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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[U] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-14003
OMEGA PROTEIN CORPORATION
(Exact name of Registrant as specified in its charter)
State of Nevada 76-0562134
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1717 St. James Place, Suite 550
Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 623-0060
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes Y No__.
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes __ or No X.
Number of shares outstanding of the Registrant's Common Stock, par value
$0.01 per share, on May 1, 2003: 24,069,338
OMEGA PROTEIN CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of March 31, 2003
and December 31, 2002.............................................3
Unaudited Condensed Consolidated Statement of Operations for the
three months ended March 31, 2003 and 2002........................4
Unaudited Condensed Consolidated Statement of Cash Flows for the
three months ended March 31, 2003 and 2002........................5
Notes to Unaudited Condensed Consolidated Financial Statements.......6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................19
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........31
Item 4. Controls and Procedures.............................................31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................32
Item 2. Changes in Securities and Use of Proceeds...........................32
Item 3. Defaults Upon Senior Securities.....................................32
Item 4. Submission of Matters to a Vote of Security Holders.................32
Item 5. Other Information...................................................33
Item 6. Exhibits and Reports on Form 8-K....................................33
Signatures...................................................................34
Certifications..........................................................35 & 36
2
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
March 31, December 31,
2003 2002
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(in thousands)
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 41,652 $ 33,450
Receivables, net........................................................ 9,710 13,029
Amounts due from majority owner......................................... 1 3
Inventories............................................................. 38,236 41,939
Deferred tax assets..................................................... 1,315 1,315
Prepaid expenses and other current assets............................... 733 884
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Total current assets............................................. 91,647 90,620
Other assets................................................................ 7,517 6,683
Deferred tax assets, net.................................................... 1,669 3,115
Property and equipment, net................................................. 81,899 80,713
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Total assets..................................................... $ 182,732 $ 181,131
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................................... $ 1,292 $ 1,270
Accounts payable........................................................ 2,297 2,619
Accrued liabilities..................................................... 14,240 14,880
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Total current liabilities........................................ 17,829 18,769
Long-term debt.............................................................. 13,908 14,239
Pension liabilities......................................................... 13,087 13,087
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Total liabilities.......................................................... 44,824 46,095
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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;
24,443,563 shares and 24,382,662 shares issued and outstanding,
respectively........................................................... 244 244
Capital in excess of par value.......................................... 112,250 112,025
Retained earnings....................................................... 36,086 33,439
Accumulated other comprehensive loss.................................... (8,637) (8,637)
Common stock in treasury, at cost - 413,100 shares...................... (2,035) (2,035)
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Total stockholders' equity.......................................... 137,908 135,036
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Total liabilities and stockholders' equity................. $ 182,732 $ 181,131
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The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
3
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
-------------------------------------
2003 2002
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(in thousands, except per share amounts)
Revenues................................................................. $ 25,101 $ 23,479
Cost of sales............................................................ 18,679 16,924
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Gross profit............................................................. 6,422 6,555
Selling, general, and administrative expense............................. 2,196 2,068
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Operating income......................................................... 4,226 4,487
Interest expense, net.................................................... (154) (167)
Other income (expense), net.............................................. 21 (52)
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Income before income taxes............................................... 4,093 4,268
Provision for income taxes............................................... 1,446 1,535
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Net income............................................................... $ 2,647 $ 2,733
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Basic earnings per share................................................. $ 0.11 $ 0.11
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Average common shares outstanding........................................ 23,983 23,953
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Diluted earnings per share............................................... $ 0.10 $ 0.11
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Average common shares and
common share equivalents outstanding................................... 25,433 24,848
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The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
4
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
-----------------------------------------
2003 2002
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(in thousands)
Cash flows provided by (used in) operating activities:
Net income............................................................ $ 2,647 $ 2,733
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on disposal of assets, net................................... (77) -
Provision for losses on receivables............................... 44 170
Depreciation and amortization..................................... 2,963 2,508
Deferred income taxes............................................. 1,446 2,155
Changes in assets and liabilities:
Receivables................................................... 3,311 (813)
Amounts due from majority owner............................... 2 -
Inventories................................................... 3,703 4,913
Accounts payable and accrued liabilities...................... (962) (369)
Other, net.................................................... (1,333) (103)
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Total adjustments........................................ 9,097 8,461
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Net cash provided by operating activities............... 11,744 11,194
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Cash flows used in investing activities:
Proceeds from sale of assets, net.................................... 83 -
Capital expenditures.................................................. (3,526) (2,536)
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Net cash used in investing activities.................... (3,443) (2,536)
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Cash flows used in financing activities:
Principal payments of short and long-term debt obligations............ (309) (353)
Proceeds from stock options exercised................................. 210 -
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Net cash used in financial activities.................... (99) (353)
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Net increase in cash and cash equivalents................................. 8,202 8,305
Cash and cash equivalents at beginning of year............................ 33,450 21,813
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Cash and cash equivalents at end of period................................ $ 41,652 $ 30,118
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The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
5
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
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 primarily used as a protein ingredient in animal feed for swine, cattle,
aquaculture and household pets. Fish oil is utilized for animal and aquaculture
feeds, industrial applications, as well as for additives to human food products.
The Company's fish solubles are sold primarily to livestock feed manufacturers,
aquaculture feed manufacturers and for use as an organic fertilizer.
Basis of Presentation
These interim financial statements of Omega Protein Corporation have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information, the instructions to
Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X and should be
read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2002. Accordingly, certain information and footnote disclosures
normally provided have been omitted since such items are disclosed therein.
