UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001
[ ] 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 000-22973
CTB INTERNATIONAL CORP.
(Exact name of registrant as specified in the charter)
Indiana 35-1970751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
State Road 15 North, P.O. Box 2000, Milford, IN 46542-2000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219)-658-4191
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 [ ]
At June 30, 2001, approximately 10,921,790 shares, par value $.01 per share, of
common stock of the Registrant were outstanding.
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX
Page
Part I
Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2001
and December 31, 2000 1
Condensed Consolidated Income Statements for the Three
Months and Six Months Ended June 30, 2001 and 2000 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2001 and 2000 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Part II
Other Information
Item 1. II-1
Item 6. II-1
Signature II-3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CTB International Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
June 30, December 31,
2001 2000
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,178 $ 2,009
Accounts receivable - Net 34,917 29,324
Inventories 28,566 26,706
Deferred income taxes 1,395 1,372
Prepaid expenses and other current assets 1,404 2,957
-------------- --------------
Total current assets 69,460 62,368
PROPERTY, PLANT AND EQUIPMENT - Net 47,761 50,399
INTANGIBLES - Net 77,946 81,848
OTHER ASSETS 1,129 742
-------------- --------------
TOTAL ASSETS $ 196,296 $ 195,357
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,138 $ 10,596
Current portion of long-term debt 577 669
Accrued liabilities 22,452 19,753
Deferred revenue 1,294 2,489
-------------- --------------
Total current liabilities 37,461 33,507
LONG-TERM DEBT 53,215 62,505
DEFERRED INCOME TAXES 9,005 8,982
ACCRUED POSTRETIREMENT BENEFIT COST AND OTHER 3,387 3,350
COMMITMENTS AND CONTINGENCIES (See Note 6)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 40,000,000 shares authorized;
12,924,990 shares issued 129 129
Preferred stock - 6.0% cumulative, $.01 par value; 4,000,000 shares
authorized; 0 shares issued and outstanding - -
Additional paid-in capital 76,111 76,562
Treasury stock, at cost; 2001 - 2,003,200 shares, 2000 - (14,203) (14,420)
2,031,530 shares
Reduction for carryover of predecessor cost basis (26,964) (26,964)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment (4,530) (3,097)
Derivative and hedging activities 259 -
Retained earnings 62,426 54,803
-------------- --------------
Total shareholders' equity 93,228 87,013
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 196,296 $ 195,357
============== ==============
See accompanying notes to condensed consolidated financial statements.
CTB International Corp. and Subsidiaries
Condensed Consolidated Income Statements
(In thousands, except per share amounts)
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------------ ---------------------------------------
2001 2000 2001 2000
----------------- ---------------- ----------------- -------------------
NET SALES $ 67,141 $ 74,294 $ 120,326 $ 132,045
COST OF SALES 46,601 54,181 85,226 95,801
----------------- ---------------- ------------------ ------------------
Gross profit 20,540 20,113 35,100 36,244
OTHER OPERATING EXPENSE:
Selling, general, and 10,092 10,756 19,456 21,448
administrative expenses
Amortization of goodwill 636 596 1,283 1,201
----------------- ---------------- ------------------ ------------------
Operating income 9,812 8,761 14,361 13,595
INTEREST EXPENSE - Net (770) (1,219) (1,346) (2,461)
OTHER (EXPENSE) INCOME - Net (132) (198) (306) (44)
----------------- ---------------- ------------------ ------------------
INCOME BEFORE INCOME TAXES 8,910 7,344 12,709 11,090
INCOME TAXES 3,564 2,938 5,084 4,436
----------------- ---------------- ------------------ ------------------
NET INCOME $ 5,346 $ 4,406 $ 7,625 $ 6,654
================= ================ ================== ==================
EARNINGS PER SHARE:
Basic: Earnings per share $ 0.49 $ 0.40 $ 0.70 $ 0.60
================= ================ ================== ==================
Weighted average shares 10,870 10,970 10,878 11,117
================= ================ ================== ==================
Diluted: Earnings per share $ 0.48 $ 0.39 $ 0.69 $ 0.59
================= ================ ================== ==================
Weighted average shares 11,078 11,182 11,083 11,330
================= ================ ================== ==================
See accompanying notes to condensed consolidated financial statements.
