UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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
(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 May 11, 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 March 31, 2001 and December 31, 2000.....................................1
Consolidated Statements of Income and Retained Earnings for the Three Months
Ended March 31, 2001 and 2000...........................................................................2
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 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)
--------------------------------------------------------------------------------
March 31, December 31,
ASSETS 2001 2000
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,540 $ 1,338
Accounts receivable, net 10,885 10,370
Inventories 18,191 20,421
Prepaid expenses 504 539
Other 2,402 1,779
-------- --------
Total current assets 33,522 34,447
PROPERTY, PLANT AND EQUIPMENT, Net 13,231 13,062
TIMBER AND TIMBERLANDS 9,211 9,073
OTHER ASSETS 942 949
-------- --------
TOTAL ASSETS $ 56,906 $ 57,531
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 11,580 $ 10,605
Accounts payable 2,992 3,863
Income tax payable -- 143
Accrued salaries, wages and bonuses payable 468 1,190
Accrued expenses and other liabilities 1,885 1,494
Current portion of long-term debt 49 44
Current portion of obligation under capital lease 436 465
-------- --------
Total current liabilities 17,410 17,804
OBLIGATION UNDER CAPITAL LEASE 15 82
LONG-TERM DEBT 31 46
UNION EMPLOYEE TERMINATION BENEFITS 149 121
-------- --------
Total liabilities 17,605 18,053
-------- --------
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 and outstanding 2,523 2,523
Additional paid-in capital 2,157 2,157
Retained earnings 35,144 34,798
Accumulated other comprehensive loss (18) --
Treasury stock, at cost: 66,439 shares (505) --
-------- --------
Total stockholders' equity 39,301 39,478
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 56,906 $ 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)
--------------------------------------------------------------------------------
Three Months
Ended March 31,
2001 2000
NET SALES $ 21,151 $ 21,225
COST OF PRODUCTS SOLD 16,348 16,216
SELLING , GENERAL AND
ADMINISTRATIVE EXPENSES 3,995 3,550
----------- -----------
Operating income 808 1,459
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (260) (204)
Foreign exchange gain (loss) 2 (134)
Other, net (1) 4
----------- -----------
Total (259) (334)
----------- -----------
INCOME BEFORE INCOME TAXES 549 1,125
INCOME TAX PROVISION 203 360
----------- -----------
NET INCOME 346 765
RETAINED EARNINGS,
BEGINNING OF PERIOD 34,798 31,916
----------- -----------
RETAINED EARNINGS,
END OF PERIOD $ 35,144 $ 32,681
=========== ===========
AVERAGE SHARES OUTSTANDING 2,504,806 2,523,261
=========== ===========
EARNINGS PER COMMON SHARE, BASIC
and DILUTED $ .14 $ .30
=========== ===========
See notes to consolidated financial statements.
2
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
--------------------------------------------------------------------------------
Three Months
Ended March 31,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 346 $ 765
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 741 836
Foreign exchange (gain) loss (2) 134
Changes in assets and liabilities, net of the effect of
foreign currency translation:
Accounts receivable (518) (703)
Income taxes (164) 11
Inventories 2,231 1,823
Prepaid expenses and other current assets (590) 312
Other assets 6 18
Accounts payable and accrued expenses (1,164) (1,290)
Other 29 (8)
------- -------
Net cash provided by operating activities 915 1,898
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net acquisitions of property, plant and equipment (712) (258)
Increase in timber and timberlands (312) (150)
------- -------
Net cash used in investing activities (1,024) (408)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable, net 975 274
Payments of long-term debt (14) (177)
Principal payments under capital lease (116) (104)
Purchase of treasury stock (505) --
------- -------
Net cash provided by (used in) financing activities 340 (7)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (29) (129)
------- -------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 202 1,354
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,338 967
------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,540 $ 2,321
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 195 $ 73
======= =======
Income taxes $ 445 $ 283
======= =======
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):
March 31, December 31,
2001 2000
Raw materials $ 5,628 $ 5,314
Work-in-process 3,646 3,273
Finished goods 8,917 11,834
--------- -------
$ 18,191 $20,421
========= =======
3. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITES
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting
for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an
amendment of FASB Statement 133 (collectively "SFAS 133"). SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities measured at fair value and establishes criteria for designation
and effectiveness of hedging relationships. For derivatives designated as
fair value hedges, the changes in the fair value of both the derivative
instrument and the hedged item are recorded in earnings. For derivatives
designated as cash flow hedges,the effective portions of changes in fair
value of the derivative are reported in other comprehensive income ("OCI")
and are subsequently reclassified into earnings when the hedged item
affects earnings. Changes in fair value of derivative instruments not
designated as hedging instruments and ineffective portions of hedges are
recognized in earnings in the current period. Adoption of the new
accounting standards resulted in a change to current assets and liabilities
of $35,000 and $51,000, respectively, and a one time cumulative after-tax
reduction in OCI of approximately $16,000.