In the opinion of management the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (including normal
recurring adjustments) necessary to present fairly the Company's consolidated
financial position as of March 31, 2003, and the results of its operations and
its cash flows for the three-month periods ended March 31, 2003 and 2002.
Operating results for the three-month period ended March 31, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003.
Consolidation
The consolidated financial statements include the accounts of Omega and its
wholly and majority owned subsidiaries. Investments in affiliated companies and
joint ventures representing a 20% to 50% voting interest are accounted for using
the equity method. All significant intercompany accounts and transactions have
been eliminated in consolidation.
6
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
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.
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
generally 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, 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 from which actual results may differ
materially.
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.
Insurance
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 annual aggregate deductible 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 consultation 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
7
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
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.
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 evaluates at each balance sheet date for continued
appropriateness of the carrying value of its long-lived assets including its
long-term receivables and property, plant and equipment in accordance with SFAS
No. 144, "Accounting for the Impairment or Disposals of Long-Lived Assets." This
review is based on management projections of anticipated undiscounted future
cash flows of the related asset or asset grouping. If indicators of impairment
are present, management would evaluate the undiscounted cash flows estimated to
be generated by those assets compared to the carrying amount of those items. The
net carrying value of assets not recoverable is reduced to fair value. The
Company considers continued operating losses, or significant and long-term
changes in business conditions, to be its primary indictors of potential
impairment. In measuring impairment, the Company looks to quoted market prices,
if available, or the best information available in the circumstances.
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.
8
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
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 ("ERISA"). The Company applies SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits"
disclosure requirements for its pensions and other postretirement benefit plans
to the extent practicable.
In 2002 the Board of Directors authorized a plan to freeze the Company's
pension plan in accordance with ERISA rules and regulations so that new
employees, after July 31, 2002, will not be eligible to participate in the
pension plan and further benefits will no longer accrue for existing
participants. The freezing of the pension plan had the effect of vesting all
existing participants in their pension benefits in the plan.
Comprehensive Income (Loss)
SFAS No. 130, "Reporting Comprehensive Income," establishes a standard for
reporting and displaying comprehensive income (loss) and its components within
the financial statements. Comprehensive income (loss) includes charges and
credits to equity that are not the result of transactions with shareholders.
Comprehensive income (loss) is composed of two subsets - net income and other
comprehensive income (loss). Included in other comprehensive income (loss) 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 March 31, 2003, accumulated other
comprehensive (loss), net of taxes, as reflected in the Consolidated Statement
of Stockholders' Equity, was $8,637,000.
9
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
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 March 31, 2003 and December 31, 2002, 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.
Earnings per Share
Basic earnings per common share was computed by dividing net earnings by
the weighted average number of common shares outstanding during each period.
Diluted earnings per common share was computed by dividing net earnings by the
sum of the weighted average number of common shares outstanding plus the number
of additional common shares that would have been outstanding if the dilutive
potential common shares (in this case, exercise of the Company's employee stock
options) had been issued during each period as discussed in Note 11.
Recently Issued Accounting Standards
In May 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS 13, and
Technical Corrections as of April 2002." This Statement rescinds FASB Statement
No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an
amendment to that Statement, FASB Statement No. 64 "Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements." SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. SFAS No. 145
is effective for financial statements issued for years beginning after May 15,
2002. SFAS No. 145 will have no impact on the Company's existing results of
operations, liquidity or financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires recording
costs associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. The requirements of SFAS No. 146 are
effective prospectively for exit or disposal activities initiated after December
31, 2002. The adoption of SFAS No. 146 had no impact on the Company's financial
condition, results of operations or cash flows.
10
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." FIN
45 clarifies the requirements of FASB Statement No.5, "Accounting for
Contingencies" relating a guarantor's accounting for, and disclosure of, the
issuance of certain types of guarantees. The disclosure provisions of FIN 45 are
effective for financial statements of interim or annual periods that end after
December 15, 2002; however, the provisions for initial recognition and
measurement are effective on a prospective basis for guarantees that are issued
or modified after December 31, 2002, irrespective of a guarantor's year-end. The
Company has determined that it is subject to the disclosure provisions of FIN 45
and has included the required disclosures in Note 10. The initial adoption of
FIN 45 did not have a material impact on the Company's financial condition,
results of operations or cash flows.
In 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 were
adopted by the Company in January 2003. The adoption of this statement did not
have a material impact on the Company's financial position, results of
operations or cash flows.
In January 2003, the FASB issued FIN No. 46, "Consolidated of Variable
Interest Entities." This standard clarifies the application of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, and addresses
consolidation by business enterprises of variable interest entities (more
commonly known as Special Purpose Entities or SPE's). FIN No. 46 requires
existing unconsolidated variable interest entities to be consolidated by their
primary beneficiaries if the entities do not effectively disperse risk among the
parties involved. FIN No. 46 also enhances the disclosure requirements related
to variable interest entities. This statement is effective for variable interest
entities created or in which an enterprise obtains an interest after January 31,
2003. FIN No. 46 will be effective for the Company beginning September 1, 2003
for all interests in variable interest entities acquired before February 1,
2003. The adoption of FIN No. 46 is not expected to have a material impact on
the Company's consolidated financial statements.
Stock-Based Compensation
At March 31, 2003, the Company had a stock-based employee compensation
plan, which is described in more detail in Note 11. The Company accounts for
this plan under the recognition and measurement principles of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123." No stock-based employee compensation cost is reflected in
net earnings, because all options granted under this plan had an exercise price
equal to or greater than the market value of the underlying common stock on the
11
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
grant date. The following table illustrates the pro forma effect on net earnings
and net earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation using the
Black-Scholes option pricing methodology.