CTB International Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the Six Months Ended
June 30,
--------------------------------
2001 2000
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,625 $ 6,654
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 3,940 3,739
Amortization 1,364 1,441
Foreign exchange loss 270 61
Equity in joint venture loss (gain) 23 (9)
(Gain) loss on sale of assets (101) 42
Changes in operating assets and liabilities:
Accounts receivable (6,546) (4,135)
Inventories (2,557) (3,396)
Prepaid expenses and other assets 1,301 (1,777)
Accounts payable, accruals and other liabilities 5,028 6,781
-------------- --------------
Net cash flows from operating activities 10,347 9,401
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (2,236) (1,584)
Proceeds from sale of assets 157 120
-------------- --------------
Net cash flows from investing activities (2,079) (1,464)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (287) (5,129)
Exercise of stock options 53 30
Proceeds from long-term debt 115,388 143,618
Payments on long-term debt (122,232) (146,535)
-------------- --------------
Net cash flows from financing activities (7,078) (8,016)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,190 (79)
NET EFFECT OF TRANSLATION ADJUSTMENT (21) (797)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,009 2,439
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,178 $ 1,563
============== ==============
See accompanying notes to condensed consolidated financial statements.
CTB International Corp. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months and six months ended June 30, 2001, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2001. For
further information, refer to the Company's Form 10-K for the fiscal year ended
December 31, 2000 which includes the Company's annual audited financial
statements.
Note 2. Accounts Receivable Sale
In May 2001, the Company entered into certain transactions, with respect to a
portion of its accounts receivable from international customers, with financing
organizations in order to reduce the amount of working capital required to fund
such receivables. These transactions have been treated as sales pursuant to the
provisions of SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". During the three months ended June
30, 2001, net funds received from the sales of accounts receivable totaled $3.5
million. Costs incurred in connection with these sales totaled $55,000 and were
recorded as losses on the sale of assets that are included as a component of
"Selling, general, and administrative expenses" in the Condensed Consolidated
Income Statement. The Company is the collection agent on behalf of the financing
organization for many of these arrangements and has no significant retained
interests or servicing liabilities related to accounts receivable that it has
sold.
Note 3. Inventories
Inventories consist of the following (in thousands):
June 30, December 31,
2001 2000
------------------ -------------------
Raw material $ 5,765 $ 6,808
Work in process 1,633 1,834
Finished goods 21,222 18,118
------------------ -------------------
28,620 26,760
LIFO valuation allowance (54) (54)
------------------ -------------------
Total $ 28,566 $ 26,706
================== ===================
Note 4. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
June 30, December 31,
2001 2000
----------------- ------------------
Land and improvements $ 3,587 $ 3,556
Buildings and improvements 22,312 22,813
Machinery and equipment 51,948 51,510
Construction in progress 1,610 709
----------------- ------------------
79,457 78,588
Less accumulated depreciation (31,696) (28,189)
----------------- ------------------
Total $ 47,761 $ 50,399
================= ==================
Note 5. Intangibles
Intangibles consist of the following (in thousands):
June 30, December 31,
2001 2000
----------------- ------------------
Goodwill $ 86,510 $ 89,274
Accumulated amortization (9,674) (8,749)
----------------- ------------------
Goodwill - Net 76,836 80,525
----------------- ------------------
Deferred finance costs and other 3,621 3,621
Accumulated amortization (2,511) (2,298)
----------------- ------------------
Deferred finance costs and other - Net 1,110 1,323
----------------- ------------------
Total $ 77,946 $ 81,848
================= ==================
Note 6. Commitments and Contingencies
There are various claims and pending legal proceedings against the Company
involving matters arising out of the ordinary conduct of business. These
include, but are not limited to, a number of separate actions, in various
venues, brought by poultry growers in connection with an expansion project in
Alabama, which allege breach of contract and related claims arising from alleged
defects in relation to poultry buildings and equipment. Most of these actions
are in their initial stages and discovery has not been completed or only the
early steps of the discovery process have been conducted, but based on its
current knowledge, the Company believes these actions either lack substantial
merit or that it has meritorious defenses, and the Company intends to defend
each of these actions vigorously. While the Company is unable to predict with
certainty the outcome of any of the current proceedings, based upon the facts
currently known to it, the Company does not believe that resolution of any such
proceeding will have a material adverse effect on its financial position or
results of operations.
Note 7. Treasury Stock
At June 30, 2001, treasury stock consisted of 2,003,200 shares acquired, 34,230
of which were purchased at a cost of $287,000 during the six month period ended
June 30, 2001. To date, 2,410,295 of the shares authorized have been
repurchased, with 407,095 being reissued. The shares repurchased are accounted
for under the cost method and reported as "Treasury Stock" and result in a
reduction of "Shareholders' Equity." When treasury shares are reissued, the
Company uses a first-in, first-out method and the difference between repurchase
cost and the reissuance price is treated as an adjustment to "Additional Paid-in
Capital."
Note 8. Comprehensive Income
Comprehensive income for the three and six months ended June 30, 2001 was $4.8
million and $6.5 million compared to $4.4 million and $6.0 million in the
corresponding periods of 2000. Net income was adjusted by the change in
cumulative translation adjustment and by the change in derivative and hedging
activities to arrive at comprehensive income.
