Omega Protein Corporation
OMEGA PROTEIN CORP (Form: 10-Q, Received: 11/04/2015 16:09:32)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

   

 

FORM 10-Q

 

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

 

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 

OR

 

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

 

SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period From __________ to __________.

 

Commission file number: 001-14003

 

OMEGA PROTEIN CORPORATION

(Exact name of Registrant as specified in its charter)

  State of Nevada  

 

  76-0562134

  (State or other jurisdiction of

 

 ( I.R.S. Employer

  incorporation or organization)

 

  Identification No.)

 

 

 

  2105 City West Blvd., Suite 500

 

 

  Houston, Texas

 

  77042-2838

  (Address of principal executive offices)  

 

  (Zip Code)

 

Registrant's telephone number, including area code: (713) 623-0060

_________________

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X  No__.

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   No ___ .

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐

Accelerated filer ☒

 Non-accelerated filer ☐ 

 Small reporting company ☐

                       

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes      No X .

 

Number of shares outstanding of the Registrant's Common Stock, par value $0.01 per share, on October 30, 2015: 22,246,157.

 



 

 
 

 

 

OMEGA PROTEIN CORPORATION

TABLE OF CONTENTS

   

PART I. FINANCIAL INFORMATION

 
   

Item 1.  Financial Statements and Notes

 
   

Unaudited Condensed Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014

3

Unaudited Condensed Consolidated Statement of Comprehensive Incomefor the three and nine months ended September 30, 2015 and 2014

4

Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2015 and 2014

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

   

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

   

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

45

   

Item 4.  Controls and Procedures

45

   
   

PART II. OTHER INFORMATION

 
   

Item 1.  Legal Proceedings

45

   

Item 1A.  Risk Factors

46

   

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

47

   

Item 3.  Defaults Upon Senior Securities

47

   

Item 4.  Mine Safety Disclosures

47

   

Item 5.  Other Information

47

   

Item 6.  Exhibits

47

   

Signatures

50

 

 
2

 

 

OMEGA PROTEIN CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands, except par value amounts)

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements and Notes

 

 

   

September 30,

2015

   

December 31,

2014

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 783     $ 1,430  

Receivables, net

    43,271       36,621  

Inventories

    121,626       97,513  

Deferred tax asset, net

    2,349       1,871  

Prepaid expenses and other current assets

    5,080       4,936  

Total current assets

    173,109       142,371  

Property, plant and equipment, net

    180,068       169,932  

Goodwill

    38,271       42,501  

Other intangible assets, net

    21,198       23,002  

Other assets, net

    4,469       2,309  

Total assets

  $ 417,115     $ 380,115  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

Current liabilities:

               

Current maturities of long-term debt

  $ 3,179     $ 14,741  

Accounts payable

    17,682       21,047  

Accrued liabilities

    45,622       23,216  

Total current liabilities

    66,483       59,004  

Long-term debt, net of current maturities

    23,319       20,486  

Deferred tax liability, net

    24,090       25,949  

Pension liabilities, net

    4,258       5,375  

Other long-term liabilities

    5,097       3,419  

Total liabilities

    123,247       114,233  

Commitments and contingencies

               

Stockholders’ equity:

               
                 

Preferred stock, $0.01 par value; 10,000,000 authorized shares; none issued

           

Common Stock, $0.01 par value; 80,000,000 authorized shares; 22,296,979 and 21,587,751 shares issued and 22,221,957 and 21,527,319 shares outstanding at September 30, 2015 and December 31, 2014, respectively

    217       210  

Capital in excess of par value

    149,096       141,855  

Retained earnings

    156,315       135,268  

Treasury stock, at cost – 75,022 and 60,432 shares at September 30, 2015 and December 31, 2014, respectively

    (753 )     (595 )

Accumulated other comprehensive loss

    (11,007 )     (10,856 )

Total stockholders’ equity

    293,868       265,882  

Total liabilities and stockholders’ equity

  $ 417,115     $ 380,115  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 
3

 

 

OMEGA PROTEIN CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(In thousands, except per share amounts)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2015

   

2014

   

2015

   

2014

 

Revenues

  $ 112,216     $ 70,764     $ 277,015     $ 206,177  

Cost of sales

    77,023       56,586       201,196       151,082  

Gross profit

    35,193       14,178       75,819       55,095  
                                 

Selling, general, and administrative expense

    11,659       10,216       31,072       22,835  

Research and development expense

    751       608       2,295       1,636  

Impairment of intangible assets

    3,960             3,960        

Loss related to plant closure

    630       1,543       1,917       5,482  

Loss on disposal of assets

    949       12       1,283       245  

Operating income

    17,244       1,799       35,292       24,897  

Interest income

    2       4       6       17  

Interest expense

    (371 )     (365 )     (1,198 )     (747 )

Gain (loss) on foreign currency

    (808 )     272       (1,270 )     272  

Other expense, net

    (137 )     (39 )     (341 )     (213 )

Income before income taxes

    15,930       1,671       32,489       24,226  

Provision for income taxes

    5,356       1,012       11,442       8,963  

Net income

    10,574       659       21,047       15,263  
                                 

Other comprehensive income (loss):

                               

Foreign currency translation adjustment net of tax (expense) benefit of ($36), $243, $670 and $243, respectively

    66       (449 )     (1,245 )     (449 )

Energy swap adjustment, net of tax (expense) benefit of $45, $204, ($274) and $224, respectively

    (84 )     (379 )     509       (416 )

Pension benefits adjustment, net of tax expense of $105, $80, $315 and $240, respectively

    195       149       585       446  

Comprehensive income (loss)

  $ 10,751     $ (20 )   $ 20,896     $ 14,844  

Basic earnings per share (See Note 13)

  $ 0.48     $ 0.03     $ 0.97     $ 0.73  

Weighted average common shares outstanding

    21,399       20,637       21,173       20,474  

Diluted earnings per share (See Note 13)

  $ 0.47     $ 0.03     $ 0.95     $ 0.70  

Weighted average common shares and potential common share equivalents outstanding

    21,797       21,258       21,626       21,122  

 

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 
4

 

 

OMEGA PROTEIN CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

( I n thousands)

 

                    

   

Nine Months Ended
September
30,

 
   

2015

   

2014

 

Cash flows from operating activities:

               

Net income

  $ 21,047     $ 15,263  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    18,125       16,072  

Loss related to plant closure

          2,055  

Loss on disposal of assets

    1,283       245  

Impairment of intangible assets

    3,960        

Provisions for losses on receivables

    36       36  

Share based compensation

    1,722       1,688  

Deferred income taxes

    (1,508 )     (936 )

Unrealized loss on foreign currency fluctuations, net

    1,270       (272 )

Changes in assets and liabilities:

               

Receivables

    (7,359 )     (9,861 )

Inventories

    (24,446 )     6,331  

Prepaid expenses and other current assets

    (528 )     (602 )

Other assets

    (2,265 )     1,454  

Accounts payable

    (3,805 )     (1,880 )

Accrued liabilities

    23,673       9,030  

Pension liability, net

    (532 )     (1,063 )

Other long term liabilities

    1,863       (21 )

Net cash provided by operating activities

    32,536       37,539  

Cash flows from investing activities:

               

Proceeds from disposition of assets

    55       257  

Acquisition of Bioriginal, net of cash acquired

          (46,388 )

Capital expenditures

    (29,086 )     (36,254 )

Net cash used in investing activities

    (29,031 )     (82,385 )

Cash flows from financing activities:

               

Principal payments of long-term debt

    (41,701 )     (14,776 )

Proceeds from long-term debt

    33,151       24,000  

Debt issuance costs

    (970 )      

Purchase treasury stock at cost

    (158 )     (119 )

Proceeds from stock options exercised

    4,463       2,245  

Excess tax benefit of stock options exercised

    1,063       1,151  

Net cash (used in) provided by financing activities

    (4,152 )     12,501  

Net decrease in cash and cash equivalents

    (647 )     (32,345 )

Cash and cash equivalents at beginning of year

    1,430       34,059  

Cash and cash equivalents at end of period

  $ 783     $ 1,714  

 

 

 

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

 

NOTE 1.   SIGNIFICANT ACCOUNTING POLICIES

   SUMMARY OF OPERATIONS AND BASIS OF PRESENTATION

 

Business Description

 

Omega Protein Corporation (the “Company”) is a nutritional products company that develops, produces and delivers healthy products throughout the world to improve the nutritional integrity of foods, dietary supplements and animal feeds. The Company operates through two industry segments: animal nutrition and human nutrition.