Three Months Ended March 31,
-----------------------------
2003 2002
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(in thousands)
Net earnings $ 2,647 $ 2,733
Total stock-based employee compensation
determined under fair value-based method, net (192) (203)
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Pro forma net earnings $ 2,455 $ 2,530
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Net earnings per common share:
Basic - as reported $ 0.11 $ 0.11
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Basic - pro forma $ 0.10 $ 0.11
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Net earnings per common share:
Diluted - as reported $ 0.10 $ 0.11
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Diluted - pro forma $ 0.10 $ 0.10
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Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Note 2. Accounts Receivable
Accounts receivable as of March 31, 2003 and December 31, 2002 are
summarized as follows:
March 31, December 31,
2003 2002
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(in thousands)
Trade..................................................... $ 8,018 $ 11,853
Insurance................................................. 1,195 755
Employee.................................................. 97 45
Income tax................................................ 700 650
Other..................................................... 241 255
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Total accounts receivable ................................ 10,251 13,558
Less: allowance for doubtful accounts..................... (541) (529)
------------------ -------------------
Receivables, net.......................................... $ 9,710 $ 13,029
------------------ -------------------
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12
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
Note 3. Inventory
The major classes of inventory as of March 31, 2003 and December 31, 2002
are summarized as follows:
March 31, December 31,
2003 2002
------------------ -------------------
(in thousands)
Fish meal................................................. $ 10,650 $ 21,564
Fish oil.................................................. 4,262 9,583
Fish solubles............................................. 530 843
Off season cost........................................... 18,343 5,464
Other materials & supplies................................ 4,451 4,485
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Total inventory........................................... $ 38,236 $ 41,939
------------------ -------------------
------------------ -------------------
Inventory at March 31, 2003 and December 31, 2002 is stated at the lower of
cost or market. The elements of cost include plant and vessel related labor,
utilities, rent, repairs and depreciation.
Note 4. Other Assets
Other assets as of March 31, 2003 and December 31, 2002 are summarized as
follows:
March 31, December 31,
2003 2002
------------------ ------------------
(in thousands)
Fishing nets..................................................... $ 1,124 $ 1,216
Prepaid pension cost............................................. 1,740 2,104
Insurance receivable, net of allowance for doubtful accounts..... 3,835 2,548
Title XI loan origination fee.................................... 280 275
Note receivable.................................................. 407 409
Deposits......................................................... 131 131
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Total other assets............................................... $ 7,517 $ 6,683
------------------ ------------------
------------------ ------------------
Amortization expense for fishing nets amounted to approximately $215,000
and $128,000 for the quarters ended March 31, 2003 and March 31, 2002,
respectively.
The Company carries insurance for certain losses relating to its vessels
and Jones Act liability for employees aboard its vessels (collectively, "Vessel
Claims Insurance"). The typical Vessel Claims Insurance policy contains an
annual aggregate deductible ("AAD") for which the Company remains responsible,
while the insurance carrier is responsible for all applicable amounts which
exceed the AAD. It is the Company's policy to accrue current amounts due and
record amounts paid out on each claim. Once payments exceed the AAD the Company
records an insurance receivable for a given policy year.
13
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
Note 5. Property and Equipment
Property and equipment at March 31, 2003 and December 31, 2002 are
summarized as follows:
March 31, December 31,
2003 2002
------------------- -------------------
(in thousands)
Land...................................................... $ 6,261 $ 6,261
Plant assets.............................................. 72,912 72,444
Fishing vessels........................................... 77,956 75,153
Furniture and fixtures.................................... 1,820 1,825
Other..................................................... 3,526 3,292
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Total property and equipment.............................. 162,475 158,975
Less: accumulated depreciation and impairment............. (80,576) (78,262)
------------------- -------------------
Property and equipment, net............................... $ 81,899 $ 80,713
------------------- -------------------
------------------- -------------------
Depreciation expense for the quarters ended March 31, 2003 and March 31,
2002 was $2.3 million and $2.0 million, respectively.
Note 6. Notes Payable and Long-Term Debt
At March 31, 2003 and December 31, 2002, the Company's long-term debt
consisted of the following:
March 31, December 31,
2003 2002
------------------ -----------------
(in thousands)
U.S. government guaranteed obligations (Title XI loan) collateralized by a
first lien on certain vessels and certain plant assets:
Amounts due in installments through 2016, interest from 6.63% to 7.6%...... $ 14,246 $ 14,531
Amounts due in installments through 2014, interest at Eurodollar rates of
1.85% and 2.26% at March 31, 2003 and December 31, 2002,
respectively, plus 4.5%................................................... 913 933
Other debt at 7.9% to 8.0% at March 31, 2003 and December 31, 2002,
respectively,............................................................. 41 45
------------------ ----------------
Total debt..................................................................... 15,200 15,509
Less current maturities............................................. (1,292) (1,270)
----------------- -----------------
Long-term debt................................................................. $ 13,908 $ 14,239
---------------- ------------------
---------------- ------------------
At March 31, 2003 and December 31, 2002, the estimated fair value of debt
obligations approximated book value.
Originally, the Company was authorized to receive up to $20.6 million in
loans under the Title XI program, and has used the entire amount authorized
under such program. The Title XI loans are secured by liens on certain of the
Company's fishing vessels and mortgages on the Company's Reedville, Virginia and
Abbeville, Louisiana plants. Loans are now available under similar terms
pursuant to the Title XI program without intervening lenders.