Note 9. Segments
The Company's organizational structure and internal financial reporting are
organized primarily on the basis of business units, generally determined by
geographic location and type of agricultural market served. The Company believes
certain operating segments have similar economic characteristics that meet the
aggregation criteria of SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). Accordingly, the Company reports
three operating segments.
The Company's products for the Protein Group Segment consist of systems which
deliver feed and water, and provide a comfortable climate for poultry and hogs,
thereby creating an optimum growing environment for efficient production of meat
and eggs. Protein Group Segment sales are primarily in the U.S. and Canada. The
Grain Segment manufactures a wide variety of models of grain storage bins and
handling systems for on-farm and commercial grain storage as well as feed bins.
The Grain Segment also manufactures and markets a line of industrial bulk
storage bins and conveying equipment and markets various related accessory
items. Grain Segment sales are primarily to customers in the U.S. and Canada.
The International Segment manufactures and markets products similar to those of
the Protein Group and Grain Segments. Sales in the International Segment,
however, are generally to customers outside the U.S. and Canada. Inter-segment
sales are generally recorded at standard cost plus five percent.
Management evaluates performance based upon operating earnings before interest
and income taxes. The Company does not maintain for each of its operating
segments separate stand-alone financial statements prepared in accordance with
generally accepted accounting principles.
Following is segment information, in thousands of dollars, for the three months
and six months ended June 30, 2001 and 2000.
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
External Net Sales:
Protein Group $ 22,837 $ 25,676 $ 41,965 $ 49,333
Grain 19,270 27,817 31,915 41,274
International 25,034 20,801 46,446 41,438
------------- ------------- ------------- -------------
$ 67,141 $ 74,294 120,326 $ 132,045
============= ============= ============= =============
Inter-Segment Sales:
Protein Group $ 5,146 $ 3,799 $ 9,253 $ 6,219
Grain 1,848 2,901 4,565 6,495
International 906 93 1,668 804
Other (7,900) (6,793) (15,486) (13,518)
------------- ------------ ------------ -------------
$ - $ - $ - $ -
============= ============= ============== =============
Operating Income:
Protein Group $ 5,119 $ 5,562 $ 8,650 $ 10,846
Grain 4,465 6,611 6,421 9,068
International 4,800 2,323 7,631 4,934
Other (4,572) (5,735) (8,341) (11,253)
-------------- ------------- ------------- -------------
$ 9,812 $ 8,761 $ 14,361 $ 13,595
============== ============= ============= =============
As of As of
June 30, December 30,
2001 2000
------------- -------------
Total Assets:
Protein Group $ 32,420 $ 32,329
Grain 54,104 51,526
International 58,752 60,351
Other 51,020 51,151
------------- -------------
$ 196,296 $ 195,357
============= =============
"Other" consists primarily of eliminations for inter-segment sales and
corporate-related assets. Additionally, "Other" includes the costs for shared
services functions such as Finance, Information Systems, Purchasing and
Administration, profit sharing and bonus plans, and shared manufacturing cost
centers for the Milford, Indiana operations.
Note 10. New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement, as amended, is effective for
the Company's fiscal year beginning January 1, 2001. The adoption of SFAS 133 on
January 1, 2001 did not have a material impact on results of operations but
resulted in a pre-tax cumulative effect of an accounting change of $1,106,000
being recognized as income in other comprehensive income. At June 30, 2001, the
pre-tax impact, on other comprehensive income, was $432,000, resulting in other
comprehensive income, net of tax, of $259,000.
On July 20, 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (SFAS 141) and SFAS No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). These statements establish new accounting and
reporting standards for business combinations and associated goodwill and
intangible assets. They require, among other things, elimination of the pooling
of interests method of accounting, no amortization of acquired goodwill, and a
periodic assessment for impairment of all goodwill and intangible assets
acquired in a business combination. SFAS 141 is effective for all business
combinations accounted for by the purchase method that are completed after June
30, 2001. SFAS 142 will be effective for the Company's fiscal year beginning
January 1, 2002. At June 30, 2001, the Company had recorded approximately $76.8
million of goodwill, net of accumulated amortization, on its consolidated
balance sheet and the related goodwill amortization expense was approximately
$1.3 million and $2.4 million for the six-months ended June 30, 2001 and year
ended December 31, 2000, respectively. The Company is evaluating SFAS 141 and
SFAS 142 to determine their impact on the consolidated financial statements.
Note 11. Restructuring
In December 2000, the Company implemented expense reduction actions including
restructuring its Fancom Group operations in the Netherlands to reduce Fancom's
workforce by nearly 20 percent and to consolidate two Netherlands-based Fancom
facilities by moving the current Wierden operations to Fancom's Panningen
headquarters facility. Additionally, the Company made adjustments to the cost
structure at its Milford, Indiana, headquarters location and at certain other
operating units to further reduce expenses. These actions resulted in a pre-tax
charge of $0.7 million, of which $0.2 million was recorded in cost of sales and
$0.5 million was charged to selling, general and administrative expenses.
