UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 9, 2000: 2,523,261 shares
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
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Page
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999............................................1
Consolidated Statements of Income and Retained
Earnings for the Three and Six Months
Ended June 30, 2000 and 1999.....................................2
Consolidated Statements of Cash Flows for the Six Months
Ended June 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..........................................6
PART II. OTHER INFORMATION:
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................8
SIGNATURES..........................................................9
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,459 $ 967
Accounts receivable, net 11,109 9,285
Inventories 17,768 18,478
Prepaid expenses 440 551
Other 1,008 1,185
------- -------
Total current assets 31,784 30,466
PROPERTY, PLANT AND EQUIPMENT, Net 13,042 13,565
TIMBER AND TIMBERLANDS 7,958 8,200
OTHER ASSETS 641 674
------- -------
Total assets $53,425 $52,905
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 8,272 $ 8,079
Accounts payable 4,376 4,821
Income tax payable -- 211
Accrued salaries, wages and bonuses payable 752 1,211
Accrued expenses and other liabilities 919 683
Current portion of long-term debt 37 199
Current portion of obligation under capital lease 438 415
------- -------
Total current liabilities 14,794 15,619
OBLIGATION UNDER CAPITAL LEASE 317 547
LONG-TERM DEBT 43 44
UNION EMPLOYEE TERMINATION BENEFITS 102 99
------- -------
Total liabilities 15,256 16,309
------- -------
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 33,489 31,916
------- -------
Total stockholders' equity 38,169 36,596
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $53,425 $52,905
======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(Dollars in Thousands, except per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET SALES $ 23,911 $ 22,927 $ 45,136 $ 41,026
COST OF PRODUCTS SOLD 18,732 18,055 34,948 31,451
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES 3,655 3,438 7,205 7,062
----------- ----------- ----------- -----------
Operating income 1,524 1,434 2,983 2,513
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (236) (371) (440) (633)
Foreign exchange loss (100) (23) (234) (11)
Other, net 1 2 5 3
----------- ----------- ----------- -----------
Total (335) (392) (669) (641)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,189 1,042 2,314 1,872
INCOME TAX PROVISION 381 313 741 562
----------- ----------- ----------- -----------
NET INCOME 808 729 1,573 1,310
RETAINED EARNINGS,
BEGINNING OF PERIOD 32,681 29,681 31,916 29,100
----------- ----------- ----------- -----------
RETAINED EARNINGS,
END OF PERIOD $ 33,489 $ 30,410 $ 33,489 $ 30,410
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING 2,523,261 2,523,261 2,523,261 2,523,261
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE $ 0.32 $ 0.29 $ 0.62 $ 0.52
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended June 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,573 $ 1,310
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,669 1,618
Foreign exchange loss 234 11
Deferred taxes -- 25
Changes in assets and liabilities, net of the effect of
foreign currency translation and acquisition:
Accounts receivable (1,827) (2,605)
Inventories 711 (4,501)
Prepaid expenses and other current assets 425 212
Other assets 33 (22)
Accounts payable and accrued expenses (676) 2,415
Income taxes payable (348) (74)
Other 2 (78)
------- -------
Net cash provided by (used in) operating activities 1,796 (1,689)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net acquisitions of property, plant and equipment (592) (1,366)
Increase in timber and timberlands (286) (416)
Acquisition of assets of seafood import business -- (491)
------- -------
Net cash used in investing activities (878) (2,273)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable, net 193 5,510
Borrowings of long-term debt -- --
Payments of long-term debt (187) (581)
Principal payments under capital lease (207) (191)
------- -------
Net cash (used in) provided by financing activities (201) 4,738
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (225) (20)
------- -------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 492 756
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 967 1,056
------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,459 $ 1,812
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 415 $ 529
======= =======
Income taxes $ 1,025 $ 535
======= =======
</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 1999 Annual Report on Form 10-K.
2. INVENTORIES
Inventories are summarized as follows (amounts in thousands):
June 30, December 31,
2000 1999
Raw materials $ 5,508 $ 5,260
Work-in-process 2,566 3,050
Finished goods 9,694 10,168
-------- --------
$17,768 $ 18,478
======== ========
3. 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.
<PAGE>
Information about the Company's operations by segment for the three and six
months ended June 30, 2000 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Net Sales to unaffiliated customers
<S> <C> <C> <C> <C>
Core materials segment $ 16,385 $ 15,279 $ 32,445 $ 28,653
Seafood segment 7,526 7,648 12,691 12,373
-------- -------- -------- --------
Total net sales $ 23,911 $ 22,927 $ 45,136 $ 41,026
======== ======== ======== ========
Operating Income
Core materials segment $ 1,841 $ 849 $ 3,511 $ 1,362
Seafood segment (317) 585 (528) 1,151
-------- -------- -------- --------
Total operating income $ 1,524 $ 1,434 $ 2,983 $ 2,513
======== ======== ======== ========
</TABLE>
4. 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.