14
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
The Company has made an application for approximately $4.9 million in loans
under the Title XI program in the current year and expects closing to occur in
the second or third quarter of 2003.
On December 20, 2000 the Company entered into a three-year $20 million
revolving credit agreement with Bank of America, N.A. (the "Credit Facility").
Borrowings under this facility may be used for working capital and capital
expenditures. Borrowings under the Credit Facility bear interest at a rate equal
to (i) LIBOR plus 250 basis points or (ii) at the Company's option, the Bank's
prime rate. The Credit Facility requires a per annum commitment fee of one-half
of a percent (0.5%) on the daily average unused portion of the commitment of the
Lender. The Credit Facility is collateralized by all of the Company's trade
receivables, inventory and equipment. The Company and its subsidiaries are
required to comply with certain financial covenants, including maintenance of a
minimum tangible net worth and minimum EBITDA. In addition, the Credit Facility
does not allow for the payment of cash dividends or stock repurchases and also
limits capital expenditures and investments. The Company is in compliance with
the Credit Facility covenants at March 31, 2003. As of March 31, 2003 the
Company had no borrowings outstanding under the Credit Facility.
At March 31, 2003 and December 31, 2002, the Company had outstanding
letters of credit totaling approximately $2.6 million and $2.1 million,
respectively, issued primarily in support of worker's compensation insurance
programs.
Note 7. Accrued Liabilities
Accrued liabilities as of March 31, 2003 and December 31, 2002 are
summarized as follows:
March 31, December 31,
2003 2002
------------------ -------------------
(in thousands)
Salary and benefits....................................... $ 4,543 $ 6,242
Insurance................................................. 7,236 5,625
Taxes, other than income tax.............................. 815 443
Trade creditors........................................... 1,583 2,513
Other..................................................... 63 57
------------------ -------------------
Total accrued liabilities................................. $ 14,240 $ 14,880
------------------ -------------------
------------------ -------------------
Note 8. Comprehensive Income
The components of comprehensive income are as follows:
Three Months Ended
March 31,
------------------ ------------------
2003 2002
------------------ ------------------
(in thousands)
Net income................................................ $ 2,647 $ 2,733
Minimum pension liability adjustment, net of tax.......... - 231
------------------ -------------------
Total comprehensive income................................ $ 2,647 $ 2,964
------------------ -------------------
------------------ -------------------
15
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
Note 9. Commitments and Contingencies
Capital Commitments
The Company has committed approximately $16 million to build a new
100-metric ton per day fish oil processing facility at its Reedville, Virginia
location. The commitments covered by this agreement aggregate approximately $12
million and $4 million for the periods 2003 and 2004, respectively.
Litigation
The Company is defending various claims and litigation arising from its
operations. In the opinion of management, uninsured losses, if any, resulting
from these matters will not have a material adverse effect on the Company's
results of operations, cash flows or financial position.
Insurance
The Company carries insurance with coverages and coverage limits that it
believes to be adequate. Although there can be no assurance that such insurance
is sufficient to protect the Company against all contingencies, management
believes that its insurance protection is reasonable in view of the nature and
scope of the Company's operations.
Tax Assessment
The Company has informally been notified by representatives from the
Vermillion Parish and St. Mary Parish tax authorities in Louisiana of undefined
deficiencies in parish sales and use taxes for the Company's 1997 to 2000 tax
years. As of March 31, 2003, the proposed adjustments to the parish sales and
use tax returns for the calendar years ending 1997 through 2000 have not yet
been assessed. The Company expects the proposed adjustments will claim
additional tax, including penalties and interest through March 31, 2003 and has
recorded a provision that management believes is adequate to cover these
adjustments. The Company intends to contest the proposed adjustments vigorously.
Environmental Matters
The Company may be subject to various possible claims and lawsuits
regarding environmental matters from time to time. Management believes that
costs, if any, related to these matters will not have a material adverse effect
on the results of operations, cash flows or financial position of the Company.
16
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
Note 10. Guarantees
The Company's obligations under its $20 million revolving credit agreement
(the "Credit Facility") with Bank of America, N.A., (the "Bank") are guaranteed
by all of its existing and future direct and indirect subsidiaries formed under
the laws of the United States, any state thereof or the District of Columbia,
except for specified excluded subsidiaries (referred to collectively as
"Guarantors"). The Credit Facility Guarantors have entered into an unconditional
guaranty in favor of the Bank to which the Guarantors guaranteed to the Bank the
payment of all obligations of the Borrowers to the Bank however arising,
including, without limitation, amounts due under the Credit Facility. The
Guarantors have entered into a Security Agreement in favor of the Bank pursuant
to which the Guarantors granted to the Bank a security interest in all assets of
each Guarantor in order to secure Guarantor's obligations under the Guaranty and
the Company's obligation under the Credit Facility. For additional information
regarding the Credit Facility, see Note 6 and the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2002.
The Company's Articles of Incorporation and By-Laws limit the liability of
the Company's officers and directors to the fullest extent permitted by Nevada
law. Nevada provides that directors of Nevada corporations may be relieved of
monetary liabilities for breach of their fiduciary duties as directors, except
under certain circumstances, including (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law or (ii) the willful
or grossly negligent payment of unlawful distributions.