The Company is exposed to fluctuations in foreign currency exchange rates,
interest rates and commodity prices. To manage certain of these exposures,
the Company uses derivative instruments including interest rate swaps and
forward contracts. Derivative instruments used by the Company are
considered risk management tools and are not used for trading or
speculative purposes.
All relationships between hedging instruments and hedged items, as well as
its risk-management objective and strategy for undertaking various hedge
transactions are formally documented. The Company formally assesses the
effectiveness of its hedging relationships both at the hedge inception and
on at least a quarterly basis in accordance with its risk management
policy.
The Company has foreign currency forward contracts to reduce currency
exchange risk on firm purchase commitments. The forward contracts are
designated as fair value hedges of these firm commitments. The gains and
losses on those derivative instruments are reported in earnings and largely
offset gains and losses on the purchase commitments. The amount of
ineffectivness recorded in net income for the three months ended March 31,
2001 was not material. Currently, the Company does not hold any derivative
contracts that hedge its net investments in foreign operations but may
consider such strategies in the future.
4
The Company utilizes an interest rate swap to hedge the Company's exposure
to movement in rates. At March 31, 2001, the Company had a one year
interest rate swap that converted $3 million of outstanding borrowings from
a floating to a fixed rate, resulting in a fixed rate of 8.90%. The swap
expires on June 1, 2001. The interest rate swap is designated as a cash
flow hedge of the variability of the forecasted interest payments.
The effective portion of the change in fair value of the interest rate swap
was recorded in OCI.
The ineffectiveness relating to the hedge was not material for the three
months ended March 31, 2001. Amounts accumulated in OCI are reclassified
into earnings when interest expense on the borrowings is recorded. The
amount recorded in accumulated OCI is expected to be reclassified to
interest expense over the three month period ending June 30, 2001.
4. COMPREHENSIVE INCOME
Total comprehensive income (loss) for the three months ended March 31, 2001
was as follows (amounts in thousands):
Net income $ 346
Other comprehensive income (loss):
Transition adjustment on derivatives (16)
Net change--derivatives (2)
--------
(18)
--------
Total comprehensive income $ 328
========
The change in accumulated other comprehensive loss for the quarter ended
March 31, 2001 is as follows (amounts in thousands):
Balance, January 1, 2001 $ 16
Change in fair value of interest rate swap 2
-------
Balance, March 31, 2001 $ 18
=======
5
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 months
ended March 31, 2001 and 2000 is as follows (amounts in thousands):
Three Months
Ended March 31,
2001 2000
Net sales to unaffiliated customers
Core materials segment $14,828 $16,060
Seafood segment 6,323 5,165
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Total net sales $21,151 $21,225
============= ============
Operating income
Core materials segment $1,395 $ 1,670
Seafood segment (587) (211)
------------- ------------
Total operating income $ 808 $ 1,459
============= ============
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. Working capital and borrowing requirements increased
in 2001 and are expected to continue to increase 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 March 31, 2001, the Company
had working capital of $16.1 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 Months
Ended March 31, 2001 and 2000
Total sales decreased 0.3% during the three-month period ended March 31, 2001 as
compared to the same period in 2000.
