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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 2-44764
BALTEK CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-2646117
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
10 Fairway Court, P.O. Box 195, Northvale, NJ 07647
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(Address of principal executive offices) (Zip Code)
(201) 767-1400
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(Registrant's telephone number, including area code)
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(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 12, 2001: 2,456,822 shares
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, 2001 and December 31, 2000..................1
Consolidated Statements of Income and Retained Earnings for the Three and Nine Months
Ended September 30, 2001 and 2000......................................................2
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2001 and 2000......................................................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.......................................................10
SIGNATURES.......................................................................................11
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share data)
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September 30, December 31,
ASSETS 2001 2000
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,237 $ 1,338
Accounts receivable, net 10,021 10,370
Inventories 20,321 20,421
Prepaid expenses 628 539
Other 2,739 1,779
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Total current assets 34,946 34,447
PROPERTY, PLANT AND EQUIPMENT, Net 13,474 13,062
TIMBER AND TIMBERLANDS 9,502 9,073
OTHER ASSETS 569 949
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TOTAL ASSETS $ 58,491 $ 57,531
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 12,110 $ 10,605
Accounts payable 2,899 3,863
Income tax payable 252 143
Accrued salaries, wages and bonuses payable 341 1,190
Accrued expenses and other liabilities 2,031 1,494
Current portion of long-term debt 119 44
Current portion of obligation under capital lease 202 465
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Total current liabilities 17,954 17,804
OBLIGATION UNDER CAPITAL LEASE -- 82
LONG-TERM DEBT 329 46
UNION EMPLOYEE TERMINATION BENEFITS 193 121
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Total liabilities 18,476 18,053
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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 issued 2,523 2,523
Additional paid-in capital 2,157 2,157
Retained earnings 35,993 34,798
Accumulated other comprehensive loss (153) --
Treasury stock, at cost: 66,439 shares (505) --
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Total stockholders' equity 40,015 39,478
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 58,491 $ 57,531
======== ========
See notes to consolidated financial statements.
1
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,
2001 2000 2001 2000
NET SALES $ 19,509 $ 22,213 $ 62,148 $ 67,349
COST OF PRODUCTS SOLD 14,920 17,286 48,198 52,234
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES 3,517 3,661 11,325 10,866
----------- ----------- ----------- -----------
Operating income 1,072 1,266 2,625 4,249
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (266) (220) (768) (660)
Foreign exchange gain (loss) 205 (88) 46 (322)
Other, net (10) (1) (6) 4
----------- ----------- ----------- -----------
Total (71) (309) (728) (978)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,001 957 1,897 3,271
INCOME TAX PROVISION 370 306 702 1,047
----------- ----------- ----------- -----------
NET INCOME 631 651 1,195 2,224
RETAINED EARNINGS, BEGINNING OF
PERIOD 35,362 33,489 34,798 31,916
----------- ----------- ----------- -----------
RETAINED EARNINGS, END OF PERIOD $ 35,993 $ 34,140 $ 35,993 $ 34,140
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING 2,456,822 2,523,261 2,472,397 2,523,261
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE, BASIC
and DILUTED $ 0.25 $ 0.26 $ 0.48 $ 0.88
=========== =========== =========== ===========
See notes to consolidated financial statements
2
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
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Nine Months
Ended September 30,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,195 $ 2,224
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,028 2,327
Foreign exchange (gain) loss (46) 322
Changes in assets and liabilities, net of the effect of
foreign currency translation:
Accounts receivable 375 (670)
Income taxes 106 (593)
Inventories 100 (783)
Prepaid expenses and other current assets (1,045) 116
Other assets 372 (37)
Accounts payable and accrued expenses (1,481) (426)
Other 88 27
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Net cash provided by operating activities 1,692 2,507
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net acquisitions of property, plant and equipment (1,604) (982)
Increase in timber and timberlands (882) (685)
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Net cash used in investing activities (2,486) (1,667)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable, net 1,505 621
Payments of long-term debt (36) (199)
Principal payments under capital lease (349) (311)
Purchase of treasury stock (505) --
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Net cash provided by financing activities 615 111
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 78 (366)
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NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (101) 585
CASH AND CASH EQUIVALENTS, beginning of period 1,338 967
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CASH AND CASH EQUIVALENTS, end of period $ 1,237 $ 1,552
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 634 $ 660
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Income taxes $ 694 $ 1,502
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Non-cash activities--debt incurred for the purchase of equipment $ 394 $ 54
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See notes to consolidated financial statements.
