.
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.
7
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 course 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 2001.
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 "Fiscal 2001" and "Fiscal 2000", for each quarterly period,
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.
Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2001 2001 2001 2001 2000 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
High sales price........ $3.55 $2.20 $2.45 $2.05 $2.56 $2.25 $3.25 $4.00
Low sales price......... 1.85 1.75 1.60 1.34 1.31 1.75 1.69 2.31
Dividends declared...... -- -- -- -- -- -- -- --
The Company's Common Stock trades on the NYSE under the symbol "OME." On
March 19, 2002, the closing price of the common stock, as reported by the
NYSE, was $3.55 per share. As of March 19, 2002, there were approximately 36
holders of record of Common Stock. This number does not include any beneficial
owners for whom shares may be held in a "nominee" or "street" name.
The Company has not declared any dividends in Fiscal 2000 or Fiscal 2001.
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 not permitted by the terms of the Company's revolving credit agreement with
Bank of America, N.A. (the "Credit Facility"). See "Item 7--Management's
Discussion and Analysis of Financial Conditional and Results of Operations--
Liquidity and Capital Resources."
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 repurchased an aggregate of 413,100 shares under this program during
Fiscal 1999 and none during Fiscal 2000. The repurchase program was terminated
late in Fiscal 2000 because the current Credit Facility entered into on
December 20, 2000 prohibits common stock repurchases.
8
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.
Three Months
Ended Years Ended
Years Ended December 31, December 31, September 30,
------------------------------ ------------ --------------------
2001 2000 1999 1998 1998 1997
-------- -------- -------- ------------ -------- --------
(in thousands, except per share amounts)
INCOME STATEMENT DATA:
Revenues.............. $ 98,752 $ 84,042 $ 93,636 $ 25,759 $133,555 $117,564(1)
Operating income
(loss)............... 5,661 (25,541)(7) (23,273)(5-6) 6,272 38,118 18,205
Net income (loss)..... 3,885 (16,744) (14,756) 4,252 24,207 10,425
Per share income
(loss) basic......... 0.16 (0.70) (0.62) 0.18 1.11 0.53
Per share income
(loss) diluted....... 0.16 (0.70) (0.62) 0.18 1.10 0.53
CASH FLOW DATA:
Capital expenditures.. 1,921 6,977 15,145 3,030 21,540 9,825
Acquisitions of
property and
equipment............ -- -- -- -- 28,116 --
BALANCE SHEET DATA:
Working capital....... $ 54,216 $ 40,254 $ 63,724 $ 83,557 $ 80,498 $ 31,396
Property and
equipment, net....... 82,030 88,872 90,368 86,068 84,798(2) 40,889
Total assets.......... 165,227 160,484 176,148 189,853 193,421 100,440
Current maturities of
long-term debt....... 1,296 1,227 1,146 997 1,114 1,034
Long-term debt........ 15,510 14,827 16,069 11,205 11,408 11,294
Stockholders' equity.. 127,445 127,477 144,172 160,850 156,598(3) 64,354(4)
- --------
(1) In September 1997, the Company closed the Venture Milling Disposition, a
blending operation with annual revenues and operating income of $32.0
million and $174,000, respectively.
(2) In November 1997, the Company closed both the American Protein Acquisition
and the Gulf Protein Acquisition.
(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 of 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.
(7) During the quarters ended September 30, 2000 and December 31, 2000, the
Company recorded inventory write-downs of $13.7 million and $4.4 million,
respectively, for market declines in the inventory values of the Company's
fish meal and fish oil.
9
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.
General
Business. 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 include regular grade and value
added specialty fish meals, crude and refined fish oils and fish solubles. The
Company's fish meal products are used as nutritional feed additives by animal
feed manufacturers and by commercial livestock 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 fertilizers.
The fish catch is processed into regular grade fish meal, specialty fish
meals, fish oils and fish solubles at the Company's four operating plants
located in Virginia, Mississippi and Louisiana. The Company owns 65 fishing
vessels (42 of which were directly involved in the harvesting operations
during Fiscal 2001) and owns 32 and leases 8 spotter aircraft (of which 34
were directly involved in the harvesting operations during fiscal 2001) that
are used to harvest menhaden in coastal waters along the U.S. mid-Atlantic and
Gulf of Mexico coasts. In 2000, the Company converted several of its fishing
vessels to "carry vessels" which do not engage in active fishing but instead
carry fish from the Company's offshore fishing vessels to its plants.
Utilization of carry vessels increases the amount of time that certain of the
Company's fishing vessels remain offshore fishing productive waters and
therefore increases the Company's fish catch per vessel employed. The carry
vessels have reduced crews and crew expenses and incur less maintenance cost
than the actual fishing vessels. Additionally, the Company elected to cease
its in-line processing operations at its Morgan City, Louisiana plant location
prior to the Fiscal 2000 fishing season, and does not plan to reopen the plant
for the 2002 fishing season. Certain damaged processing equipment at this
facility has been removed and scrapped. The closure of this plant did not
impact the Company's continuing ability to process all its Gulf Coast
production, even though fishing efforts were not reduced, since the Company
had excess production capacity at its remaining three Gulf Coast plants.
Warehousing operations are being conducted at the Morgan City facility until
market conditions improve or other opportunities develop for the property.
Previous Disposition and Acquisitions. 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.
Fiscal Year Change. 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. "Fiscal 1999",
"Fiscal 2000" and "Fiscal 2001" refer to the respective fiscal twelve-months
ended December 31.
