UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-44764
BALTEK CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-2646117
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Fairway Court, P.O. Box 195, Northvale, New Jersey 07647
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
201-767-1400
------------
Registrant's telephone number, including area code
Indicated by check mark whether the registrant (1) has filed all annual,
quarterly and other reports required to be filed with the Commission and (2) has
been subject to the filing requirements for at least the past 90 days. Yes [ X ]
No [ ]
Common shares of stock outstanding as of August 7, 1998: 2,523,261 shares
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997
Consolidated Statements of Income and Retained Earnings for the Three
and Six Months Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1998 and 1997
Notes to Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION:
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------
June 30, December 31,
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 1,481,022 $ 1,177,003
Accounts receivable, net ........................................... 6,508,259 5,102,719
Inventories ........................................................ 12,683,150 14,599,348
Prepaid expenses ................................................... 317,311 298,398
Other .............................................................. 1,330,009 1,325,572
----------- -----------
Total current assets ...................................... 22,319,751 22,503,040
PROPERTY, PLANT AND EQUIPMENT, Net ................................... 12,513,747 11,737,754
TIMBER AND TIMBERLANDS ............................................... 7,582,523 7,021,392
OTHER ASSETS ......................................................... 468,983 493,371
----------- -----------
Total assets .............................................. $42,885,004 $41,755,557
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ...................................................... $ 1,859,925 $ 1,550,000
Accounts payable ................................................... 3,053,808 3,071,482
Income tax payable ................................................. 336,917 56,712
Accrued salaries, wages and bonuses payable ........................ 825,213 1,040,388
Accrued expenses and other liabilities ............................. 1,171,056 908,581
Current portion of long-term debt .................................. 777,025 964,354
Current portion of obligation under capital lease .................. 356,852 336,791
----------- -----------
Total current liabilities ................................. 8,380,796 7,928,308
OBLIGATION UNDER CAPITAL LEASE ....................................... 1,154,748 1,343,199
LONG-TERM DEBT ....................................................... 1,297,956 1,671,647
UNION EMPLOYEE TERMINATION BENEFITS .................................. 293,518 290,763
----------- -----------
Total liabilities ......................................... 11,127,018 11,233,917
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</TABLE>
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<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (CONTINUED)
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June 30, December 31,
1998 1997
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<S> <C> <C>
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par; 5,000,000 shares authorized and unissued -- --
Common stock, $1.00 par; 10,000,000 shares authorized,
2,523,261 shares issued and outstanding .......................... 2,523,261 2,523,261
Additional paid-in capital ......................................... 2,157,492 2,157,492
Retained earnings .................................................. 27,077,233 25,840,887
----------- -----------
Total stockholders' equity ................................ 31,757,986 30,521,640
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................... $42,885,004 $41,755,557
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
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Three Months Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET SALES ..................... $ 17,901,712 $ 14,393,076 $ 33,715,883 $ 27,659,723
COST OF PRODUCTS SOLD ......... 13,331,822 10,974,853 25,545,516 21,201,591
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES ..... 3,167,176 2,703,467 5,890,051 5,207,328
------------ ------------ ------------ ------------
Operating income .. 1,402,714 714,756 2,280,316 1,250,804
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense ........... (392,654) (167,378) (692,235) (300,722)
Foreign exchange gain (loss) 50,150 (64,194) 176,560 (149,987)
Other , net ................ 1,012 761 2,389 1,035
------------ ------------ ------------ ------------
Total ............. (341,492) (230,811) (513,286) (449,674)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES .... 1,061,222 483,945 1,767,030 801,130
INCOME TAX PROVISION .......... 319,383 136,330 530,684 224,628
------------ ------------ ------------ ------------
NET INCOME .................... 741,839 347,615 1,236,346 576,502
RETAINED EARNINGS,
BEGINNING OF PERIOD ......... 26,335,394 24,229,126 25,840,887 24,000,239
------------ ------------ ------------ ------------
RETAINED EARNINGS,
END OF PERIOD ............... $ 27,077,233 $ 24,576,741 $ 27,077,233 $ 24,576,741
============ ============ ============ ============
AVERAGE SHARES OUTSTANDING .... 2,523,261 2,523,261 2,523,261 2,523,261
============ ============ ============ ============
BASIC EARNINGS
PER COMMON SHARE ........... $ 0.29 $ 0.14 $ 0.49 $ 0.23
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Six Months
Ended June 30,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 1,236,346 $ 576,502
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................... 1,119,299 1,082,874
Foreign exchange (gain)loss ............................. (176,560) 149,987
Deferred taxes .......................................... 16,212 8,378
Changes in assets and liabilities, net of the effect of
foreign currency
translation:
Accounts receivable ................................. (1,405,653) (461,250)
Income taxes ........................................ 314,450 132,570
