opc_10q-063012.htm

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements and Notes

	Unaudited Condensed Consolidated Balance Sheet as of June 30, 2012 and December 31, 2011	3
	Unaudited Condensed Consolidated Statement of Comprehensive Income for the three months and six months ended June 30, 2012 and 2011	4
	Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2012 and 2011	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

Item 3. Quantitative and Qualitative Disclosures About Market Risk		36

Item 4. Controls and Procedures		36

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		37

Item 1A. Risk Factors		37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		39

Item 3. Defaults Upon Senior Securities		39

Item 4. Mine Safety Disclosures		39

Item 5. Other Information		39

Item 6. Exhibits		39

Signatures		40

	June 30, 2012			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	21,875		$	51,391
Receivables, net		29,523			16,788
Inventories		83,546			64,893
Deferred tax asset, net		36			1,784
Prepaid expenses and other current assets		7,378			2,238

Total current assets		142,358			137,094

Other assets, net		8,810			5,423
Property, plant and equipment, net		128,945			122,512
Goodwill and other intangible assets, net		12,639			12,801

Total assets	$	292,752		$	277,830

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Current maturities of long-term debt	$	3,101		$	2,992
Current portion of capital lease obligation		534			517
Accounts payable		3,425			3,779
Accrued liabilities		31,167			19,818
Total current liabilities		38,227			27,106
Long-term debt, net of current maturities		25,724			27,302
Capital lease obligation, net of current portion		8			268
Energy swap liability, net of current portion		218			113
Deferred tax liability, net		13,577			13,900
Pension liabilities, net		9,864			10,868
Other long-term liabilities		1,774			1,712

Total liabilities		89,392			81,269
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; 19,679,597 and 19,568,851 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively		195			194
Capital in excess of par value		127,083			124,817
Retained earnings		86,569			82,229
Accumulated other comprehensive loss		(10,487	)		(10,679	)

Total stockholders’ equity		203,360			196,561

Total liabilities and stockholders’ equity	$	292,752		$	277,830

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenues	$	45,024		$	44,230		$	84,721		$	100,632
Cost of sales		38,177			29,487			68,982			70,196
Gross profit		6,847			14,743			15,739			30,436

Selling, general, and administrative expense		5,513			4,767			11,031			9,618
Research and development expense		518			499			1,119			984
Proceeds/gains resulting from Gulf of Mexico oil spill disaster		—			(26,177	)		—			(26,177	)
Other proceeds/gains resulting from natural disaster, net – 2005 storms		—			(787	)		—			(787	)
(Gain) loss on disposal of assets		(3,385	)		468			(3,782	)		450
Operating income		4,201			35,973			7,371			46,348
Interest income		3			10			10			28
Interest expense		(301	)		(528	)		(697	)		(1,142	)
Other expense, net		(102	)		(54	)		(188	)		(114	)
Income before income taxes		3,801			35,401			6,496			45,120

Provision for income taxes		1,291			12,496			2,156			16,261
Net income		2,510			22,905			4,340			28,859

Other comprehensive income (loss):

Energy swap adjustment, net of tax (benefit) expense of ($556), ($482), ($162) and $469, respectively		(1,031	)		(998	)		(300	)		849
Pension benefits adjustment, net of tax (benefit) expense of $132, ($82), $265 and $18, respectively		245			195			492			389
Comprehensive income	$	1,724		$	22,102		$	4,532		$	30,097
Basic earnings per share	$	0.13		$	1.18		$	0.22		$	1.51
Weighted average common shares outstanding		19,613			19,343			19,604			19,112

Diluted earnings per share	$	0.13		$	1.14		$	0.22		$	1.45
Weighted average common shares and potential common share equivalents outstanding		20,019			20,141			20,049			19,866

	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Net income	$	4,340		$	28,859
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,798			8,007
Other proceeds/gains resulting from natural disaster, net – 2005 storms		—			(787	)
(Gain) loss on disposal of assets		(3,782	)		450
Provisions for losses on receivables		24			24
Share based compensation		1,796			1,483
Deferred income taxes		1,531			7,895
Changes in assets and liabilities:
Receivables		(12,819	)		(9,065	)
Inventories		(18,653	)		(7,078	)
Prepaid expenses and other current assets		(5,497	)		(1,561	)
Other assets		(3,652	)		(5,954	)
Accounts payable		(354	)		(402	)
Accrued liabilities		11,349			13,918
Pension liability, net		(511	)		(353	)
Other long term liabilities		62			—
Net cash (used in) provided by operating activities		(17,368	)		35,436
Cash flows from investing activities:
Proceeds from disposition of assets		5,811			298
Acquisition of InCon, purchase price adjustment		181			—
Acquisition of Cyvex, net of cash acquired		—			(2,086	)
Capital expenditures		(16,510	)		(9,146	)
Net cash used in investing activities		(10,518	)		(10,934	)
Cash flows from financing activities:
Principal payments of long-term debt		(1,469	)		(1,481	)
Principal payments of capital lease obligation		(243	)		(241	)
Debt issuance costs		(389	)		—
Proceeds from stock options exercised		437			2,858
Excess tax benefit of stock options exercised		34			1,908
Net cash (used in) provided by financing activities		(1,630	)		3,044
Net (decrease) increase in cash and cash equivalents		(29,516	)		27,546
Cash and cash equivalents at beginning of year		51,391			19,784
Cash and cash equivalents at end of period	$	21,875		$	47,330

Omega Protein Corporation (the “Company”) operates through four primary subsidiaries: Omega Protein, Inc., Omega Shipyard, Inc., Cyvex Nutrition, Inc. and InCon Processing, L.L.C. Omega Protein, Inc. (“Omega Protein”), which is the Company’s principal operating subsidiary, operates in the menhaden harvesting and processing business and is the successor to a business conducted since 1913. Omega Shipyard, Inc. (“Omega Shipyard”) owns and operates a drydock facility in Moss Point, Mississippi. Cyvex Nutrition, Inc. (“Cyvex”), founded in 1984 and acquired by the Company in December 2010, is located in Irvine, California and is an ingredient supplier in the nutraceutical industry. InCon Processing, L.L.C. (“InCon”), acquired by the Company in September 2011, is located in Batavia, Illinois and is a specialty toll processor that utilizes molecular distillation technology to concentrate a variety of compound products, including Omega-3 fish oils. The Company also has a number of other immaterial direct and indirect subsidiaries.

Omega Protein Corporation is a nutritional ingredient company and the nation's leading vertically integrated producer of Omega-3 fish oil and specialty fish meal products. 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.

These interim financial statements of the Company 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. Accordingly, certain information and footnote disclosures normally provided have been omitted. The interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011. 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 June 30, 2012, and the results of its operations for the three and six month periods ended June 30, 2012 and 2011 and its cash flows for the six month periods ended June 30, 2012 and 2011. Operating results are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

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 affect on the financial statements.

In 2010, the Company accounted for $18.7 million in payments received during September and October 2010 related to damages incurred from the Gulf of Mexico oil spill disaster in its inventory and cost of sales. The payments partially reduced cost of sales by 10.2%, or $3.0 million for the three months ended June 30, 2011 and 11.7%, or $8.2 million for the six months ended June 30, 2011. In April 2011, the Company agreed to a final settlement of all of its claims for costs and damages incurred as a result of the oil spill caused by the Deepwater Horizon explosion on April 20, 2010. For additional information, see Note 3 – Gulf of Mexico Oil Spill Disaster.

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. Such costs were incurred and offset by proceeds received from the Gulf Coast Claims Facility (“GCCF”) during 2010 and 2011 as a consequence of the Deepwater Horizon explosion and the resulting oil spill in the Gulf of Mexico in April 2010. For additional information, see Note 3 – Gulf of Mexico Oil Spill Disaster.

During the three and six months ended June 30, 2012, the Company received approximately $0.3 million in proceeds, net of deductible, from its business interruption insurance coverage provider related to an incident causing downtime at one of its Gulf of Mexico production facilities in September 2011. The proceeds were calculated based on lost inventory production as well as a small amount of excess costs incurred by the Company as a result of the incident. Given that the Company experienced a slight decrease in production as a result of the incident, the proceeds related to lost inventory production were recognized as an increase in revenues and the proceeds related to excess costs were recognized as a reduction in cost of goods sold.

The Company does not enter into financial instruments for trading or speculative purposes. In conjunction with a prior credit facility, the Company entered into interest rate swap agreements to manage its cash flow exposure to interest rate changes with notional amounts as indicated. As originally established, the swaps effectively converted all the Company’s variable rate debt under a term loan under a prior bank credit facility to a fixed rate, without exchanging the notional principal amounts. Prior to September 30, 2009, these agreements were designated as a cash flow hedge and reflected at fair value in the Company’s Consolidated Balance Sheet as a component of total liabilities, and the related gains or losses were deferred in stockholders’ equity as a component of accumulated other comprehensive loss.

In September and October 2009, the Company prepaid all of the borrowings outstanding under the Term Loan under its prior credit facility. As a consequence of this debt prepayment and refinancing, the Company determined that the forecasted interest payments associated with the interest rate swaps would not occur. As a result, hedge accounting relating to the interest rate swaps was discontinued and all amounts previously recognized in accumulated other comprehensive loss were reclassified to interest expense during 2009. As of December 31, 2011, the Company recorded a $103,100 liability to recognize the fair value of interest rate derivatives. The interest rate swap agreements matured at the end of March 2012 and are no longer outstanding.

The Company does not enter into financial instruments for trading or speculative purposes. During 2012, 2011 and 2010, 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.

Energy Swap	Consumption Period			Quantity	Price Per Unit		Energy Swap Asset/(Liability) as of June 30, 2012			Deferred Tax Asset/(Liability) as of June 30, 2012
Diesel - NYMEX Heating Oil Swap	July	-	November, 2012	2,164,500 Gallons	$	2.87	$	(267,000	)	$	93,500
Natural Gas - NYMEX Natural Gas Swap	July	-	October, 2012	337,777 MMBTUs	$	4.00		(401,000	)		140,400
Fuel Oil - No.6 1.0% NY-Platts Swap	July	-	November, 2012	1,251,390 Gallons	$	2.32		(132,600	)		46,400
Diesel - NYMEX Heating Oil Swap	May	-	November, 2013	972,000 Gallons	$	2.85		(96,400	)		33,700
Natural Gas - NYMEX Natural Gas Swap	April	-	October, 2013	312,000 MMBTUs	$	4.06		(160,400	)		56,100
Fuel Oil - No.6 1.0% NY-Platts Swap	May	-	November, 2013	676,200 Gallons	$	2.26		(50,800	)		17,800
							$	(1,108,200	)	$	387,900

Energy Swap	Consumption Period			Quantity	Price Per Unit		Energy Swap Asset (Liability) as of December 31, 2011			Deferred Tax Asset (Liability) as of December 31, 2011
Diesel - NYMEX Heating Oil Swap	May	-	November, 2012	2,779,000 Gallons	$	2.87	$	(56,200	)	$	19,700
Natural Gas - NYMEX Natural Gas Swap	April	-	October, 2012	308,000 MMBTUs	$	4.90		(507,000	)		177,400
Fuel Oil – No.6 1.0% NY-Platts Swap	May	-	November, 2012	1,584,240 Gallons	$	2.33		29,700			(10,400	)
Natural Gas - NYMEX Natural Gas Swap	April	-	October, 2013	104,000 MMBTUs	$	5.00		(113,100	)		39,600
							$	(646,600	)	$	226,300

As of June 30, 2012 and December 31, 2011, Omega Protein has recorded a long-term liability of $217,800 and $113,100, respectively, net of the current portion included in accrued liabilities of $890,400 and $533,500, respectively, to recognize the fair value of energy swap derivatives. The effective portion of the change in fair value from inception to June 30, 2012 is recorded in “accumulated other comprehensive loss” in the Company’s consolidated financial statements. The following table illustrates the changes recorded, net of tax, in accumulated other comprehensive loss resulting from the energy swap agreements.

