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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, 2002
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 incorporation (I.R.S. Employer
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 11, 2002: 2,390,383 shares
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 September 30, 2002 and December 31, 2001.........1
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2002 and 2001..............................................2
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001..............................................3
Notes to Consolidated Financial Statements.........................................4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................7
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk....................11
ITEM 4. Controls and Procedures......................................................11
PART II. OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................................12
SIGNATURES.............................................................................13
CERTIFICATIONS......................................................................14-15
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share data)
September 30, December 31,
2002 2001
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ...................................... $ 1,932 $ 573
Accounts receivable, net ....................................... 8,021 6,745
Inventories .................................................... 19,741 18,865
Prepaid expenses ............................................... 275 671
Other .......................................................... 2,725 2,244
Assets of discontinued operations offered for sale (Note 3) .... 2,010 9,986
-------- --------
Total current assets ........................................... 34,704 39,084
Property, plant and equipment, net ..................................... 5,843 5,729
Timber and timberlands ................................................. 10,537 9,963
Other assets ........................................................... 922 1,006
-------- --------
Total Assets ................................................... $ 52,006 $ 55,782
======== ========
LIABILITIES
Current Liabilities:
Notes payable .................................................. $ 8,800 $ 8,700
Accounts payable ............................................... 2,375 2,232
Income tax payable ............................................. 438 274
Accrued salaries, wages and bonuses payable .................... 861 587
Accrued expenses and other liabilities ......................... 2,499 2,651
Current portion of long term debt .............................. 304 113
Current portion of obligation under capital lease .............. -- 82
Liabilities of discontinued operations offered for sale (Note 3) 84 224
-------- --------
Total current liabilities ...................................... 15,361 14,863
Long-term debt ......................................................... 1,056 302
Union employee termination benefits .................................... 255 210
-------- --------
Total Liabilities .............................................. 16,672 15,375
-------- --------
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 ...................................................... 31,728 36,380
Accumulated other comprehensive loss ................................... (99) (147)
Treasury stock, at cost: 132,878 and 66,439 shares
at September 30, 2002 and December 31, 2001, respectively ...... (975) (506)
-------- --------
Total Stockholders' Equity ..................................... 35,334 40,407
-------- --------
Total Liabilities and Stockholders' Equity ..................... $ 52,006 $ 55,782
======== ========
See notes to consolidated financial statements.
1
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in Thousands, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Net Sales .................................................. $ 14,895 $ 14,207 $ 46,648 $ 44,434
Cost of products sold ...................................... 10,050 9,454 31,866 29,677
Selling, general and administrative expense ................ 3,946 3,355 11,524 10,770
----------- ----------- ----------- -----------
Operating income .......................... 899 1,398 3,258 3,987
----------- ----------- ----------- -----------
Other Income (Expense):
Interest expense ................................... (142) (224) (460) (622)
Foreign exchange gain .............................. 168 205 380 46
Other, net ......................................... (25) (10) (15) (6)
----------- ----------- ----------- -----------
Total ..................................... 1 (29) (95) (582)
----------- ----------- ----------- -----------
Income from continuing operations before income tax ........ 900 1,369 3,163 3,405
Income tax provision ....................................... 288 506 1,012 1,260
----------- ----------- ----------- -----------
Income from continuing operations .......................... 612 863 2,151 2,145
----------- ----------- ----------- -----------
Discontinued Operations (Note 3) :
Loss from operations of discontinued seafood segment
(including loss on disposal of $6,000 in 2002) .. (389) (368) (7,181) (1,508)
Income tax benefit ................................. (125) (136) (378) (558)
----------- ----------- ----------- -----------
Loss on discontinued ............................... (264) (232) (6,803) (950)
----------- ----------- ----------- -----------
operations
Net income (loss) .......................................... $ 348 $ 631 $ (4,652) $ 1,195
=========== =========== =========== ===========
Basic and diluted earnings (loss) per common share:
Earnings from continuing operations ................ $ 0.26 $ 0.35 $ 0.90 $ 0.87
Loss from discontinued operations .................. (0.12) (0.10) (2.85) (0.39)
----------- ----------- ----------- -----------
Net earnings (loss) ................................ $ 0.14 $ 0.25 $ (1.95) $ 0.48
=========== =========== =========== ===========
Average shares outstanding ................................. 2,390,383 2,456,822 2,390,870 2,472,397
