Item 1. Financial Statements and Notes
September 30, December 31,
2004 2003
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 33,920 $ 35,374
Receivables, net 15,463 19,860
Amounts due from majority owner 105 108
Inventories 45,477 40,405
Deferred tax assets, net - 178
Prepaid expenses and other current assets 1,818 1,520
Total current assets 96,783 97,445
Other assets 2,108 3,087
Deferred tax assets, net 536 405
Property and equipment, net 97,029 85,231
Total assets $ 196,456 $ 186,168
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,649 $ 1,566
Accounts payable 2,096 3,384
Deferred tax liabilities, net 1,620 -
Accrued liabilities 16,801 11,558
Total current liabilities 22,166 16,508
Long-term debt 16,367 17,605
Pension liabilities, net 7,359 6,838
Total liabilities 45,892 40,951
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; 25,027,742 shares and 24,801,549 shares
issued and outstanding, respectively 250 248
Capital in excess of par value 114,758 113,690
Retained earnings 43,526 39,237
Accumulated other comprehensive loss (5,935 ) (5,923 )
Common stock in treasury, at cost - 413,100 shares (2,035 ) (2,035 )
Total stockholders' equity 150,564 145,217
Total liabilities and stockholders' equity $ 196,456 $ 186,168
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
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OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ----------------------
2004 2003 2004 2003
------------ -------- --------- --------
(in thousands, except per share amount)
Revenues $ 41,501 $ 32,151 $ 93,013 $ 84,544
Cost of sales 36,376 28,553 78,821 68,346
--- -------- - - ------ - -- ------ - - ------ -
Gross profit 5,125 3,598 14,192 16,198
Selling, general, and administrative expense 2,425 2,232 7,305 6,711
--- -------- - - ------ - -- ------ - - ------ -
Operating income 2,700 1,366 6,887 9,487
Interest income (expense), net 82 (178 ) (289 ) (497 )
Other expense, net (55 ) (12 ) (161 ) (42 )
--- -------- - - ------ - -- ------ - - ------ -
Income before income taxes 2,727 1,176 6,437 8,948
Provision for income taxes 911 436 2,148 3,181
--- -------- - - ------ - -- ------ - - ------ -
Net income $ 1,816 $ 740 $ 4,289 $ 5,767
--- -------- - - ------ - -- ------ - - ------ -
Basic earnings per share $ 0.07 $ 0.03 $ 0.18 $ 0.24
--- -------- - - ------ - -- ------ - - ------ -
Weighted average common shares outstanding 24,517 24,279 24,451 24,129
--- -------- - - ------ - -- ------ - - ------ -
Diluted earnings per share $ 0.07 $ 0.03 $ 0.16 $ 0.22
--- -------- - - ------ - -- ------ - - ------ -
Weighted average common shares and common share
equivalents outstanding 26,466 25,982 26,439 25,692
--- -------- - - ------ - -- ------ - - ------ -
|
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
4
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OMEGA PROTEIN CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands, except per share amounts)
Nine Months Ended
September 30,
-----------------------
2004 2003
--------- ---------
(in thousands)
Cash flows provided by (used in) operating activities:
Net income $ 4,289 $ 5,767
Adjustments to reconcile net income to net cash provided by
operating activities:
Loss (gain) on disposal of assets, net 1 (137 )
Provision for losses on receivables 28 38
Depreciation and amortization 8,921 9,131
Deferred income taxes 2,148 2,661
Changes in assets and liabilities:
Receivables 4,369 (7,925 )
Amounts due from majority owner 3 (103 )
Inventories (5,072 ) (8,125 )
Accounts payable and accrued liabilities 3,955 1,718
Other, net (191 ) (1,597 )
- ------- - - ------- -
Total adjustments 14,162 (4,339 )
- ------- - - ------- -
Net cash provided by operating activities 18,451 1,428
- ------- - - ------- -
Cash flows provided by (used in) investing activities:
Proceeds from sale of assets, net 66 180
Capital expenditures (19,409 ) (10,294 )
- ------- - - ------- -
Net cash used in investing activities (19,343 ) (10,114 )
- ------- - - ------- -
Cash flows provided by (used in) financing activities:
Principal payments of short and long-term debt obligations (1,155 ) (948 )
Proceeds from borrowing - 52
Proceeds from stock options exercised 605 1,139
- ------- - - ------- -
Net cash provided by (used in) financing activities (550 ) 243
- ------- - - ------- -
Effect of exchange rate on cash (12 ) 21
- ------- - - ------- -
Net increase (decrease) in cash and cash equivalents (1,454 ) (8,422 )
Cash and cash equivalents at beginning of year 35,374 33,450
- ------- - - ------- -
Cash and cash equivalents at end of period $ 33,920 $ 25,028
- ------- - - ------- -
|
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
5
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OMEGA PROTEIN CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
Accumulated
Common Stock Capital Other Treasury Total
------------------ Excess of Retained Comprehensive Stock Stockholders'
Shares Amount Par Value Earnings Loss Amount Equity
------- -------- ---------- --------- --------------- --------- ---------------