Payments made for restructuring expenses during the first half of 2001 were $0.4
million. The $0.3 million balance at June 30, 2001, to be paid in future
periods, is reported in accrued liabilities.
Item 2.
CTB International Corp. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
For a full understanding of the Company's financial condition, results of
operations, and cash flows, this commentary should be read in conjunction with
the Company's Securities and Exchange Commission filings, including, but not
limited to the Company's Form 10-K for the fiscal year ended December 31, 2000.
CTB International Corp. ("CTB" or the "Company") is a leading designer,
manufacturer and marketer of systems used in the grain industry and in the
production of poultry, hogs and eggs. Its Protein Group and Grain Segments serve
these industries primarily in the U.S. and Canada, while its International
Segment serves the same industries primarily in the rest of the world. The
Company believes that it is the largest global supplier of poultry systems and
grain storage bins and one of the largest global providers of hog production and
egg production systems.
The Company's poultry and hog production equipment consists of feeders,
drinkers, environmental systems (heating, cooling and ventilation), system
controls and growing facility management software, and poultry nests. This
equipment is used primarily by growers that raise poultry and hogs commercially.
CTB's egg production systems consist of feeders, drinkers, environmental
systems, system controls and growing facility management software, cages, egg
handling systems and manure handling equipment used primarily by commercial
producers of eggs. The Company's grain systems include commercial and on-farm
storage and holding bins, as well as, handling systems for feed and grain. These
are used primarily by farmers and by commercial businesses such as feed mills,
grain elevators, port storage facilities and commercial grain processing
facilities.
CTB operates from facilities in the U.S.A., Europe and Latin America as well as
through a worldwide distribution network. The Company markets its products on a
worldwide basis primarily under the CHORE-TIME(R), BROCK(R), FANCOM(R),
ROXELL(R), SIBLEY(R) and STACO(R) brand names.
Results of Operations
Three Months Ended June 30, 2001 Compared with Three Months Ended June 30, 2000
Net sales decreased 9.6% to $67.1 million in the three months ended June 30,
2001 compared to $74.3 million in the corresponding period of 2000. The decline
in sales is attributed primarily to the Grain Segment which was down 31 percent
compared to last year's second quarter, primarily as a result of a slowdown in
commercial grain bin orders, lower levels of farm bin sales, and reductions in
feed bin sales. Additionally, Protein Group Segment sales declined 11 percent as
a result of poor conditions in the U.S. poultry market. The International
Segment showed improvement of 20 percent through strengthening of sales from our
European operations and U.S. exports to Latin America, offset somewhat by lower
volumes in Asia.
Despite the sales decrease, gross profit increased 2.1% to $20.5 million in the
three months ended June 30, 2001 or 30.6% of net sales compared to $20.1 million
in the corresponding period of 2000 or 27.1% of net sales. The gross profit
margin increase of 3.5 percentage points resulted primarily from operational
improvements and cost containment actions including reductions in certain raw
material prices and lower profit sharing costs resulting from higher performance
targets in 2001. Margins in 2000 were also negatively impacted by an accrued
warranty charge of $0.6 million.
Selling, general and administrative expenses decreased 6.2% or $0.7 million to
$10.1 million in the three months ended June 30, 2001 from $10.8 million in the
corresponding period of 2000. As a percent of net sales, selling, general and
administrative expenses were 15.0% in the three months ended June 30, 2001 and
14.5% in the corresponding period of 2000. The dollar decrease is primarily
attributable to decreased profit sharing resulting from higher performance
targets in 2001 and reductions through restructuring and cost savings efforts.
The increase in selling, general and administrative costs as a percent of sales
was due primarily to the lower sales volumes which more than offset cost
reductions.
Amortization of goodwill remained at $0.6 million in the three months ended June
30, 2001 compared to the corresponding period for 2000.
Operating income increased 12.0% or $1.0 million to $9.8 million in the three
months ended June 30, 2001 compared to $8.8 million in the corresponding period
of 2000. Operating income margins increased to 14.6% of net sales in the three
months ended June 30, 2001 from 11.8% of net sales in the corresponding period
of 2000. The increase in operating income was a result of higher gross profit
and lower selling, general and administrative expenses. The increase in
operating income margins is due to the improvement in gross profit margins
offset somewhat by higher selling, general and administrative costs as a percent
of sales as discussed above.
The Protein Group Segment's operating income declined 8.0% or $0.5 million to
$5.1 million compared to $5.6 million in 2000, primarily as a result of reduced
third party sales. The Grain Segment's operating income was down $2.1 million or
32.5% to $4.5 million from $6.6 million, primarily attributable to lower sales
volumes, as discussed above and the accompanying reduction in fixed cost
absorption. The International Segment recognized improved operating income of
$4.8 million, up $2.5 million or 106.6% compared to $2.3 million in 2000, on
higher sales volumes, favorable sales mix, and controlled operating expenses.