=========== =========== =========== ===========
See notes to consolidated financial statements
2
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands, except per share data)
Nine Months
Ended September 30,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $(4,652) $ 1,195
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization .................................... 2,361 2,028
Loss on disposal of discontinued operations ...................... 6,000 --
Foreign exchange gain ............................................ (380) (46)
Changes in assets and liabilities, net of the effect of
foreign currency translation:
Accounts receivable ........................................... (93) 375
Income taxes .................................................. 159 106
Inventories ................................................... (297) 100
Prepaid expenses and other current assets ..................... (31) (1,045)
Other assets .................................................. (6) 372
Accounts payable and accrued expenses ......................... 58 (1,481)
Other ......................................................... 69 88
------- -------
Net cash provided by operating activities ................. 3,188 1,692
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net acquisitions of property, plant and equipment .................... (1,226) (1,604)
Increase in timber and timberlands ................................... (536) (882)
------- -------
Net cash used in investing activities ..................... (1,762) (2,486)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable, net ....................................... 100 1,505
Payments of long-term debt ........................................... (87) (36)
Principal payments under capital lease ............................... (82) (349)
Purchase of treasury stock ........................................... (470) (505)
------- -------
Net cash (used in) provided by financing activities ....... (539) 615
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .................................. 472 78
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 1,359 (101)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........................... 573 1,338
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................. $ 1,932 $ 1,237
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ......................................................... $ 450 $ 634
======= =======
Income taxes ..................................................... $ 592 $ 694
======= =======
Non-cash activities--debt incurred for the purchase of plantation land
and equipment ................................................. $ 1,031 $ 394
======= =======
See notes to consolidated financial statements.
3
BALTEK CORPORATION and subsidIaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information
and footnotes required for complete financial statements. In the
opinion of management, all adjustments, including 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 accompanying consolidated
financial statements should be read in conjunction with the accounting
policies and notes to consolidated financial statements included in
the Company's 2001 Annual Report on Form 10-K.
As discussed in Note 3, the Company has announced its intention to
sell its shrimp operations in Ecuador and has recorded a loss on
disposal to reduce the assets underlying the shrimp operations to
their estimated fair value, less costs to sell. The assets and
liabilities of these operations have been segregated and reported
separately in the accompanying balance sheets. For purposes of
comparability, December 31, 2001 amounts have been reclassified to
conform with the current period presentation. The operations of the
seafood segment, including the seafood import business, have been
reported as discontinued operations in the accompanying statement of
operations. The financial results of the seafood import business have
been included in the loss from discontinued operations in the
accompanying consolidated statements of operations for the three and
nine month periods ended September 30, 2001 in order to present
comparative information of continuing operations. For purposes of
comparability, prior period amounts have been reclassified to conform
with the current period presentation.
2. INVENTORIES
Inventories are summarized as follows (amounts in thousands):
September 30, December 31,
2002 2001
Raw materials..................... $ 7,029 $ 8,901
Work-in-process................... 5,656 4,009
Finished goods.................... 7,056 5,955
------- -------
$19,741 $18,865
======== =======
4
3. DISCONTINUED OPERATIONS -- SEAFOOD SEGMENT
Although the Company had made progress combating the effects of the
white spot virus, production levels at the shrimp farms in Ecuador in
2002 continued to be well below optimum amounts. Generally, production
yields were approximately 30%-40% of pre-virus levels. Selling prices
for shrimp products continued to be at very low levels in 2002, due in
part to a strong supply of shrimp from Southeast Asia and the Indian
Subcontinent. The combination of the virus and depressed selling
prices has had a negative effect on financial results. The seafood
segment, which included the import business which was terminated in
2001, reported significant operating losses in 2000, 2001 and 2002.
In June 2002, the Company announced its intention to sell its shrimp
operation in Ecuador, which it expects to complete by June, 2003.
Based on its evaluation of current economic and industry conditions,
the Company recorded a charge to earnings of $6 million in the quarter
ended June 30, 2002 to reduce the assets underlying the shrimp
operation to their currently estimated fair value. The charge was
based on an estimate of cash proceeds, net of costs to sell, to be
realized from the sale of this business. The amounts ultimately
realized by the Company could differ materially from the amounts
assumed in arriving at the estimated loss from disposal of the
business. There were no direct tax benefits associated with the
impairment charge.
