<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 JUNE 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 _____ No X
At June 30, 1997, approximately 601,755 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, June 30, 1997 and Pro Forma June 30,
1997............................................. 1
Condensed Consolidated Income Statements for the
Three and Six Months ended June 30, 1996 and
1997............................................. 3
Pro Forma Condensed Consolidated Income
Statements for the Three and Six Months ended
June 30, 1996 and 1997........................... 4
Condensed Consolidated Statements of Cash Flows
for the Six Months ended June 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>
PRO FORMA
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1997(1)
------------ -------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 258 $ 1,441 $ 1,441
Accounts receivable -- net................................ 11,694 26,458 26,458
Inventories............................................... 14,153 30,154 30,154
Deferred income taxes..................................... 1,863 1,863 2,277(a)
Prepaid expenses and other current assets................. 1,206 2,826 2,826
-------- -------- --------
Total current assets................................... 29,174 62,742 63,156
-------- -------- --------
Property, Plant and Equipment -- at cost
Land and land improvements................................ 1,161 1,827 1,827
Buildings and improvements................................ 15,062 20,563 20,563
Machinery and equipment................................... 22,783 28,062 28,062
Construction in progress.................................. 1,220 2,848 2,848
-------- -------- --------
40,226 53,300 53,300
Less accumulated depreciation............................. (4,582) (6,455) (6,455)
-------- -------- --------
Property, plant and equipment -- net...................... 35,644 46,845 46,845
Intangibles -- net.......................................... 38,453 61,082 60,771(b)
Other Assets................................................ 80 367 367
-------- -------- --------
Total assets........................................... $103,351 $171,036 $171,139
======== ======== ========
</TABLE>
- -------------------------
(1) The pro forma June 30, 1997 balance sheet gives effect to the following
transactions as if they had been completed on June 30, 1997: (i) 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, (ii) the Stock Split, (iii) the
Preferred Stock Exchange, (iv) the Preferred Stock Redemption and (v) the
Offering. The pro forma data do not purport to be indicative of the
Company's actual financial position that would have been reported had such
events actually occurred on the dates specified.
The pro forma balance sheet reflects the following changes:
<TABLE>
<S> <C> <C>
(a) Tax benefit from write-off of deferred financing costs
related to the Existing Credit Agreement.................... $ 414
=======
(b) Write-off of existing deferred financing costs relating to
the Existing Credit Agreement............................... (1,061)
Capitalization of loan fees relating to New Credit
Agreement................................................... 750
-------
$ (311)
=======
</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>
PRO FORMA
DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1997
------------ -------- ---------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 4,481 $ 11,799 $ 11,799
Current portion of long-term debt......................... 5,500 8,404 2,154
Accrued liabilities....................................... 6,802 15,222 15,222
Deferred revenue.......................................... 1,618 2,685 2,685
-------- -------- --------
Total current liabilities.............................. 18,401 38,110 31,860
Long-Term Debt.............................................. 59,650 101,396 60,046
Deferred Income Taxes....................................... 9,593 9,641 9,641
Accrued Postretirement Benefit Cost......................... 1,966 2,383 2,383
-------- -------- --------
Total liabilities...................................... 89,610 151,530 103,930
-------- -------- --------
Commitments and Contingencies (Note 8)
Stockholders' Equity
Common stock, $.01 par value
1996 -- 950,000 shares authorized; 600,000 shares
issued and outstanding............................... 6
1997 -- 950,000 shares authorized; 601,755 shares
issued and outstanding............................... 6
1997 pro forma -- 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...................................... --
1997 -- 50,000 shares authorized; 24,069 shares issued
and outstanding...................................... --
Additional paid-in capital................................ 29,994 30,294 78,521
Reduction for carryover of predecessor cost basis......... (24,704) (24,704) (24,704)
Retained earnings......................................... 8,502 13,999 13,352(c)
Cumulative translation adjustment......................... (57) (89) (89)
-------- -------- --------
Total stockholders' equity............................. 13,741 19,506 67,209
-------- -------- --------
Total liabilities and stockholders' equity............. $103,351 $171,036 $171,139
======== ======== ========
</TABLE>
- -------------------------
<TABLE>
<S> <C> <C>
