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 March 31, 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
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(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
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(Address of principal executive offices) (Zip Code)
201-767-1400
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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 share of stock outstanding as of May 6, 1998: 2,523,261 shares
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BALTEK CORPORATION
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997
Consolidated Statements of Income and Retained Earnings for the Three
Months Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
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 6. EXHIBITS AND REPORTS ON FORM 8-K
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<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
ASSETS 1998 1997
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 1,399,686 $ 1,177,003
Accounts receivable, net ........................................... 6,941,184 5,102,719
Inventories ........................................................ 13,864,850 14,599,348
Prepaid expenses ................................................... 265,995 298,398
Other .............................................................. 1,455,325 1,325,572
----------- -----------
Total current assets ...................................... 23,927,040 22,503,040
PROPERTY, PLANT AND EQUIPMENT, Net ................................... 12,001,660 11,737,754
TIMBER AND TIMBERLANDS ............................................... 7,264,440 7,021,392
OTHER ASSETS ......................................................... 475,491 493,371
----------- -----------
Total assets .............................................. $43,668,631 $41,755,557
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ...................................................... $ 3,661,875 $ 1,550,000
Accounts payable ................................................... 2,989,339 3,071,482
Income taxes payable ............................................... 241,499 56,712
Accrued salaries, wages and bonuses payable ........................ 490,915 1,040,388
Accrued expenses and other liabilities ............................. 1,136,112 908,581
Current portion of long-term debt .................................. 835,836 964,354
Current portion of obligation under capital lease .................. 344,936 336,791
----------- -----------
Total current liabilities ................................. 9,700,512 7,928,308
OBLIGATION UNDER CAPITAL LEASE ....................................... 1,250,859 1,343,199
LONG-TERM DEBT ....................................................... 1,411,834 1,671,647
UNION EMPLOYEE TERMINATION BENEFITS .................................. 289,279 290,763
----------- -----------
Total liabilities ......................................... 12,652,484 11,233,917
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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 .................................................. 26,335,394 25,840,887
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Total stockholders' equity ................................ 31,016,147 30,521,640
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................... $43,668,631 $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)
Three Months
Ended March 31,
1998 1997
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<S> <C> <C>
NET SALES ................................ $ 15,814,171 $ 13,266,647
COST OF PRODUCTS SOLD .................... 12,213,694 10,226,738
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES ................ 2,722,875 2,503,861
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Operating income ............. 877,602 536,048
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OTHER INCOME (EXPENSE):
Interest expense ...................... (299,581) (133,344)
Foreign exchange gain (loss) .......... 126,410 (85,793)
Other, net ............................ 1,377 274
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Total ........................ (171,794) (218,863)
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INCOME BEFORE INCOME TAXES ............... 705,808 317,185
INCOME TAX PROVISION ..................... 211,301 88,298
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NET INCOME ............................... 494,507 228,887
RETAINED EARNINGS, BEGINNING OF PERIOD ... 25,840,887 24,000,239
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RETAINED EARNINGS, END OF PERIOD ......... $ 26,335,394 $ 24,229,126
============ ============
AVERAGE SHARES OUTSTANDING ............... 2,523,261 2,523,261
============ ============
BASIC EARNINGS PER COMMON SHARE .......... $ 0.20 $ 0.09
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months
Ended March 31,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 494,507 $ 228,887
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization ............................ 527,378 569,966
Foreign exchange (gain) loss ............................. (126,410) 85,793
Deferred taxes ........................................... 8,106 4,190
Changes in asset and liabilities, net of the effect of
foreign currency translation:
Accounts receivable .................................. (1,843,789) (849,170)
Income taxes payable ................................. 187,412 105,030
Inventories .......................................... 734,498 1,395,470
Prepaid expenses and other current assets ............ (113,551) (145,736)
Other assets ......................................... 9,785 4,036
Accounts payable and accrued expenses ................ (389,443) (821,140)
Other ................................................ (1,586) 13,321
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Net cash (used in) provided by operating activities (513,093) 590,647
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net acquisitions of property, plant and equipment .......... (698,341) (172,152)
Increase in timber and timberlands ......................... (335,991) (233,102)
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Net cash used in investing activities ............. (1,034,332) (405,254)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable .................................. 2,111,254 150,000
Payments of long-term debt ................................. (410,787) (72,209)
Principal payments under capital lease ..................... (84,195) (73,694)
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Net cash provided by financing activities ......... 1,616,272 4,097
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EFFECT OF EXCHANGE RATE CHANGES ON CASH ...................... 153,836 (66,705)
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</TABLE>
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<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months
Ended March 31,
1998 1997
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<S> <C> <C>
NET INCREASE IN
CASH AND CASH EQUIVALENTS .................................. 222,683 122,785
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ........................................ 1,177,003 1,114,659
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CASH AND CASH EQUIVALENTS,
END OF PERIOD .............................................. $ 1,399,686 $ 1,237,444
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................. $ 181,657 $ 115,703
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Income taxes ............................................. $ 29,586 $ 1,353
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</TABLE>
See notes to consolidated financial statements.