10
Harvesting and Production. The following table summarizes the Company's
harvesting and production for the indicated periods:
Three Months Years Ended
Year Ended Year Ended Year Ended Ended September 30,
December 31, December 31, December 31, December 31, ---------------
2001 2000 1999 1998 1998 1997
------------ ------------ ------------ ------------ ------- -------
Fish catch (tons) (1)... 627,623 620,655 724,974 123,079 602,096 507,358
Production (tons):
Fish meal
Regular grade....... 57,833 88,190 93,388 9,492 73,536 63,835
Special Select...... 74,905 49,297 68,996 12,631 63,163 46,409
Sea-Lac............. 24,144 24,970 16,577 7,068 11,917 14,741
Silver Herring...... -- 1,060 1,218 353 -- --
Oil
Crude............... 91,127 58,809 95,175 15,789 68,245 61,905
Refined............. 4,418 5,371 5,638 1,238 7,230 9,657
Solubles.............. 11,094 8,855 13,781 1,067 14,995 16,531
------- ------- ------- ------- ------- -------
Total Production.. 263,521 236,552 294,773 47,638 239,086 213,078
======= ======= ======= ======= ======= =======
- --------
(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.
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 previous 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
fats and oils for its fish oil products when used as an alternative to
vegetable fats and oils.
During Fiscal 1999 and continuing through Fiscal 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 were adversely
impacted during these periods, resulting in decreased gross margins. During
Fiscal 1999 and again during Fiscal 2000, 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 $18.2 million and $18.1 million,
respectively. This realization 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 28.1% and 48.2% lower, respectively, during Fiscal
1999 as compared to Fiscal 1998. Price decreases continued during Fiscal 2000
and fish meal and fish oil were approximately 7.3% and 20.0%, respectively,
lower than Fiscal 1999 average prices. Also impacting Fiscal 2000 and
contributing to the write-down of inventories was the reduced crude fish oil
production yields (approximately 38.0% lower yields compared to Fiscal 1999)
experienced during the majority of the Fiscal 2000 fishing season in the Gulf
of Mexico. These reduced yields were primarily a result of the reduced fat
content in the fish which was a result of poor nutritional conditions caused by
the extreme drought conditions suffered by the Gulf of Mexico region during
late Fiscal 1999 and early Fiscal 2000.
The depressed pricing conditions of Fiscal Years 1999 and 2000 continued
into the early months of Fiscal 2001 before making modest reversals. These
price increases continued throughout the remainder of the year and were the
result of diminished global fish meal and fish oil inventories as opposed to a
stronger world demand for other competing products. Management believes that it
is possible that these price increases have reached a plateau and stabilized at
this time. Future product price volatility will depend upon the perceived
international availability of fish meal and fish oil inventories. Accordingly,
gross profit margins may vary in the future.
11
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 food market.
The Company has had some success selling its refined fish oil, trademarked
OmegaPure(TM), to food manufacturers in the United States and Canada at prices
that provide substantially improved margins over the margins that can be
obtained from selling non-refined crude fish oil. The Company cannot estimate,
however, the size of the actual domestic market for OmegaPure(TM) or how long
it may take to develop this market.
Historically, 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 has begun a similar forward sales program for its
specialty grade meals and crude fish oil for Fiscal 2002 due to increasing
demand for these products. 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 and sales volumes will fluctuate from quarter to
quarter. The Company's fish meal products have a useable life of approximately
one year from date of production. Practically, however, the Company typically
attempts to empty its warehouses of the previous season's products by the
second or third month of the new fishing season. The Company's crude fish oil
products do not lose efficacy unless exposed to oxygen and therefore, their
storage life typically is longer than that of fish meal.
The following table sets forth the Company's revenues by product (in
millions) and the approximate percentage of total revenues represented thereby,
for the indicated periods:
Year Ended December 31,
--------------------------------------------------
2001 2000 1999
---------------- ---------------- ----------------
Revenues Percent Revenues Percent Revenues Percent
-------- ------- -------- ------- -------- -------
Regular Grade................ $20.6 20.9% $30.0 35.7% $31.3 33.4%
Special Select............... 33.6 34.0 25.7 30.6 23.5 25.1
Sea-Lac...................... 10.4 10.5 8.5 10.1 6.8 7.2
Crude Oil.................... 28.4 28.7 12.1 14.4 25.9 27.7
Refined Oil.................. 2.5 2.5 2.4 2.9 3.1 3.3
Fish Solubles................ 2.5 2.5 2.3 2.7 2.2 2.4
Nets and Other............... 0.8 0.9 3.0 3.6 0.8 0.9
----- ----- ----- ----- ----- -----
Total........................ $98.8 100.0% $84.0 100.0% $93.6 100.0%
===== ===== ===== ===== ===== =====
Liquidity and Capital Resources
The Company's primary resources of liquidity and capital resources have been
cash flows from operations, bank credit facilities and term loans from various
lenders provided pursuant to Title XI of the Marine Act of 1936 ("Title XI").
These sources of cash flows have been used for capital expenditures and payment
of long-term debt. The Company expects to finance future expenditures through
internally generated cash flows and, if necessary, through funds available from
the Credit Facility and/or Title XI facilities described below.
Under a program offered through National Marine Fisheries Services ("NMFS")
pursuant to Title XI, the Company has secured loans through lenders with terms
generally ranging between 12 and 20 years at interest rates between 6% 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
12
construction. The Company used the entire $20.6 million amount originally
authorized under the program. Loans are now available under similar terms
pursuant to the Title XI program without intervening lenders. The Company
borrowed $1.9 million under this new program during Fiscal 2001.
Omega had an unrestricted cash balance of $21.8 million at December 31,
2001, up $14.4 million from December 31, 2000. This increase was due primarily
to operating profits as a result of increased selling prices for the Company's
products, further enhanced by reduced harvesting costs. The Company's
liquidity is greatly influenced by the selling prices received for its
products. Should the Company experience decreased pricing in the future, as it
did experience in Fiscal 1999 and Fiscal 2000, liquidity would decline and the
Company would possibly have to utilize its working capital credit facility.