 

The animal nutrition segment is comprised primarily of two subsidiaries: Omega Protein, Inc. (“Omega Protein”) and Omega Shipyard, Inc. (“Omega Shipyard”). Omega Protein, the Company’s principal operating subsidiary, is the successor to a business conducted since 1913. Omega Protein 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. Omega Protein’s fish meal products are primarily used as a protein ingredient in animal feed for swine, aquaculture and household pets. Fish oil is utilized primarily for animal and aquaculture feeds, as well as additives to human food products and dietary supplements. Omega Protein’s fish solubles are sold primarily to livestock feed manufacturers, aquaculture feed manufacturers and for use as an organic fertilizer. Omega Protein’s business is seasonal in nature and generally has higher revenues during the third quarter of each fiscal year. A portion of Omega Protein’s production is transferred to the human nutrition segment where it is further processed and sold. Omega Shipyard owns and operates a drydock facility in Moss Point, Mississippi that is used to provide shoreside maintenance for Omega Protein’s fishing fleet and, subject to outside demand and excess capacity, occasionally for third-party vessels.

 

The human nutrition segment, which operates under the names Nutegrity and Bioriginal, has three primary product lines: protein products, specialty oils and essential fatty acids and other nutraceutical ingredients. Nutegrity is comprised primarily of three subsidiaries: Cyvex Nutrition, Inc. (“Cyvex”), InCon Processing, L.L.C. (“InCon”) and Wisconsin Specialty Protein, L.L.C. (“WSP”). Cyvex, acquired by the Company in December 2010, is located in Irvine, California and is an ingredient provider in the nutraceutical industry. InCon, acquired by the Company in September 2011, is located in Batavia, Illinois and is a specialty processor that utilizes molecular distillation technology to concentrate Omega-3 fish oils and, subject to outside demand and excess capacity, a variety of other compound products for third-party tolling customers. WSP, acquired by the Company in February 2013, is a manufacturer and marketer of specialty dairy proteins and other related products headquartered in Madison, Wisconsin and operates a production facility in Reedsburg, Wisconsin.

 

Bioriginal Food & Science Corp. (“Bioriginal”), acquired by the Company in September 2014 and headquartered in Saskatoon, Canada with additional operations in the Netherlands, is a supplier of plant and marine based specialty oils and essential fatty acids to the food and nutraceutical industries. See Note 2 – Acquisition of Bioriginal Food & Science Corp. for additional information related to the Company’s acquisition of Bioriginal.

 

Basis of Presentation

 

These interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally provided have been omitted. The interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The year end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

 

In the opinion of management the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s consolidated financial position as of September 30, 2015, and the results of its operations for the three month and nine month periods ended September 30, 2015 and 2014 and its cash flows for the nine month periods ended September 30, 2015 and 2014. Quarterly operating results are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

 

Consolidation

 

The consolidated financial statements include the accounts of Omega Protein Corporation and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

 
6

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

Financial Statement Preparation

 

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 Company’s financial statements and the accompanying notes and the reported amounts of revenues and expenses during the reporting period. Actual amounts, when available, could differ from those estimates and those differences could have a material effect on the financial statements.

 

As noted in the March 31, 2015 Quarterly Report on Form 10-Q, the Company revised the December 31, 2014 unaudited consolidated balance sheet to correct for the classification of $0.4 million of accounts payable to other long-term liabilities.  This revision was not considered to be material, individually or in the aggregate, to previously issued financial statements. The revisions had no effect on the results of operations (net or comprehensive income) or financial condition (stockholders’ equity).  

 

Revenue Recognition

 

The Company derives revenue principally from the sales of a variety of protein and oil products derived from menhaden. In addition and as a result of its acquisitions of Cyvex, InCon, WSP and Bioriginal, the Company’s revenues include sales of dietary supplements and food ingredients and products. The Company recognizes revenue for the sale of its products when price is established, collectability is reasonably assured and risk and rewards of ownership of its products and title are transferred to the customer.

 

Shipping and Handling

 

Amounts billed to customers associated with shipping and handling are included in revenues and the related costs are included in cost of sales.

 

Inventories

 

During the off-seasons, in connection with the upcoming fishing seasons, Omega Protein incurs costs (e.g., plant and vessel related labor, utilities, rent, repairs, and depreciation) that are directly related to Omega Protein’s infrastructure. These costs accumulate in inventory and are applied as elements of the cost of production of Omega Protein’s products throughout the fishing season ratably based on Omega Protein’s monthly units of production and the expected total units of production for the season.

 

Any costs incurred during abnormal downtime related to activity at Omega Protein’s plants are charged to expense as incurred.

 

Energy Swap Agreements

 

The Company does not enter into financial instruments for trading or speculative purposes. Omega Protein entered into energy swap agreements to manage portions of its cash flow exposure related to the volatility of natural gas, diesel and fuel oil energy prices for its fish meal and fish oil production operations. The swaps effectively fix pricing for the quantities listed below during the consumption periods. The fair values of outstanding derivative instruments are summarized as follows:

 

Energy Swap

 

Consumption Period

 

Quantity

 

Price Per Unit

   

Energy Swap Asset/(Liability) as of

September 30,
 2015

   

Deferred Tax Asset/(Liability) as of

September 30,

2015

 
                   

(in thousands)

 

Diesel - NYMEX Heating Oil Swap

 

October - November, 2015

 

488,615 Gallons

  $ 2.24     $ (481 )   $ 168  

Natural Gas - NYMEX Natural Gas Swap

 

October, 2015

 

40,937 MMBTUs

  $ 3.25       (28 )     10  

Propane – Natural Gas Liquids Swap

 

October - November, 2015

 

465,280 Gallons

  $ 0.72       (116 )     41  

Diesel - NYMEX Heating Oil Swap

 

May - November, 2016

 

2,418,679 Gallons

  $ 2.23       (1,442 )     505  

Natural Gas - NYMEX Natural Gas Swap

 

April – October, 2016

 

312,450 MMBTUs

  $ 3.14       (120 )     42  

Propane – Natural Gas Liquids Swap

 

June - November, 2016

 

1,902,590 Gallons

  $ 0.58       (206 )     72  

Diesel - NYMEX Heating Oil Swap

 

May - November, 2017

 

358,280 Gallons

  $ 1.84       (35 )     12  

Natural Gas - NYMEX Natural Gas Swap

 

April – October, 2017

 

124,900 MMBTUs

  $ 3.09       (24 )     8  
                    $ (2,452 )   $ 858  

   

 
7

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

Energy Swap

 

Consumption Period

 

Quantity

 

Price Per Unit

   

Energy Swap Asset/(Liability) as of

December 31,
2014

   

Deferred Tax Asset/(Liability) as of

December 31,
2014

 
                   

(in thousands)

 

Diesel - NYMEX Heating Oil Swap

 

May - November, 2015

 

2,333,848 Gallons

  $ 2.75     $ (2,097 )   $ 734  

Natural Gas - NYMEX Natural Gas Swap

 

April – October, 2015

 

114,000 MMBTUs

  $ 4.09       (125 )     44  

Propane – Natural Gas Liquids Swap

 

June - November, 2015

 

1,024,800 Gallons

  $ 0.86       (346 )     121  

Diesel - NYMEX Heating Oil Swap

 

May - November, 2016

 

1,333,464 Gallons

  $ 2.50       (679 )     238  

Propane – Natural Gas Liquids Swap

 

June - November, 2016

 

341,600 Gallons

  $ 0.67       (41 )     14  
                    $ (3,288 )   $ 1,151  

 

As of September 30, 2015, Omega Protein has recorded a long-term liability of $0.5 million, net of the current portion included in other current liabilities of $2.0 million, to recognize the fair value of energy swap derivatives, and has also recorded a deferred tax asset of $0.9 million associated therewith. As of December 31, 2014, Omega Protein has recorded a long-term liability of $0.7 million net of the current portion included in other current liabilities of $2.6 million to recognize the fair value of energy swap derivatives, and has also recorded a deferred tax asset of $1.2 million associated therewith. The effective portion of the change in fair value from inception to September 30, 2015 is recorded in “accumulated other comprehensive loss” in the Company’s unaudited condensed consolidated financial statements. The following table illustrates the changes recorded, net of tax, in accumulated other comprehensive loss resulting from the energy swap agreements.