The Company's Articles of Incorporation and By-Laws generally require the
Company to indemnify its directors and officers to the fullest extent permitted
by Nevada law. The Company's Articles of Incorporation and By-Laws also require
the Company to advance expenses to its directors and its officers to the fullest
extent permitted by Nevada law upon receipt of an undertaking by or on behalf of
such dierctor of officer to repay such amount if it should be ultimately
determined that they are not entitled to indemnification by the Company. The
Company also has enterred into indemnification agreements with all of its
directors and certain of its officers which provides for the indemnification and
advancement of expenses by the Company. The Company also maintains director and
officer liability insurance with respect to liabilties arising out of certain
matters, including matters arising under the securities laws. This insurance is
subject to limitations, conditions and deductibles set forth in the respective
insurance policy.
There is no pending litigation or proceeding involving any director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any threatened litigation that may result in claims for
indemnification, other than the Strougo litigation described in Part II, Item 1
"Legal Proceedings."
17
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
As of March 31, 2003, the Company has $15.2 million in U.S. government
guaranteed obligations (Title XI loan). The Company has provided security for
the guarantee in the form of the Company's Promissory Notes to the United States
of America, a Ship Mortgage, a Deed of Trust and a perfected Security Agreement
collateralized by a first lien on certain vessels and certain plant assets of
the Company at its Reedville, Virginia and Abbeville, Louisiana locations.
Note 11. Reconciliation of Basic and Diluted Per Share Data (in thousands
except per share data)
Earnings Shares Per Share
(Numerator) (Denominator) Data
------------- -------------- -------------
Three Months Ended March 31, 2003
Net earnings $ 2,647
-------------
-------------
Basic earnings per common share:
Earnings available to common shareholders $ 2,647 23,983 $ 0.11
-------------
Effect of dilutive securities: - 1,450
Stock options assumed exercised ------------- -------------
Diluted earnings per common share:
Earnings available to common shareholders plus
stock options assumed exercised $ 2,647 25,433 $ 0.10
------------- -------------- -------------
------------- -------------- -------------
<
Earnings Shares Per Share
(Numerator) (Denominator) Data
------------- -------------- -------------
Three Months Ended March 31, 2002
Net Earnings $ 2,733
-------------
-------------
Basic earnings per common share:
Earnings available to common shareholders $ 2,733 23,953 $ 0.11
-------------
Effect of dilutive securities:
Stock options assumed exercised - 895
------------- --------------
Diluted earnings per common share:
Earnings available to common shareholders plus
stock options assumed exercised $ 2,733 24,848 $ 0.11
------------- -------------- -------------
------------- -------------- -------------
Options to purchase 2,229,000 shares of common stock at prices ranging from
$4.70 to $17.25 per share were outstanding during the three months ended March
31, 2003 but were not included in the computation of diluted earnings per share
because the exercise prices of the options were greater than the average market
price of such common shared during that period.
18
OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(Dollars in thousands, except per share amounts)
Options to purchase 2,865,833 shares of common stock at prices ranging from
$3.50 to $17.25 per share were outstanding during the three months ended March
31, 2002 but were not included in the computation of diluted earnings per share
because the exercise prices of such options were greater than the average market
price of the common shares during that period.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-looking statements in this Form 10-Q, future filings by the Company
with the Securities and Exchange Commission (the "Commission"), the Company's
press releases and oral statements by authorized officers of the Company are
intended to be subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation, the
risks set forth under the caption "Significant Factors that May Affect Forward-
Looking Statements" appearing in Item 2. "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The Company believes that
forward-looking statements made by it are based on reasonable expectations;
however, no assurances can be given that actual results will not differ
materially from those contained in such forward-looking statements.
Forward-looking statements involve statements that are predictive in nature,
which depend upon or refer to future events or conditions, or which include the
words "estimate," "project," "anticipate," "expect," "predict," "assume,"
"believe," "could," "would," "may," and similar expressions.
19
OMEGA PROTEIN CORPORATION
General
Omega Protein Corporation is the largest producer, marketer and distributor
of fish meal and fish oil products in the United States. 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. The
Company's principal executive offices are at 1717 St. James Place, Suite 550,
Houston, Texas 77056 (Telephone: (713) 623-0060).
The Company's marine operations involve the production and sale of a
variety of protein and oil products derived from menhaden, a species of wild
herring-like fish found along the Gulf of Mexico and Atlantic coasts. The fish
is not genetically modified or genetically enhanced. 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 swine, cattle, aquaculture and
household pets. Fish oil is utilized for animal and aquaculture feeds,
industrial applications, and for additives to human food products. The Company's
fish solubles are sold primarily to livestock feed manufacturers, aquaculture
feed manufacturers and for use as an organic fertilizer.
All of the Company's products contain Omega-3 fatty acids. The Omega-3
fatty acids are commonly referred to as "essential fatty acids" because the
human body does not produce them. Instead, essential fatty acids must be
obtained from outside sources, such as food or special supplements. Omega-3s are
also commonly referred to as a "good fat" for their health benefits, as opposed
to the "bad fats" that create or aggravate health conditions through long-term
consumption. See "--Products" in Part I Item 1 and 2 of the Company's Form 10-K
Annual Report for the year ended December 31, 2002.
The Company operates through five material subsidiaries: Omega Protein,
Inc., Omega Shipyard, Inc., Protein Operating Company, Protein Securities
Company and Omega Protein Mexico, S. de R. L. de C. V. ("Omega Mexico"). Omega
Protein, Inc. is the Company's principal operating subsidiary for its menhaden
processing business 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 2002 were not material. Protein
Operating Company holds title to the Company's property containing its
60,000-square foot meal storage warehouse in St. Louis, Missouri. Protein
Securities Company holds title to the Company's property containing its 10,000
metric ton meal storage warehouse, oil storage tanks with a 4,000 metric ton
capacity and other property in Morgan City, Louisiana. Omega Mexico is a new
subsidiary formed in 2002 for the Company's meal and oil purchases in Mexico and
resales in Mexico. The Company also has a number of other immaterial direct and
indirect subsidiaries.