Core material sales were $14,828,000 and $16,060,000 for the three months ended
March 31, 2001 and 2000, respectively. Domestic sales were lower in the first
quarter of 2001 compared to the prior period. 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. Sales of commercial and pleasure boats in the first quarter
were unfavorably impacted by: 1) lower sales of smaller boats (typically under
30 feet), which are more susceptible to economic downturns than larger boats,
and 2) the bankruptcy of Outboard Marine Corp.("OMC"), one of the largest boat
builders in the country. The Company incurred no bad debt expense related to the
OMC bankruptcy. The increase in Europe sales resulted from higher shipments to
manufacturers of windmill blades.
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 $6,323,000 and $5,165,000 for the three months ended March
31, 2001 and 2000, respectively. The increase was the result of sales of seafood
products from the Company's import business. Sales of shrimp in the first
quarter of 2001 were comparable to the first quarter of 2000, but continue to be
significantly below historical levels.
The overall gross margin as a percentage of sales decreased in 2001 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 three months ended
March 31, 2001 as compared to the period ended March 31, 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 negatively
affect the shrimp
7
farms, 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 industry during the first quarter of 2001 negatively
affected prices for many seafood products. This reduced margins in the import
business during the first quarter of 2001. Prices in the industry began to
stabilize during the second quarter.
Selling, general and administrative expenses as a percentage of sales increased
in the first quarter 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 S,G&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 quarter 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 rates in the U.S. were slightly
higher 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 $2,000 and a loss $134,000 for the
periods ended March 31, 2001 and 2000, 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 37% and 32% of pre-tax
earnings for the quarters ended March 31, 2001 and 2000, respectively.
Derivative Financial Instruments and Hedging Activities
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
and SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities. SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities measured at fair value and establishes criteria for
designation and effectiveness of hedging relationships. Adoption of the new
accounting standards resulted in a net change to current liabilities of $19,000
and a one time cumulative after-tax reduction in net income of approximately
$35,000 and other comprehensive income of approximately $16,000.
The Company is exposed to fluctuations in foreign currency exchange rates,
interest rates and commodity prices. To manage certain of these exposures, the
Company uses derivative instruments including interest rate swaps and forward
contracts. Derivative instruments used by the Company are considered risk
management tools and are not used for trading or speculative purposes.
The Company has foreign currency forward contracts to reduce currency exchange
risk on firm purchase commitments. The gains and losses on those derivative
instruments are reported in earnings and largely offset transaction gains and
losses upon settlement of the purchase commitment. Currently, the Company
8
does not hold any derivative contracts that hedge its foreign currency net asset
exposure but may consider such strategies in the future.
The Company utilizes an interest rate swap to hedge the Company's exposure to
movement in rates. At March 31, 2001, the Company had a one year interest rate
swap that converted $3 million of outstanding borrowings from a floating to a
fixed rate, resulting in a fixed rate of 8.90%. The swap expires on June 1,
2001. The interest differential to be paid or received under the swap agreement
is recognized over the life of the swap and is included in interest income or
expense.
The Company is exposed to volatility in the prices of certain raw materials used
in its products and uses forward contracts to hedge the forecasted purchase of
the materials.
* * * * *
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:
The Company filed a Current Report on Form 8-K dated March 5, 2001,
reporting in Item 5 that it had entered into an agreement with the
brothers Jacques, Jean and Bernard Kohn, all stockholders of the
Company. The agreement requires the Company to purchase, subject to
certain terms and conditions, the 332,194 shares of common stock held
by Bernard Kohn.
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: May 14, 2001 /s/ Jacques Kohn
----------------------------
Jacques Kohn
President
Date: May 14, 2001 /s/ Ronald Tassello
-------------------------------------
Ronald Tassello
Chief Financial Officer and Treasurer
11