The Company's long-term debt at December 31, 2001 and 2000 was $15.5 million
and $14.8 million, respectively. Current maturities attributable to the
Company's long-term debt were $1.3 million and $1.2 million at December 31,
2001 and 2000, respectively. The Company has not utilized its working capital
credit facility during Fiscal 2001 and Fiscal 2000. The Company has no off-
balance sheet arrangements other than normal operating leases and standby
letters of credit.
The following tables aggregate information about the Company's contractual
cash obligations and other commercial commitments (in thousands) as of
December 31, 2001:
Payments Due by Period
---------------------------------------
Less than 1 to 3 4 to 5 After 5
Contractual Cash Obligations Total 1 year years years years
---------------------------- ------- --------- ------ ------ -------
Long Term Debt......................... $16,806 $1,296 $2,626 $2,962 $ 9,922
Operating Leases....................... 1,508 573 680 255 --
Minimum Pension Liability.............. 6,051 -- -- -- 6,051
------- ------ ------ ------ -------
Total Contractual Cash Obligations..... $24,365 $1,869 $3,306 $3,217 $15,973
======= ====== ====== ====== =======
Amount of commitment expiration per
period
---------------------------------------
Less than 1 to 3 4 to 5 After 5
Other Commercial Commitments Total 1 year years years years
---------------------------- ------- --------- ------ ------ -------
Credit Facility (1).................... $20,000 $ -- $ -- $ -- $ --
Standby Letters of Credit.............. 1,900 1,900 -- -- --
------- ------ ------ ------ -------
Total Commercial Commitments........... $21,900 $1,900 $ -- $ -- $ --
======= ====== ====== ====== =======
- --------
(1) As of December 31, 2001, the Company had no outstanding borrowings
outstanding under the $20.0 million Credit Facility.
Investing activities used $1.5 million in Fiscal 2001 while using $6.9
million, and $15.1 million during Fiscal 2000, and Fiscal 1999, respectively.
The Company's investing activities consisted mainly of capital expenditures
for equipment purchases and replacements in Fiscal 2001, Fiscal 2000, and
Fiscal 1999. The Company anticipates making approximately $7.0 million of
capital expenditures in Fiscal 2002, a significant portion of which will be
used to refurbish vessels and plant assets and to repair certain equipment.
If the Company elects to re-establish normal production at its Morgan City
plant operations for fish meal, fish oil and fish solubles, then various
components of the in-line processing equipment will have to be upgraded or
replaced. Such equipment would include the driers, cookers and presses. It is
estimated that replacement of this equipment would cost $2.0 to $3.0 million.
Net financing activities provided $752,000 during Fiscal 2001 compared with
$1.2 million used in Fiscal 2000. The Fiscal 2000 use of cash in financing
activities is due to $1.2 million in debt repayment. The $752,000 provided by
net financing activities in Fiscal 2001 is due to net proceeds of Title XI
borrowing of $2.0 million.
13
On December 20, 2000, the Company entered into a $20.0 million revolving
credit agreement with Bank of America, 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
to finance ongoing working capital needs, to make acquisitions, and to issue
standby or commercial letters of credit. Interest accrues on borrowings that
will be outstanding under the Credit Facility at either (i) LIBOR plus 250
basis points or (ii) at the Company's option, the Bank's prime rate. The
Credit Facility is collateralized by all of the Company's trade receivables,
inventory and equipment. The Company and its subsidiaries are required to
comply with certain financial covenants, including maintenance of a minimum
tangible net worth and maintenance of minimum EBITDA. In addition, the Credit
Facility does not allow for the payment of cash dividends or stock repurchases
and also limits capital expenditures and investments. Through December 31,
2001, the Company had made no borrowings under the Credit Facility. The Credit
Facility expires on December 20, 2003.
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 the Registrant's Common Equity
and Related Stockholder Matters." The Company has repurchased 413,100 shares
pursuant to such authorization. The repurchase program has been terminated
because the Company's credit facility prohibits such purchases.
The Company's principal raw material is menhaden, a species of fish that
inhabits coastal and inland tidal waters in the United States. Menhaden are
undesirable for human consumption due to their small size, prominent bones and
high oil content. Certain state agencies impose resource depletion
restrictions on menhaden pursuant to fisheries management legislation or
regulations. To date, the Company has not experienced any material adverse
impact on its fish catch or results of operations as a result of these
restrictions.
The Company from time to time considers potential transactions including,
but not limited to, enhancement of physical facilities to improve production
capabilities and the acquisition of other businesses. Certain of the potential
transactions reviewed by the Company would, if completed, result in its
entering new lines of business (generally including certain businesses to
which the Company sells its products such as pet food manufacturers,
fertilizer companies and organic foods distributors) although historically,
reviewed opportunities have been generally 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.
In January 2002, the United States Supreme Court ruled that, in addition of
the United States Coast Guard, the Occupational Safety and Health
Administration has the authority to regulate working conditions aboard certain
types of vessels which include the Company's fishing vessels. The eventual
implementation of this ruling (which is expected to occur over a period of
years) is expected to result in additional safety requirements and procedures
for the Company's vessels. It is possible that the costs of these requirements
and procedures could be material.
The Company carries insurance for certain losses relating to its vessels
and Jones Act liability for employees aboard its vessels (collectively,
"Vessel Claims Insurance"). The typical Vessel Claims Insurance policy
contains an annual aggregate deductible ("AAD") for which the Company remains
responsible, while the insurance carrier is responsible for all applicable
amounts which exceed the AAD. It is the Company's policy to accrue current
amounts due and record amounts paid out on each claim. Once payments exceed
the AAD, the Company records an insurance receivable for a given policy year.