Until April 1998, the Company, including its predecessors, was a
wholly-owned subsidiary of Zapata Corporation ("Zapata"). In April 1998, the
Company completed an initial public offering of its common stock. Zapata
currently owns approximately 60% of the Company's outstanding common stock.
20
OMEGA PROTEIN CORPORATION
The Company files annual, quarterly and current reports and other
information with the Securities and Exchange Commission ("SEC"). The Company's
annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K, along with any amendments to those reports, are available free of
charge at the Company's corporate website at http://www.omegaproteininc.com and
are posted within three business days after they are filed with the SEC.
Omega is the largest U.S. producer of protein-rich meal and Omega-3 rich
oil derived from marine sources. The Company's products are produced from
menhaden (a herring-like fish found in commercial quantities), and include FAQ
grade and value-added specialty fish meals, crude and refined fish oils and fish
solubles. The Company's fish meal products are used as nutritional feed
additives by animal feed manufacturers and by commercial livestock producers.
The Company's crude fish oil is sold to food producers and aquaculture feed
manufacturers in Europe and Asia and its refined fish oil products are used in
food production and certain industrial applications. Fish solubles are sold as
protein additives for animal feed and as fertilizers.
The fish catch is processed into FAQ 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 utilized 41 fishing vessels and
33 spotter craft in the harvesting operations during 2002. Menhaden are
harvested offshore 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. Since 1999, the Company's fish catch per vessel has increased 11%. The
carry vessels have reduced crews and crew expenses and incur less maintenance
cost than the actual fishing vessels.
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 and the first few months of each fishing 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 other globally
produced fish meal as well as 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 1999 and continuing through 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 1999 and again
during 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 1999 as compared to 1998. Price
decreases continued during 2000 and fish meal and fish oil prices were
approximately 7.3% and 20%, respectively, lower than 1999 average prices. Also
impacting 2000 and contributing to the write-down of inventories was the reduced
crude fish oil production yields (approximately 38% lower yields compared to
1999) experienced during the majority of the 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 in the Gulf of Mexico region during late 1999 and
early 2000.
21
OMEGA PROTEIN CORPORATION
The depressed pricing conditions in worldwide markets in 1999 and 2000 for
protein, particularly animal and oilseed oil, continued into the early months of
2001 before making significant improvements late in 2001 and continuing
throughout 2002. These price increases were the result of diminished global fish
meal and fish oil inventories as opposed to a weaker 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.
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 FAQ meal product. Since 2000, the Company's sales
volumes of specialty meal products have increased approximately 26%.
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 FAQ fish meal was sold on
a two-to-twelve-month forward contract basis. The balance of regular grade and
other products was substantially sold on a spot basis through purchase orders.
The Company undertook a similar forward sales program for its specialty grade
meals and crude fish oil for 2002 and has continued this program for 2003. 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 year
to another 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 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:
Three Months Ended March 31,
---------------------------- -- ---------------------------
2003 2002
------------- -- ----------- ------------ -- -----------
Revenues Percent Revenues Percent
------------- ----------- ------------ -----------
Regular Grade $ 3.5 14.0% $ 2.8 12.1%
Special Select 9.6 38.2 8.7 36.9
Sea-Lac 3.4 13.5 2.1 9.0
Crude Oil 7.2 28.7 8.4 35.7
Refined Oil 0.8 3.2 0.9 3.8
Fish Solubles 0.6 2.4 0.6 2.5
------------ ----------- ------------- -----------
Total $25.1 100.0% $23.5 100.0%
------------- ----------- ------------- -----------
------------- ----------- ------------- -----------
22
OMEGA PROTEIN CORPORATION
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources have been
cash flows from operations, bank credit facilities and term loans from various
lenders provided pursuant to the National Marine Fisheries Finance Program under
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 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 2001. The Company has made
an application for approximately $4.9 million in loans under the Title XI
program in the current year and expects closing to occur in the second or third
quarter of 2003.
The Company announced on April 15, 2003 that it had committed to build a
new 100-metric ton per day fish oil processing facility at its Reedville,
Virginia location. Construction on the project is scheduled to begin in May
2003, with projected completion in May 2004 and will cost approximately $16
million. The Company currently anticipates that it will fund the project through
its available cash balances.
Omega had an unrestricted cash balance of $41.7 million at March 31, 2003,
up $8.2 million from December 31, 2002. This increase was due primarily to
increases in operating cash flows. 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 experienced in 1999 and 2000, liquidity
would decline and the Company would possibly have to utilize its working capital
credit facility. The Company's long-term debt at March 31, 2003 and December 31,
2002 was $13.9 million and $14.2 million, respectively. Current maturities
attributable to the Company's long-term debt was $1.3 million both at March 31,
2003 and December 31, 2002. The Company did not utilize its working capital
credit facility during the first quarter of 2003 and fiscal year 2002 other than
for $2.6 million and $2.1 million in standby letters of credit outstanding as of
March 31, 2003 and December 31, 2002, respectively. As of March 31, 2003, the
Company had $17.4 million available under its working capital credit facility.
The Company has no off-balance sheet arrangements other than normal operating
leases and standby letters of credit.