The Company's loan facility in Ecuador is secured by a mortgage on
certain land and buildings and a negative pledge against certain
machinery. The underlying assets which are the security for the loan
includes assets related to the balsa and shrimp operations. If the
Company is unable to revise the terms of its loan agreement prior to
the sale of the shrimp operations, it may be required to repay any
outstanding borrowings in Ecuador until a new agreement is reached. If
required to repay the outstanding borrowings, the Company could
utilize its existing borrowing arrangements in the U.S. and Europe, as
well as alternative borrowing arrangements in Ecuador on a short-term
basis. Because of the Company's long-term relationship with its bank
in Ecuador, it is also possible that the Company may not be required
to repay any outstanding borrowings upon the sale of the shrimp
operations and that the Company may operate under an informal
arrangement until the terms of a new facility are finalized and a new
agreement signed.
A summary of the major balance sheet components of the operations
offered for sale is as follows (amounts in thousands):
September 30, December 31,
2002 2001
---- ----
Assets:
Fixed assets $ 1,117 $ 7,401
Accounts receivable --- 1,115
Inventory 488 1,068
Other 405 402
----- ------
$ 2,010 $9,986
======= ======
Liabilities:
Accounts payable and other $ 84 $ 224
==== ======
Included in the above amounts are assets and liabilities of the
seafood import business of $1,115,000 and $21,000, respectively, at December 31,
2001.
5
Results from discontinued operations for the three and nine months
ended September 30, 2002 and 2001 is as follows (amounts in thousands):
Three Months Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
Net sales ......................... $ 614 $ 5,302 $ 2,129 $ 17,714
======== ======== ======== ========
Pretax loss:
Loss from discontinued operations $ (389) $ (368) $ (1,181) $ (1,508)
Loss on disposal ................ -- -- (6,000) --
-------- -------- -------- --------
Pretax loss ....................... $ (389) $ (368) $ (7,181) $ (1,508)
======== ======== ======== ========
4. DEBT
In September 2002, the Company revised the terms of its domestic line
of credit and signed a new term loan agreement. The amount of the line
of credit was reduced from $16.5 million to $12.5 million. Primarily
because of the Company's exit from the seafood import business,
working capital requirements have decreased, and as a result, the
Company chose to reduce the maximum available borrowings under its
credit line. All other terms and conditions of the line remain the
same. The Company also signed a new $1 million term loan to finance
the purchase of plantation land in Ecuador. The loan is repayable in
60 equal principal installments of approximately $17,000 over a
five-year period and bears interest at LIBOR plus 2%. The term loan is
secured by the domestic fixed assets of the Company.
5. CONCENTRATION OF CREDIT RISK
For the nine months ended September 30, 2002, one foreign customer
accounted for approximately 10.2% of consolidated sales. At September
30, 2002, accounts receivable from this customer was approximately
$832,000.
6. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) for the three and nine months ended
September 30, 2002 and 2001 was as follows (amounts in thousands):
Three Months Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
Net income (loss) ................................ $ 348 $ 631 $(4,652) $ 1,195
Other comprehensive income (loss):
Cumulative effect of adopting SFAS No.133 ...... -- -- -- (16)
Change in fair value of interest rate swap ..... 14 (108) 48 (137)
------- ------- ------- -------
Total comprehensive income (loss) ................ $ 362 $ 523 $(4,604) $ 1,042
======= ======= ======= =======
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Discontinued Operations
Although the Company had made progress combating the effects of the white spot
virus, production levels at the shrimp farms in Ecuador in 2002 continued to be
well below optimum amounts. Generally, production yields were approximately
30%-40% of pre-virus levels. Selling prices for shrimp products continued to be
at very low levels in 2002, due in part to a strong supply of shrimp from
Southeast Asia and the Indian Subcontinent. The combination of the virus and
depressed selling prices has had a negative effect on financial results. The
seafood segment, which included the import business which we terminated in 2001,
reported significant operating losses in 2000, 2001 and 2002.