Balance at December 31, 2003 24,802 $ 248 $ 113,690 $ 39,237 $ (5,923 ) $ (2,035 ) $ 145,217
Issuance of common stock,
including tax benefit
associated with stock options
exercised 226 2 1,068 1,070
Comprehensive income:
Net income 4,289 4,289
Other comprehensive income:
Foreign currency translation
adjustment, net of tax benefit (12 ) (12 )
-- ------------ -
Comprehensive income 4,277
------- -- ----- -- ------- -- ------ -- ------------ - -- ------ - -- ------------ -
Balance at September 30, 2004 25,028 $ 250 $ 114,758 $ 43,526 $ (5,935 ) $ (2,035 ) $ 150,564
------- -- ----- -- ------- -- ------ -- ------------ - -- ------ - -- ------------ -
|
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
6
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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. The interim
financial statements should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2003. 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 September 30, 2004, and the results of its operations and its
cash flows for the nine month periods ended September 30, 2004 and 2003.
Operating results for the three and nine months periods ended September 30, 2004
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
Consolidation
The consolidated financial statements include the accounts of Omega and its
wholly and majority owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. The Company has
reclassified certain amounts previously reported to conform with the
presentation at September 30, 2004.
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
typically occurs upon shipment.
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
Cash and Cash Equivalents
The Company considers cash in banks and highly liquid 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 compare 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 vessels. 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 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 operations, financial position or
cash flows.
8
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
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
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.
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
Machinery, equipment, furniture, fixtures and other 3-10
Replacements and major improvements are capitalized; maintenance and repairs are
charged to expense as incurred. The Company capitalizes interest cost incurred
on funds used to construct property, plant, and equipment projects when
construction requires a period of time to prepare assets for their intended use.
The capitalized interest is recorded as part of the asset to which it relates
and is amortized over the asset's estimated useful life. 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.
9
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
Pension Plans
Annual costs of the Company's pension plan are determined actuarially based on
SFAS No. 87, "Employers' Accounting for Pensions." The Company's policy is to
fund the pension plan at amounts not less than the minimum requirements of the
Employee Retirement Income Security Act of 1974. 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)
The components of other comprehensive loss, net of tax, included in
stockholder's equity are as follows:
September 30, December 31,
2004 2003
(in thousands)
Cumulative Translation Adjustments $ (50 ) $ (38 )
Minimum Pension Liability Adjustments (5,885 ) (5,885 )
Accumulated Other Comprehensive Loss $ (5,935 ) $ (5,923 )
Foreign Currency Translation
For the Company's Mexican operations, the functional currency is the local
currency. Assets and liabilities of those operations are translated into U.S.
dollars using period-end exchange rates; income and expenses are translated
using the average exchange rates for the reporting period. Translation
adjustments are deferred in accumulated other comprehensive income (loss), a
separate component of stockholders' equity.
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 an allowance for doubtful
accounts for potential credit losses and such losses have historically been
within management's expectations.
At September 30, 2004 and December 31, 2003, the Company had cash deposits
concentrated primarily in one major bank. In addition, the Company had
Certificates of Deposit and commercial quality grade investments 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.
10
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
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 10.
Recently Issued Accounting Standards
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, and Interpretation of Accounting
Research Bulletin ("ARB") No. 51." This interpretation clarifies the application
of ARB No. 51, "Consolidated Financial Statements," to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
The initial adoption of FIN No. 46 did not have a material impact on the
Company's financial condition, results of operations or cash flows.
In December 2003, the FASB revised Interpretation No. 46 ("Interpretation No.
