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 September 30, 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 November 8, 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 September 30, 1999 and December
31, 1998
Consolidated Statements of Income and Retained Earnings for the
Three and Nine Months Ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 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
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share data)
September 30, December 31,
ASSETS 1999 1998
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,948 $ 1,056
Accounts receivable, net 10,914 6,942
Inventories 19,249 14,667
Prepaid expenses 293 425
Other 1,003 1,148
------- -------
Total current assets 33,407 24,238
PROPERTY, PLANT AND EQUIPMENT, Net 13,266 13,114
TIMBER AND TIMBERLANDS 8,191 8,186
OTHER ASSETS 516 539
------- -------
Total assets $55,380 $46,077
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $11,751 $ 4,681
Accounts payable 4,080 2,438
Income tax payable 15 216
Accrued salaries, wages and bonuses payable 1,057 1,440
Accrued expenses and other liabilities 884 876
Current portion of long-term debt 372 449
Current portion of obligation under capital lease 407 381
------- -------
Total current liabilities 18,566 10,481
OBLIGATION UNDER CAPITAL LEASE 650 961
LONG-TERM DEBT 59 620
UNION EMPLOYEE TERMINATION BENEFITS 181 235
------- -------
Total liabilities 19,456 12,297
------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<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 31,244 29,100
------- -------
Total stockholders' equity 35,924 33,780
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $55,380 $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 Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 23,724 $ 16,366 $ 64,750 $ 50,082
COST OF PRODUCTS SOLD 18,514 12,147 49,965 37,693
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES 3,496 2,784 10,558 8,673
----------- ----------- ----------- -----------
Operating income 1,714 1,435 4,227 3,716
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (353) (470) (986) (1,163)
Foreign exchange (loss) gain (170) 323 (181) 499
Other, net -- 1 3 4
----------- ----------- ----------- -----------
Total (523) (146) (1,164) (660)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,191 1,289 3,063 3,056
INCOME TAX PROVISION 357 386 919 917
----------- ----------- ----------- -----------
NET INCOME 834 903 2,144 2,139
RETAINED EARNINGS,
BEGINNING OF PERIOD 30,410 27,077 29,100 25,841
----------- ----------- ----------- -----------
RETAINED EARNINGS,
END OF PERIOD $ 31,244 $ 27,980 $ 31,244 $ 27,980
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING 2,523,261 2,523,261 2,523,261 2,523,261
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE, BASIC
and DILUTED $ 0.33 $ 0.36 $ 0.85 $ 0.85
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
Nine Months
Ended September 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,144 $ 2,139
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 2,528 1,827
Foreign exchange loss (gain) 181 (499)
Deferred taxes 37 24
Changes in assets and liabilities, net of the effect
of foreign currency translation and acquisition:
Accounts receivable (3,972) (1,906)
Inventories (4,161) 418
Prepaid expenses and other current assets 288 (332)
Other assets (15) 15
Accounts payable and accrued expenses 1,282 (315)
Income taxes payable (202) 172
Other (67) (26)
------- -------
Net cash (used in) provided by operating activities (1,957) 1,517
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net acquisitions of property, plant and equipment (1,895) (2,428)
Increase in timber and timberlands (720) (1,043)
Acquisition of assets of seafood import business (491) --
------- -------
Net cash used in investing activities (3,106) (3,471)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable, net 7,070 2,593
Borrowings of long-term debt -- 560
Payments of long-term debt (776) (1,904)
Principal payments under capital lease (286) (254)
------- -------
Net cash provided by financing activities 6,008 995
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (53) 530
------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 892 (429)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,056 1,177
------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,948 $ 748
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 903 $ 890
------- -------
Income taxes $ 1,051 $ 720
======= =======
</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):
September 30, December 31,
1999 1998
Raw materials $ 7,225 $ 6,407
Work-in-process 3,798 4,476
Finished goods 8,226 3,784
------- -------
$19,249 $14,667
======= =======
3. NOTES PAYABLE
The Company's primary domestic credit facility, which by its original
terms expired on May 31, 1999, has been extended until November 30,
1999. The Company has also obtained another secured domestic credit
facility for $3 million, which also expires on November 30, 1999. The
Company is currently discussing the terms of a new facility with its
domestic bank.
4. ACQUISITION
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
increases 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. This acquisition was accounted
for under the purchase method.
<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.
Because of the Company's expanded operations as a result of its entry
into the seafood import business, 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.
Information about the Company's operations by segment for the three
and nine months ended September 30, 1999 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Net Sales to unaffiliated customers
<S> <C> <C> <C> <C>
Core materials segment $15,685 $13,192 $44,338 $39,685
Seafood segment 8,039 3,174 20,412 10,397
------- ------- ------- -------
Total net sales $23,724 $16,366 $64,750 $50,082
======= ======= ======= =======
Operating Income
Core materials segment $ 1,668 $ 1,265 $ 3,030 $ 2,706
Seafood segment 46 170 1,197 1,010
------- ------- ------- -------
Total operating income $ 1,714 $ 1,435 $ 4,227 $ 3,716
======= ======= ======= =======
</TABLE>
6. NEW ACCOUNTING STANDARDS
Derivatives and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement requires that all derivatives be measured at fair value and
recognized as either assets or liabilities on our balance sheet.
