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, 2000
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, NJ 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, 2000: 2,523,261 shares
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BALTEK CORPORATION and subsidiaries
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999...................1
Consolidated Statements of Income and Retained Earnings for the Three and Nine Months
Ended September 30, 2000 and 1999.........................................................2
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999.........................................................3
Notes to Consolidated Financial Statements...................................................4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................7
PART II. OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................9
SIGNATURES.....................................................................................10
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BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share data)
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September 30, December 31,
2000 1999
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,552 $ 967
Accounts receivable, net 9,927 9,285
Inventories 19,261 18,478
Prepaid expenses 579 551
Other 1,426 1,185
------- -------
Total current assets 32,745 30,466
PROPERTY, PLANT AND EQUIPMENT, Net 12,849 13,565
TIMBER AND TIMBERLANDS 8,299 8,200
OTHER ASSETS 712 674
------- -------
Total assets $54,605 $52,905
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 8,700 $ 8,079
Accounts payable 4,369 4,821
Income tax payable -- 211
Accrued salaries, wages and bonuses payable 1,021 1,211
Accrued expenses and other liabilities 833 683
Current portion of long-term debt 42 199
Current portion of obligation under capital lease 452 415
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Total current liabilities 15,417 15,619
OBLIGATION UNDER CAPITAL LEASE 199 547
LONG-TERM DEBT 56 44
UNION EMPLOYEE TERMINATION BENEFITS 113 99
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Total liabilities 15,785 16,309
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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 2,523
Additional paid-in capital 2,157 2,157
Retained earnings 34,140 31,916
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Total stockholders' equity 38,820 36,596
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $54,605 $52,905
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See notes to consolidated financial statements.
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BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(Dollars in Thousands, except per share data)
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Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
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NET SALES $ 22,213 $ 23,724 $ 67,349 $ 64,750
COST OF PRODUCTS SOLD 17,286 18,514 52,234 49,965
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES 3,661 3,496 10,866 10,558
---------- ---------- ----------- -----------
Operating income 1,266 1,714 4,249 4,227
---------- ---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (220) (353) (660) (986)
Foreign exchange loss (88) (170) (322) (181)
Other, net (1) -- 4 3
---------- ---------- ----------- -----------
Total (309) (523) (978) (1,164)
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 957 1,191 3,271 3,063
INCOME TAX PROVISION 306 357 1,047 919
---------- ---------- ----------- -----------
NET INCOME 651 834 2,224 2,144
RETAINED EARNINGS,
BEGINNING OF PERIOD 33,489 30,410 31,916 29,100
---------- ---------- ----------- -----------
RETAINED EARNINGS,
END OF PERIOD $ 34,140 $ 31,244 $ 34,140 $ 31,244
========== ========== =========== ===========
AVERAGE SHARES OUTSTANDING 2,523,261 2,523,261 2,523,261 2,523,261
========== ========== =========== ===========
BASIC AND DILUTED
EARNINGS PER COMMON SHARE $ 0.26 $ 0.33 $ 0.88 $ 0.85
========== ========== =========== ===========
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See notes to consolidated financial statements.
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BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
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Nine Months
Ended September 30,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,224 $ 2,144
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,327 2,528
Foreign exchange loss 322 181
Deferred taxes -- 37
Changes in assets and liabilities, net of the effect of
foreign currency translation and acquisition:
Accounts receivable (670) (3,972)
Inventories (783) (4,161)
Prepaid expenses and other current assets 116 288
Other assets (37) (15)
Accounts payable and accrued expenses (426) 1,282
Income taxes payable (593) (202)
Other 27 (67)
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Net cash provided by (used in) operating activities 2,507 (1,957)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net acquisitions of property, plant and equipment (982) (1,895)
Increase in timber and timberlands (685) (720)
Acquisition of assets of seafood import business -- (491)
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Net cash used in investing activities (1,667) (3,106)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable, net 621 7,070
Borrowings of long-term debt -- --
Payments of long-term debt (199) (776)
Principal payments under capital lease (311) (286)
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Net cash provided by financing activities 111 6,008
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (366) (53)
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NET INCREASE IN
CASH AND CASH EQUIVALENTS 585 892
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 967 1,056
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,552 $ 1,948
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 660 $ 903
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Income taxes $ 1,502 $ 1,051
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See notes to consolidated financial statements.