During Fiscal 2001, the Company's Vessel Claims Insurance carrier for the
policy period October 1, 1998 through March 31, 2000 filed for bankruptcy
protection. This bankruptcy filing caused the Company to provide an allowance
for doubtful accounts for a significant portion of the amounts due to the
Company from the insurance carrier.
14
The impact of the September 11, 2001 terrorist attacks, as well as a
general hardening of the world insurance markets, is likely to make the
Company's insurance more costly as various lines of insurance come up for
renewal in 2002. Depending on the magnitude of the increase in insurance
premiums, the Company may elect to increase its deductibles and self-
retentions in order to achieve lower insurance premium costs. These higher
deductibles and self-retentions will expose the Company to greater risk of
loss if claims occur.
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 Fiscal 2003.
Significant Accounting Policies
The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported therein, including
estimates about the effects of matters or future events that are inherently
uncertain. The most significant of these involving difficult or complex
judgments in any particular reporting period includes inventory lower-of-cost-
or-market-analyses.
Inventory is stated at the lower of cost or market. The Company's fishing
season runs from mid-April to the first of November in the Gulf of Mexico and
from the beginning of May into December in the Atlantic. Government
regulations preclude the Company from fishing during the off-seasons.
The Company's inventory cost system considers all costs associated with an
annual fish catch and its processing, both variable and fixed and including
both costs incurred during the off-season and during the fishing season. 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. The Company's lower-of-cost-or-
market-value analyses at year-end and at interim periods compares the total
estimated per unit production cost of the Company's expected production to the
projected per unit market prices of the products. The impairment analyses
involve estimates of, among other things, future fish catches and related
costs, and expected commodity prices for the fish products. These estimates,
which management believes are reasonable and supportable, involve estimates of
future activities and events which are inherently imprecise and for which
actual results may differ.
During the off-seasons, in connection with the upcoming fishing seasons,
the Company incurs costs (i.e., plant and vessel related labor, utilities,
rent, repairs, and depreciation) that are directly related to the Company's
infrastructure. These costs accumulate in inventory and are applied as
elements of the cost of production of the Company's products throughout the
fishing season ratably based on the Company's monthly fish catch and the
expected total fish catch for the season.
As mentioned previously, the Company carries insurance for certain losses
relating to its vessels and Jones Act liabilities for employees aboard its
vessel. The Company provides reserves for those portions of the AAD for which
the Company remains responsible by using an estimation process that considers
Company specific and industry data as well as management's experience
assumptions and consultant with outside counsel. Management's current
estimated range of liabilities related to such cases is based on claims for
which management can estimate the amount and range of loss. The Company has
recorded the minimum estimated liability related to those claims, where there
is a range of loss. As additional information becomes available, the Company
will assess the potential liability related to its pending litigation and
revise its estimates. Such revisions in estimates of the potential liability
could materially impact the Company's results of operation and financial
position.
15
Results of Operations
The following table sets forth as a percentage of revenues, certain items
of the Company's operations for each of the indicated periods.
Year Ended
December 31,
-------------------
2001 2000 1999
----- ----- -----
Revenues............................................. 100.0% 100.0% 100.0%
Cost of sales........................................ 85.8 99.7 93.3
Inventory write-down................................. -- 21.6 19.4
----- ----- -----
Gross profit (loss).................................. 14.2 (21.3) (12.7)
Selling, general and administrative.................. 8.5 9.1 9.7
Impairment of long-lived assets...................... -- -- 2.4
----- ----- -----
Operating income (loss).............................. 5.7 (30.4) (24.8)
Interest income (expense), net....................... (0.5) (0.3) 0.6
Other (expense), net................................. (0.2) (0.4) (0.4)
----- ----- -----
Income (loss) before income taxes.................... 5.0 (31.1) (24.6)
Benefit (provision) for income taxes................. (1.2) 11.2 8.9
----- ----- -----
Net income (loss).................................... 3.8 (19.9) (15.7)
===== ===== =====
Fiscal 2001-2000
Revenues. Fiscal 2001 revenues increased $14.7 million, or 17.5%, from
$84.0 million in Fiscal 2000 to $98.7 million in Fiscal 2001. The increase in
revenues was attributable to higher selling prices of the Company's fish meal
and fish oil, along with a 43.8% increase in sales volumes of the Company's
fish oil as compared to Fiscal 2000. Selling prices for the Company's fish
meal and fish oil products increased by 17.5% and 37.7% respectively in Fiscal
2001 as compared to Fiscal 2000. The higher sales volumes of the Company's
fish oil products were due primarily to a 48.5% increase in oil yields from
the Fiscal 2001 fishing effort as compared to the previous fiscal year. The
Company attributes the higher fish meal and fish oil selling prices to
diminished global fish meal and fish oil inventories as opposed to a general
strengthening in world markets for other competing products.
Cost of sales. Cost of sales, including depreciation and amortization for
Fiscal 2001, was $84.7 million, a $857,000 increase, or 1.0%, from $83.8
million (excluding the $18.1 million inventory write-down) in Fiscal 2000.
Cost of sales as a percentage of revenues was 85.8% for Fiscal 2001 as
compared to 99.7% in Fiscal 2000. The 13.9% decrease in cost of sales as a
percentage of revenues was due primarily to a 17.5% and 37.7% increase in the
selling price of the Company's fish meal and fish oil products, respectively,
along with a 43.8% increase in sales volume of the Company's fish oil.
