<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
<TABLE>
<S> <C>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997, 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
</TABLE>
CTB INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 35-1970751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
STATE ROAD 15 NORTH, 46542-2000
P.O. BOX 2000, MILFORD, IN (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number including area code 219-658-4191
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
At September 30, 1997, approximately 12,924,989 shares, par value $.01 per
share, of common stock of the Registrant were outstanding.
================================================================================
<PAGE> 2
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets at December
31, 1996 and September 30, 1997.................. 1
Condensed Consolidated Income Statements for the
Three and Nine Months ended September 30, 1996
and 1997......................................... 3
Pro Forma Condensed Consolidated Income
Statements for the Three and Nine Months ended
September 30, 1996 and 1997...................... 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended September 30, 1996 and
1997............................................. 5
Notes to Condensed Consolidated Financial
Statements....................................... 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 10
PART II
Other Information
Item 4.................................................... II-1
Item 6.................................................... II-1
Signature................................................... II-3
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 258 $ 683
Accounts receivable -- net................................ 11,694 26,780
Inventories............................................... 14,153 29,211
Deferred income taxes..................................... 1,863 1,863
Prepaid expenses and other current assets................. 1,206 1,983
-------- --------
Total current assets................................... 29,174 60,520
-------- --------
Property, Plant and Equipment -- at cost
Land and improvements..................................... 1,161 2,673
Buildings and improvements................................ 15,062 18,287
Machinery and equipment................................... 22,783 29,904
Construction in progress.................................. 1,220 3,074
-------- --------
40,226 53,938
Less accumulated depreciation............................. (4,582) (7,886)
-------- --------
Property, plant and equipment -- net...................... 35,644 46,052
Intangibles -- net.......................................... 38,453 60,077
Other Assets................................................ 80 88
-------- --------
Total assets........................................... $103,351 $166,737
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE> 4
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 4,481 $ 12,963
Current portion of long-term debt......................... 5,500 1,164
Accrued liabilities....................................... 6,802 14,480
Deferred revenue.......................................... 1,618 2,685
-------- --------
Total current liabilities.............................. 18,401 31,292
Long-Term Debt.............................................. 59,650 48,917
Deferred Income Taxes....................................... 9,593 9,642
Accrued Postretirement Benefit Cost......................... 1,966 2,455
-------- --------
Total liabilities...................................... 89,610 92,306
-------- --------
Commitments and Contingencies (Note 9)
Stockholders' Equity
Common stock, $.01 par value
1996 -- 950,000 shares authorized; 600,000 shares
issued and outstanding................................ 6
1997 -- 40,000,000 shares authorized; 12,924,989 shares
issued and outstanding................................ 129
Preferred stock -- 6% cumulative, $.01 par value;
liquidation preference $1,000 per share
1996 -- 50,000 shares authorized; 24,000 shares issued
and outstanding....................................... --
Additional paid-in capital................................ 29,994 79,303
Reduction for carryover of predecessor cost basis......... (24,704) (24,704)
Retained earnings......................................... 8,502 19,921
Cumulative translation adjustment......................... (57) (218)
-------- --------
Total stockholders' equity............................. 13,741 74,431
-------- --------
Total liabilities and stockholders' equity............. $103,351 $166,737
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS(1)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales............................................. $44,506 $71,740 $114,114 $153,904
Cost of Sales......................................... 31,706 51,150 84,432 112,009
------- ------- -------- --------
Gross profit........................................ 12,800 20,590 29,682 41,895
Other Operating Expense:
Selling, general, and administrative expenses....... 4,796 7,974 13,525 18,965
Amortization of goodwill............................ 240 430 719 973
------- ------- -------- --------
Operating income.................................... 7,764 12,186 15,438 21,957
Other Income (Expense):
Interest income..................................... 37 67 129 145
Interest expense.................................... (1,401) (1,674) (4,178) (4,529)
Gain on sale of Vinyl Division...................... -- -- -- 3,562
------- ------- -------- --------
Income before taxes................................. 6,400 10,579 11,389 21,135
Income Taxes.......................................... 2,499 4,204 4,449 9,193
------- ------- -------- --------
Net income.......................................... $ 3,901 $ 6,375 $ 6,940 $ 11,942
======= ======= ======== ========
Pro forma net income per common and common equivalent
share(2)............................................ $0.29 $0.48 $0.52 $0.90
======= ======= ======== ========
Pro forma weighted average number of common and common
equivalent shares outstanding(2).................... 13,339 13,339 13,339 13,339
======= ======= ======== ========
Cash dividends........................................ None None None None
======= ======= ======== ========
</TABLE>
- -------------------------
(1) The income statements presented reflect the results of operations for CTB
International Corp. for the full periods and for Fancom and the Grain
Systems Division for the periods of Company ownership. See Note 5. These
results will not be comparable to past or future periods based on partial
periods of ownership.