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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 1999 Annual Report on Form 10-K.
2. INVENTORIES
Inventories are summarized as follows (amounts in thousands):
September 30, December 31,
2000 1999
Raw materials $ 5,673 $ 5,260
Work-in-process 2,353 3,050
Finished goods 11,235 10,168
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$19,261 $18,478
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3. NOTES PAYABLE
The Company's domestic credit facility, which by its original terms
expired on September 30, 2000, has been extended until December 31, 2000.
All other terms and conditions of the expired facility remain the same.
The Company is currently discussing the terms of a new facility with its
bank.
4. LEASES
During the quarter ended September 30, 2000, the Company signed leases for
two plant facilities in Northvale, New Jersey. The Company signed a new
lease, which expires in 2010, for its existing plant facility. The lease
commences in 2002 at the expiration of the current lease agreement. The
lease contains a five-year renewal option, a fair market purchase option,
and provides that the Company pay all real estate taxes, maintenance,
insurance and other costs related to the facility.
The Company also signed a lease agreement for an 80,000 square foot office
and plant facility located in Northvale, New Jersey. The lease began in
September 2000, and expires in 2010. The lease contains two five-year
renewal options and provides that the Company pays facility-related costs
such as taxes, insurance, and maintenance.
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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 for the three and
nine months ended September 30, 2000 and 1999 is as follows (in
thousands):
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Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
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Net Sales to unaffiliated customers
Core materials segment $ 15,600 $ 15,685 $ 48,045 $ 44,338
Seafood segment 6,613 8,039 19,304 20,412
-------- -------- -------- --------
Total net sales $ 22,213 $ 23,724 $ 67,349 $ 64,750
======== ======== ======== ========
Operating Income
Core materials segment $1,603 $ 1,668 $ 5,114 $ 3,030
Seafood segment (337) 46 (865) 1,197
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Total operating income $1,266 $ 1,714 $ 4,249 $ 4,227
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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, and in June 2000 amended
the standard to provide guidance on its implementation.
Under the amended standard, we 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.
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Revenue Recognition
In December 1999, the staff of the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in
Financial Statements." SAB 101 outlines the basic criteria that must be
met to recognize revenue, and provides guidelines for disclosure related
to revenue recognition policies. This guidance is required to be
implemented in the fourth quarter of 2000. The company is currently
reviewing this guidance in order to determine the impact of its
provisions, if any, on the consolidated financial statements.
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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 increased its borrowing capacity
under its domestic line of credit to $12.5 million in December 1999. This credit
line, which by its original terms expired on September 30, 2000, has been
extended to December 31, 2000. The Company also continues to have lines of
credit in Ecuador and Europe totaling approximately $4.7 million. Working
capital and borrowing requirements increased in 1999 and are expected to
continue to increase throughout 2000 as a result of the Company's expanded
operations as a seafood importer as well as organic growth in its core material
business. Capital expenditures are expected to be funded by a combination of
cash generated from operations and outside financing, if necessary.
The Company's financial position remains strong. At September 30, 2000, the
Company had working capital of $17.3 compared to $14.8 million at December 31,
1999. For the year-to-date period, both inventories and accounts receivable
increased as a result of the Company's growth and expansion into seafood
importing.
Results of Operations for the Three and Nine Months
Ended September 30, 2000 and 1999
Total sales decreased 6 % and increased 4 %, respectively, during the three and
nine-month periods ended September 30, 2000 as compared to the same period in
1999.
Core material sales were $15,600,000 and $15,685,000 for the three months ended
September 30, 2000 and 1999, respectively, and $48,045,000 and $44,338,000 for
the nine months ended September 30, 2000 and 1999, 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, discretionary
income, 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 2000 compared
to 1999 was attributable principally to higher volume.