46R," or "FIN No. 46R"). FIN No. 46R, "Consolidation of Variable Interest
Entities," applies at different dates to different types of enterprises and
entities, and special provisions apply to enterprises that have fully or
partially applied Interpretation No. 46 prior to issuance of Interpretation No.
46R. Application of Interpretation No. 46 or Interpretation No. 46R is required
in financial statements of public entities that have interest in variable
interest entities or potential variable interest entities commonly referred to
as special-purpose entities for periods ending after December 15, 2003. The
initial adoption of FIN No. 46R did not have a material impact on the Company's
financial condition, results of operations or cash flow.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. These effective dates are not applicable to the provisions of paragraph 9
and 10 of SFAS No. 150 as they apply to mandatory redeemable non-controlling
interests, as the FASB has delayed these provisions. The adoption of SFAS No.
150 did not have a material impact upon the Company's financial condition,
results of operations or cash flows.
11
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
The Company applies revised SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." It does not change the measurement or
recognition of pension and other postretirement benefit plans. It requires
additional disclosures to those in the original SFAS No. 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. It also requires
disclosure of the components of net periodic benefit cost in interim financial
statements. The revised disclosure requirements are required for financial
statements with fiscal years ending after December 15, 2003 and the
interim-period requirements are effective for interim periods beginning after
December 15, 2003. See Note 11 to our unaudited condensed consolidated financial
statements for the required disclosures about our pension plans and
postretirement benefits.
Stock-Based Compensation
The Company has a stock-based employee compensation plan. 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 ("SFAS
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
grant date.
The following table illustrates the effect on net earnings and net earnings per
common share if the Company had applied the fair value recognition provisions of
SFAS 123 to stock-based employee compensation.
Three Months Nine Months
Ended September 30, Ended September 30,
(in thousands) (in thousands)
2004 2003 2004 2003
Net earnings $ 1,816 $ 740 $ 4,289 $ 5,767
Total stock-based employee compensation
determined under fair value-based method, net
tax (190 ) (63 ) (419 ) (345 )
Pro forma net earnings $ 1,626 $ 677 $ 3,870 $ 5,422
Net earnings per common share:
Basic - as reported $ 0.07 $ 0.03 $ 0.18 $ 0.24
Basic - pro forma $ 0.07 $ 0.03 $ 0.16 $ 0.22
Net earnings per common share:
Diluted - as reported $ 0.07 $ 0.03 $ 0.16 $ 0.22
Diluted - pro forma $ 0.06 $ 0.03 $ 0.15 $ 0.21
12
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
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 the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates and those differences could have a material affect on the statements.
Note 2. Accounts Receivable
Accounts receivable as of September 30, 2004 and December 31, 2003 are
summarized as follows:
September 30, December 31,
2004 2003
(in thousands)
Trade $ 14,362 $ 16,374
Insurance 934 2,646
Employee 68 32
Income tax 616 1,242
Other 216 271
Total accounts receivable 16,196 20,565
Less: allowance for doubtful accounts (733 ) (705 )
Receivables, net $ 15,463 $ 19,860
13
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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 September 30, 2004 and December 31, 2003
are summarized as follows:
September 30, December 31,
2004 2003
(in thousands)
Fish meal $ 24,222 $ 21,963
Fish oil 12,186 7,666
Fish solubles 505 600
Unallocated inventory cost pool (including
off-season costs) 3,592 5,348
Other materials & supplies 4,972 4,828
Total inventory $ 45,477 $ 40,405
Inventory at September 30, 2004 and December 31, 2003 is stated at the
lower-of-cost-or-market. The elements of the unallocated inventory cost pool
include plant and vessel related labor, utilities, rent, repairs and
depreciation, to be allocated to inventories produced through the remainder of
the 2004 season.
Note 4. Other Assets
Other assets as of September 30, 2004 and December 31, 2003 are summarized as
follows:
September 30, December 31,
2004 2003
(in thousands)
Fish nets $ 870 $ 877
Insurance receivable, net of allowance for
doubtful accounts 766 1,394
Title XI loan origination fee 344 312
Note receivable - 376
Deposits 128 128
Total other assets, net $ 2,108 $ 3,087
Amortization expense for fishing nets amounted to approximately $143,000,
$250,000, $724,000 and $681,000 for the three months ended and nine months ended
September 30, 2004 and 2003, 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, net of allowance for
doubtful accounts. As of September 30, 2004 and December 31, 2003, the allowance
for doubtful insurance receivable accounts was $2.0 million.