Operating income in the "Other" category, which includes the Company's
centralized and corporate functions and Intercompany eliminations improved $1.1
million or 20.3%, from expense of $5.7 million to expense of $4.6 million
primarily from lower profit sharing expenses due to higher performance targets
in 2001 and cost containment actions, primarily net favorable purchase price
variances at Corporate.
Net interest expense decreased to $0.8 million in the three months ended June
30, 2001 or 36.8% from $1.2 million in the corresponding period in 2000. The
decrease is due primarily to lower average borrowings and lower borrowing rates.
Borrowing rates have declined as a result of lower market interest rates on
variable rate debt and reductions in the Company's rate structure due to
financial performance.
Other expense was $0.1 million in 2001 compared to $0.2 million in 2000. Other
expense includes primarily foreign exchange gains and losses related largely to
U.S. dollar-denominated intercompany debt.
Net income increased 21.3% to $5.3 million or 8.0% of sales in the three months
ended June 30, 2001 compared to $4.4 million on 5.9% of sales. The improvement
represents record second quarter net income and resulted from improved gross
profit and lower operating expenses and interest expense.
Six Months Ended June 30, 2001 Compared with Six Months Ended June 30, 2000
Net sales decreased 8.9% to $120.3 million in the six months ended June 30, 2001
compared to $132.0 million in the corresponding period of 2000. The decline in
sales is attributed primarily to the Grain Segment which was down 23 percent
compared to last year's first half, primarily as a result of a slow down in
commercial bin orders, lower levels of farm bin sales, and reductions in feed
bin sales. Protein Group Segment sales declined 15 percent as a result of poor
conditions in the U.S. poultry market. The International segment has seen
continued strength from our European operations, U.S. exports to Latin America,
and also from a large grain project in China in the first quarter.
Gross profit decreased 3.2% to $35.1 million in the six months ended June 30,
2001 or 29.2% of net sales compared to $36.2 million in the corresponding period
of 2000 or 27.4% of net sales. The gross profit margin increase of 1.8
percentage points resulted primarily from operational improvement and cost
containment actions including reductions in certain raw material costs and
improved sales mix. Gross profit was unfavorably affected in 2000 by a $0.6
million accrued warranty charge.
Selling, general and administrative expenses decreased 9.3% or $1.9 million to
$19.5 million in the six months ended June 30, 2001 from $21.4 million in the
corresponding period of 2000. As a percent of net sales, selling, general and
administrative expenses were 16.2% in the six months ended June 30, 2001 and
16.2% in the corresponding period of 2000. The dollar decrease is primarily
attributable to decreased profit sharing resulting from higher performance
targets in 2001 and reductions through restructuring and cost savings efforts.
Amortization of goodwill increased slightly to $1.3 million in the six months
ended June 30, 2001 compared to $1.2 million for the corresponding period of
2000.
Operating income increased 5.6% or $0.8 million to $14.4 million in the six
months ended June 30, 2001 compared to $13.6 million in the corresponding period
of 2000. Operating income margins increased to 11.9% of net sales in the six
months ended June 30, 2001 from 10.3% of net sales in the corresponding period
of 2000. The increase in operating income was a result of a higher gross profit
margin on sales and lower selling, general and administrative expenses. The
increase in operating income margins is due to the improvement in gross profit
margins as discussed above.
The Protein Group Segment's operating income declined 20.2% or $2.2 million to
$8.6 million compared to $10.8 million in 2000, as a result of reduced sales.
The Grain Segment's operating income was down $2.7 million or 29.2% to $6.4
million from $9.1 million, primarily attributable to lower sales volumes, as
discussed above, and the accompanying reduction in fixed cost absorption. The
International Segment recognized improved operating income of $7.6 million, up
$2.7 million or 54.7% compared to $4.9 million in 2000, on higher sales volumes
and controlled operating expenses. Operating income in the "Other" category,
which includes the Company's centralized and corporate functions and
Intercompany eliminations improved $3.0 million or 25.9%, from expense of $11.3
million to expense of $8.3 million primarily from lower profit sharing expenses
due to higher performance targets in 2001 and cost containment actions,
primarily net favorable purchase price variances at Corporate.
Net interest expense decreased to $1.3 million in the six months ended June 30,
2001 or 45.3% from $2.5 million in the corresponding period in 2000. The
decrease is due primarily to lower average borrowings and lower borrowing costs
in 2001. Borrowing rates have declined as a result of lower market interest
rates on variable rate debt and reductions in the Company's rate structure due
to financial performance.
Other expense was $0.3 million in 2001 and negligible in 2000. Other expense
includes primarily foreign exchange gains and losses related largely to U.S.
dollar-denominated intercompany debt.