In June 2002, the Company announced its intention to sell its shrimp operation
in Ecuador, which it expects to complete by June 30,2003. Based on its
evaluation of current economic and industry conditions, the Company recorded a
charge to earnings of $6 million in the quarter ended June 30, 2002 to reduce
the assets underlying the shrimp operation to their currently estimated fair
value. The charge was based on an estimate of cash proceeds, net of costs to
sell, to be realized from the sale of this business. The amounts ultimately
realized by the Company could differ materially from the amounts assumed in
arriving at the estimated loss from disposal of the business. There were no
direct tax benefits associated with the impairment charge.
The Company's loan facility in Ecuador is secured by a mortgage on certain land
and buildings and a negative pledge against certain machinery. The underlying
assets which are the security for the loan include assets related to the balsa
and shrimp operations. If the Company is unable to revise the terms of its loan
agreement prior to the sale of the shrimp operations, it may be required to
repay any outstanding borrowings in Ecuador until a new agreement is reached. If
required to repay the outstanding borrowings, the Company could utilize its
existing borrowing arrangements in the U.S. and Europe as well as alternative
borrowing arrangements in Ecuador on a short-term basis. Because of the
Company's long term relationship with its bank in Ecuador, it is also possible
that the Company may not be required to repay any outstanding borrowings upon
the sale of the shrimp operations and that the Company may operate under an
informal arrangement until the terms of a new facility are finalized and a new
agreement signed.
The Company's shrimp operations incurred operating losses during the nine months
ended September 30, 2002 of approximately $1,181,000, including depreciation of
$491,000. By October 31, 2002 the Company had closed its hatchery and packing
plant and harvested the last shrimp pond. The Company expects that until the
operations are sold it will spend approximately $30,000 per month, including
labor costs, to maintain the buildings, ponds and other property and essential
equipment. Severance payments were made to terminated employees in accordance
with Ecuadorian law of approximately $61,000 in October, and another $104,000 is
expected to be paid prior to the sale of the operations. The Company believes
that the core material operations will generate sufficient cash flow to meet the
cash requirements of the shrimp operations until the sale of those operations is
completed. The impairment charge recorded in the second quarter to reduce the
value of the shrimp assets to their estimated fair value is a non-cash charge
and has no effect on the Company's cash position or liquidity. Since the shrimp
operations were experiencing net cash outflows in 2002, the Company expects that
its overall cash flow will improve after the shrimp operations are sold.
7
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's domestic line of credit was
revised in September 2002 and now provides for borrowings up to $12.5 million,
subject to an adequate receivables and inventory borrowing base. Primarily
because of the Company's exit from the seafood import business, working capital
requirements have decreased and the Company chose to reduce the maximum
available borrowings under its credit line. The Company also continues to have
lines of credit in Ecuador and Europe totaling approximately $5.0 million, which
includes a new 300,000 Euro overdraft facility with a European bank. Primarily
as a result of its decision to discontinue its seafood import business in
September 2001, average borrowing requirements were lower in the first nine
months of 2002 compared to the same period in 2001 and are expected to be lower
for all of 2002 compared to peak levels in 2001.
Typically, there is at least a five-year period between when plantation land,
already cleared and prepared, is seeded and when the balsa is harvested. Because
of the long-term period between seeding and harvest, the Company evaluates the
adequacy of its current plantation lands to meet future, longer-term demand for
its balsa products. This evaluation also considers the cost and availability of
land in the current year compared to future years. The Company will continually
evaluate demand and adjust its land purchase program to meet these projections.
Long-term financing for land purchases is usually not available in Ecuador, but
may be available from other international organizations. The Company continues
to invest in capital expenditures in its core materials segment that position
Baltek for long-term growth. Our plant and equipment expenditures are intended
to increase plant capacity, improve productivity and reduce costs, and give us
the capability to manufacture new products. Such expenditures have historically
been financed by cash flow from operations.
Future capital expenditures, including those for machinery and equipment and
plantation lands, are expected to be funded by a combination of cash generated
from operations and outside financing, if available. In July 2002, the Company
entered into an informal agreement to purchase 471 hectares (approximately 1,163
acres) of plantation land for a purchase price, including other direct costs
related to the purchase, of approximately $1,000,000. The Company purchased 350
hectares in September and expects to purchase the remaining 121 hectares in the
fourth quarter. The Company financed the purchase of this land by arranging for
a $1 million term loan with a domestic bank. The loan is repayable in 60 equal
principal installments (plus interest) of approximately $17,000. At September
30, 2002, the Company utilized approximately $700,000 of the loan proceeds for
partial payment on the land purchase, with the balance temporarily invested. The
remaining funds will be utilized upon completion of the land purchase. The
Company has no other material commitments for capital expenditures.
