UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year Ended December 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 000-22973
CTB INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
INDIANA 35-1970751
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
611 N. Higbee Street
P.O. Box 2000
Milford, IN 46542-2000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 574-658-4191
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of common stock held by non-affiliates of the
registrant as of March 13, 2002 was approximately
$57,799,987
The number of shares outstanding of the registrant's common stock as of March
13, 2002 was
10,872,162
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held April 30, 2002 are
incorporated by reference into Part III.
CTB INTERNATIONAL CORP.
FORM 10-K
For the Fiscal Year Ended December 31, 2001
INDEX
ITEM DESCRIPTION PAGE
PART I
1. Business.............................................................1
Disclosure Regarding Forward-Looking Statements .....................1
a. General Development of Business ................................1
b. Financial Information about Industry Segments ..................3
c. Narrative Description of Business ..............................3
- Market Overview ............................................3
- Company Products ...........................................3
- Product Distribution .......................................6
- Sources and Availability of Raw Materials ..................6
- Patents and Trademarks .....................................7
- Seasonality ................................................7
- Backlog ....................................................7
- Competition ................................................7
- Research and Development Activities ........................7
- Employees ..................................................8
d. Financial Information about Foreign and Domestic Operations
and Export Sales ...............................................8
2. Properties ..........................................................8
3. Legal Proceedings ...................................................8
4. Submission of Matters to a Vote of Security Holders .................8
Executive Officers of the Registrant.................................9
PART II
5. Market for Registrant's Common Equity and Related Shareholder
Matters ............................................................11
6. Selected Financial Data ............................................12
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..............................................13
7A. Quantitative and Qualitative Disclosures About Market Risk .........20
8. Financial Statements and Supplementary Data ........................21
- Notes to Consolidated Financial Statements .......................26
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...............................................41
PART III
10. Directors and Executive Officers of the Registrant .................42
11. Executive Compensation .............................................42
12. Security Ownership of Certain Beneficial Owners and Management .....42
13. Certain Relationships and Related Transactions .....................42
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ....43
PART I
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ITEM 1. BUSINESS
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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 rising demand for and production of meat
protein, eggs and grain; increased demand for the Company's equipment used in
such production; implementation of operational improvements and lean
manufacturing techniques; achievement of sales and earnings growth; execution of
business plans and growth strategy; expanding global physical presence and
servicing markets outside the United States; leveraging global distribution
capabilities, market strength and brand names; developing and introducing
innovative products and product packages; growing through acquisitions and
developing strategic business arrangements; maintaining and enhancing financial
strength; improving manufacturing costs, reducing expenses, and improving
productivity; development and acceptability of biotech and/or value-enhanced
grain; resolution of certain claims and legal proceedings; the adequacy and
availability of liquidity and capital resources to meet the Company's needs;
track record of profitability; ability to manage operating expenses; improved
utilization of working capital; estimated impact of changes in interest rates
and foreign currency exchange rates; and the effects of implementing new
accounting standards. 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 the following: (1) risks associated with the
agricultural industry such as feed, grain and animal price fluctuation; crop
yields; consumption trends; demand; market trends; weather; government
regulations, policies and programs; social and political trends and outbreaks of
disease; (2) risks associated with acquisitions such as incurring significantly
higher-than-anticipated capital expenditures and operating expenses, failing to
assimilate the operations and personnel of acquired businesses, losing
customers, entering markets in which the Company has no or limited experience,
disrupting the Company's ongoing business, dissipating the Company's management
resources and the possibility the Company will not complete contemplated
acquisitions; (3) risks common to international operations including unexpected
changes in tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, political and economic instability, and
fluctuations in currency exchange rates; and (4) other risks including, but not
limited to development of less industrialized nations, impact of inflation, and
seasonality of the Company's business, as well as those detailed from time to
time in the Company's periodic reports and other filings with the Securities and
Exchange Commission. The Company does not undertake any obligation to update
this information.
(a) General Development of Business
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 one of the largest global providers of poultry
production systems, hog production systems, egg production systems and grain
storage bins.
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 and conditioning 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. It markets its agricultural products
on a worldwide basis primarily under the BROCK(R), CHORE-TIME(R), ENERGY
MISER(R), FANCOM(R), ROXELL(R), SIBLEY(R) and STACO(R) brand names.
CTB International Corp.'s initial predecessor, Chore-Time Equipment, Inc.
("Chore-Time Equipment"), was founded in 1952 by Howard S. Brembeck who also
established Brock Manufacturing, Inc. ("Brock") in 1957. In 1976, Chore-Time
Equipment and Brock came under common ownership and in 1985 were merged into a
single corporation, CTB, Inc. (the "Predecessor Company").
The Predecessor Company was acquired by affiliates of American Securities
Capital Partners L.P. ("ASCP") and certain members of the Predecessor Company's
senior management in January, 1996.
In August 1997, the Company completed the initial public offering of its common
stock.
Additionally, the Company made two acquisitions and a divestiture in 1997. In
May, it acquired all of the capital stock of Fancom Holding B.V., a
Netherlands-based manufacturer of agricultural climate control systems and
software applications. In June, the Company acquired substantially all of the
assets and certain specified ordinary course liabilities of the Kansas City
Grain Systems Division of Butler Manufacturing Company ("Kansas City Grain
Systems Division"), a Missouri-based manufacturer of grain storage bins. The
Company divested substantially all assets (other than accounts receivable) of
its vinyl products division to a subsidiary of Royal Group Technologies Limited
in May. In conjunction with the sale, the Company entered into a five-year joint
venture with the acquirer to produce certain extruded PVC agricultural equipment
component parts for the Company.
In 1998, the Company made two acquisitions. In July, it acquired Sibley
Industries, Inc., a Missouri-based manufacturer of animal brooders and heaters.
In September, it acquired STACO, Inc., a Pennsylvania-based manufacturer of hog
feeders and other related equipment. Also in 1998, the Company established a
Brazilian joint venture and subsequently recognized a $3.1 million charge for
impairment in value of the investment.
In 1999, CTB acquired Roxell N.V. ("Roxell") of Maldegem, Belgium. Roxell is a
leading manufacturer of automated feeding and watering systems as well as feed
storage bins for the poultry and hog production markets. Also in 1999, CTB and
Rota Industria de Maquinas Agricolas dissolved their 1998 Brazilian joint
venture, and CTB completed its reincorporation in Indiana.
During 2000, CTB had one acquisition and one divestiture during the year. In
November, CTB acquired certain assets of ABC Industries, a manufacturer of dry
bulk material handling equipment and dust control devices associated with the
grain industry. In December, the Company sold non-core product lines carried by
its Sibley Industries unit in Anderson, Missouri.
During 2001, the Company consolidated its Anderson, Missouri, and Springdale,
Arkansas, facilities in Anderson. Also, in the fourth quarter, the Company
settled various legal proceedings and claims in Alabama, which impacted earnings
by approximately six cents per diluted share.
In early 2002, the Company completed two acquisitions. On January 22, 2002, CTB
announced the establishment of Chore-Time Europe B.V., a European logistics
center, in Asten, the Netherlands. The new logistics center was established
through the purchase of a controlling interest in Veldmaster B.V., a master
distributor in the Netherlands. Chore-Time Europe B.V. will sell primarily
Chore-Time's products for raising poultry throughout Europe, the Middle East and
in northern Africa. CTB has closed its Chore-Time Brock B.V. sales and service
facility in Deurne, the Netherlands, and transferred its operations to the new
company. Chore-Time Europe B.V. also has a wholly-owned subsidiary in Poland,
which has now been designated Chore-Time Europe Sp. z.o.o. On February 1, 2002,
the Company acquired substantially all of the operating assets of Beard
Industries, Inc., a leading grain dryer manufacturer producing more than 45
different models of dryers for both farm and commercial use under the brand name
ENERGY MISER(R). The company, based in Frankfort, Indiana, is also an industry
leader in innovative electronic grain drying controls.
(b) Financial Information about Industry Segments
For certain financial information about the Company's industry segments, see
Note 15 to CTB's consolidated financial statements included under Item 8, which
is incorportated herein by reference.
(c) Narrative Description of Business
MARKET OVERVIEW
The Company serves the global agricultural market through three primary business
segments: the Protein Group Segment (equipment for the production of poultry,
hogs and eggs), the Grain Segment (products for the storage, handling and
conditioning of grain), and the International Segment (all CTB product lines).
Its Protein Group and Grain Segments focus their activities primarily in the
U.S. and Canada, while its International Segment is active primarily in the rest
of the world. Demand for the Company's products is driven principally by the
increasing global focus on improving productivity in these industries.
The poultry, hog, egg and grain production industries themselves are driven by a
number of factors including worldwide consumption trends, economic and
population growth, and the impact of government policies on local production and
import/export levels. Other factors such as weather conditions can also have a
major influence on local and worldwide demand for the Company's products.
Demand for meat, eggs and grain tends to increase in developing countries as
consumers experience increasing levels of income. In various parts of the world,
history has shown that as their level of affluence has increased, consumers have
devoted a larger portion of their income to improved and higher protein diets.
Poultry meat and pork are frequently the beneficiaries of this trend as these
meats are more cost-effective sources of animal protein than beef. Consequently,
a primary driver expected to impact demand for the Company's products is
economic and population growth in developing areas of the world including parts
of Asia, Latin America, Central Europe and Eastern Europe.
Another factor the Company expects to affect demand for its products is the
increasing need for more efficient production of animal protein. This demand is
anticipated to be particularly concentrated in developing countries where much
production is still accomplished manually. In such areas, the use of automated
equipment will become increasingly important for more efficient use of resources
such as feed grains and the land on which they are grown.
Demand for grain, including the use of grain as feed to support meat and egg
production, and the required infrastructure for grain storage, conditioning and
handling is driven by several factors. The Company believes production levels in
the meat and egg production markets are likely to have some impact on future
levels of grain production and the resultant need for storage facilities. Demand
for additional storage could also be impacted by the further development and
acceptability of biotech and value-enhanced grains and the need for identity
preservation in storage.
COMPANY PRODUCTS
CTB designs, manufactures and markets systems used in the grain industry and in
the production of protein (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 principally in countries
outside the U.S. and Canada.
The Company's equipment for poultry and hogs consists of feeders, drinkers,
environmental systems (heating, cooling and ventilation), system controls and
growing facility management software, and poultry nests. 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. The Company's grain systems include commercial and on-farm
storage and holding bins as well as conditioning and handling systems for feed
and grain.
The Company manufactures and sells its systems for protein production under the
CHORE-TIME(R), FANCOM(R), ROXELL(R), SIBLEY(R) and STACO(R) brand names and its
complete line of galvanized steel grain storage bins, handling and conditioning
systems under the BROCK(R) and ENERGY MISER(R) names.
Systems for Poultry and Hogs
The Company's products for poultry and hogs consist of complete systems that
deliver feed and water, and provide a comfortable in-house climate for the
animals, thereby creating the optimum growing environment for efficient
production.
The feeding process typically starts with feed storage bins, which hold several
days' rations of feed and are located outside the animal or poultry buildings or
houses. Feed is transported via an enclosed auger system, which conveys the feed
from the feed storage bin to an internal feed distribution network inside the
house. The internal feeding system, in turn, delivers the feed to feeders
conveniently located near the birds or hogs. The feeding process is a "closed"
system, which protects the feed from exposure to weather and other detrimental
influences from the time it is delivered to the feed storage bin until it
appears in front of the animals for consumption. Feeders are adjustable so that
the optimum amount of feed can be provided based on the age and size of the
poultry or hogs.
The poultry or hog building may also be equipped with the Company's enclosed
water delivery systems, environmental systems for complete control of the
internal house climate, computer-based feeding and climate control devices, and
other items needed to achieve top production levels. The Company also offers
mechanical nest systems through an exclusive marketing arrangement. Nests are
used in poultry breeder operations for the purpose of efficiently gathering and
handling fertile eggs. In addition, the Company offers software to help users of
the Company's systems better manage their poultry or hog operations from the
farm site and/or from remote locations.
The Company believes that feed accounts for 60 to 70 percent of the total cost
of raising poultry and hogs. The profitability of growers of broiler chickens
and turkeys (both raised for meat) is largely dependent on the efficiency with
which they convert feed to meat ("feed-to-meat ratio"). The profitability of
growers of breeder chickens (raised to produce fertile hatching eggs) is
dependent in great part upon the total amount of feed required to maximize egg
production.
The Company's integrated production systems for broilers and turkeys are
designed to maximize the feed-to-meat ratio by making feed and water attractive
and easily accessible, by limiting feed waste, and by keeping birds comfortable.
The ability of each bird to obtain water easily and immediately is an essential
factor in facilitating weight gain. Proper ventilation systems are crucial for
maximizing feed-to-meat ratios by reducing stress caused by extreme temperature
fluctuation. Proper ventilation also allows for higher density production and
creates an environment conducive to optimum bird health. Birds that are too hot,
too cold, or that have too much airflow over them do not convert feed-to-meat as
efficiently.
Similarly, CTB's integrated systems for breeder chickens are designed to
maximize fertile egg production by delivering appropriate diets at scheduled
times, by reducing competition for feed among breeders, by separately feeding
hens and roosters (thereby reducing stress and enhancing the productivity of
both) and by providing ample water and a comfortable environment.
The profitability of hog producers also depends largely on the feed-to-meat
ratio as well as on the number of pounds of lean pork produced. For sow
operations (hogs produced for breeding purposes), profitability is determined by
the size and number of litters per sow per year.
The Company's integrated systems for hogs are designed to maximize the
feed-to-meat ratio of hogs by delivering appropriate diets at scheduled times.
This prevents hogs from eating continuously, thus reducing feed waste and
improving feed conversion and utilization. The Company's feeding systems for
sows are designed to maximize the production of piglets by lowering animal
stress, limiting feed waste and minimizing farm labor costs. The Company also
manufactures watering attachments for some models of hog feeders, which minimize
feed and water waste by keeping hogs at the feeders while drinking. Adequate
water and a comfortable environment provide similar improvements in the
efficiency of feed-to-meat conversion for hogs as they do for poultry.
The Company believes its products for poultry and hog production are further
distinguished by a number of unique, patented features designed for optimum
productivity and easy management. These products are provided to the end users
through members of the Company's independent distributor/dealer networks who
sell, install and service the equipment.
Systems for Egg Production
The Company's products for egg production consist of complete systems that
deliver feed and water and provide a comfortable in-house climate for poultry.
These systems create the optimum growing environment for egg producing birds,
both when they are young as well as after they begin laying eggs.
The feeding process typically begins with feed storage bins holding several
days' rations of feed and located outside the poultry buildings or houses. Feed
is transported via an enclosed auger system, which conveys the feed from the
feed storage bin to an internal feed distribution network inside the house. The
internal feeding system, in turn, delivers the feed to feeders which are
conveniently located in front of the multi-tiered galvanized wire mesh cages
housing the birds. The feeding process is a "closed" system, which protects the
feed from exposure to weather and other detrimental influences from the time it
is delivered to the feed storage bin until it appears in front of the birds for
consumption.