Net income increased 14.6% to $7.6 million in the six months ended June 30,
2001. The improvement is due to the increased gross profit mentioned above and
reduced operating expense and interest expense.
Financial Position
Changes in the financial position of the Company from December 31, 2000 to June
30, 2001 were due primarily to operating activities.
Total assets increased from $195.4 million at December 31, 2000 to $196.3
million at June 30, 2001. Accounts receivable increased by $5.6 million from
December 31, 2000 to June 30, 2001, primarily seasonal increases offset to some
extent by the sale of accounts receivable in the second quarter of 2001.
Inventories increased by $1.9 million from December 31, 2000, primarily due to
seasonal increases. Net property, plant and equipment decreased $2.6 million
from December 31, 2000 to June 30, 2001, primarily due to depreciation and
foreign exchange changes offset by capital outlays.
Total liabilities decreased $5.2 million from $108.3 million at December 31,
2000 to $103.1 million at June 30, 2001. Accounts payable and accrued
liabilities increased $5.3 million from $30.3 million at December 31, 2000 to
$35.6 million at June 30, 2001, primarily seasonal increases in accounts payable
and income tax liabilities, offset somewhat by lower profit sharing accruals.
Long-term debt decreased $9.3 million from $62.5 million at December 31, 2000 to
$53.2 million at June 30, 2001 due to the repayment of borrowings from cash
generated from operations.
Total shareholders' equity increased $6.2 million due primarily to net income
for the period, partially offset by changes in cumulative translation
adjustment.
Liquidity and Capital Resources
As of June 30, 2001, the Company had $32.0 million of working capital, an
increase of $3.1 million from working capital of $28.9 million as of December
31, 2000. Net cash provided from operating activities for the six months ended
June 30, 2001 was $10.3 million. Cash flows provided from operations was
primarily from net income and non-cash depreciation and amortization offset
somewhat by seasonal increases in net working capital. Cash flows provided from
operations in 2000 was $9.4 million and included payment of an accrued earn-out
related to the 1996 acquisition of the Company in a leveraged buyout
transaction. These amounts were paid to predecessor company shareholders,
certain of whom are current directors and officers of the Company.
For the six months ended June 30, 2001, cash used in investing activities was
$2.1 million, used for acquisitions of property, plant and equipment. For the
the six months ended June 30, 2000, cash used in investing activities was $1.5
million, which included acquisitions of property, plant and equipment offset
slightly by the sale of assets.
For the six months ended June 30, 2001, net cash used from financing activities
was $7.1 million. During this period there was a net $6.8 million reduction in
revolver borrowings. For the six months ended June 30, 2000, cash used in
financing activities was $8.0 million. During this period there was a net $2.9
million reduction in revolver borrowings and $5.1 million use of cash for
treasury stock purchases.
The Company believes that existing cash, cash flows from operations and
available borrowings will be sufficient to support its working capital, capital
expenditures and debt service requirements for the foreseeable future.
New Accounting Pronouncements
On July 20, 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (SFAS 141) and SFAS No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). These statements establish new accounting and
reporting standards for business combinations and associated goodwill and
intangible assets. They require, among other things, elimination of the pooling
of interests method of accounting, no amortization of acquired goodwill, and a
periodic assessment for impairment of all goodwill and intangible assets
acquired in a business combination. SFAS 141 is effective for all business
combinations accounted for by the purchase method that are completed after June
30, 2001. SFAS 142 will be effective for the Company's fiscal year beginning
January 1, 2002. At June 30, 2001, the Company had recorded approximately $76.8
million of goodwill, net of accumulated amortization, on its consolidated
balance sheet and the related goodwill amortization expense was approximately
$1.3 million and $2.4 million for the six-months ended June 30, 2001 and year
ended December 31, 2000, respectively. The Company is evaluating SFAS 141 and
SFAS 142 to determine their impact on the consolidated financial statements.
Seasonality
Sales of agricultural equipment are seasonal, with poultry, hog and egg
producers purchasing equipment during prime construction periods in the spring,
summer and fall and farmers and commercial storage installations traditionally
purchasing grain storage bins in the late spring and summer in order for them to
be constructed and ready for use in conjunction with the fall harvesting season.
The Company's net sales and net income have historically been lower during the
first and fourth fiscal quarters as compared to the second and third quarters
when distributors and dealers increase purchases to meet the seasonal demands of
end users.
The following table presents unaudited interim operating results of the Company.
The Company believes that the following information includes all adjustments
(consisting only of normal, recurring accruals) that the Company considers
necessary for a fair presentation for the respective periods. The operating
results for any interim period are not necessarily indicative of results for
this or any other interim period or the entire fiscal year.