Inventories ......................................... 1,916,198 962,959
Prepaid expenses and other current assets ........... (80,172) (222,374)
Other assets ........................................ 8,173 19,464
Accounts payable and accrued expenses ............... 28,524 (332,173)
Other ............................................... 2,943 22,645
----------- -----------
Net cash provided by operating activities ........ 2,979,760 1,939,582
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net acquisitions of property, plant and equipment ......... (1,672,297) (611,132)
Increase in timber and timberlands ........................ (784,126) (507,347)
----------- -----------
Net cash used in investing activities ............ (2,456,423) (1,118,479)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable ...................... 310,015 (621,991)
Borrowings of long-term debt .............................. 580,157 1,072,495
Payments of long-term debt ................................ (1,173,741) (1,126,981)
Principal payments under capital lease .................... (168,390) (147,389)
----------- -----------
Net cash used in financing activities ........... (451,959) (823,866)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH ..................... 232,641 (188,344)
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</TABLE>
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<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(CONTINUED)
- ----------------------------------------------------------------------------------------------
Six Months
Ended June 30,
1998 1997
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<S> <C> <C>
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ................................. 304,019 (191,107)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ....................................... 1,177,003 1,114,659
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ............................................. $ 1,481,022 $ 923,552
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................ $ 506,038 $ 177,670
=========== ===========
Income taxes ............................................ $ 176,044 $ 123,536
=========== ===========
</TABLE>
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BALTEK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
The information included in the accompanying interim financial statements
is unaudited. In the opinion of management, all adjustments, consisting of
normal recurring accruals necessary for a fair presentation of the results
of operations, financial position and cash flows for the interim periods
presented have been reflected herein. The results of operations for the
interim periods are not necessarily indicative of the results to be
expected for the entire year. The statements should be read in conjunction
with the accounting policies and notes to consolidated financial
statements included in the Company's 1997 Annual Report on Form 10-K.
2. INVENTORIES
Inventories are summarized as follows:
June 30, December 31,
1998 1997
Raw materials $ 4,891,869 $ 5,288,736
Work-in-process 3,847,609 4,300,532
Finished goods 3,943,672 5,010,080
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$12,683,150 $14,599,348
=========== ===========
3 NOTES PAYABLE
The Company's current domestic credit facilty, which by its original terms
expired on May 31, 1998, has been extended until August 31, 1998. The
Company is currently discussing the terms of a new facilty with its
domestic bank and expects that the new line will be continued at
substantially the same terms as the expiring facility.
******
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
The Company's working capital ratio of 2.66:1 at June 30, 1998,
decreased from the ratio of 2.84:1 at December 31, 1997 due primarily to
fluctuations in accounts receivable, notes payable and inventories. Unused lines
of bank credit and the Company's working capital are considered by management to
be sufficient to support operations and fixed asset acquisitions for the
immediate future.
Results of Operations
Total sales increased 24% and 22% during the three and six-month
periods ended June 30, 1998 as compared to the same periods in 1997. The
increase was due to improved core materials sales together with substantial
increases in shrimp sales.
Core material sales were $14,106,000 and $11,376,000 for the three
months ended June 30, 1998 and 1997, respectively, and $26,493,000 and
$22,045,000 for the six months ended June 30, 1998 and 1997, respectively. The
continued robust economy has resulted in strong demand in all industries that
use core materials, including the largest customer group: the boating industry.
Many of the Company's end user markets, including boating, are highly cyclical.
Demand within those industries is dependent upon, among other factors,
inflation, interest rates and consumer confidence. Fluctuating interest rates
and other changes in economic conditions make it difficult to forecast short or
long range trends. Increases in core material sales in 1998 are also
attributable to sales of foam products that were introduced in 1996. The
increase in core material sales in 1998 compared to 1997 was attributable to
improved pricing and volume increases.
Shrimp sales were $3,798,000 and $3,017,000 for the three months ended
June 30, 1998 and 1997, respectively, and $7,224,000 and $5,615,000 for the six
months ended June 30, 1998 and 1997, respectively. The increase is due to higher
volume of shrimp shipped; the average selling price for the six month period was
slightly lower at June 30, 1998 compared to June 30, 1997.
The gross margin improved for the three and six months ended June 30,
1998 compared to the same periods in 1997. The margins for the Company's core
products improved in 1998, primarily due to improved pricing. Additionally,
margins during the six months in 1997 were negatively affected by competitive
pricing pressure on the Company's balsa and foam products. The gross margin from
shrimp sales decreased in 1998 compared to 1997. The decrease is attributable to
a higher volume of shrimp purchased from outside suppliers, which have lower
margins than shrimp grown at the Company's own farms, and to a small extent,
slightly lower worldwide prices.