The cage system housing the birds can be provided in a variety of sizes and
styles suitable to match current production guidelines. They may also be
equipped with the Company's enclosed water delivery systems while the production
building may be equipped with environmental systems for complete control of the
internal house climate; computer-based feeding, climate control and egg-counting
devices; waste removal systems and other items needed to achieve top production
levels.
The profitability of egg producers is determined in large part by feed use
efficiency as well as by the number and size of eggs produced by each bird, the
shell quality of the eggs and the length of each bird's laying cycle. Egg
production is optimized by product features such as periodic customized feeding,
easy access to water and adequate ventilation, which distinguish the Company's
egg production systems.
In addition, egg producer profitability also depends on the gentle handling of
eggs to minimize breakage. The Company's patented egg collection and handling
system is distinguished by its design, which handles eggs more gently, resulting
in fewer cracked or broken eggs. In addition, because the Company manufactures
all the necessary equipment for an egg production house, it can offer fully
integrated egg production systems, which can be monitored and operated locally
or remotely using the Company's automated controls.
The Company believes its products for egg production are further distinguished
by a number of unique, patented features designed for optimum productivity and
easy management. These products for egg production are provided to end users
directly, or through members of the Company's independent dealer network
depending on which organization is in the best position to provide installation
and service.
Grain Storage and Handling Systems
The Company manufactures a wide variety of models of grain storage bins for
on-farm and commercial grain storage in diameters ranging from 12 to 105 feet
(3.7 to 32 meters) with capacities up to 680,000 bushels (22,700 cubic meters)
as well as grain handling and conditioning systems. The Company also
manufactures and markets a line of industrial bulk storage bins and conveying
equipment and markets various related accessory items. In addition to the
products marketed under the BROCK(R) and ENERGY MISER(R) brand names, the
Company produces grain storage bins on a private-label basis.
The Company's grain storage bins are distinguished by the availability of a wide
variety of bin models designed to meet diverse farm and commercial storage needs
and configurations. In addition, the Company believes that it has developed a
reputation in the marketplace as the grain industry leader in producing storage
bins known for superior roof strength, ease of installation, special engineering
for durability, reliable operation and superior cosmetic appearance.
Grain handling systems manufactured by the Company include its enclosed roller
belt conveyor system. Belt conveyors convey grain over long distances gently and
efficiently and have relatively low installation, maintenance and operation
costs. CTB also manufactures bin sweeps for use in grain bin unloading, and a
unique dust control product used at grain and industrial receiving facilities
called the DUSTMASTER(R) System.
CTB also manufactures grain conditioning equipment used to maintain the quality
and enhance the marketability of stored grain. The Company developed a line of
fans and heaters for grain conditioning in 2001, and, with the acquisition of
Beard Industries in early 2002, the Company has added production of Beard's
industry-leading ENERGY MISER(R) grain dryers to its grain conditioning line.
Grain producers are subject to many input costs over which they have little
control. The aspects of their profitability that they can control include the
ability to condition grain appropriately for long-term storage, the ability to
maintain the grain at a high level of quality throughout the time it is stored
and the flexibility to determine their own time to market.
Through conditioning and protecting the grain and by facilitating the ability to
time the sale of grain to achieve a more advantageous price, the Company's grain
storage systems help grain producers maximize their income when they sell their
grain.
The Company believes its grain storage and handling products are further
distinguished by a number of unique, patented features designed to make storage,
conditioning and handling more manageable and trouble-free. These products for
grain storage, handling and conditioning are sometimes provided to commercial
users directly, but most often through members of the Company's independent
dealer network.
PRODUCT DISTRIBUTION
The Company sells its agricultural products primarily through a global network
of independent distributors/dealers who offer targeted geographic coverage in
key poultry, hog, egg and grain-producing markets throughout the world. The
Company's distributors or dealers, and in some cases their sub-agents, sell
products to poultry, egg, hog and grain producers as well as to agricultural
companies and other end users.
These independent distributors and dealers install and service the Company's
products. Many also offer additional technical support and service to the end
user as well as maintaining warehouse facilities for systems and spare parts.
Some of the Company's distributors sell products directly to end users and
others sell products through their own dealer networks.
The Company provides training to its distributors and dealers, qualifying
distributors and dealers to install and service the Company's products and
systems. The Company believes that its distribution network is the strongest in
the industry, providing its customers with a high level of top-quality service.
The Company has maintained long-standing relationships with much of its
distribution network.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company manufactures its products primarily from galvanized steel, steel
wire, stainless steel and polymer materials, including polyvinylchloride (PVC),
polypropylene and polyethylene. In addition, it purchases certain components
including electric motors and PVC pipe for incorporation in some of its
products.
The Company is not dependent on any one of its suppliers and has not experienced
difficulty in obtaining any parts or materials. The Company purchases galvanized
steel from a variety of integrated mills and galvanizing processors, many of
which have experienced operating losses in recent years. These losses, coupled
with recent actions by the U.S. government to impose tariffs on foreign steel
may result in significant increases in the company's cost of raw material.
In addition, the components or substitute components, materials and parts
purchased by the Company are readily available from alternative suppliers.
PATENTS AND TRADEMARKS
The Company has numerous patents covering innovations in poultry and livestock
feeding and other agricultural equipment and has applied for additional patents.
The Company aggressively seeks patent protection for its technological
developments. The Company also has numerous trademarks and has submitted
applications for additional trademarks. While the Company believes its patents
and trademarks have significant value, the Company does not believe that its
competitive position is dependent on patent protection or that its operations
are dependent on any individual patent or group of related patents.
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, handling and conditioning equipment 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.
BACKLOG
Backlog is not a significant factor in the Company's business taken as a whole,
because most of the Company's products are delivered within a few weeks of being
ordered. The Company's backlog on or about January 31, 2002, and 2001, was $25.7
million and $33.1 million, respectively.
COMPETITION
The market for the Company's products is competitive. Domestically and
internationally, the Company competes with a variety of manufacturers and
suppliers, many of which offer only a limited number of the products offered by
the Company and two of which offer products across most of the Company's product
lines.
Competition is based on the price, value, reputation, quality and design of the
products offered and the customer service provided by distributors, dealers and
manufacturers of the products. The Company believes that its leading brand
names, strong distribution network, diversified product line, product support
and high-quality products enable it to compete effectively.
The Company further believes that its ability to offer poultry, egg and hog
producers integrated systems, which lower total production costs and help
producers achieve further productivity gains and profitability, provides it with
an additional competitive advantage. The Company has expanded its package
offering for grain producers through both acquisition and business alliances. It
believes that the existing package is competitive and is easily supplemented
with additional complementary systems when desired.
The Company also believes that integrated equipment systems offer significant
benefits to distributors/dealers, including lower administrative and shipping
costs and the ease of dealing with a single supplier for all of their customers'
needs. In addition, the Company believes its distributors and dealers provide
producers with high-quality service, installation and repair.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has research and product development and design engineering located
in Milford, Indiana; Panningen, the Netherlands; Maldegem, Belgium; and to a
lesser extent, certain of its other locations. Expenditures by the Company for
product research and development amounted to approximately $5.0 million, $4.7
million and $5.6 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
EMPLOYEES
As of December 31, 2001, the Company had approximately 1,100 employees. At
December 31, 2001 the Kansas City Grain Systems Division had approximately 50
hourly employees that are subject to a collective bargaining agreement, which
expires February 11, 2004. Management believes that its relationships with the
Company's employees are good.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
For certain financial information about the Company's U.S. and foreign
operations and export sales, see Note 15 to CTB's consolidated financial
statements included under Item 8, which is incorporated herein by reference.
ITEM 2. PROPERTIES
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The following table sets forth information regarding the principal properties of
the Company:
Location Facility Description Square Feet Owned/Leased
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Milford, Indiana Plant, corporate headquarters 611,000 Owned
and miscellaneous areas
Kansas City, Missouri Plant and office 394,000 Owned
Maldegem, Belgium Plant and office 161,400 Owned
Decatur, Alabama Plant and office 120,000 Owned
Panningen, The Netherlands Plant and office 88,000 Owned
Anderson, Missouri Plant and office 66,000 Owned
Frankfort, Indiana Plant and office 61,446 Owned
Schaefferstown, Pennsylvania Plant and office 31,800 Leased
Indianapolis, Indiana Plant and office 27,500 Leased
Asten, The Netherlands Plant and Office 24,500 Leased
Vitre, France Warehouse and office 15,000 Owned
Londrina, Brazil Plant and office 14,000 Leased
Strykowo, Poland Plant and office 10,100 Owned
Management believes that its facilities and equipment are generally well
maintained and are in good operating condition and that its capacity for the
manufacture of its products is adequate to satisfy anticipated demands for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
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For information regarding legal proceedings and claims settled in the fourth
quarter of 2001, see Note 8, which is incorporated herein by reference.
- --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ----------------------------------------------------------------------------------------------------------------
Executive Officers of the Company
Name Age Position with Company Officer Since
J. Christopher Chocola 40 Chairman of the Board 1991
Victor A. Mancinelli 58 President and Chief Executive Officer, Director 1999
Danny DeRouck 38 Managing Director, Roxell N.V. 2000
Randy S. Eveler 37 Vice President & Corporate Controller, CTB, Inc. 1999
Michael J. Kissane 44 Vice President, General Counsel & Secretary 1993
Mark A. Lantz 41 Vice President & General Manager, CTB, Inc. 1996
Donald C. Mueller 52 Vice President & General Manager, CTB, Inc. 2001
George W. Murdoch 42 Executive Vice President & General Manager, CTB, Inc. 1998
Douglas J. Niemeyer 54 Vice President & General Manager, CTB, Inc. 2000
Don J. Steinhilber 44 Vice President & Chief Financial Officer 1994
The following is biographical information for the Company's executive officers.
J. Christopher Chocola - Chairman of the Board since April 1999. Mr. Chocola
served as President of the Company from February 1996 to April 1999 and Chief
Executive Officer of the Company from April 1997 to April 1999. Mr. Chocola has
served as Chief Executive Officer of CTB (prior to January 1996, the Predecessor
Company) from March 1994 to April 1999. From July 1993 to February 1994, Mr.
Chocola served as Executive Vice President of the Predecessor Company. From
November 1993 to July 1996, Mr. Chocola served as the General Manager of the
Chore-Time division. From October 1991 to November 1993, Mr. Chocola served as
the General Manager of the Brock division. Mr. Chocola joined the Predecessor
Company in 1988. Mr. Chocola was elected to the Board of Directors of the
Predecessor Company in February 1991 and of the Company in February 1996.
Victor A. Mancinelli - President and Chief Executive Officer of the Company
since April 1999. Prior to joining the Company, Mr. Mancinelli was Chief
Operating Officer of Gehl Company since November 1992. From 1990 to 1992, Mr.
Mancinelli served as Group Vice President of W.H. Brady Co. From 1987 to 1990,
Mr. Mancinelli served as President and Chief Operating Officer of Syracuse China
Corp., a subsidiary of Canadian Pacific Ltd. From 1985 to 1987, Mr. Mancinelli
served as Vice President International Business for Simplex Time Record Co.
Prior to 1985, Mr. Mancinelli served in a variety of management positions with
Cummins Engine Company, Inc.
Danny DeRouck - Managing Director of Roxell N.V., Maldegem, Belgium since June
2000. Mr. DeRouck served as Commercial-Director of Roxell N.V. from 1995 until
June 2000. Prior to 1995, Mr. DeRouck served in various sales related functions
at Roxell N.V.
Randy S. Eveler - Vice President and Corporate Controller of CTB since October
1998. Mr. Eveler served as Division Controller of CTB from August 1998 until
October 1998. Prior to joining the Company, Mr. Eveler was Finance Manager of
Accra Pac, Inc. from October 1993.
Michael J. Kissane - General Counsel and Secretary of the Company since April
1997 and Vice President of the Company since December 1995. Mr. Kissane has been
a Vice President of CTB (prior to January 1996, the Predecessor Company) since
July 1993, the Secretary of CTB (prior to January 1996, the Predecessor Company)
since March 1994 and has served as General Counsel of CTB (prior to January
1996, the Predecessor Company) since joining the Predecessor Company in January
1992.
Mark A. Lantz - Vice President and General Manager - Grain Systems Business of
CTB since June 2000. Mr. Lantz served as Vice President and General Manager -
Egg Production Systems of CTB from February 1996 until June 2000. Mr. Lantz
served as Vice President-Operations of CTB from February 1996 until May 1997.
Mr. Lantz served as Operations Manager of CTB (prior to January 1996, the
Predecessor Company) from November 1993 until February 1996, as Vice
President-Manufacturing of the Predecessor Company from July 1993 until November
1993 and as Plant Manager of CTB (prior to January 1996, the Predecessor
Company) from October 1991 until July 1993. Mr. Lantz joined the Predecessor
Company in 1989.
Donald C. Mueller - Vice President and General Manager - Poultry Production
Systems of CTB since August 2001. From 2000 until joining the Company, Mr.
Mueller was an independent management consultant. From 1998 to 2000, Mr. Mueller
was Vice President & General Manager for APV Americas in Goldsboro, North
Carolina. From 1994 to 1998, Mr. Mueller was Director of Operations for Raypak,
Inc., a Division of Rheem Manufacturing Company, in Westlake Village,
California.
George W. Murdoch - Executive Vice President and General Manager - International
Business of CTB since January 1998. Mr. Murdoch served as Vice President of
International Marketing of CTB from September 1996 to January 1998, as European
Sales Manager of CTB from August 1994 to September 1996, as Sales Manager-Latin
America of CTB from January 1994 to August 1994, and Regional Sales Manager from
January 1991 to January 1994.
Douglas J. Niemeyer - Vice President and General Manager - Egg Production
Systems of CTB since September 2000. Prior to joining the Company, Mr. Niemeyer
was President and General Manager of ABB's North American Fan Group from 1991.
Don J. Steinhilber - Vice President, Chief Financial Officer and Treasurer of
the Company from April 1997 to September 2000 and since December 2000. Mr.
Steinhilber served as Vice President of Business Planning and Development from
September 2000 to December 2000. Mr. Steinhilber served as Vice President and
Assistant Treasurer of the Company from December 1995 until April 1997. Since
December 1996, Mr. Steinhilber has served as Vice President, Chief Financial
Officer and Treasurer of CTB. From July 1993 to December 1996, Mr. Steinhilber
served as Vice President and Treasurer of CTB (prior to January 1996, the
Predecessor Company). From July 1991 to July 1993, Mr. Steinhilber served as
International Controller of the Predecessor Company. Mr. Steinhilber joined the
Predecessor Company in July 1991.
(Pursuant to General Instruction G(3) of Form 10-K, the foregoing information
regarding executive officers is included as an unnumbered Item in Part I of this
Annual Report in lieu of being included in the Company's Proxy Statement for
its 2002 Annual Meeting of Shareholders.)
================================================================================
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- --------------------------------------------------------------------------------
SHAREHOLDER MATTERS
CTB International Corp. common stock began trading on The Nasdaq Stock Market(R)
under the symbol "CTBC" on August 21, 1997. As of February 28, 2002, there were
approximately 107 shareholders of record.
The following table sets forth the quarterly high and low closing prices for the
Company's common stock as reported by The Nasdaq Stock Market(R).