Gross profit (loss). Gross profit increased $32.0 million, or 178.6%, from
a gross loss of $17.9 million in Fiscal 2000 to a gross profit of $14.1
million in Fiscal 2001. As a percentage of revenues, the Company's gross
profit margin increased 35.5% in Fiscal 2001 as compared to Fiscal 2000. The
increase in gross profit was due primarily to a 17.5% and 37.7% increase in
the selling price of the Company's fish meal and fish oil products,
respectively, along with a 43.8% increase in sales volume of the Company's
fish oil and the $18.1 million inventory write-down affecting Fiscal 2000.
Selling, general, and administrative expenses. Selling, general, and
administrative expenses increased $768,000, or 10.1%, from $7.6 million in
Fiscal 2000 to $8.4 million in Fiscal 2001. This increase was primarily due to
the recognition of $1.4 million of receivables due from an insurance company
as uncollectible due to their bankruptcy filing, partially offset by a
reduction in staffing and related employee costs.
16
Operating income (loss). As a result of the factors discussed above, the
Company's operating income increased $31.2 million from an operating loss of
$25.5 million in Fiscal 2000 to an operating income of $5.7 million in Fiscal
2001. As a percentage of revenues, operating income increased 36.1% from a
loss of 30.4% in Fiscal 2000 to income of 5.7% in Fiscal 2001.
Interest expense, net. Interest expense, net increased by $192,000 from
interest expense of $293,000 in Fiscal 2000 to $485,000 in Fiscal 2001. The
increase in net interest expense was primarily due to a reduction of interest
income as a result of lower returns on investments.
Other expense, net. Other expense, net decreased by $178,000 from $329,000
in Fiscal 2000 to $151,000 in Fiscal 2001. The decrease in other expense, net
was primarily due to the disposal of assets which were netted against other
expenses.
Provision (benefit) for income taxes. The Company recorded a $1.1 million
provision for income taxes in Fiscal 2001. The provision for income taxes for
Fiscal 2001 reflects a year to date deferred state tax benefit of
approximately $750,000. During Fiscal 2001, the Company successfully completed
several years of state income tax audits. Based on the results of the audit
and the filing of the 2000 returns, the Company revised its estimates of state
taxes. The Company has recorded deferred tax assets for state net operating
loss carryforwards and believes that it is more probable than not that the
estimated tax benefits of the state net operating losses will be realized. The
effective tax rate of 34% for U.S. federal taxes remains unchanged between the
periods.
Fiscal 2000-1999
Revenues. Fiscal 2000 revenues decreased $9.6 million, or 10.3% from $93.6
million in Fiscal 1999 to $84.0 million in Fiscal 2000. The decrease in
revenues from Fiscal 1999 to Fiscal 2000 was attributable to lower selling
prices of the Company's fish meal and fish oil. Fish meal sales prices and
fish oil prices declined 7.3% and 20.0%, respectively, as compared to Fiscal
1999. Sales volume for the Company's fish oil decreased 32.1% during Fiscal
2000 as compared to Fiscal 1999. Sales volume for the Company's fish meal
increased 12.8% during Fiscal 2000 as compared to Fiscal 1999. The Company
attributes the decrease in selling prices to low cyclical feed costs affecting
the protein industry.
Cost of sales. Cost of sales, including depreciation, amortization and
inventory write-down for Fiscal 2000 totaled $101.9 million, a $3.7 million
decrease from $105.6 million in Fiscal 1999. Continuing market declines on the
inventory values of the Company's fish meal and fish oil resulted in a
recorded inventory write-down of $18.1 million in Fiscal 2000. 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 7.3% and 20.0%, respectively,
during the twelve-month period ending Fiscal 2000 as compared to the previous
twelve-month period ending Fiscal 1999. Per ton cost of sales were 1.3% higher
in Fiscal 2000 as compared to Fiscal 1999, due mainly to a 38.0% lower fish
oil yield in Fiscal 2000 creating higher cost inventories.
Gross profit (loss). Gross loss increased in Fiscal 2000 $6.0 million or
50.2% from a gross loss of $11.9 million in Fiscal 1999 to a gross loss of
$17.9 million in Fiscal 2000. As a percentage of revenues, the Company's gross
profit margin decreased 8.6% in Fiscal 2000 as compared to Fiscal 1999. The
decline in gross profit was the result of a 7.3% and 20.0% decline in selling
prices for the Company's fish meal and fish oil and an $18.1 million inventory
write-down charged against operations because of downward cyclical pricing
pressures on the Company's fishing product inventories in Fiscal 2000,
resulting in a negative gross profit margin.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $1.5 million, or 15.9%, from $9.1 million in
Fiscal 1999 to $7.6 million in Fiscal 2000. As a percentage of revenues,
selling, general and administrative expenses were approximately 9.7% in Fiscal
1999 and 9.1% in Fiscal 2000. The decrease was due primarily 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 $2.2 million to $25.5 million for Fiscal
2000, from a $23.3 million loss in Fiscal 1999. As a percentage of revenues,
operating loss increased 5.6% from 24.8% in Fiscal 1999 to 30.4% in Fiscal
2000.
17
Interest income (expense), net. Interest income, net decreased $907,000 or
147.7% from a net interest income of $614,000 in Fiscal 1999 to net interest
expense of $293,000 in Fiscal 2000. This decrease in net interest income
resulted from the Company's reduction in cash and cash equivalents available
for investment purposes during Fiscal 2000 compared to Fiscal 1999.
Other expense, net. Other expense, net decreased to $329,000 in Fiscal 2000
from $398,000 in Fiscal 1999. The decrease in other expense, net was due to a
reduction in amortization expense.