(c) Write-off of existing deferred financing costs relating to
the Existing Credit Agreement............................... (1,061)
Tax benefit from write-off of deferred financing cost
relating to the Existing Credit Agreement................. 414
-------
Extraordinary charge for the write-off of deferred financing
costs relating to the repayment of all amounts outstanding
under the Existing Credit Agreement....................... $ (647)
-------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS(1)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................... $38,056 $50,644 $69,608 $82,164
Cost of sales............................... 28,110 36,943 52,726 60,859
------- ------- ------- -------
Gross profit.............................. 9,946 13,701 16,882 21,305
Other operating expense:
Selling, general, and administrative
expenses............................... 3,997 6,442 8,729 10,991
Amortization of goodwill.................. 239 303 479 543
------- ------- ------- -------
Operating Income.......................... 5,710 6,956 7,674 9,771
Other Income (expense):
Interest income........................... 43 47 92 78
Interest expense.......................... (1,384) (1,532) (2,777) (2,855)
Gain on Sale of Vinyl Division............ -- 3,562 -- 3,562
------- ------- ------- -------
Income before taxes....................... 4,369 9,033 4,989 10,556
Income taxes................................ 1,686 4,384 1,950 4,989
------- ------- ------- -------
Net income................................ $ 2,683 $ 4,649 $ 3,039 $ 5,567
======= ======= ======= =======
Pro forma net income per common and common
equivalent share(2)....................... $0.28 $0.49 $0.32 $0.58
======= ======= ======= =======
Pro forma weighted average number of common
and common equivalent shares
outstanding(2)............................ 9,523 9,523 9,523 9,523
======= ======= ======= =======
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) solely to the extent the proceeds will be used for the
Preferred Stock Redemption, 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)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................... $58,377 $65,818 $100,544 $110,887
Cost of sales............................... 42,812 47,949 74,706 80,891
------- ------- -------- --------
Gross profit.............................. 15,565 17,869 25,838 29,996
Other operating expenses:
Selling, general, and administrative
expenses............................... 6,436 8,243 13,833 15,630
Amortization of goodwill.................. 412 412 861 861
------- ------- -------- --------
Operating income.......................... 8,717 9,214 11,144 13,505
Other income (expense):
Interest income........................... 43 53 92 84
Interest expense.......................... (933) (1,103) (2,163) (1,989)
Gain on Sale of Vinyl Division............ -- 3,562 -- 3,562
------- ------- -------- --------
Income before taxes....................... 7,827 11,726 9,073 15,162
Income taxes................................ 3,134 5,489 3,648 6,848
------- ------- -------- --------
Net income................................ $ 4,693 $ 6,237 $ 5,425 $ 8,314
======= ======= ======== ========
Pro forma net income per common and common
equivalent share(2)....................... $ 0.35 $ 0.47 $ 0.41 $ 0.62
======= ======= ======== ========
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
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 3,039 $ 5,567
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation........................................... 2,442 2,371
Amortization........................................... 621 687
Gain on sale of property, plant and equipment.......... (551) (47)
Gain on sale of Vinyl Division......................... -- (3,562)
Change in other assets................................. 1,541 2,285
Change in deferred tax liabilities..................... -- (334)
Changes in operating assets and liabilities (net of
acquisitions)
Accounts receivable.................................. 1,118 (6,986)
Inventories.......................................... (1,484) (1,577)
Prepaid expenses and other assets.................... 507 (842)
Accounts payable, accruals and other liabilities..... 1,186 5,033
--------- --------
Net cash flows from operating activities.......... 8,419 2,595
--------- --------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment.............. (970) (1,754)
Acquisition of CTB Inc., net of cash acquired............. (104,741) --
Acquisition of Fancom, net of cash acquired............... -- (13,004)
Acquisition of Grain Systems Division, net of cash
acquired............................................... -- (33,974)
Proceeds from sale of Vinyl Division...................... -- 8,158
Proceeds from sale of property, plant and equipment....... 1,490 88
--------- --------
Net cash flows from investing activities.......... (104,221) (40,486)
--------- --------
Cash Flows From Financing Activities:
Proceeds from Acquisition debt:
Revolving credit....................................... 24,000 24,200
Term loans............................................. 65,000 33,748
Issuance of common stock.................................. 6,000 231
Issuance of preferred stock............................... 24,000 69
Principal payments on long-term debt...................... (1,000) (8,075)