2001 High Low
----------------------- ----------------- ----------------
First Quarter $9.125 $7.313
----------------------- ----------------- ----------------
Second Quarter $9.380 $8.520
----------------------- ----------------- ----------------
Third Quarter $10.210 $8.850
----------------------- ----------------- ----------------
Fourth Quarter $11.500 $9.790
----------------------- ----------------- ----------------
2000 High Low
----------------------- ----------------- ----------------
First Quarter $9.250 $6.188
----------------------- ----------------- ----------------
Second Quarter $8.125 $6.500
----------------------- ----------------- ----------------
Third Quarter $8.250 $6.688
----------------------- ----------------- ----------------
Fourth Quarter $8.875 $7.000
----------------------- ----------------- ----------------
The Company has not paid any dividends on its common stock over the past two
years. The Company does not anticipate paying any dividends in the foreseeable
future, and intends to retain all earnings, if any, for general corporate
purposes. The declaration and payment of dividends, if any, by the Company will
be dependent upon the Company's results of operations, financial condition, cash
requirements and other relevant factors, subject to the discretion of the Board
of Directors. The Company's credit agreement contains certain restrictions on
CTB's ability to pay dividends or make other distributions. (See Note 7 of CTB's
consolidated financial statements included under Item 8 for a description of the
Company's credit arrangements that restrict its ability to pay dividends or make
other distributions.)
The Company issued 62,560; 36,280 and 11,256 shares in 2001, 2000 and 1999,
respectively, of its common stock to certain employees of the Company who
exercised stock options to purchase such shares. The Company believes that the
issuance of these securities is exempt from registration under the exception
provided in Section 4 (2) of the Securities Act of 1933, as amended. The Company
received proceeds in an aggregate amount of about $54,000; $30,000 and $9,000
from these issuances in 2001, 2000 and 1999, respectively, which it used for
general corporate purposes.
ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------ ---- --------------------------------------------------------------
(in thousands, except per 2001 2000 1999 1998 1997
share amounts)
Income Statement Data:
Net sales $232,869 $259,115 $272,603 $272,180 $202,063
Cost of sales 166,220 189,894 202,534 211,496 148,345
Gross profit 66,649 69,221 70,069 60,684 53,718
Selling, general and
administrative expenses 38,558 40,853 42,374 35,377 26,409
Amortization of goodwill 2,319 2,330 2,470 1,775 1,384
Operating income 25,772 26,038 25,225 23,532 25,925
Interest expense, net (2,299) (4,349) (6,205) (4,153) (5,003)
Foreign exchange loss (188) (22) (1,858) (330) (86)
Gain on sale of Vinyl Division -- -- -- -- 3,562
Joint venture loss (61) (17) (126) (3,673) --
Income before income taxes 23,224 21,650 17,036 15,376 24,398
Income taxes 9,053 8,660 6,820 6,180 10,499
------------------------------ ------------- ------------- ------------ ------------- ------------
Net income $14,171 $12,990 $10,216 $9,196 $13,899
------------------------------ ------------- ------------- ------------ ------------- ------------
Basic earnings per share $1.30 $1.18 $0.85 $0.73 $1.49
Basic weighted average shares 10,886 11,015 12,037 12,655 9,310
Diluted earnings per share $1.28 $1.16 $0.83 $0.71 $1.43
Diluted weighted average 11,082 11,227 12,273 12,999 9,716
shares
Other Financial Data:
EBITDA (1) $35,761 $36,194 $33,192 $30,656 (2) $32,096 (2)
Depreciation 7,919 7,865 7,481 5,739 4,873
Capital expenditures 5,039 4,252 6,759 7,004 4,437
Gross profit margin 28.6% 26.7% 25.7% 22.3% 26.6%
EBITDA margin 15.4% 14.0% 12.2% 11.3% 15.9%
Cash Flow Data:
Net cash flows from:
Operating activities $30,408 $23,020 $37,106 $2,805 $17,498
Investing activities (4,835) (4,874) (40,397) (11,565) (42,104)
Financing activities (24,454) (17,902) 6,731 8,284 25,670
------------------------------ -------------------------------------------------------------------
At December 31,
2001 2000 1999 1998 1997
------------------------------ ------------- ------------- ------------ ------------- ------------
Balance Sheet Data:
Working capital $23,909 $28,861 $29,770 $ 40,910 $ 26,318
Total assets 178,279 195,357 207,562 195,126 167,641
Debt 37,829 63,174 77,855 71,365 49,164
Total shareholders' equity 99,488 87,013 80,754 76,825 73,546
------------------------------ ------------- ------------- ------------ ------------- ------------
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization of goodwill.
(2) EBITDA for the years ending December 31, 1998 and 1997 excludes a
non-recurring charge for write-down and losses on a joint venture investment
of $3,613 and the gain on sale of the Vinyl Division of $3,562;
respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
CTB had another good year in 2001. Despite lower revenues that resulted from
adverse market conditions, the Company was able to continue making ongoing
operational improvements, as evidenced by rising operating margins, and to
increased earnings per share performance. CTB had a strong year in its
International Segment, largely due to strength from its European operations and
U.S. exports to Latin America. These positive factors were offset by sluggish
market conditions in the U.S. for the Company's Protein Group and Grain Segments
throughout much of the year.
Other items of note in 2001 include:
o Consolidation of the Anderson, Missouri, and Springdale, Arkansas,
facilities in Anderson.
o Settlement of various legal proceedings and claims in Alabama, which
reduced earnings by approximately six cents per diluted share in the fourth
quarter.
RESULTS OF OPERATIONS
The following table shows the percentage relationship to net sales of items
derived from the Consolidated Statements of Income and the percentage change
from year to year.
- ------------------------------- ---------------- ----------------- ---------------- ----------------------------------
Percentage
Increase (Decrease)
2001 2000 1999 2001 vs. 2000 2000 vs. 1999
- ------------------------------- ---------------- ----------------- ---------------- ----------------- ----------------
Net sales 100.0% 100.0% 100.0% (10)% (5)%
Cost of sales 71.4 73.3 74.3 (13) (6)
Gross profit 28.6 26.7 25.7 (4) (1)
Selling, general and
administrative expenses 16.6 15.8 15.5 (6) (4)
Amortization of goodwill 0.9 0.9 0.9 -- (5)
Operating income 11.1 10.0 9.3 (1) 3
Interest expense, net (1.0) (1.7) (2.3) (47) (30)
Other expense (0.1) -- (0.8) 539 (98)
Income before income taxes 10.0 8.3 6.2 7 27
Income taxes 3.9 3.3 2.5 5 27
Net income 6.1 5.0 3.7 9 27
- ------------------------------- ---------------- ----------------- ---------------- ----------------- ----------------
2001 Compared to 2000
Net sales decreased 10.1% to $232.9 million in 2001 compared to $259.1
million in 2000. The decline in sales is attributed largely to the Grain Segment
which was down 28.7 percent compared to last year, primarily as a result of a
slowdown in commercial bin orders, lower levels of farm bin sales, and
reductions in feed bin sales. Protein Group Segment sales declined 9.3 percent
largely from poor conditions in the U.S. poultry market. The International
Segment improved 8.8 percent due to strength from the Company's European
operations, U.S. exports to Latin America, offset somewhat by weakness in Brazil
and in U.S. exports to Europe. Sales of the Company's products to markets
outside the U.S. and Canada were $89.9 million in 2001 compared to $82.8 million
in 2000, an increase of $7.1 million or 8.6%.
Gross profit decreased 3.7% to $66.6 million in 2001 or 28.6% of net sales
compared to $69.2 million in 2000 or 26.7% of net sales. The gross profit margin
increase of 1.9 percentage points resulted primarily from operational
improvement and cost containment actions, including reductions in certain raw
material costs, improved sales mix and reduced profit sharing and warranty costs
of $1.1 million in 2000 that did not recur in 2001. Gross profit declined due to
a decline in sales volume, offset somewhat by the improvement in the gross
profit rate.
Selling, general and administrative expenses decreased 5.6% or $2.3 million to
$38.6 million in 2001 from $40.9 million in 2000. As a percent of net sales,
selling, general and administrative expenses were 16.6% in 2001 and 15.8% in
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, offset somewhat by a $0.6 million
charge to increase the allowance for doubtful accounts receivable and legal
settlements of various proceedings and claims in Alabama, which resulted in a
$1.1 million charge to earnings in 2001. Additionally, expense in 2000 was
favorably impacted by a $0.9 million gain on the curtailment of postretirement
medical benefits, offset somewhat by a $0.5 million restructuring charge.
Selling, general and administrative expenses as a percent of sales increased
slightly due to declining sales, largely offset by reduced costs.
Amortization of goodwill remained the same at $2.3 million in 2001 and 2000.
Operating income decreased 1.0% or $0.2 million to $25.8 million in 2001
compared to $26.0 million in 2000. Operating income margins increased to 11.1%
of net sales in 2001 from 10.0% of net sales in 2000. The decrease in operating
income was a result of lower sales volumes, largely offset by a higher gross
profit margin rate and lower selling, general and administrative expenses. The
increase in operating income margins is due primarily to the improvement in
gross profit margins as discussed above.
Interest expense decreased to $2.3 million in 2001 or 47.1% from $4.3 million in
2000. The decrease is primarily due 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 includes foreign exchange and joint venture losses. Other expense
increased by $0.2 million from 2000. The increase is due primarily to the 2001
impact of non-cash foreign exchange losses on U.S. dollar-denominated
intercompany debt. This charge was a result of the continuing devaluation of the
Brazilian and euro currencies versus the U.S. dollar.
Net income increased 9.1% or $1.2 million to $14.2 million ($1.28 per weighted
average diluted share) in 2001 from $13.0 million ($1.16 per weighted average
diluted share) in 2000. The increase was attributable to improved operating
income margins, lower interest expense and a lower effective tax rate, which was
39.0% for 2001 and 40.0% for 2000.
Diluted weighted average common and common equivalent shares outstanding during
2001 were 11.1 million shares compared to 11.2 million shares in 2000, a
decrease of 1.3%. The diluted shares outstanding at December 31, 2001 and
December 31, 2000, were 11.1 million shares.
2000 Compared to 1999
Net sales decreased 4.9% to $259.1 million in 2000 compared to $272.6 million in
1999. The decline in sales is attributed to a combination of continued market
softness and currency weakness in Western Europe in 2000, and to the completion
of the poultry building sales in 1999, which contributed $5.8 million of revenue
that year. Sales of the Company's products to markets outside the U.S. and
Canada were $82.8 million in 2000, a decrease of $3.1 million or 3.6%.
Gross profit decreased 1.2% to $69.2 million in 2000 or 26.7% of net sales
compared to $70.1 million in 1999 or 25.7% of net sales. The gross profit margin
increase of 1.0 percentage point was attributable to operational improvements as
well as to the completion of the poultry building sales in 1999, which
represented $5.8 million in building sales at essentially no margin, a
restructuring charge of $0.6 million in 1999 and a one-time, non-cash purchase
accounting charge of $0.4 million in 1999 related to the Roxell N.V.
acquisition. These improvements were offset somewhat by a restructuring charge
of $0.2 million in 2000, $1.6 million in unusual warranty charges for repairs
expected to be made over the next three to five years related to two specific
warranty programs initiated in 2000 and increased profit-sharing costs resulting
from improved earnings.
Selling, general and administrative expenses decreased 3.6% or $1.5 million to
$40.9 million in 2000 from $42.4 million in 1999. As a percent of net sales,
selling, general and administrative expenses were 15.8% in 2000 and 15.5% in
1999. The dollar decrease is primarily attributable to reductions through
restructuring and cost savings efforts, a gain on the curtailment of
postretirement medical benefits of $0.9 million, and a 1999 restructuring charge
of $0.3 million offset somewhat by a restructuring charge of $0.5 million in
2000 and increased profit-sharing costs resulting from improved earnings. The
slight increase in selling, general and administrative costs as a percent of
sales was caused by lower sales volumes.
Amortization of goodwill decreased to $2.3 million in 2000 or 5.7% from $2.5
million in 1999 primarily from changes in foreign exchange rates.
Operating income increased 3.2% or $0.8 million to $26.0 million in 2000
compared to $25.2 million in 1999. Operating income margins increased to 10.0%
of net sales in 2000 from 9.3% of net sales in 1999. The increase in operating
income was a result of decreased selling, general and administrative expenses
and amortization of goodwill offset somewhat by lower gross profit. The increase
in operating income margins is due to the improved gross profit margins offset
slightly by the increased selling, general and administrative expenses as a
percent of sales as discussed above.
Interest expense decreased to $4.3 million in 2000 or 29.9% from $6.2 million in
1999. The decrease is due primarily to lower average borrowings from repayment
of debt and lower average all-in borrowing costs as financial measurements
improved, resulting in lower borrowing rates on fixed rate debt.
Other expense includes foreign exchange and joint venture losses. Other expense
improved by $1.9 million from 1999. The improvement is due primarily to the 1999
impact of a non-cash foreign exchange loss from U.S. dollar-denominated
intercompany debt. This charge was a result of the devaluation of the Brazilian
currency versus the U.S. dollar.
Net income increased 27.2% or $2.8 million to $13.0 million ($1.16 per weighted
average diluted share) in 2000 from $10.2 million ($0.83 per weighted average
diluted share) in 1999. The increase was attributable to improved operating
income, lower interest expense and reduction of foreign currency losses as
discussed above, net of related income tax effects.
Diluted weighted average common and common equivalent shares outstanding during
2000 were 11.2 million shares compared to 12.3 million shares in 1999, a
decrease of 8.5%. The diluted shares outstanding at December 31, 2000, were 11.1
million shares, a decrease of 0.8 million shares or 6.7% compared to 11.9
million diluted shares outstanding at December 31, 1999. The decrease in shares
outstanding is attributable to the repurchase of 0.8 million shares of common
stock during 2000.
Financial Position
Changes in the financial position of the Company from 2000 to 2001 were due
primarily to operating activities.
Total assets decreased from $195.4 million at December 31, 2000, to $178.3
million at December 31, 2001. Accounts receivable decreased by $5.4 million from
December 31, 2000, to December 31, 2001, due to income tax refunds of $2.3
million, lower sales volumes and improved management of accounts receivable.
Inventories at December 31, 2001, decreased $3.0 million due to lower sales
volumes and improved management of inventory levels. Net property, plant and
equipment decreased $4.0 million from December 31, 2000 to December 31, 2001.
The net decrease was due primarily to depreciation and fluctuations in foreign
exchange rates offset somewhat by capital outlays that were less than
depreciation charges. Intangibles decreased by $4.3 million from December 31,
2000 to December 31, 2001, due primarily to amortization and foreign currency
changes.
Total liabilities decreased $29.5 million from $108.3 million at December 31,
2000, to $78.8 at December 31, 2001. Accounts payable and accrued liabilities
decreased $4.4 million during this period; primarily from lower accounts payable
and profit-sharing accruals. Deferred revenue increased $0.5 million to $2.9
million at December 31, 2001. Total debt decreased $25.3 million primarily due
to cash provided by operating activities used to reduce debt, offset somewhat by
borrowings to purchase property, plant and equipment and to fund the purchase of
treasury stock.