Omega Shipyard is engaged in a single fixed price construction contract with a third party that is expected to be completed in the fourth quarter of 2012. The contract calls for revenue to be billed as milestones are attained based on the total estimated construction cost. The Company recognizes revenue and expenses related to the contract on a percentage of completion basis based on a ratio that costs incurred to date bear to total projected costs. If at any time the Company projects a loss on a construction contract, the estimated total loss is immediately recognized once it is deemed probable to occur.

During the quarter ended June 30, 2012, Omega Shipyard revised its total estimated construction costs such that the Company expects to have gross loss upon completion. As a result, gross profit recognized on the contract in previous quarters was reversed and the full extent of the expected loss was recognized during the quarter ended June 30, 2012. For the three and six months ended June 30, 2012, the Company incurred gross losses of $0.6 million and $0.3 million, respectively, with respect to the construction contract.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The standard requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The amendments in this update will enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments to help reconcile differences in the offsetting requirements under U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is evaluating the impact, if any, the adoption of this standard will have on its consolidated financial statements.

In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities the option of performing a qualitative assessment to determine whether further impairment testing is necessary. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company’s adoption of FASB ASU No. 2011-08 effective January 1, 2012 did not have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. An entity may present items of net income and other comprehensive income in one continuous statement, or in two separate, but consecutive statements. The change is intended to enhance comparability between entities that report under U.S. GAAP and those that report under International Financial Reporting Standards (IFRS), and to provide a more consistent method of presenting non-owner transactions that affect an entity’s equity. The guidance is effective as of the beginning of a fiscal year that begins after December 15, 2011, which corresponds to the Company’s first fiscal quarter beginning January 1, 2012. However, in December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which deferred the guidance on whether to require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements. ASU 2011-12 reinstated the requirements for the presentation of reclassifications that were in place prior to the issuance of ASU 2011-05 and did not change the effective date for ASU 2011-05. For public entities, the amendments in ASU 2011-05 and ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. The Company’s adoption of these standards effective January 1, 2012 did not have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

In May 2011, the FASB issued ASU No. 2011-04 regarding fair value measurements and disclosures. This new guidance clarifies the application of existing fair value measurement guidance and revises certain measurement and disclosure requirements to achieve convergence with IFRS. This guidance is effective for the first interim or annual period beginning after December 15, 2011, which corresponds to the Company’s first fiscal quarter beginning January 1, 2012. The Company’s adoption of FASB ASU No. 2011-04 effective January 1, 2012 did not have an impact on the Company’s consolidated results of operations, financial position and related disclosures.

The Company has a stock-based compensation plan, which is described in more detail in Note 16 to the consolidated financial statements of the Company’s Form 10-K for the fiscal year ended December 31, 2011. The Company has issued non-qualified stock options under its stock incentive plans. The options generally vest in equal installments over three years and expire in ten years. Non-vested options are generally forfeited upon termination of employment.

Net income for the three months ended June 30, 2012 and 2011 includes $0.7 million and $0.8 million ($0.5 million and $0.5 million after-tax), respectively, of stock-based compensation costs related to stock options. Net income for the six months ended June 30, 2012 and 2011 includes $1.5 million and $1.5 million ($1.0 million and $1.0 million after-tax), respectively, of stock-based compensation costs related to stock options. The stock-based compensation costs related to stock options are recorded primarily in selling, general and administrative expenses in the unaudited condensed consolidated statement of comprehensive income. As of June 30, 2012 there was $2.2 million ($1.4 million after-tax) of total unrecognized compensation costs related to non-vested stock options that is expected to be recognized over a weighted-average period of 0.9 years, of which $1.6 million ($1.0 million after-tax) of total stock option compensation is expected to be recognized during the remainder of fiscal year 2012.

The Company has also issued shares of restricted stock under its 2006 Incentive Plan. Holders of shares of restricted stock are entitled to all rights of a stockholder of the Company with respect to the restricted stock, including the right to vote the shares and receive any dividends or other distributions. The shares are considered issued and outstanding on the date granted and are included in the basic earnings per share calculation.

During the six month periods ended June 30, 2012 and 2011, the Company issued 25,000 shares and 0 shares, respectively, of restricted stock under the 2006 Incentive Plan. The Company’s compensation expense related to restricted stock was approximately $0.1 million and $0 ($0.1 million and $0 after-tax) for the three months ended June 30, 2012 and 2011, respectively, and $0.3 million and $0 ($0.2 million and $0 after-tax) for the six months ended June 30, 2012 and 2011, respectively, which is primarily reflected in selling, general and administrative expenses in the unaudited condensed consolidated statement of comprehensive income. As of June 30, 2012, there was approximately $1.4 million ($0.9 million after tax) of unrecognized compensation cost related to non-vested restricted stock that is expected to be recognized over a weighted-average period of 2.4 years, of which $0.3 million ($0.2 million after-tax) of total restricted stock compensation is expected to be recognized during the remainder of fiscal year 2012.

In September 2011, the Company acquired all of the outstanding equity of InCon Processing, L.L.C., a Delaware limited liability company, in a cash transaction pursuant to the terms of an equity purchase agreement. The equity of InCon was indirectly held by four individuals (the “Sellers”), three of whom continue to be employed by InCon and manage InCon’s business. InCon is now a wholly owned subsidiary of the Company. InCon is a specialty toll processor that designs, pilots, synthesizes and purifies specialty chemical compounds, utilizing molecular distillation technology to concentrate a variety of compound products, including Omega-3 fish oils.

At closing, the Company paid an aggregate cash purchase price for the equity of InCon of $8.7 million, utilizing cash on hand, and also paid $0.6 million representing InCon’s estimated working capital on the closing date. The working capital portion of the purchase price was subject to a post-closing adjustment to account for differences between estimated working capital and actual working capital of InCon as of the closing date. During the six months ended June 30, 2012, the Company received a payment from the Sellers of $0.2 million to account for the final working capital adjustment.

The unaudited financial information in the table below summarizes the combined results of operations of the Company and InCon on a pro forma basis, as though the companies had been combined as of January 1, 2011. 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, 2011 and is not intended to be a projection of future results or trends.

As a result of the oil spill caused by the Deepwater Horizon oil rig explosion in the Gulf of Mexico in April 2010 and the subsequent temporary and intermittent closures of certain commercial and recreational fishing grounds by the Louisiana Department of Fisheries and Wildlife, the Mississippi Department of Marine Resources and the National Oceanic and Atmospheric Administration (“NOAA”), Omega Protein’s total fish catch for 2010 was materially impacted. In addition, Omega Protein incurred costs associated with the temporary re-deployment of many of its Gulf of Mexico fishing vessels, costs to purchase fish meal from third party vendors to offset lost production, and increased costs per unit of production resulting from intermittent plant closures.

In September and October 2010, Omega Protein received its first and second emergency payments from the GCCF of $7.3 million and $11.4 million, respectively. The majority of the first and second emergency payments were credited to the 2010 unallocated inventory cost pool (including off-season costs). Because both of these payments were included in the cost per unit of production calculation for the 2010 fishing season, cost of sales was partially reduced by 10.2%, or $3.0 million for the three months ended June 30, 2011 and 11.7%, or $8.2 million for the six months ended June 30, 2011.

The Gulf of Mexico oil spill disaster directly affected Omega Protein by decreasing its fish catch due to the closure of state and federal fishing grounds and increased the cost of its normal fishing effort due to the repositioning and staging of its fleet at other locations. The decrease in fish catch reduced Omega Protein’s volume of inventory available to sell which reduced its sales volumes and revenues for the third and fourth quarters of 2010 and first and second quarters of 2011. The decrease in fish catch and additional costs incurred related to Omega Protein’s 2010 standard cost were partially offset by the receipt of two GCCF emergency payments, as described above.

In April 2011, the Company agreed to a final settlement of all of its claims for costs and damages incurred as a result of the oil spill caused by the Deepwater Horizon explosion and received a final payment of $26.2 million, net of fees and expenses, from the GCCF. The amount was recognized as “Proceeds/gains resulting from Gulf of Mexico oil spill disaster” in the Company’s Consolidated Statement of Operations for the year ended December 31, 2011, and is more fully explained in Note 3 to the consolidated financial statements of the Company’s Form 10-K for the fiscal year ended December 31, 2011.

The Company carries insurance for certain losses relating to its fishing unit’s vessels and Jones Act liability for employees aboard its vessels (collectively, “Vessel Claims Insurance”). The typical Vessel Claims Insurance policy contains a per incident stop loss and an annual aggregate deductible (“AAD”) for which Omega Protein remains responsible, while the insurance carrier is responsible for all applicable amounts which exceed the per incident stop loss and AAD. It is Omega Protein’s policy to accrue current amounts due and record amounts paid out on each claim. Once payments exceed the per incident stop loss and AAD, Omega Protein records an insurance receivable for a given policy year, net of allowance for doubtful accounts. As of June 30, 2012 and December 31, 2011, the allowance for doubtful insurance receivable accounts was $0 million.

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 month periods ended June 30, 2012 and 2011, the Company capitalized interest of approximately $212,100 and $35,900, respectively. For the six month periods ended June 30, 2012 and 2011, the Company capitalized interest of approximately $398,100 and $51,900, respectively.

On June 1, 2012, the Company completed the sale of its Morgan City, Louisiana facility. The property last operated as a processing facility in 1999 but had recently been used primarily as a storage and training facility. Net cash proceeds from the sale after preparation costs, fees and expenses were approximately $5.1 million. For the three and six months ended June 30, 2012, the Company recognized a gain on the sale of approximately $3.7 million which is included in gain on disposal of assets in the Company’s statement of comprehensive income. In addition to the preceding amount, the Company recorded an estimated reserve of $250,000 which the Company will receive as an additional escrow payment from the seller if certain post-closing environmental testing procedures on the property are satisfactorily completed. To the extent that the escrow amount received differs from the estimated reserve, the Company will recognize additional gain or loss on the sale in subsequent periods. That difference is not expected to be material.

	June 30, 2012			December 31, 2011
	(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 7.6%	$	28,733		$	30,181
Amounts due in installments through 2014, interest at Eurodollar rates plus 0.5% (0.9% and 0.8% at June 30, 2012 and December 31, 2011, respectively)		92			113
Total debt		28,825			30,294
Less current maturities		(3,101	)		(2,992	)
Long-term debt	$	25,724		$	27,302

On March 21, 2012, the Company entered into an 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, National Association and JP Morgan Chase 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 $60.0 million (the “Commitment”). The Commitment includes a sub-facility for swingline loans up to an amount not to exceed $5.0 million, a sub-facility for standby letters of credit up to an amount not to exceed $15.0 million and an accordion feature that allows the Company to increase the amount of the Commitment up to an additional $10.0 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 with Wells Fargo Bank, National Association. On the Closing Date, no amounts were outstanding under the existing senior secured credit facility and approximately $3.3 million in letters of credit were issued primarily in support of the Company’s worker’s compensation insurance programs. The Company incurred $0.4 million in deferred debt issuance costs associated with the Loan Agreement.

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

The Company is required to maintain on a consolidated basis Tangible Net Worth equal to at least the sum of the following: (a) $150,000,000, plus (b) 50% of net income (if positive, with no deduction for losses) earned in each quarterly accounting period commencing after June 30, 2011, plus (c) 100% of the net proceeds from any Equity Interests (as defined in the Loan Agreement) issued after the date of the Loan Agreement, plus (d) 100% of any increase in stockholders’ equity resulting from the conversion of debt securities to Equity Interests after the Closing Date.