Proceeds from revolving credit loans...................... 9,000 --
Payments on revolving credit loans........................ (29,500) (11,077)
--------- --------
Net cash flows from financing activities.......... 97,500 39,096
--------- --------
Net Increase in Cash and Cash Equivalents................... 1,698 1,205
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... -- (22)
Cash and Cash Equivalents, Beginning of Period.............. -- 258
--------- --------
Cash and Cash Equivalents, End of Period.................... $ 1,698 $ 1,441
========= ========
</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 six month period ended June 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, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Raw materials............................................ $ 7,753 $13,700
Work in process.......................................... 2,503 5,950
Finished goods........................................... 3,897 10,504
------- -------
$14,153 $30,154
======= =======
</TABLE>
NOTE 4. INTANGIBLES
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Goodwill................................................. $38,351 $61,667
Accumulated amortization................................. (959) (1,502)
------- -------
Goodwill--net............................................ 37,392 60,165
------- -------
Deferred finance costs................................... 1,353 1,353
Accumulated amortization................................. (292) (436)
------- -------
Deferred finance costs--net.............................. 1,061 917
------- -------
Total.................................................... $38,453 $61,082
======= =======
</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 June 30, 1997 and the Consolidated Income Statements and
Consolidated Statements of Cash Flows for the three and six month periods ended
June 30, 1997, respectively. The purchase price for the Fancom Acquisition was
$13.0 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................................ 8.3
Long-term debt assumed...................................... (5.9)
Liabilities assumed......................................... (4.8)
-----
Total purchase price................................... $13.0
=====
</TABLE>
The Company acquired the 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 June 30, 1997, and the Consolidated Income Statements and
Consolidated Statements of Cash Flows for the three and six month periods ended
June 30, 1997, respectively. The purchase price for the Grain Systems Division
Acquisition was $34.0 million, net of cash acquired, including expenses, which
has been allocated as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Current assets.............................................. $13.2
Property, plant, and equipment.............................. 9.5
Intangibles and other assets................................ 17.2
Liabilities assumed......................................... (5.9)
-----
Total purchase price................................... $34.0
=====
</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. 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
8
<PAGE> 11
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
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 9. SUBSEQUENT EVENTS
On August 12, 1997, the Securities and Exchange Commission declared the
Company's Registration Statement on Form S-1 (No. 333-29873) to offer 5,000,000
shares, par value $.01 per share, of common stock for public sale effective.
Trading of the Company's stock commenced August 21, 1997.
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.
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 August 31, 1997 the Company had approximately $41.0 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.
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 JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Net sales increased 33.1% to $50.6 million for the three months ended June
30, 1997 compared to $38.1 million in the corresponding period of 1996. The May
1, 1997 Fancom Acquisition, and to a lesser extent, the June 23, 1997 Grain
Systems Division Acquisition offset by a decline in revenues caused by the May
29, 1997 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 hog feeding
and grain storage products contributed to the increase.
Gross profit increased to $13.7 million in the three months ended June 30,
1997 or 27.1% of net sales compared to $9.9 million in the corresponding period
of 1996 or 26.1% of sales. The increase in gross profit margin was attributable
to the higher margin products obtained in the Fancom Acquisition, offset by
sales increases in lower margin watering and ventilation products and in the
sales of lower margin products into Brazil through the Company's sales and
distribution facility opened in February 1997.
Selling, general and administrative expenses increased 61.2% or $2.4
million to $6.4 million in the three months ended June 30, 1997 from $4.0
million in the corresponding period of 1996. As a percent of net sales, selling,
general and administrative expenses increased to 12.7% in the three months ended
June 30, 1997 from 10.5% 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 percentage of sales. In addition, the 1996
corresponding period expenses are net of $0.6 million gain on sale of an asset.