Total shareholders' equity increased $12.5 million due largely to net income for
the period offset by treasury stock purchases and changes in foreign currency
translation adjustment.
Liquidity and Capital Resources
As of December 31, 2001, the Company had $23.9 million of working capital, a
decrease of $5.0 million from working capital of $28.9 million as of December
31, 2000. Net cash provided from operating activities in 2001 was $30.4 million.
Cash flow from operations was provided by net income and working capital
changes. Net cash provided by operating activities in 2000 was $23.0 million,
driven primarily by net income and working capital changes.
In 2001, cash used in investing activities was $4.8 million, which was used
primarily for acquisition of property, plant and equipment. In 2000, cash used
in investing activities was $4.9 million, which was used primarily for
acquisition of property, plant and equipment.
In 2001, net cash used in financing activities was $24.5 million. During 2001,
there was a net $23.7 million repayment on revolver borrowings and $0.8 million
use of cash for treasury stock purchases. Cash used in financing activities in
2000 was $17.9 million resulting from a net $12.5 million repayment on revolver
borrowings and $5.5 million use of cash for treasury stock purchases.
During 2001, the Company's Board of Directors approved an increase in its stock
repurchase program by 500,000 shares, increasing the total authorization to
3,000,000 shares. As of December 31, 2001, the Company had repurchased 2,463,964
shares for approximately $18.7 million. A total of 87,899 shares were purchased
in 2001 at a cost of approximately $0.8 million. During 2001, 2000 and 1999,
stock option holders exercised options to purchase 62,560; 36,280 and 11,256
shares for $54,000; $30,000 and $9,000.
A significant portion of the Company's liquidity is derived from operating cash
flows, with net income adjusted for depreciation and amortization and
improvements in working capital the primary drivers offset by acquisition of
property, plant and equipment. The Company believes that risks to current
liquidity are not significant given the Company's past track record of
profitability, ability to manage operating expenses in periods of declining
sales, improved utilization of working capital, annual investment in capital
expenditures which typically run at or below annual depreciation expense and
significant available borrowings under the Company's revolving credit facility.
The revolving credit facility, as amended, provides the Company $135 million in
borrowing capability. There is no mandatory principal amortization prior to
maturity in January 2004; however, the Company remains subject to certain
financial and business covenants customary for credit facilities of this type.
Of the $135 million line of credit, approximately $116 million was available for
use at December 31, 2001, with approximately $80 million of unused availability
to satisfy capital and/or liquidity needs.
Availability is defined as the lower of debt divided by EBITDA (Earnings
before Interest, Taxes, Depreciation and Amortization) not to exceed a ratio of
3.25:1 or debt divided by total capitalization (debt plus shareholders' equity),
not to exceed 60%. The Company's ability to borrow is related to the amount of
EBITDA on a rolling four-quarter basis and/or total capitalization as calculated
at each quarter end. Significant financial and business covenants of the
revolving credit facility include, but are not limited to timely reporting of
financial results to its syndicate lenders; maintenance of minimum net worth
requirements; maintenance of a minimum interest coverage ratio (a measure of the
Company's ability to make interest payments from cash generated by its
operations); potential limits on acquisitions and/or divestitures; limits on
increased indebtedness outside the revolving credit facility; and maintenance of
appropriate corporate insurances, payments of tax obligations, compliance with
environmental laws and other business covenants established for the prudent
operation of the Company's business. Risks to the Company's ability to borrow
funds can occur from things including, but not limited to, declines in EBITDA or
total capitalization or a failure to meet financial or business covenants. The
Company believes that existing cash, cash flows from operations and available
borrowings will be sufficient to support its working capital, capital
expenditures, debt service requirements and stock repurchases for the
foreseeable future.
The Company participates in the agricultural market where risks such as feed,
grain and animal price fluctuations; crop yields; consumption trends; demand;
market trends; weather; government regulations, policies and programs; social
and political trends and outbreaks of disease can all impact the Company's
financial situation. Additionally, the Company is subject to seasonal
fluctuations in demand for its products. 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, handling and
conditioning equipment 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 Company's liquidity is not dependent on the use of off-balance-sheet
financing arrangements. The Company uses off-balance-sheet financing primarily
as a tool to provide customers with extended financing arrangements without
adversely impacting the Company's working capital levels. Beginning in May 2001,
the Company entered into certain transactions, with respect to a portion of its
accounts receivable from international customers, with financing organizations.
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." At December 31, 2001, the balance of accounts
receivable funded with financing organizations was $2.1 million. Total accounts
receivable sold since inception of the program have been $9.5 million. The
maximum availability under this accounts receivable sales facility is $6.0
million. 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. No other significant off-balance-sheet arrangements were entered into
during 2001 or existed at December 31, 2001.
The Company has not entered into arrangements with unconsolidated entities other
than a 50-50 joint venture, under which the Company purchases products used in
the manufacturing of some finished components. The Company is not obligated to
continue its joint venture arrangement beyond 2002, and has the ability to
purchase similar products from other third-party entities, if pricing and
quality standards are more competitive than those provided by the joint venture.
The Company participates in joint venture earnings and losses. The Company's
portion of joint venture losses has been $61,000; $17,000 and $126,000 in 2001,
2000 and 1999, respectively. The Company made payments in 2001 of $1.4 million
for the purchase of extruded plastic products from the joint venture. Other
material arrangements with related parties are disclosed in Note 17 to the
consolidated financial statements included in Item 8.
The Company does not generally enter into lease agreements with arrangements
that could trigger early payment, additional collateral, changes in terms,
acceleration of maturities or additional financial obligations. No material
guarantees of debt or other commitments to third parties exist, unless noted
below.
Total outstanding commitments at December 31, 2001 were as follows:
(in thousands)
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
Less than 1
Total year 1-3 years 4-5 years After 5 years
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
Long-term debt $ 37,829 $ 670 $ 35,838 $ 121 $ 1,200
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
Capital lease 282 190 92 -- --
obligations
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
Operating leases 1,787 653 847 287 --
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
Unconditional 3,169 2,140 855 174 --
purchase obligations
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
Total $ 43,067 $ 3,653 $ 37,632 $ 582 $ 1,200
- ----------------------- ---------------- ---------------- --------------- ---------------- ----------------
The Company does not have any other significant long-term obligations,
contractual obligations, lines of credit, standby letters of credit, guarantees,
standby repurchase obligations or other commercial commitments. There are no
commitments or guarantees that provide for the potential issuance of Company
stock.
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, handling and conditioning equipment 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.
Impact of Inflation
The Company attempts to minimize the impact of inflation through cost reductions
and by improving productivity. In addition, the Company principally uses the
last-in, first-out (LIFO) method of accounting for inventories (whereby the cost
of products sold approximates current costs), which substantially includes the
impact of inflation in cost of sales. The Company does not believe that
inflation has had a material effect on its results of operations for the periods
presented.
Euro Conversion
The Company has European-based operations that were required to transact
business in the euro currency no later than January 1, 2002. System changes to
accommodate euro transactions were completed before the required date.
Implementation costs were not significant.
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard ("SFAS") No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets." 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 No. 141 is effective
for all business combinations accounted for by the purchase method that are
completed after June 30, 2001. SFAS No. 142 will be effective for the Company's
fiscal year beginning January 1, 2002. At December 31, 2001, the Company had
recorded approximately $76.7 million of goodwill, net of accumulated
amortization, on its consolidated balance sheet and the related goodwill
amortization expense was approximately $2.3 million for the years ended December
31, 2001 and 2000 and $2.5 million for the year ended December 31, 1999.
Although the effects of implementing the new accounting standard have not yet
been finalized, the Company expects to record a one-time, non-cash, goodwill
impairment charge currently estimated to be in the range of $6.0 to $8.0 million
during the first quarter of 2002. This anticipated charge would reflect the
cumulative effect of adopting the accounting change in the income statement, but
does not affect the Company's operations and has no impact on cash flows. Under
the new standard, goodwill will be subject to an annual assessment for
impairment using a prescribed fair-value-based test. Additionally, since the
Company will no longer amortize goodwill, the Company's pre-tax income,
excluding any impairment charges, is expected to increase by approximately $2.3
million on an annual basis.
On August 16, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The pronouncement addresses the recognition and
remeasurement of obligations associated with the retirement of tangible
long-lived assets. On October 3, 2001, the FASB issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144, which
supercedes SFAS No. 121 "Accounting for Long-lived Assets and for Long-Lived
Assets to be Disposed Of" and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions,"
applies to long-lived assets (including discontinued operations) and it develops
one accounting model for long-lived assets that are to be disposed of by sale.
SFAS No. 143 will be effective for the Company's fiscal year beginning January
1, 2003. SFAS No. 144 will be effective for the Company's fiscal year beginning
January 1, 2002. The Company has evaluated SFAS No. 143 and SFAS No. 144 and
determined that there will be no impact on the consolidated financial
statements.
Critical Accounting Policies
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect amounts reported in the
consolidated financial statements and accompanying notes. The Company believes
its estimates and assumptions are reasonable; however, actual results and the
timing of the recognition of such amounts could differ from those estimates.
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and could potentially result in
materially different results under different assumption conditions. The Company
has identified the following critical accounting policies and estimates utilized
by management in the preparation of the Company's financial statements: the
allowance for doubtful accounts; excess, obsolete and slow-moving inventory
reserves; goodwill impairment; income taxes; and warranty accruals.
Allowance for doubtful accounts. Management specifically analyzes the aging
of accounts receivable, historical bad debt experience, customer concentrations,
customer creditworthiness, current economic trends and changes in customer
payment patterns when evaluating the adequacy of the allowance for doubtful
accounts. At December 31, 2001 accounts receivable were $23.9 million, net of
the allowance for doubtful accounts of $2.2 million.
Excess, obsolete and slow-moving inventory reserves. Inventories are stated
at the lower of cost or market using the last-in, first-out (LIFO) method for
domestic subsidiaries and the first-in, first-out (FIFO) and weighted average
method for foreign subsidiaries. Reserves for excess, obsolete and slow-moving
inventories are provided based on historical experience and current product
demand. Management applies a specific methodology in determining inventory
reserves based on historical usage and sales patterns, but also considers the
physical condition of products and other specific circumstances in evaluating
the reserve. These reserves are estimated and could vary, either favorably or
unfavorably, from actual requirements if future results differ from historical
usage and sales patterns. At December 31, 2001 inventories were $23.7 million,
net of reserves of $1.7 million.
Goodwill impairment. The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." 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 No.
141 is effective for all business combinations accounted for by the purchase
method that are completed after June 30, 2001. SFAS No. 142 will be effective
for the Company's fiscal year beginning January 1, 2002. At December 31, 2001,
the Company had recorded approximately $76.7 million of goodwill, net of
accumulated amortization, on its consolidated balance sheet and the related
goodwill amortization expense was approximately $2.3 million for the years ended
December 31, 2001 and 2000 and $2.5 million for the year ended December 31,
1999. Although the effects of implementing the new accounting standard have not
yet been finalized, the Company expects to record a one-time, non-cash, goodwill
impairment charge currently estimated to be in the range of $6.0 to $8.0 million
during the first quarter of 2002. This anticipated charge would reflect the
cumulative effect of adopting the accounting change in the income statement, but
does not affect the Company's operations and has no impact on cash flows. Under
the new standard, goodwill will be subject to an annual assessment for
impairment using a prescribed fair-value-based test. Additionally, since the
Company will no longer amortize goodwill, the Company's pre-tax income,
excluding any impairment charges, is expected to increase by approximately $2.3
million on an annual basis.
Income taxes. As part of the process of preparing consolidated financial
statements, the Company is required to estimate income taxes in each of the
jurisdictions in which it operates. This process involves estimating actual
current tax exposure together with assessing temporary differences resulting
from differing book and tax treatments for certain accrued liabilities;
inventory reserves; property, plant and equipment; goodwill and other assets and
liabilities. These differences result in deferred tax assets and liabilities,
which are included in the consolidated balance sheets. Significant judgment is
required in determining the provision for income taxes, deferred tax assets and
liabilities and in evaluating any valuation allowances to be recorded against
deferred tax assets. The Company has recorded a valuation allowance of $0.9
million as of December 31, 2001, due to uncertainties related to the Company's
ability to utilize foreign tax credits, prior to their expiration.
Warranty accruals. Depending on the product, the Company provides its customers
with a one- to five-year warranty, from the date of purchase, or longer for
certain components. Estimated warranty costs are accrued at the time revenue is
recognized for potential product deficiencies. Management utilizes historical
experience, considers new product introductions and other specific facts and
circumstances when appropriate, in estimating future warranty exposures. The
warranty accrual at December 31, 2001 was $3.0 million.
The above listing is not intended to be a comprehensive list of all of the
Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result. See Note 1 to CTB's
consolidated financial statements included under Item 8, which is incorporated
herein by reference.
ITEM 7A. 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. The Company utilizes interest
rate swap agreements to reduce its exposure to changes in borrowing rates.