(2) Pro forma net income per common and common equivalent share is calculated by
dividing net income by the pro forma weighted average common and common
equivalent shares outstanding, after giving effect to the following
transactions as if they had been completed on January 1, 1996: (i) the Stock
Split, (ii) the Preferred Stock Exchange, (iii) the Preferred Stock
Redemption and (iv) the Offering. Due to the changes in the Company's
capital structure resulting from the CTB Acquisition and the Offering,
historical net income per common share is not meaningful and therefore is
not presented.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS(1)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales............................................. $66,123 $71,740 $166,667 $182,627
Cost of Sales......................................... 47,230 51,150 121,936 132,041
------- ------- -------- --------
Gross profit........................................ 18,893 20,590 44,731 50,586
Other Operating Expenses:
Selling, general, and administrative expenses....... 7,298 7,974 21,131 23,604
Amortization of goodwill............................ 430 430 1,291 1,291
------- ------- -------- --------
Operating income.................................... 11,165 12,186 22,309 25,691
Other Income (Expense):
Interest income..................................... 37 67 129 151
Interest expense.................................... (1,118) (934) (3,624) (2,923)
Gain on sale of Vinyl Division...................... -- -- -- 3,562
------- ------- -------- --------
Income before taxes................................. 10,084 11,319 18,814 26,481
Income Taxes.......................................... 3,984 4,468 7,478 11,316
------- ------- -------- --------
Net income.......................................... $ 6,100 $ 6,851 $ 11,336 $ 15,165
======= ======= ======== ========
Pro forma net income per common and common equivalent
share(2)............................................ $ 0.46 $ 0.51 $ 0.85 $ 1.14
======= ======= ======== ========
Pro forma weighted average number of common and common
equivalent shares outstanding(2).................... 13,339 13,339 13,339 13,339
======= ======= ======== ========
Cash dividends........................................ None None None None
======= ======= ======== ========
</TABLE>
- -------------------------
(1) The pro forma income statements give effect to the following transactions as
if they had been completed on January 1, 1996: (i) the Grain Systems
Division Acquisition, (ii) the Fancom Acquisition, (iii) the repayment of
all amounts outstanding under the Existing Credit Agreement with the
proceeds of borrowings under the New Credit Agreement and a portion of the
net proceeds of the Offering, (iv) the Stock Split, (v) the Preferred Stock
Exchange, (vi) the Preferred Stock Redemption and (vii) the Offering. The
pro forma data do not purport to be indicative of the Company's actual
results of operations that would have been reported had such events actually
occurred on the dates specified.
(2) Pro forma net income per common and common equivalent share is calculated by
dividing net income by the pro forma average common and common equivalent
shares outstanding, after giving effect to the following transactions as if
they had been completed on January 1, 1996: (i) the Stock Split, (ii) the
Preferred Stock Exchange, (iii) the Preferred Stock Redemption and (iv) the
Offering.
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 7
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
--------------------
1996 1997
--------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 6,940 $ 11,942
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation........................................... 3,603 3,956
Amortization........................................... 928 1,177
Gain on sale of property, plant and equipment.......... (583) (47)
Gain on sale of Vinyl Division......................... -- (3,562)
Changes in operating assets and liabilities:
Accounts receivable.................................. (2,502) (7,250)
Inventories.......................................... (886) (719)
Deferred income taxes................................ (433) 7
Prepaid expenses and other assets.................... 1,913 (853)
Accounts payable, accruals and other liabilities..... 309 7,424
--------- --------
Net cash flows from operating activities.......... 9,289 12,075
--------- --------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment.............. (1,616) (2,601)
Acquisition of CTB Inc., net of cash acquired............. (104,741) --
Acquisition of Fancom, net of cash acquired............... -- (12,568)
Acquisition of Butler Grain Bin Division, net of cash
acquired............................................... -- (33,136)
Proceeds from sale of Vinyl Division...................... -- 8,158
Proceeds from sale of property, plant and equipment....... 1,534 88
--------- --------
Net cash flows from investing activities.......... (104,823) (40,059)
--------- --------
Cash Flows From Financing Activities:
Proceeds from acquisition debt:
Revolving credit....................................... 24,000 12,600
Term loans............................................. 65,000 33,748
Proceeds from revolving credit loans...................... 14,400 67,400
Payments on revolving credit loans........................ (33,900) (39,887)
Principal payments on long-term debt...................... (3,750) (94,784)
Redemption of preferred stock............................. -- (15,000)
Issuance of common stock.................................. 6,000 64,363
Issuance of preferred stock............................... 24,000 69
--------- --------
Net cash flows from financing activities.......... 95,750 28,509
--------- --------
Net Increase in Cash and Cash Equivalents................... 216 525
Translation Differences..................................... -- (100)
Cash and Cash Equivalents, Beginning of Period.............. -- 258
--------- --------
Cash and Cash Equivalents, End of Period.................... $ 216 $ 683
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 8
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1997, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to the Company's
Prospectus dated August 20, 1997 and to Amendment No. 3 to the Company's
Registration Statement (No. 333-29873) filed August 11, 1997 which include the
Company's annual audited financial statements.