14
Table of Contents
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 September 30, 2004 and December 31, 2003 are
summarized as follows:
September 30, December 31,
2004 2003
(in thousands)
Land $ 6,302 $ 6,302
Plant assets 70,840 70,534
Fishing vessels 83,181 82,573
Furniture and fixtures 1,913 1,913
Construction in progress 26,063 7,884
Total property and equipment 188,299 169,206
Less: accumulated depreciation and impairment (91,270 ) (83,975 )
Property and equipment, net $ 97,029 $ 85,231
Depreciation expense amounted to $2.5 million, $2.4 million, $7.5 million and
$7.2 million for the three months ended and nine months ended September 30, 2004
and 2003, respectively. The Company capitalized interest in the amount of
$263,000 associated with the construction of the Company's fish oil processing
facility.
Note 6. Notes Payable and Long-Term Debt
At September 30, 2004 and December 31, 2003, the Company's long-term debt
consisted of the following:
September 30, December 31,
2004 2003
(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 5.7% to 7.6% $ 17,552 $ 18,658
Amounts due in installments through 2014,
interest at Eurodollar rates of 2.03% and 1.6%
at September 30, 2004 and December 31, 2003,
respectively, plus 4.5% 420 441
Other debt at 7.9% and 7.9% at September 30,
2004 and December 31, 2003, respectively 44 72
Total debt 18,016 19,171
Less current maturities (1,649 ) (1,566 )
Long-term debt $ 16,367 $ 17,605
At September 30, 2004 and December 31, 2003, the estimated fair value of debt
obligations approximated book value.
15
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
On October 1, 2003, pursuant to the Title XI program, the United States
Department of Commerce approved the fiscal 2003 financing application made by
the Company in the amount of $5.3 million. The Company closed on the $5.3
million Title XI loan on December 30, 2003.
On September 2, 2004, pursuant to the Title XI program, the United States
Department of Commerce approved a financing application made by the Company in
the amount of $14 million (the "Approval Letter"). The Company had no borrowings
or financing requests outstanding under the Approval Letter at September 30,
2004. Borrowings under this Title XI program may be used for refurbishment of
the Company's fishing vessels and capital expenditures relating to the Company's
shore-side fishing assets. 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 and Cameron, Louisiana plants.
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. On
May 19, 2003, the Company amended the existing Credit Facility and among other
things, these amendments extended the maturity until December 20, 2006, deleted
certain existing financial covenants and added certain affirmative covenants
such as a Leverage Ratio covenant not to exceed 3 to 1 at any time and a Fixed
Charge Coverage Ratio covenant not to be less than 1 as of the end of each
month, measured for the twelve month period then ended. The Company is required
to comply with the financial covenants from and after the last day of any month
in which the Credit Facility's availability is less than $3 million on any date
or the Credit Facility's availability averages less than $6 million for any
calendar month. The Company is in compliance with its financial covenants as of
September 30, 2004. A commitment fee of 50 basis points per annum is payable on
the unused portion of the Credit Facility. If at any time the Company's loan
outstanding under the Credit Facility is $5 million or greater, the commitment
fee on the unused portion shall be 25 basis points per annum. Applicable
interest is payable at alternative rates of LIBOR plus 2.25% or Prime plus 0%.
The applicable interest note will be adjusted (up or down) prospectively on a
quarter basis from LIBOR plus 2.25% to LIBOR plus 2.75% or at the Company's
option, Prime plus 0% to Prime plus 0.25%, depending upon the Fixed Charge
Coverage Ratio being greater than 2.5 times to less than or equal to 1.5 times,
respectively. The Credit Facility is collateralized by all of the Company's
trade receivables, inventory and equipment. In addition, the Credit Facility
does not allow for the payment of cash dividends or stock repurchases and also
limits capital expenditures and investments. As of September 30, 2004 the
Company had no borrowings outstanding under the Credit Facility. At September
30, 2004 and December 31, 2003, the Company had outstanding letters of credit
totaling approximately $2.7 million and $2.6 million, respectively, issued
primarily in support of worker's compensation insurance programs.