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.
<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 increased its borrowing capacity
under its domestic line of credit to $12.5 million in December 1999. 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 June 30, 2000, the
Company had working capital of $17.0 compared to $14.8 million at December 31,
1999. Inventories and accounts receivable increased during the quarter as a
result of the Company's growth and expansion into seafood importing.
Results of Operations for the Three and Six Months
Ended June 30, 2000 and 1999
Total sales increased 4 % and 10 %, respectively, during the three and
six-month periods ended June 30, 2000 as compared to the same period in 1999.
The increase was due to increased core materials and seafood sales.
Core material sales were $16,385,000 and $15,279,000 for the three
months ended June 30, 2000 and 1999, respectively, and $32,445,000 and
$28,653,000 for the six months ended June 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.
Seafood sales were $7,526,000 and $7,648,000 for the three months ended
June 30, 2000 and 1999, respectively, and $12,691,000 and $12,373,000 for the
six months ended June 30, 2000 and 1999 respectively. The increase in the
six-month period ended June 30, 2000 was the result of sales of seafood products
from the Company's new import business, which began during the first quarter of
1999. These sales offset a decline in sales of shrimp during the quarter and the
six-month period.
The overall gross margin as a percentage of sales increased for the
three-month period and decreased for the six-month period ended June 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 six-month periods ended June
30, 2000 as compared to last year. The margins from seafood sales decreased in
the three and six-month periods ended June 30, 2000 as compared to the same
periods in 1999. The "White Spot" virus continued to affect the Company's shrimp
farms during the first six 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.
<PAGE>
Selling, general and administrative (S,G&A) expenses as a percentage of
sales declined in the first six months of 2000 as compared to 1999. The seafood
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, as expected, reduced S,G&A expenses as a percentage of
sales.
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 six months of 2000 as compared
to 1999. In the six months ended June 30, 2000 and 1999, the Company's
short-term borrowings for working capital purposes in Ecuador were primarily
U.S. dollar denominated loans. The interest rates on U.S. dollar and sucre
denominated loans were significantly lower in 2000 compared to the first six
months of 1999. The Company's interest rate on U.S. loans was higher in 2000 and
its average borrowings were higher 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 $234,000 and $11,000 for the
six month periods ended June 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 six months ended June 30, 2000 and 1999,
respectively.
Ecuador - Dollarization
The Ecuadorian government has announced plans to adopt the U.S. dollar
as its national currency, a plan commonly being called "Dollarization". On April
1, 2000, the government began taking the steps necessary to implement its
Dollarization plan. It is expected that the sucre will be completely removed
from circulation by September 30, 2000. 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.
It is not clear at the present time how certain aspects of Dollarization
will be implemented and how they will affect the Ecuadorian economy. Because of
these uncertainties, the effect of Dollarization on the Company cannot be
determined at this time.
* * * * *
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.
<PAGE>
PART II. OTHER INFORMATION..
Item 4. Submission of Matters to a vote of Security Holders
On May 25, 2000, the Company conducted its annual meeting of
shareholders. Of the 2,523,261 shares of the Company's common stock
entitled to vote at the meeting, 2,369,571 shares were present at the
meeting in person or by proxy.
The seven people designated by the Company's board of directors as
nominees for director were elected, with voting as follows:
Nominee Votes For Votes Withheld
------- --------- --------------
Jacques Kohn 2,332,528 37,043
Jean Kohn 2,332,528 37,043
Henri-Armand Kohn 2,332,928 36,643
Margot W. Kohn 2,332,253 37,318
William F. Nicklin 2,332,928 36,643
Bernard J. Wald 2,331,653 37,918
Benson J. Zeikowitz 2,332,528 37,043
Stockholders voted to ratify the appointment of Deloitte & Touche LLP
as the independent auditors for the Company for the year ending
December 31, 2000. There were 2,362,907 shares voted in favor of
ratification, 6,464 votes against and 200 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
11. An exhibit showing the computation of per-share earnings is omitted
because the computation can be clearly determined from the material
contained in this Quarterly Report on Form 10-Q.
27. Financial Data Schedule.
(B) Reports on Form 8-K:
No report has been filed during the six months ended June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALTEK CORPORATION
(Registrant)
Date: August 11, 2000 /s/ Jacques Kohn
-------------------------------------
Jacques Kohn
President
Date: August 11, 2000 /s/ Ronald Tassello
-------------------------------------
Ronald Tassello
Chief Financial Officer and Treasurer