NOTE 2. DESCRIPTION OF KEY TERMS USED IN FINANCIAL STATEMENTS AND FOOTNOTES
The Company -- references CTB International Corp. and its subsidiaries on a
consolidated basis and their respective predecessors.
CTB -- refers to CTB, Inc., a wholly-owned subsidiary of the Company, and
its subsidiaries on a consolidated basis.
CTB Acquisition -- refers to the acquisition of Old CTB by affiliates of
American Securities Capital Partners, L.P. (together with its affiliates,
"American Securities") along with senior management and certain founding family
members on January 4, 1996.
CTB, Inc. -- a wholly-owned subsidiary of the Company, and its subsidiaries
on a consolidated basis.
Existing Credit Agreement -- refers to a senior credit facility totaling
$90.0 million entered into in connection with the CTB Acquisition on January 4,
1996.
Fancom Acquisition -- refers to the acquisition by the Company of all the
capital stock of Fancom Holdings B.V. and the payment of the related fees and
expenses.
Grain Systems Division Acquisition -- refers to the acquisition by the
Company of substantially all the assets of Butler Manufacturing Company's grain
systems division and the payments of the related fees and expenses.
New Credit Agreement -- refers to a $90.0 million revolving credit facility
with a $5.0 million swingline facility and a $10.0 million sublimit for trade
and standby letters of credit with KeyBank National Association dated August 15,
1997.
The Offering -- refers to the sale of 5,000,000 shares of common stock, par
value $.01 per share, of CTB International Corp. on August 20, 1997.
Old CTB -- refers to the predecessor company to CTB, Inc., and references
to the Predecessor Company refer to Old CTB and its subsidiaries on a
consolidated basis.
Preferred Stock Exchange -- refers to the exchange of 9,069 shares of the
Existing Preferred Stock (as defined herein) for 647,786 shares of Common Stock.
Preferred Stock Redemption -- refers to the redemption of 15,000
outstanding shares of the Existing Preferred Stock.
Stock Split -- a 12.0933 for 1 stock split of the common stock of the
Company.
6
<PAGE> 9
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
Vinyl Division Divestiture -- refers to the sale of substantially all
assets of the Company (other than accounts receivable) related to its PVC deck,
dock and fence business to a subsidiary of Royal Group Technologies Limited on
May 29, 1997.
NOTE 3. INVENTORIES
Inventories of the Company and its subsidiaries are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Raw materials........................................ $ 7,753 $ 7,850
Work in process...................................... 2,503 5,517
Finished goods....................................... 3,897 15,844
------- -------
$14,153 $29,211
======= =======
</TABLE>
NOTE 4. INTANGIBLES
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Goodwill............................................. $38,351 $61,268
Accumulated amortization............................. (959) (1,931)
------- -------
Goodwill--net........................................ 37,392 59,337
------- -------
Deferred finance costs............................... 1,353 752
Accumulated amortization............................. (292) (12)
------- -------
Deferred finance costs--net.......................... 1,061 740
------- -------
Total................................................ $38,453 $60,077
======= =======
</TABLE>
NOTE 5. GAIN ON SALE OF VINYL DIVISION
On May 29, 1997, the Company sold the assets of its Vinyl Division, for a
sale price of approximately $8,158,000 net of liabilities assumed. The sale
resulted in an approximate $3,562,000 pre-tax gain with a related tax expense of
approximately $2,491,000.
NOTE 6. NET INCOME PER COMMON SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128").
SFAS No. 128 simplifies the earnings per share ("EPS") computation and replaces
the presentation of primary EPS with a presentation of basic EPS. This statement
also requires dual presentation of basic and diluted EPS on the face of the
income statement for entities with a complex capital structure and requires a
reconciliation of the numerator and denominator used for the basic and diluted
EPS computations. SFAS No. 128 requires restatement of all prior-period EPS data
presented. The Company will implement SFAS No. 128 as of and for the year ending
December 31, 1997, and the adoption will not have an effect on the financial
statements.
7
<PAGE> 10
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
NOTE 7. BUSINESS COMBINATIONS
The Company acquired all the outstanding stock of Fancom Holdings B.V.
("Fancom") on May 1, 1997. The transaction 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. Fancom's financial
statements are consolidated and included in the Company's Consolidated Balance
Sheet as of September 30, 1997 and the Consolidated Income Statements and
Consolidated Statements of Cash Flows for the three and nine month periods ended
September 30, 1997, respectively. The purchase price for the Fancom Acquisition
was $13.1 million, net of cash acquired and including expenses, which has been
allocated as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Current assets.............................................. $11.5
Property, plant and equipment............................... 3.9
Intangibles and other assets................................ 8.4
Long-term debt assumed...................................... (5.9)
Liabilities assumed......................................... (4.8)
-----
Total purchase price................................... $13.1
=====
</TABLE>
The Company acquired substantially all the assets of Butler Manufacturing
Company's grain systems division ("Grain Systems Division") on June 23, 1997.