(In thousands, except per share amounts) Three Months Ended
- -------------------------------------------------------------------------------------------------------------
June 30, June 30, September 30, December 31, March 31,
2001 2000 2000 2000 2001
-------- -------- ------------- ------------ ---------
Sales $ 67,141 $ 74,294 $ 81,551 $ 45,518 $ 53,185
Gross profit $ 20,540 $ 20,113 $ 23,791 $ 9,185 $ 14,560
Gross margin 30.6% 27.1% 29.2% 20.2% 27.4%
Operating income $ 9,812 $ 8,761 $ 11,747 $ 695 $ 4,549
Operating income margin 14.6% 11.8% 14.4% 1.5% 8.6%
Net income (loss) $ 5,346 $ 4,406 $ 6,475 $ (139) $ 2,279
Basic earnings (loss) per share $ 0.49 $ 0.40 $ 0.59 $ (0.01) $ 0.21
Basic weighted average common
shares outstanding 10,870 10,970 10,930 10,899 10,887
Diluted earnings per share $ 0.48 $ 0.39 $ 0.58 $ (0.01) $ 0.21
Diluted weighted average common
shares outstanding 11,078 11,182 11,139 11,112 11,087
Disclosure Regarding Forward-Looking Statements
In addition to historical information, this document contains certain statements
representing the Company's expectations or beliefs concerning future events.
These statements are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, which provides a safe harbor for
such statements. The use of words such as "anticipates," "believes,"
"estimates," "expects," "intends," "plans," "projects," "could," "may," "will"
or similar expressions are intended to identify these statements. The
forward-looking statements contained in this document include, without
limitation, statements related to seasonality of the Company's business; market
risk associated with changes in interest and foreign exchange rates;
implementation of operation improvements; execution of business strategies; and
management of costs. They also involve certain risks and uncertainties regarding
CTB International Corp.'s business and operations and the agriculture industry.
The Company's actual results could differ materially from those expressed or
implied by such forward-looking statements. The Company cautions that these
statements are further qualified by other important factors, including, but not
limited to those set forth in the Company's Form 10-K filing and its other
filings with the Securities and Exchange Commission. The Company does not
undertake any obligation to update this information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to market risk associated with adverse changes in
interest rates and foreign currency exchange rates, but does not hold any market
risk sensitive instruments for trading purposes. Principal exposed to interest
rate risk at June 30, 2001 is $18.5 million in variable rate debt exclusive of
amounts covered by interest rate swap agreements. The Company measures its
interest rate risk by estimating the net amount by which potential future net
earnings would be impacted by hypothetical changes in market interest rates
related to all interest rate sensitive assets and liabilities. Assuming a
hypothetical 20% increase in interest rates as of June 30, 2001, the estimated
reduction in future earnings, net of tax, is expected to be approximately $0.1
million.
The Company periodically utilizes foreign exchange contracts to minimize its
exposure to currency risk for the payment of its interest obligations on
non-U.S. dollar denominated debt. Foreign currency payments are received
periodically from its foreign subsidiaries to permit repayment of non-U.S.
dollar denominated debt owed by the parent company. Upon receipt of cash from
foreign subsidiaries, forward contracts are purchased as a hedge against
exchange rate fluctuations that may occur between the date cash is received and
the date the interest payment is made.
The Company mitigates its foreign currency exchange rate risk principally by
establishing local production facilities in the markets it serves and by
invoicing customers in the same currency as the source of the products. The
Company also monitors its foreign currency exposure in each country and
implements strategies to respond to changing economic and political
environments. The Company's exposure to foreign currency exchange rate risk
relates primarily to U.S. dollar-denominated inter-company loans. The Company's
exposure related to such transactions is not material to cash flows. However,
exposure related to such transactions to the Company's financial position and
results of operations is anticipated to be adversely impacted by approximately
$45,000, net of tax, for every 10% devaluation of the Brazilian Real per U.S.
dollar and up to $175,000 net of tax, for every 10% depreciation of the euro and
its fixed legacy currencies. These amounts are estimates only and are difficult
to accurately project due to factors such as the inherent fluctuation of
intercompany account balances and the existing economic uncertainty and
unpredictable future economic conditions in the international marketplace.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 6 to the financial statements
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Form of Restated Articles of Incorporation of the Company
filed as Annex 1 to the Company's information statement on
Schedule 14C dated November 12, 1999 (the "Information
Statement") and incorporated herein by reference.
3.2 Restated By-Laws of the Company dated as of March 1, 2001
filed as Exhibit 3.2 to the Company's 2000 Annual Report on
Form 10-K and incorporated herein by reference.
4.1 Specimen Certificate of Common Stock of the Company
filed as Exhibit 4.1 to the Company Registration
Statement and incorporated herein by reference.
10.1 Commitment Letter, dated as of March 21, 1997, by and among
CTB, Inc. and KeyBank National association filed as Exhibit
10.1 to the Company Registration Statement and incorporated
herein by reference.