All Loans and all other obligations outstanding under the Loan Agreement shall be payable in full on March 21, 2017. As of June 30, 2012 and December 31, 2011, the Company had no amounts outstanding under the $60 million Loan Agreement and $35 million prior revolving credit facility, respectively, and approximately $3.3 million in letters of credit. The Company has no off-balance sheet arrangements other than normal operating leases and standby letters of credit.

	June 30, 2012		December 31, 2011
	(in thousands)
Insurance	$	10,997	$	8,475
Salary and benefits		8,897		3,638
Trade creditors		6,483		4,908
Taxes, other than federal income tax		1,344		51
Deferred revenue		1,716		361
Fair market value of energy swaps, current portion		890		534
Fair market value of interest rate swap, current portion		—		103
Legal reserves		266		525
Contractual obligations		250		618
Accrued interest		229		251
Other		95		354
Total accrued liabilities	$	31,167	$	19,818

In May 2012, the Company entered into a contract to purchase 4,000,000 gallons of renewable diesel oil (“RDO”) beginning in July 2012 through the 2013 fishing season. The RDO will be utilized in one of the Company’s four fish processing plants. The contract is priced at a discount to prevailing market prices of the BTU equivalent of Platts NY Harbor 2.2% Sulfur NO.6 Oil as delivery is made throughout the fishing seasons.

In September 2011, the Company acquired all of the outstanding equity of InCon Processing, L.L.C., (“InCon”), a Delaware limited liability company, in a cash transaction pursuant to the terms of an equity purchase agreement. The equity of InCon was indirectly held by four individuals (the “Sellers”), three of whom continue to be employed by InCon and manage InCon’s business. InCon is now a wholly owned subsidiary of the Company.

In addition to the acquisition date cash purchase price, the Sellers may also earn additional amounts based on the annual earnings before interest, taxes, depreciation, and amortization (“EBITDA”) of InCon’s toll processing and specialty product business during calendar years 2012 through 2016. The annual earn-out payments are determined based on a percentage of InCon’s EBITDA which percentage ranges from five percent (5%) of the first $3.0 million of EBITDA to thirty percent (30%) of EBITDA in excess of $12.0 million.

The annual earn-out payments, if any, will be estimated on a quarterly basis and paid subsequent to year end. The Company will record the estimated contractual obligation as compensation expense during each year as it is deemed probable that such amount will be payable. In addition, the earn-out payments are subject to certain reductions associated with future InCon capital expenditures and forfeitures based on termination of employment. For the six months ended June 30, 2012, the Company has not recorded an annual earn-out estimate.

On May 18, 2011, the Company’s fishing vessel, F/V Sandy Point, was involved in a collision with a commercial cargo vessel, Eurus London. As a result of the collision, the Company’s vessel sank and three Company crew members died. The Company has filed a limitation action under maritime law to limit its potential liability for the incident to $50,000, the value of the sunken vessel, in the U.S. District Court for the Southern District of Mississippi. Representatives of the three deceased crewmembers, as well as certain other crewmembers, have filed lawsuits against the Company alleging damages under various theories of liability. Any claims arising from the incident are expected to be covered by the Company’s insurance program, subject to customary deductibles, which are not expected to have a material adverse effect on the Company’s business, financial results or results of operations.

In conjunction with the sinking of the vessel, the Company recorded a net insurance receivable of approximately $5.9 million related primarily to costs expended salvaging the sunken vessel from the Mississippi ship channel and other claims and a net receivable of $1.8 million related to the insurance value of the vessel. The $1.8 million receivable related to the vessel value was received in 2011. An additional $2.6 million related to the salvage of the vessel has been received from the Company’s primary insurance carrier, including $0.1 million during the first six months of 2012. As of June 30, 2012, the Company has an insurance receivable of approximately $3.4 million related to salvaging costs and other claims.

In March 2010, the Company was named as one of the defendants in a lawsuit filed in the Superior Court of the State of California, County of San Francisco, by Chris Manthey, Benson Chiles and Mateel Environmental Justice Foundation. The plaintiffs allege that fish oil dietary supplements produced by the defendants do not have adequate warnings regarding possible exposure to polychlorinated biphenyls (PCBs) as required by Proposition 65 under California law, and request that the court grant injunctive relief and award monetary civil penalties. The Company’s total fish oil supplement sales in the State of California since inception have been immaterial and the Company believes that its products comply fully with federal law promulgated by the U.S. Food & Drug Administration, standards of the European Commission and state law, including California. In July 2012, the Company agreed to settle the lawsuit for $30,000, subject to court approval.

In April 2010, the Company received a request for information pursuant to Section 308 of the Federal Water Pollution Control Act (Clean Water Act) from Region 3 of the United States Environmental Protection Agency (the “EPA”) concerning the Company’s wastewater practices used in its fishing operations at its Reedville, Virginia facility. The Company responded to the request. The Company cannot predict the outcome of the EPA’s review.

In February 2011, the United States Coast Guard conducted inspections of the vessels at the Company’s Reedville, Virginia facility regarding the vessels’ bilge water discharge practices. Based on the results of those inspections and subsequent communications with the Coast Guard, the Company conducted a survey of its Virginia fishing fleet to determine compliance with applicable laws and regulations. Following the completion of certain improvements and repairs, the Coast Guard inspected the vessels and all but two were approved for full operations prior to the beginning of the 2011 Atlantic fishing season. The other two vessels were approved for full operations shortly after the beginning of the fishing season and the delay did not materially impact the fleet’s Atlantic fishing operations.

The Company spent approximately $3.0 million during 2011 to make the above improvements and repairs to the Reedville fleet. The Company is evaluating the vessels in its Gulf fleet based on the review of its Reedville vessels. Based on the results of that evaluation, it is likely that the Company will incur additional costs to make improvements and repairs to its Gulf fleet. The Company had requested a waiver from the Coast Guard for its Atlantic and Gulf of Mexico fleets regarding the use of certain vessel equipment applicable to “ocean-going vessels” (as defined by Coast Guard regulations) that operate beyond the 12 nautical mile limit and in May 2012 the Coast Guard granted the Company a partial waiver for its 2012 fishing season only that allows the Company to travel, but not fish, outside 12 nautical miles of shore. If the Coast Guard does not extend the waiver in 2013, the Company will have to restrict its fishing operations to within 12 nautical miles of shore or install additional equipment on its vessels which will result in additional expense.

The U.S. Attorney’s Office for the Eastern District of Virginia is reviewing both the results of the Coast Guard’s inspection of the Reedville fleet and the EPA request for information, and is currently evaluating whether any civil or criminal enforcement action is warranted. The U.S. Attorney’s Office has indicated that some form of civil and/or criminal disposition is under consideration, but no specific disposition has yet been determined and the Company’s discussions with that Office are ongoing. Depending on the specific details of that disposition, it is possible that the disposition could have an adverse effect on the Company’s business, results of operations or financial condition. During the first six months of 2012, the Company recognized $0.3 million in expenses related to this matter and as of June 30, 2012, the Company has recorded a $0.2 million reserve related to legal expenses.

In May 2012, the North Carolina Division of Marine Fisheries in the Department of Environment and Natural Resources issued a proclamation that banned the commercial fishing of menhaden using purse seine netting in North Carolina state waters. This proclamation prohibits the Company’s fishing operations in these state waters. Federal waters outside the North Carolina three-nautical mile state water limit remain unaffected. In 2011, the Company caught approximately 1.6% of its total 2011 fish catch in North Carolina state waters.

In September 2011, the Company acquired all of the outstanding equity of InCon Processing, L.L.C., (“InCon”), a Delaware limited liability company, in a cash transaction pursuant to the terms of an equity purchase agreement. The equity of InCon was indirectly held by four individuals (the “Sellers”), three of whom continue to be employed by InCon and manage InCon’s business. During the six months ended June 30, 2012, the Company received a payment from the Sellers of $0.2 million to account for a final working capital adjustment in conjunction with the acquisition.

The Sellers own and operate privately held businesses with which InCon continues to provide toll distillation services and pilot plant runs, primarily InCon Process Systems and InCon Industries. The services for these related party transactions are generally invoiced at prevailing market prices. During the three and six month periods ending June 30, 2012, InCon recorded revenue of approximately $1,400 and $6,600 respectively, from these related parties. Purchases from these same related parties were approximately $2,500 for the three and six month periods ending June 30, 2012.

	Earnings (Numerator)		Shares (Denominator)		Per Share Data
Three Months Ended June 30, 2012
Net earnings	$	2,510		―

Basic earnings per common share:
Earnings available to common shareholders	$	2,510		19,613	$	0.13

Effect of dilutive securities:
Stock options assumed exercised		―		406

Diluted earnings per common share:
Earnings available to common shareholders plus stock options assumed exercised	$	2,510		20,019	$	0.13

	Earnings (Numerator)		Shares (Denominator)		Per Share Data
Three Months Ended June 30, 2011
Net Earnings	$	22,905		―

Basic earnings per common share:
Earnings available to common shareholders	$	22,905		19,343	$	1.18

Effect of dilutive securities:
Stock options assumed exercised		―		798

Diluted earnings per common share:
Earnings available to common shareholders plus stock options assumed exercised	$	22,905		20,141	$	1.14

	Earnings (Numerator)		Shares (Denominator)		Per Share Data
Six Months Ended June 30, 2012
Net earnings	$	4,340		―

Basic earnings per common share:
Earnings available to common shareholders	$	4,340		19,604	$	0.22

Effect of dilutive securities:
Stock options assumed exercised		―		445

Diluted earnings per common share:
Earnings available to common shareholders plus stock options assumed exercised	$	4,340		20,049	$	0.22

	Earnings (Numerator)		Shares (Denominator)		Per Share Data
Six Months Ended June 30, 2011
Net earnings	$	28,859		―

Basic earnings per common share:
Earnings available to common shareholders	$	28,859		19,112	$	1.51

Effect of dilutive securities:
Stock options assumed exercised		―		754

Diluted earnings per common share:
Earnings available to common shareholders plus stock options assumed exercised	$	28,859		19,866	$	1.45

Options to purchase 1,311,000 and 1,266,000 shares of common stock at exercise prices ranging from $6.53 to $14.69 per share were outstanding during the three and six months ended June 30, 2012, respectively, but were not included in 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.

Options to purchase 135,000 shares of common stock at exercise prices ranging from $13.41 to $14.69 per share were outstanding during the three and six months ended June 30, 2011, respectively, but were not included in 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.

At June 30, 2012, the Company had no borrowings under its bank credit facility and $3.3 million in letters of credit support obligations outstanding. The carrying values and respective fair values of the Company’s long-term debt are presented below (in thousands). The fair value of the Company’s long-term debt is estimated based on the quoted market prices available to the Company for issuance of similar debt with similar terms and therefore is categorized as Level 2 in the fair value hierarchy.

The following tables set forth by level within the fair value hierarchy the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis. As required by FASB ASC 820-10, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3 Inputs) (in thousands)
	Three Months Ended June 30,					Six Months Ended June 30,
	2012		2011			2012			2011
Beginning liability balance	$	—	$	(549	)	$	(103	)	$	(721	)

Net loss reclassified into interest expense related to interest rate swap transactions unrealized		—		(14	)		—			(27	)
Net change associated with current period interest rate swap transactions realized		—		169			103			354

Ending liability balance	$	—	$	(394	)	$	—		$	(394	)

Forward-looking statements in this Form 10-Q, future filings by the Company with the Securities and Exchange Commission (the “Commission”), the Company’s press releases and oral statements by authorized officers of the Company are intended to be subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainty. The Company believes that forward-looking statements made by it are based on reasonable expectations; however, no assurances can be given that actual results will not differ materially from those contained in such forward-looking statements. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include the words “estimate,” “project,” “anticipate,” “expect,” “predict,” “assume,” “believe,” “could,” “would,” “hope,” “may,” or similar expressions.