The transaction was accounted for under the purchase method of accounting,
accordingly, the purchase price has been allocated to the assets and liabilities
of the acquired company based on their fair market values as of the date of
acquisition with the remainder charged to goodwill. The Grain Systems Division's
financial statements have been included in the Company's Consolidated Balance
Sheet as of September 30, 1997, and the Consolidated Income Statements and
Consolidated Statements of Cash Flows for the three and nine month periods ended
September 30, 1997, respectively. The purchase price for the Grain Systems
Division Acquisition was $33.1 million, net of cash acquired, including
expenses, which has been allocated as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Current assets.............................................. $12.8
Property, plant, and equipment.............................. 9.5
Intangibles and other assets................................ 16.7
Liabilities assumed......................................... (5.9)
-----
Total purchase price................................... $33.1
=====
</TABLE>
The unaudited pro forma income statements included in this Form 10-Q assume
that the acquisitions had occurred at the beginning of the periods presented and
the purchase price was the same. The unaudited pro forma results have been
prepared for comparative purposes only and do not purport to represent what the
results of operations would have been if the acquisitions had actually occurred
on January 1, 1996 or to project future results.
NOTE 8. DEBT
In connection with the CTB Acquisition on January 4, 1996, CTB entered into
a senior credit facility totaling $90.0 million (the "Existing Credit
Agreement"). Upon consummation of the Offering, all amounts outstanding under
the Existing Credit Agreement were repaid with the proceeds of borrowings under
the New Credit Agreement with KeyBank National Association ("New Credit
Agreement") and a portion of the net proceeds of the Offering. The following is
a description of all material terms of the New Credit Agreement.
8
<PAGE> 11
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
The New Credit Agreement provides CTB with a $90.0 million revolving credit
facility with a $5.0 million swingline facility and a $10.0 million sublimit for
trade and standby letters of credit. There is no mandatory principal
amortization prior to the maturity date in 2002; however, the Company is subject
to certain financial and business covenants customary for credit facilities of
this type. At September 30, 1997 the Company had approximately $44.0 million of
availability under the New Credit Agreement. Borrowings under the New Credit
Agreement bear interest at rates ranging from 0.25% to 0.625% over LIBOR
depending upon certain financial ratios.
Under the New Credit Agreement, CTB is required to maintain a minimum net
worth of not less than 90% of its net worth immediately following the Offering.
The minimum net worth is to be increased quarterly by an amount equal to 50% of
the quarterly earnings of CTB. This covenant limits the dividends CTB can pay to
the Company and, therefore, the dividends the Company can pay to its
stockholders.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Pursuant to a stockholders agreement entered into as a part of the CTB
Acquisition, the Company and its wholly owned subsidiary, CTB, have jointly and
severally, agreed to make certain contingent payments to the Old CTB
Shareholders (the "Earn-Out Amount") based on a calculation of cumulative EBITDA
for the three year period ended December 31, 1998. The cumulative EBITDA target
is $89.5 million, subject to adjustment in the event of any merger, acquisition,
divestiture or other extraordinary transaction. A revised EBITDA target has not
yet been determined in order to give effect to the Grain Systems Division
Acquisition, the Fancom Acquisition and the Vinyl Division Divestiture. As of
December 31, 1996, EBITDA of $24.9 million had been achieved. CTB and the
Company may be liable to pay the Old CTB Shareholders up to an amount equal to
$13.5 million in respect of the Earn-Out Amount, which would be recorded in the
Company's consolidated financial statements as an adjustment to the original
purchase price for the CTB Acquisition. Fifty percent of the maximum Earn-Out
Amount is to be paid at the attainment of 85% of the cumulative EBITDA target,
and no payment is required unless 85% of the cumulative EBITDA target is
attained.
If an Earn-Out Amount is payable, the Company and CTB are obligated to pay
the Earn-Out Amount in four periodic installments beginning on August 31, 1998.
The first installment is equal to 25% of the estimated Earn-Out Amount, the
second installment is equal to 50% of the actual Earn-Out Amount minus the
amount of the first installment and the third and fourth installments are each
equal to 25% of the actual Earn-Out Amount. Accrued interest from January 1,
1999 at the prime rate on the last business day of 1998 will be payable on the
third and fourth installments, provided that interest at such interest rate on
the first installment payment from August 31, 1998 to December 31, 1998 will be
credited against such amount. The payment of the Earn-Out Amount will be
subordinated to amounts payable under the New Credit Agreement.
NOTE 10. SUBSEQUENT EVENT
On November 5, 1997, CTB International Corp. entered into a memorandum of
understanding with an international poultry integrator to supply the complete
integrated feeding, watering, ventilation, and control systems package on a
turnkey basis for a 360-house broiler project in Alabama. The buildings and
equipment will be supplied four houses at a time over the course of the next
twenty months. The company also was selected by the same Integrator earlier in
1997 as the turnkey provider for a 64-house breeder project also located in
Alabama. The pricing for this project is based on a contract price, therefore,
the company is potentially at risk for any market price fluctuations in building
materials which is the largest portion of the project cost. Considering the
relatively short duration of the project, the company does not believe there
will be any material financial effect due to material costs.