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2015

   

2014

   

2015

   

2014

 
    (in thousands)  

Beginning balance

  $ (1,544 )   $ 142     $ (2,137 )   $ 179  

Net (gain) loss, net of tax, reclassified to unallocated inventory cost pool

    1,119       27       1,676       (62 )

Net change associated with current period swap transactions, net of tax

    (1,203 )     (406 )     (1,167 )     (354 )

Balance as of September 30,

  $ (1,628 )   $ (237 )   $ (1,628 )   $ (237 )

 

The $1.6 million reported in accumulated other comprehensive loss as of September 30, 2015 will be reclassified to the unallocated inventory cost pool in the period when the energy consumption takes place. The amount to be reclassified, net of taxes, during the next 12 months is expected to be approximately $1.2 million.

   

 
8

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

The aggregate fair value of derivative instruments in gross liability positions as of September 30, 2015 and December 31, 2014 was $2.5 million and $3.3 million, respectively. These amounts represent the maximum exposure to loss at the reporting date as a result of all of the counterparties failing to perform as contracted.

 

As of September 30, 2015 (in thousands)

 

Gross Amounts of Recognized Assets (Liabilities)

   

Gross Amounts of Assets (Liabilities)Offset

   

Net Amounts of Assets (Liabilities) Presented in the Balance Sheet

 

Energy swap derivatives – liability position

  $ (2,452 )   $ -     $ (2,452 )

 

 

As of December 31, 2014 (in thousands)

 

Gross Amounts of Recognized Assets (Liabilities)

   

Gross Amounts of Assets (Liabilities)Offset

   

Net Amounts of Assets (Liabilities) Presented in the Balance Sheet

 

Energy swap derivatives – liability position

  $ (3,288 )   $ -     $ (3,288 )

 

If, at any time, the swaps are determined to be ineffective due to changes in the Company’s energy usage or underlying hedge agreements or assumptions, the fair value of the portion of the energy swaps determined to be ineffective will be recognized as a gain or loss in cost of sales for the applicable period. For the nine months ended September 30, 2015 and 2014, the Company recognized a gain of $0.1 million and $0 million, respectively, to cost of sales resulting from transactions associated with the ineffectiveness of diesel energy swaps. The fair value of all outstanding derivatives is determined using a model with inputs that are observable in the market or can be derived from or corroborated by observable data (level 2).

 

Plant Closure

 

Property, plant and equipment impairments related to the closure of Cameron, Louisiana plant are made in accordance with the impairment of long-lived assets policy. Employee severance related charges have been recognized to the extent that the amount is probable, measurable and no-future service is expected or for those still employed, recognized pro-rata over the remaining service period. Ongoing clean-up and dismantlement costs will be recognized as incurred unless obligated and measureable by a contractual commitment. See Note 3 – Plant Closure for additional information related to the charges incurred.

 

Acquisitions, Goodwill and Other Intangible Assets

 

 

All of the Company’s goodwill and other intangible assets are the result of acquisitions in the human nutrition segment. This segment is comprised of three reporting units, 1) InCon and Cyvex, 2) WSP and 3) Bioriginal. The Company has recorded goodwill and certain other identifiable intangible assets that are more fully explained in Note 2 – Acquisition of Bioriginal Food & Science Corp. and Note 9 – Goodwill and Other Intangible Assets.

 

Accumulated Other Comprehensive Loss

 

The components of accumulated other comprehensive (loss) gain, net of tax, included in stockholders’ equity are as follows:

 

Changes in Accumulated Other Comprehensive Loss by Component 

For the Nine Months Ended September 30, 2015 (in thousands)

 

   

Gains and Losses

On Cash Flow

Hedges

     

Defined Benefit

Pension Items

     

Foreign currency

Translation

adjustment

   

Total

 

Balance as of December 31, 2014

  $ (2,137 )     $ (7,804 )     $ (915 )   $ (10,856 )

Other comprehensive loss before reclassifications

    (1,167 )               (1,245 )     (2,412 )

Amounts reclassified from accumulated other comprehensive loss

    1,676  

(a)

    585  

(b)

          2,261  

Net current-period other comprehensive income

    509         585         (1,245 )     (151 )

Balance as of September 30, 2015

  $ (1,628 )     $ (7,219 )     $ (2,160 )   $ (11,007 )

   

 
9

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

Changes in Accumulated Other Comprehensive Loss by 

For the Nine Months Ended September 30, 2014 (in thousands)

 

   

Gains and Losses

On Cash Flow

Hedges

     

Defined Benefit

Pension Items

     

Foreign currency

Translation

adjustment

   

Total

 

Balance as of December 31, 2013

  $ 179       $ (6,387 )     $     $ (6,208 )

Other comprehensive loss before reclassifications

    (354 )               (449 )     (803 )

Amounts reclassified from accumulated other comprehensive loss

    (62 )

(a)

    446  

(b)

          384  

Net current-period other comprehensive income

    (416 )       446         (449 )     (419 )

Balance as of September 30, 2014

  $ (237 )     $ (5,941 )     $ (449 )   $ (6,627 )

 

 

(a)

This accumulated other comprehensive income component is reclassified to the unallocated inventory cost pool in the period when the energy consumption takes place.

 

(b)

This accumulated other comprehensive income component is included in the computation of net periodic pension costs as amortization of actuarial loss which are explained in more detail in Note 15 to the consolidated financial statements in Item 8 of the Company’s Form 10-K for the fiscal year ended December 31, 2014.

 

Recently Issued Accounting Standards

 

In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-16 Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments . This update eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Acquirers would now recognize measurement-period adjustments during the period in which they determine the amount of the adjustment. This update is effective for annual and interim reporting periods beginning after December 15, 2015, including interim periods within those fiscal years, and should be applied prospectively to adjustments for provisional amounts that occur after the effective date with early adoption permitted for financial statements that have not been issued.  The Company’s adoption of ASU No. 2015-16 is not expected to have a material impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

In August 2015, the FASB issued ASU 2015-15 Interest—Imputation of Interest (Subtopic 835-30) related to the presentation of debt issuance costs. This standard clarifies the guidance set forth in ASU 2015-03, which required that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the debt liability rather than as an asset. The new pronouncement clarifies that debt issuance costs related to line-of-credit arrangements could continue to be presented as an asset and be subsequently amortized over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the arrangement. The Company will consider this clarification in conjunction with its adoption of ASU 2015-03, which is expected to occur for the Company’s fiscal year beginning January 1, 2016, and it is not expected to have a material impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

In July 2015, the FASB issued ASU 2015-11,  Inventory (Topic 330): Simplifying the Measurement of Inventory .  The guidance applies to inventory that is measured using either the first-in, first-out or average cost methods and requires entities to measure their inventory at the lower of cost and net realizable value.   The amendment defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.   The new standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.   The Company’s adoption of ASU No. 2015-11 is not expected to have a material impact on the Company’s consolidated results of operations, financial position and related disclosures.