Omega Protein Corporation is a nutritional ingredient company and the nation's leading vertically integrated producer of Omega-3 fish oil and specialty fish meal products. As used herein, the term the “Company” refers to Omega Protein Corporation and its consolidated subsidiaries, as applicable. The Company’s principal executive offices are located at 2105 City West Boulevard, Suite 500, Houston, Texas 77042-2838 (Telephone: (713) 623-0060).

The Company operates through four primary subsidiaries: Omega Protein, Inc., Omega Shipyard, Inc., Cyvex Nutrition, Inc. and InCon Processing, L.L.C. Omega Protein, Inc. (“Omega Protein”), the Company’s principal operating subsidiary, operates in the menhaden harvesting and processing business and is the successor to a business conducted since 1913. Omega Shipyard, Inc. (“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. Cyvex Nutrition, Inc. (“Cyvex”), founded in 1984 and acquired by the Company in December 2010, is located in Irvine, California and participates in the nutraceutical industry as an ingredient provider. InCon Processing, L.L.C. (“InCon”), acquired by the Company in September 2011, is located in Batavia, Illinois and is a specialty toll processor that utilizes molecular distillation technology to concentrate a variety of compound products, including Omega-3 fish oils. The Company also has a number of other immaterial direct and indirect subsidiaries.

Omega Protein produces and sells a variety of protein and oil products derived from menhaden, a species of wild herring-like fish found along the Gulf of Mexico and Atlantic coasts. The fish are not genetically modified or enhanced. Omega Protein markets several grades of fish meal, as well as fish oil 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 used primarily for animal and aquaculture feeds, and also 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.

All of Omega Protein’s products contain healthy long-chain Omega-3 fatty acids. Omega-3 fatty acids are commonly referred to as “essential fatty acids” because human and animal bodies do not produce them. Instead, essential fatty acids must be obtained from outside sources, such as food or special supplements. Long-chain Omega-3s are also commonly referred to as a “good fat” for their health benefits, as opposed to “bad fats” that create or aggravate health conditions through long-term consumption. Scientific research suggests that long-chain Omega-3s as part of a balanced diet may provide significant benefits for health issues such as cardiovascular disease, inflammatory conditions and other ailments.

Under its production process, Omega Protein produces OmegaPure®, a taste-free, odorless refined fish oil which is the only marine source of long-chain Omega-3s directly affirmed (as opposed to self affirmed) by the U.S. Food and Drug Administration (“FDA”) as a food ingredient that is Generally Recognized as Safe (“GRAS”). Omega Protein also produces OmegaActiv ™, a concentrated form of OmegaPure® which is marketed as a dietary supplement.

Omega Protein operates four menhaden processing plants: two in Louisiana, one in Mississippi and one in Virginia. It also operates a Health and Science Center in Reedville, Virginia, which provides 100-metric tons per day fish oil input capacity for the Company’s food, industrial and feed grade oils. Omega Protein’s technical center in Houston, Texas, the Omega Protein Technology and Innovation Center, has food science application labs as well as analytical, sensory, lipids research and pilot plant capabilities.

OMEGA PROTEIN CORPORATION

In December 2010, the Company acquired Cyvex, a dietary supplement ingredient supplier based in Irvine, California. Cyvex is a nutraceutical supplier to dietary supplement manufacturers that focus on human health and wellness. The Company believes that the acquisition of Cyvex will expand its presence in the human health and wellness market and will provide access to supplement manufacturers who purchase a variety of ingredients, including fish oil.

In September 2011, the Company acquired InCon, a specialty toll processor that designs, pilots, synthesizes and purifies specialty chemical compounds utilizing molecular distillation technology to concentrate a variety of compound products, including Omega-3 fish oils. The Company believes that the acquisition of InCon’s concentration technology will allow Omega Protein to provide its customers with an enhanced range of Omega-3 fish oils in concentrated forms such as ethyl esters and triglycerides. The concentrated fish oils manufactured by InCon are expected to be marketed and sold under the Company’s OmegaActiv™ brand by Cyvex.

2012 Fishing Information. At June 30, 2012, Omega Protein owned a fleet of 44 fishing vessels and 34 spotter aircraft for use in its fishing operations and also leased additional aircraft where necessary to facilitate operations. During the 2012 fishing season in the Gulf of Mexico, which runs from mid-April through October, Omega Protein is operating up to 26 fishing and carry vessels and 29 spotter aircraft. The fishing area in the Gulf is generally located along the Gulf Coast, with a concentration off the Louisiana and Mississippi coasts. The fishing season along the Atlantic coast begins in early May and usually extends into December. Omega Protein is operating up to 9 fishing and carry vessels and 7 leased spotter aircraft along the Mid-Atlantic coast, concentrated primarily in and around Virginia. The remaining fleet of fishing vessels and spotter aircraft are not routinely operated during the fishing season and are back-up to the active fleet, used for other transportation purposes, inactive or in the process of refurbishment in the Company’s shipyard. Historical fish catch and production results at the end of the second quarter for the past five years are as follows:

The Company cautions that, because of the volatility of fish catch generally, partial year catch numbers are not indicative of results that may be expected for a full year. In addition, fish oil yields, which affect inventory costs and volumes available for sale, fluctuate from year to year and month to month. The Company’s 2012 oil yield results through June 30, 2012 have been the poorest in its recent history. For illustrative purposes, the Company’s oil yields for the 2012 fishing season through June 30, 2012 were lower by 24.9% compared to those in the same period in the 2011 fishing season and were lower by 44.8% compared to the Company’s five year oil yield average. Total yields decreased by 6.9% compared to those in the same 2011 fishing season and were lower by 12.3% compared to the Company’s five year total yield average, due primarily to the lower fish oil yields. The Company believes that fish yields are influenced by multiple factors, including but not limited to, fish diet, weather, water temperature, fish population and age of fish, but such possible relationships and inter-relationships are not generally well understood. The impact of these poor oil yields has resulted in significantly higher per unit inventory cost and fewer volumes available for future sale. These higher unit costs and fewer volumes available for sale have adversely impacted financial results for the second quarter of 2012 and can be expected to adversely affect financial results through the second quarter of 2013.

Sales Contracts. Omega Protein sells a material portion of its products on a two-to-twelve-month forward contract basis with the balance sold on a spot basis through purchase orders. Omega Protein’s sales contracts generally contain force majeure and other production allocation provisions. Historically, fish meal and fish oil sold on a forward contract basis has fluctuated from year to year based upon perceived market availability and forward price expectations. As of June 30, 2012, Omega Protein had sold forward on a contract basis up to approximately 91,000 short tons of fish meal and 27,000 metric tons of fish oil for 2012, contingent on 2012 production and product availability. As a basis of comparison, as of June 30, 2011 Omega Protein had sold forward on a contract basis approximately 56,000 short tons of fish meal and 38,000 metric tons of fish oil for 2011.

Omega Protein’s annual revenues are highly dependent on pricing, annual fish catch, production yields and inventories and, in addition, inventory is generally carried over from one year to the next year. Omega Protein determines the level of inventory to be carried over based on existing contracts, prevailing market prices of the products and anticipated customer usage and demand during the off-season. Thus, production volume does not necessarily correlate with sales volume in the same year and sales volumes will fluctuate from quarter to quarter. Omega Protein’s fish meal products have a useable life of approximately one year from date of production. Practically, however, Omega Protein attempts to empty its warehouses of the previous season’s products by the second or third month of the new fishing season. Omega Protein’s crude fish oil products do not lose efficacy unless exposed to oxygen and, therefore, their storage life typically is longer than that of fish meal.

Omega Protein’s products are sold both in the U.S. and internationally. International sales consist of both fish meal and fish oil and are primarily to China, Norway, Canada, Chile, Saudi Arabia and Japan. Omega Protein’s sales in these foreign markets are denominated in U.S. dollars and are not directly affected by currency fluctuations. Such sales could be adversely affected by changes in demand resulting from fluctuations in currency exchange rates.

A number of countries in which Omega Protein currently sells products impose various tariffs and duties, none of which have a significant impact on Omega Protein’s foreign sales. Certain of these duties have been reduced in recent years for certain countries under the North American Free Trade Agreement and the Uruguay Round Agreement of the General Agreement on Tariffs and Trade. In all cases, Omega Protein’s products are shipped to its customers either by free on board shipping point or costs, insurance and freight terms, and therefore, the customer is responsible for any tariffs, duties or other levies imposed on Omega Protein’s products sold into these markets.

During the off season, Omega Protein fills purchase orders from the inventory it has accumulated during the fishing season or in some cases, by re-selling meal and oil purchased from other suppliers. Generally, prices for Omega Protein’s products tend to be lower during the fishing season when product is more abundant than in the off season. Throughout the entire year, prices are often significantly influenced by supply and demand in world markets for competing products, primarily other global sources of fish meal and oil, and also soybean meal for its fish meal products, and vegetable oils for its fish oil products when used as an alternative.

Competition. Omega Protein competes with a smaller domestic privately-owned menhaden fishing company and with numerous fish processors outside the United States. In addition, but to a lesser extent, the Company’s marine protein and oil business is also subject to significant competition from producers of vegetable and other animal protein products and oil products such as Darling International, Archer Daniels Midland and Cargill. Many of these competitors have significantly greater financial resources and more extensive and diversified operations than those of the Company.

Omega Protein competes on price, quality and performance characteristics of its products, such as protein level and amino acid profile in the case of fish meal. The principal competition for Omega Protein’s fish meal and fish solubles is from other global production of marine proteins as well as other protein sources such as soybean meal and other vegetable or animal protein products. Omega Protein believes, however, that these other non-marine sources are not complete substitutes because fish meal offers nutritional values not contained in such other sources. Other globally produced fish oils provide the primary market competition for Omega Protein’s fish oil, as well as soybean and rapeseed oil.

Fish meal prices have generally borne a relationship to prevailing soybean meal prices, while prices for fish oil are generally influenced by prices for vegetable oils, such as rapeseed, soybean and palm oils. Thus, the prices for Omega Protein’s products are established by worldwide supply and demand relationships over which Omega Protein has no control and tend to fluctuate significantly over the course of a year and from year to year. For example, during 2011, Omega Protein experienced fish oil price increases of approximately 26% when compared to 2010, and rapeseed oil and soybean oil prices rose 34% and 29%, respectively.

Regulation. Omega Protein’s operations are subject to federal, state and local laws and regulations relating to the locations and periods in which fishing may be conducted as well as environmental and safety matters. At the state and local level, certain state and local government agencies have enacted legislation or regulations which prohibit, restrict or regulate menhaden fishing within their jurisdictional waters.

Omega Protein’s menhaden fishing operations are also subject to regulation by two interstate compact commissions created by federal law: the Atlantic States Marine Fisheries Commission (“ASMFC”) which consists of 15 states along the Atlantic Coast, and the Gulf States Marine Fisheries Commission which consists of 5 states along the Gulf of Mexico. The ASMFC manages the menhaden fishery throughout the stock’s coast-wide range. In 2005, the ASMFC recommended precautionary restrictions on the Chesapeake Bay menhaden harvest, despite its finding that menhaden are not overfished and that overfishing is not occurring on a coast wide basis, in order to determine whether localized depletion was occurring in Chesapeake Bay.

In February 2007, the Commonwealth of Virginia declined to adopt an ASMFC recommended plan but instead adopted its own restrictions whereby Omega Protein’s Chesapeake Bay menhaden harvest was capped for a five year period (and subsequently extended for an additional three-year period) at a five-year average (2001 to 2005) of 109,020 metric tons per year. The Virginia restrictions also allow for a credit whereby any under-harvest in a particular year below the 109,020 metric ton cap would be added to increase the cap for the following year, up to a maximum of 122,740 metric tons per year. The Company supported Virginia’s proposal and voluntarily complied with its limitations in 2006 and subsequently thereafter after the cap was formally in place. The cap had no effect on Omega Protein’s Chesapeake Bay harvests for the years 2007 through 2011, and is not expected to have any material adverse effect on its Chesapeake Bay harvest in 2012. As a result of the underharvest in 2011, the 2012 Chesapeake Bay catch limit will be 122,740 metric tons.