9
<PAGE> 12
ITEM 2
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This commentary should be read in conjunction with the Company's Prospectus
dated August 20, 1997 and Amendment No. 3 to the Company's Registration
Statement (No. 333-29873) filed August 11, 1997 for a full understanding of the
Company's financial condition and results of operations.
RESULTS OF OPERATIONS
The Company manufactures and markets automated feeding, watering and
ventilation systems, feed bins, grain storage bins and integrated commercial egg
laying and handling systems for the poultry, swine, grain and egg production
industries.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net sales increased 61.2% to $71.7 million for the three months ended
September 30, 1997 compared to $44.5 million in the corresponding period of
1996. The Fancom Acquisition and Grain Systems Division Acquisition accounted
for a large portion of the sales growth. In addition, strong growth of the
Company's watering and ventilation products through its market penetration
strategy, as well as, continued higher sales of hog feeding and grain storage
products contributed to the increase. An additional $1.5 million of the increase
was generated from the sale of poultry buildings the Company had built by a
sub-contractor as part of a turnkey breeder project for which the Company is
supplying all feeding, watering, ventilation and controls products, as well.
These various flavorable components helped offset an expected decline in egg
laying and handling systems sales that were especially strong in the three
months ended September 30, 1996 and revenues lost through the Vinyl Division
Divestiture.
Gross profit increased to $20.6 million in the three months ended September
30, 1997 or 28.7% of net sales compared to $12.8 million in the corresponding
period of 1996 or 28.8% of sales. The slight gross profit margin decrease of
0.1% was attributable to net sales increases in lower margin watering and
ventilation products, sales of products into Brazil through the Company's sales
and distribution facility opened in February 1997 and extremely low margins on
the breeder project buildings offset somewhat by sales of higher margin products
acquired in the Fancom Acquisition and improvements in manufacturing and
procurement costs.
Selling, general and administrative expenses increased 66.3% or $3.2
million to $8.0 million in the three months ended September 30, 1997 from $4.8
million in the corresponding period of 1996. As a percent of net sales, selling,
general and administrative expenses were 11.1% in the three months ended
September 30, 1997 and 10.8% in the corresponding period of 1996. The relatively
higher selling, general and administrative costs as a percentage of sales of
Fancom as compared to the rest of the Company were offset by reductions in other
areas and targeted investment in certain key areas of the Company.
Amortization of goodwill increased to $0.4 million in the three months
ended September 30, 1997 or 79.2% from $0.2 million in the corresponding period
for 1996. The increase is attributable to the amortization of goodwill purchased
in the Fancom Acquisition and the Grain Systems Division Acquisition.
Operating income increased 57.0% or $4.4 million to $12.2 million in the
three months ended September 30, 1997 compared to $7.8 million in the
corresponding period of 1996. Operating income margins decreased to 17.0% of net
sales in the three months ended September 30, 1997 from 17.4% of net sales in
the corresponding period in 1996. The increase in operating income is due to the
improvements in gross profit offset by higher selling, general and
administrative expenses. The decrease in operating income margins is due to the
slight decrease in gross profit margin and the increase in selling, general and
administrative expenses and amortization of goodwill related to the acquisitions
as a percentage of sales.
10
<PAGE> 13
Interest expense increased to $1.7 million in the three months ended
September 30, 1997 or 19.5% from $1.4 million in the corresponding period on
1996. The increase is due to debt incurred to finance the Fancom Acquisition and
Grain Systems Division Acquisition offset by reductions in debt through cash
flow provided by operating activities, the Vinyl Division Divestiture and net
proceeds of the Offering.
Net income increased 63.4% or $2.5 million to $6.4 million in the three
months ended September 30, 1997 from $3.9 million for the corresponding period
of 1996. The increase was due to higher operating income offset by higher
interest expense, net of taxes.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
Net sales increased 34.9% to $153.9 million for the nine months ended
September 30, 1997 compared to $114.1 million in the corresponding period of
1996. The Fancom Acquisition and the Grain Systems Acquisition offset by
revenues lost through the Vinyl Division Divestiture were partly responsible for
the increase. In addition, strong growth of the Company's watering and
ventilation products through its market penetration strategy, as well as, higher
sales of grain storage systems contributed to the favorable performance and
offset the effects of the sluggishness in the domestic poultry feeding sales. An
additional $1.5 million of the increase was generated from the sale of poultry
buildings the Company had built by a sub-contractor as part of a turnkey breeder
project for which the Company is supplying all feeding, watering, ventilation
and controls products, as well.