Amortization of goodwill increased to $0.3 million in the three months
ended June 30, 1997 or 26.8% 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 21.8% or $1.3 million to $7.0 million in the
three months ended June 30, 1997 compared to $5.7 million in the corresponding
period of 1996. Operating income margins decreased to 13.7% of net sales in the
three months ended June 30, 1997 from 15.0% of net sales in the corresponding
period in 1996. The increase in operating income and decrease in operating
income margins is attributable to the improvements in gross profit margins, and
to higher selling, general and administrative expenses and amortization of
goodwill related to the acquisitions.
Interest expense increased to $1.5 million in the three months ended June
30, 1997 or 10.7% from $1.4 million in the corresponding period in 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 and the Vinyl Division Divestiture.
Net income increased 73.1% or $1.9 million to $4.6 million in the three
months ended June 30, 1997 from $2.7 million for the corresponding period in
1996. The increase was due to higher operating income and the gain from the
Vinyl Division Divestiture offset by higher interest expense. The Vinyl Division
Divestiture resulted in a gain of $1.1 million net of income taxes in the three
months ended June 30, 1997.
10
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net sales increased 18.0% to $82.2 million for the six months ended June
30, 1997 compared to $69.6 million in the corresponding period of 1996. The
Fancom Acquisition, and to a lesser extent, 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 egg laying and handling systems contributed to the
favorable performance.
Gross profit increased to $21.3 million in the six months ended June 30,
1997 or 25.9% of net sales compared to $16.9 million in the corresponding period
of 1996 or 24.3% of sales. The increase in gross profit margin was attributable
to higher margin products obtained in the Fancom Acquisition and a focused raw
material purchasing strategy, offset somewhat by increases in sales of lower
margin watering and ventilation products and in the sales of lower margin
products into Brazil through the Company's sales and distribution facility
opened in February 1997.
Selling, general and administrative expenses increased 25.9% or $2.3
million to $11.0 million in the six months ended June 30, 1997 from $8.7 million
in the corresponding period of 1996. As a percent of net sales, selling, general
and administrative expenses increased to 13.4% in the six months ended June 30,
1997 from 12.5% 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 percentage of sales. In addition, the 1996
corresponding period expenses are net of $0.6 million gain on sale of an asset.
Amortization of goodwill increased 13.4% in the six months ended June 30,
1997 from 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 27.3% or $2.1 million to $9.8 million in the six
months ended June 30, 1997 compared to $7.7 million in the corresponding period
in 1996. Operating income margins increased to 11.9% of net sales in the six
months ended June 30, 1997 from 11.0% 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 $2.9 million in the six months ended June 30,
1997 or 2.8% from $2.8 million in the corresponding period in 1996. The increase
is due to Fancom Acquisition and Grain Systems Division Acquisition related debt
offset by reductions in debt through cash flow provided by operations and the
Vinyl Division Divestiture.
Net income increased 83.2% or $2.6 million to $5.6 million in the six
months ended June 30, 1997 from $3.0 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. The Vinyl Division
Divestiture resulted in a gain of $1.1 million net of income taxes in the six
months ended June 30, 1997.
EFFECTS OF VINYL DIVISION DIVESTITURE
The following summarize certain operating results of the Company for the
three and six month periods ended June 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 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, (v) the Stock Split, (vi) the Preferred Stock Exchange, (vii) the
Preferred Stock Redemption, and (viii) the Offering.
For the three months ended June 30, 1997, net sales increased approximately
14.9% to approximately $63.4 million compared to approximately $55.2 million in
the corresponding period in 1996. Operating income increased approximately 8.5%
to approximately $8.9 million compared to approximately $8.2 million in the
11
<PAGE> 14
corresponding period in 1996. Net income increased approximately 9.1% to
approximately $4.8 million compared to approximately $4.4 million in the
corresponding period in 1996.
For the six months ended June 30, 1997, net sales increased approximately
11.1% to approximately $106.3 million compared to approximately $95.7 million in
the corresponding period in 1996. Operating income increase approximately 24.8%
to approximately $13.1 million compared to approximately $10.5 million in the
corresponding period in 1996. Net income increased approximately 30.8% to
approximately $6.8 million compared to approximately $5.2 million in the
corresponding period in 1996.