Changes in the fair values of derivative instruments will be
recognized in either earnings or comprehensive income, depending on
the designated use and effectiveness of the instruments. The FASB
amended this pronouncement in June 1999 to defer the effective date of
SFAS No. 133 for one year.
Under the amended pronouncement, the Company must adopt SFAS No. 133
no later than January 1, 2001. The adoption of SFAS No. 133 is not
expected to have a material effect on the Company's results of
operations or financial condition.
<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. The Company has increased available
borrowings under domestic lines of credit to $10 million to provide for its
anticipated working capital requirements (the Company continues to have lines of
credit in Ecuador and Europe totaling approximately $6 million). 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 September 30,
1999, the Company had working capital of $14.8 million compared to $13.8 million
at December 31, 1998. Inventories and accounts receivable increased for the nine
months 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 and Nine Months
Ended September 30, 1999 and 1998
Total sales increased 45% and 29%, respectively, during the three
and nine-month periods ended September 30, 1999 as compared to the same period
in 1998. The increase was due to increased core materials sales and significant
increases in seafood sales.
Core material sales were $15,685,000 and $13,192,000 for the three
months ended September 30, 1999 and 1998, respectively, and $44,338,000 and
$39,685,000 for the nine months ended September 30, 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 $8,039,000 and $3,174,000 for the three months
ended September 30, 1999 and 1998, respectively, and $20,412,000 and $10,397,000
for the nine months ended September 30, 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 declined for the three and nine-month periods ended
September 30, 1999 compared to the same period in 1998. The margins for the
Company's core products improved slightly, primarily due to improved pricing. A
disease, commonly called "White Spot" disease, has affected shrimp farms in
South America and other parts of the world. This disease has resulted in lower
<PAGE>
revenues in 1999 because of 1) lower production at the Company's farms and 2)
the Company is harvesting its production earlier (smaller sizes sell for less
per pound than larger sizes). There has also been increased volatility in shrimp
prices in 1999 as compared to 1998. Lower revenues have resulted in a lower
gross margin for the three and nine months ended September 30,1999 as compared
to 1998. The Company is taking all possible steps to mitigate the effect of this
disease on its farms, but since other farms in South America are effected, no
determination can be made as to its longevity and effect on shrimp prices in the
marketplace.
Selling, general and administrative (S,G&A) expenses as a percentage
of sales declined in the first nine months of 1999 as compared to 1998. The
import business, which began during the first quarter of 1999, had a lower
percentage of S,G&A expenses as compared to the Company's historical
relationship. This reduced S,G&A as a percentage of sales during the first nine
months and is expected to continue during the remainder of 1999.
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 nine months of 1999 as
compared to 1998. In 1999, the Company's short-term borrowings for working
capital purposes in Ecuador are primarily U.S. 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 was 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 as
compared to 1998 and its average borrowings were significantly 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 loss of $181,000 and a gain of
$499,000 for the nine month periods ended September 30, 1999 and 1998,
respectively. Gains were lower in 1999 due mainly to the Company's shift in
borrowings from sucre to dollar denominated loans described above. 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 three and nine months ended September 30, 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.
<PAGE>
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.
During the second quarter of 1999, the Company completed the
implementation of the mission-critical modules of the fully-integrated
Enterprise Resource Planning ("ERP") system purchased from a third party vendor.
The vendor has committed that the ERP software is Year 2000 compliant. The
Company now believes its internal IT systems are Year 2000 compliant. 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 are not expected to be material.
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. The modifications were completed in Ecuador
during the second quarter of 1999 and in Europe during the third quarter.
The Company has continued to assess 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. Communications with these vendors
to determine the status of their systems was completed during the first quarter
of 1999 and updated as necessary. The individual compliance of these third
parties varied significantly, and 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.
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.
<PAGE>
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 nine months ended September
30, 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: November 12, 1999 /s/Jacques Kohn
---------------
Jacques Kohn
President
Date: November 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 nine
months ended September 30, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,948,000
<SECURITIES> 0
<RECEIVABLES> 11,128,000
<ALLOWANCES> 214,000
<INVENTORY> 19,249,000
<CURRENT-ASSETS> 33,407,000
<PP&E> 36,053,000
<DEPRECIATION> 22,787,000
<TOTAL-ASSETS> 55,380,000
<CURRENT-LIABILITIES> 18,566,000
<BONDS> 0
0
0
<COMMON> 2,523,000
<OTHER-SE> 33,401,000
<TOTAL-LIABILITY-AND-EQUITY> 55,380,000
<SALES> 64,750,000
<TOTAL-REVENUES> 64,750,000
<CGS> 49,965,000
<TOTAL-COSTS> 60,523,000
<OTHER-EXPENSES> 1,164,000
<LOSS-PROVISION> 80,000
<INTEREST-EXPENSE> 986,000
<INCOME-PRETAX> 3,063,000
<INCOME-TAX> 919,000
<INCOME-CONTINUING> 2,144,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,144,000
<EPS-BASIC> 0.85
<EPS-DILUTED> 0.85
</TABLE>