Benefit for income taxes. The Company recorded a $9.4 million benefit for
income taxes for Fiscal 2000. This represents an effective tax rate of 36.0%
in comparison to a tax benefit of $8.3 million in Fiscal 1999. This represents
an effective tax rate of 36.0% for both Fiscal 2000 and Fiscal 1999. The
effective tax rates approximate the applicable combined state and federal
statutory tax rates for the respective periods. The Company's ability to
realize the entire benefit of its deferred tax asset requires that the Company
achieve certain future earning levels prior to the expiration of its NOL
carryforwards. During the five years prior to Fiscal 1999, the Company
generated taxable income in excess of the taxable losses incurred during
Fiscal 1999 and 2000. The Fiscal 1999 net operating loss was utilized via
carryback to the prior two tax years. The Company believes that it is more
likely than not that it will continue to generate taxable income and that the
entire balance of deferred tax assets will be realized. The Company could be
required to record a valuation allowance for a portion or all of its deferred
tax asset if market conditions deteriorate and future earnings are below, or
projected to be below, its current estimates.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which, as amended, is
effective for fiscal years beginning after June 15, 2000. SFAS No.133
establishes standards requiring all derivatives to be recognized in the
statement of financial position as either assets or liabilities and measured
at fair value. The Company has adopted the provisions of the statement in
Fiscal 2001. The Company's implementation of the provisions of SFAS No. 133
did not have a material impact on the Company's financial statements.
In June 2001, the FASB approved SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets," SFAS No. 141 supercedes
Accounting Principles Board ("APB") Opinion No. 16. "Business Combinations,"
to prohibit use of the pooling-of-interest (pooling) method of accounting for
business combinations initiated after the issuance date of the final
Statement. SFAS No. 142 supercedes APB Opinion No. 17, "Intangible Assets," by
stating that goodwill will no longer be amortized, but will be tested for
impairment in a manner different from the way other assets are tested for
impairment. SFAS No. 142 also establishes a new method of testing goodwill for
impairment. The provisions of SFAS No. 141, and SFAS No. 142 also effective
for fiscal years beginning after December 15, 2001. The Company's
implementation of the provisions of SFAS No. 141 and No. 142 will not have an
impact on the Company's financial statements.
At the end of June 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations," SFAS No. 143 requires that obligations
associated with the retirement of a tangible long-lived asset be recorded as a
liability when those obligations are incurred, with the amount of the
liability initially measured at fair value. Upon initially recognizing a
liability for an asset retirement obligation, an entity must capitalize the
cost by recognizing an increase in the carrying amount of the related long-
lived asset. Over time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
The provisions of SFAS No. 143 will be required to be adopted by the Company
in fiscal 2003. The Company has not determined what impact, if any, this
statement will have on the Company's financial statements.
In October 2001 the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which established accounting and
reporting standards for the impairment or disposal of long-lived
18
assets and supercedes SFAS No. 121 and the accounting and reporting provisions
of APB Opinion No. 30. This new standard requires that companies test certain
long-lived assets for impairment and write down assets that are considered
impaired. SFAS No. 144 differs from SFAS No. 121 by clarifying impairment
testing and excluding goodwill. The effective date of the statement is for
fiscal years beginning after December 14, 2001. The Company has not yet
determined what impact, if any, this statement will have on the Company's
financial statements.
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. 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 which may 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 Company if its spotter aircraft are prohibited or
restricted from operating in their normal manner during the Company's
fishing season. For example, as a direct result of the September 11,
2001 terrorist attacks, the Secretary of Transportation issued a
federal ground stop order that grounded certain aircraft (including
the Company's fish-spotting aircraft) for approximately nine days.
This loss of spotter aircraft coverage severely hampered the Company's
ability to locate menhaden fish during this nine-day period and
thereby reduced its amount of saleable product.
3. 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. The products that influence the supply
and demand relationship are world supplies of fish meal made from
other fish species, palm oil, soy meal and oil, and other edible oils.
4. 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.
5. The impact on the Company if it cannot harvest menhaden in U.S.
jurisdictional waters if the Company fails to comply with U.S.
citizenship ownership requirements.
6. Risks inherent in 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.
7. 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.
19
8. The ability of the Company to retain and recruit key officers and
qualified personnel, vessel captains and crewmembers.
9. 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 in tax or other laws, partial or total expatriation,
currency exchange rate fluctuations and restrictions on currency
repatriation, the disruption of labor, political disturbances,
insurrection or war and the effect of requirements of partial local
ownership of operations in certain countries
10. Risks related to unanticipated material adverse outcomes in any pending
litigation or any other unfavorable outcomes or settlements. There can
be no assurance that the Company will prevail in any pending litigation
and to the extent that the Company sustains losses growing out of any
pending litigation which are not presently reserved or otherwise
provided for or insured against, its business, results of operation and
financial condition could be adversely affected.
11. In the future the Company may undertake acquisitions, although there is
no assurance this will occur. Further, there can be no assurance that
the Company will be able to profitably manage future businesses it may
acquire or successfully integrate future businesses it may acquire into
the Company without substantial costs, delays or other problems which
could have a material adverse effect on the Company's business, results
of operations and financial condition.
Item 7.A Quantitative and Qualitative Disclosure About Market Risk.
In the normal course of business, the financial condition of the Company is
exposed to minimal market risk associated with interest rate movements on the
Company's borrowings. A one percent increase or decrease in the levels of
interest rates on variable rate debt would not result in a material change to
the Company's results of operations.
Although the Company sells products in foreign countries, all of the
Company's revenues are billed and paid for in US dollars. As a result,
management does not believe that the Company is exposed to any significant
foreign country currency exchange risk, and the Company does not utilize
market risk sensitive instruments to manage its exposure to this risk.