The Company supports the ASMFC’s goal of maintaining a healthy population of menhaden and the current research program designed to answer ecological questions regarding menhaden in the Chesapeake Bay and coast-wide. The Chesapeake Bay cap was established as a precautionary measure while research is conducted to address, among other things, the question whether the menhaden harvest in the Bay could cause what is being termed “localized depletion” of menhaden there. No evidence of such localized depletion has been produced.

The most recent stock assessment for the Atlantic menhaden was completed in 2010 using data collected through 2008. According to federal and ASMFC technical experts, the assessment found that the Atlantic menhaden stock had undergone slight overfishing in one year, 2008; however, the population was not considered overfished, meaning that the stock abundance remained at or near target levels, above levels of concern, and can produce enough eggs to replace itself. The assessment indicated that the population was subject to slight overfishing in 2008 by an estimated four-tenths of one percent. Multiple runs of the stock assessment model revealed that there was a 53% probability that overfishing had occurred and a 47% probability that overfishing had not occurred.

In 2011, the ASMFC initiated a regulatory review process that would: (1) require annual updates on menhaden recruits, or the numbers of fish in their first year of life, currently reviewed only every three years; (2) begin a long-term process of managing menhaden on a multi-species basis; and (3) with a goal of establishing increased menhaden abundance, initiate a management action to implement an interim overfishing threshold reference point based on achieving a rate of fishing that should result in 15% of the spawning potential that the Atlantic menhaden stock would have if such stock were not fished (a “maximum spawning potential”). By comparison, in 2008, the estimate of this maximum spawning potential was estimated to be 8%; however, those numbers have not been estimated for 2009, 2010, or 2011. These percentages do not necessarily translate into corresponding percentage reductions in fish catch.

Also in November 2011, the ASMFC approved the consideration of options for phasing in potential reductions in fishing effort over a period of one to five years. In February 2012, the ASMFC approved a public scoping document with a series of potential management options. At this meeting, the ASMFC added an option to extend the phase-in period to as long as ten years. Public hearings were held throughout the spring of 2012, during which the Company had the opportunity to comment on these alternatives, which included a full range of options for quotas, limitations on the number of days fished annually, a shortened season, and other measures. Following these hearings, in May 2012 the ASMFC narrowed these alternatives to be included in a draft amendment document that will be reviewed, refined and considered for distribution for public hearing at an August 8, 2012 ASMFC meeting.

Because the process of developing a management system will take time and involve further public hearings, the Company does not expect any new constraints to be placed upon the menhaden fishery until the 2013 fishing season, at the earliest. Due to the uncertain timing and outcome of this regulatory process, the Company cannot predict with certainty what effect these new regulations will have on the Company’s business. Depending on how and when these new reference points are implemented, and what future Atlantic menhaden stock assessments conclude, it is possible that the implementation of these new regulations could have a material adverse effect on the Company’s business, financial results and results of operations.

Omega Protein’s menhaden fish catch in Texas in 2011 was estimated by the National Marine Fisheries Service to be approximately 33.6 million pounds (approximately 15,241 metric tons), or approximately 2.8% of Omega Protein’s total 2011 fish catch. In 2011, the Company’s Texas fish catch approached the TAC (including the 10% overage credit). The limitation is not expected to have a material adverse effect on Omega Protein’s business, results of operation or financial condition.

Omega Protein, through its operation of fishing vessels, is subject to the jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board and the U.S. Customs Service. The U.S. Coast Guard and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and recommend improved safety standards. The U.S. Customs Service is authorized to inspect vessels at will.

The Company’s operations are subject to federal, state and local laws and regulations relating to the protection of the environment, including the federal Clean Water Act, which imposes strict controls against the discharge of pollutants in reportable quantities, and along with the Oil Pollution Act, imposes substantial liability for the costs of oil removal, remediation and damages. Omega Protein’s operations also are subject to the federal Comprehensive Environmental Response, Compensation, and Liability Act, which imposes liability, without regard to fault, on certain classes of persons that contributed to the release of any “hazardous substances” into the environment and the federal Occupational Safety and Health Act (“OSHA”). The implementation of continuing safety and environmental regulations from these authorities could result in additional requirements and procedures for the Company, and it is possible that the costs of these requirements and procedures could be material.

The OSHA hazard communications standard, the Environmental Protection Agency community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and similar state statutes require the Company to organize information about hazardous materials used or produced in its operations. Certain of this information must be provided to employees, state and local governmental authorities and local citizens. Numerous other environmental laws and regulations, along with similar state laws, also apply to the operations of the Company, and all such laws and regulations are subject to change.

In February 2011, the United States Coast Guard conducted inspections of the vessels at the Company’s Reedville, Virginia facility regarding the vessels’ bilge water discharge practices. Based on the results of those inspections and subsequent communications with the Coast Guard, the Company conducted a survey of its Reedville fishing fleet to determine compliance with applicable laws and regulations. Following completion of certain improvements and repairs, the Coast Guard inspected the vessels and all but two were approved for full operations prior to the beginning of the 2011 Atlantic fishing season. The other two vessels were approved for full operations shortly after the beginning of the 2011 fishing season and the delay did not materially impact the fleet’s Atlantic fishing operations.

The Company spent approximately $3.0 million during 2011 to make the above improvements and repairs to the Reedville fleet. The Company is continuing to evaluate its Gulf fleet vessels based on its review of its Reedville vessels and Coast Guard regulations, as well as discussions with the Coast Guard. Based on the results of that evaluation, it is likely that the Company will incur additional costs to make improvements and repairs to its Gulf fleet. The Company had requested a waiver from the Coast Guard for its Atlantic and Gulf of Mexico fleets regarding the use of certain vessel equipment applicable to “ocean-going vessels” (as defined by Coast Guard regulations) that operate beyond the 12 nautical mile limit and in May 2012 the Coast Guard granted the Company a partial waiver for its 2012 fishing season only that allows the Company to travel, but not fish, outside 12 nautical miles of shore. If the Coast Guard does not extend the waiver in 2013, the Company will have to restrict its fishing operations to within 12 nautical miles of shore or install additional equipment on its vessels which will result in additional expense.

Omega Protein’s harvesting operations are subject to the Shipping Act of 1916 and the regulations promulgated there under by the Department of Transportation, Maritime Administration which require, among other things, that Omega Protein be incorporated under the laws of the U.S. or a state, the Company’s chief executive officer be a U.S. citizen, no more of the Company’s directors be non-citizens than a minority of the number necessary to constitute a quorum and at least 75% of the Company’s outstanding capital stock (including a majority of the Company’s voting capital stock) be owned by U.S. citizens. If the Company fails to observe any of these requirements, it will not be eligible to conduct its harvesting activities in U.S. jurisdictional waters. Such a loss of eligibility would have a material adverse effect on the Company’s business, results of operations and financial condition.

To protect against such loss of eligibility, the Company’s Articles of Incorporation (i) contain provisions limiting the aggregate percentage ownership by non-citizens of each class of the Company’s capital stock to no more than 25% of the outstanding shares of each such class (the “Permitted Percentage”) so that any purported transfer to non-citizens of shares in excess of the Permitted Percentage will be ineffective as against the Company for all purposes (including for purposes of voting, dividends and any other distribution, upon liquidation or otherwise), (ii) provide for a dual stock certificate system to determine such ownership pursuant to which certificates representing shares of Company Common Stock bear legends that designate such certificates as either “citizen” or “non-citizen” depending on the citizenship of the owner, and (iii) permit the Company’s Board of Directors to make such determinations as may reasonably be necessary to ascertain such ownership and implement restrictive limitations on those shares that exceed the Permitted Percentage (the “Excess Shares”). For example, the Company’s Board is authorized, among other things, to redeem for cash (upon written notice) any Excess Shares in order to reduce the aggregate ownership by non-citizens to the Permitted Percentage.

In relevant part, the FDA Federal Food, Drug and Cosmetic Act (“FDC Act”) defines a dietary supplement to be a product taken by mouth that contains a dietary ingredient intended to supplement the diet. Dietary ingredients may include vitamins, minerals, herbs or other botanicals, amino acids, and substances such as enzymes, organ tissues, glandulars, and metabolites. Dietary ingredients can also include the form of extracts or concentrates of any of these. Dietary supplements may be manufactured and sold in many forms, such as tablets, capsules, softgels, gelcaps, liquids, or powders.

In September 2011, the Company acquired InCon, a specialty toll processor that designs, pilots, synthesizes and purifies specialty chemical compounds, utilizing molecular distillation technology to concentrate a variety of compound products, including Omega-3 fish oils. The Company believes that the acquisition of InCon’s concentration technology will allow Omega Protein to provide its customers with an enhanced range of Omega-3 fish oils in concentrated forms such as ethyl esters and triglycerides. The concentrated fish oils manufactured by InCon are marketed and sold under the Company’s OmegaActiv™ brand by Cyvex.

The methods, estimates and judgments used in applying the Company’s critical accounting policies have a significant impact on the results reported in the Consolidated Financial Statements. The SEC has defined the critical accounting policies as the ones that are most important to the portrayal of the Company’s financial condition and operating results, and requires the Company to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are highly uncertain at the time of estimation. Based on this definition, the Company’s most critical policies include: valuation of inventory (Notes 1 and 6 in the Company’s Form 10-K for the fiscal year ended December 31, 2011 (the “2011 Form 10-K”)), valuation of losses related to Jones Act and worker’s compensation insurance claims (Note 1 in the Company’s 2011 Form 10-K), valuation of income and deferred taxes (Notes 1 and 14 in the Company’s 2011 Form 10-K) and the valuation of pension plan obligations (Notes 1 and 16 in the Company’s 2011 Form 10-K).

Specifically with respect to inventory, Omega Protein’s per unit cost of production is estimated prior to the beginning of each fishing season based on total estimated fishing costs (including off-season costs) divided by estimated total units of production. Omega Protein adjusts the cost of sales, unallocated inventory cost pool and inventory balances at the end of the second, third and fourth quarters based on revised estimates of total units of production to total inventoriable costs. For the most part, Omega Protein begins selling its current season’s production during the third quarter and sells that production until the second quarter of the following year. From 2006 to 2009, the average cost per unit of production estimate increased 3% from the third quarter to the fourth quarter of each respective year. During 2010, as a result of the larger than anticipated production in the fourth quarter, cost per unit of production for the 2010 fourth quarter decreased 9% as compared to the 2010 third quarter. During 2011, the cost per unit of production decreased 2% from the third quarter of 2011 to the fourth quarter of 2011.

The Company also has other key accounting policies and accounting estimates relating to the allowance of doubtful accounts (Note 1 in the Company’s 2011 Form 10-K), goodwill and other intangible assets (Notes 1 and 10 in the Company’s 2011 Form 10-K), valuation of shares-based compensation (Note 16 in the Company’s 2011 Form 10-K) and interest rate and energy swap valuations (Notes 1 and 21 in the Company’s 2011 Form 10-K). The Company believes that these key accounting policies and accounting estimates either do not generally require us to make estimates and judgments that are as difficult or as subjective as its critical accounting policies, or it is less likely that they would have a material impact on our reported results of operations for a given period.