23
OMEGA PROTEIN CORPORATION
The following tables aggregate information about the Company's contractual
cash obligations and other commercial commitments (in thousands) as of March 31,
2003:
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 $15,200 $ 1,292 $ 2,833 $ 3,208 $ 7,867
Operating Leases 1,518 433 670 147 268
Minimum Pension Liability 13,087 -- -- -- 13,087
-------- --------- -------- -------- --------
Total Contractual Cash Obligations $29,805 $ 1,725 $ 3,503 $ 3,355 $21,222
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
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) $17,400 $ -- $ -- $ -- $ --
Standby Letters of Credit 2,600 2,600 -- -- --
Construction Commitment (2) 16,000 12,000 4,000 -- --
-------- --------- -------- -------- --------
Total Commercial Commitments $36,000 $ 14,600 $ 4,000 $ -- $ --
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
(1) As of March 31, 2003, the Company had no outstanding borrowings
outstanding under the $20.0 million Credit Facility.
(2) The Company announced on April 15, 2003 that it had committed to build
a new 100-metric ton per day fish oil processing facility at its Reedville,
Virginia location. Construction on the project is scheduled to begin in May
2003, with projected completion in May 2004 and will cost approximately $16
million. The Company currently anticipates that it will fund the project through
its available cash balances.
Investing activities used $3.4 million and $2.5 million for the three month
periods ending March 31, 2003 and 2002, respectively. The Company's investing
activities consisted mainly of capital expenditures for equipment purchases,
replacements and vessel refurbishments. The Company anticipates making
approximately $8 million of capital expenditures in 2003 (in addition to the
$16.0 million oil processing facility discussed above), a significant portion of
which will be used to refurbish vessels and plant assets and to repair certain
equipment.
Financing activities used $309,000 and $353,000 to repay debt obligations
during the three month periods ended March 31, 2003 and 2002, respectively, and
during the three month period ended March 31, 2003 provided $210,000 from
proceeds of stock options exercised.
24
OMEGA PROTEIN CORPORATION
On December 20, 2000, the Company entered into a $20 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 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 March 31, 2003, the Company had
made no borrowings under the Credit Facility other than for standby letters of
credit of which $2.6 million were outstanding as of March 31, 2003.
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 direct 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, aquaculture feed
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 or
transaction (other than the previously announced fish oil processing facility in
Reedville, Virginia), it could enter into such agreement in the future.
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.
25
OMEGA PROTEIN CORPORATION
A general hardening of the world insurance markets in recent years has made
the Company's insurance more costly and is likely to continue to do so as
various lines of insurance come up for renewal throughout 2003. 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 2003.
Overview of Critical Accounting Policies
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require us to make estimates and assumptions (discussed herein and in the
consolidated financial statements in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2002). The following estimates and assumptions
are both most important to the portrayal of our financial condition and results
of operations and require management's most difficult, subjective or complex
judgment.
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
generally 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 to 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.
The estimates, which management believes are reasonable and supportable,
involve estimates of future activities and events which are inherently imprecise
and from which actual results may differ materially. Revisions in such estimates
or actual results could materially impact the Company's results of operation and
financial position.
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.
26
OMEGA PROTEIN CORPORATION
Insurance
As mentioned previously, the Company carries insurance for certain losses
relating to its vessels and Jones Act liabilities for employees aboard its
vessels. 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 consultation 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
assesses the potential liability related to its pending litigation and revises
its estimates. Such revisions in estimates for potential liability could
materially impact the Company's results of operation and financial position.
Results of Operations
The following table sets forth as a percentage of revenues certain items of
the Company's operations for each of the indicated periods.
Three Months Ended
March 31,
-------------------------------
2003 2002
------------- -------------
Revenues..................................... 100.0% 100.0%
Cost of sales................................ 74.4 72.1
------------- -------------
Gross profit................................. 25.6 27.9
Selling, general and administrative expense.. 8.8 8.8
------------- -------------
Operating income............................. 16.8 19.1
Interest expense, net........................ (0.6) (0.7)
Other income (expense), net.................. 0.1 (0.2)
------------- -------------
Income before income taxes................... 16.3 18.2
Provision for income taxes................... 5.8 6.5
------------- -------------
Net income................................... 10.5 11.7
------------- -------------
------------- -------------
27
OMEGA PROTEIN CORPORATION
Interim Results for the First Quarters ended March 31, 2003 and March 31, 2002
Revenues. Total revenue increased $1.6 million in the first quarter of 2003
compared to the corresponding period in 2002 primarily due to higher sales
prices of 8.4% for the Company's fish meal. The Company's fish meal volumes
increased 9.2%, while the Company's fish oil volumes decreased 15.3%, for the
three months ended March 31, 2003, compared to the corresponding period in 2002.
Cost of Sales. Cost of sales, including depreciation and amortization, as a
percent of revenues increased 2.3% to 74.4% in the first quarter of 2003 as
compared to the corresponding period in 2002. The increase in cost of sales as a
percentage of revenues was primarily due to higher cost inventories carried
forward from 2002 as compared to cost of inventories carried forward from 2001.
Gross Profit. Gross profit margins decreased 2% from a $6.6 million gross
profit in the first quarter of 2002 to $6.4 million in the first quarter of 2003
primarily due to the higher cost inventories carried forward from fiscal 2002.
Selling, general and administrative expenses. Selling, general, and
administrative expenses increased $128,000 from $2.1 million in the first
quarter ended March 31, 2002 as compared to $2.2 million in the current quarter
ended March 31, 2003. This increase was attributable to increases in
employee-related costs related to the Company's business plan to expand its
Mexican operations.