3
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 2000 Annual Report on Form 10-K.
2. INVENTORIES
Inventories are summarized as follows (amounts in thousands):
September 30, December 31,
2001 2000
Raw materials $ 6,459 $ 5,314
Work-in-process 3,861 3,273
Finished goods 10,001 11,834
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$20,321 $20,421
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3. DEBT
In September 2001, the Company obtained a $370,000 loan to finance the
previous purchase of equipment. The loan is repayable in equal monthly
principal installments of approximately $6,167 over a five-year period
and bears interest at the 30 day LIBOR rate. The proceeds of this loan
were used to reduce simultaneously the Company's working capital debt.
4. SEAFOOD OPERATIONS
As part of a decision by the Company to terminate its seafood import
business, the Company's seafood import subsidiary, Crustacea
Corporation ("Crustacea"), signed an agreement in September 2001 with
National Fish and Seafood, Ltd. ("NFS"). The agreement provides that
NFS will assist the Company in selling its inventory to third parties.
Crustacea will invoice NFS for each sale at an amount net of
commissions and NFS will invoice the ultimate customer and bear the
credit risk. Any inventory remaining after 90 days from the date of
the agreement will be sold to NFS at a prearranged price, subject to
inspection and quality verification by NFS.
During the third quarter, the Company recorded a pretax charge of
$150,000 to reduce the related inventory to its estimated fair market
value.
4
5. COMPREHENSIVE INCOME
Total comprehensive income (loss) for the nine months ended September
30, 2001 was as follows (amounts in thousands):
Net income $ 1,195
Other comprehensive income (loss):
Transition adjustment on derivatives (16)
Net change--derivatives (137)
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(153)
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Total comprehensive income $ 1,042
========
The change in accumulated other comprehensive (loss) for the nine
months ended September 30, 2001 is as follows (amounts in thousands):
Balance, January 1, 2001 $ (16)
Change in fair value of interest rate swap (137)
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Balance, September 30, 2001 $ (153)
========
6. 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 (see Note 4). 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, 2001 and 2000 is as follows
(amounts in thousands):
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
Net Sales to unaffiliated customers
Core materials segment $ 14,207 $ 15,600 $ 44,434 $ 48,045
Seafood segment 5,302 6,613 17,714 19,304
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Total net sales $ 19,509 $ 22,213 $ 62,148 $ 67,349
Operating Income
Core materials segment $ 1,399 $ 1,603 $ 3,988 $ 5,114
Seafood segment (327) (337) (1,363) (865)
Total operating income $ 1,072 $ 1,266 $ 2,625 $ 4,249
======== ======== ======== ========
5
7. NEW ACCOUNTING STANDARDS
In October 2001, the Financial Accounting Standards Board ("FASB"),
issued Statement of Financial Accounting Standard ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets",
which addresses financial accounting and reporting for long-lived
assets. The Company expects to adopt this Statement during the first
quarter of fiscal 2002. Management does not believe that the adoption
of this standard will have a material impact on the Company's
financial position or results of operations.
6
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 $16.5 million in January 2001. The Company
also continues to have lines of credit in Ecuador and Europe totaling
approximately $4.7 million. Borrowing requirements increased in 2001 as a result
of the Company's working capital requirements and lower cash generated from
operations. In September 2001, the Company utilized a portion of its equipment
line of credit to finance the previous purchase of $370,000 of equipment. Future
capital expenditures are expected to be funded by a combination of cash
generated from operations and outside financing, if necessary.
In September, the Company decided to exit the seafood import business. It is
expected that, once the liquidation of the seafood import business' principal
assets is completed, working capital requirements will be lower. Borrowing
requirements are also expected to be lower compared to peak levels earlier in
the year as a result of the exit from the seafood import business.
The Company's financial position remains strong. At September 30, 2001, the
Company had working capital of $17.0 million compared to $16.6 million at
December 31, 2000. The Company believes cash flows from operations and funds
available under its existing domestic and foreign credit facilities will be
adequate to meet the Company's needs during 2001.
Results of Operations for the Three and Nine Months
Ended September 30, 2001 and 2000
Total sales decreased 12 % and 8 %, respectively, during the three and
nine-month periods ended September 30, 2001 as compared to the same period in
2000.