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		84.8			66.7			81.4			69.8
Gross profit		15.2			33.3			18.6			30.2
Selling, general and administrative expense		12.2			10.8			13.0			9.6
Research and development expense		1.2			1.1			1.3			1.0
Proceeds/gains resulting from Gulf of Mexico oil spill disaster		—			(59.2	)		—			(26.0	)
Other proceeds/gains resulting from natural disaster, net – 2005 storms		—			(1.8	)		—			(0.8	)
(Gain) loss on disposal of assets		(7.5	)		1.1			(4.4	)		0.3
Operating income		9.3			81.3			8.7			46.1
Interest income		—			—			—			—
Interest expense		(0.7	)		(1.2	)		(0.8	)		(1.2	)
Other expense, net		(0.2	)		(0.1	)		(0.2	)		(0.1	)
Income before income taxes		8.4			80.0			7.7			44.8
Provision for income taxes		2.8			28.2			2.6			16.1
Net income		5.6	%		51.8	%		5.1	%		28.7	%

Revenues. Revenues increased $0.8 million, or 1.8%, from $44.2 million for the three months ended June 30, 2011 to $45.0 million for the three months ended June 30, 2012. The increase in revenues was primarily due to higher sales volumes of 1.8% and 53.5% for the Company’s fish meal and fish oil, respectively, partially offset by lower sales prices of 18.4% and 3.7% for the Company’s fish meal and fish oil, respectively. Considering fish meal, fish oil and fish solubles sales activities in total, the Company experienced a $5.0 million decrease in revenues due to the decrease in sales prices and a $4.2 million increase in revenue caused by increased sales volumes, when comparing the three months ended June 30, 2012 to the three months ended June 30, 2011. The increase in fish meal and fish oil sales volumes in the second quarter of 2012 is primarily due to higher export volumes. The decrease in fish meal sales prices in the second quarter of 2012 is primarily due to sales made pursuant to contracts entered into during 2011 when fish meal prices were lower due to an increased global supply of fish meal available for sale, particularly from South America. The slight decrease in fish oil sales prices is due to a lower percentage of higher priced refined oil sales relative to lower priced crude oil sales for the quarter ended June 30, 2012 as compared to the quarter ended June 30, 2011. Additionally, Cyvex contributed $4.2 million of revenue to the quarter ended June 30, 2012 (including sales of OmegaPure) as compared to $4.0 million for the quarter ended June 30, 2011. InCon, acquired by the Company in September 2011, had third party revenues of $0.7 million for the quarter ended June 30, 2012. Omega Shipyard’s third party revenues were $0.2 million for the quarter ended June 30, 2012. Omega Shipyard did not have revenues for the quarter ended June 30, 2011.

Cost of sales. Cost of sales, including depreciation and amortization, for the quarter ended June 30, 2012 was $38.2 million, an $8.7 million increase, or 29.5%, as compared to the quarter ended June 30, 2011. Cost of sales as a percentage of revenues was 84.8% for the quarter ended June 30, 2012 as compared to 66.7% for the quarter ended June 30, 2011. The increase in cost of sales as a percentage of revenue was primarily the result of decreased fish meal sales prices in the second quarter of 2012 as compared to the second quarter of 2011. Additionally, cost per unit of sales for Omega Protein increased 10.2% during the three months ended June 30, 2012 as compared to the three months ended June 30, 2011. The increase in cost per unit of sales during the quarter ended June 30, 2012 is partially due to the change in the product mix sold during the second quarter of 2012 as compared with the second quarter of 2011 and the expected increase in the 2012 inventory cost per unit as a result of decreased fish oil yields experienced in the beginning of the 2012 fishing season. The impact of these poor oil yields has resulted in significantly higher per unit inventory cost and fewer volumes available for future sale, which have adversely impacted financial results for the second quarter of 2012 and can be expected to adversely affect financial results through the second quarter of 2013. Cyvex’s cost of sales for the quarter ended June 30, 2012 (including costs of sales related to OmegaPure) was $2.5 million as compared to $2.2 million during the quarter ended June 30, 2011. InCon had cost of sales of $1.3 million for the quarter ended June 30, 2012. Omega Shipyard’s third party cost of sales was $0.8 million for the quarter ended June 30, 2012. Omega Shipyard did not have cost of sales for the quarter ended June 30, 2011. Additionally, costs of sales increased $0.4 million for the quarter ended June 30, 2012 as compared to the quarter ended June 30, 2011 primarily related to certain period costs and an outstanding sales tax matter.

Gross profit. Gross profit decreased $7.9 million, or 53.6%, from $14.7 million for the quarter ended June 30, 2011 to $6.8 million for the quarter ended June 30, 2012. Gross profit as a percentage of revenue was 15.2% for the quarter ended June 30, 2012 as compared to 33.3% for the quarter ended June 30, 2011. The decrease in gross profit as a percentage of revenue was primarily due to the decrease in fish meal sales prices experienced in the second quarter of 2012 as compared to the second quarter of 2011 as well as the increase in cost per unit of sales for Omega Protein as discussed above. Cyvex’s gross profit as a percentage of revenue was 40.1% for the quarter ended June 30, 2012 (including gross profit relating to sales of OmegaPure) and 43.7% for the quarter ended June 30, 2011. InCon’s gross profit as a percentage of revenue was (73.0%) for the quarter ended June 30, 2012 due to integration and transition costs that were incurred during the conversion of that plant for processing Omega’s fish oil. Omega Shipyard’s gross profit as a percentage of revenue was (246.4%) for the quarter ended June 30, 2012 due to costs associated with a third party construction contract.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $0.7 million, or 15.6%, from $4.8 million for the quarter ended June 30, 2011 to $5.5 million for the quarter ended June 30, 2012. The increase in selling, general and administrative expenses is primarily due to increased severance expenses of $0.3 million, increased other employee compensation related costs, including stock option and restricted stock compensation expense, of $0.4 million, and the addition of Incon’s related expenses of $0.1 million. Cyvex’s selling, general and administrative expenses were approximately $0.8 million and $0.7 million for the quarters ended June 30, 2012 and 2011, respectively.

Other proceeds/gains resulting from natural disaster, net—2005 storms. For the three months ended June 30, 2011, the Company recognized a gain of $0.8 million, net of fees and expenses, in connection with the final settlement of the Company’s claims against its prior insurance broker stemming from the hurricanes affecting the Company in 2005. No such amount was recognized during the three months ended June 30, 2012.

(Gain) loss on disposal of assets. The Company recorded a net gain on disposal of assets of $3.4 million for the three months ended June 30, 2012 primarily related to net gain for the Morgan City, Louisiana facility that was sold during the quarter, partially offset by the net loss on disposal of certain assets. For the three months ended June 30, 2011, the Company recorded a net loss on disposal of assets of $0.5 million primarily related to the disposal of two fishing vessels, partially offset by insurance proceeds related to the disposal of one of the vessels.

Operating income. The Company’s operating income decreased $31.8 million from $36.0 million for the quarter ended June 30, 2011 to $4.2 million for the quarter ended June 30, 2012. As a percentage of revenues, operating income decreased from 81.3% for the quarter ended June 30, 2011 to 9.3% for the quarter ended June 30, 2012. Excluding the above mentioned GCCF final settlement of $26.2 million from operating income for the quarter ended June 30, 2011 would have resulted in $9.8 million of operating income or 22.1% as a percentage of revenues.

Provision for income taxes. The Company recorded a $1.3 million provision for income taxes for the quarter ended June 30, 2012 representing an effective tax rate of 34.0% for income taxes compared to 35.3% for the quarter ended June 30, 2011. The decrease in the effective tax rate is primarily a result of the impact of certain items that are deductible but not expensed, including a manufacturer’s deduction. The statutory tax rate of 35% for U.S. federal taxes was in effect for the three month periods ended June 30, 2012 and 2011.

Revenues. Revenues decreased $15.9 million, or 15.8%, from $100.6 million for the six months ended June 30, 2011 to $84.7 million for the six months ended June 30, 2012. The decrease in revenues was primarily due to lower sales prices of 12.6% and lower sales volumes of 24.7% for the Company’s fish meal partially offset by higher sales prices of 1.8% and higher sales volumes of 7.1% for the Company’s fish oil. Considering fish meal, fish oil and fish solubles sales activities in total, the Company experienced a $7.0 million decrease in revenues due to the decrease in sales prices and a $14.8 million decrease in revenue caused by decreased sales volumes, when comparing the six months ended June 30, 2012 to the six months ended June 30, 2011. The decrease in fish meal sales volumes for the six months ended June 30, 2012 is primarily due to the quantity of inventory available for sale and lower export volumes. The decrease in fish meal sales prices for the six months ended June 30, 2012 is primarily due to sales made pursuant to contracts entered into during 2011 when fish meal prices were lower due to an increased global supply of fish meal available for sale, particularly from South America. The slight increase in fish oil sales prices is due to increased demand primarily from the aquaculture and human supplement industries. Additionally, Cyvex contributed $10.3 million of revenue to the six months ended June 30, 2012 (including sales of OmegaPure) as compared to $7.0 million for the six months ended June 30, 2011. InCon, acquired by the Company in September 2011, had third party revenues of $1.4 million for the six months ended June 30, 2012. Omega Shipyard’s third party revenues were $1.1 million and $0.3 million for the six months ended June 30, 2012 and 2011, respectively.

Cost of sales. Cost of sales, including depreciation and amortization, for the six months ended June 30, 2012 was $69.0 million, a $1.2 million decrease, or 1.7%, as compared to the six months ended June 30, 2011. Cost of sales as a percentage of revenues was 81.4% for the six months ended June 30, 2012 as compared to 69.8% for the six months ended June 30, 2011. The increase in cost of sales as a percentage of revenue was primarily the result of decreased fish meal sales prices for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. Additionally, cost per unit of sales for Omega Protein increased 7.9% during the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. The increase in cost per unit of sales during the six months ended June 30, 2012 is partially due to the change in the product mix sold during the respective six month periods ended June 30, 2012 and 2011 and the expected increase in the 2012 inventory cost per unit as a result of decreased fish oil yields experienced in the beginning of the 2012 fishing season. The impact of these poor oil yields has resulted in significantly higher per unit inventory cost and fewer volumes available for future sale, which have adversely impacted financial results for the first six months of 2012 and can be expected to adversely affect financial results through the second quarter of 2013. Cyvex’s cost of sales for the six months ended June 30, 2012 (including costs of sales related to OmegaPure) was $6.2 million as compared to $4.4 million during the six months ended June 30, 2011. InCon had cost of sales of $2.5 million for the six months ended June 30, 2012. Omega Shipyard’s third party cost of sales were $1.4 million and $0.2 million for the six months ended June 30, 2012 and 2011, respectively. Additionally, costs of sales increased $0.4 million for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 primarily related to certain period costs and an outstanding sales tax matter.

Gross profit. Gross profit decreased $14.7 million, or 48.3%, from $30.4 million for the six months ended June 30, 2011 to $15.7 million for the six months ended June 30, 2012. Gross profit as a percentage of revenue was 18.6% for the six months ended June 30, 2012 as compared to 30.2% for the six months ended June 30, 2011. The decrease in gross profit as a percentage of revenue was primarily due to the decrease in fish meal sales prices experienced in the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 as well as the increase in cost per unit of sales for Omega Protein as discussed above. Cyvex’s gross profit as a percentage of revenue was 39.7% for the six months ended June 30, 2012 (including gross profit relating to sales of OmegaPure) and 37.5% for the six months ended June 30, 2011. The gross profit margins for the six months ended June 30, 2011 were negatively impacted by the write-up of Cyvex’s inventory to fair value as a result of the December 2010 acquisition. InCon’s gross profit as a percentage of revenue was (83.2%) for the six months ended June 30, 2012 due to integration and transition costs that were incurred during the conversion of that plant for processing Omega’s fish oil. Omega Shipyard’s gross profit as a percentage of revenue was (30.8%) and 19.1% for the six months ended June 30, 2012 and 2011, respectively. The negative gross profit incurred during the six months ended June 30, 2012 was primarily due to costs associated with a third party construction contract.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.4 million, or 14.7%, from $9.6 million for the six months ended June 30, 2011 to $11.0 million for the six months ended June 30, 2012. The increase in selling, general and administrative expenses is primarily due to increased severance expenses of $0.3 million, the addition of Incon’s related expenses of $0.4 million and increased employee compensation related costs, including stock option and restricted stock compensation expense, of $1.0 million. Cyvex’s selling, general and administrative expenses were approximately $1.5 million and $1.4 million for the six months ended June 30, 2012 and 2011, respectively.