Gross profit increased to $41.9 million in the nine months ended September
30, 1997 or 27.2% of net sales compared to $29.7 million in the corresponding
period of 1996 or 26.0% of net sales. The increase in gross profit margin was
attributable to improvements in manufacturing and procurement costs and the
sales of higher margin products obtained in the Fancom Acquisition offset
somewhat by sales increases in lower margin watering and ventilation products
and in the sales of products into Brazil through the Company's sales and
distribution facility opened in February 1997 as well as extremely low margins
on the sale of breeder project buildings.
Selling, general and administrative expenses increased 40.2% or $5.4
million to $19.0 million in the nine months ended September 30, 1997 from $13.5
million in the corresponding period of 1996. As a percent of net sales, selling,
general and administrative expenses increased to 12.3% in the nine months ended
September 30, 1997 from 11.9% in the corresponding period of 1996. The increase
is attributable to the Fancom Acquisition and Fancom's relatively higher
selling, general and administrative costs as a percent of sales and targeted
investment in certain key areas within the company. In addition, the 1996
corresponding period expenses are net of $0.6 million gain on sale of an asset.
Amortization of goodwill increased 35.3% or $0.3 million to $1.0 million in
the nine months ended September 30, 1997 from the $0.7 million in the
corresponding period for 1996. The increase is attributable to the goodwill
purchased in the Fancom Acquisition and Grain Systems Division Acquisition.
Operating income increased 42.2% or $6.5 million to $22.0 million in the
nine months ended September 30, 1997 compared to $15.4 million in the
corresponding period in 1996. Operating income margins increased to 14.3% of net
sales in the nine months ended September 30, 1997 from 13.5% of net sales in the
corresponding period in 1996. The increase in operating income and operating
income margins is attributable to the changes in gross margins, selling, general
and administrative expenses and amortization of goodwill.
Interest expense increased to $4.5 million in the nine months ended
September 30, 1997 or 8.4% from $4.2 million in the corresponding period on
1996. The increase is due to debt incurred to finance the Fancom Acquisition and
Grain Systems Division Acquisition related debt offset by reductions in debt
through cash flow provided by operations, the Vinyl Division Divestiture and net
proceeds of the Offering.
Net income increased 71.2% or $5.0 million to $11.9 million in the nine
months ended September 30, 1997 from $6.9 million for the corresponding period
in 1996. The increase was due to higher operating income and gain from the Vinyl
Division Divestiture offset by higher interest expense, net of taxes. The Vinyl
Division
11
<PAGE> 14
Divestiture resulted in a gain of $1.1 million net of income taxes in the nine
months ended September 30, 1997.
EFFECTS OF VINYL DIVISION DIVESTITURE
The following summarizes certain operating results of the Company for the
three and six month periods ended September 30, 1996 and 1997 on a pro forma
basis giving effect to the following transactions as if they had occurred on
January 1, 1996: (i) the Grain Systems Division Acquisition, (ii) the Fancom
Acquisition, (iii) the Vinyl Division Divestiture, (iv) the repayment of amounts
outstanding under the Existing Credit Agreement with the proceeds of borrowings
under the New Credit Agreement and a portion of the net proceeds of the
Offering, (v) the Stock Split, (vi) the Preferred Stock Exchange, (vii) the
Preferred Stock Redemption, and (viii) the Offering.
For the three months ended September 30, 1997, net sales increased
approximately 12.8% to approximately $71.7 million compared to approximately
$63.6 million in the corresponding period in 1996. Operating income increased
approximately 13.9% to approximately $12.2 million compared to approximately
$10.7 million in the corresponding period in 1996. Net income increased
approximately 17.2% to approximately $6.9 million compared to approximately $5.8
million in the corresponding period in 1996.
For the nine months ended September 30, 1997, net sales increased
approximately 11.7% to approximately $178.0 million compared to approximately
$159.4 million in the corresponding period in 1996. Operating income increase
approximately 19.2% to approximately $25.3 million compared to approximately
$21.2 million in the corresponding period in 1996. Net income increased
approximately 26.3% to approximately $13.7 million compared to approximately
$10.8 million in the corresponding period in 1996.
FINANCIAL POSITION
Changes in the financial position of the Company from December 31, 1996 to
September 30, 1997 include the effects of both operational changes and the
Fancom Acquisition, Grain Systems Division Acquisition, Vinyl Division
Divestiture and the Offering.
Total assets increased from $103.4 million at December 31, 1996 to $166.7
million at September 30, 1997. Accounts receivable increased by $15.1 million
from December 31, 1996 to September 30, 1997. Approximately $7.1 million was due
to seasonal volumes for CTB, Inc. and $8.0 million was due to the Fancom
Acquisition and the Grain Systems Division Acquisition. Inventories at September
30, 1997 increased by $15.1 million from December 31, 1996. Approximately $14.4
million was due to the Fancom Acquisition and the Grain Systems Division
Acquisition. CTB, Inc. accounted for only $0.7 million of the increase. Net
property, plant and equipment increased $10.4 million from December 31, 1996 to
September 30, 1997. This increase is due to the acquisitions offset by $2.8
million reduction in net assets for CTB, Inc. primarily for the Vinyl Division
Divestiture and net of capital expenditures during the period. Intangibles
increased by $21.6 million at September 30, primarily due to the Fancom
Acquisition and the Grain Systems Division Acquisition offset somewhat by the
Vinyl Division Divestiture.
