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, 1999
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
-----------------------------------------------------
(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
(Former name, former address and formal fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Common shares of stock outstanding as of May 7, 1999: 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 March 31, 1999 and December 31, 1998
Consolidated Statements of Income and Retained Earnings for the Three
Months Ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998
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
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share data)
March 31, December 31,
ASSETS 1999 1998
------- -------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 1,635 $ 1,056
Accounts receivable, net ........................................... 9,698 6,942
Inventories ........................................................ 15,919 14,667
Prepaid expenses ................................................... 347 425
Other .............................................................. 1,403 1,148
------- -------
Total current assets ...................................... 29,002 24,238
PROPERTY, PLANT AND EQUIPMENT, Net ................................... 12,964 13,114
TIMBER AND TIMBERLANDS ............................................... 8,199 8,186
OTHER ASSETS ......................................................... 545 539
------- -------
Total assets .............................................. $50,710 $46,077
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ...................................................... $ 8,665 $ 4,681
Accounts payable ................................................... 3,711 2,438
Income tax payable ................................................. 195 216
Accrued salaries, wages and bonuses payable ........................ 573 1,440
Accrued expenses and other liabilities ............................. 1,076 876
Current portion of long-term debt .................................. 398 449
Current portion of obligation under capital lease .................. 392 381
------- -------
Total current liabilities ................................. 15,010 10,481
OBLIGATION UNDER CAPITAL LEASE ....................................... 855 961
LONG-TERM DEBT ....................................................... 297 620
UNION EMPLOYEE TERMINATION BENEFITS .................................. 187 235
------- -------
Total liabilities ......................................... 16,349 12,297
------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share data)
(continued)
March 31, December 31,
1999 1998
------- -------
(Unaudited)
<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 2,523
Additional paid-in capital ......................................... 2,157 2,157
Retained earnings .................................................. 29,681 29,100
------- -------
Total stockholders' equity ................................ 34,361 33,780
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................... $50,710 $46,077
======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(Dollars in Thousands, except per share data)
Three Months
Ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
NET SALES .................................... $ 18,099 $ 15,814
COST OF PRODUCTS SOLD ........................ 13,396 12,214
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES .................... 3,624 2,722
----------- -----------
Operating income ................. 1,079 878
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense .......................... (262) (300)
Foreign exchange gain ..................... 13 126
Other, net ................................ -- 2
----------- -----------
Total ............................ (249) (172)
----------- -----------
INCOME BEFORE INCOME TAXES ................... 830 706
INCOME TAX PROVISION ......................... 249 211
----------- -----------
NET INCOME ................................... 581 495
RETAINED EARNINGS,
BEGINNING OF PERIOD ........................ 29,100 25,840
----------- -----------
RETAINED EARNINGS,
END OF PERIOD .............................. $ 29,681 $ 26,335
=========== ===========
AVERAGE SHARES OUTSTANDING ................... 2,523,261 2,523,261
=========== ===========
EARNINGS PER COMMON SHARE .................... $ .23 $ 0.20
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
Three Months
Ended March 31,
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................. $ 581 $ 495
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ......................... 767 527
Foreign exchange gain ................................. (13) (126)
Deferred taxes ........................................ 12 8
Changes in assets and liabilities, net of the effect of
foreign currency translation:
Accounts receivable ............................... (2,761) (1,844)
Income taxes ...................................... (22) 187
Inventories ....................................... (1,252) 734
Prepaid expenses and other current assets ......... (174) (113)
Other assets ...................................... (19) 10
Accounts payable and accrued expenses ............. 655 (389)
Other ............................................. (52) (2)
------- -------
Net cash used in operating activities .......... (2,278) (513)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net acquisitions of property, plant and equipment ....... (447) (698)
Increase in timber and timberlands ...................... (183) (336)
------- -------
Net cash used in investing activities .......... (630) (1,034)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable, net .......................... 3,985 2,111
Borrowings of long-term debt ............................ -- --
Payments of long-term debt .............................. (411) (411)
Principal payments under capital lease .................. (95) (84)
------- -------
Net cash provided by financing activities ...... 3,479 1,616
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ................... 8 154
------- -------
NET INCREASE IN
CASH AND CASH EQUIVALENTS ............................... 579 223
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ..................................... 1,056 1,177
------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ........................................... $ 1,635 $ 1,400
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
(continued)
Three Months
Ended March 31,
1999 1998
------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .............................................. $ 211 $ 182
======= =======
Income taxes .......................................... $ 208 $ 30
======= =======
</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 1998 Annual Report on Form 10-K.
2. INVENTORIES
Inventories are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------- -------
<S> <C> <C>
Raw materials $ 6,977 $ 6,407
Work-in-process 4,594 4,476
Finished goods 4,348 3,784
------- -------
$15,919 $14,677
======= =======
</TABLE>
3. NOTES PAYABLE
During the quarter ended March 31, 1999, the Company increased the maximum
available borrowing limit under its domestic credit facilty from $5
million to $7 million. All other terms remained the same. The Company's
credit facilities in Europe and Ecuador did not change.