Other proceeds/gains resulting from natural disaster, net—2005 storms. For the six months ended June 30, 2011, the Company recognized a gain of $0.8 million, net of fees and expenses, in connection with the final settlement of the Company’s claims against its prior insurance broker stemming from the hurricanes affecting the Company in 2005. No such amount was recognized during the six months ended June 30, 2012.

(Gain) loss on disposal of assets. The Company recorded a net gain on disposal of assets of $3.8 million for the six months ended June 30, 2012 primarily related to net gain for the Morgan City, Louisiana facility that was sold during June 2012 and insurance proceeds for property that was damaged and inventory that was lost in 2011, partially offset by the net loss on disposal of certain assets. For the six months ended June 30, 2011, the Company recorded a net loss on disposal of assets of $0.5 million primarily related to the disposal of two fishing vessels, partially offset by insurance proceeds related to the disposal of one of the vessels.

Operating income. The Company’s operating income decreased $38.9 million from $46.3 million for the six months ended June 30, 2011 to $7.4 million for the six months ended June 30, 2012. As a percentage of revenues, operating income decreased from 46.1% for the six months ended June 30, 2011 to 8.8% for the six months ended June 30, 2012. Excluding the above mentioned GCCF final settlement of $26.2 million from operating income for the six months ended June 30, 2011 would have resulted in $20.2 million of operating income or 20.0% as a percentage of revenues.

Provision for income taxes. The Company recorded a $2.2 million provision for income taxes for the six months ended June 30, 2012 representing an effective tax rate of 33.2% for income taxes compared to 36.0% for the six months ended June 30, 2011. The decrease in the effective tax rate is primarily a result of the impact of certain items that are deductible but not expensed, including a manufacturer’s deduction, partially offset by the increase in the statutory rate from 34% to 35% during the six months ended June 30, 2011. The statutory tax rate of 35% for U.S. federal taxes was in effect for the six months ended June 30, 2012.

Omega Protein’s menhaden harvesting and processing business is seasonal in nature. Omega Protein generally has higher sales during the menhaden harvesting season (which includes the second and third quarter of each fiscal year) due to increased product availability, but prices during the fishing season tend to be lower than during the off-season. Additionally, due to differences in gross profit margins for Omega Protein’s various products, any variation in the mix of product sales between quarters may result in significant variations of total gross profit margins. These margins may also be affected by changes in costs from year to year and month to month, including as a result of variations in production yields. Similarly, from time to time Omega Protein defers sales of inventory based on worldwide prices for competing products that affect prices for its products, which may affect comparable period comparisons. As a result, the Company’s quarterly operating results have fluctuated in the past and may fluctuate in the future.

Historically, the Company’s primary sources of liquidity and capital resources have been cash flows from operations, bank credit facilities and term loans from various lenders provided pursuant to the U.S. Maritime Administration’s Fisheries Finance Program (“FFP”), which is offered through National Marine Fisheries Services (“NMFS”) under Title XI of the Marine Act of 1936 (“Title XI”). These sources of cash flows have been used for operations, capital expenditures, payment of long-term debt, the acquisitions of Cyvex and InCon, purchases of fish meal and fish oil and the purchase and retirement of shares of the Company’s common stock in 2006.

At June 30, 2012, the Company had an unrestricted cash balance of $21.9 million, a decrease of $29.5 million from December 31, 2011. This decrease was primarily due to expenditures made for the 2012 fishing season, capital spending, taxes and debt payments, and was partially offset by the sale of inventory. Omega Protein’s annual revenues and its resulting liquidity are highly dependent on annual fish catch, production yields, selling prices for its products and inventories available for sale. Omega Protein’s average selling prices for its products for six months ended June 30, 2012 were 0.8% lower than its average selling prices for the year ended December 31, 2011. Additionally, Omega Protein experienced a 5.0% higher per unit cost of sales during the six months ended June 30, 2012 as compared to the year ended December 31, 2011.

The aggregate amount of the Company’s outstanding indebtedness as of June 30, 2012 was approximately $28.8 million compared to approximately $30.3 million as of December 31, 2011. The Company has a moderately leveraged financial structure which could limit its financial flexibility. In particular, the Company will be required to use a portion of its cash flows to pay principal and interest on its debt, which will reduce the amount of money the Company has for operations, capital expenditures, expansion, acquisitions or general corporate or other business activities. In addition, the covenants contained in the Company’s debt agreements limit its ability to borrow money in the future for acquisitions, capital expenditures or to meet the Company’s operating expenses or other general corporate obligations See “Risk Factors - The Company has a moderate amount of indebtedness, which may adversely affect its ability to operate its business, remain in compliance with debt covenants and make payments on its debt” in the Company’s 2011 Form 10-K.

Net cash flow provided by (used in) operating activities decreased from approximately $35.4 million for the six months ended June 30, 2011 to ($17.4) million for the six months ended June 30, 2012. The decrease in operating cash flow is primarily attributable to the $26.2 million final payment from the GCCF during the six months ended June 30, 2011 as well as decreased revenue of 15.8% associated with decreased sales volumes of Omega Protein’s inventory.

Net financing activities (used) provided cash of ($1.6) million and $3.0 million during the six month periods ended June 30, 2012 and 2011, respectively. The six month period ended June 30, 2012 included $1.7 million in debt and capital lease principal payment and $0.4 million of debt issuance costs partially offset by $0.5 million in proceeds and tax effects received from stock options exercised. The six month period ended June 30, 2011 included $4.7 million in proceeds and tax effects received from stock options exercised partially offset by $1.7 million in debt and capital lease principal payments.

On June 20, 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 $10.0 million (the “Approval Letter”). To date, the Company has not submitted any financing requests under the Approval Letter. As of June 30, 2012, the Company had approximately $28.8 million of borrowings outstanding under Title XI and was in compliance with all of the covenants contained therein.

On March 21, 2012, the Company entered into an 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, National Association and JP Morgan Chase 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 $60.0 million (the “Commitment”). The Commitment includes a sub-facility for swingline loans up to an amount not to exceed $5.0 million, a sub-facility for standby letters of credit up to an amount not to exceed $15.0 million and an accordion feature that allows the Company to increase the amount of the Commitment up to an additional $10.0 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 with Wells Fargo Bank, National Association. On the Closing Date, no amounts were outstanding under the existing senior secured credit facility and approximately $3.3 million in letters of credit were issued primarily in support of the Company’s worker’s compensation insurance programs. The Company recognized $0.4 million in deferred debt issuance costs associated with the Loan Agreement.

Net investing activities used cash of $10.5 million and $10.9 million for the six month periods ended June 30, 2012 and 2011, respectively. The Company’s investing activities consist mainly of acquisition costs and capital expenditures for equipment purchases, replacements, vessel refurbishments, and fish oil refining processes. The Company made capital expenditures of approximately $16.5 million and $9.1 million, for the six month periods ended June 30, 2012 and 2011, respectively. The Company anticipates making an additional $6 million to $8 million in capital expenditures during the remainder of 2012 primarily for the construction and refurbishment of vessels and plant assets and for the repair of certain equipment. Investing activities for the six month period ended June 30, 2012 also includes $5.8 million in proceeds for the disposition of assets and $0.2 million of final closing receipts related to the InCon acquisition which took place in September 2011. Investing activities for the six month period ended June 30, 2011 also includes $0.3 million in proceeds for the disposition of assets and $2.1 million of final closing payments related to the Cyvex acquisition which took place in December 2010.

The Company from time to time considers potential transactions including, but not limited to, enhancement of physical facilities to improve production capabilities and the acquisition of other businesses. Certain of the potential transactions reviewed by the Company would, if completed, result in its entering new lines of business, although historically, reviewed opportunities have been generally related in some manner to the Company’s existing operations or which would have added new protein or other nutritional products or capabilities to the Company’s product lines. Depending on the size of the acquisition, the Company would expect to finance the transaction using internally generated cash flows and its current credit agreements, or, if necessary, equity or debt financings. The Company cannot assure that such financings will be available on acceptable terms, if at all.

	Payments Due by Period
Contractual Cash Obligations	Total		Less than 1 year		1 to 3 years		3 to 5 years		After 5 years

Long-term debt	$	28,825	$	3,101	$	5,900	$	5,514	$	14,310
Capital lease obligation		542		534		8		—		—
Interest on long-term debt and capital lease obligation (1)		9,523		1,785		2,899		2,168		2,671
Operating lease obligations		6,517		2,375		3,241		519		382
Pension Funding (2)		11,195		2,532		4,413		2,747		1,503
Total Contractual Cash Obligations	$	56,602	$	10,327	$	16,461	$	10,948	$	18,866

The Company files annual, quarterly and current reports and other information with the SEC. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed under the Securities and Exchange Act of 1934 (“Exchange Act”), as well as Section 16 filings by officers and directors, are available free of charge at the Company’s website at www.omegaproteininc.com or at the SEC’s website at www.sec.gov and are posted as soon as reasonably practicable after they are filed with the SEC. The Company will provide a copy of these documents to stockholders upon request. Information on the Company’s website or any other website is not incorporated by reference into this report and does not constitute part of this report.

In addition, the public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F. Street, NE., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

The Company’s Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of Ethics for Financial Professionals, as well as the Charters for the Board’s Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee and Scientific Committee, are available at the Company’s website. These Guidelines, Codes and Charters are not incorporated by reference into this report and do not constitute part of this report. The Company will provide a copy of these documents to any stockholder upon request.

The Company is exposed to market risk associated with diesel, fuel oil and natural gas. To partially mitigate this risk, the Company has forward purchased a portion of its expected diesel, fuel oil and natural gas usage for 2012 and 2013. The Company is currently exposed to market risk associated with increases in natural gas, fuel oil, and diesel prices related to the portion not covered by swaps for 2012 and 2013.

As of the end of the period covered by this report, the Company conducted an evaluation of the effectiveness of its “disclosure controls and procedures,” as that phrase is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. The evaluation was carried out under the supervision and with the participation of management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).

Based on and as of the date of that evaluation, the Company’s CEO and CFO have concluded that (i) the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, and (ii) that the Company’s disclosure controls and procedures are effective.

Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to disclose material information otherwise required to be set forth in the Company’s periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.

In March 2010, the Company was named as one of the defendants in a lawsuit filed in the Superior Court of the State of California, County of San Francisco, by Chris Manthey, Benson Chiles and Mateel Environmental Justice Foundation. The plaintiffs allege that fish oil dietary supplements produced by the defendants do not have adequate warnings regarding possible exposure to polychlorinated biphenyls (PCBs) as required by Proposition 65 under California law, and request that the court grant injunctive relief and award monetary civil penalties. The Company’s total fish oil supplement sales in the State of California since inception have been immaterial. The Company believes that its products comply fully with federal law promulgated by the U.S. Food & Drug Administration, standards of the European Commission and state law, including California. In July 2012, the Company agreed to settle the lawsuit for $30,000, subject to court approval.

In February 2011, the United States Coast Guard conducted inspections of the vessels at the Company’s Reedville, Virginia facility regarding the vessels’ bilge water discharge practices. Based on the results of those inspections and subsequent communications with the Coast Guard, the Company conducted a survey of its Reedville, Virginia fishing fleet to determine compliance with applicable laws and regulations. Following the completion of certain improvements and repairs, the Coast Guard inspected the vessels and all but two were approved for full operations prior to the beginning of the 2011 Atlantic fishing season. The other two vessels were approved for full operations shortly after the beginning of the fishing season and the delay did not materially impact the fleet’s Atlantic fishing operations.