The Company's revenues for the quarter and nine months ended September 30, 2000
were negatively affected by the fluctuation of foreign currencies, particularly
those of its European subsidiaries, compared to the U.S. dollar.
Seafood sales were $6,613,000 and $8,039,000 for the three months ended
September 30, 2000 and 1999, respectively, and $19,304,000 and $20,412,000 for
the nine months ended September 30, 2000 and 1999 respectively. Sales increased
during the quarter and nine months from the Company's import business, which
began during the first quarter of 1999. These sales offset a decline in sales of
shrimp during the quarter and the nine-month period.
The overall gross margin as a percentage of sales increased for the three-month
period and decreased for the nine-month period ended September 30, 2000 as
compared to the same periods in 1999. The typical margin in the seafood import
business is lower than the Company's historical margins realized as a core
materials manufacturer/distributor and shrimp producer. The margin for the
Company's core products increased in the three and nine-month periods ended
September 30, 2000 as compared to last year. The margins from seafood sales
decreased in the three and nine-month periods ended September 30, 2000 as
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compared to the same periods in 1999. The "White Spot" virus continued to affect
the Company's shrimp farms during the first nine months of 2000, resulting in
significantly less revenues than historical levels. Lower revenues have resulted
in a lower gross margin for 2000 as compared to 1999. The Company is taking all
possible steps to mitigate the effect of this disease on its farms, but since
other farms in Latin America are affected, no determination can be made as to
its longevity and effect on shrimp prices in the marketplace.
A decline in shrimp market prices during the quarter also adversely affected the
Company's margins from its seafood import business.
Selling, general and administrative (S,G&A) expenses as a percentage of sales
declined slightly in the first nine months of 2000 as compared to 1999. In
dollar terms, S,G&A expenses have increased during the three and nine months
ended September 30, 2000 as a result of the Company's growth. Further increases
in S,G&A expenses are anticipated, but as a percentage of sales are not expected
to change significantly.
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 2000 as compared to 1999.
The Company's average borrowings for working capital purposes were lower in 2000
as compared to 1999. Interest rates in the U.S. were higher in 2000; interest
rates on U.S. dollar denominated loans in Ecuador were substantially lower in
2000 as compared to 1999. 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 $322,000 and $181,000 for the nine-
month periods ended September 30, 2000 and 1999, respectively. 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 32% and 30% of pre-tax
earnings for the three and nine months ended September 30, 2000 and 1999,
respectively.
Ecuador - Dollarization
The Ecuadorian government has completed its plans to adopt the U.S. dollar as
its national currency. During the month of September 2000, the U.S. dollar
officially replaced the Sucre, and the Sucre was removed from circulation. In
accordance with the local regulations, the Company has converted its accounting
and financial books and records from the Sucre to the U.S. dollar.
* * * * *
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 businesses.
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Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
10.1.1 -- First Amendment to Revolving Loan and Security Agreement
dated September 30, 2000 between Baltek Corporation and
Crustacea Corporation, collectively, as Borrower, and Summit
Bank, as Lender.
10.1.2 -- Substitute Revolving Credit Note dated September 30, 2000
between Baltek Corporation and Crustacea Corporation,
collectively, as Borrower, and Summit Bank, as Lender.
10.2 -- Lease Agreement dated September 18, 2000 between the
Company, as Tenant, and Edro Associates, as Landlord.
10.3 -- Amendment to Lease dated August 17, 2000 between the Company,
as Tenant, and Northvale 1997 Associates, L.L.C., as Landlord.
10.4 -- Executive Employment Agreement dated June 1, 2000 between the
Company and Ronald Tassello.
10.5 -- Executive Employment Agreement dated June 1, 2000 between the
Company and Thomas Preisel.
10.6 -- Executive Employment Agreement dated June 1, 2000 between the
Company and Antonio Diaz.
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,
2000.
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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 13, 2000 /s/ Jacques Kohn
--------------------------------
Jacques Kohn
President
Date: November 13, 2000 /s/ Ronald Tassello
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Ronald Tassello
Chief Financial Officer and Treasurer