Selling, general and administrative expenses as a percentage of sales
declined in the first six months of 1998 as compared to 1997. The decline was
due primarily to a better absorption of certain fixed expenses, as a result of
increased sales, partially offset by increases required in certain areas as a
result of the Company's growth.
<PAGE>
Interest expense increased in 1998 as compared to 1997. In 1998 the
Company continued to borrow money for working capital purposes in Ecuador in
local currency (sucre) denominated loans as a natural hedge of the net
investment in Ecuador. Although these loans bear higher interest rates than U.S.
dollar loans, the Company expects to partially offset these higher interest
rates with gains resulting from the expected devaluation of the sucre. This
practice increased interest expense in 1998 as compared to 1997 and created a
foreign exchange gain. The Company's interest rate on U.S. loans was lower in
1998 and its average borrowings were slightly lower in 1998 as compared to 1997.
The level of borrowing in all periods is related to the Company's working
capital needs and cash flows generated from operations.
The Company had a foreign exchange gain of $177,000 for the six month
period ended June 30, 1998 as compared to a loss of $150,000 for the comparable
1997 period. In March 1998, the Ecuadorian government weakened its currency's
trading band against the dollar by 7%, effectively devaluing the local currency
by a similar amount. Translation gains and losses are mainly caused by the
relationship of the U.S. dollar to the foreign currencies in the countries where
the Company operates, and arise when translating foreign currency balance sheets
into U.S. dollars. The Company utilizes foreign exchange contracts to hedge
certain inventory purchases and may also employ certain strategies whose
objective is to reduce earnings and cash flow volatility associated with foreign
exchange rate changes. The Company has not and does not intend to enter into
foreign currency transactions for speculative purposes. Management is unable to
forecast the impact of translation gains or losses on future periods due to the
unpredictability in the fluctuation of foreign exchange rates.
The provision for income taxes was at the rate of 30% and 28% of pre-tax
earnings for the three and six month periods ended June 30, 1998 and 1997,
respectively.
The foregoing discussion and analysis contains forward-looking statements
regarding the Company. Because such statements include risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, economic conditions in the United
States, Europe and Ecuador that affect relative interest rates, foreign exchange
rates and other costs and prices related to the Company's business.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders
On May 28,1998 the Company conducted its annual meeting of
shareholders. Of the 2,523,261 shares of the Company's common stock
entitled to vote at the meeting, 2,268,296 shares were present at
the meeting in person or by proxy.
The seven people designated by the Company's board of directors as
nominees for director were elected, with voting as follows:
Nominee Votes For Votes Withheld
------- --------- --------------
Jacques Kohn 2,264,484 3,812
Jean Kohn 2,264,284 4,012
Henri-Armand Kohn 2,264,284 4,012
Margot W. Kohn 2,263,584 4,712
William F. Nicklin 2,264,884 3,412
Bernard J. Wald 2,263,709 4,587
Benson J. Zeikowitz 2,264,384 3,912
Stockholders voted to ratify the appointment of Deloitte & Touche
LLP as the independent auditors for the Company for the year ended
December 31, 1998. There were 2,267,721 shares voted in favor of
ratification, 575 votes against and no abstentions.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
11. An exhibit showing the computation of per-share earnings is
omitted because the computation can be clearly determined from
the material contained in this Quarterly Report on Form 10-Q.
27. Financial Data Schedule.
(B) Reports on Form 8-K:
No report has been filed during the six months ended June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALTEK CORPORATION
(Registrant)
Date: August 7, 1998 /s/Jacques Kohn
---------------
Jacques Kohn
President
Date: August 7, 1998 /s/Ronald Tassello
------------------
Ronald Tassello
Chief Financial Officer
and Treasurer
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<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Baltek Corporation and
subsidiaries consolidated financial statements, and related exhibits for the
three months ended June 30, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,481,022
<SECURITIES> 0
<RECEIVABLES> 6,602,995
<ALLOWANCES> 94,736
<INVENTORY> 12,683,150
<CURRENT-ASSETS> 22,319,751
<PP&E> 32,790,129
<DEPRECIATION> 20,276,382
<TOTAL-ASSETS> 42,885,004
<CURRENT-LIABILITIES> 8,380,796
<BONDS> 0
0
0
<COMMON> 2,523,261
<OTHER-SE> 29,234,725
<TOTAL-LIABILITY-AND-EQUITY> 42,885,004
<SALES> 33,715,883
<TOTAL-REVENUES> 33,715,883
<CGS> 25,545,516
<TOTAL-COSTS> 31,435,567
<OTHER-EXPENSES> 513,286
<LOSS-PROVISION> 27,251
<INTEREST-EXPENSE> 692,235
<INCOME-PRETAX> 1,767,030
<INCOME-TAX> 503,684
<INCOME-CONTINUING> 1,236,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,236,346
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