   

 
10

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) .  The amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (2) eliminate the presumption that a general partner should consolidate a limited partnership, (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and (4) provide a scope exception from consolidation guidance for reporting entities with interest in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The new standard is effective in annual periods beginning after December 15, 2015 and interim periods within those annual periods. Early adoption is permitted. The Company’s adoption of ASU No. 2015-02 is not expected to have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

In January 2015, the FASB issued ASU 2015-01, Income Statement- Extraordinary and Unusual Items (Subtopic 225-20) .  The update eliminates from GAAP the concept of extraordinary items. Eliminating the concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary. This alleviates uncertainty for preparers, auditors, and regulators because auditors and regulators no longer will need to evaluate whether a preparer treated an unusual and/or infrequent item appropriately. The new standard is effective in annual periods beginning after December 15, 2015 and interim periods within those annual periods. Early adoption is permitted. The Company’s adoption of ASU No. 2015-01 is not expected to have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging: Determining whether the Host Contract in a Hybrid Financial Statement Issued in the Form of a Share is More Akin to Debt or Equity .  This ASU amended the Derivatives and Hedging Accounting Standards Codification to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments used in the form of a share. The new standard is effective in annual periods beginning on or after December 15, 2015 with early adoption permitted. The Company’s adoption of ASU No. 2014-16 is not expected to have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements- Going Concern (Subtopic 205-40). The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in the U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The guidance is effective for annual periods ending after December 15, 2016 and for annual periods thereafter. Early adoption is permitted.  The Company does not expect this ASU to have a material impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

In June 2014, the FASB issued ASU No. 2014-12, Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.   A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (“ASC”) 718, Compensation — Stock Compensation . As a result, the target is not reflected in the estimation of the award's grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved.  The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. Early adoption is permitted.  The Company does not expect this ASU to have a material impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued new accounting guidance for recognition of revenue. This new guidance replaces virtually all existing U.S. GAAP and IFRS guidance on revenue recognition.

 

On July 9, 2015, the FASB voted to defer the effective date for its new revenue standard for public and nonpublic entities reporting under U.S. GAAP by one year. As a result, the new guidance is now effective for fiscal years beginning after December 15, 2017. This new guidance applies to all periods presented. Therefore, when the Company issues its financial statements on Forms 10-Q and 10-K for periods included in its year ended December 31, 2018, its comparative periods that are presented from the years ended December 31, 2016 and 2017, must be retrospectively presented in compliance with this new guidance. Early adoption is not allowed for U.S. GAAP. The new guidance requires companies to make more estimates and use more judgment than under current accounting guidance.

   

 
11

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

The FASB and IASB (collectively, the “Boards”) have discussed clarifying the guidance in their new revenue standards for: (1) licenses of intellectual property, (2) identifying performance obligations, (3) noncash consideration and (4) collectability. The Boards have also discussed whether to add practical expedients for the accounting for contract modifications at transition and the presentation of sales taxes, and the FASB separately discussed several technical corrections. The FASB and the IASB did not agree on the nature and breadth of all of the changes to be proposed. The Boards are expected to issue separate exposure drafts later this year.

 

The Company continues to evaluate (i) the two allowed adoption methods to determine which method it plans to use for retrospective presentation of comparative periods, (ii) the impact of proposed clarifications to the guidance on timing of the recognition of revenue within the Company’s various revenue streams and (iii) whether the implementation of this new guidance will have a material impact on the Company’s consolidated financial position or results of operations for the periods presented.

 

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements and Property, Plant and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . This ASU changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has or will have a major effect on an entity's operations and financial results. The new standard is effective in annual periods beginning on or after December 15, 2014 with early adoption permitted. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The Company’s adoption of ASU No. 2014-08, effective January 1, 2015, did not have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

 

Foreign Currency Translations

 

All amounts are expressed in U.S. Dollars unless otherwise indicated. The U.S. Dollar is the functional currency of Bioriginal’s Canadian-based subsidiaries (“Bioriginal Canada”). Monetary assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at exchange rates in effect at the balance sheet date. Non-monetary items are translated at rates of exchange in effect when the assets were acquired or obligations incurred. Revenue and expenses are translated at average rates in effect in the period of the transaction. Foreign exchange gains and losses are included in the unaudited condensed consolidated statement of comprehensive income.

 

The Euro is the functional currency of Bioriginal’s Netherlands-based subsidiaries (“Bioriginal Europe”). The operations of these subsidiaries are considered self-sustaining and their financial statements are translated into U.S. Dollars using the current rate method. Under this method, all assets and liabilities are translated to U.S. Dollars at exchange rates in effect at the balance sheet date and all revenue and expenses are translated at rates in effect at the time of the transactions. Exchange gains and losses arising from this translation, representing the net unrealized foreign currency translation gain (loss) on the Company's net investment in its self-sustaining subsidiaries, are recorded in the accumulated other comprehensive income (loss) component of stockholders' equity. Adjustments to the accumulated other comprehensive income (loss) account are not recorded in the unaudited condensed consolidated statement of comprehensive income until realized through an addition or reduction in the Company's net investment in such operations.

 

Stock-Based Compensation

 

Stock Options  

 

The Company has issued non-qualified stock options under its incentive plans. The options generally vested in equal installments over three years and expire in ten years. As of and for the three and nine months ended September 30, 2015 and 2014, all stock options were vested and no stock-based compensation expense related to stock options was incurred.

 

Restricted Stock  

 

The Company has issued shares of restricted stock under the 2006 Incentive Plan. Shares of restricted stock have generally vested on the third anniversary of the grant date or in equal installments over three years except for shares of restricted stock granted to non-employee directors which vest six months after the grant date. Non-vested shares are generally forfeited upon the termination of employment or service as a director. Holders of shares of restricted stock are entitled to all rights of a stockholder of the Company, including the right to vote the shares and receive any dividends or other distributions. The non-vested shares are considered participating securities and the Company has calculated earnings per share using the two-class method. See Note 13 – Reconciliation of Basic and Diluted Per Share Data.

   

 
12

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

During the nine month periods ended September 30, 2015 and 2014, the Company issued 110,616 and 356,262 shares of restricted stock, respectively, under the 2015 Long Term Incentive Plan and the 2006 Incentive Plan to employees and non-employee directors. The Company’s compensation expense related to restricted stock, which is primarily reflected in selling, general and administrative expense in the unaudited condensed consolidated statement of comprehensive income, was approximately $0.7 million and $0.6 million ($0.5 million and $0.4 million after tax) for the three months ended September 30, 2015 and 2014, respectively, and approximately $1.7 million and $1.3 million ($1.1 million and $0.9 million after tax) for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015, there was approximately $3.6 million ($2.3 million after tax) of unrecognized compensation expense related to non-vested restricted stock that is expected to be recognized over a weighted-average period of 1.1 years, of which $0.6 million ($0.4 million after-tax) of compensation expense is expected to be recognized during the remainder of fiscal year 2015.

 

Performance Units

 

On February 6, 2014, the Company adopted the 2014 Cash Incentive Performance Unit Plan and on February 26, 2015, the Company adopted the 2015 Cash Incentive Performance Unit Plan. The value of the units under the plans will be determined by reference to the performance of the Company’s common stock during the relevant performance period compared to the performance of the Russell 2000 Index member companies (the “Peer Group”) during that same period. One third of the Performance Units granted will be earned at the end of each calendar year of the performance period and will be valued for the calendar year based on the Total Shareholder Return (“TSR”) of the Company compared to the TSR of the Peer Group. The performance units contain a service provision of approximately 3 years and are liability-classified awards included in other long-term liabilities which are adjusted to fair value on a quarterly basis.

 

The Company’s compensation expense related to performance units, which is primarily reflected in selling, general and administrative expense in the unaudited condensed consolidated statement of comprehensive income, was approximately $0.4 million and $0.1 million ($0.3 million and $0 million after tax) for the three months ended September 30, 2015 and 2014, respectively, and approximately $1.1 million and $0.4 million ($0.7 million and $0.3 million after tax) for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015, there was approximately $2.4 million ($1.5 million after tax) of unrecognized compensation expense related to performance units that is expected to be recognized over a weighted-average period of 2.0 years, of which $0.3 million ($0.2 million after-tax) of compensation expense is expected to be recognized during the remainder of fiscal year 2015.

 

NOTE 2. ACQUISITION OF BIORIGINAL FOOD & SCIENCE CORP.

 

A. Description of the Transaction

 

In September 2014, the Company acquired all of the issued and outstanding equity of Bioriginal pursuant to the terms of a Share Purchase Agreement (“Purchase Agreement”) and Bioriginal became a wholly owned subsidiary of the Company.  Bioriginal is a leading supplier of plant and marine based specialty oils and essential fatty acids to the food and nutraceutical industries across North America, Europe and Asia. Bioriginal is included as part of the Company’s human nutrition segment.