4. SUBSEQUENT EVENT
In April 1999, the Company signed an agreement to purchase certain assets
and inventory totaling approximately $500,000 from the seafood importing
subsidiary of Nissho Iwai Corporation. The acquisition will increase the
Company's presence in the seafood industry and allows the Company to sell
not only shrimp but many other types of seafood, including lobster, crab,
and salmon. Although this acquisition was not formalized until April, the
Company, by mutual informal agreement with Nissho Iwai, effectively
commenced importing operations during the first quarter.
Because of the expanded operations, the segment formerly referred to as
"Shrimp" will hereinafter be described as "Seafood", which more accurately
reflects the Company's diverse operations as a shrimp producer and seafood
importer.
<PAGE>
5. SEGMENT INFORMATION
The Company and its subsidiaries operate in two segments, as a
manufacturer and supplier of core materials to various composite
industries, and in the seafood business as a shrimp producer and seafood
importer. The segments are managed and reported separately because of the
difference in products they produce and markets they serve. The Company
evaluates performance based on operating income, i.e. results of
operations before interest, income taxes and foreign exchange gains and
losses. There are no intersegment sales.
Information about the Company's operations by segment as of and for the
quarter ended March 31, 1999 is follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Net Sales to unaffiliated customers
Core materials segment ............ $13,374 $12,388
Seafood segment ................... 4,725 3,426
------- -------
Total net sales ................... $18,099 $15,814
Operating Income
Core materials segment ............ $ 513 $ 468
Seafood segment ................... 566 410
------- -------
Total operating income ............ $ 1,079 $ 878
======= =======
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
The primary sources of liquidity historically have been and are
expected to continue to be cash flow generated from operations and available
borrowings under short-term lines of credit. In March 1999, the Company
increased its domestic line of credit from $5 million to $7 million to provide
for its anticipated working capital requirements. The Company's recently
expanded operations as a seafood importer are expected to require a significant
amount of working capital, particularly to finance inventory and accounts
receivable. The Company may, accordingly, seek additional increases in its
working capital facility in the near term to finance its growth. Because of
expected growth in its core materials segment and shrimp producing activities,
the Company may seek long-term financing for significant capital expenditures.
The Company's financial position remains strong. At March 31, 1999, the
Company had working capital of $14.0 million compared to $13.8 million at
December 31, 1998. Inventories and accounts receivable increased during the
quarter as a result of the Company's growth and expansion into seafood
importing. Notes payable also increased during the quarter; the increased
borrowings were used to finance higher levels of working capital.
Results of Operations for the Three Months
Ended March 31, 1999 and 1998
Total sales increased 14% during the three-month period ended March 31,
1999 as compared to the same period in 1998. The increase was due to increased
core materials and seafood sales.
Core material sales were $13,374,000 and $12,388,000 for the three
months ended March 31, 1999 and 1998, respectively. The favorable economy
continues to result 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. The increase in core material sales in 1999 compared to 1998 was
attributable to higher volume and, to a lesser extent, improved pricing.
Seafood sales were $4,725,000 and $3,426,000 for the three months ended
March 31, 1999 and 1998, respectively. The increase was the result of sales of
seafood products from the Company's new import business, which began during the
first quarter (see Note 4).
The gross margin for the three months ended March 31, 1999 and 1998 was
26.0% and 22.8% respectively. The margins for the Company's core products
improved, primarily due to improved pricing. The gross margin from seafood
sales remained approximately the same in 1999 as compared to 1998.
Selling, general and administrative expenses as a percentage of sales
increased in the first quarter of 1999 as compared to 1998. The increase was due
primarily to higher selling expenses, including compensation, as a result of
increased sales and higher general and administrative expenses.
<PAGE>
Sales and expenses were affected in all periods by the different
exchange rates applied in remeasuring the books of accounts of the Company's
foreign subsidiaries.
Interest expense decreased in the first quarter of 1999 as compared to
1998. In 1999, the Company's short-term borrowings for working capital purposes
in Ecuador were US dollar denominated loans. In 1998, the Company borrowed money
for working capital purposes in Ecuador in local currency (sucre) denominated
loans. These sucre loans bear higher interest rates than U.S. dollar loans which
is partially offset by gains resulting from the devaluation of the sucre. This
practice of using sucre denominated loans increased interest expense in 1998 but
also created a corresponding foreign exchange gain. The Company's interest rate
on U.S. loans was lower in 1999 and its average borrowings were higher in 1999
as compared to 1998. 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 $13,000 and $126,000 for the
periods ended March 31, 1999 and 1998, respectively. Gains were lower in 1999
due to the Company's shift in borrowings from sucre to dollar denominated loans
described above. In March of 1998, the Ecuadorian government weakened its
currency's trading band against the dollar effectively devaluing the local
currency. 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 remeasuring foreign currency balance sheets into U.S.
dollars. The Company utilizes foreign exchange contracts to hedge certain
inventory purchases. The Company does not 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.
The provision for income taxes was at the rate of 30% of pre-tax earnings
for the quarters ended March 31, 1999 and 1998.
Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Any
program software and hardware, as well as certain equipment and machinery, that
are date sensitive may recognize a date using "00" as the Year 1900 rather than
the Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in normal business activities for both the
Company and its customers who rely on its products.
The Company has divided the Year 2000 issue into two main areas:
internal information technology ("IT") and non-IT systems, including embedded
technology such as microprocessors; and external agents including critical
suppliers, customers and other third parties the Company utilizes for various
processing functions.
The Company is in the process of installing a new, fully integrated
Enterprise Resource Planning ("ERP") system purchased from a third party vendor.
The ERP software is Year 2000 compliant. Implementation of mission-critical
systems is expected to be completed in the second quarter of 1999; certain
non-critical systems are scheduled to be completed during 1999. The decision to
<PAGE>
invest in a new ERP system was driven by the need for a fully integrated
management information system to support the planned growth of the Company and
not specifically to address Year 2000 compliance issues. To fully utilize the
capabilities of the ERP software and modernize its existing systems, the Company
invested in new computer hardware and networking hardware and software in 1998.
Efforts to implement the ERP system and address certain Year 2000
issues are being accomplished concurrently. It is not practical therefore to
distinguish and estimate certain Year 2000 compliance costs, especially as they
relate to the Company's information technology. Total internal and external
costs expended in 1999 to implement the ERP system was approximately $150,000.
Additional external costs to implement the mission-critical and certain other
modules are expected to be approximately $100,000 during the remainder of 1999.
Hardware costs have been capitalized; internal costs and nearly all external
costs have been expensed as incurred. Certain expenditures will be required in
the future to maintain the technology base of the Company and enhance the
Company's use of information technology and computer hardware. Such expenditures
in the future are not expected to be material. The Company may decide to utilize
additional capabilities of its ERP system and make use of other information
technologies as they become available in the marketplace. These expenditures
will be largely discretionary in that they are not mission-critical systems and
will be evaluated using a methodology similar to that used by the Company to
evaluate other capital expenditures.
Current plans call for the ERP system to be implemented in the U.S.
only, not in the Company's European or Ecuadorian subsidiaries. The Company has
identified all significant IT and non-IT applications that will require
modification at these locations. Completion of the modifications is expected by
the end of June 1999 in Ecuador and Europe.
The Company is in the process of assessing its Year 2000 exposure as it
pertains to non-IT systems, including manufacturing process control and key
third party relationships, such as vendors and customers. This includes the
process of identifying and prioritizing critical suppliers and customers and
communicating with them about their plans and progress in addressing the Year
2000 problem. The Company also utilizes third-party vendors for processing data
and payments, e.g., payroll services, 401(k) plan administration, check
processing, medical benefits processing, etc. The Company initiated
communications with these vendors to determine the status of their systems and
completed its initial review during the first quarter of 1999. Because the
individual compliance of these third parties varied significantly, it is
expected that the Company will continue to monitor the progress of compliance on
an ongoing basis in 1999. Should these vendors not be compliant in a timely
manner, the Company may be required to process transactions manually or delay
processing until such time as the vendors are Year 2000 compliant.
Although the Company anticipates that minimal business disruption will
occur as a result of Year 2000 issues, there is no guarantee that possible
"worst case" Year 2000 issues of third party vendors and suppliers would not
impact the Company. To date the Company has not developed a formal contingency
plan for non-compliance and will develop such plans as necessary based on
information obtained from third parties, as well as the evaluation of its IT and
non-IT systems.
<PAGE>
The future costs of the Company's Year 2000 efforts are expected to be
funded through existing cash resources and future operating cash flows. The
requirements for the correction of Year 2000 issues and the date on which the
Company believes it will complete the Year 2000 modifications are based on
management's current best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that may cause such
material differences include, but are not limited to, the availability of
personnel trained in this area, the ability to locate and collect all relevant
computer data and similar uncertainties.
* * * * *
Forward Looking Statements - Cautionary Factors
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, 1999.
<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 12, 1999 /s/Jacques Kohn
---------------
Jacques Kohn
President
Date: May 12, 1999 /s/Ronald Tassello
------------------
Ronald Tassello
Chief Financial Officer and Treasurer
<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, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,635,000
<SECURITIES> 0
<RECEIVABLES> 9,856,000
<ALLOWANCES> 158,000
<INVENTORY> 15,919,000
<CURRENT-ASSETS> 29,002,000
<PP&E> 34,574,000
<DEPRECIATION> 21,610,000
<TOTAL-ASSETS> 50,710,000
<CURRENT-LIABILITIES> 15,010,000
<BONDS> 0
0
0
<COMMON> 2,523,000
<OTHER-SE> 31,838,000
<TOTAL-LIABILITY-AND-EQUITY> 50,710,000
<SALES> 18,099,000
<TOTAL-REVENUES> 18,099,000
<CGS> 13,396,000
<TOTAL-COSTS> 17,020,000
<OTHER-EXPENSES> 249,000
<LOSS-PROVISION> 19,000
<INTEREST-EXPENSE> 262,000
<INCOME-PRETAX> 830,000
<INCOME-TAX> 249,000
<INCOME-CONTINUING> 581,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 581,000
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