Principal exposed to interest rate risk at December 31, 2001, is $2.7 million in
variable rate debt exclusive of $32.6 million of variable rate debt 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 December 31, 2001, the estimated reduction in
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 intercompany 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 $80,000 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of CTB International Corp.:
We have audited the accompanying consolidated balance sheets of CTB
International Corp. and its subsidiaries (the "Company") as of December 31, 2001
and 2000, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2001. Our audits also included the financial statement schedules listed in
the Index at Item 14. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 5, 2002
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------- ------------ ------------- -------------
YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
(in thousands, except per share amounts) 2001 2000 1999
- --------------------------------------------------------- ------------ ------------- -------------
NET SALES $232,869 $259,115 $ 272,603
COST OF SALES 166,220 189,894 202,534
- --------------------------------------------------------- ------------ ------------- -------------
Gross profit 66,649 69,221 70,069
OTHER OPERATING EXPENSE:
Selling, general and administrative expenses 38,558 40,853 42,374
Amortization of goodwill 2,319 2,330 2,470
- --------------------------------------------------------- ------------ ------------- -------------
OPERATING INCOME 25,772 26,038 25,225
OTHER EXPENSE:
Interest expense, net (2,299) (4,349) (6,205)
Foreign exchange loss (188) (22) (1,858)
Joint venture loss (61) (17) (126)
- --------------------------------------------------------- ------------ ------------- -------------
INCOME BEFORE INCOME TAXES 23,224 21,650 17,036
INCOME TAXES 9,053 8,660 6,820
- --------------------------------------------------------- ------------ ------------- -------------
NET INCOME $14,171 $12,990 $10,216
- --------------------------------------------------------- ------------ ------------- -------------
EARNINGS PER SHARE:
Basic: Earnings per share $1.30 $1.18 $0.85
Weighted average shares 10,886 11,015 12,037
- --------------------------------------------------------- ------------ ------------- -------------
Diluted: Earnings per share $1.28 $1.16 $0.83
Weighted average shares 11,082 11,227 12,273
- --------------------------------------------------------- ------------ ------------- -------------
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------- ------------------- ---------------------
YEARS ENDED DECEMBER 31,
(in thousands, except share and per share amounts) 2001 2000
- ---------------------------------------------------------------------------- ------------------- ---------------------
CURRENT ASSETS:
Cash and cash equivalents $ 3,242 $ 2,009
Accounts receivable, less allowance for
doubtful accounts of $2,235 and $1,907 respectively 23,945 29,324
Inventories 23,743 26,706
Deferred income taxes 1,176 1,372
Prepaid expenses and other current assets 1,372 2,957
- ---------------------------------------------------------------------------- ------------------- ---------------------
Total current assets 53,478 62,368
PROPERTY, PLANT AND EQUIPMENT - Net 46,412 50,399
INTANGIBLES - Net 77,527 81,848
OTHER ASSETS 862 742
- ---------------------------------------------------------------------------- ------------------- ---------------------
TOTAL ASSETS $178,279 $195,357
- ---------------------------------------------------------------------------- ------------------- ---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $9,966 $10,596
Current portion of long-term debt 670 669
Accrued liabilities 15,985 19,753
Deferred revenue 2,948 2,489
- ---------------------------------------------------------------------------- ------------------- ---------------------
Total current liabilities 29,569 33,507
LONG-TERM DEBT 37,159 62,505
DEFERRED INCOME TAXES 8,782 8,982
ACCRUED POSTRETIREMENT BENEFIT COSTS AND OTHER 3,281 3,350
COMMITMENTS AND CONTINGENCIES (See Note 8) -- --
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value;
40,000,000 shares authorized; 12,924,990 shares issued 129 129
Preferred stock - 6.0% cumulative, $0.01 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 - 2,056,869 shares;
2000 - 2,031,530 shares; (14,706) (14,420)
Reduction for carryover of predecessor cost basis (26,964) (26,964)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (3,926) (3,097)
Derivative and hedging activities (130) -
Retained earnings 68,974 54,803
- ---------------------------------------------------------------------------- ------------------- ---------------------
Total shareholders' equity 99,488 87,013
- ---------------------------------------------------------------------------- ------------------- ---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $178,279 $195,357
- ---------------------------------------------------------------------------- ------------------- ---------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------- --------- --------- ----------- ---------- --------- ---------
YEARS ENDED DECEMBER 31, 1999, 2000 and 2001
(in thousands)
- ------------------- ----------- -------- --------- ---------- --------- ----------- ---------------------- --------- ---------
Accumulated Other
Comprehensive Income
(Loss)
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
Reduction
For
Carryover Foreign Derivative
Additional of Currency And
Comprehen- Common Preferred Paid-In Treasury Predecessor Translation Hedging Retained
sive Income Stock Stock Capital Stock Cost Basis Adjustment Activities Earnings Total
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
BALANCE, $129 $-- $76,897 ($5,390) ($26,964) $556 $31,597 $76,825
January 1, 1999
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
TREASURY STOCK:
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
Purchased;
579,750 Shares (3,950) (3,950)
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
Stock Options (79) 89 10
Exercised;
11,256 Shares
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
COMPREHENSIVE
INCOME:
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
NET INCOME $10,216 10,216 10,216
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
FOREIGN
CURRENCY
TRANSLATION (2,347) (2,347) (2,347)
ADJUSTMENT
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
COMPREHENSIVE $7,869
INCOME
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
BALANCE, $129 $-- $76,818 ($9,251) ($26,964) ($1,791) $41,813 $80,754
December 31, 1999
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
TREASURY STOCK:
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
Purchased;
810,697 Shares (5,455) (5,455)
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
Stock Options (256) 286 30
Exercised;
36,280 Shares
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
COMPREHENSIVE
INCOME:
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
NET INCOME $12,990 12,990 12,990
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
FOREIGN
CURRENCY
TRANSLATION (1,306) (1,306) (1,306)
ADJUSTMENT
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
COMPREHENSIVE $11,684
INCOME
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
BALANCE, $129 $-- $76,562 ($14,420) ($26,964) ($3,097) $54,803 $87,013
December 31, 2000
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
TREASURY STOCK:
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
Purchased;
87,899 Shares (791) (791)
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
Stock
Options (451) 505 54
Exercised;
62,560 Shares
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
COMPREHENSIVE
INCOME:
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
NET INCOME $14,171 14,171 14,171
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
CUMULATIVE 663 663 663
EFFECT OF
CHANGE IN
ACCOUNTING
PRINCIPLE
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
DERIVATIVE AND (793) (793) (793)
HEDGING
ACTIVITIES
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
FOREIGN (829) (829) (829)
CURRENCY
TRANSLATION
ADJUSTMENT
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
COMPREHENSIVE $13,212
INCOME
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
BALANCE, $129 $-- $76,111 ($14,706) ($26,964) ($3,926) ($130) $68,974 $99,488
DECEMBER 31, 2001
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
- ------------------- ----------- -------- --------- ---------- --------- ----------- ----------- ---------- --------- ---------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------- ---------------- --------------- ---------------
YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
(in thousands) 2001 2000 1999
- ----------------------------------------------------------------- ---------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,171 $ 12,990 $10,216
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 7,919 7,865 7,481
Amortization 2,748 2,846 2,961
Foreign exchange loss 188 22 1,858
Equity in loss from joint venture 61 17 126
(Gain) loss on sale of assets (106) (241) 10
Deferred income taxes 57 (854) 763
Changes in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable 4,796 1,373 11,732
Construction costs in excess of billings -- -- 5,120
Inventories 2,466 2,527 2,635
Prepaid expenses and other assets 1,387 (1,350) 305
Accounts payable, accruals and other liabilities (3,279) (2,175) (6,101)
- ----------------------------------------------------------------- ---------------- --------------- ---------------
Net cash flows from operating activities 30,408 23,020 37,106
- ----------------------------------------------------------------- ---------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (5,039) (4,252) (6,759)
Acquisitions, net of cash acquired -- (1,100) (33,884)
Proceeds from sale of assets 204 478 246
- ----------------------------------------------------------------- ---------------- --------------- ---------------
Net cash flows from investing activities (4,835) (4,874) (40,397)
- ----------------------------------------------------------------- ---------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (791) (5,455) (3,950)
Exercise of stock options 54 30 10
Proceeds from long-term debt 191,288 283,692 388,108
Payments on long-term debt (215,005) (296,169) (377,437)
- ----------------------------------------------------------------- ---------------- --------------- ---------------
Net cash flows from financing activities (24,454) (17,902) 6,731
- ----------------------------------------------------------------- ---------------- --------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,119 244 3,440
NET EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH 114 (674) (1,609)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,009 2,439 608
- ----------------------------------------------------------------- ---------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,242 $ 2,009 $ 2,439
- ----------------------------------------------------------------- ---------------- --------------- ---------------
Supplemental Disclosures of Cash Flow information
Non-cash investing and financing activities:
In 1999 the Company recorded liabilities pursuant to acquisition agreements of
$49,000.
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business - The Company is a designer, manufacturer and marketer of
agricultural equipment for the poultry, hog and egg production markets and for
the grain storage, handling and conditioning market. The Company markets its
products on a worldwide basis primarily under the BROCK(R), CHORE-TIME(R),
ENERGY MISER(R), FANCOM(R), SIBLEY(R), STACO(R), and ROXELL(R) names.
Principles of Consolidation - The consolidated financial statements include the
accounts of CTB International Corp. and its wholly-owned and majority-owned
subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents - The Company considers all highly liquid investments purchased
with an initial maturity of three months or less to be cash equivalents.
Inventories - Inventories are stated at the lower of cost or market using the
last-in, first-out (LIFO) method for domestic subsidiaries and the first-in,
first-out (FIFO) and weighted average method for foreign subsidiaries.
Property, Plant and Equipment - Property, plant and equipment is stated at cost.
Depreciation is provided using accelerated and straight-line methods over the
estimated useful lives of individual assets. The estimated useful lives for
buildings and improvements range from 10 to 40 years, or the life of the lease
if shorter, and from 3 to 10 years for machinery and equipment.
Goodwill - Goodwill represents costs in excess of the fair value of net assets
acquired and is amortized using the straight-line method over 40 years, except
for Fancom Holding B.V. and its consolidated subsidiaries which is amortized
over 25 years. The Company periodically assesses the recoverability of goodwill
based on its expectations of future profitability and undiscounted cash flow of
the related operations. These factors, along with management's plans with
respect to the operations, are considered in assessing the recoverability of
goodwill. If the Company determines, based on such measures, that the carrying
amount is impaired, the goodwill will be written down to its recoverable value
with a corresponding charge to earnings. During the periods presented no such
impairment was incurred. Also see "New Accounting Pronouncements."
Impairment of Long-Lived Assets - Management reviews long-lived assets and
related intangible assets for impairment of value whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. If the Company determines it is unable to recover the carrying
value of the assets, the assets will be written down using an appropriate
method. Management does not believe current events or circumstances provide
evidence that suggests asset values have been impaired during the periods
presented.
Deferred Finance Costs - Costs associated with the issuance of debt are being
amortized over the life of the related debt. Amortization costs are included in
interest expense.
Income Taxes - The Company provides for income taxes under the asset and
liability method of accounting for deferred income taxes. Deferred tax assets
and liabilities are recorded based on the expected tax effects of future taxable
income or deductions resulting from differences in the financial statement and
tax bases of assets and liabilities. An allowance is provided whenever
management believes it is more likely than not that tax benefits will not be
utilized.
Revenue Recognition of Deferred Revenue and Product Warranties - Sales of
products and services are recorded based upon shipment of product and
performance of services. Egg production system projects, which generally do not
exceed one year, require predetermined payment intervals and, in some instances,
customer prepayments. Such revenue is deferred and recognized at the date that
the product is shipped or the service is performed.
The Company recognizes revenue on construction contracts using the
percentage-of-completion accounting method determined in each case by the ratio
of cost incurred to date on the contract to management's estimate of the
contract's total cost. Contract cost includes all direct material, subcontract
and labor costs and those indirect costs related to contract performance.
Provisions for estimated losses on incomplete contracts are recorded in the
period in which such losses are determined. Changes in estimated revenues and
costs are recognized in the periods in which such estimates are revised. The
Company completed all such construction contracts in 1999.
Depending on the product, the Company provides its customers with a one- to
five-year warranty, from the date of purchase, or longer for certain components.
Estimated warranty costs are accrued at the time of sale. Warranty expense for
the years ended December 31, 2001, 2000 and 1999 was approximately $1,894,000;
$3,531,000 and $1,627,000; respectively.
Concentration of Credit Risk - Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of trade
receivables. The Company's customers are not concentrated in any specific
geographic region, but are concentrated in the agriculture industry. No single
customer accounted for a significant amount of the Company's sales in 2001, 2000
or 1999, and there were no significant accounts receivable from a single
customer at December 31, 2001, 2000 or 1999. The Company reviews a customer's
credit history before extending credit. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. To reduce credit risk, the
Company generally receives down payments on large orders. In order to minimize
the risk of loss on export sales, the Company insures certain foreign trade
receivables.
Accounts Receivable Sales - 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 Statement of Financial
Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." At December 31, 2001, the
balance of accounts receivable funded with financing organizations was $2.1
million. Total accounts receivable sold since inception of the program have been
$9.5 million. The maximum availability under this accounts receivable sales
facility is $6.0 million. Costs incurred in connection with these sales totaled
$106,000 and were recorded as losses on the sale of assets that are included as
a component of selling, general, and administrative expenses in the Consolidated
Statement of Income. 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.
Research and Development - Research and development expenditures are charged to
operations as incurred. Total research and development expenses for 2001, 2000
and 1999 were approximately $5,010,000; $4,681,000 and $5,579,000; respectively.
Foreign Currency Translation - The Company has determined the local currency to
be the functional currency of all foreign subsidiaries. Assets and liabilities
of non-U.S. subsidiaries are translated at period end exchange rates, and
related revenues and expenses are translated at average exchange rates in effect
during the period. Resulting translation adjustments are recorded without tax
effects as a component of shareholders' equity. Transaction gains and losses on
intercompany receivables and payables that are due currently are recorded in
earnings.
Derivative and Hedging Activities - The Company adopted SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities" effective January 1, 2001.
This statement established 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. The adoption of SFAS No. 133 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 ($663,000 net of tax) being recognized as income
in other comprehensive income representing the fair value of interest rate
swaps. At December 31, 2001, the pre-tax impact on other comprehensive income
was $217,000; resulting in other comprehensive loss, net of tax, of $130,000.
Forward Exchange Contracts - The Company enters into foreign currency forward
exchange contracts on a limited basis. Contracts entered into are for
significant outstanding interest payment obligations and limited purchases of
foreign inventory components in currencies other than U.S. dollars for which
timing of the payment can be reasonably ascertained. The purpose of the
Company's hedging activities is to both protect the Company from the risk that
the periodic foreign currency flows (primarily dividends and debt service) from
foreign subsidiaries will not match future foreign currency interest payments,
and to limit the effect of foreign currency fluctuations on purchases of foreign
components for eventual sale in the U.S. Forward contracts that are designated
as hedges are marked to market with realized and unrealized gains and losses
deferred and recognized in earnings and as an adjustment to the assets and
liabilities being hedged. The Company's foreign exchange contracts do not
subject the Company's results of operations to risk due to exchange rate
movements because gains and losses on the contracts generally offset gains and
losses on the assets and liabilities being hedged.
No contracts were entered into during 2001. Approximately $0.9 million in
contracts were entered into in 2000 while there were approximately $2.0 million
in contracts entered into in 1999. There were no open contracts outstanding at
December 31, 2001. The notional and fair values of contracts at December 31,
2000 and 1999, were $801,000 and $762,000; respectively.
Interest Rate Swap Agreements - The Company enters into interest rate swaps in
managing its interest rate risk and holds such instruments for purposes other
than trading. In these swaps, the Company agrees with other parties to exchange,
at specific intervals, the difference between fixed and floating interest
amounts calculated on an agreed-upon notional principal amount. Because some of
the Company's interest-bearing liabilities are floating rate obligations,
interest rate swaps in which the Company pays the fixed rate and receives the
floating rate are used to reduce the impact of market interest rate fluctuation
on the Company's net income. The differential to be paid or received on interest
rate swap agreements entered into to reduce the impact of changes in interest
rates is recognized as an adjustment to interest expense related to the hedged
liability over the life of the agreement. In the event of early extinguishment
of a designated debt obligation, any realized or unrealized gain or loss from
the swap would be recognized in interest income, coincident with the
extinguishment.
Earnings Per Common Share - Earnings per common share ("EPS") are computed by
dividing net income by the weighted average number of shares of common stock
(basic) plus common stock equivalents (diluted) outstanding during the year.
Common stock equivalents consist of stock options and have been included in the
calculation of weighted average shares outstanding using the treasury stock
method.