Note 7. Accrued Liabilities
Accrued liabilities as of September 30, 2004 and December 31, 2003 are
summarized as follows:
September 30, December 31,
2004 2003
(in thousands)
Salary and benefits $ 9,121 $ 5,156
Insurance 3,370 4,205
Trade creditors 3,140 2,135
Taxes, other than income tax 1,104 12
Other 66 50
Total accrued liabilities $ 16,801 $ 11,558
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
Note 8. Comprehensive Income
The components of comprehensive income are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
(in thousands) (in thousands)
Net income $ 1,816 $ 740 $ 4,289 $ 5,767
Foreign translation adjustment, net of tax 3 (37 ) (12 ) (21 )
Total comprehensive income $ 1,819 $ 703 $ 4,277 $ 5,746
Note 9. Commitments and Contingencies
Capital Commitments
The Company has committed approximately $18 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 $7 million and
$11 million for 2003 and 2004, respectively. As of September 30, 2004 the
Company has incurred approximately $18.3 million related to its Reedville fish
oil processing facility placed in operations during October 2004.
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. Should the Company's insurers become
insolvent, the Company would be responsible for payment of all outstanding
claims associated with the insurer's policies.
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.
Indemnification
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.
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
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 director or 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 entered 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 liabilities 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.
Note 10. Reconciliation of Basic and Diluted Per Share Data (in thousands except
per share data)
Earnings Shares Per Share
(Numerator) (Denominator) Data
Three Months Ended September 30, 2004
Net earnings $ 1,816
Basic earnings per common share:
Earnings available to common shareholders $ 1,816 24,517 $ 0.07
Effect of dilutive securities:
Stock options assumed exercised - 1,949
Diluted earnings per common share:
Earnings available to common shareholders
plus stock options assumed exercised $ 1,816 26,466 $ 0.07
Earnings Shares Per Share
(Numerator) (Denominator) Data
Three Months Ended September 30, 2003
Net Earnings $ 740
Basic earnings per common share:
Earnings available to common shareholders $ 740 24,279 $ 0.03
Effect of dilutive securities:
Stock options assumed exercised - 1,703
Diluted earnings per common share:
Earnings available to common shareholders
plus stock options assumed exercised $ 740 25,982 $ 0.03
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
Earnings Shares Per Share
(Numerator) (Denominator) Data
Nine Months Ended September 30, 2004
Net earnings $ 4,289
Basic earnings per common share:
Earnings available to common shareholders $ 4,289 24,451 $ 0.18
Effect of dilutive securities:
Stock options assumed exercised - 1,988
Diluted earnings per common share:
Earnings available to common shareholders
plus stock options assumed exercised $ 4,289 26,439 $ 0.16
Earnings Shares Per Share
(Numerator) (Denominator) Data
Nine Months Ended September 30, 2003
Net Earnings $ 5,767
Basic earnings per common share:
Earnings available to common shareholders $ 5,767 24,129 $ 0.24
Effect of dilutive securities:
Stock options assumed exercised - 1,563
Diluted earnings per common share:
Earnings available to common shareholders
plus stock options assumed exercised $ 5,767 25,692 $ 0.22
Options to purchase 2,062,800 shares of common stock at prices ranging from
$9.06 to $17.25 per share were outstanding during the three and nine months
ended September 30, 2004, 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 the shares during that period.
Options to purchase 2,204,800 and 2,274,800 shares of common stock at prices
ranging from $6.44 to $17.25 and $5.03 to $17.25 per share were outstanding
during the three and nine months ended September 30, 2003, respectively, 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 the
shares during that period.
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
NOTE 11. Components of Net Periodic Pension Cost
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Service cost $ - $ - $ - $ -
Interest cost 367 403 1,101 1,209
Expected return on plan assets (354 ) (288 ) (1,062 ) (864 )
Amortization of prior service costs - - - -
Amortization of net loss 161 248 483 744
Net periodic pension cost $ 174 $ 363 $ 522 $ 1,089
The Company previously disclosed in its financial statements for the year ended
December 31, 2003 that it expected to contribute $939,000 to its pension plan in
2004. As of September 30, 2004, no contributions have been made. As of September
30, 2004 the Company anticipates that the 2004 fiscal year contribution will be
zero due to the passage of the Pension Funding Equity Act of 2004.
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OMEGA PROTEIN CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Dollars in thousands, except per share amounts)
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