10.2 Asset Purchase Agreement, dated as of March 31, 1997, by and
among Butler Manufacturing Company and CTB, Inc., filed as
Exhibit 10.2 to the Company Registration Statement and
incorporated herein by reference.
10.3 Share Purchase Agreement, dated as of May 1, 1997, by and
among Chore-Time Brock Holding B.V.and Halder Investments
III B.V., Halder Investment III C.V., Stichting
Fondshebeer Fincon, Beldor B.V., V. Berger, A. Faber, J.
Paquet, J.H.M. Cremers and H.W. Gootzen and Fancom Holding
B.V. filed as Exhibit 10.3 to the Company Registration
Statement and incorporated herein by reference.
10.4 Asset Purchase Agreement, dated as of May 29, 1997, between
CTB, Inc., and Royal Crown Limited filed as Exhibit 10.4 to
the Company Registration Statement and incorporated herein
by reference.
10.5 Stock Purchase Agreement, dated as of November 29, 1995, by
and among the Company, CTB Ventures, Inc., CTB, Inc. and the
selling shareholders party thereto filed as Exhibit 10.5 to
the Company Registration Statement and incorporated herein
by reference.
10.6 Shareholders Agreement, dated as of January 4, 1996, by and
among the Company and the Individual Shareholders party
thereto filed as Exhibit 10.6 to the Company Registration
Statement and incorporated herein by reference.
10.7 Board Representation Agreement, dated as of January 4, 1996,
by and among American Securities Capital Partners, L.P., J.
Christopher Chocola, Caryl Chocola and the Company filed as
Exhibit 10.7 to the Company Registration Statement and
incorporated herein by reference.
10.8 Form of Non-Qualified Stock Option Agreement filed as
Exhibit 10.8 to the Company Registration Statement and
incorporated herein by reference.
10.9 Profit Sharing Plan filed as Exhibit 10.9 to the
Company Registration Statement and incorporated herein
by reference.
10.10 Management Incentive Compensation Plan filed as Exhibit
10.10 to the Company Registration Statement and incorporated
herein by reference.
10.11 Escrow Agreement, dated as of November 29, 1995, by
and among CTB Ventures, Inc., the shareholders party
thereto and NBD Bank, N.A., filed as Exhibit 10.11
to the Company Registration Statement and incorporated
herein by reference.
10.12 Management Consulting Agreement, dated as of January 4,
1996, by and among CTB, Inc. and American Securities
Capital Partners, L.P., filed as Exhibit 10.12 to the
Company Registration Statement and incorporated herein by
reference.
10.13 Agreement for Partial Release of Escrowed Funds, dated as of
March 1, 1997, by and among CTB, Inc. and each of the
shareholders party thereto filed as Exhibit 10.13 to the
Company Registration Statement and incorporated herein by
reference.
10.14 Transaction Consulting Agreement, dated as of April 30,
1997, by and among the Company and American Securities
Capital Partners, L.P., filed as Exhibit 10.14 to the
Company Registration Statement and incorporated herein by
reference.
10.15 Transaction Consulting Agreement, dated as of April 30,
1997, by and among CTB, Inc., and American Securities
Capital Partners, L.P., filed as Exhibit 10.15 to the
Company Registration Statement and incorporated herein by
reference.
10.16 Acquisition Agreement of all shares of Roxell N.V., dated
November 30, 1998, filed as Exhibit 99.2 to the Company's
February 10, 1999 Form 8-K filing.
10.17 Representations and Warranties of Sellers, filed as
Exhibit 99.3 to the Company's February 10, 1999 Form 8-K
filing.
10.18 Amendment No. 3 dated as of November 19, 1998 to Credit
Agreement dated as of August 15, 1997.
10.19 1999 CTB International Corp. Stock Incentive Plan, filed
as Exhibit 10.19 to the Company's March 31, 2000 Form 10-Q
filing.
11. Computation of Earnings Per Share.
b) Reports on Form 8-K.
None.
SIGNATURE
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.
CTB International Corp.
Dated: July 26, 2001 By /s/ Don J. Steinhilber
------------------------------------
Don J. Steinhilber
Vice President and Chief Financial Officer
CTB International Corp. and Subsidiaries
Diluted Net Income Per Common and Common Equivalent Share
Three and Six Months Ended June 30, 2001 and
2000 (In thousands, except per share
amounts)
(Unaudited)
Exhibit 11
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
ACTUAL
Net Income $ 5,346 $ 4,406 $ 7,625 $ 6,654
Average number of common
shares outstanding 10,870 10,970 10,878 11,117
Common equivalent shares
stock options 208 212 205 213
Total average common and common
equivalent shares outstanding 11,078 11,182 11,083 11,330
Net income per common and common
equivalent share $ 0.48 $ 0.39 $ 0.69 $ 0.59