FINANCIAL POSITION
Changes in the financial position of the Company from December 31, 1996 to
June 30, 1997 include the effects of both operational changes and the Fancom
Acquisition, Grain Systems Acquisition and Vinyl Division Divestiture.
Total assets increased from $103.4 million at December 31, 1996 to $171.0
million at June 30, 1997. Accounts receivable increased by $14.8 million from
December 31, 1996 to June 30, 1997. Approximately $5.9 million was due to
seasonal volumes for CTB, Inc. and $8.9 million was due to the Fancom
Acquisition and the Grain Systems Division Acquisition. Inventories at June 30,
1997 increased by $16.0 million from December 31, 1996. Approximately $15.3
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 $11.2 million from December 31, 1996 to
June 30, 1997. This increase is due to the acquisitions offset by a 2.1 million
reductions in net assets for CTB, Inc. primarily for the Vinyl Division
Divestiture and net of capital expenditures during the period. Intangibles
increased by $22.6 million at June 30, 1997 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
$151.5 at June 30, 1997. Accounts payable and accrued liabilities increased
$15.7 million during this period, of which $10.4 million was due to the
acquisitions. The remaining $5.3 million increase was used to support seasonal
operational needs. Long-term debt increased from $65.2 million at December 31,
1996 to $109.8 million at June 30, 1997 primarily to provide financing for the
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had $24.6 million of working capital, an
increase of $13.8 million from working capital as of December 31, 1996. The
acquisitions contributed $12.5 million to the increase while seasonal changes in
operational needs accounted for the remainder. Net cash provided from operating
activities for the six months ended June 30, 1997 was $2.6 million. Cash flows
from operations was primarily provided by net income due to the 18.0% increase
in 1997 sales volume over the corresponding period in 1996, partially offset by
increases in working capital uses to support seasonal operating needs. During
this period, working capital of $0.7 million was provided by the operations
Fancom, the Grain Systems Division, and the Vinyl Division Divestiture.
For the six months ended June 30, 1997, net cash provided by financing
activities of $39.1 million was primarily used to fund the Fancom Acquisition
and the Grain Systems Division Acquisition offset by principal reductions on
outstanding borrowings.
For the six months ended June 30, 1996, cash used in investing activities
was $104.2 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.
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.
12
<PAGE> 15
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.
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
June 30, 1997.
II-2
<PAGE> 1
CTB International Corp. and Subsidiaries EXHIBIT 11
Pro Forma Net Income Per Common Share
Three Months Ended June 30, 1997 and 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1996 1997 1996 1997
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net income $2,683 $4,649 $ 3,039 $ 5,567
=========== ============ ======= =======
Pro forma common equivalent shares (1) 7,277 7,277 7,277 7,277
Convertible preferred shares 1,832 1,832 1,832 1,832
Stock options 414 414 414 414
------------ ----------- ------- -------
Total pro forma average common and common
equivalent shares outstanding 9,523 9,523 9,523 9,523
=========== ============ ======= =======
Pro forma net income per common and common equivalent share (1) $ 0.28 $ 0.49 $ 0.32 $ 0.58
=========== ============ ======= =======
</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) solely to the extent the proceeds will be used for
the Preferred Stock Redemption, 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> JUN-30-1997
<CASH> 1,441
<SECURITIES> 0
<RECEIVABLES> 27,321
<ALLOWANCES> 863
<INVENTORY> 30,154
<CURRENT-ASSETS> 62,742
<PP&E> 54,300
<DEPRECIATION> 6,455
<TOTAL-ASSETS> 171,036
<CURRENT-LIABILITIES> 38,110
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 19,500
<TOTAL-LIABILITY-AND-EQUITY> 171,036
<SALES> 82,164
<TOTAL-REVENUES> 82,164
<CGS> 60,859
<TOTAL-COSTS> 60,859
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,855
<INCOME-PRETAX> 10,556
<INCOME-TAX> 4,989
<INCOME-CONTINUING> 5,567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,567
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0
</TABLE>