Excluding the assets and liabilities of discontinued operations, the Company had
working capital of $17.4 million at September 30, 2002 and $14.5 million at
December 31, 2001. Working capital increased, reflecting higher receivables due
to improved sales and higher inventories in Europe and Ecuador. The Company
believes that future cash flow from operations and funds available under its
existing domestic and foreign credit facilities will provide sufficient
resources to meet the Company's needs in 2002 and beyond.
8
Results of Operations for the Three and Nine Months
Ended September 30, 2002 and 2001
Core material sales were $14,895,000 for the three months ended September 30,
2002, a $688,000 increase (4.8%) from 2001 third quarter sales of $14,207,000.
Sales for the nine-month period ended September 30, 2002 were $46,648,000, a
$2,214,000 increase (5%) from sales of $44,434,000 for the first nine months of
2001. Domestic sales of core materials were slightly higher in the third quarter
of 2002 compared to the prior period, but were approximately the same for the
nine months ended September 30, 2002 compared to the same period in 2001. During
the third quarter, we continued to see reports within the boating industry of
improving wholesale and retail sales; however, we believe the soft U.S. economy
continues to negatively affect demand from the boating industry (the Company's
largest end user group). Sales in Europe increased in the quarter and nine
months ended September 30, 2002, compared to the same period in 2001. The
increase in European core material sales resulted from higher shipments to
manufacturers of windmill blades. We believe that the wind energy market will
grow at about 25% annually for the next five years, and that recent technology
trends in the industry continue to favor the use of core materials, including
balsa.
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 Company's gross profit margin as a percent of sales was 32.5% in the third
quarter of 2002, compared to 33.5% in the third quarter of 2001. For the nine-
month period ended September 30, 2002, the gross margin percentage was 31.7%,
compared to 33.2% for the first nine months of 2001. In December 2001, the
Andean Trade Preference Act ("ATPA") expired and, as a result, products exported
from Ecuador, Bolivia, Columbia and Peru were no longer duty free. The duty rate
on balsa exported from Ecuador was 3.3%. During the first eight months of 2002,
the Company paid duty on exports from Ecuador, which reduced the gross margin by
approximately 1%. On August 6, 2002, President Bush signed the Trade Act of 2002
(the "Act"). The Act provided for the renewal of the Andean Trade Preference Act
through December 31, 2006. In addition to providing for duty free treatment of
balsa exported from Ecuador, the Act also provided that any duty paid between
December 4, 2001 and August 6, 2002 will be refunded. Through August 6, 2002,
the Company estimates that $320,000 was paid in duty that will now be refunded.
The refund due was recorded in the Company's third quarter financial statements.
The gross margin decreased in 2002 due to a combination of higher operating
costs in Ecuador and the U.S., and variations in the mix of products sold.
Selling, general and administrative expenses ("SG&A") for the three-and-nine
month periods ended September 30, 2002 increased approximately $591,000 and
$754,000 compared to the three- and nine-month periods ended September 30, 2001,
respectively. As a percentage of sales, SG&A were 26.5% and 24.7% for the three
and nine month periods ended September 30, 2002 , respectively, on higher sales,
as compared to 23.6% and 24.2%, respectively, in the comparable period of 2001.
SG&A in dollars increased due to various increases and decreases in the
components of SG&A. The largest increases during the period were in selling
costs in Europe and research and development expenses in the U.S. In recognition
of the relative weakness of certain of our markets in 2002, the Company
continues to review all areas of costs, including SG&A, for potential savings.
However, to prepare the Company for long-term success and to respond to
activities of our competitors, we expect to increase certain selling expenses in
2002, particularly in Europe.
Interest expense decreased in the third quarter of 2002 as compared to 2001,
from $224,000 to $142,000, and decreased for the first nine months of 2002
compared to the same period in 2001, from $622,000 to $460,000. Interest rates
on dollar denominated loans in Ecuador during the first nine months were
significantly higher than rates available to the Company in the U.S. To take
advantage of the lower rates, during the first quarter of 2002, the Company
shifted a portion of its borrowings from Ecuador to the U.S.