 

B. Recording of Assets Acquired and Liabilities Assumed

 

In connection with its acquisition of Bioriginal, the Company paid an aggregate purchase price of $70.5 million, plus a working capital adjustment of $0.7 million, to the sellers as follows: (i) $46.5 million in cash to the sellers, (ii) assumption of approximately $21.5 million of Bioriginal’s indebtedness, and (iii) issuance of 238,377 shares of restricted common stock of the Company valued at approximately $3.2 million (based on a 30-day average closing price) to certain sellers (the “Management Sellers”). The restrictions on the shares will terminate, with certain exceptions, on the third anniversary of the closing date and are subject to the terms and conditions of the Purchase Agreement; see Note - 1 Significant Accounting Policies Summary of Operations and Basis of Presentation for more information on Restricted Stock. The Purchase Agreement also provides for a performance-based earn-out amount of up to a maximum amount that, as of December 31, 2014, was $7.1 million Canadian Dollars to be paid in September 2017 to the Management Sellers for achieving or exceeding certain adjusted EBITDA targets for Bioriginal during calendar years 2014 through 2016; see Note 12 Commitments and Contingencies for additional information. During the nine months ended September 30, 2015, the Company received $0.1 million related to the finalization of the closing working capital adjustment.

   

 
13

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

The Company incurred approximately $2.8 million in pretax transaction costs directly related to the acquisition that were expensed and included in selling, general and administrative expense in the consolidated statement of comprehensive income for the year ended December 31, 2014. The acquisition costs consisted primarily of legal, advisory, valuation, and other consulting fees. The transaction has been accounted for using the acquisition method of accounting which requires, among other things, that all assets acquired and liabilities assumed from acquisitions be recognized at their fair values as of the acquisition date. Any excess of the purchase price over the fair values of the net assets acquired are recorded as goodwill. The following table shows the allocation of the purchase price (in thousands):  

 

Cash

  $ 93  

Accounts receivable

    15,072  

Inventories

    20,309  

Other current assets, net including prepaid expenses

    1,820  

Property, plant, and equipment

    3,026  

Identifiable intangible assets (a)

    16,987  

Liabilities assumed

    (38,288 )

Total identifiable net assets

    19,019  

Goodwill

    27,462  

Total consideration

  $ 46,481  

 

 

(a)

See Note 9 – Goodwill and Other Intangible Assets for weighted average lives.

 

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the acquisition of Bioriginal includes the following:

 

the expected synergies and other benefits that the Company believes may result from combining the operations of Bioriginal with the operations of the Company’s human nutrition segment,

any intangible assets that do not qualify for separate recognition, and
the value of the going-concern element of Bioriginal’s existing business (the higher rate of return on the assembled collection of net assets over the acquisition of all the net assets separately).

 

See Note 9 - Goodwill and Other Intangible Assets, for more information about goodwill and other intangible assets.

 

C. Unaudited Pro Forma Financial Information

 

The unaudited financial information in the table below summarizes the combined results of operations of the Company and Bioriginal on a pro forma basis, as though the companies had been combined as of January 1, 2014. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had actually taken place on January 1, 2014 and is not intended to be a projection of future results or trends.  

                                                                                                                                   

    Revenue     Net income  
    (in thousands)  

2014 supplemental pro forma from July 1, 2014 – September 30, 2014

  $ 91,842     $ 1,055  

2014 supplemental pro forma from January 1, 2014 – September 30, 2014

  $ 289,174     $ 17,582  

   

 
14

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

NOTE 3. PLANT CLOSURE

 

In December 2013, the Company effectively closed its menhaden fish processing plant located in Cameron, Louisiana and re-deployed certain vessels from that facility to the Company’s other Gulf Coast facilities located in Abbeville, Louisiana and Moss Point, Mississippi. In conjunction with the closure, the following charges were incurred in the Company’s unaudited condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2015 and from December 2013 to September 30, 2015:

 

   

Three Months

Ended
September 30,

2015

   

Three Months

Ended

September 30,

2014

   

Nine Months

Ended

September 30,

2015

   

Nine Months

Ended

September 30,

2014

   

December 2013

to

September 30,

2015

 
    (in thousands)  

Impairment of property, plant and equipment

  $     $ 675     $     $ 2,414     $ 7,922  

Write-off material and supplies inventory

          26             43       150  

Employee severance costs

          100             340       732  

Estimated decommissioning costs

                            250  

Other ongoing closure costs not attributable to future production

    630       742       1,917       2,685       6,517  

Total loss related to plant closure

  $ 630     $ 1,543     $ 1,917     $ 5,482     $ 15,571  

 

In addition to the above recognized losses, the Company expects that it may have additional losses related to ongoing costs not attributable to future production such as site costs, clean-up and disassembly.

 

NOTE 4. RECEIVABLES, NET

 

R eceivables are summarized below:

      

   

September 30,
2015

   

December 31,

2014

 
    (in thousands)  

Trade

  $ 40,835     $ 29,534  

Insurance

    1,285       1,711  

Income tax

    980       5,442  

Other

    608       370  

Total accounts receivable

    43,708       37,057  

Less allowance for doubtful accounts

    (437 )     (436 )

Receivables, net

  $ 43,271     $ 36,621  

 

NOTE 5. INVENTORY

 

The major classes of inventory are summarized below:

   

   

September 30,
2015

    December 31,
2014
    September 30,
2014
 
    (in thousands)  

Fish meal

  $ 52,644     $ 28,400     $ 46,544  

Fish oil

    22,106       19,300       25,458  

Fish solubles

    831       683       708  

Nutraceutical products

    5,756       4,635       4,141  

Bioriginal products

    25,387       26,219       19,089  

Dairy protein products

    7,605       2,783       2,072  

Unallocated inventory cost pool, including off-season costs

    (2,828 )     6,854       242  

Other materials and supplies

    10,125       8,639       9,665  

Total inventory

  $ 121,626     $ 97,513     $ 107,919  

 

Inventory is stated at the lower of cost or net realizable value. The elements of the September 30, 2015 unallocated inventory cost pool include Omega Protein’s plant and vessel related labor, utilities, rent, repairs and depreciation, which are allocated to 2015 fishing season production. The unallocated inventory cost pool may temporarily have a negative balance late in the fishing season due to differences in the timing of costs and production.

 

 
15

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

NOTE 6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets are summarized below:

      

   

September 30,

2015

    December 31, 
2014
 
    (in thousands)  

Prepaid insurance

  $ 3,469     $ 2,322  

Product deposits

          998  

Selling expenses

    243       156  

Leases

    132       168  

Other prepaids and expenses

    1,236       1,292  

Total prepaid expenses and other current assets

  $ 5,080     $ 4,936  

 

Amounts included in prepaid expenses and other current assets consist primarily of prepaid operating expenses including insurance, rents, and selling expenses. Prepaid selling expenses are expensed in those periods in which the related revenue is recognized.

 

NOTE 7. OTHER ASSETS

 

Other assets are summarized below:

                  

   

September 30,

2015

   

December 31,

2014

 
    (in thousands)  

Fish nets, net of accumulated amortization of $2,217 and $2,694

  $ 1,362     $ 1,195  

Insurance receivable

    1,696       498  

Title XI debt issuance costs

    160       246  

Other debt issuance costs

    1,145       264  

Deposits and other

    106       106  

Total other assets, net

  $ 4,469     $ 2,309  

 

Amortization expense for fishing nets was approximately $0.3 million for the three months ended September 30, 2015 and 2014 and $0.9 million and $1.0 million for the nine months ended September 30, 2015 and 2014, respectively.

 

As of September 30, 2015 and December 31, 2014, insurance receivables primarily relate to Jones Act claims for employees aboard its vessels. This estimated amount is recorded gross of estimated claims which may be due to claimants and is included in accrued insurance liabilities.