Item 8. Financial Statements and Supplementary Data
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of 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, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. 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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 19, 2002
21
OMEGA PROTEIN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2001 2000
------------ ------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 21,813 $ 7,403
Receivables, net................................... 7,636 9,570
Inventories........................................ 37,670 37,032
Deferred tax assets................................ 2,062 3,410
Prepaid expenses and other current assets.......... 1,256 978
-------- --------
Total current assets............................. 70,437 58,393
Other assets......................................... 7,107 9,786
Deferred tax assets, net............................. 5,653 3,433
Property and equipment, net.......................... 82,030 88,872
-------- --------
Total assets..................................... $165,227 $160,484
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............... $ 1,296 $ 1,227
Accounts payable................................... 1,518 2,312
Accrued liabilities................................ 13,407 14,600
-------- --------
Total current liabilities........................ 16,221 18,139
Long-term debt....................................... 15,510 14,827
Other long-term liabilities.......................... 6,051 --
-------- --------
Total liabilities................................ 37,782 32,966
-------- --------
Minority interest in consolidated subsidiary......... -- 41
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; authorized
10,000,000 shares; none
issued............................................ -- --
Common Stock, $0.01 par value; authorized
80,000,000 shares; 24,362,415 and 24,330,277
shares issued and outstanding, respectively ...... 244 243
Capital in excess of par value..................... 111,959 111,884
Retained earnings.................................. 21,270 17,385
Accumulated other comprehensive loss............... (3,993) --
Common stock in treasury, at cost--413,100 shares.. (2,035) (2,035)
-------- --------
Total stockholders' equity....................... 127,445 127,477
-------- --------
Total liabilities and stockholders' equity..... $165,227 $160,484
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
22
OMEGA PROTEIN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
------------------------------------------
2001 2000 1999
------------- ------------- -------------
(in thousands, except per share amounts)
Revenues.......................... $ 98,752 $ 84,042 $ 93,636
Cost of sales..................... 84,682 83,825 87,369
Inventory write-down.............. -- 18,117 18,188
------------ ------------- -------------
Gross profit (loss)............... 14,070 (17,900) (11,921)
Selling, general and
administrative................... 8,409 7,641 9,085
Impairment of long-lived assets... -- -- 2,267
------------ ------------- -------------
Operating income (loss)........... 5,661 (25,541) (23,273)
Interest (expense) income, net.... (485) (293) 614
Other (expense), net.............. (151) (329) (398)
------------ ------------- -------------
Income (loss) before income
taxes............................ 5,025 (26,163) (23,057)
Provision (benefit) for income
taxes............................ 1,140 (9,419) (8,301)
------------ ------------- -------------
Net income (loss)................. $ 3,885 $ (16,744) $ (14,756)
============ ============= =============
Earnings (loss) per share
(basic).......................... $ 0.16 $ (0.70) $ (0.62)
============ ============= =============
Average common shares
outstanding...................... 23,938 23,903 23,963
============ ============= =============
Earnings (loss) per share
(diluted)........................ $ 0.16 $ (0.70) $ (0.62)
============ ============= =============
Average common shares and common
share equivalents outstanding.... 24,094 23,903 23,963
============ ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
23
OMEGA PROTEIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------
2001 2000 1999
------- -------- --------
(in thousands)
Cash flow provided by (used in) operating
activities:
Net income (loss)............................... $ 3,885 $(16,744) $(14,756)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
(Gain) loss on disposal of assets, net.......... (146) 84 (6)
Provisions for losses on receivables............ 1,473 30 30
Depreciation and amortization................... 9,714 9,211 8,995
Impairment of long-lived assets................. -- -- 2,267
Deferred income taxes........................... 1,185 (7,426) (2,277)
Changes in assets and liabilities:
Receivables................................... 1,816 6,391 (7,119)
Inventories, net of write-downs............... (638) 9,080 (2,761)
Accounts payable and accrued liabilities...... (1,987) 3,114 273
Amounts due to parent......................... -- (5) (36)
Other, net.................................... (158) (3,922) (1,604)
------- -------- --------
Total adjustments........................... 11,259 16,557 (2,238)
------- -------- --------
Net cash provided by (used in)
operating activities....................... 15,144 (187) (16,994)
------- -------- --------
Cash flow provided by (used in) investing
activities:
Proceeds from sale of assets, net............... 435 55 6
Capital expenditures............................ (1,921) (6,977) (15,145)
------- -------- --------
Net cash used in investing activities....... (1,486) (6,922) (15,139)
------- -------- --------
Cash flow provided by (used in) financing
activities:
Purchase of treasury stock...................... -- -- (2,035)
Proceeds from borrowings........................ 1,989 -- 6,070
Principal payments on borrowings................ (1,237) (1,161) (1,057)
------- -------- --------
Net cash provided by (used in) financing
activities................................. 752 (1,161) 2,978
------- -------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 14,410 (8,270) (29,155)
Cash and cash equivalents at beginning of period.. 7,403 15,673 44,828
------- -------- --------
Cash and cash equivalents at end of period........ $21,813 $ 7,403 $ 15,673
======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
24
OMEGA PROTEIN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital Accumulated
Common Stock Excess Other Treasury Total
------------- of Par Retained Comprehensive Stock Stockholders'
Shares Amount Value Earnings Loss Amount Equity
------ ------ -------- -------- ------------- -------- -------------
(in thousands)
Balance at December 31,
1998................... 24,276 $243 $111,722 $48,885 $ -- $ -- $160,850
Issuance of common
stock................ 26 -- 113 -- -- 113
Purchase of treasury
stock................ -- -- -- -- (2,035) (2,035)
Net loss.............. -- -- -- (14,756) -- -- (14,756)
------ ---- -------- ------- ------- ------- --------
Balance at December 31,
1999................... 24,302 243 111,835 34,129 -- (2,035) 144,172
Issuance of common
stock................ 28 -- 49 -- -- 49
Net loss.............. -- -- -- (16,744) -- -- (16,744)
------ ---- -------- ------- ------- ------- --------
Balance at December 31,
2000................... 24,330 243 111,884 17,385 -- (2,035) 127,477
Issuance of common
stock................ 32 1 75 -- -- 76
Comprehensive loss:
Net income............ -- -- -- 3,885 -- -- 3,885
Minimum pension
liability net
of tax benefit of
$2,058............... -- -- -- -- (3,993) -- (3,993)
------ ---- -------- ------- ------- ------- --------
Total comprehensive
loss................... -- -- -- 3,885 (3,993) -- (108)
------ ---- -------- ------- ------- ------- --------
------
Balance at December 31,
2001................... 24,362 $244 $111,959 $21,270 $(3,993) $(2,035) $127,445
====== ==== ======== ======= ======= ======= ========
The accompanying notes are in integral part of the consolidated financial
statements.