Total liabilities increased from $89.6 million at December 31, 1996 to
$92.3 at September 30, 1997. Accounts payable and accrued liabilities increased
$16.2 million during this period, of which $9.5 million was due to the
acquisitions. The remaining $6.7 million increase was used to support seasonal
operational needs. Long-term debt decreased from $65.2 million at December 31,
1996 to $50.1 million at September 30, 1997. This $15.1 million decrease was a
net result of additional borrowings to fund the acquisitions offset by the
proceeds of the stock offering.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had $29.2 million of working capital,
an increase of $18.5 million from working capital as of December 31, 1996. The
acquisitions contributed $12.3 million to the increase while seasonal changes in
operational needs accounted for the remainder. Net cash provided from operating
activities for the nine months ended September 30, 1997 was $12.1 million. Cash
flows from
12
<PAGE> 15
operations was primarily provided by net income due to the 34.9% increase in
1997 sales volume over the corresponding period in 1996, partially offset by
increases in working capital uses to support seasonal operating needs.
For the nine months ended September 30, 1997, cash used in investing
activities was $40.1 million, which was primarily used for the Grain Systems
Division Acquisition and the Fancom Acquisition, partially offset by the Vinyl
Division Divestiture. For the nine months ended September 30, 1996, cash used in
investing activities was $104.8 million, which was primarily used for the CTB
Acquisition. The CTB acquisition was financed through debt and the issuance of
common stock and preferred stock.
For the nine months ended September 30, 1997, net cash provided by
financing activities was $28.5 million. During this period approximately $100.6
million of existing debt was retired using proceeds of $49.5 million from the
New Credit Agreement and $49.4 million, net of the preferred redemption, from
the offering.
The Company believes that existing cash, cash flows from operations and
available borrowings under the New Credit Agreement will be sufficient to
support its working capital, capital expenditures and debt service requirements
for the foreseeable future.
SEASONALITY
Sales of agricultural equipment are seasonal, with poultry, swine and egg
producers purchasing equipment during prime construction periods in the spring,
summer and fall and farmers traditionally purchasing grain storage bins in the
summer and fall in conjunction with the 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 as distributors and
dealers increase inventory in anticipation of seasonal demand.
The following table presents unaudited interim operating results of the
Company. The Company believes that the following information includes all
adjustments (consisting only of normal, recurring adjustments) that the Company
considers necessary for a fair presentation for the respective periods. The
operating results for any interim period are not necessarily indicative of
results for any interim period or the entire fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1997:
Net sales.......................................... $31,520 $50,644 $71,740 N/A
Operating income................................... 2,815 6,956 12,186 N/A
Operating income margin............................ 8.9% 13.7% 17.0% N/A
Net income......................................... 918 4,649 6,375 N/A
Net income margin................................ 2.9% 9.2% 8.9% N/A
1996:
Net sales.......................................... $31,552 $38,056 $44,506 $34,739
Operating income................................... 1,964 5,710 7,764 3,896
Operating income margin.......................... 6.2% 15.0% 17.4% 11.2%
Net income......................................... 356 2,683 3,901 1,562
Net income margin................................ 1.1% 7.0% 8.8% 4.5%
</TABLE>
FORWARD LOOKING STATEMENTS
Certain statements contained herein under (i) ability to support future
working capital needs and (ii) seasonality of the Company's business, contain
certain forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements.
13
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 18, 1997, by Written Consent to Action Taken in Lieu of Special
Meeting, the stockholders unanimously approved the filing of the Company's
Amended and Restated Certificate of Incorporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<C> <S>
3.1 Form of Restated Certificate of Incorporation of the Company
filed as Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (Registration No. 333-29873) (the "Company's
Registration Statement") and incorporated herein by
reference.
3.2 Form of By-laws of the Company filed as Exhibit 3.2 to the
Company Registration Statement and incorporated herein by
reference.
4.1 Specimen Certificate of Common Stock of the Company filed as
Exhibit 4.1 to the Company Registration Statement and
incorporated herein by reference.
10.1 Commitment Letter, dated as of March 21, 1997, by and among
CTB, Inc., and KeyBank National Association filed as Exhibit
10.1 to the Company Registration Statement and incorporated
herein by reference.
10.2 Asset Purchase Agreement, dated as of March 31, 1997, by and
among Butler Manufacturing Company and CTB, Inc., filed as
Exhibit 10.2 to the Company Registration Statement and
incorporated herein by reference.
10.3 Share Purchase Agreement, dated as of May 1, 1997, by and
among Chore-Time Brock Holding B.V. and Halder Investments
III B.V., Halder Investments III C.V., Stichting Fondshebeer
Fincon, Beldor B.V., V. Berger, A. Faber, J. Paquet, J.H.M.