 

The Company carries insurance for certain losses relating to its fishing 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 Omega Protein remains responsible, while the insurance carrier is responsible for all applicable amounts which exceed the AAD. It is Omega Protein’s policy to accrue current amounts due and record amounts paid out on each claim. Once payments exceed the AAD, Omega Protein records an insurance receivable for a given policy year.

 

NOTE 8. PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment are summarized below:

                                                                                                                                                                                                  

   

September 30,

2015

   

December 31,

2014

 
    (in thousands)  

Land

  $ 9,359     $ 9,326  

Plant assets

    199,383       188,498  

Fishing vessels

    120,207       111,379  

Furniture and fixtures

    8,145       7,792  

Construction in progress

    20,574       15,893  

Total property and equipment

    357,668       332,888  

Less accumulated depreciation and impairment

    (177,600 )     (162,956 )

Property, plant and equipment, net

  $ 180,068     $ 169,932  

 

 
16

 

   

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

Depreciation expense was $5.3 million and $5.1 million for the three months ended September 30, 2015 and 2014, respectively, and $15.6 million and $14.4 million for the nine months ended September 30, 2015 and 2014, respectively.

 

The Company capitalizes interest as part of the acquisition cost of a qualifying asset. Interest is capitalized only during the period of time required to complete and prepare the asset for its intended use. For the three months ended September 30, 2015 and 2014, the Company capitalized interest of approximately $0.2 million and $0.1 million, respectively. For the nine months ended September 30, 2015 and 2014, the Company capitalized interest of approximately $0.5 million.

 

During the three and nine months ended September 30, 2015, the Company impaired an asset which was previously included in construction in progress. The impairment resulted in a loss on disposal of assets of $1.0 million.

 

NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill is measured as the excess of the cost of an acquisition over the sum of the amounts assigned to the fair value of tangible and intangible assets acquired less liabilities assumed. All of the Company’s goodwill and other intangible assets are the result of acquisitions in the human nutrition segment.

 

Goodwill is tested annually for impairment of value, and whenever an event occurs or circumstances change that would more likely than not indicate that the carrying value of a reporting unit that includes goodwill is greater than the fair value of that reporting unit. Determining whether an indicator of impairment has occurred during an interim period involves a significant amount of judgment.  During the interim periods, qualitative factors such as deterioration in general economic conditions, changes in the market for an entity’s products or services, declines in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods, among others, are evaluated to determine if a triggering event which would result in a potential impairment has incurred.

 

Due to a decline in actual earnings compared with the projected results for the nine months ended September 30, 2015, the Company performed interim testing of goodwill and other indefinitely lived intangible assets for 1) InCon and Cyvex, as a single reporting unit and 2) WSP. 

 

Cyvex and InCon

 

The testing related to the Cyvex and InCon reporting unit indicated the carrying value of its trade names/secrets and goodwill exceeded their calculated fair values by $0.1 million and $3.9 million. Fair value was determined by utilizing market and income approaches. As a result, a $4.0 million impairment charge was recognized during the three and nine month periods ended September 30, 2015. Key assumptions in the fair value calculation include future fish oil and nutraceutical sales volumes and prices, tolling revenue, the portion of sales attributable to trade secrets, production costs and the discount rate. 

 

W isconsin Special ty Protein

 

The testing related to the WSP reporting unit indicated the calculated fair values of its trade names and goodwill exceeded their calculated carrying values by $1.4 million or 120% and $1.3 million or 7%, respectively. Fair value was determined by utilizing market and income approaches. Key assumptions in the fair value calculation include dairy protein product sales volumes and prices, the portion of sales attributable to the brand name, the cost and availability of raw materials and the discount rate. 

 

Bioriginal

 

During the second quarter of 2015, the Company completed its first annual impairment testing of goodwill and indefinite life intangible assets related to its acquisition of Bioriginal in September 2014.   As of June 30, 2015, the calculated fair value of Bioriginal’s trade name exceeded its $3.8 million carrying value by 7% and the calculated fair value of goodwill and other indefinite lived intangible assets exceeded their $26.6 million carrying values by 13%. Key assumptions in the fair value calculation include sales volumes and prices, the portion of sales attributable to trade names, the cost and availability of raw materials and the discount rate.

   

 
17

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

The following table summarizes the changes in the carrying amount of goodwill by reporting unit (in thousands):

 

   

Bioriginal

   

WSP

   

Cyvex and

InCon

   

Total

 

January 1, 2015

  $ 27,045       11,614       3,842     $ 42,501  

Impairment

                (3,842 )     (3,842 )

Foreign currency translation adjustment

    (388 )                 (388 )

September 30, 2015

  $ 26,657       11,614           $ 38,271  

 

The assessments of goodwill and other indefinite lived intangible assets are based on assumptions that require speculation and are highly subjective given the early stage and transitional nature of the businesses and the use of other reasonable, but different, assumptions could provide significantly different fair values and potential impairments. The Company’s quantitative tests have assumed increasing cash flows over the next several years, based on anticipated sales growth and improved profitability. The Company’s ability to grow sales and improve profitability as expected is contingent on its ability to, among other factors, procure adequate supplies of raw materials, align product production and customer demand, and price products at appropriate margins above production or procurement costs. Considering the level of sensitivity with respect to the key assumptions, if the Company does not (i) ensure adequate supplies of raw materials, (ii) adequately anticipate changes in its customers’ demand for products or (iii) price products at appropriate margins above production or procurement costs, its future cash flows may fail to meet the Company's cash flow projections. If the cash flows decline sufficiently, the estimated fair values would be reduced and could potentially result in a material impairment in a subsequent period.

 

The following table summarizes the Company’s intangible assets (dollars in thousands):

 

   

Balance at

January 1, 2015

   

(1)

Amortization

   

Impairment

   

Foreign currency translation adjustment

   

Balance at

September 30, 2015

 

Customer relationships and non-competes, net of accumulated amortization of $2,344 and $3,816, respectively

  $ 17,090       (1,472 )           (130 )   $ 15,488  

Indefinite life intangibles – trade names/secrets and other

    5,912             (118 )     (84 )     5,710  

Total intangible assets

  $ 23,002       (1,472 )     (118 )     (214 )   $ 21,198  

 

 

(1)

Weighted average life of 10 years.

 

 

Amortization expense of the Company’s intangible assets for the three months ended September 30, 2015 and 2014 was approximately $0.5 million and $0.3 million, respectively, and for the nine months ended September 30, 2015 and 2014 was approximately $1.5 million and $0.6 million, respectively. The below table shows estimated future amortization expense related to intangible assets (in thousands):

 

Remainder of 2015

  $ 500  

2016

    1,971  

2017

    1,971  

2018

    1,971  

Thereafter

    9,396  

Total estimated future amortization expense

  $ 15,809  

   

 
18

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

The Company’s goodwill and other intangible assets are more fully explained in Note 10 to the consolidated financial statements in Item 8 of the Company’s Form 10-K for the fiscal year ended December 31, 2014.

 

NOTE 10. NOTES PAYABLE AND LONG-TERM DEBT

 

A summary of the Company's long-term debt consists of the following:

 

   

September 30,

   

December 31,

 
   

2015

   

2014

 
   

(in thousands)

 

U.S. government guaranteed obligations (Title XI loans) collateralized by a first lien on certain vessels and certain plant assets:

               

Amounts due in installments through 2025, interest from 5.7% to 6.6%

  $ 10,910     $ 21,111  

Amounts due on Loan Agreement in August 2020, interest at a Base Rate, LIBOR, and  CDOR plus an applicable margin (1.45% to 3.25% at September 30, 2015)

    13,443        

Amounts due on prior loan agreement in March 2017, interest at LIBOR plus an applicable rate (1.84% at December 31, 2014)

          2,000  

ING Commercial Finance B.V., interest at EURIBOR plus an applicable rate (1.70% and 1.76% at September 30, 2015 and December 31, 2014, respectively)

    2,145       2,367  

HSBC credit facility, repaid August 2015, interest at HSBC prime rate plus an applicable rate (4.5% December 31, 2014)

          9,749  

Total debt

    26,498       35,227  

Less current maturities

    (3,179 )     (14,741 )

Long-term debt

  $ 23,319     $ 20,486  

 

The estimated fair value of the Company’s total debt at September 30, 2015 and December 31, 2014, based on quoted market prices available to the Company for issuance of similar debt with similar terms (level 2), was $27.4 million and $36.9 million, respectively.