The basic weighted average common shares outstanding reconciles to diluted
weighted average common shares outstanding as follows:
(in thousands)
- ----------------------------------- --------------- -------------- -------------
2001 2000 1999
- ----------------------------------- --------------- -------------- -------------
Basic weighted average shares 10,886 11,015 12,037
Dilutive effect of stock options 196 212 236
- ----------------------------------- --------------- -------------- -------------
- ----------------------------------- --------------- -------------- -------------
Diluted weighted average shares 11,082 11,227 12,273
- ----------------------------------- --------------- -------------- -------------
New Accounting Pronouncements - The Financial Accounting Standards Board
("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets." 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 No. 141 is effective
for all business combinations accounted for by the purchase method that are
completed after June 30, 2001. SFAS No. 142 will be effective for the Company's
fiscal year beginning January 1, 2002. At December 31, 2001, the Company had
recorded approximately $76.7 million of goodwill, net of accumulated
amortization, on its consolidated balance sheet and the related goodwill
amortization expense was approximately $2.3 million for the years ended December
31, 2001 and 2000 and $2.5 million for the year ended December 31, 1999.
Although the effects of implementing the new accounting standard have not yet
been finalized, the Company expects to record a one-time, non-cash, goodwill
impairment charge currently estimated to be in the range of $6.0 to $8.0 million
during the first quarter of 2002. This anticipated charge would reflect the
cumulative effect of adopting the accounting change in the income statement, but
does not affect the Company's operations and has no impact on cash flows. Under
the new standard, goodwill will be subject to an annual assessment for
impairment using a prescribed fair-value-based test. Additionally, since the
Company will no longer amortize goodwill, the Company's pre-tax income,
excluding any impairment charges, is expected to increase by approximately $2.3
million on an annual basis.
On August 16, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The pronouncement addresses the recognition and
remeasurement of obligations associated with the retirement of tangible
long-lived assets. On October 3, 2001, the FASB issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144, which
supercedes SFAS No. 121 "Accounting for Long-lived Assets and for Long-Lived
Assets to be Disposed Of" and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions,"
applies to long-lived assets (including discontinued operations) and it develops
one accounting model for long-lived assets that are to be disposed of by sale.
SFAS No. 143 will be effective for the Company's fiscal year beginning January
1, 2003. SFAS No. 144 will be effective for the Company's fiscal year beginning
January 1, 2002. The Company has evaluated SFAS No. 143 and SFAS No. 144 and
determined that there will be no impact on the consolidated financial
statements.
Reclassifications - Certain reclassifications have been made to conform prior
years' financial statements with the current year presentation.
2. Business Combinations
On January 12, 1999, the Company acquired substantially all of the assets of
Roxell N.V. (Roxell). Based in Maldegem, Belgium, Roxell is a leading global
manufacturer and marketer of automated feeding and watering systems as well as
feed storage bins for the poultry and hog production markets. The purchase price
of $33.9 million, net of cash acquired and including expenses, was financed
through German mark-denominated borrowings under the Company's credit facility.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the purchase price has been allocated to the acquired assets and
liabilities based on their fair market values as of the date of acquisition with
the remainder charged to goodwill which is being amortized on a straight-line
basis over 40 years. The purchase price has been allocated as follows:
(in thousands)
- ------------------------------------------- -----------------
Current assets $ 10,508
Property, plant and equipment 7,175
Intangibles and other assets 27,849
Long-term debt assumed (740)
Liabilities assumed (10,908)
- ------------------------------------------- -----------------
Total purchase price $ 33,884
- ------------------------------------------- -----------------
The acquisition was accounted for as if Roxell was purchased as of January 1,
1999. The 1999 Consolidated Statement of Income would not have been materially
different if the acquisition had been accounted for as of the January 12, 1999,
date of purchase.
On November 16, 2000, the Company purchased certain assets of ABC Industries.
The assets purchased included inventory, certain manufacturing equipment and
patents, and trademarks and trade names of ABC's product lines. The purchase
price of $1.1 million was financed under the Company's credit facility and was
allocated to inventory ($100,000); property, plant and equipment ($200,000) and
intangibles ($800,000).
3. Inventories
Inventories consist of the following:
(in thousands) 2001 2000
- --------------------------------------------- ---------------- ---------------
Raw material $ 5,836 $ 6,808
Work in process 1,347 1,834
Finished goods 16,592 18,118
- --------------------------------------------- ---------------- ---------------
23,775 26,760
LIFO valuation allowance (32) (54)
- --------------------------------------------- ---------------- ---------------
Total $23,743 $26,706
- --------------------------------------------- ---------------- ---------------
Approximately 79% of the Company's inventories are stated on the LIFO basis at
December 31, 2001, and 80% at December 31, 2000.
4. Property, Plant And Equipment
Property, plant and equipment consist of the following:
(in thousands) 2001 2000
- --------------------------------------------- ---------------- ---------------
Land and improvements $ 3,630 $ 3,556
Buildings and improvements 22,631 22,813
Machinery and equipment 55,833 51,510
Construction in progress 490 709
- --------------------------------------------- ---------------- ---------------
82,584 78,588
Less accumulated depreciation (36,172) (28,189)
- --------------------------------------------- ---------------- ---------------
Total $ 46,412 $ 50,399
- --------------------------------------------- ---------------- ---------------
5. Intangibles
Intangibles consist of the following:
(in thousands) 2001 2000
- --------------------------------------------- ---------------- ---------------
Goodwill $ 87,572 $ 89,274
Accumulated amortization (10,918) (8,749)
- --------------------------------------------- ---------------- ---------------
Goodwill - net 76,654 80,525
- --------------------------------------------- ---------------- ---------------
Deferred finance costs and other 3,621 3,621
Accumulated amortization (2,748) (2,298)
- --------------------------------------------- ---------------- ---------------
Deferred finance costs and other - net 873 1,323
- --------------------------------------------- ---------------- ---------------
Total $ 77,527 $ 81,848
- --------------------------------------------- ---------------- ---------------
6. Accrued Liabilities
Accrued liabilities consist of the following:
(in thousands) 2001 2000
- --------------------------------------------- ---------------- ---------------
Salaries, wages and benefits $ 6,849 $ 10,308
Warranty 2,980 3,434
Income taxes 760 303
Other 5,396 5,708
- --------------------------------------------- ---------------- ---------------
Total $ 15,985 $ 19,753
- --------------------------------------------- ---------------- ---------------
7. Long-Term Debt
Long-term debt consists of the following:
(in thousands) 2001 2000
- --------------------------------------------- ---------------- ---------------
Revolving line of credit
U.S. dollar $12,695 $31,750
Foreign currency (euro) 22,643 27,241
Term loans payable to bank 2,491 4,183
and other
- --------------------------------------------- ---------------- ---------------
Total debt 37,829 63,174
Less current portion 670 669
- --------------------------------------------- ---------------- ---------------
Total $37,159 $62,505
- --------------------------------------------- ---------------- ---------------
In conjunction with the 1999 closing of the Roxell acquisition, the Company
entered into an amendment to its existing credit agreement. The revolving credit
facility, as amended, provides the Company $135,000,000 in borrowing capability.
There is no mandatory principal amortization prior to maturity in 2004; however,
the Company remains subject to certain financial and business covenants
customary for credit facilities of this type. The revolving credit facility
allows for borrowings in certain foreign currencies up to the U.S. dollar
equivalent of $50,000,000. Borrowings in U.S. dollars or other currencies under
the amended agreement bear interest at rates ranging from 0.55% to 1.225% over
the applicable currency rate (LIBOR, EURIBOR, etc.) depending upon certain
financial ratios. At December 31, 2001, the rates on the revolving credit
facility ranged from 2.375% to 5.09%. At December 31, 2001, the Company had
approximately $80,446,000 of availability under the revolving credit facility.
Under the credit agreement, CTB, Inc., a wholly-owned subsidiary of the Company,
is required to maintain a minimum net worth, which increases quarterly by an
amount equal to 50.0% of the quarterly earnings of CTB, Inc. This covenant
limits the dividends CTB, Inc. can pay to the Company and, therefore, the
dividends the Company can pay to its shareholders. The Company was in compliance
with all debt covenants at December 31, 2001.
Term loans bear interest at rates ranging from 4.40% to 6.70% and certain
amounts are collateralized by named assets of Fancom B.V. and Agile
Manufacturing.
Interest paid was approximately $2,629,000; $4,407,000 and $5,735,000 in 2001,
2000 and 1999, respectively.
In conjunction with the debt agreements, the Company maintains various interest
rate swap agreements which effectively converted the equivalent of $32,643,000
and $42,241,000 of the revolver debt at December 31, 2001, and 2000 into
approximately 4.56% and 4.79% fixed rate debt on a weighted average basis. The
swaps have variable maturity dates, the latest expiring January 12, 2004.
The weighted average interest on credit facility debt outstanding at December
31, 2001, and 2000, after considering the effect of interest rate swaps, was
4.39% and 5.51%, respectively.
The carrying value of debt approximates fair value because the floating interest
rates reflect market rates. The fair value of interest rate swaps was
($217,000); $1,106,000 and $1,192,000 at December 31, 2001, 2000 and 1999,
respectively.
Foreign currency debt has been incurred to finance a foreign acquisition and
provides a natural hedge of debt service with the commensurate cash flows of the
acquired entity. The use of foreign currency debt to finance a foreign
acquisition may result in certain foreign exchange fluctuations that are
accounted for as foreign currency translation adjustments in shareholders'
equity.
The aggregate maturities of long-term debt at December 31, 2001, are as follows:
(in thousands)
- ----------------- ---------------- --------------- ----------------
Term Loans Revolver Total
2002 $ 670 $ -- $ 670
2003 256 -- 256
2004 127 35,339 35,466
2005 116 -- 116
2006 121 -- 121
Thereafter 1,200 -- 1,200
- ----------------- ---------------- --------------- ----------------
Total $ 2,490 $35,339 $37,829
- ----------------- ---------------- --------------- ----------------
8. Commitments And Contingencies
There are various claims and pending legal proceedings against the Company
involving matters arising out of the ordinary conduct of business. 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.
In the fourth quarter of 2001, the Company settled various legal proceedings and
claims in Alabama, which resulted in an approximately $1.1 million charge to
earnings, or six cents per diluted share. There were approximately 54 separate
actions and claims, in various venues in Alabama that were settled. While the
Company believes that it had meritorious defenses to these actions and claims,
and did not admit liability or wrongdoing in any of the settlements, the Company
decided to settle these matters in order to limit the ongoing litigation
expenses and investment of time and effort, as well as any potential liability
in each such matter.
The Company has a Management Incentive Compensation Plan whereby certain
employees are eligible for annual bonuses based upon achievement of certain
financial goals, including diluted earnings per share and business unit
operating targets.
The Company has contracts that commit it to purchase fixed quantities of certain
raw materials and semi-finished products. The contracts, which are generally of
one year or less in duration, require the Company to purchase approximately $3.2
million at December 31, 2001.
The Company leases certain property and equipment including some plant
facilities, property, warehouses, vehicles and manufacturing equipment, under
operating leases which generally expire over the next five years. Some of these
operating leases provide the Company with the option to purchase the property or
renew the lease, generally at current market rates. Management expects that
leases will be renewed or replaced by other leases in the normal course of
business.
Minimum payments for operating leases having non-cancelable terms in excess of
one year are as follows:
(in thousands)
--------------------------------------- ----------------
2002 $ 653
2003 487
2004 360
2005 217
2006 70
Thereafter --
--------------------------------------- ----------------
Total minimum lease payments $1,787
--------------------------------------- ----------------
Rent expense under operating leases amounted to $745,000; $1,005,000 and
$643,000 in 2001, 2000 and 1999, respectively.
9. Profit Sharing
The Company has a qualified defined contribution profit sharing retirement plan
that covers substantially all employees who are not participants in certain
defined benefit plans. The plan provides that Company contributions be made in
amounts as determined by the Company's Board of Directors. Contributions are
allocated to participants on the basis of proportionate compensation at the
close of each fiscal year. Benefits to participants are limited to funds in
their individual accounts, which may also be held in Company stock. The Company
recorded expenses related to the plan and predecessor plans of approximately
$1,178,000; $1,992,000 and $988,000 in 2001, 2000 and 1999, respectively.
The profit sharing plan and predecessor plans, plus an additional plan at one
U.S. subsidiary, have 401(k) provisions which allow participants to contribute a
percentage of their pre-tax compensation to the plans within Internal Revenue
Code limits. Upon authorization of the Board of Directors, the Company may make
matching contributions to these plans. Matching contributions made by the
Company to these plans approximated $593,000; $434,000 and $472,000 in 2001,
2000 and 1999, respectively.
10. Pension Plans
The Company has a defined benefit pension plan covering certain employees at a
specified domestic business unit. The benefits for this plan are based on years
of service and stated amounts for each year of service. Additionally, the
Company has foreign pension obligations related to mandatory pension plans,
which are multi-employer plans as defined in SFAS No. 87, "Employers' Accounting
for Pensions." The benefits for foreign pension plans are based on years of
service and compensation levels for the covered employees. Net pension expense
for these domestic and foreign plans includes the following components:
(in thousands) 2001 2000
- ------------------------------------------- ------------------- ----------------
Service cost $ 183 $ 211
Interest cost 169 167
Expected return on assets (41) (51)
Net amortization and deferral 48 76
- ------------------------------------------- ------------------- ----------------
Net periodic pension cost $ 359 $ 403
- ------------------------------------------- ------------------- ----------------
Summary information of the Company's plans is as follows:
(in thousands) 2001 2000
- -------------------------------------------- ----------------- -----------------
Change in benefit obligation:
Benefit obligation at beginning of year $2,753 $ 2,986
Service cost 183 211
Interest cost 169 167
Benefits paid (82) (398)
Actuarial loss (gain) 257 (84)
Exchange rate changes (93) (129)
- -------------------------------------------- ----------------- -----------------
Benefit obligation at end of year 3,187 2,753
- -------------------------------------------- ----------------- -----------------
Change in plan assets:
Fair value of plan assets at beginning of year 903 1,046
Contributions 308 276
Benefits paid (82) (398)
Actual return on plan assets 99 42
Exchange rate changes (38) (63)
- -------------------------------------------- ----------------- -----------------
Fair value of plan assets at end of year 1,190 903
- -------------------------------------------- ----------------- -----------------
Funded status (1,997) (1,850)
Unrecognized net actuarial loss 278 8
Unrecognized prior service cost 759 817
- -------------------------------------------- ----------------- -----------------
Accrued benefit cost $ (960) $(1,025)
- -------------------------------------------- ----------------- -----------------
The projected benefit obligation for the domestic plan was determined using a
weighted average discount rate of 7.0% in 2001 and 7.5% in 2000 and 1999. The
benefit multiplier was increased $1.00 per year until the participant's normal
retirement date. The expected rate of return on plan assets was 9.0%.
The projected benefit obligation for the foreign plans was determined using
weighted average discount rates of 4.75% and 5.5% and an expected rate of return
on plan assets of 5.5%.
The Company's policy for funded plans is to make contributions equal to or
greater than the requirements prescribed by the Employee Retirement Income
Security Act (ERISA) or the respective foreign government law.
11. Postretirement Health Care Benefit Plans
The Company provides medical and dental benefit programs for retired employees
and certain employees near retirement.
In December 2000, the Company approved amendments to medical and dental benefits
programs for retired employees. The amendments limit eligibility to retirees
currently eligible for the benefits and current employees that meet certain
eligibility requirements. Amendments to the plan limiting eligibility have been
reflected as a curtailment and the Company recorded a curtailment gain of
$909,000 as a reduction of selling, general and administrative expenses in 2000.