Cremers and H.W. Gootzen and Fancom Holding B.V. filed as
Exhibit 10.3 to the Company Registration Statement and
incorporated herein by reference.
10.4 Asset Purchase Agreement, dated as of May 29, 1997, between
CTB, Inc., and Royal Crown Limited filed as Exhibit 10.4 to
the Company Registration Statement and incorporated herein
by reference.
10.5 Stock Purchase Agreement, dated as of November 29, 1995, by
and among the Company, CTB Ventures, Inc., CTB, Inc., and
the selling shareholders party thereto filed as Exhibit 10.5
to the Company Registration Statement and incorporated
herein by reference.
10.6 Stockholders Agreement, dated as of January 4, 1996, by and
among the Company and the Individual Shareholders party
thereto filed as Exhibit 10.6 to the Company Registration
Statement and incorporated herein by reference.
10.7 Board Representation Agreement, dated as of January 4, 1996,
by and among American Securities Capital Partners, L.P., J.
Christopher Chocola, Caryl Chocola and the Company filed as
Exhibit 10.7 to the Company Registration Statement and
incorporated herein by reference.
10.8 Form of Non-Qualified Stock Option Agreement filed as
Exhibit 10.8 to the Company Registration Statement and
incorporated herein by reference.
10.9 Profit Sharing Plan filed as Exhibit 10.9 to the Company
Registration Statement and incorporated herein by reference.
10.10 Management Incentive Compensation Plan filed as Exhibit
10.10 to the Company Registration Statement and incorporated
herein by reference.
10.11 Escrow Agreement, dated as of November 29, 1995, by and
among CTB Ventures, Inc., the shareholders party thereto and
NBD Bank, N.A., filed as Exhibit 10.11 to the Company
Registration Statement and incorporated herein by reference.
</TABLE>
II-1
<PAGE> 17
10.12 Management Consulting Agreement, dated as of January 4,
1996, by and among CTB, Inc. and American Securities Capital
Partners, L.P., filed as Exhibit 10.12 to the Company
Registration Statement and incorporated herein by reference.
10.13 Agreement for Partial Release of Escrowed Funds, dated as of
March 1, 1997, by and among CTB, Inc. and each of the
shareholders party thereto filed as Exhibit 10.13 to the
Company Registration Statement and incorporated herein by
reference.
10.14 Transaction Consulting Agreement, dated as of April 30,
1997, by and among the Company and American Securities
Capital Partners, L.P., filed as Exhibit 10.14 to the
Company Registration Statement and incorporated herein by
reference.
10.15 Transaction Consulting Agreement, dated as of April 30,
1997, by and among CTB, Inc., and American Securities
Capital Partners, L.P., filed as Exhibit 10.15 to the
Company Registration Statement and incorporated herein by
reference.
11 Computation of Earnings Per Share incorporated by reference.
27 Financial Data Schedule incorporated by reference.
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1997.
II-2
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CTB International Corp.
Dated: November 13, 1997 By
------------------------------------
Don J. Steinhilber
Vice President, Chief Financial
Officer, Treasurer
II-3
<PAGE> 1
EXHIBIT 11
CTB International Corp. and Subsidiaries
Pro Forma Net Income Per Common Share
Three Months Ended September 30, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 3,901 $ 6,375 $ 6,940 $11,942
======= ======= ======= =======
Pro forma common equivalent shares (1) 12,925 12,925 12,925 12,925
Convertible preferred shares -- -- -- --
Stock options 414 414 414 414
------- ------- ------- -------
Total pro forma average common and common
equivalent shares outstanding 13,339 13,339 13,339 13,339
======= ======= ======= =======
Pro forma net income per common and common equivalent share (1) $ 0.29 $ 0.48 $ 0.52 $ 0.90
======= ======= ======= =======
</TABLE>
(1) Pro forma net income per common and common equivalent share is
calculated by dividing net income by the pro forma weighted average common
and common equivalent shares outstanding, after giving effect to the
following transactions as if they had been completed on January 1, 1996:
(i) the Stock Split, (ii) the Preferred Stock Exchange, (iii) the Preferred
Stock Redemption and (iv) the Offering.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 683
<SECURITIES> 0
<RECEIVABLES> 27,667
<ALLOWANCES> 887
<INVENTORY> 29,211
<CURRENT-ASSETS> 60,520
<PP&E> 53,938
<DEPRECIATION> 7,886
<TOTAL-ASSETS> 166,737
<CURRENT-LIABILITIES> 31,292
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 74,302
<TOTAL-LIABILITY-AND-EQUITY> 166,737
<SALES> 153,904
<TOTAL-REVENUES> 153,904
<CGS> 112,009
<TOTAL-COSTS> 112,009
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,529
<INCOME-PRETAX> 21,135
<INCOME-TAX> 9,193
<INCOME-CONTINUING> 11,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,942
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0
</TABLE>