 

The Title XI loans are secured by certain liens on the Company’s fishing vessels and mortgages on the Company’s Reedville, Virginia, Moss Point, Mississippi and Abbeville, Louisiana plants.

 

In June 2011, pursuant to the Title XI program, the United States Department of Commerce Fisheries Finance Program (the “FFP”) approved a financing application made by the Company in the amount of $10 million (the “Approval Letter”) which expires on June 20, 2016. To date, the Company has not borrowed any amounts under the Approval Letter and its ability to do so has been adversely affected by an EPA notice that the Company’s Omega Protein subsidiary is ineligible, as a result of its previous convictions under the Clean Water Act, for receipt of government contracts or benefits in certain cases. See “Risk Factors - If our Omega Protein subsidiary fails to comply with the terms of its probation under a plea agreement entered into in June 2013, we could be subject to criminal prosecution” in the Company’s Form 10-K for the year ended December 31, 2014 for further detail on this EPA notice. As of September 30, 2015, the Company had approximately $10.9 million of borrowings outstanding under Title XI and was in compliance with all of the covenants contained therein.

 

On August 20, 2015 (the “Closing Date”), the Company and certain subsidiaries entered into a Second Amended and Restated Loan Agreement (the “Loan Agreement”) with Wells Fargo Bank, National Association, as administrative agent (the “Agent”) for the lenders (currently Wells Fargo Bank, N.A., JP Morgan Chase Bank, N.A. and BMO Harris Bank, N.A.) (collectively, the “Lenders”) pursuant to which the Lenders agreed to extend credit to the Company in the form of loans (each a “Loan” and collectively, the “Loans”) on a revolving basis of up to $125.0 million in the aggregate (the “Commitment”), with $95.0 million of such Commitment allocated to Revolving A Loans to be made to the Company or Omega Protein in U.S. Dollars or Alternative Currencies (as such term is defined in the Loan Agreement) and $30.0 million of such Commitment allocated to Revolving B Loans to be made to the Company and certain subsidiaries, including Bioriginal, in U.S. Dollars or Canadian Dollars. The Commitment includes a sub-facility for swingline loans up to an amount not to exceed $10.0 million, a sub-facility for standby letters of credit issued for the account of the Company or Omega Protein up to an amount not to exceed $20.0 million, a sub-facility for standby or commercial letters of credit issued for the account of Bioriginal up to an amount not to exceed $7.5 million (subject to a temporary increase of $9.0 million), and an accordion feature that allows the Company to increase the amount of the Commitment up to an additional $75.0 million, subject to the further commitments of the Lenders and other customary conditions precedent. The Loan Agreement amended and restated the Company’s existing senior secured credit facility (the “Prior Loan Agreement”). The proceeds of the Loan Agreement were and will be used to (a) refinance existing debt under the Prior Loan Agreement, (b) pay fees and expenses incurred in connection with the refinancing of the Prior Loan Agreement and the entry into the Loan Agreement, (c) refinance certain debt owing to HSBC Bank Canada pursuant to an agreement that has been terminated, and (d) provide ongoing working capital and for other general corporate purposes of the Company and its subsidiaries.

 

 
19

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

As of September 30, 2015, the Company has $1.2 million in deferred debt issuance costs associated with the Loan Agreement, $0.2 million of which was carried over from the Prior Loan Agreement, on the Unaudited Condensed Consolidated Balance Sheet.

 

Any Loans will bear interest as follows:

 

 

Revolving A Loans and Revolving B Loans denominated in U.S. Dollars will bear interest, at the election of the Company, at (a) the Base Rate (defined as a fluctuating rate equal to the highest of: (x) the rate of interest most recently announced by the Agent as its “prime rate,” (y) the Federal Funds Rate plus 1.00% and (z) a rate determined by the Agent to be 1.50% above daily one month LIBOR (except during certain periods of time)) plus the Applicable Margin (as defined in the Loan Agreement), or (b) a rate per annum determined by the Agent to be equal to LIBOR in effect for the applicable interest period plus the Applicable Margin.

 

Revolving A Loans denominated in Alternative Currencies will bear interest at a rate per annum determined by the Agent to be equal to LIBOR in effect for the applicable interest period plus the Applicable Margin.

 

Revolving B Loans denominated in Canadian Dollars will bear interest at (a) the Canadian Prime Rate (defined as a fluctuating rate equal to the highest of (y) the rate of interest most recently announced by the Agent as its reference rate in effect for determining interest rates for Canadian Dollar denominated commercial loans in Canada and (z) a rate determined by the Agent to be 1.50% above daily one month CDOR plus the Applicable Margin) or (b) CDOR plus the Applicable Margin.

 

Swingline Loans shall bear interest at the Base Rate plus the Applicable Margin.

 

All obligations of the Company under the Loan Agreement are secured by a first priority lien (subject to Permitted Liens, as defined in the Loan Agreement) against all assets of each of the Company and certain subsidiaries (other than certain excluded property, including property pledged to secure loans from the national fisheries finance program). Collateral provided by (a) the Company and its U.S.-domiciled subsidiaries shall guarantee or secure, as applicable, all of the obligations under the Loan Agreement and other Loan Documents and (b) Bioriginal and, if applicable, its subsidiaries, shall only guarantee or secure, as applicable, obligations of Bioriginal in respect of Revolving B Loans.

 

The Loan Agreement requires the Company to comply with various affirmative and negative covenants affecting the Company’s businesses and operations. In addition, the Loan Agreement requires the Company to comply with the following financial covenants:

 

 

The Company is required to maintain on a consolidated basis Tangible Net Worth equal to at least the sum of the following: (a) $170,000,000, plus (b) 50% of net income (if positive, with no deduction for losses) earned in each quarterly accounting period commencing after December 31, 2014, plus (c) 75% of the net proceeds from any Equity Interests (as defined in the Loan Agreement) issued after the Closing Date, plus (d) 100% of any increase in stockholders’ equity resulting from the conversion of debt securities to Equity Interests after the Closing Date.

 

The Company is required to maintain on a consolidated basis a Consolidated Total Leverage Ratio of not greater than 3.00 to 1.00. This ratio will be calculated at the end of each fiscal quarter.

 

The Company is required to maintain on a consolidated basis a Consolidated Fixed Charge Coverage Ratio of at least 1.25 to 1.00. This ratio will be calculated at the end of each fiscal quarter.

 

All Loans and all other obligations outstanding under the Loan Agreement shall be payable in full in August 2020 .

 

As of September 30, 2015 and December 31, 2014, the Company had $13.4 million and $2.0 million outstanding under the Loan Agreement and Prior Loan Agreement, respectively, and approximately $7.7 million in letters of credit. As of September 30, 2015, the Company was in compliance with all financial covenants under the Loan Agreement. The Company has no off-balance sheet arrangements other than normal operating leases and standby letters of credit. For a more detailed description of the Loan Agreement, see the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2015.

 

 
20

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

In March 2015, Bioriginal Europe extended the terms of its credit facility with ING Commercial Finance B.V. which provides borrowings up to an amount based on accounts receivable and inventory balances, and matures on March 31, 2018.  Advances are repayable on demand and bear interest payable monthly at 1.75% + EURIBOR (currently 1.70%).  This credit facility is secured by accounts receivable and inventory of Bioriginal Europe to a maximum of 85% of accounts receivable and 60% of inventory.  This credit facility contains cross default provisions and other covenants.  As of September 30, 2015, $2.1 million was outstanding under this credit facility, which is included in current maturities.

 

In June 2010, Bioriginal Europe entered into a credit facility with ING Bank N.V. which provides borrowings up to 250,000 Euro.  Under the credit facility, interest is paid at 2.97% plus the EURIBOR rate (currently 2.98%).  This credit facility is secured by Bioriginal Europe’s equipment. This facility contains cross default provisions and other covenants.   As of September 30, 2015, there were no outstanding borrowings under this credit facility.