9
The Company also benefited from lower interest rates in the U.S. in the first
nine months of 2002 compared to the same period in 2001. 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 $168,000 and $380,000 for the three-
and nine-month periods ended September 30, 2002, respectively. For the three and
nine-month periods ended September 30, 2001, the Company had foreign exchange
gains of $205,000 and $46,000, 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 37% of pre-tax
earnings for the three- and nine-month periods ended September 30, 2002 and 2001
respectively.
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.
Forward Looking Statements
Certain statements in this quarterly report on Form 10-Q, the Annual Report on
Form 10-K, the Company's press releases or in reports to stockholders constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements relate to, among other things,
industries in which the Company operates, the U.S. and global economies,
earnings, cash flow and operating performance and may be indicated by words or
phrases such as "anticipates," "supports," "plans," "projects," "expects,"
"should," "forecast," "believe," "management is of the opinion" and similar
words or phrases. Forward-looking statements are subject to inherent
uncertainties and risks, including among others: environmental factors affecting
yields at the Company's balsa plantations; increasing price and product/service
competition by domestic and foreign competitors; fluctuations in the cost and
availability of raw materials; economic and political conditions in Ecuador;
general industry trends and growth rates, including the continued advancement in
composite materials technology and its acceptance as an alternative to
conventional methods of construction; and economic conditions as they affect
demand for our customers' products (the Company is a raw material supplier to
original equipment manufacturers and sub-tier suppliers engaged in the
fabrication of composite components and assemblies). In addition, such
statements could be affected by general domestic and international economic
conditions, including interest rate and currency exchange rate fluctuations. The
list of factors presented here should not be considered to be a complete list of
all potential risks and uncertainties. Unlisted factors may present significant
additional obstacles to the realization of forward-looking statements.
In light of these risks and uncertainties, actual events and results may vary
significantly from those expressed or implied by such statements. Accordingly,
forward-looking statements should not be relied upon as a prediction of actual
results and readers are cautioned not to place undue reliance on such
forward-looking statements. The Company undertakes no obligation to update or
revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
* * * * *
10
Item 3. Quantitative and Qualitative Disclosure of Market Risk
For quantitative and qualitative disclosures about market risks affecting
Baltek, see Item 7A "Quantitative and Qualitative Disclosure About Market Risk"
in Baltek's Annual Report on Form 10-K for the year ended December 31, 2001.
There have been no material changes to our exposure to market risks since
December 31, 2001.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Within the 90 days
prior to the filing date of this report, the Company carried out an
evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer
and the Chief Financial Officer. Based on that evaluation, the
Company's Chief Executive Officer and the Chief financial Officer
concluded that the Company's disclosure controls and procedures are
effective.
(b) Changes in internal controls. There were no significant changes in
the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of the
evaluation referred to above.
11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
10.1.7 Fifth Amendment to Revolving Loan and Security Agreement dated
September 30, 2002 between Baltek Corporation and Crustacea
Corporation, collectively, as Borrower, and Fleet National Bank,
as Lender.
10.1.8 Third Substitute Revolving Credit Note dated September 30, 2002
between Baltek Corporation and Crustacea Corporation,
collectively, as Borrower, and Fleet National Bank, as Lender.
10.1.9 Term Note dated September 30, 2002 between Baltek Corporation and
Crustacea Corporation, collectively, as Borrower, and Fleet
National Bank, as Lender.
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.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(B) Reports on Form 8-K:
None.
12
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 14, 2002 /s/ Jacques Kohn
----------------
Jacques Kohn
President and Chief Executive Officer
Date: November 14, 2002 /s/ Ronald Tassello
-------------------
Ronald Tassello
Chief Financial Officer and Treasurer
13
Certification
I, Jacques Kohn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Baltek Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors :
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/S/ Jacques Kohn
- -----------------
Jacques Kohn, President and Chief Executive Officer
14
Certification
I, Ronald Tassello, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Baltek Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors :
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/S/ Ronald Tassello
- --------------------
Ronald Tassello, Chief Financial Officer and Treasurer
15