25
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.
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 20.0% to 50.0% 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
1.0% equity interest in a partially owned subsidiary previously accounted for
under the equity method. As a result of the transaction, the Company owned
51.0% of the investment and began consolidating its operations. On November 1,
2001, the Company sold all of its interest in this subsidiary. As a result of
the sale, the Company is totally divested of the investment.
Revenue Recognition
The Company recognizes revenue for the sale of its products when title and
rewards of ownership to its products are transferred to the customer, which
occurs upon shipment.
Cash and Cash Equivalents
The Company considers cash in banks and short-term investments with
original maturities of three months or less as cash and cash equivalents.
26
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventory is stated at the lower of cost or market. The Company's fishing
season runs from mid-April to the first of November in the Gulf of Mexico and
from the beginning of May into December in the Atlantic. Government
regulations preclude the Company from fishing during the off-seasons.
The Company's inventory cost system considers all costs associated with an
annual fish catch and its processing, both variable and fixed, and including
both costs incurred during the off-season and during the fishing season. 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. The Company's lower-of-cost-or-
market-value analyses at year-end and at interim periods compares the total
estimated per unit production cost of the Company's expected production to the
projected per unit market prices of the products. The impairment analyses
involve estimates of, among other things, future fish catches and related
costs, and expected commodity prices for the fish products. These estimates,
which management believes are reasonable and supportable, involve estimates of
future activities and events which are inherently imprecise and for which
actual results may differ.
During the off-seasons, in connection with the upcoming fishing seasons,
the Company incurs costs (i.e., plant and vessel related labor, utilities,
rent, repairs, and depreciation) that are directly related to the Company's
infrastructure. These costs accumulate in inventory and are applied as
elements of the cost of production of the Company's products throughout the
fishing season ratably based on the Company's monthly fish catch and the
expected total fish catch for the season.
Advertising Costs
The costs of advertising are expensed as incurred in accordance with
Statement of Position 93-7 "Reporting on Advertising Costs."
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 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 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.
27
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property, Equipment and Depreciation
Property and equipment additions are recorded at cost. Depreciation of
property and equipment is computed by the straight-line method at rates
expected to amortize the cost of property and equipment, net of salvage value,
over their estimated useful lives. Estimated useful lives of assets acquired
new, determined as of the date of acquisition are as follows:
Useful Lives
(years)
------------
Fishing vessels and fish
processing plants.............. 15-20
Furniture and fixtures and
other.......................... 3-10
Replacements and major improvements are capitalized; maintenance and
repairs are charged to expense as incurred. Upon sale or retirement, the costs
and related accumulated depreciation are eliminated from the accounts. Any
resulting gains or losses are included in the statement of operations.
Pension Plans
Annual costs of pension plans are determined actuarially based on SFAS No.
87, "Employers' Accounting for Pensions." The Company's policy is to fund U.S.
pension plans at amounts not less than the minimum requirements of the
Employee Retirement Income Security Act of 1974 and generally for obligations
under its foreign plans to deposit funds with trustees under insurance
policies. In Fiscal 1999, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132
revised and standardized the disclosure requirements for pensions and other
postretirement benefit plans to the extent practicable. It did not change the
measurement or recognition of these plans.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," establishes a standard for
reporting and displaying comprehensive income and its components within the
financial statements. Comprehensive income includes charges and credits to
equity that are not the result of transactions with shareholders.
Comprehensive income is composed of two subsets--net income and other
comprehensive income. Included in other comprehensive income for the Company
are minimum pension liability adjustments. These adjustments are accumulated
within the Statement of Stockholders' Equity under the caption Accumulated
Other Comprehensive Loss. As of December 31, 2001, accumulated other
comprehensive income, net of taxes, as reflected in the Consolidated Statement
of Stockholders' Equity, was $3,993,000.
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, 2001 and 2000, the Company had cash deposits concentrated
primarily in one major bank. In addition, the Company had Certificates of
Deposit and commercial quality grade A2P2 rated or better with companies and
financial institutions. As a result of the foregoing, the Company believes
that credit risk in such investments is minimal.
28
OMEGA PROTEIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings per Share
Basic earnings per share was computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share was computed by dividing net income by the sum of
the weighted average number of common shares outstanding and the effect of any
dilutive stock options.
Recently Issued Accounting Standards
Effective January 1, 2001, the Company implemented SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
SFAS No. 133 establishes standards requiring all derivatives to be recognized
in the statement of financial position as either assets or liabilities and
measured at fair value. The Company's implementation of the provisions of SFAS
No. 133 did not have an impact on the Company's existing operations.
The Company adopted the provisions of Staff Accounting Bulletin