Additionally, changes to a union retiree medical plan, including changes in
retiree contribution rates and the provider of plan benefits, resulted in a plan
amendment of $1.1 million in 2001, that will be amortized as a charge to cost of
sales over the expected service of current employees.
The Company's postretirement plans are unfunded and use the minimum amortization
method for recognizing gains and losses for postretirement benefits as
prescribed by SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions."
Summary information of the Company's plan is as follows:
(in thousands) 2001 2000
- ------------------------------------------ ------------------ ------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 1,798 $ 2,679
Service cost 21 241
Interest cost 125 195
Plan participants' contributions 160 140
Actuarial gain (55) (163)
Plan amendment 1,145 --
Curtailment gain -- (909)
Benefits paid (247) (385)
- ------------------------------------------ ------------------ ------------------
Benefit obligation at end of year 2,947 1,798
- ------------------------------------------ ------------------ ------------------
Fair value of plan assets at end of year -- --
- ------------------------------------------ ------------------ ------------------
Funded status (2,947) (1,798)
Unrecognized net actuarial gain (180) (186)
Unrecognized prior service cost 1,283 151
Unrecognized gain (55) --
- ------------------------------------------ ------------------ ------------------
Accrued benefit cost $ (1,899) $ (1,833)
- ------------------------------------------ ------------------ ------------------
The accumulated postretirement benefit obligation was determined using relevant
actuarial assumptions and the timing of the Company's medical and dental plans.
The effect of a 1.0% annual increase in the assumed medical inflation rate on
the accumulated postretirement benefit obligation and the related expense would
be insignificant.
Measurement of the accumulated postretirement obligation was based on a 7.25%
discount rate at December 31, 2001 and 2000, and 7.5% at December 31, 1999. In
In 2001 medical trend rates were assumed at 10.5% declining evenly to 6.0%,
while in 2000, medical trend rates were assumed at 11.0% trending down to 6.0%
and in 1999, medical trend rates were assumed at 12.0% (under age 65) and 8.0%
(over age 65) trending down to 6.0%.
The Company funds medical and dental costs as incurred. The components of net
periodic postretirement benefit expense are as follows:
(in thousands) 2001 2000 1999
- ---------------------------------- -------------- --------------- --------------
Service cost $ 21 $ 241 $ 221
Interest cost 125 195 167
Net amortization and deferral 12 20 7
Curtailment gain -- (909) --
- ---------------------------------- -------------- --------------- --------------
Total $ 158 $ (453) $ 395
- ---------------------------------- -------------- --------------- --------------
12. Shareholders' Equity
The Company was purchased in a leveraged buyout transaction in 1996. The buyout
was accounted for using the purchase method of accounting to the extent of the
67.9% change in ownership with the remaining 32.1% valued at historical book
value. To the extent of the change in ownership, the purchase price was
allocated to assets and liabilities based on their fair values. The Company has
recorded an adjustment ("reduction for carryover of predecessor cost basis") to
reduce the former shareholders' investment in the Company to the historical cost
basis of their investment.
13. Stock Option Plans
Executives and other key employees have been granted options to purchase common
shares of the Company. In each case, the option price equals or exceeds the fair
market value of the common shares on the day of the grant. An option's maximum
term is ten years. Options granted vest (i) in seven years or over an
accelerated period of five to six years should certain annual or cumulative
earnings targets be met, or (ii) over an elapsed time of three to six years from
the grant date.
In accordance with the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to apply the accounting prescribed by
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plan. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS No. 123, net income and earnings per share for the years
ended December 31, 2001, 2000 and 1999 would have been reduced to the pro forma
amounts indicated in the table below:
(in thousands, except
per share amounts) 2001 2000 1999
- ------------------------------- -------------- --------------- -----------------
Net income:
As reported $ 14,171 $ 12,990 $ 10,216
Pro forma 13,742 12,508 9,738
Net income per share - basic:
As reported $ 1.30 $ 1.18 $ 0.85
Pro forma 1.26 1.14 0.81
Net income per share - diluted:
As reported $ 1.28 $ 1.16 $ 0.83
Pro forma 1.24 1.11 0.79
- ------------------------------- -------------- --------------- -----------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
2001 2000 1999
- ----------------------------- ---------------- ----------------- ---------------
Volatility 40% 40% 35%
Expected dividend yield 0% 0% 0%
Risk-free interest rate 4.22-4.74% 4.98-6.22% 4.95-4.98%
Expected life of options 6 years 6 years 5 years
- ----------------------------- ---------------- ----------------- ---------------
The weighted average fair value of options granted during 2001, 2000 and 1999
was $5.16, $3.66 and $2.12, per share, respectively.
Changes in shares under option are summarized below:
2001 2000 1999
- ------------------------------ -------------- ------------- ------------- ------------- -------------- ------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
- ------------------------------ -------------- ------------- ------------- ------------- -------------- ------------
Outstanding beginning 1,081,824 $ 8.19 1,153,640 $ 7.77 928,758 $ 6.90
of year
Granted 40,000 9.66 57,000 7.51 300,000 9.17
Exercised (62,560) 0.83 (36,280) 0.83 (11,256) 0.83
Forfeited (54,093) 13.51 (92,536) 5.33 (63,862) 2.89
- ------------------------------ -------------- ------------- ------------- ------------- -------------- ------------
Outstanding end of 1,005,171 $ 8.42 1,081,824 $ 8.19 1,153,640 $ 7.77
year
- ------------------------------ -------------- ------------- ------------- ------------- -------------- ------------
Exercisable end of Year 407,100 $ 7.02 328,195 $ 2.93 269,356 $ 2.52
- ------------------------------ -------------- ------------- ------------- ------------- -------------- ------------
Options outstanding and exercisable at December 31, 2001, are summarized below:
- --------------------- --------------------------------------------------------- --------------------------------------
Options Outstanding Options Exercisable
Remaining
Number Contractual Life Weighted Avg. Number Exercisable Weighted Avg.
Exercise Prices Outstanding in years Exercise Price Exercise Price
$0.83 264,472 4.0 $0.83 199,168 $0.83
$6.38-$7.97 242,000 7.4 $6.83 5,000 $6.38
$9.05-$10.00 40,000 9.8 $9.66 -- --
$10.92-$14.25 458,699 6.2 $13.54 202,932 $13.21
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Total 1,005,171 407,100
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
14. Income Taxes
The elements of the provision for income taxes are as follows:
(in thousands) 2001 2000 1999
- --------------------------------------------------------- ----------------- ------------------ ------------------
Current:
U.S. federal $ 4,873 $ 7,627 $ 3,078
State 613 1,224 680
Foreign 3,510 663 2,299
- --------------------------------------------------------- ----------------- ------------------ ------------------
Total current 8,996 9,514 6,057
- --------------------------------------------------------- ----------------- ------------------ ------------------
Deferred:
U.S. federal 123 (395) 1,266
State 17 (56) 181
Foreign (83) (403) (684)
- --------------------------------------------------------- ----------------- ------------------ ------------------
Total deferred 57 (854) 763
- --------------------------------------------------------- ----------------- ------------------ ------------------
Provision for income taxes $ 9,053 $ 8,660 $ 6,820
- --------------------------------------------------------- ----------------- ------------------ ------------------
Income taxes paid were approximately $8,422,000; $11,339,000; and $8,829,000 in
2001, 2000 and 1999, respectively. At December 31, 2000, the Company had
recorded in accounts receivable both income tax overpayments and refund claims
of $2,324,000.
A reconciliation of the net effective tax for consolidated operations to the
U.S. statutory federal income tax rate, at 35%, is as follows:
(in thousands) 2001 2000 1999
- --------------------------------------------------------- ----------------- ------------------ ------------------
U.S. tax at federal statutory rate $ 8,128 $ 7,578 $ 5,963
Increase (decrease) in tax resulting from:
State income taxes, net of U.S. tax benefit 410 759 559
FSC benefit (200) (228) (240)
Non-deductible goodwill 384 384 389
Other, net 331 167 149
- --------------------------------------------------------- ----------------- ------------------ ------------------
Provision for income taxes $ 9,053 $ 8,660 $ 6,820
- --------------------------------------------------------- ----------------- ------------------ ------------------
Deferred tax assets and liabilities are as follows:
(in thousands) 2001 2000
- ---------------------------------------------------------------- ---------------------- ----------------------
Deferred tax assets (liabilities) - current:
Accrued liabilities $ 1,642 $ 1,926
Inventories (1,296) (1,225)
Allowance for doubtful accounts receivable 830 671
- ---------------------------------------------------------------- ---------------------- ----------------------
Total current 1,176 1,372
- ---------------------------------------------------------------- ---------------------- ----------------------
Deferred tax assets (liabilities) - non-current:
Property, plant and equipment (9,204) (9,530)
Goodwill (1,267) (985)
Accrued postretirement benefit costs 1,469 1,406
Foreign tax credit carryforward 1,167 1,187
Other (22) (135)
Valuation allowance - foreign tax credit (925) (925)
- ---------------------------------------------------------------- ---------------------- ----------------------
Total non-current (8,782) (8,982)
- ---------------------------------------------------------------- ---------------------- ----------------------
Total deferred income tax $(7,606) $(7,610)
- ---------------------------------------------------------------- ---------------------- ----------------------
The foreign tax credit carryforward expires at December 31, 2004.
15. Segments
Effective January 1, 2000, the Company's organizational structure and internal
financial reporting were reorganized 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." Accordingly, beginning
in 2000 the Company is reporting three operating segments.
Based on the organizational and reporting structure that existed in 1999 and
following the aggregation criteria of SFAS 131, the Company operated in only one
segment in that year. It is impracticable to obtain segment data for 1999 that
is comparable to the 2001 and 2000 data.
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 and conditioning systems for on-farm and commercial grain facilities.
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 for the year ended December 31, 2001.
(in thousands) Protein Group Grain International Other Consolidated
--------------------------- ------------------- --------------- ---------------- ------------ ------------------
Sales to third parties $ 84,038 $ 61,551 $ 87,280 $ -- $ 232,869
Inter-segment sales 15,319 5,382 2,170 (22,871) --
Operating profit 15,520 11,356 13,987 (15,091) 25,772
Capital expenditures 1,239 1,333 1,753 714 5,039
Total assets 23,736 54,551 56,833 43,159 178,279
Depreciation and
amortization of goodwill 2,922 2,755 2,487 2,074 10,238
------------------------------- --------------- --------------- ---------------- ------------ ------------------
Following is segment information for the year ended December 31, 2000.
(in thousands) Protein Group Grain International Other Consolidated
--------------------------- ------------------- --------------- ---------------- ------------ -----------------
Sales to third parties $ 92,610 $ 86,294 $ 80,211 $ -- $ 259,115
Inter-segment sales 12,787 11,859 2,510 (27,156) --
Operating profit 17,820 19,325 7,805 (18,912) 26,038
Capital expenditures 1,604 837 1,110 701 4,252
Total assets 32,329 51,526 60,351 51,151 195,357
Depreciation and
amortization of goodwill 2,799 2,696 2,203 2,497 10,195
------------------------------- --------------- --------------- ---------------- ------------ -----------------
"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 and Administration and
for shared manufacturing cost centers for the Milford, Indiana, operations as
well as profit sharing and bonus plans.
United States and foreign operations, which include subsidiaries in Belgium, the
Netherlands and Brazil, are shown below. Net sales amounts are based on the
location of the selling entity.
(in thousands) 2001 2000 1999
- --------------------------------------- ---------------------- ---------------------- ----------------------
Net sales:
United States $176,730 $211,432 $ 217,504
Belgium 36,341 26,675 30,210
The Netherlands 18,715 17,921 20,724
Brazil 1,083 3,087 4,165
- --------------------------------------- ---------------------- ---------------------- ----------------------
Total $232,869 $259,115 $272,603
- --------------------------------------- ---------------------- ---------------------- ----------------------
Long-lived assets:
United States $ 92,070 $ 97,121 $102,433
Belgium 23,461 25,183 27,895
The Netherlands 8,804 10,074 10,959
Brazil 466 611 643
- --------------------------------------- ---------------------- ---------------------- ----------------------
Total $124,801 $132,989 $141,930
- --------------------------------------- ---------------------- ---------------------- ----------------------
Net sales (based on destination) were as follows:
(in thousands) 2001 2000 1999
- --------------------------------------- ---------------------- ---------------------- ----------------------
United States $131,807 $164,086 $ 176,157
Latin America 22,893 23,275 20,813
Europe/Middle East 55,713 46,974 54,600
Asia 11,322 12,553 10,461
Canada 11,134 12,227 10,572
- --------------------------------------- ---------------------- ---------------------- ----------------------
Total $232,869 $259,115 $ 272,603
- --------------------------------------- ---------------------- ---------------------- ----------------------
16. Quarterly Financial Data (Unaudited)
(in thousands, except per share amounts)
- ----------------------------------------- --------------------------------------------------------------------------
Three months ended
2001 March 31 June 30 September 30 December 31
- ----------------------------------------- ------------------ ------------------ ----------------- ------------------
Sales $ 53,185 $ 67,141 $ 66,576 $ 45,967
Gross profit $ 14,560 $ 20,540 $ 20,209 $ 11,340
Gross margin 27.4% 30.6% 30.4% 24.7%
Operating income $ 4,549 $ 9,812 $ 10,030 $ 1,381
Operating income margin 8.6% 14.6% 15.1% 3.0%
Net income $ 2,279 $ 5,346 $ 5,716 $ 830
Basic earnings per share $ 0.21 $ 0.49 $ 0.52 $ 0.08
Basic weighted average shares 10,887 10,870 10,918 10,868
Diluted earnings per share $ 0.21 $ 0.48 $ 0.52 $ 0.08
Diluted weighted average shares 11,087 11,078 11,098 11,064
- ----------------------------------------- ------------------ ------------------ ----------------- ------------------
(in thousands, except per share amounts)
- ----------------------------------------- --------------------------------------------------------------------------
Three months ended
2000 March 31 June 30 September 30 December 31
- ----------------------------------------- ------------------ ------------------ ----------------- ------------------
Sales $ 57,752 $ 74,294 $ 81,551 $ 45,518
Gross profit $ 16,132 $ 20,113 $ 23,791 $ 9,185
Gross margin 27.9% 27.1% 29.2% 20.2%
Operating income $ 4,835 $ 8,761 $ 11,747 $ 695
Operating income margin 8.4% 11.8% 14.4% 1.5%
Net income $ 2,248 $ 4,407 $ 6,475 $ (139)
Basic earnings per share $ 0.20 $ 0.40 $ 0.59 $ (0.01)
Basic weighted average shares 11,263 10,970 10,930 11,015
Diluted earnings per share $ 0.20 $ 0.39 $ 0.58 $ (0.01)
Diluted weighted average shares 11,479 11,182 11,139 11,112
- ----------------------------------------- ------------------ ------------------ ----------------- ------------------
The total quarterly income per common share may not equal the annual amount
because net income per common share is calculated independently for each
quarter.