 

In April 2014, Bioriginal Canada entered into a credit facility with HSBC Bank of Canada which provided borrowings up to $20 million Canadian Dollars. This credit facility was repaid in August 2015 and the agreement was terminated.

 

NOTE 11. ACCRUED LIABILITIES

 

Accrued liabilities are summarized below:

 

   

September 30,

   

December 31,

 
   

2015

   

2014

 
   

(in thousands)

 

Insurance

  $ 6,389     $ 5,998  

Reserve for plant closure costs

    39       456  

Salary and benefits

    19,567       7,273  

Trade creditors

    8,159       5,045  

Taxes, other than income tax

    1,476       222  

Income tax

    7,109        

Energy swap liability, current portion

    1,916       2,568  

Deferred revenue

    914       1,400  

Accrued interest

    53       246  

Other

          8  

Total accrued liabilities

  $ 45,622     $ 23,216  

 

Deferred revenue represents payments primarily received from international customers related to revenues which were not recognized until the subsequent period due to revenue recognition criteria.

 

NOTE 12. COMMITMENTS AND CONTINGENCIES

 

Bioriginal Contingency

 

In September 2014, the Company acquired all of the outstanding equity of Bioriginal pursuant to the terms of a share purchase agreement. A portion of the equity of Bioriginal was indirectly held by the Management Sellers, who continue to be employed by Bioriginal and share in the management of Bioriginal’s business.

 

In addition to the acquisition date cash purchase price and restricted stock, the Management Sellers may also earn additional amounts based on the annual adjusted EBITDA of Bioriginal’s business during each of the calendar years 2014 through 2016. For each calendar year, if the adjusted EBITDA meets or exceeds agreed upon targets, the Management Sellers will be eligible for an earn-out payment ranging from $1.2 million to $2.9 million Canadian Dollars, subject to certain forfeitures based on termination of Management Sellers’ employment. The maximum total payment for all three years is $7.1 million Canadian Dollars.

 

 
21

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

The earn-out payments are estimated on a quarterly basis and will be paid-out in September 2017. The Company records the estimated contractual obligation as compensation expense during each year as it is deemed probable that such amount will be payable. As of September 30, 2015 and December 31, 2014, the Company recorded a $1.3 million and $0.4 million liability, respectively, related to this provision of the agreement. The threshold for a $1.2 million Canadian Dollar payment was achieved for 2014.

 

Legal Contingencies

 

The Company is subject to various claims and lawsuits involving its business and operations. Management believes that costs, if any, relating to these matters will not have a material adverse effect on the results of operations, cash flows or financial position of the Company.

 

Regulatory Matters

 

The Company is subject to various possible claims and lawsuits regarding environmental matters. Management believes that costs, if any, related to these matters will not have a material adverse effect on the results of operations, cash flows or financial position of the Company.

 

NOTE 13. RECONCILIATION OF BASIC AND DILUTED PER SHARE DATA (in thousands except per share dat a )

 

Basic earnings per share is calculated by dividing net income allocated to common shares outstanding by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share assumes the exercise of stock options provided the effect is not anti-dilutive.

 

The Company grants certain incentive compensation awards, including restricted stock, to employees and non-employee directors that are considered to be participating securities. Due to the presence of participating securities, earnings per share is calculated using the two-class method.

 

Three Months Ended September 30:

 

2015

   

2014

 

Allocation of earnings:

                               

Net income

  $ 10,574             $ 659          

Income allocated to participating securities

    (289 )             (19 )        

Income allocated to common shares outstanding

  $ 10,285             $ 640          
                                 

Weighted average common shares outstanding

    21,399               20,637          
                                 

Basic earnings per share

          $ 0.48             $ 0.03  
                                 

Stock options assumed exercised

    398               621          

Weighted average diluted common shares and potential common share equivalents outstanding

    21,797               21,258          
                                 

Diluted earnings per share

          $ 0.47             $ 0.03  

 

Nine Months Ended September 30:

 

2015

   

2014

 

Allocation of earnings:

                               

Net income

  $ 21,047             $ 15,263          

Income allocated to participating securities

    (563 )             (402 )        

Income allocated to common shares outstanding

  $ 20,484             $ 14,861          
                                 

Weighted average common shares outstanding

    21,173               20,474          
                                 

Basic earnings per share

          $ 0.97             $ 0.73  
                                 

Stock options assumed exercised

    453               648          

Weighted average diluted common shares and potential common share equivalents outstanding

    21,626               21,122          
                                 

Diluted earnings per share

          $ 0.95             $ 0.70  

 

 
22

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

Options to purchase the following number of shares of common stock (in thousands) were outstanding during the three and nine months ended September 30, 2015 and 2014 but were excluded from the computation of diluted earnings per share because the adjusted exercise prices of the options based upon the assumed proceeds were greater than the average market price of the shares during that period.

 

 

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
 

2015

   

2014

   

2015

   

2014

 
          25             125  

 

NOTE 14. COMPONENTS OF NET PERIODIC BENEFIT COST

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2015

   

2014

   

2015

   

2014

 
   

(in thousands)

   

(in thousands)

 

Service cost

  $     $     $     $  

Interest cost

    230       274       690       823  

Expected return on plan assets

    (276 )     (298 )     (828 )     (894 )

Amortization of prior service costs

                       

Amortization of net loss

    300       229       900       686  

Net periodic pension cost

  $ 254     $ 205     $ 762     $ 615  

 

For the nine months ended September 30, 2015 and 2014, the Company contributed approximately $1.0 million and $1.5 million, respectively, to the Company’s pension plan. The Company expects to make contributions of $0.2 million to the pension plan during the remainder of 2015.

 

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, are not eligible to participate in the pension plan and further benefits no longer accrue for existing participants.

 

NOTE 15. INDUSTRY SEGMENTS

 

The Company reports in two segments, animal nutrition and human nutrition. These segments are managed separately and information on each segment is provided to the chief operating decision makers as they make decisions about the Company’s overall resource allocation and assess performance.

 

The animal nutrition segment is primarily comprised of the Company’s fishing related assets. These assets produce fish meal, oil and solubles that are sold primarily to animal nutrition customers. A portion of the Company’s fish oil is also partially refined and transferred at cost to the human nutrition segment where it is further refined and concentrated for sale to the human nutrition market. The human nutrition segment is comprised of assets used to produce, procure, market and sell product to human nutrition markets.

 

 
23

 

 

OMEGA PROTEIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)

 

The tables below present information about reported segments for the three months ended September 30, 2015 and 2014 (in thousands). All cash and cash equivalent balances have been included in the identifiable assets of the unallocated segment.

 

2015

 

Animal Nutrition

   

Human Nutrition

   

Unallocated

   

Total

 

Revenue (1)

  $ 73,169     $ 39,047     $     $ 112,216  

Cost of sales

    44,449       32,574             77,023  

Gross profit

    28,720       6,473             35,193  

Selling, general and administrative expense (including research and development)

    767       5,170       6,473       12,410  

Impairment of intangible assets

          3,960             3,960  

Loss related to plant closure

    630                   630  

(Gain) loss on disposal of assets

    (19 )     968             949  

Operating income (loss)

  $ 27,342     $ (3,625 )   $ (6,473 )   $ 17,244  

Depreciation and amortization

  $ 4,575     $ 1,510     $ 129     $ 6,214  

Identifiable assets

  $ 244,791     $ 170,801     $ 1,523     $ 417,115  

Capital expenditures

  $ 5,846     $ 1,218     $ 992     $ 8,056  

 

(1) Excludes revenue from internal customers of $0.8 million for fish oil that was transferred from the animal nutrition segment to the human nutrition segment at cost.

 

2014

 

Animal Nutrition

   

Human Nutrition

   

Unallocated

   

Total

 

Revenue (2)

  $ 55,123     $ 15,641     $     $ 70,764  

Cost of sales

    40,920       15,666             56,586  

Gross profit

    14,203       (25 )           14,178  

Selling, general and administrative expense (including research and development)

    540       2,985       7,299       10,824  

Loss related to plant closure

    1,543                   1,543  

Loss on disposal of assets

    12                   12  

Operating income (loss)