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
Raw materials $ 4,736,987 $ 5,288,736
Work-in-process 4,789,807 4,300,532
Finished goods 4,338,056 5,010,080
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$13,864,850 $14,599,348
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* * * * * * * *
</TABLE>
<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 2.47:1 at March 31, 1998, decreased
from the ratio of 2.84:1 at December 31, 1997 due primarily to increases in
notes payable which was used to finance increases in working capital needs.
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 19% during the three-month period ended March 31,
1998 as compared to the same period in 1997. The increase was due to improved
core materials sales together with substantial increases in shrimp sales.
Core material sales were $12,388,000 and $10,669,000 for the three
months ended March 31, 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. A portion of the increase in 1998
compared to 1997 was attributable to improved pricing and, to a lesser extent,
volume increases.
Shrimp sales were $3,426,000 and $2,598,000 for the three months ended
March 31, 1998 and 1997, respectively. The increase is due to higher volume of
shrimp shipped; the average selling price was slightly lower at March 31, 1998
compared to March 31, 1997.
The gross margin for the three months ended March 31, 1998 and 1997 was
22.8% and 22.9% respectively. The margins for the Company's core products
improved in 1998, primarily due to improved pricing. Additionally, margins
during the first quarter 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 quarter of 1998 as compared to 1997. The decline was due
primarily to a better absorption of fixed expenses, primarily general and
administrative expenses, as a result of increased sales.
Interest expense increased in the first quarter of 1998 as compared to
1997. In the first quarter of 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
<PAGE>
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 the first quarter of 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 $126,000 for the period
ended March 31, 1998 as compared to a loss of $86,000 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 quarters ended March 31, 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 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 three months ended March 31, 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: May 6, 1998 /s/Jacques Kohn
---------------
Jacques Kohn
President
Date: May 6, 1998 /s/Ronald Tassello
------------------
Ronald Tassello
Chief Financial Officer
<TABLE> <S> <C>
<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 March 31, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,399,686
<SECURITIES> 0
<RECEIVABLES> 7,022,755
<ALLOWANCES> 81,571
<INVENTORY> 13,864,850
<CURRENT-ASSETS> 23,927,040
<PP&E> 31,882,438
<DEPRECIATION> 19,880,778
<TOTAL-ASSETS> 43,668,631
<CURRENT-LIABILITIES> 9,700,512
<BONDS> 0
0
0
<COMMON> 2,523,261
<OTHER-SE> 28,492,886
<TOTAL-LIABILITY-AND-EQUITY> 43,668,631
<SALES> 15,814,171
<TOTAL-REVENUES> 15,814,171
<CGS> 12,213,694
<TOTAL-COSTS> 14,936,569
<OTHER-EXPENSES> 171,794
<LOSS-PROVISION> 14,820
<INTEREST-EXPENSE> 299,581
<INCOME-PRETAX> 705,808
<INCOME-TAX> 211,301
<INCOME-CONTINUING> 494,507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 494,507
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