17. Related Party Transactions
The Company is required to pay annual management fees of $300,000 plus expenses
to American Securities Capital Partners, L.P. (ASCP), a related party through
stock ownership. These expenses have been charged to operations, as part of
selling, general and administrative expenses.
The Earn-Out payments related to the 1996 acquisition of the Company in a
leveraged buyout transaction totaled $1,760,000 in 2000. These amounts were paid
to predecessor company shareholders, certain of whom are current directors and
officers of the Company.
18. Restructuring
A corporate restructuring program was announced in late September 1999. The
Company eliminated approximately 12% of the positions in its Milford, Indiana,
operations support, sales and administrative functions. The action resulted in a
pre-tax charge of $0.9 million, of which $0.6 million was recorded in cost of
sales and $0.3 million was charged against selling, general and administrative
expenses. During the fourth quarter of 1999, an additional accrual of $0.2
million was recorded in selling, general and administrative expenses upon the
elimination of positions in the Company's Milford, Indiana, and Brazilian sales
and administrative functions.
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 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.
The $0.3 million and $0.7 million balance recorded at December 31, 2001 and
2000, to be paid in future periods, is reported in accrued liabilities. Payments
made related to restructuring expenses, were $0.4 million and $1.1 million in
2001 and 2000, respectively.
19. Subsequent Events
In early 2002, the Company completed two acquisitions. On January 22, 2002, CTB
announced the establishment of Chore-Time Europe B.V., a European logistics
center, in Asten, the Netherlands. The new logistics center was established
through the purchase of a controlling interest in Veldmaster B.V., a master
distributor in the Netherlands for CTB's Milford-based international business
unit. Chore-Time Europe B.V. will sell primarily Chore-Time's products for
raising poultry throughout Europe, the Middle East and in northern Africa. CTB
has closed its Chore-Time Brock B.V. sales and service facility in Deurne, the
Netherlands, and transferred its operations to the new company. Chore-Time
Europe B.V., also has a wholly-owned subsidiary in Poland, which has now been
designated Chore-Time Europe Sp. z.o.o. On February 1, 2002, the Company
acquired substantially all of the operating assets of Beard Industries, Inc., a
leading grain dryer manufacturer producing more than 45 different models of
dryers for both farm and commercial use under the brand name ENERGY MISER(R).
The company, based in Frankfort, Indiana, is also an industry leader in
innovative electronic grain drying controls. The total purchase price for these
acquisitions was $5.3 million, and was financed through borrowings under the
Company's credit facility.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
The Company had no changes in or disagreements with accountants on accounting
and financial disclosure.
================================================================================
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
The information required by this Item concerning the Directors and nominees for
Director of the Company and concerning disclosure of delinquent filers under
Section 16(a) of the Exchange Act is incorporated herein by reference from the
Company's definitive Proxy Statement for its 2002 Annual Meeting of
Shareholders, which will be filed with the Commission pursuant to Regulation 14A
within 120 days after the end of the Company's last fiscal year. Information
concerning the executive officers of the Company is included under the caption
"Executive Officers of the Company" at the end of Part 1 of this Annual Report.
Such information is incorporated herein by reference, in accordance with General
Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation
S-K.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The information required by this Item concerning remuneration of the Company's
officers and Directors and information concerning material transactions
involving such officers and Directors is incorporated herein by reference from
the Company's definitive Proxy Statement for its 2002 Annual Meeting of
Shareholders which will be filed with the Commisssion pursuant to Regulation 14A
within 120 days after the end of the Company's last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The information required by this Item concerning the stock ownership of
management and five percent beneficial owners is incorporated herein by
reference from the Company's definitive Proxy Statement for its 2002 Annual
Meeting of Shareholders which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
The information required by this Item concerning certain relationships and
related transactions is incorporated herein by reference from the Company's
definitive Proxy Statement for its 2002 Annual Meeting of Shareholders which
will be filed with the Commission pursuant to Regulation 14A within 120 days
after the end of the Company's last fiscal year.
================================================================================
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a.)1. Financial Statements and Independent Auditors' Report
The following consolidated financial statements of CTB International Corp. and
its subsidiaries are set forth in Part II, Item 8.
o Independent Auditors' Report.
o Consolidated Statements of Income for the years ended December 31, 2001,
2000 and 1999.
o Consolidated Balance Sheets as of December 31, 2001, and 2000.
o Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2001, 2000, and 1999.
o Consolidated Statements of Cash Flows for the years ended December 31, 2001,
2000, and 1999.
o Notes to Consolidated Financial Statements.
(a.)2. Financial Statement Schedule
The following financial statement schedules are included in this Item 14.
o Schedule I - Parent company Financial Statements.
o Schedule II - Valuation and Qualifying Accounts for years ended December 31,
2001, 2000 and 1999.
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the Consolidated
Financial Statements of CTB International Corp. or the Notes thereto.
(a.)3. Exhibits
A list of exhibits required to be filed as part of this report is set forth in
the Exhibit Index, which immediately precedes such exhibits, and is incorporated
herein by reference.
(b.) Reports on Form 8-K
None.
SCHEDULE I
PARENT COMPANY FINANCIAL STATEMENTS
As discussed in Note 7, under the terms of the Credit Agreement, CTB,
Inc., the Company's wholly-owned subsidiary, is limited in the dividends
it may distribute to the Company, subject to meeting certain financial
goals and requirements. Accordingly, the following parent-company-only
financial statements are presented because the distribution of the net
assets of CTB, Inc. is restricted.
Condensed Balance Sheets
December 31, 2001 and 2000
(in thousands)
2001 2000
Assets
Equity investment in subsidiaries $99,488 $87,013
------------ ------------
Total assets $99,488 $87,013
============ ============
Liabilities and shareholders' equity
Shareholders' equity $99,488 $87,013
------------ ------------
Total liabilities and shareholders' equity $99,488 $87,013
============ ============
Condensed Statements of Income
Years Ended December 31, 2001, 2000 and 1999
(in thousands)
2001 2000 1999
Equity in undistributed net income
of subsidiaries $14,171 $12,990 $10,216
------------ ------------ ------------
Net income $14,171 $12,990 $10,216
============ ============ ============
Condensed Statements of Cash Flows
For the Years Ended December 31, 2001, 2000 and 1999
(in thousands)
2001 2000 1999
Cash flows from operating activities
Net income $14,171 $12,990 $10,216
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net income of (14,171) (12,990) (10,216)
subsidiaries
--------- --------- ---------
Net cash provided by operating activities -- -- --
--------- --------- ---------
Net increase in cash -- -- --
Cash at beginning of the period -- -- --
--------- --------- ---------
Cash at end of the period $ -- $ -- $ --
========= ========= =========
Note 1 - The Company uses the equity method of accounting for its investment in
subsidiaries.
Note 2 - See the Notes to the Company's 2001 Consolidated Financial
Statements for a complete description of the Company's accounting
policies.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000 and 1999
(in thousands)
Column A Column B Column C Column D Column E
---------------------------- ------------- --------------------------- ------------ -------------
Additions
---------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
of period expenses accounts Deductions period
------------- ------------- ------------- ------------- -------------
2001
Allowance for doubtful accounts . . . $1,907 $1,239 $ (14) (2) $ 897 (1) $ 2,235
Inventory obsolescence reserve . . . 1,719 188 (9) (2) 168 1,730
2000
Allowance for doubtful accounts . . . $1,086 $1,158 $ (16) (2) $ 321 (1) $ 1,907
Inventory obsolescence reserve . . . 1,071 718 (14) (2) 56 1,719
1999
Allowance for doubtful accounts . . . $1,122 $499 $ 240 (2) $775 (1) $ 1,086
Inventory obsolescence reserve . . . 634 488 251 (2) 302 1,071
(1) Uncollectible accounts written off
(2) Charges to other accounts include foreign
currency translation and reserves acquired in
business combinations
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Victor A. Mancinelli
--------------------------------
Victor A. Mancinelli
Director, President and Chief
Executive Officer
Dated: March 15, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of CTB International
Corp. and in the capacities and on the dates indicated.
Signature Title Date
/s/ J. Christopher Chocola Director, Chairman of the Board 3/15/02
- ----------------------------
J. Christopher Chocola
/s/ Victor A. Mancinelli Director, President and Chief Executive 3/15/02
- ---------------------------- Officer (Principal Executive Officer)
Victor A. Mancinelli
/s/ Don J. Steinhilber Vice President and Chief Financial Officer 3/15/02
- ---------------------------- (Principal Financial and Accounting Officer)
Don J. Steinhilber
/s/ Caryl M. Chocola Director 3/15/02
- ----------------------------
Caryl M. Chocola
/s/ Michael G. Fisch Director 3/15/02
- ----------------------------
Michael G. Fisch
/s/ Larry D. Greene Director 3/15/02
- ----------------------------
Larry D. Greene
/s/ Frank S. Hermance Director 3/15/02
- ----------------------------
Frank S. Hermance
/s/ David L. Horing Director 3/15/02
- ----------------------------
David L. Horing
/s/ Charles D. Klein Director 3/15/02
- ----------------------------
Charles D. Klein
EXHIBIT INDEX
Exhibit
Number
3.1 Restated Articles of Incorporation of the Company, filed as Annex 1 to the
Company's definitive Information Statement on Schedule 14C filed on
November 19, 1999 and incorporated herein by reference.
3.2 Restated By-Laws of the Company dated as of March 1, 2001.
4.1 Specimen Certificate of Common Stock of the Company, filed as Exhibit 4.1
to Amendment No.3 to the Company's Registration Statement on Form
S-1(Registration No. 333-29873) and incorporated herein by reference.
10.1 Commitment Letter, dated as of March 21, 1997, by and among CTB, Inc., and
Key Bank National Association, filed as Exhibit 10.1 to Amendment No. 3 to
the Company's Registration Statement on Form S-1 (Registration No.
333-29873) 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 10.3 to the
Company's Registration Statement on Form S-1 (Registration No.333-29873)
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., V. Berger, A.Faber, J.
Paquet, J.H.M. Cremers and H.W. Gootzen and Fancom Holding B.V., filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-1
(Registration No. 333-29873) 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 10.5 to the Company's Registration
Statement on From S-1 (Registration No. 333-29873) 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 10.6 to the Company's
Registration Statement on Form S-1 (Registration No. 333-29873) 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
10.7 to the Company's Registration Statement on Form S-1 (Registration No.
333-29873) 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 10.8 to the Company's
Registration Statement on Form S-1 (Registration No. 333-29873) and
incorporated herein by reference.
10.8 Form of Non-Qualified Stock Option Agreement, filed as Exhibit 10.9 to the
Company's Registration Statement on Form S-1 (Registration No. 333-29873)
and incorporated herein by reference.
10.9 Profit Sharing Plan, filed as Exhibit 10.10 Amendment No. 2 to the
Company's Registration Statement on Form S-1 (Registration No. 333-29873)
and incorporated herein by reference.
10.10 Management Incentive Compensation Plan, filed as Exhibit 10.11 Amendment
No.2 to the Company's Registration Statement on Form S-1 (Registration No.
333-29873) 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 10.12 to the Company's Registration Statement on Form S-1
(Registration No. 333-29873) 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
10.13 to the Company's Registration Statement on Form S-1(Registration No.
333-29873) 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 10.14to the Company's Registration Statement on Form S-1
(Registration No. 333-29873) 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 10.15to the Company's Registration Statement on Form S-1
(Registration No. 333-29873) 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
10.16to the Company's Registration Statement on Form S-1 (Registration No.
333-29873) 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 Current Report on Form 8-K
dated March 2, 1999 and incorporated herein by reference.
10.17 Representations and Warranties of Sellers, filed as Exhibit 99.3 to the
Company's Current Report on Form 8-K dated March 2, 1999 and incorporated
herein by reference.
10.18
(i) Credit Agreement, dated as of August 15, 1997, among CTB, Inc.,
Chore-Time Brock Holding B.V. the Lending Institutions named
therein, and KeyBank National Association, filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by
reference.
(ii) Amendment No. 1, dated as of March 1, 1998, to Credit Agreement
dated as of August 15, 1997 among CTB, Inc., Chore-Time Brock
Holding B.V., the Lending Institutions named therein, and Key
Bank National Association, filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference.
(iii) Amendment No. 2, dated as of June 1, 1998, to Credit Agreement
dated as of August 15, 1997 among CTB, Inc., Chore-Time Brock
Holding B.V., the Lending Institutions named therein, and Key
Bank National Association, filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference.
(iv) Amendment No. 3, dated as of November 19, 1998, to Credit
Agreement dated as of August 15, 1997 among CTB, Inc.,
Chore-Time Brock Holding B.V., the Lending Institutions named
therein, and Key Bank National Association, filed as Exhibit
10.18 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and incorporated herein by reference.
(v) Amendment No. 4, dated as of October 5, 2001, to Credit
Agreement dated as of August 15, 1997 among CTB, Inc.,
Chore-Time Brock Holding B.V., the Lending Institutions named
therein, and Key Bank National Association, filed as Exhibit
10.20 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001 and incorporated herein by
reference.
10.19 1999 CTB International Corp. Stock Incentive Plan, filed as Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 2000 and incorporated herein by reference.
21 Subsidiaries of CTB International Corp., filed as Exhibit 21.1 to the
Company's Registration Statement on Form S-1 (Registration 333-29873) and
incorporated herein by reference.
23.1 Consent of Deloitte & Touche LLP.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(File Nos. 333-95843 and 333-66132) of CTB International Corp. on Form S-8 of
our report dated February 5, 2002, appearing in this Annual Report on Form 10-K
of CTB International Corp. for the year ended December 31, 2001.
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 15, 2002
SHAREHOLDER INFORMATION
BOARD OF DIRECTORS
J. Christopher Chocola
Chairman of the Board
Victor A. Mancinelli
President and Chief Executive Officer
Of the Company
Caryl M. Chocola
Private Investor
Michael G. Fisch
President, American Securities Capital
Partners, L.P.
Larry D. Greene
Manufacturing and Financial Consultant
Frank S. Hermance
Chairman and Chief Executive Officer,
AMETEK, Inc.
David L. Horing
Managing Director, American Securities Capital Partners, L.P.
Charles D. Klein
Managing Director, American Securities
Capital Partners, L.P.
SUBSIDIARIES & DIVISIONS
CTB, Inc. operations located at corporate headquarters in Milford, Indiana,
U.S.A.:
Brock Manufacturing
Chore-Time Egg Production Systems
Chore-Time Poultry Production Systems
Chore-Time/Brock International
Operations outside Milford:
Agile Manufacturing
Anderson, Missouri, U.S.A.
Brock Manufacturing
Frankfort, Indiana, U.S.A.
Indianapolis, Indiana, U.S.A.
Kansas City, Missouri, U.S.A.
Chore-Time Egg Production Systems
Decatur, Alabama, U.S.A.
Chore-Time Europe B.V.
Asten, The Netherlands
Strykowo, Poland
Chore-Time Hog Production Systems
Schaefferstown, Pennsylvania, U.S.A.
Chore-Time Ltda.
Londrina, Parana, Brazil
Fancom B.V.
Panningen, The Netherlands
Vitre, France
Roxell N.V.
Maldegem, Belgium