Operating income. As a result of the factors discussed above, the Company's
operating income decreased $261,000 from an operating income of $4.5
million in the first quarter of 2002. As a percentage of revenues, operating
income decreased 2.3% for the current quarter ended March 31, 2003.
Other expense, net. Other expense, net decreased $73,000 in the current
quarter ended March 31, 2003 as compared to the quarter ended March 31, 2002.
This decrease in other expense, net in the current quarter ended March 31, 2003
as compared to the quarter ended March 31, 2002 was the result of a gain on the
disposal of miscellaneous assets recognized during the quarter ended March 31,
2002.
Provision for income taxes. The Company recorded a $1.4 million provision
for income taxes for the quarter of 2003, representing an effective tax rate of
35% for income taxes. The provision for income taxes for the corresponding
period in 2002 reflected an effective tax rate of 36%. The Company believes that
it is more probable than not that the recorded estimated deferred tax asset
benefits and state operating loss carry-forwards will be realized. The statutory
tax rate of 34% for U.S. federal taxes was in effect for the respective periods.
28
OMEGA PROTEIN CORPORATION
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.
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 at federal, state or local levels that restrict or prohibit
menhaden or purse-seine fishing, 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 attempt to expand into sales of refined,
food grade fish oils for consumption in the U.S., including the unproven market
for this product.
29
OMEGA PROTEIN CORPORATION
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.
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 operations 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.
12. A general hardening of the world insurance markets in recent years has
made the Company's insurance more costly and is likely to continue to increase
the Company's cost of insurance. 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.
30
OMEGA PROTEIN CORPORATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, the financial condition of the Company is
exposed to minimal market risk associated with interest rate movements on the
Company's borrowings. A one percent increase or decrease in the levels of
interest rates on variable rate debt would not result in a material change to
the Company's results of operations.
Although the Company sells products in foreign countries, all of the
Company's revenues are billed and paid for in US dollars. As a result,
management does not believe that the Company is exposed to any significant
foreign country currency exchange risk, and the Company does not utilize market
risk sensitive instruments to manage its exposure to this risk.
Item 4. Controls and Procedures
(a) Within the 90-day time period prior to filing this report, we conducted
an evaluation of the effectiveness of our "disclosure controls and procedures,"
as that phrase is defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934. The evaluation was carried out under the supervision and
with the participation of management, including our Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO").
Based on and as of the date of that evaluation, our CEO and CFO have
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be disclosed in the reports we
file with or submit to the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934, and in ensuring that the information required
to be disclosed in those filings is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms.
(b) Subsequent to the date of the evaluation, there were no significant
changes in our internal controls or in other factors that could significantly
affect the internal controls, including any corrective actions taken with regard
to significant deficiencies and material weaknesses.
31
OMEGA PROTEIN CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various claims and disputes arising in the
normal course of business, including claims made by employees under the Jones
Act which generally are covered by the Company's insurance. The Company believes
that it has adequate insurance coverage for all existing matters and that the
outcome of all pending proceedings, individually and in the aggregate, will not
have a material adverse effect upon the Company's business, results of
operations, cash flows or financial position.
The Company, the Company's directors and the Company's majority
stockholder, Zapata Corporation ("Zapata"), were named as defendants in a
lawsuit instituted on March 10, 2003 in the District Court of Clark County,
Nevada. The plaintiff, Robert Strougo, alleges that he is a Company stockholder
and brought the action individually and as a putative class action on behalf of
all Company stockholders. No class period has been identified. Plaintiff alleged
that the individual defendants and Zapata breached their fiduciary duties to the
Company's stockholders by not properly considering an alleged offer sent via
e-mail to Zapata by Hollingsworth, Rothwell & Roxford ("HRR").
The complaint alleges that the alleged offer was to acquire all of Zapata's
shares and all of the Company's shares, in each case for $45.00 per share.
However, the Company is not aware of any communications by HRR to the Company or
any of its directors or any offer for the purchase of Company shares. Plaintiff
claims that Zapata and the individual defendants breached their duties to the
Company's stockholders by rejecting the purported offer and that the Company's
stockholders have been damaged by being prevented from receiving a fair price
for their stock. Plaintiff seeks an order directing the defendants to carry out
their fiduciary duties to the Company's stockholders, to refrain from breaching
their duties, and awarding plaintiff unspecified compensatory damages and costs
and expenses incurred in the action.
The Company is not aware of any basis on which it or its directors could be
liable for not responding to an offer which they never received, and which
appears to be directed to Zapata. The Company believes that the claims are
without merit and intends to vigorously oppose the lawsuit.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
32
OMEGA PROTEIN CORPORATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description of Exhibit
10.1* Engineering, Procurement and Construction Contract,
dated as of April 15, 2003, between the Company and
Suitt Construction Co., Inc. (Exhibit 10.1 to
Omega Protein Corporation Form 8-K dated April 15,
2003)
99.1 Certification pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
None
*Incorporated by reference
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OMEGA PROTEIN CORPORATION
(Registrant)
May 1, 2003 By: /s/ ROBERT W. STOCKTON
(Executive Vice President, Chief Financial Officer)
34
CERTIFICATIONS
I, Joseph L. von Rosenberg III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Omega Protein
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 1, 2003 By: /s/ Joseph L. von Rosenberg III
Name: Joseph L. von Rosenberg III
Title: President and Chief Executive Officer
35
I, Robert W. Stockton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Omega Protein
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 1, 2003 By: /s/ Robert W. Stockton
Name: Robert W. Stockton
Title: Executive Vice President and
Chief Financial Officer
36