Core material sales were $14,207,000 and $15,600,000 for the three months ended
September 30, 2001 and 2000, respectively, and $44,434,000 and $48,045,000 for
the nine months ended September 30, 2001 and 2000, respectively. Domestic sales
were lower in the three and nine-month periods ended September 30, 2001 compared
to the same periods in 2000. This reduction was partly offset by a strong
increase in sales in Europe. The reduction in domestic sales was primarily due
to lower demand from the Company's largest end user group, the boating industry.
It is now expected that retail sales in the domestic marine market may be down
as much as 30 percent for the year. The Company therefore expects domestic sales
to continue to be lower than 2000 levels for the remainder of the year. The
increase in Europe sales resulted from higher shipments to manufacturers of
windmill blades. On a worldwide basis, volume (measured by boardfeet shipped) of
the Company's balsa products was approximately the same in 2001 compared to
2000. This was partially offset by the impact of a stronger U.S. dollar relative
to certain foreign currencies, particularly the Euro.
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.
Seafood sales were $5,302,000 and $6,613,000 for the three months ended
September 30, 2001 and 2000, respectively, and $17,714,000 and $19,304,000 for
the nine months September 30, 2001 and 2000, respectively. Sales of seafood
products from the Company's import business were lower in the third quarter of
2001 compared to the third quarter of 2000 because of lower demand at the retail
and consumer
7
level for seafood products. Sales of shrimp in the first nine months of 2001
were lower than the comparable period in 2000 and continue to be significantly
below historical levels.
The overall gross margin as a percentage of sales for the nine months ended
September 30, 2001 was approximately the same as compared to 2000. The typical
margin in the seafood import business is lower than the Company's historical
margins realized as a core materials producer/distributor and shrimp producer.
The overall margin is therefore determined not only by the margins in each
segment, but by the mix of seafood and materials. The margin for the Company's
core products remained approximately the same in 2001 as compared to last year.
The margins from seafood sales decreased in the nine months ended September 30,
2001 as compared to the period ended September 30, 2000 because of the
continuing effects of the White Spot virus and a decline in commodity selling
prices for many seafood products. The White Spot virus continued to affect the
shrimp farms negatively, resulting in significantly lower production and
revenues compared to historical levels. The Company is taking all possible steps
to mitigate the effect of this disease on its farms, but no definitive
determination can be made as to its longevity and effect on shrimp prices in the
marketplace. A downturn in the entire seafood market, which began during the
first quarter of 2001, negatively affected prices for many seafood products,
including shrimp produced at the Company's farms and products sold by the
Company's import subsidiary. This has generally resulted in lower margins all
year for the seafood segment. During the third quarter, the Company also
incurred a pretax charge of $150,000 to reduce the seafood import inventory to
its estimated fair market value.
Selling, general and administrative expenses ("SG&A") as a percentage of sales
increased in the nine months of 2001 as compared to 2000. Certain of the
expenses contained in SG&A are fixed in nature, and combined with lower
materials segment revenues, caused the increase in the SG&A percentage. The
seafood import business has a lower percentage of SG&A expenses to revenues as
compared to the Company's materials segment. The overall percentage is therefore
influenced by the amount of SG&A in each segment and the relationship of each
segment's revenues and SG&A to aggregate amounts.
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 increased in the first nine months of 2001 as compared to 2000.
The average borrowings were higher in 2001 compared to 2000. The interest rates
on U.S. dollar loans in Ecuador were lower and average rates in the U.S. for the
nine months ended September 30 were lower in 2001 compared to 2000. In both
periods, interest rates on dollar denominated loans in Ecuador were
significantly higher than rates available to the Company in the U.S. 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 $46,000 for the nine month period
ended September 30, 2001, compared to a loss of $322,000 for the nine month
period ended September 30, 2000. 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 37% and 32% of pre-tax
earnings for the three and nine months ended September 30, 2001 and 2000,
respectively.
8
New Accounting Standard
In October 2001, the Financial Accounting Standards Board ("FASB"), issued
Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for long-lived assets. The Company expects to adopt
this Statement during the first quarter of fiscal 2002. Management does not
believe that the adoption of this standard will have a material impact on the
Company's financial position or results of operations.
* * * * *
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.
9
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.
(B) Reports on Form 8-K:
No report has been filed during the quarter ended September 30,
2001.
10
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, 2001 /s/ Jacques Kohn
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Jacques Kohn
President
Date: November 12, 2001 /s/ Ronald Tassello
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Ronald Tassello
Chief Financial Officer and Treasurer
11