The U.S. Attorney’s Office for the Eastern District of Virginia is reviewing both the results of the Coast Guard’s inspection of the Reedville fleet and the EPA request for information, and is currently evaluating whether any civil or criminal enforcement action is warranted. The U.S. Attorney’s Office has indicated that some form of civil and/or criminal disposition is under consideration, but no specific disposition has yet been determined and the Company’s discussions with that Office are ongoing. Depending on the specific details of that disposition, it is possible that the disposition could have an adverse effect on the Company’s business, results of operations or financial condition. During 2011, the Company expensed approximately $0.5 million related to this matter. During the first six months of 2012, the Company recognized $0.3 million in additional expenses related to this matter and as of June 30, 2012, the Company has recorded a $0.2 million reserve related to legal expenses.

Fluctuation in the “total yield” derived from Omega Protein’s fish catch could impact the Company’s ability to operate profitably. The “total yield,” or the percentage of fish meal, fish oil and fish solubles products derived from the menhaden fish has fluctuated over the years and from month to month due to natural conditions relating to fish biology over which Omega Protein has no control. For example, the Company’s 2012 oil yield results through June 30, 2012 have been the poorest in recent history. Omega Protein’s oil yields for the six months ending June 30, 2012 were lower by 24.9% compared to those in the same period in the 2011 fishing season and were lower by 44.8% compared to the Company’s 5 year oil yield average. Total yields decreased by 6.9% compared to those in the same 2011 fishing season and were lower by 12.3% compared to the Company’s five year total yield average, due primarily to the lower fish oil yields. The Company believes that fish yields are influenced by multiple factors, including but not limited to, fish diet, weather, water temperature, fish population and age of fish, but such possible relationships and inter-relationships are not generally well understood. The impact of these poor oil yields has resulted in significantly higher per unit inventory costs and fewer volumes available for future sales. These higher unit costs and fewer volumes available for sale adversely impacted financial results for the second quarter of 2012 and can be expected to adversely affect financial results through the second quarter of 2013.

Possible restrictions on the Company’s fish catch may occur depending on the resolution of a Company waiver request with the U.S. Coast Guard. As previously disclosed, in February 2011 the United States Coast Guard conducted inspections of the Company’s vessels at its Reedville, Virginia facility regarding the vessels’ bilge water management practices. Based on the results of those inspections and subsequent communications with the Coast Guard, the Company conducted a survey of its Reedville, Virginia fishing fleet to determine compliance with applicable laws and regulations. Following the Company’s completion of certain improvements and repairs, the Coast Guard inspected the Reedville vessels and the Coast Guard approved the Reedville vessels for operation during the 2011 fishing season.

The Company is continuing to evaluate its Gulf fleet vessels based on its review of its Reedville vessels and Coast Guard regulations, as well as discussions with the Coast Guard. Based on the results of that evaluation, it is likely that the Company will incur additional costs to make improvements and repairs to its Gulf fleet. The Company had requested a waiver from the Coast Guard for its Atlantic and Gulf of Mexico fleets regarding the use of certain vessel equipment applicable to “ocean-going vessels” (as defined by Coast Guard regulations) that operate beyond the 12 nautical mile limit and in May 2012 the Coast Guard granted the Company a partial waiver for its 2012 fishing season only that allows the Company to travel, but not fish, outside 12 nautical miles of shore. If the Coast Guard does not extend the waiver in 2013, the Company will have to restrict its fishing operations to within 12 nautical miles of shore or install additional equipment on its vessels which will result in additional expense.

The U.S. Attorney’s Office is reviewing an EPA information request and a Coast Guard investigation. The U.S. Attorney’s Office for the Eastern District of Virginia is reviewing both the results of the previously disclosed Coast Guard inspection of the Reedville fleet and the EPA request for information, and is currently evaluating whether any civil or criminal enforcement action is warranted. The U.S. Attorney’s Office has indicated that some form of civil and/or criminal disposition is under consideration, but no specific disposition has yet been determined and the Company’s discussions with that Office are ongoing. Depending on the specific details of that disposition, it is possible that the disposition could have an adverse effect on the Company’s business, results of operations or financial condition.

The state of North Carolina recently closed its state waters to commercial menhaden purse seine fishing. In May 2012, the North Carolina Division of Marine Fisheries in the Department of Environment and Natural Resources issued a proclamation that banned the commercial fishing of menhaden using purse seine netting in North Carolina state waters. This proclamation prohibits the Company’s fishing operations in these state waters. Federal waters outside the North Carolina three-nautical mile state water limit remain unaffected. In 2011, the Company caught approximately 1.6% of its total 2011 fish catch in North Carolina state waters.

New laws or regulations regarding fish oil or meal importation into foreign jurisdictions may increase Omega Protein’s costs or cause Omega Protein to lose market share, particularly in foreign jurisdictions whose regulatory regimes may still be evolving. It is possible that laws and regulations regarding the importation of fish meal or fish oil into foreign countries, particularly in foreign jurisdictions whose regulatory regimes may still be evolving, may adversely affect the Company’s business, results of operations and financial condition. More stringent laws and regulations, or new interpretations of those laws and regulations, in foreign jurisdictions on contaminant levels, health and sanitation requirements, import documentation, restrictions imposed by port of entry protocols or other similar restrictions could result in: (i) Omega Protein’s incurrence of additional capital expenditures and operating costs in order to comply with these requirements, (ii) Omega Protein’s withdrawal from marketing its products in those jurisdictions which could lead to material loss of revenues, earnings and market share, or (iii) costs of demurrage, cure or product recall incurred by Omega Protein as it complies with or attempts to comply with these restrictions. If a greater portion of the Company’s sales are derived internationally, or become more concentrated in certain countries such as China, the potential impact of this risk could become larger.

Exhibit No.	Description of Exhibit

10.1	First Amendment to Amended and Restated Loan Agreement dated as of May 21, 2012, among Omega Protein Corporation, Omega Protein, Inc., Wells Fargo Bank, National Association and JP Morgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 23, 2012).

31.1	Rule 13a-14(a)/15d-14(a) Certification for Chief Executive Officer.

31.2	Rule 13a-14(a)/15d-14(a) Certification for Chief Financial Officer.

32.1	Section 1350 Certification for Chief Executive Officer.

32.2	Section 1350 Certification for Chief Financial Officer.

*101.INS	XBRL Instance Document.

*101.SCH	XBRL Taxonomy Extension Schema Document.

*101.PRE	XBRL Taxonomy Presentation Linkbase Document.

*101.LAB	XBRL Taxonomy Label Linkbase Document.

*101.CAL	XBRL Taxonomy Calculation Linkbase Document.

*101.DEF	XBRL Definition Linkbase Document.

*Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under those Sections.

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)

Date of Contract	Original Notional Amount		Notional Amounts as of December 31, 2011		Contracted Interest Rate			Total Liability as of December 31, 2011
April 4, 2007	$	19,950,000	$	6,483,750		5.16	%	$	71,600
February 7, 2008		10,237,500		3,412,500		3.36	%		22,900
March 19, 2008		4,436,250		1,478,750		2.96	%		8,600
			$	11,375,000				$	103,100

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Beginning balance	$	311		$	2,352		$	(420	)	$	505
Net (gain) loss, net of tax, reclassified to unallocated inventory cost pool		261			(498	)		261			(498	)
Net change associated with current period swap transactions, net of tax		(1,292	)		(500	)		(561	)		1,347
Ending balance	$	(720	)	$	1,354		$	(720	)	$	1,354

	June 30, 2012			December 31, 2011
	(in thousands)
Fair Value of Energy Swaps, net of tax benefit of $388 as of June 30, 2012 and $226 as of December 31, 2011	$	(720	)	$	(420	)
Pension Benefits Adjustments, net of tax benefit of $5,259 as of June 30, 2012 and $5,524 as of December 31, 2011		(9,767	)		(10,259	)
Accumulated Other Comprehensive Loss	$	(10,487	)	$	(10,679	)

	Revenues		Net income
	(in thousands)
2011 supplemental pro forma for the three months ended June 30, 2011	$	45,618	$	23,009
2011 supplemental pro forma for the six months ended June 30, 2011	$	103,111	$	28,843

	June 30, 2012			December 31, 2011
	(in thousands)
Trade	$	19,335		$	10,208
Insurance		5,793			4,687
Income tax		4,426			1,919
InCon working capital		—			181
Other		278			78
Total accounts receivable		29,832			17,073
Less allowance for doubtful accounts		(309	)		(285	)
Receivables, net	$	29,523		$	16,788

	Cyvex		InCon		Total
January 1, 2012	$	7,049	$	936	$	7,985
Acquisitions		—		—		—
June 30, 2012	$	7,049	$	936	$	7,985

	June 30, 2012		December 31, 2011		Weighted Average Life
Carrying value of intangible assets subject to amortization:
Customer relationships, net	$	162	$	171		10
Total intangible assets subject to amortization, net	$	162	$	171
Indefinite life intangible assets – trade names, trade secrets		1,166		1,166
Total intangible assets	$	1,328	$	1,337

Remainder of 2012	$	9
2013		18
2014		18
2015		18
Thereafter		99
Total estimated future amortization expense	$	162

Remainder of 2012	$	567
2013		8
Total minimum lease payments		575
Less amount representing interest		(33	)
Present value of minimum payments		542
Less current portion of capital lease obligation		(534	)
Long-term capital lease obligation	$	8

	June 30, 2012			December 31, 2011
Fishing vessels and marine equipment, at cost	$	2,076		$	2,076
Less accumulated depreciation		(1,679	)		(1,471	)
Property, plant and equipment, net	$	397		$	605

	June 30, 2012		December 31, 2011
Long-term Debt:
Carrying Value	$	28,825	$	30,294

Estimated Fair Market Value	$	31,916	$	33,381

	June 30, 2012
	Fair Value Measurements Using							Assets (Liabilities) at
	Level 1		Level 2			Level 3		Fair Value
(in thousands)
Assets (Liabilities)
Energy swap liability	$		$	(1,108	)	$		$	(1,108	)
Interest rate swap liability		—		—			—		—
Total Assets (Liabilities)	$	—	$	(1,108	)	$	—	$	(1,108	)

	Three Months Ended June 30,
	2012					2011
	Revenues		Percent			Revenues		Percent
Fish Meal	$	24.7		54.9	%	$	29.7		67.2	%
Fish Oil		9.8		21.8			5.9		13.4
Refined Fish Oil		3.9		8.9			3.4		7.7
Fish Solubles		1.2		2.7			1.2		2.7
Dietary Supplement Ingredients		4.2		9.3			4.0		9.0
Other		1.2		2.4			—		—
Total	$	45.0		100.0	%	$	44.2		100.0	%

	Six Months Ended June 30,
	2012					2011
	Revenues		Percent			Revenues		Percent
Fish Meal	$	45.4		53.6	%	$	69.1		68.7	%
Fish Oil		16.3		19.2			14.4		14.3
Refined Fish Oil		7.8		9.2			7.7		7.6
Fish Solubles		2.2		2.6			2.2		2.2
Dietary Supplement Ingredients		10.3		12.2			7.0		7.0
Other		2.7		3.2			0.2		0.2
Total	$	84.7		100.0	%	$	100.6		100.0	%

	2012		2011		2010		2009		2008
Fish Catch in tons as of June 30,		229,564		188,403		166,552		139,136		149,275
Fish meal, oil and solubles production in tons		75,242		65,848		58,164		55,570		61,814
(excludes refined)

	OMEGA PROTEIN CORPORATION
	(Registrant)





August 7, 2012	By:	/s/ Andrew C. Johannesen
		(Executive Vice President, Chief Financial Officer)